CI&T Inc

Technology is more than a device, system or industry. Technology is built by people for people. It's built for people with desires and needs and ambitions. By our people who are... ...intelligent, curious, creative... ...and diverse.

Our people use innovative strategy, design and engineering to offer end-to-end solutions that help companies to quickly transform and scale their operations globally.

While we create technical solutions, all we really want and what motivates us is to make their tomorrow.

CINT, we breathe and build tech to make their tomorrow.

Good morning, everyone. Welcome to CINT Earnings Call for the fourth quarter of 2022. I am Eduardo Galvão, Investor Relations Director at CINT, and it's a pleasure to be here again to talk about our results. With me on today's call are Cesar Ghosn, Founder and CEO, Bruno Guicardi, Co-Founder and President for North America and Europe, and Stanley Rodrigues, our CFO. This event is being recorded and all participants will be in a listen-only mode during the company's presentation. After that, there will be a question and answer session for analysts and investors only. If you'd like to submit a question, please send it via email to investors at cint.com. The presentation is available on the company's investor relations website at investors.cint.com. The replay will be available shortly after the event is concluded. Some of the matters we'll discuss on this call, including our expected business outlook, are forward-looking statements, and as such are subject to known and unknown risks and uncertainties, including but not limited to those factors described in our earnings release and discussed in the Risk Factors section of our Annual Report on Form 20-F and other reports we may file from time to time with the SEC. These risks and uncertainties could cause actual results to differ materially from those expressed on this call. We caution you not to place and do reliance on those forward-looking statements because they're valid only as of the date when made. During this presentation, we'll comment on certain non-IFRS financial measures to evaluate our business. Please refer to the reconciliation tables of non-IFRS financial measures in the appendix for more details. Our agenda for today includes an update on our financial highlights, followed by some of our successful business cases. We'll then talk about our people and ESG strategy, and deep dive on our quarterly financial results. After the presentation, there will be a Q&A session. Now, I invite Cesar Ghosn to begin our presentation.

Thanks Eduardo. Good day everyone. It's a pleasure to be here with you today. As we reflect on 2022, I want to take a few moments to talk about our vision for the future. Innovation is the ability to create unprecedented and effective solutions to solve complex human problems. The best opportunities arise from the intersection between two secular forces, changes in values and behaviors of society, and exponential advancements of technological possibilities. Each new tech paradigm always demands a radical shift in the practices, processes, and methods for connecting the dots of digital strategy, customer-centric design, and full-stack software engineering. And before the advent of these new ways of work, it's impossible to capture and scale the value of the latest technologies. CINT's core competency is method-driven innovation for large and fast-growing corporations. By reshaping the way we connect new technologies, management systems, and leadership models, CINT creates a sustainable impact in the corporate world. It's undisputed now that a powerful set of emerging technologies such as artificial intelligence, IoT, blockchain, and 5G are reaching maturity and critical mass to move consumers and enterprise. Notably, the whole industry should thank the team of OpenAI for bringing generative AI to the forefront of public and corporate consciousness. It creates ideal momentum to speed up the adoption of AI and accelerate the flywheel of digital as a secular trend. In such a rapidly changing landscape, C&G has an essential role in helping our clients to capture digital opportunities efficiently. We call it digital efficiency, and 2023 is the perfect time for companies to turn years of foundational investment into scalable business ventures. At CI&T, we are obsessed with efficiency for our clients and for ourselves. We have always been in the cutting edge of digital innovation with our method-driven approach. It's an infinite game and we are designed to continue leading the way in the years to come. Now let me comment on some of our financial highlights. 2022 was a non-trivial year and I'm pleased with our accomplishments. Our net revenue reached 2.19 billion reais in 2022, an increase of 51% year-over-year or a 50-80% growth at constant currency. CINT high growth pace has been a combination of the expansion of our engagement with existing clients, demonstrated by a robust net revenue retention rate of 126% in 2022, the addition of 84 new clients to our portfolio, reaching 178 clients with annual revenue above 1 million reais, and our programmatic M&A strategy. The adjusted EBITDA margin for the full year was 19.1%, a solid profitability mark considering the consolidation of the acquired companies. We ended 2022 with more than 6.9 thousand CIN tiers, a net addition of 1.3 thousand employees during the year. Again, I want to take this opportunity to express my gratitude to all CINTers across the globe, who have been very dedicated to making this happen. Stanley will deep dive into our financial results shortly. Since its foundation in 1995, CINT has recorded consecutive profitable revenue growth over 2080 years. We faced several challenging times throughout this period, and we have not only grown, but always emerged stronger. In the last four years, from 2019 to 2022, our CAGR was a solid 48%. As we face uncertain times, I'm confident that CIT is even better prepared now to navigate the ongoing challenges. Today, CIT is more diversified in terms of the markets we serve. Europe represents almost 10% of our revenue, compared to 2% in 2020. The US and Europe are the regions that are growing faster organically. More than 55% of our revenue today comes from mature economies, trending to 60% by the end of 2023. Our top 10 clients' revenue share evolved from 67% in 2020 to under 50% in 2022, trending to 40% by the end of this year. This diversification results from the disciplined and recurring addition of new clients to foster our sustainable growth. In a nutshell, we are confident we will continue our profitable growth journey by generating impactful results for our long-term clients. Now let's go through some updates and concrete examples of how we are creating value across the globe.

DreamLab is a specialist crowdsourcing app that harnesses your smartphone's processing power to create a secure virtual supercomputer, are made of thousands of smartphones to accelerate scientific research. Developed by Vodafone Foundation and CINT, this groundbreaking and award-winning app has 2 million users across 17 countries and has already helped accelerate research into treatments for COVID-19 and cancer. DreamLab's latest update is turning its power to help researchers at Imperial College London to better understand tropical cyclones. Tropical cyclones are a major global hazard adversely affecting millions of people and causing billions of dollars in damage every year, Professor Ralph Toomey, co-director of the Grantham Institute of Climate Change and the Environment from Imperial College London said. A desktop computer running 24 hours a day would take decades to process the data, but a network of 100,000 smartphones could do the job in just a couple of months. By simulating extreme weather events, to understand their effects on communities, we can help people to better prepare and adapt to some of the worst effects of climate change. Dream Lab is free, and ready to download now. Giving you the chance to be a part of the world's biggest virtual supercomputer, and participate in this important research. Anima is an educational organization with 18 higher education institutions and more than 600 centers for digital education in Brazil. Intending to strengthen its learning ecosystem, Anima joined CINT to integrate and unify its learning management system, supporting the demand of more than 389,000 students. Anima and CINT also designed a new reference architecture to replace the original legacy system, using the latest technologies that could offer continuous delivery. They reduced integration time by 95% and enabled app modernization. The role of AWS in the project was to provide data transactions using Apache Kafka, an open-source platform for data processing.

Anima Educação and CIT band together, strengthening the learning ecosystem in order to prepare the company for a key moment in its business.

Panasonic is well known as an electronics manufacturer, and Panasonic Connect is a developer of software suites that enable manufacturing automation that Panasonic uses and licenses to other manufacturers.

CINT helped Panasonic Connect and its partners develop modern asset management solutions that improve productivity, flexibility, and scalability, deployed in the cloud or on-premise, all from a single codebase.

The first step was to avoid disrupting what was already in use, since manufacturing downtime is unacceptable. Using a single customer as a pilot, CINT worked with Panasonic Connect to navigate through its desire to maintain current functionality, security, and compliance while beginning the work of modernization.

CINT understood the hybrid environments in which most companies work, and the solution single codebase addressed those environments. Keeping the focus on user outcomes, utilizing analytics to determine impacts, and seeing application modernization as part of a more significant overall digital transformation, CI&T was able to deploy cloud-based software to a current customer within four months, validating the technology, staying in close touch to get feedback, and iterating along the way.

The results of the architecture that CI&T developed with Panasonic Connect are delivering impact and value beyond the initial scope of the engagement.

Welcome to our news latest update. We have gathered the most recent information and insights from our leadership team to share with you. cint will return to south by southwest for the fourth time on march 14th for a full day of interactive programming to nurture relationships and boost brand awareness cint will host panels with brands like sunlife audi youtube and more panels will feature important leaders of cint From retail customer experiences and EV adoption to product-based teams, the developer workforce, and decoding culture, the day will deliver mind-shifting perspectives and must-have insights to make organizations efficient in the post-digital transformation era. on january 15th to 17th cint sponsored nrf retail's big show in new york city melissa min cole director of retail strategy at cint joined petco's chief administrative officer john zavada for a conversation highlighting the findings from cint's annual connected retail report cint also had a booth presence and a prospect dinner in collaboration with crown peak on january 6 cint and box 1824 launched trends for the future report a study on the main drivers and trends in the digital economic labor and sustainability fields for the next five years the research connected the themes of innovation in digital efficiency healthiness for business and avenues for growth CINT received the Best Supplier Award in the Innovation category from Cielo, a leader in electronic payments in Brazil and Latin America. Cielo recognized the company for being a valued partner and for its commitment to delivering high-quality digital initiatives at speed and scale. Hosted by CI&T president and co-founder Bruno Gacardi, Straight Forward is a web series featuring thought leaders in the digital transformation space. The sixth and last episode of the first season was released in November, and a second season was launched in February. The opening episode of season two was understanding the complexities of AI to create business value. Upcoming episodes will feature conversations on team-based organizations and data. This is our CINT latest news. Our aim is to keep you informed and up to date on our latest developments and achievements.

CI&T announced the launch of Work Ready. This comprehensive guide covers the principles that guide how our people work, the workplaces of the future, and the skills required to make work happen. With research, market insights, and the perspectives of CI&T leaders, Work Ready provides a unique point of view on the transformations in the workplace and what it takes to be prepared for them. Better Future, the world's largest network of design award programs, announced CINT as a winner of the Australian Design Awards 2023. CINT's Empathy Lab Workshop was awarded silver in the category Systems, Social Design, Recognizing Initiatives that Optimize System Performance by Focusing on Human Elements. The Empathy Lab Workshop is a digital series of exercises designed to build empathy for people with disabilities. It is a highly interactive experience where participants complete tasks using technology with various sensory simulations designed to mirror the experience of a person with disabilities. The NextGen is our training and hiring program for interns and assistants with some kind of disability. More than 2,000 people registered, seeking training opportunities. Taking place in Brazil, CI&T offered over 500 free scholarships and hired 10% of the program alumni. 136 CI&Ts facilitated the program, investing a cumulative 12,000 hours in practical training for participants.

This program has been changing my life in many, many different ways. That's something I've always wanted to do, and now this is possible.

Today, the people are hired already by more than 20 different clients, and this partnership is important in helping with real inclusion, putting people into operation, generating accessible and inclusive digital products with professionals with disabilities in all stages of the process, making it a business benefit for CIMT and clients. Implementations that meet the search for digital efficiency, such as generative AI tools, are constantly experienced at CINT.

We're seeing an explosion in applications across text and image and video, audio, data and code. It's a step change powering the efficiency opportunities in digital software developments. Today, every industry sector should examine the potential application of generative AI across their user journeys.

CINT has been evaluating generative AI innovation in relation to time savings in creating repetitive or pattern-based code. Thus far, CINT has been exploring various tools, including Tab9, GitHub Copilot, and ChatGPT, with great enthusiasm due to the significant productivity gains achieved. As this technology is still in its nascent stages, we are proud to be trailblazing a new path for software development, with the expectation of realizing exponential improvements in our team's performance.

In the automotive space, we are working on an initiative to use generative AI to create vehicle assets, images, descriptions, meta information. In the asset management space, we're using large language models to ingest disparate bodies of financial information and research and then transform that into accessible information, products and services that they can use for their clients. clients and also sell back into their clients. In the pharma sector, we're working on a proof of concept to curate scientific content from different sources and then produce summarized information about the latest research, drug information and usage, and then provide that to the MSL or the medical science liaison to use in conversations with physicians.

I hope you enjoyed our client stories, news, and highlights selection. Now I invite Bruno to address our talent management and ESG strategies.

Thank you, Cesar. And good morning, everyone. It's a pleasure to be here again to talk about our people and our operations. We ended 2022 with an outstanding mark of over 6,999 years, a net addition of 1.3 thousand people. Since 2019, we have pretty much tripled our global team. Our strategy to attract and hire the most talented people is based on processes and practices we have been evolving for decades. More recently, we are penetrating new talent markets based on the work from anywhere approach, which has proved to be a successful model in our industry. The working environment that we created at CIT based on a culture of trust allows us to retain our people for longer. Our attrition rate at the end of 2022 was 14% compared to 16% in 2021 and continues trending down on a monthly basis. The leadership attrition remains below 5%, guaranteeing consistency and quality in our delivery. In 2022, we strengthen our global presence with bright people from acquisitions in four different geographies, adding complementary expertise in industry verticals and technologies. We are proud to have such a diverse and global team of almost 7,000 people, creating a company that stands out not only based on its growth and financial performance, but mainly based on its human values and its contribution to improve the lives of the people we touch. Today we publish our second ESG report, detailing our initiatives, actions, and goals in the environmental, social, and governance front. ESG is a key pillar at CINT, and being able to share our progress with our stakeholders is a matter of pride for all of us. Our ESG strategy is driven by a shared vision to create equitable advancement opportunities for everyone. provide educational and workforce experience for underrepresented groups, and reduce our environmental impact to create a more sustainable world. Our ESG journey was initiated back in 2009 when we created a sustainability area. Since then, we have evolved our governance and created several programs and action groups, decentralizing decision-making and providing power to the edge. Since July 2021, CIT has been a signatory to the UN Global Compact, reinforcing our commitment to sustainable development. And in 2022, we conducted our first materiality analysis, which allowed us to clearly articulate our ESG strategy based on our stakeholders' valuable contributions. I invite you all to download and read our ESG report, available in our Investors Relations website. Let me provide you with some data that gives us the confidence we are on the right track. In 2022, 43% of the people we hired were from underrepresented groups. This is an upward trend and shows our commitment to ensuring that CIT represents the communities where we operate. On this International Women's Day, we're happy to share that women in top leadership positions increased from 23% in 2021 to 25.7% last year, and our goal is to reach 30% by the end of 2025. We also impacted more than 22,000 people with our social initiatives during the year. It is a fantastic achievement and aligned with our vision of creating a more equitable world. We conclude our first greenhouse gas inventory to measure the company's carbon footprint in scopes one, two, and three for our Brazilian operation. And earlier this year, we neutralized 100% of these emissions via nature-based carbon removal projects, supporting the conservation and restorations of the Brazilian biomes. For 2023, we are committed to expanding our greenhouse gas emissions inventory to our operations in the US and the UK. Now, I invite Stanley to comment on our financial results.

Thank you, Bruno, and good morning, everyone. I'm glad to be here with you to talk about our financial results. Starting with our performance in the fourth quarter of 2022, our net revenue was 612 million reais, an increase of 34% year-over-year. Eliminating the FX variation, our net revenue grew 42% compared to the fourth quarter of 2021. Our adjusted EBITDA in the fourth quarter was 127.4 million, 25% higher than the fourth quarter 21. Adjusted EBITDA margin was 20.8%, a reduction of 1.5 percentage points compared to the fourth quarter 21 due to higher SG&A expenses in the quarter. Sequentially, the adjusted EBITDA margin improved 1.6 percentage points from 19.2% in Q3 2022 to 20.8% in Q4 2022 due to better utilization rate and lower SG&A expenses as a percentage of revenue. The adjusted net profit was R$ 54.5 million in Q4 2022, 4.3% higher than the same quarter in 2021. The adjusted net profit margin reduced from 11.4% in Q4 2021 to 8.9% in Q4 2022, mainly due to a negative foreign exchange variation of R$ 25 million in the comparable period that impacted our financial expenses. Now let's deep dive in our annual results. For the full year of 2022, our net revenue was R$ 2.19 billion, a 51.5% growth compared to 2021, of which 36% was organic growth and 15% was the contribution from the companies acquired in 2022. The negative foreign currency translation impact was 6.4%, so the net revenue growth at constant currency was 58%. The 2022 net revenue is 3.2 times the net revenue of 2019, recording a CAGR of 48% in the period. Let me break down the components of our high growth profile. Our net revenue retention rate was 126% in 2022, demonstrating our ability to continuously strengthen our relationship with our existing clients through value creation. In addition, we added 84 new logos with revenue above R$ 1 million to our portfolio during 2022, of which about half are organic net additions. This cohort of clients will contribute to accelerate our revenue growth in the coming years as these engagements ramp up over time. Analyzing the numbers of our multi-million accounts, you can see that our growth engine, based on our land and expense strategy, has been robust. The number of clients generating more than 20 million reais annually doubled from 2020 to 2022, and an analogous growth is also valid for our accounts generating more than 5 and more than 10 million reais. The addition of new clients combined with our strategic M&A approach contributed to diversify our revenue base. Cesar already mentioned how we evolve our revenue breakdown over time in terms of geography and top clients share. I would like to emphasize that we are growing faster organically in the US and Europe and recent acquisitions should speed up our growth within those regions. Thus, by the end of 2023, we expect about 60% of our revenues coming from mature economies, including the US and Europe, while our top 10 clients' share should evolve to 40%. Now, talking about our profitability metrics, our adjusted EBITDA was R$417.5 million, an increase of 28.8% compared to 2021. The adjusted EBITDA margin was 19.1% in the year, a solid result already including the impact of lower margins from the acquired companies and the increase in G&A expenses driven by the strengthening of our back office teams associated with our IPO. Most of these general and administrative are fixed expenses and should be diluted over time. In addition, in the fourth quarter of 2022, we reduced our real estate property lease based on the flexible working environment that we have been operating, such as the hybrid mode and the work-from-anywhere approach. Thus, we expect lower leases expenses going forward. In the fourth quarter 22, we already noted a reduction in our SG&A expenses as a percentage of revenue compared to the third quarter 22. And we are fully committed to optimize our cost structure to benefit from operating leverage opportunities and optimize our profitability. In 2022, adjusted net profit was R$213.6 million, 30.2% higher than 2021, while the adjusted net profit margin for 2022 was 9.8%. The incremental debt position at the end of the year was mainly to finance the EnterSol acquisition. As we mentioned in our previous earnings call, last year we concluded our first wave of M&A and we are now dedicated to the integration of the acquired companies. In 2022, we generated 112.4 million reais in cash from operating activities net of taxes. If we analyze our organic operating cash generation, excluding acquisition-related cash outflows, the cash generated from operating activities net of taxes would have been 172.1 million reais in 2022. We ended the year with 282 million reais in cash and a sound financial position to foster our growth. Now, I invite back Cesar to comment on our business outlook. Cesar, please.

Thank you, Stanley. As I mentioned, we are bullish regarding a growing number of technology advancements and the imperative for companies to continue to increase their investment in digital initiatives. Nevertheless, the global economic situation remains with a high level of uncertainty. As our clients define their budget for 2023, we see consistency in keeping the current digital investments and programs. But we noted a more conservative attitude regarding opening new initiatives. We also see less tolerance for low-performing and a focus on efficiency, increasing the room for CINT value prop of digital efficiency and more opportunities to replace low-performance competitors, including more willingness to near-sharing services. So reflecting this macro scenario in our projections, we expect our net revenue for the first quarter of 2023 to be at least 590 million reais, a 20% growth year-over-year. and we are also projecting sequential growth throughout the year. So for the full year of 2023, we expect FX-neutral net revenue growth in the range of 13% to 17% year over year. We expect our adjusted EBITDA margin to be at least 19% for the full year of 2023, maintaining our current margin level. Our 2023 outlook is based on the current market conditions and reflects the uncertainties we see in the demand environment. Finally, I sincerely thank our stakeholders, clients, investors, partners, and CITers for our continued support and commitment to our long-term shared vision and goals. Thank you all for attending our call today. We now conclude our presentation and may begin the Q&A session. Thank you.

Thank you, César. Thank you all for joining us today. We'll now begin the Q&A session. I'll announce each participant name. Once you hear it, please unmute your line and ask your question. Then when you're done, please mute your line.

First question comes from Ashwin from CD.

Thank you all for the opportunity and the presentation. My question is on, you know, it could provide various incremental revenue metrics for 423 in terms of how the revenue projection breaks down organic versus inorganic. And given that you are now more diversified, how do you see growth across your various regions, if you can start with that? Sure.

Thank you, Ashwin. Good to see you. I think I will start by giving you the components. Our 15% of projected growth for year over year for 2023 is estimated now to be 90% organic growth and 6% of points coming from M&A. and regarding uh we are we are forecasting an incremental sequential uh quarter uh uh increase along the year and what in terms of geographies i think we we are what we are seeing since last year and it will continue this year is more traction on on the usa and europe and and i think it's it's It's based on marketing conditions, but also I think there is the specific fact that we acquired amazing companies in those geographies. So we have plenty of opportunities for upselling, cross-selling, organically expanding these new acquired platforms for growth. So basically we are expecting a sequential expansion along the year.

Okay, and the follow-up is taking a look at the underlying both macro assumptions as well as you look at your own conversations with your clients. How would you characterize the visibility that you currently have? Many other companies that we have spoken with have kind of mentioned that maybe things slowed down dramatically in the December timeframe. January was very quiet, but in February things have maybe started normalizing. Some say things have started picking up. Are you seeing actual visibility that things are picking up as we go out, as budgets get set and so on and so forth? Any color that you can provide on visibility would be great.

Sure, sure. Based on my conversation with our clients, I believe the macro and the demand around, you can always see the half full glass and the half empty glass. I think first, I would start saying that we are bullish regarding the growing number of technology advancements, a lot of trends in consumer behaviors, and we still see the imperative for companies to continue to increase their bets, their investment in digital. I think this is the is reinforce our long-term vision of digital as a secular opportunity. Nevertheless, I think December and early January, we could note that this global economic situation adds a lot of uncertainty during the budget process. of our clients and and as they defined a budget for 2023 we could saw first consistence they they are keeping their current digital investment and programs but we also noted I would say a more conservative editor regarding open new initiatives and And then, as the year move on, I think I see the half full glass now, because what I see that is resonating with CIG Veloprop is much less tolerance for low performance and a focus on efficiency. This increased the room for CIG value prop of digital efficiency and a lot of opportunities regarding replacing low performance competitors, including more willingness to near-shoring services in the developing economies. I think this is good perspectives for the way we are positioning and the way we are fostering efficiency among our clients.

Thank you for those details. Thank you.

Thank you, Ashwin. Next question comes from Tyler Dupont from Bank of America. Tyler, please go ahead.

Thank you very much for the question. Just to dive a little bit deeper into Ashwin's visibility question, particularly, are you seeing any change in client contracts or changing in what clients are looking for with those contracts? For example, have you seen any

elongations or or client delays in in newer existing uh in newer existing projects any clarity there would be helpful thanks thank you Tyler I've got this one too uh uh what I see is is is a change in the nature of the use case I think there's a a great prevalence of focus on proven use case. We call it Horizon 1 and Horizon 2 initiatives over more experimental initiatives that we named Horizon 3. more more i would say long-term uh bats on digital and technology so if you go for for vertical you're gonna see financial service banking and insurance companies focus on concrete things like customer experience online banking open finance that is trending now uh you of course you have more Horizon 2 initiatives like blockchain trading, fraud detection, and so on. And if you go for retail, you're going to see omni-channel, e-commerce, marketplaces. And of course, if Horizon 2 AI customer service augmented reality, you're going to see less of this and more concrete uh I would say use case that are red uh proven in the vertical and the same for consumer goods and so on so I think the I think the main change we notice is a more pragmatic uh approach on digital that again resonates with cint very proper really combining strategy design engineering very short cycles to see result concrete results and then expand from real evidence of success.

Great. I appreciate that. Thanks. And just regarding as a follow-up to the go-to-market strategy, I'm just curious if you can speak to the revenue contribution mix between winning new logos and upselling slash cross-selling within the existing client base and just the how willing clients are to take on those upselling slash cross-selling opportunities given the current market environment?

2022 was an impressive year of expansion in our portfolio. Our net revenue retention reached 126% over the year, and we could add 84 new clients long-term clients with revenue above one million reais so was was a good combination of lanes expand and and the way we are seeing 2023 is is I would say the same mix uh that's probably the the growth our results will basically 85 to 90 percent uh Based on expansion on current relationship with the current clients and 15, 10% max comes from new logo. Even though we always emphasize that is important. The discipline of every single quarter you add new logos to the game, because this is, will not be relevant in terms of revenue in the short term, but will be very important. or in the year two, year three for sustainable long-term growth. So, of course, this uncertain time is a special moment where you need to reinforce the commercial, the business development discipline of not only supporting the current portfolio and expansion on them, but also keeping the traction of adding new logos to our portfolio.

That's very helpful. Thanks, Cesar. Thank you, Tyler.

Thank you. Next question comes from Pune Jane from JP Morgan. Pune, go ahead.

Hey, thanks for taking my question. So you had a very strong new client addition and expansion in existing clients during this quarter. In fact, both metrics were better than what they were in third quarter. How do we view those metrics against the backdrop of deteriorating macro environment throughout last quarter? What drove those clients to sign? with CINT considering that that is going to be a big part of sequential growth beyond Q1.

Sure. As I mentioned, thank you for your question. Great to see you, Pune. As I mentioned, I think there's this change in the nature of the use case. And also there's for us, normally, I think in the last years, if you look at the kind of engagements and the way we, the entry point for CINT was normally half of our new engagement started with strategy, digital strategy. And then we follow with design and the full stack software. I think probably 25 to 30% was regarding replacing performance, really turnaround of engagements that was not moving in a good way. in the in our clients perspective but now we see probably 70 percent 70 percent of what we are doing is regarding digital efficiency and meaning replacing or adding a cint approach method method driven innovation approach to engagements that are already running and now we are really transferred to CIG portfolio. So I would say that this is probably the main difference. There's less new initiatives in this beginning of the year and more focus on engagements where digital efficiency and turnarounds are the main point of the engagement.

And can you also share various puts and takes for margins this year? Like what do you expect for wage inflation, supply pressure, pricing, utilization rates, and what should we expect for hiring over the near term?

I think that Steli can get this one right.

Yes, well, we see with regard to inflation, lower pressure compared to the previous year. So we see things settling down in that field. As you may recall, in our operation, we have this seasonality in terms of margins, because in the first quarter, we have the salary adjustments in Brazil. and throughout the year we improve margins again when we have the price adjustments you know also that in brazil we have the built-in price adjustments a closet in the contract so and we see um as we navigate in this um type of digital engagements that we have high flexibility in terms of talking about pricing and negotiating. Once a year, we sit with our clients to add new functionalities, adjust our contracts. So We see a normal environment for that. Of course, we have all the efficiency conversations going on. And this is also an opportunity for us to adjust in our proposal or value prop in each of our clients. So we see a good perspective for the year in that matter.

And what should we expect for hiring? Like your net headcount was about flattish on sequential basis from 3Q to 4Q. What should we expect for hiring trends over the near term?

You can take that one. So similar to the seasonality, so Q1 is usually slower, right? So we see that speeding up sequentially over the next quarters. So probably you're going to see more additions in Q2, Q3, and Q4 than we're going to see in Q1. Got it. The market, of course, with the economic downturn, has been easier to hire, of course, across the board in all geographies that we operate. So that's the new reality there. It's still competitive. It's not that it's easy. It's just easier.

Yeah. I appreciate the answer. Thank you.

Thank you for the question, Pune. Thank you, Pune. We have a question here via email from Cesar Medina from Morgan Stanley. Amid macro uncertainty, are you seeing any signs of demand stabilization improvement, or is it too early to tell? And then we have a follow up here on, can you comment on the effect losses during the fourth quarter?

I can start with the second part of the question, the effects variation here. Medina, thanks for the question. As you may recall, we have an operation, a near shore operation. So that's with regard to the accounts receivable in the Brazilian operation. as we have a functional currency in reais, we have to record through the P&L all the fluctuations. The accounts receivable is in dollars. The counterpart, the accounts payable in the U.S. operation, as we have the functional currency in dollars, we don't pass that into the P&L. It's a non-cash event. So that's the main actor behind that variation in the Q4. The first part of the question, maybe.

I can get the second one. Thank you, Medina. Great to see you. Well, in terms of, I think the budget process was very effective to give us visibility on the current engagement that allow us to project a solid year based on the certainty that we will continue a lot of big, very critical digital engagements with our clients. What we have less visibility as regarding the launch of new initiatives, i think december and january was it was very cloudy uh now we we see discussions happening so more uh say evolution in our pipeline for new stuff And that gives us some positive perspective regarding the year. But I think it's too early to say that the speed of the demand will get reach a high level of traction I would say that's why we are guiding 15 that is a conservative but I think based on the current market conditions and what we have been discussing with our customers

Okay, we have a few questions here from the buy side. So I'm going to go through them. I want to touch on the talent side and get your view on what's the current level of the attrition rate and how is that performing over time?

I can take that one, Galvão. Thank you for the question. Attrition, given the slowdown and overall market, Attrition, of course, is going down. So it's training 14% in Q4 against the 16% before that in the last 12 months base. And we continue to see it trending down. So if we look at the first months of 2023, it continues to go down, which is good. The most important one, I think, to just reinforce for us, it's actually turnover on the leadership. uh echelon and that's uh well under control that's actually what has sustained you know our uh growth and and the consistency of our quality and delivery and uh that's well under control uh and that that we're happy with Also, I think on the talent side, I think it's important to notice the evolution of our diversification strategy. So we're coming from a 92% concentration of our labor force in Brazil in the end of 2021 to 85% in the end of 2022. So we continue to diversify. We found strategy not to work from anywhere. all over Latin America and also Canada and many different regions in Europe as well. Well, that's kind of giving us an opportunity to kind of tap into an even bigger talent pool and continue to support our clients globally.

Thank you, Bruno. So the final question here is actually a combination of two topics. Could you please provide more call on the potential disruption of generative AI in your industry and how are you guys preparing for that? And the follow up, how are you thinking about M&A in 2023? Can you talk about your objectives here and comment on the recent acquisitions you've done in recent quarters?

That's a lot of questions there. I can take the generative AI one. So we see generative AI as like a big tsunami of a new disruptive change that will affect many industries, including ours. So we are actually already working with some clients, as you saw in the video. Anywhere there's a massive body of content, I know generative AI can be a great tool to kind of help us synthesize and make sense of them. In healthcare, for example, already working with clients, you know, trying to kind of synthesize and make sense of medical information and research to help doctors and to help our clients in pharma, for example, educate their salespeople to help those conversations. We see many use cases, you know, in retail and financial services as well. So, and of course, there's the impact that we have in our own industry in software development, and that's... so we're eating our own caviar to to later uh help our clients you know to to serve that caviar for our clients so we've been experimenting with many tools not only chat gbt but also you know co-pilot from github and tab9 uh and our developers are getting ahead you know to really try and use those those tools to kind of get more productive uh you know eliminate uh repetitive tasks and not it's not only software developments all over the the streamline even in design like a creation of new visual elements we're using you know text to to image type of tools even research right so we just completed a project for client where we kind of synthesize 5 000 user journey kind of interviews in a matter of days just using uh generative AI so it's all across the board we'll create exponential gains in terms of productivity things will be able to know to be done but much faster and much more powerful so we're very excited with you know what can bring to to us into our clients and we're ahead of the game and we'll continue to be ahead of the pack there and helping our clients navigate this the this world

Well, I can get the M&A one here. As we announced previously, we concluded our first wave of acquisitions and we concluded earlier than planned. We will now fully dedicate into the integration of those recent acquired companies. We are reinforcing this imperative of this long-term organic growth, which we've been growing throughout the history on top of that. We also are aiming and focusing this year on a solid cash generation. and get prepared for the next wave of M&As. But for this moment, we are focusing on the integration and reinforcing this sustainability and long-term organic growth principle.

Let me chime in and add some comments on Stanley. I think we mentioned with Intersol we conclude an amazing cycle and create a robust platform for organic growth. Another update that is important, I think it's that SOMU BOX1824 transpiring inner soil are already fully integrated from the business standpoint, operating as growth units, CINT growth units under the CINT brand, of course, except box 1824, which will preserve its identity. And as Stanley mentioned, back-off functions are being integrated in a much more careful manner. And so, and of course we see tremendous value On M&A, we are in a very fragmented market. A lot of opportunities of geographers, competence, verticals, expertise that we can speed up through M&A. But we, as Stanley mentioned, 2023, you should see less activity in this matter. But moving ahead, you should see M&A as part of our long-term strategy.

All right, so that concludes our Q&A session. Thank you all for attending our event today. I'll now pass it to Cesar, going to proceed with his closing remarks. Cesar.

Sure. Thank you, everyone, for your time and attention. Thanks, Eduardo, Stanley, Bruno, for joining me today. Well, I think our results reflect the talent and hard work of our team, and I'm proud to work with all the CIN tiers across the globe. We are confident that our foundations are solid and we will continue our journey of growth and value creation for all our stakeholders. Thank you once again for your support. Stay well and we look forward to seeing you next quarter.