Good morning. Welcome to CI&T Earnings Call for the second quarter of 2023. I am Eduardo Galvão, Director of Investor Relations at CI&T, and I'm happy to be here again to talk about our results. With me on today's call are Cesar Gon, Founder and CEO, Bruno Guicardi, 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. If you'd like to submit a question, please send it via email to investors@ciandt.com. The presentation is available on the company's investor relations website, and 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 factor section of our annual report on Form 20-F. These risks and uncertainties could cause actual results to differ materially from those expressed on this call. We caution you not to place undue 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 measures in the appendix for more details. Our agenda for today includes an update on our quarterly highlights, followed by some of our business cases.
We'll then talk about our people and our quarterly financial results. I invite Cesar Gon to begin our presentation.
Thank you, Eduardo, and good day, everyone. I'm thrilled to have you all here for another quarterly earnings call. I'm eager to engage with you and present our performance and accomplishments. Let me start by sharing our revolution in the helm of artificial intelligence. Every once in a while, a revolutionary technology emerges that changes everything, and I believe we are standing at the brink of the most groundbreaking moment in the history of computing. CI&T has been fortunate to participate in and contribute to the first chapter of the digital revolution as the creators of the Lean Digital Book of Knowledge for digital transformation. Now, I feel blessed to guide CI&T in co-authoring the next chapter of this revolution, the digital world, powered by artificial intelligence. AI is a transformative technology and also the gateway to a new disruption in the corporate world, the one we call hyperdigital.
Over the next decade, believe hyperdigital will unfold in three acts. Act one is hyper-productivity, paving the way for act two, hyper-personalization. This progression then leads to act three, the advent of disruptive new business models, enabled by the exponential reduction in the cost of complex decision-making. The challenge with these revolutionary moments is that they tend to thrive in the fertile greenfield environment of startups and digital natives, but often it takes years to make a relevant impact in the brownfield setting of large, established enterprise. In a nutshell, these advancements need to become enterprise-ready. They must reach a level of maturity where the potential of the new technologies can be translated into customer value within a framework of reliability, security, and privacy, factors that are non-negotiable for traditional and successful companies. This is our ambition.
This is CI&T vision and what we are bringing to life to make a hyperdigital enterprise ready. As you know, to achieve that, last month, we proudly launched CI&T/FLOW, an AI platform for hyperdigital. Already, we have initiated engagements with 12 of our largest clients from varied industry verticals, embarking on the journey of co-building CI&T/FLOW. Over the next 12 to 24 months, we plan to scale this platform across all CI&T clients and combine over 100 new AI agents developed by both CI&T and partners. We are at the beginning of Act one, and we find ourselves already reaping tangible results, a surge in productivity that has, in some cases, doubled our previous benchmarks. We can only forecast that we are going to achieve multifold increases in productivity in the years to come.
Early results are promising, we are enthusiastic about the potential to significantly enhance productivity, improve quality, and accelerating progress. The realm of artificial intelligence presents a new array of exciting opportunities, we are positioning CI&T as a frontrunner. Now, let's take a look at our second quarter financial highlights. Once again, we are proud to deliver a sound result amid macro uncertainty. Our net revenue was BRL 572 million in the second quarter of 2023, 9% higher than the second quarter of 2022. We added 56 new clients to our portfolio multimillion accounts, reaching 183 clients with annual revenue above BRL 1 million. The adjusted EBITDA margin quarter was 20%, an increase of 90 basis points compared to the second quarter of last year.
Adjusted net profit was BRL 63 million, 21% higher year-over-year, with an adjusted net profit margin of 11%. These strong results serve as evidence of our ability to uphold efficiency despite the challenges posed by a volatile market environment. I extend my gratitude to all CI&T team members worldwide, who have shown unwavering dedication in creating value for our clients and for our stakeholders. Now, let's delve in some examples of our client engagements and explore some of the noteworthy business highlights for the quarter.
In 2021, Ford's business model in Brazil changed. As a result, CI&T was engaged to collaborate in building a new sales journey. One of the goals was to impact the company's culture, leaving a legacy beyond digital experiences. During the project, we had the opportunity to work with agile methods, implementing dynamic processes and suggesting improvements to transform the way of building products and driving innovation within Ford. We started the project with a one-week lean inception, involving an average of 25 people from Ford, plus the CI&T team. After seven months of discovery and delivery, we launched a pre-sales platform of the F-150, the world's best-selling pickup truck. On launch day, Ford sold out of all available vehicles in nine minutes.
The impact of the CI&T Way was felt throughout Ford. The pre-sale became a benchmark for the South American market due to its positive outcome. CI&T's team worked with ONE, a global container shipping company headquartered in Singapore, to transform its customer service operating model through case intent, standardization, and Salesforce omni-channel strategy that unifies channels such as mail, phone, chat, and web, aiming to achieve the company's goals. The teams worked together to implement Salesforce Service Cloud, starting with the Salesforce Chat and Einstein Bots, gradually moved into supporting the enhancement of the overall case management framework. We successfully launched to all regions, more than 50 countries across different regions globally by mid-2023. For decades, we have been at the forefront of the agile methods required for digital transformation. Now, a new fast-paced world has emerged, hyperdigital world.
In this new reality, hyper-productive teams can quickly pay off technical debts and tackle new backlog tasks that were previously impossible. This reality is enabled by the increasing use of AI in software development, which is leading to daily revolutions. Thanks to AI-powered teams, it is now possible to automate tests in legacy systems with double the productivity, freeing up time for cloud migration, DevOps, and other strategic work that directly impacts lead time and the quality of each deliverable. This, in turn, increases customer satisfaction and business efficiency. Using our approach hyperdigital, one of our clients recently saw more than 50% increase in productivity and 4 times more velocity in the lead time of new features. With our clients, we continue to develop and learn about hyperdigital world.
Once more, we are leading the way in implementing new high standards and state-of-the-art software development practices globally, and the revolution has just started. Welcome to our latest update. We have gathered the most recent information and insights from our leadership team to share with you. We are committed to building a better tomorrow by fostering a culture of respect for the LGBTQIAPN+ community. This year, we developed a Global Pride Month to raise awareness, build allyship, networking, and support local communities. In Brazil, we launched a groundbreaking project dedicated to supporting the trans community, who are disproportionately impacted by hatred. During Pride Month 2023, we reaffirmed our commitment to promoting a better future for all. At CI&T, the Pride community represents 11% of the workforce globally.
CI&T has achieved certification from the Women on Board Initiative. Women on Board is an independent initiative whose purpose is to acknowledge, value, and promote corporate environments in which women are part of the board of directors or at advisory councils. In CI&T's case, women represent 25 of our board of directors, and we are actively working to increase this number.
Having women on the board, brings a long-term vision to companies, brings a different vision than what is there, because the boards are mostly made up of men. I think it promotes discussions that were not on the table before. I think diversity doesn't just have to be about gender. We have to expand diversity to other spheres. We have to have racial diversity, we have to have diversity in other forms of age and knowledge, so that the board brings together diverse knowledge and diverse discussions.
We have acquired renewable energy certificates to cover 100% of the electricity consumption of our operations in Brazil. To further reduce our environmental impact, starting in 2023, we will also seek to support cleaner and renewable energy. For this reason, all energy consumption from our Brazilian operations has been offset through renewable energy certificates. This means that all company electricity in Brazil comes from clean and renewable energy sources, representing our firm pledge to long-term sustainability. CI&T sponsored the Agro Day 2023 conference with the central theme, Future of Food. The event brought together representatives from some of the biggest companies in the sector. Rodrigo Fantinatti from CI&T featured a panel presenting agro projects and initiatives with Nestlé and Tetra Pak executives.
The event was widely viewed, with over 27,000 people watching the live transmission and more than 400 representatives from 15 companies registered to attend. This is our latest news. Our aim is to continue providing transparent and relevant information to keep you informed and up-to-date on our latest developments and achievements.
AI marks the dawn of transformative era, where innovation reaches boundless horizons. We made our own revolution, CI&T/FLOW, a platform that combines humans and AI agents to unlock the hyperdigital for the enterprise world. Increase the speed and efficiency of teams throughout the entire build cycle. Join the Flow.
What does it look like? More than a concept, CI&T/FLOW is a platform that envisions a brand-new world of possibilities.
This revolution combines the work of AI agents hand in hand with humans throughout the entire building cycle. It all starts from ideation, going through design, development, testing, and deployment, until finally reaching the operating phase. With all the steps connected with AI, the enterprise world can boost productivity, improve quality, and accelerate delivery times to create hyperdigital world. This is the power of AI and humans working together. This is the vision of CI&T/FLOW that we are bringing to life.
We brought CI&T/FLOW to life at the New York Stock Exchange. In the event, CI&T partners participated, including Bruno Guicardi, Mars Cyrillo, and the CEO, Cesar Gon.
Afterwards, a panel moderated by Bob Wollheim, brought together industry leaders to discuss the potential of AI in the enterprise world and how to establish a strong foundation for achieving efficiency while testing out new work models. This event was a groundbreaking initiative by CI&T and generated significant interest from the market, including both existing clients and potential new customers. With unwavering dedication and capabilities, our powerhouses are responsible for CI&T's creative and innovative energy, and are the very essence of what makes our company truly inspiring. We invite you to get to know our true essence as we spotlight three of our powerhouses. Open Finance Powerhouse works to unlock the full potential of open banking's vast information from various institutions. The Gaming Powerhouse gathers a group of specialists united by a single goal: to establish CI&T as a reference in game development, including art services and cloud gaming.
The Cybersecurity Powerhouse comprises experts who enable technologies and processes, and empower people with the strategy to ensure security with scalability and efficiency in software engineering and platforms. These Powerhouses are more than just structures. They embody our unwavering dedication to continuous learning and improvement, circulating knowledge within CI&T, and propelling us to make the impossible possible.
Hi, my name is Renata Feltrin. I work as Executive Director, focusing on business development and innovation in the Latin America market. MentorEla is a program aimed exclusively to women seeking to occupy senior leadership positions in companies participating in the United Nations Global Compact in Brazil, is aligned to have, by 2030, 50% of women in senior leadership positions. Our motivation to do a volunteer project outside CI&T is because I occupy a clear position of privilege and access in society. It makes me aware of my responsibility for the complex social context in which we live. Doing nothing is also having a position.
Writing and computers, those have been my two passions. I haven't stopped, continued to do that throughout my life. The book that I'm writing is Hello World, and it's a near-term science fiction thriller where all AI research has been banned, and research takes place in sandboxes to contain the risk of super intelligence. I started writing Hello World about two years ago, and then I wrote a few chapters and then put it on the shelf. Then recently, with all of the boom in generative AI and all of the activity at CI&T, it inspired me to pick up the book again and finish writing it before the future races ahead of me.
Seeing everything that's going on at CI&T, and speaking to people and reading articles such as Cesar's paper, all were good inspirations to pick up the book and finish it.
I hope you liked our client stories, news, and highlights selection. I invite Bruno to talk about our talent management.
Thank you, Cesar, and good morning, everyone. It's a pleasure to be here again to discuss our people and delivery model. In Q2-2023, we continued to efficiently manage our head count to maintain a lean organization structure and prepare for our hyper-productivity era. We now have 6,200 CI&Ters with a geographically diversified talent base. Our global presence has allowed us to enhance our nearshore delivery model, fostering our competitiveness and delivering with speed and efficiency. Attrition has always been a crucial area of focus for us, and I'm happy to report that attrition keeps improving. In Q2, it achieved a rate of 10.5%, a testament to the positive work environment we have created. In addition, our leadership attrition is at a remarkable low of just 2.6%, reinforcing our commitment to develop and retain top-notch leadership talent.
The average executive tenure at CI&T is 15 years, which demonstrates the strong leadership culture we have nurtured, providing sustainability to our growth and superior quality to our clients. We're committed to being a more diverse and inclusive organization, and I'm delighted to share that we were awarded the esteemed Women on the Board Seal. This prestigious certification recognize our efforts in fostering gender equality within our environment. We're proud to have two women in our board of directors, making up 25% of the board composition. This recognition reinforces our commitment to promoting gender diversity and continuing to do more to empower women in the leadership roles. We are super excited to see the massive involvement of our people in the Gen AI movement. We've been witnessing the explosive growth of our AI powerhouses.
Now, almost a quarter of our global talent pool, around 1,600 people, is involved in one of these specialized communities or exposed to Gen AI engagements directly with clients. They are developing critical skills in this new set of technologies and helping us build agents to accelerate the development of digital experiences. Some groups are focused on what we call business use cases, where we are completely reimagining our clients' customer experience, using Gen AI to achieve a more human feel and create better engagement. Some other groups are applying Gen AI to our own software development process to achieve hyper-productivity and unprecedented levels of speed, so we can offer our clients the best performance in the industry and help them overcome their challenges toward adopting Gen AI. We believe these technologies will completely change how digital solutions are created and software is developed today.
Processes, roles, and team topologies will change profoundly in the next decade. We're very proud that our teams have embraced that challenge and are ahead of the pack and are trailblazing our path to the future. Now, I invite Stanley to give you more details about our financial performance.
Thank you, Bruno, and good morning, everyone. It's a pleasure to be here again, presenting our financial results. We are happy to share that we have achieved another set of consistent results during the second quarter of 2023. Our net revenue in the second quarter of 2023 was BRL 507.1 million, 9% higher than the second quarter of 2022, both on a reported and on a constant currency basis. For the first half of 2023, our net revenue grew 16% on a reported basis, totaling BRL 1,181.8 million. Analyzing our revenue distribution by geography, North America contributed to 46% of our total revenue in the first half of 2023. LATAM represented 40%, followed by Europe with 10% revenue share, and Asia Pacific with 5% contribution.
As we develop our global operations, we are witnessing a noteworthy expansion in mature economies, now representing 60% of our total revenues. During the first half of 2023, we saw positive growth across our primary verticals. Financial services experienced a 5% increase in revenue compared to the first half of 2022. The consumer goods vertical witnessed an increase of 6% in revenue, while technology and telecommunication sector exhibited the strongest performance, recording a 66% growth in revenue in the period, boosted by the acquisitions concluded in 2022. Lastly, it's worth mentioning that we are further diversifying our revenue streams in terms of clients' share through the incorporation of new logos and successful M&A endeavors. Now let me detail the components of our growth profile.
During the last 12 months, we maintained a steady focus on diversifying our client base, successfully onboarding 56 new clients, with revenue exceeding BRL 1 million into our portfolio. Most importantly, we continue to expand our wallet share within our large clients, fostering our main growth engine. The number of clients with revenue surpassing BRL 20 million rose from 21 in the last 12 months, ending in 2Q 2022 to 26 in the last 12 months, ending in 2Q 2023. In addition, the number of clients with revenue above BRL 10 million grew from 12 to 22 in the same comparable period. Over the past five years, our net revenue retention rate has consistently hovered around 123%.
This highlights the fact that new clients not only remain with us, but also have the potential to further expand our engagement and grow over time. This aspect plays a crucial role in ensuring our sustainable growth. Moving on the presentation of our financial performance, our Adjusted EBITDA increased 14% from BRL 100.4 million in second quarter 2022 to BRL 114.2 million in second quarter 2023. Adjusted EBITDA margin was 20% in the second quarter 2023, 0.9 percentage points higher than in second quarter 2022. In the first half of 2023, our Adjusted EBITDA grew 25%, reaching BRL 230.7 million with an EBITDA margin of 19.5%.
The improvement in the EBITDA margin in the first half of 2023 is a result of our systematic and disciplined approach to identify operational optimization opportunities. For example, through detailed analysis of our cost structure, we are implementing innovative cost-saving actions and actively improving our productivity through the use of artificial intelligence tools. A substantial portion of these savings will be allocated to foster research and development in artificial intelligence initiatives, as discussed in our previous earnings call, to leverage our future growth. Finally, the adjusted net profit was BRL 63.1 million in second quarter 2023, 21% higher than the same period of last year. The adjusted net profit margin increased to 11% in second quarter 2023, from 10% in the second quarter 2022.
In the first half of 2023, net profit was BRL 130.3 million, a 42% growth compared to the first half of 2022. The improvement in our net profit margin is attributed mainly to the dilution of SG&A expenses as a percentage of revenue and lower income tax expenses. Now, I invite Cesar back to comment on our business outlook.
Thank you, Stanley. As we set our sights on the future, we continue to see uncertainty in the global economy throughout the second half of the year. We will persist in navigating 2023 with caution, prioritizing bottom line and cash generation, while preparing our teams and AI capabilities to resume more aggressive growth in 2024 and beyond. For the third quarter of 2023, we expect our revenue to be at least BRL 545 million at constant currency, a 2% decline year-over-year. For the full year, we are updating our guidance mainly to reflect a higher impact in the demand from our acquired portfolio and a budget replanning of our top client. Thus, we expect our annual FX neutral net revenue growth to be in the range of 4%-8% year-over-year.
In the midpoint, the implied revenue in Q4 of 2023 represents a sequential growth of 6% and can be attributed primarily to new bookings underpinned by our AI strategy. Finally, we are maintaining our adjusted EBITDA margin expectation of at least 19%. In conclusion, I would like to express my gratitude to our clients, partners, investors, and CI&Ters for their support and trust in our long-term shared objectives. Thank you for attending our call today. We now conclude our presentation, and we'll begin the Q&A session. Thank you.
Okay, we'll now begin our Q&A session. I'll announce each participant's name. Once you hear your name, please unmute your line and ask your question. Then when you're done, please mute your line. First question comes from Puneet, from JPMorgan. Puneet, please go ahead.
Hey, thanks for taking my question. Cesar, I wanted to ask on demand, like, when do demand trends begin to improve? Like, what needs to happen for clients to start spending on digital projects, like they did before? What are the leading indicators that suggest that the turnaround in growth rates is around the corner?
Great to see you, Puneet, and thank you for your question. I believe what we see is still a market that reflects a lot of uncertainties. Probably you remember we have a Q1, a little above our expectations, but that was related to short-term strategy engagements, so the second quarter was in line with our projections. What we see now is still companies very cautious on starting new initiatives. I think the only leading indicator as relate to artificial intelligence. As you probably saw, we are projecting a sequential finally, a sequential growth in the fourth quarter of this year, primarily to new bookings, underpinned by artificial intelligence and our strategy relate to hyper-productivity based on CI&T/FLOW.
I believe it's, it's probably the first good sign that we can have a better 2024. For sure, we are preparing CI&T for, for capturing this, this new set of demand that will inevitable happen around the opportunities of hyper-productivity and hyper-personalization using artificial intelligence.
Okay. As a follow-up, your headcount was down in 2Q as well, maybe more than the revenue was down. How do you think about your current utilization levels, and what should we expect for headcount rest of the year?
Renata, can I get you one?
Sure thing. Puneet, we've been, we've been running a very lean organization, right? trying to kind of-
... keep very efficient. Utilization rates are, are, are still very high, right? We've still been able to kind of do the investments and dedicate resources to build those platforms, like Flow and other components that will kind of, build the future for CI&T. We've been running a very, lean organization, and you can expect to see that going forward as well, right? The following demand, right.
Thank you.
Thank you, Puneet. Our next question comes from Ernesto González, from Morgan Stanley. Ernesto, please go ahead.
Hi, thank you for taking our question. Any additional color that you could provide into the new projects and the AI engagements and hyper-productivity with clients that will boost the higher growth going into the fourth quarter? Any additional color for 2024, what could we expect? What are your thoughts, going into next year? Thank you.
Thank you, Ernesto, for your for your question. I believe we can summarize our demand around AI. That is starting to happen in two buckets. One is directly related to efficiency, really streamlining the whole flow of producing digital solutions using AI agents. That's what we are calling CI&T/FLOW Stack. Then we have a growing number of use case experiments in different verticals around improved customer experience or employee experience around new use case based on generative AI. Basically, we call CI&T/FLOW Biz for this part. Basically, it's a combination of efficiency that we have amazing early results, but we expect it's gonna ...
as the platform mature, and we add more agents, AI agents to the platform, it will be for sure, it will drive multifold increase in productivity. We are, I would say, in the discover phase of what are the killer use case of AI for different verticals, education, banking, telco, and so on. This is, is our main agenda in terms of AI and, and CI&T/FLOW.
Thank you, Ernesto. Our next question comes from Tyler DuPont from Bank of America. Tyler, go ahead.
Great. Thank you, Eduardo, and good morning, everyone. I just wanted to start by following up on Puneet's demand question, specifically what you're anticipating for the back half of the year. Based on the new full year guide, back of the envelope math seems to show a change in growth from the second half, going from up 13%-14%, give or take, to down 5%. You know, at the lower end of the guide, it looks like we could potentially even see some negative sequential growth as we exit 2023. I guess two parts here: one, does that sound right to you? 2, sort of, what are you seeing more broadly in the market that's leading to this change in the demand outlook?
Good to see you, Tyler. Thank you for your question. I think we are projecting Q3 really with two factors. One is, is a higher impact in the demand of our acquired portfolio, combined with, I would say, an unexpected budget replanning in our top one client. This is basically what we are seeing in forecasting for Q3. For Q4 is, is really a sequential growth based on the new bookings, 80%, 9% around new demand based on our attrition dollars.
Thank you. I, I appreciate that. Just as a follow-up, sort of in the prepared remarks, it sounded like, Cesar, you, you briefly mentioned the lower full year guide was partially due to a ramp down in some, some top line spending. I was just wondering if you could provide additional color?
Oh, really?
On what verticals or geographies those clients are in, and sort of how much of that are you anticipating will come back, you know, as we exit 2023 versus, versus projects that are just no longer, no longer in scope? Thank you.
Sure. Tyler, to be clear, it's, it's we, I think the, the, the budget manage is top one client. It's, it's really one client. I think our two-nine top clients are, are, are, are continuing in a solid position. Even for our top one clients, we believe this is a temporary adjustment based on market challenges, but they, they have a long-term strategy, and we are definitely part of, of building this digital future for them. We, we expect even this top one client will regain traction probably from next year on. It's hard to, to really by now, to, to predict 2024. We see good signs in these new bookings for Q4, but we expect ... I think we will have more ascertainty around what's gonna happen probably by the end of this year or next year.
I would say still cautious, but good early signs, especially around the, the efficiency and experiencing opportunities related to, to the AI disruption.
Great. Thank you again. Appreciate it.
Thank you, Tyler. Our next question comes from Ashwin Shirvaikar from Citi. Ashwin, please go ahead.
Thank you, and good morning. Just my first question is with regards to the bookings that you mentioned. When I look at sort of the current results, the deceleration across, across the board, as it relates to the growth rate, it's deceleration by geography, by end market and so on. Which of those verticals or geographies are notable in your bookings that you expect it should, you know, help lead the return of growth, if you will? Then from timing perspective, you know, is it sort of contractual that the ramps will start in 4Q, or could this get pushed out because of the uncertainty in the market, to later, to maybe next year? How...
Can you help us understand? It's a challenge for the entire industry, actually, so help us understand.
Thanks, Ashwin. I think in general, if we look by vertical, it's a tough year for financial service globally, and we have-- this is our largest vertical where we are playing. On the other side of this, we see a lot of traction on telco, and where we are growing faster, as, as Stanley mentioned, especially in Europe. I, I, I see this as a result more specific of our strategy for this vertical and less related to general market conditions. Even though, we, we, we are getting... It's become more relevant in our, in our, as a, as a revenue source. In terms of, I think, regarding the, the new bookings and h-how...
I think we, we are quite sure that this this demand indicates that especially our main clients are, are, are really starting to explore the, first, the efficiency opportunities around AI and then initial experiments around use case. I think it's, it's a good door for a strong for a stronger 2024 in terms of demand. Also, of course, we are betting a lot on, on, on the differentiation of CI&T performance based on, on what we are doing with initial important set of, of clients.
I, I mentioned we, we are working hand to hand with CI&T/FLOW with 12 of our largest clients, and I'm sure this is already generating new demand, so this is part of, of, of what we see as regained sequential growth from Q4 on. Also is, of course, is, is our main bet for really roll out this, the same strategy across our whole portfolio of clients and, and, and achieve, I would say, regain higher growth next year. Basically, I, I believe we As we started this year saying that our 2 main objectives were bottom line, cash generation, I think we are doing this i-in a very disciplined way, and we're again preparing. We, we need to see the future. The future is clear now.
We need to prepare our offering and capability to play this new chapter of disruption. Disruption always means more demand, so it's unavoidable. I think, of course, we need to consider the current uncertainties that are impacting the whole demand environment, but it's unavoidable because of the opportunities to capture efficiency and disruption in experience are at the door. I think this changed a lot, the scenario for demanding in digital, even though we still see a lot of uncertainties in the macro environment, and it's hard to predict if how fast the economy, the global macroeconomy, will recover.
Very confident, more related to the, the way we are positioning CI&T and, and the response we are getting from our clients in different verticals, from banking to education, telco, retail and so on. I think the last relate to the, I would say, optimism view of, of the macro environment.
Understood. Thank you for that very comprehensive answer. With regards to, you know, and the CI&T/FLOW, the presentation at NYSE was, was, was, was a really good one. As it relates to, sort of maybe the need to upskill and, and give your full population of, of, of employees, sort of, you know, AI skills and so on and so forth, what is the process and investment needed to do that? If you can, give- provide some details on that.
Sure. We are totally focused on creating these capabilities. Right now, we have to be very selective selecting the clients that we can support in this new set of opportunities and capabilities. We are heavily invest on having the ability to scale FLOW and this strategy from next year on. I think Bruno can give on more details on how we are doing this internally.
Yeah. as I, as I mentioned in my, my talk there, Ashwin, thanks for the question. Like, I, I think this is, this is going to be very different. Like, this is the process of building digital solutions, the process of, you know, building software will be very, very different in the next three, five, 10 years. I hope. I, and I think we're, we're very happy where we are right now. I think we have a quarter of science already going through, that challenge and learning what those new skills and, you know, the new new tools are, and, and, and kind of, you know, trailblazing that path.
Because that, that, that will be completely different, you know, in the, in the future, you know, the, the, the roles in a team, the teams themselves, how they organize, like, they'll be completely different. I think we, we are, we're kind of, you know, ahead of the, the pack there. We're learning what that means, and, and hopefully we'll be, you know, helping our clients actually to understand what needs to be done in their teams and their structures, and we'll continue supporting them through that future.
Understood. By the way, Bruno, love the map behind you. It's great.
Thank you.
Thank you, Ashwin. Our next question comes from Carlos de Legarreta, from Itaú BBA. Carlos, please go ahead.
Hi. Thank you. Good morning. Good morning, guys. Thank you.
Good morning, Carlos.
Two quick, two quick questions on my side. The first one, just looking at the geography breakdown of your revenues, particularly, what stands out is the softness in LATAM results, not only for the quarter, for the full year or, or, the first half of the year. Just wanted to, to know your insights of whether you think this is perhaps what will drive the, the softer guidance, and, and if this is attributable to maybe this main client? Secondly, Cesar, I'd, I'd love to hear your thoughts on, on CI&T/FLOW. Obviously, I know you had the event, but I think it's always great to hear firsthand, you know, from, from you.
What are the expectations in terms of which verticals you think this could particularly benefit or should be across the board? Thank you.
Thank you, Carlos. I think a- as, as we mentioned, I think LATAM is recovering faster than, than other regions, and but I think it's more related to our portfolio of clients than general market conditions. Or -- and of course, the top one client impact is in the US, so it, it changes the, the game among the regions. Europe is, is responding in a very good way, so ... For sure, we account a lot on, on the, the fact that we can lead LATAM in a very good, especially Brazil, in a very strong way, based on our, our amazing client portfolio here. Regarding CI&T/FLOW, by now, we have a set of verticals where we are experimenting a- and getting this early enthusiast results. Banking is one, one industry.
Education is amazing opportunity in different perspective. The telco is another, another, especially where you see opportunities to improve customer services and also optimize very complex operations. We also have retail, two big retail companies, one in Brazil, another in the USA, in this initial pack of customers. I believe it's going to be across the board. Of course, as I would say, large operations with challenges on customer experience, it probably will be the main hit for artificial intelligence and CI&T/FLOW. But as we evolve the platform, I believe it's going to be a very horizontal way to drive efficiency.
Also, as I mentioned, I think we'll probably in a few quarters, we'll start to see the initial set of killer use case around Generative AI, and then this will drive a lot of demand for specific verticals. We're excited with our results. Amazingly proud of this, the set of customers that are already working with us on computing CI&T/FLOW. I believe we did the right move in the right moment. I'm quite sure it will drive a lot of differentiation for us in the years to follow.
Thank you for that. If I may follow up, you know, just I'd love to hear your thoughts. I'm sure you're aware, you know, that Globant announced recently, an ambitious plan to, to double down their investment in Latam and particularly in Brazil. You know, I just wanna hear your thoughts about that. You know, obviously, we talked to them, but we'd love to hear what's the opportunity that you're seeing, and, and, and if this changes at all the outlook that you have, you know, more in the bigger picture.
Sure. Sure, Carlos. It's amazing to see a company invest on we already are. Brazil, I, I always repeat that Brazil is, is the largest and the best tech talent pool in Latin America. It's the second largest, largest in the Americas time zone, and it's an amazing place to, to play the, the, the supply side of our game. I think it's just one more evidence that what we have and the, the way we play our, our talent game will continue to be a huge differentiation for CI&T. I, I believe Another aspect of Brazil is this combination of quality and, and scale possibilities around talent plus domain, vertical expertise.
We have a big internal market, so you can leverage a lot of like banking, you can retail expertise, telco expertise, in a game that will change toward this new disruption, new set of technologies, but that will have to be applied in different ways for different verticals. I think we have the best blended combination of talent and domain expertise. I see Brazil playing an even more important role in the future of global digital services. We are lucky to be born here, and of course, building a global business. Now, around 60% of our revenue comes from U.S., Europe, and Australia, and Asia.
having Brazil as, as, as still our main source of, of talent, say a lot of the possibilities of scale CI&T in the future.
Thank you for your comments, Cesar.
Thank you, Carlos. We have two questions here from email. First one is regarding the EBITDA margin. How should we expect EBITDA margin for the second half of the year, given you reported 14.5% the first half of the year, and the guidance is pointing to 19% margin?
I can take that one. Thank you for the question. EBITDA margin has improved in first half of the year, mainly due to SG&A dilution. Yeah. Of course, we are closely monitoring our costs and expenses to maintain this lean organization that Bruno mentioned, and healthy margins. Of course, that's what we are looking for. It's a good year of cash generation as well, so we are fully focused on both aspects here. As we are in this lower growth environment. Of course, part of those savings we have been directed to capabilities of our artificial intelligence endeavor, yeah, and we will continue to do it. We expect to maintain a more stable EBITDA margin throughout 2023.
just as a reminder, the EBITDA margin guidance that you mentioned is, at least 19%. I think that covers it.
Thank you, Stanley. The final question we have is regarding M&A. Do you expect to resume M&A in the coming quarters? What are the lessons learned from the companies you acquired in 2022?
I can start this one. As you know, we, we, we concluded our first wave of acquisition last year. That was amazing to increase and diversify our, the markets we are, and verticals we are serving. Now we are dedicated to fully integrate these acquired companies, focus on leveraging the relationship of large and global clients that we onboarded. Of course, we are preparing CI&T for, I would say, to resume M&A activity next year. I think we, we need to reinforce that our main core strategy is organic growth, but we, we could see the, the high potential of combine or accelerate our organic growth to a very specific set of acquisition. I think we continue to analyze opportunities in the market.
I don't believe we are gonna do short-term moves in this space, but I'm sure we are going to do more deals from next year on, and based on, on, on the kind of results we could leverage in the past.
All right, that concludes our Q&A session. Cesar, would you please proceed with your closing remarks, please?
Sure. Thank you, Alvaro, Stanley, Bruno, join me. Thank you all for participating in our call. Again, a big thank for all CI&Ters for the solid results in this first half of the year. A lot of challenges ahead, we are here to overcome that. A special, special thank you for our clients that select CI&T to co-create this exciting new chapter of innovation around powered by artificial intelligence. That's it. Stay well. See you soon.