Before he joined, current.
Yeah, yeah.
Okay.
Finally, they got it.
It's live now.
All right. Good afternoon. My name is Puneet. I'm from JPMorgan's Payment Processing and IT Services team. Glad to have here with us Cesar from CI&T and Eduardo, who's sitting here in the audience, is also with us. The format of this presentation is going to be fireside chat. I'll start with a few questions, then we'll open the floor for questions from the audience. For people who are dialing in virtually, feel free to use the portal to send questions our way. Cesar, welcome. Thanks for doing this. Appreciate it. You reported your first quarter results yesterday.
Yes.
If you can quickly recap, like a big picture, like what themes, what trends you are seeing in the market.
Sure, sure. Thank you, Puneet. Thank you for having me. We reported our first quarter last night. I think it was a very solid result. We beat our guidance. CI&T is growing consistently, 13.7% in constant currency growth year over year. I think also we present a very solid bottom line, and maybe that margin that speaks with the guidance for the year. By the way, we are reaffirming our revenue guidance of growth of 9%-15% with midpoint of 12%. I think we are very confident on that. Also the adjusted EBITDA margin for the year between 18%-20%, midpoint 19%. That is, I think, a solid profitability. I think we also present some evidence, especially pipeline commercial activity is doing good this year. We have pipeline that is 30% higher than the same period last year.
The conversion rates are good. We credit that to our AI strategy and the way we organize our positioning and our offerings around the opportunities on efficiency, on customer experience, and data decision-making around AI. A very, very solid start, and we are very confident.
One thing that surprised us, like going into this earnings cycle, like after Liberation Day, we were worried how just the macro shock might have impact on certain clients, especially folks in retail, CPG industries. From your guidance, it did not look like there was much impact. Even in those industries, it did not look like there were many delays that you experienced. Can you help us understand why the macro news and all did not have the impact that people feared?
Sure, sure. I think the cohort of clients, of the main clients of CI&T are very, very large companies, very solid companies. We are working on very critical digital initiatives. I think as what we are doing is very strategic. They will not stop investing because of short-term volatility. I would credit the main reason why we are not feeling this downside is because of the cohort of clients and the kind of problems we are working with them.
Can you give us examples of like the digital projects or AI projects that are continuing or that clients are kickstarting in this environment?
Sure. For example, in Brazil, all the large financial institutes, and especially large banks, are in a very competitive moment regarding customer experience, customer engagement. I think this is driving a lot of demand because it resonates with our capabilities of looking at this journey end to end and adding a lot of value around, innovating a lot around customer experience. If you look at different markets, you also see a huge opportunity on finally addressing legacy systems. With AI and our Legacy Modernization Studio, we can really address this long-term challenge of large companies. If they migrate their legacy systems to the cloud, they will start moving faster, being more cost-effective, and at the end of the day, create a better customer experience for their customers.
This is also very critical, and now it's even feasible with much less risk and in a different equation of return on investment. This is also driving a lot of demand. We credit that to the way we organize our capabilities, our AI Agents, CI&T Flow towards a set of very important challenges our customers have. We are fulfilling our growth with that.
Can you elaborate on CI&T Flow? From what I'm hearing is like there is demand for certain like AI core modernization, those projects, and you have to have capabilities to benefit from that. What is it that you are doing? They talk about CI&T Flow that differentiates you from other companies.
Sure. I think since we realized, I think the milestone for our industry is the launch of GPT-3.5 in late November 2022. From that moment on, we realized that we would have a great opportunity if we embrace AI in a, I would say, in a very comprehensive way. The first step would be how we create a safe environment for CI&Ters and our clients to really start learning how to reinvent software engineering based on the exponential growing of AI, generative AI capabilities. Then we launched it. We worked in the first half of 2023, and by July, we were launching the first version of CI&T Flow, a robust end-to-end platform, already connected with all the relevant foundational models, already co-creating with five of our 10 largest customers.
We were working in a very enterprise-setting environment with security, with privacy, with all the reliability that are non-negotiable for our cohort of clients. From that, we started retraining our teams. Now we have 7,000 people using AI and Flow daily. We also have the opportunity to create a growing number of AI agents for different domains and problems. Now we have more than 3,000 AI agents in the platform. We are connecting these agents in the agentic way. It is an exponential curve of gaining efficiency, productivity, and really the ability to not only address the legacy problems, but also the new challenges that our customers are facing. I think that was a very smart move, very early and bold move from CI&T and our customers. Now we have 100% of our customers take advantage of CI&T Flow and our AI-boosted teams.
Now I remember you've been talking about Flow, CI&T Flow for a while, and it's beginning to see like the results of all those investments. You mentioned agentic AI. Like obviously, like it has like the latest buzzword in GenAI era. We hear like the same concept, like services as a software, right? Increasingly more services work will be delivered as a software or a platform. Like why are like IT services companies broadly the right type of firms who will address that opportunity? Why couldn't it be like the software companies or like a pure play companies, private companies, which lead with the platform, less people, more platform-based solutions?
Puneet, what I see now is because the equation, return on investment, is changing dramatically because of hyperproductivity. I see the build versus buy equation changing in favor of custom development. We are just in the beginning of this radical curve of hyperproductivity. What I see is as we evolve the capabilities of the model, the latency, even with more diversification of foundational models, and including the advent of the open source models as a relevant part of this puzzle, I see tremendous opportunity on innovation around AI solutions. I believe this will replace a lot of things that now are considered part of the buy side of this equation. What I foresee is a much larger market for solutions, custom solutions, but in a very different fashion.
I think companies will have to verticalize their capabilities to be really aggressive on designing the best solutions for a specific problem. You need to know the business, the industry, not only the technical part of it. I see more potential differentiation on verticalization. That is CI&T strategy, going from vertical to vertical and creating specific custom AI-driven solutions compared to the game of very horizontal play of the large IT consulting business where they go to A- Z, but with very standardized solutions. I see a tailwind in favor of what we are doing.
Got it. That's very interesting. It got me thinking, like, it will be like back in the days, how there was software companies would provide ERP and IT services companies would do customization, bring that industry knowledge and expertise. Now IT services companies will add a platform or a solution that is more industry-focused that sits on underlying software.
Yes, I think it's a trend, and it will be a big opportunity for companies that move fast in this direction.
Yeah. No, very good. That's great. Other question, other concern that we hear from investors around AI is about like all those new projects, whether it's cloud migration, core modernization, agentic platforms. What's the source of funds for all those projects? Like are clients cutting back on their operations, like the business process, because they don't need as many employees, paralegals, admins, and AI is doing those jobs? Or are they just moving funds from other discretionary projects into this?
I think the equation for legacy modernization is more regarding return on investment. So the kind of speed and flexibility you're going to have as soon as you modernize your legacy system for getting more customers, increase your client acquisition strategy, improve your customer experience so you get more customers and more business. I think it's more about competing with other companies that are also challenging the status quo regarding customer experience than moving from one IT bucket to another. Of course, there is a lot of opportunities of automation that will free some investment capacity. But specifically for when you are talking about mission-critical platforms, it's kind of urgent that you migrate these platforms to the cloud where you have another level of scalability, flexibility, and so on. This is just a foundation of the digital transformation.
Really, when we say that we are in the second chapter of the digital revolution with AI, this is a backlog from the first chapter, right? It's still there. The majority of large companies are still dealing with very old, 30 years old legacy system, and it's almost impossible to compete in the dynamics of the current market because of the new technology possibilities and new consumer behaviors if you not seriously address this legacy.
Yeah. AI will make it easier to take care of this technical debt.
Yes. Finally, this is the good news. Something you would spend, I don't know, seven, eight years and hundreds of millions, now you can do in two or three years in a completely different cost equation. I think this is the opportunity.
That is also like when we talk to some investors who worry about the future of IT services or outlook for companies like even yourself, like they ask us about this developer productivity, that AI will, the lot of work that is being done manually can be done using AI, right? What does that mean for IT services companies? Because naturally, project size on a like-to-like basis goes down. Is that the response? Like or like how would you make us feel confident that the incremental work that will come from AI will more than offset or at least offset incremental productivity?
I think if we look at the history of computing on Earth, I start in 1946 with the ENIAC.
Let's go. Let's start with that.
The first general-purpose digital computer. In the last 80 years, the productivity has been increased a lot. This equation, every time we have a leap in productivity, we have an increase in demand because there are a lot of problems for two reasons. First, the return on investment increased. A lot of things you were not considering to automate or to add technology now make sense because of this equation. Another thing that's happened, especially now with AI, there is a class of problems that before AI, we were not considering to use technology to address, now are addressable using technology. The number of challenges and problems that we will be able to solve is much, much higher than to consume this new jump in productivity. This equation is always, you need to look at it as a two-part equation. Productivity means demand.
Got it. Got it. You talked about like you have 7,000 people who are trained, who use AI tools, solutions every day. Last night on your earnings call, you talked about 85% of employees that use AI.
Daily.
Daily. Talk to us like the effort required in getting people in the training effort and why your peers cannot catch up or replicate what you have been doing in training your employees.
I think our strategy was a very comprehensive one. First was creating a vision, a purpose. Why CI&T is doing this? Why we are creating Flow? Why this is important for our clients and for the future of our clients and for the future of CI&T? We have a purpose. We want to be a serious protagonist in this AI revolution. We want to be the first IT service company that will really handle this in a very aggressive way. We create a lot of opportunities for the CI&Ters to learn, to deep dive on AI, on Flow, training, formal training, certifications, a lot of incentives in career, bonus for executives. We measure every single day who is using, who is not using, why. It was a full period of radical PDCA around we need to put our teams inside this trend.
Six months later, it was clear that we were winning. Everyone was excited. We started to see a lot of innovation coming from this reinvention of process or workflows that we could do in a different way. Another thing I think we got right was we did it for our clients and for our production teams, but we also created a program we call uPrompt for all the support areas of CI&T. If you are CI&T in our market, in our financial, in our HR area, you also need to embrace Flow. If you are a coder or if you are a no-coder, there is a lot of things to learn and to do.
The idea of designing the future of CI&T as a reinvention of our business, combined with the reinvention of what is to be a professional in this future powered by AI, I think that connection was the main flywheel that allowed us to move so fast during these last two years.
Do you have to hire different types of people now? Are you hiring the different skills?
Basically, the first step was basically reskilling. Now we are doing a very, very strong bet around fresh grads. Probably you heard. We just onboarded more than 400 trainees. And we prepare a training, a very specific training. We want to create the first AI Native Generation because in the last two years, we learned that the more senior you are, the more hard it is to change.
Yes.
The more young, the more in the beginning of your career, you are more open to really reinvent your capabilities or skills the way you see this opportunity. NextGen, that is the name of the program, is our huge experiment on creating the first generation of AI native coders. It is just for coders now. We are very happy with the early results we are getting.
No, that's great. At this time, are there any questions from people in the room?
Yeah. Could I just, first of all, thank you so much for being here, Cesar. I appreciate you. Could you elaborate on the kind of folks you're hiring and what it takes to sort of train an AI native developer? Maybe if I could ask a follow-up built into there, how do you expect that to keep changing over the next couple of years? Thanks.
Sure. These are basically people that are graduating on computer science or things like software engineering or some math, especially for data, some statistics, math background. Basically, our training program is six months to, let's say, in-room deep dive on AI and Flow, and then four months on the job in real challenges, real engagements we have been coached intensively. Basically, we believe that this very young, fresh professional can add value after six months of very intensive and focused training. For the future, I think what I see is we are still decoding the new capabilities or behaviors of this new generation of tech talents or professionals, but basically less emphasis on hard skills and more emphasis on soft skills related to curiosity, to being innovative, being less attached to one way to solve a problem and so on. We are decoding that.
I think this is the future of a good chunk of our cohort of employees.
Let me ask about margins. Your guidance for this year is 18%-20% on just a little bit of margin basis, which is quite a wide range. Maybe talk to us, what are the levers in the model that can push margins higher above this range or even towards the high end of this range? How should we think about margins? You had some margin headwinds in Q1. Why will some of those headwinds not continue beyond Q1?
Sure. I think in the short term, as we are growing fast, just the dilution of our G&A is something we can leverage. We are using that leverage also to increase our sales investment because we see a lot of opportunities. We have an edge in terms of offering and differentiation. It is a good moment to increase our investment on sales and go-to-market strategies. It is natural. I think another leverage is we are seeing less effort to onboard new employees because of AI. We can speed up this process to build ability and also reduce the overhead of our senior people having to stop to really help someone that is arriving in a new business or project context. We can use AI for that. You can really solve 90% of your questions with a model, not with a person.
That helps a lot in the business, in the onboarding process. In a more strategic way, I think the commercial model will evolve. We are doing a lot of experiments, not only migrating time material for a fixed price, but also creatively testing new commercial models where potentially we can capture more margin. This is early stage, but I think in 12-24 months, we probably will have a portfolio of commercial models that can help in the long term to increase margins too.
You've talked about, say, how much productivity you can extract using AI in typical coding effort, right? Your peers, we hear numbers 20%, 30%, 40%, numbers like that, X percentage of productivity using AI. My question is, when you bid for contracts, when you go to a client, do they care about that number at all? One vendor saying, "We can do it using 20% AI, other 30%." How are they taking those decisions when everything is so new and so uncertain?
We are doing something much more concrete. Let me get what your other vendor did in the last six months. And we measure that. And we say, "Wow, this is with the standard AI-boosted team of CI&T, we can do it in half of the time or half of the hours in a very concrete way, especially if they are already using CI&T teams. They have these numbers." I think playing in our favor in the last three decades, one thing that puts CI&T apart is our discipline on measuring everything we are doing. And in particular, productivity is something we handle in a very concrete way. With AI, it's very easy to assess the current productivity of one team and compare with what would be if this team was using a different methodology, a different set of platforms and AI agents like CI&T Flow. It is very concrete.
It's not an abstract discussion about, "I'm 30% better." It's about what is your current baseline of productivity and where you can get in three or four months if you go in a different direction.
Talk to us about your use of cash. You have used M&A. It's been a while since you've completed a deal. Talk to us, how do you think about M&A as one of the levers? Many of your peers have gotten very acquisitive in the last one year compared to you haven't done much.
Yes.
How do you think about M&A as a driver for future organic growth?
Sure. I think we see M&A as a long-term strategy to accelerate our organic growth. I think in the current moment of AI disruption, we continue to scan the market, but we are looking at the market. We have a very high bar because what I see is smaller companies are facing a very hard time on handling the AI revolution. If we acquire a company, and basically the main reason why we are acquiring a company is the portfolio of clients. If these small companies do not have the kind of relationship that we can scale for an AI discussion, AI transformation discussion, we are going to destroy value.
Having said that, our main geography is the U.S., and we continue to look for good companies with a good portfolio of large clients, but also checking if the level of relationship, the intimacy is enough for CI&T to scale this relationship to be able to apply the AI concept and solutions we are talking about. I think this is a very high bar. Having said that, we continue to look at the market. If we find a good target, we will execute another M&A, and probably here in the U.S..
Very good. We have about three minutes left. Any last questions?
You mentioned some success in financial services, particularly customer experience with banks. Would you say that's by far and away your kind of most successful near-term application of some of this AI stuff? Or would there be any other interesting vertical implementations or callouts you want to share with folks?
I think every customer-facing industry will have to reshape the customer experience strategy. A more competitive environment will move fast where we have more digital natives participating in the competitive game. The increments will have to move fast. I think it is more an equation of competitiveness than the intrinsic characteristics of the specific vertical. This is different from geography to geography. As I mentioned, in Brazil, it is a very interesting moment for financial services, but I see a lot of opportunities in consumer goods, especially when big, large companies want to really understand better their customer, the end customer, the direct-to-customer strategies, or leverage hyper-personalization to a more intense use of data and AI. Another vertical, retail is always a battle among the traditional retailers, and the marketplace is very well designed for producing better customer experiences.
Traditional retailers will have to move fast if they want to compete in this space. I think you're going to see this battle in every single industry where customer-facing is important.
That makes sense. Thank you, sir.
Let me quickly ask one more. You recently started reporting results in USD . More Stanley questions, so sorry about that.
No, no problem.
The feedback you have gotten from investors on that, and what else you can do to drive investor interest here in the US?
I think it was an important move. Now we are reporting in standard U.S. dollars. Easy to compare CI&T with our peers, with the vertical. Another thing is, I think we are a company with three decades, so 30 years of consecutive growth, but for the market, we have only four years. We are new, but consistence and our ability to continue to expand, to grow, to adapt, to take advantage of moments like this one where there is a technology disruption and also the big shift in consumer behaviors, I think this resonates with our track record. One thing that I think is very important to understand is the fact that we are 7,000 or 7,400 now. It's a big number for the kind of demand our clients have, but it's small in terms of the whole IT service industry.
We can continue to grow aggressively without any bottleneck on the supply side, especially because we have a very comfortable position in Brazil. That is the largest tech talent pool in Latin America by far, and we are dominant for us there. We are diversifying. Now we are ramping up Colombia and other places. I think projecting CI&T in a 10-year high growth is more about how we're going to leverage demand than how we're going to manage the supply side of the equation.
Absolutely. Thank you. Thank you so much for joining us.
My pleasure. Thank you for having me.