Brian Bergen, Head of IT Services and Payments for TD Bank. Thanks a lot for joining us. Very pleased to have CI&T here with us today. From CI&T, we have Bruno Guicardi, Co-founder and President of US operations. Bruno, thank you for being here.
A few people that didn't Guicardi my last name.
A lot of practice.
A lot of practice.
CI&T is a digital engineering provider. It has over 7,000 global professionals. The company offers a wide range of services like technology, strategy, customer experience, custom software development, cloud services, and data and AI. Over 80% of the workforce is based in Brazil, from which they serve clients across the US, Brazil, and Europe. A nice growing digital engineering provider, recently putting up good performance. We're going to get into demand. I think before we get into kind of the current client sentiment, an intro probably makes the most sense for anybody that does not know the story well. Bruno, can you just start here for those that are less familiar? Just provide a brief overview of the company and where you see the key areas of differentiation for CI&T.
Cool. Thank you for having us. Appreciate the opportunity. We started the company, and I think the initial vision was 1995, 30 years ago, as a pioneer of the internet. Kind of just we started by showing the possibilities that new technology can do for business. That is what kept the company running with other waves of transformation that is kind of technological basic. Started with the internet, then was mobile, and then cloud, and then AI, and now GenAI. I think what we do, and the mission of the company is actually helping our clients modernize their tech stacks, understand what's the technology that will kind of change and impact their business, and help them to adapt. That is what we've been doing for 30 years. That is actually kind of that fueled the growth of the business.
OK. Where are you spending your most time? President, US, NMEA, just give us a sense of your day-to-day and what's different now versus maybe a year ago.
Not very different from a year ago. It's mostly client-facing and business development. Probably 60-40, 60 more out of the door and 40 kind of keeping the teams aligned and kind of well-funded and well-motivated to kind of go through this major transformation that we have in our industry, which is the GenAI one.
OK. All right, very good. Based in Brazil, 80% of the workforce there. Latam certainly has become a region that's become more and more attractive for nearshore development. Talk about just what makes the region attractive, the talent base attractive to enterprise clients today.
Yeah, I think for digital specifically, it's an environment where there's a lot of uncertainty. It's very unlike when you're doing IT implementations for internal systems, like ERP implementations, supply chain implementations. They're more under control in the sense that ERP implementation, you just talk to your people and understand and design what the process that everybody will know. You agree with them what that's going to look like, and then you do it, and that's a done thing. When you're building experiences that serve your clients, guess what? They're not on your payroll. It's very important that those experiences actually create value for them because you don't control them. Guess what? It's a way more uncertain and volatile environment. That means those software requirements, what we're going to build, they change a lot. You need to pivot.
You need to kind of be flexible to do things differently, to change plans. That kind of being the same time zone makes a lot of difference for that type of work stream. That is what we see our clients really enjoying and paying a premium. This works way better than just send this 12 time zones away and receiving something that you need to adjust. Communication and ability to kind of be in context and change very fast, it makes a lot of difference for that type of environment. Within digital services, mainly kind of the consumer-facing and the customer-facing experiences, that makes a lot of difference and creates a lot of value for our clients.
You bring that design and that experience together with the technical component that are key.
Yes, exactly. Of course, it's a massive talent pool in Latin America. Brazil specific is the second biggest tech talent pool after the US in the Americas. Even the rest of the region, Colombia, Argentina, Chile, we have a very big talent pool that specializes in those kind of more modern technologies. You have a very deep talent pool there that you can tap.
You're also selling into that market too from a revenue standpoint, what, 40% or so Brazil?
Yes.
Talk about the dynamics of demand in Brazil versus other US or Europe. Anything key?
Usually, it's not very different. Brazil has a very, maybe in some sectors, Brazil is ahead. For example, financial services, Brazil has a way more modern financial services market than the U.S. Shock alert. You guys are probably 15 years behind Brazil here.
New bank fix, all of that.
It's just I don't even, I live here, so I have to live with checks and stuff. Don't make me go to that. There are areas where that market has a lot of things to teach to other markets. There are markets here that are more dynamic and modern. We try to kind of leverage that expertise across the globe and learn with clients that are more sophisticated and teach in other markets that are still behind. That dynamic really happens.
That's an advantage for you to bring newer capabilities elsewhere.
Yes.
OK. Let's talk about that then as far as demand goes. It's been volatile in the space now for, it feels like, forever, two years or so. What are you seeing in client demand? Talk about some of the client conversations you're having now. If you can, kind of bring us before election in the U.S. to what has transpired since.
Yeah, we see the US is a little more kind of conservative, our clients here, than we see in Brazil, for example. Brazil, it's growing a lot, a lot faster. I think they're a little less impacted by the Trump administration's last actions. They're doing really well. Here, fortunately, our clients haven't been impacted so far. Hopefully that continues like this. So far, so good. So far, we haven't had any impacts, any kind of cancellations or postponements in terms of engagements, in terms of investment that they had planned. So far, so good.
You've got interesting vertical exposure, right? You think about you have consumer exposures, auto exposures. What do you think is different there that you're navigating that versus others that are calling out some of these challenges because of tariff uncertainty?
Yeah, but even our clients here, they potentially can be exposed to the tariffs. But so far, at least in the digital side, they haven't pulled any type of investment. I don't think there's a difference in terms of the exposure of the industries. I think there may be kind of a protection of the digital investments because usually the return on investment for them are very high. Probably the last one in the line to actually be impacted.
You're favorably exposed to at least those programs for now.
Yes.
OK. How have you forecasted the year? Talk about the visibility you have for sequential growth.
Our visibility usually is very high. We're very much, our growth usually comes from last year's clients. It's more than an expansion portfolio. Historically, 5%-8% comes from new logo revenue. It's a small number. We don't depend a lot on new logo closing for growth. Again, to your point of visibility, we have a very high visibility because 90%-93% of the revenue coming from the existing clients where we have historically high visibility. For the new logo component, we're kind of feeling very confident as well because at this point, we have 30% higher commercial pipeline compared to last year. Even commercial pipeline looks stronger than last year. Even for that portion of 5%-7%, 8% that comes from new logo also looks stronger this year than last year.
As far as things, that's obviously encouraging for the 30% higher, as far as things coming out and converting from that pipeline into signage.
Yeah, we don't see any changes in win rate or kind of duration of lifecycle, the deal lifecycle. If those parameters kind of keep the same, we are going to see a higher conversion rate, a higher new logo revenue coming in 2025.
OK. All right. As a mid-cap provider, you typically would have client concentrations. Certainly, the top 5%, top 10% for smaller providers can drive the year for you. Talk about some of that top 5%, top 10% client cohort. Give us a sense of the exposures across that by industry. How are you feeling about those relationships? Are they all broadly going the same way? Is there any puts and takes around that?
Yeah, to your point, to our size, there will be our size dealing with the size of the organization that we deal with, there will be, if we're doing well, they will kind of pull us more, and we will have concentration. That will only kind of dilute with time, which actually we've been seeing since the IPO, kind of concentration of the top 10% continues to go down. I think it's something that will only kind of really become a smaller issue when we kind of keep growing at a very high pace. Keep growing, that cohort will represent a less amount of the revenue.
I think it's just the other side of the coin there of just dealing with very big clients and doing good work and just being dragged to kind of do more and more and more of that and replacing poor performance within those environments. Just for the companies we acquire, actually, we kind of have to be tolerant to that concentration as well. Because if they have the right type of client, like big clients themselves, and if they're good, there will be concentration there.
Yeah, fair. OK. And understanding a couple of your clients are large Brazilian financial institutions, what other players are in that top 10?
In Brazil, we're very kind of blue chip. That's why actually we've been able to grow. Before IPO, we grew like 30%-35% every year, even in years of economic downturn, which in Brazil happens more often than here. Even so, we grew 30%-35% every year because that's a very blue chip. It's the biggest banks in the country, the biggest telcos, the biggest retailers, companies with very sizable investments and stability to actually keep investing in technology and modernizing. Usually, they use kind of those downturns to actually invest more and to prepare themselves for that side of the turn.
OK. OK. As far as growth, and this was a group you mentioned you were growing 30%-35%. The digital engineering group in total was growing 20%-25% on a normalized basis for many years. It's since pulled back.
Yes.
As you kind of step back and look at all the macro volatility, but then the technology trends that are out there, do you think there is something different now where the group can't get back to that level of growth at 2025? Is there any reason that there's something structurally that's changed? Or do you think it's just something that we have to pass with all these cyclical factors right now?
Yeah, yeah, that's a good question. That's the trillion-dollar question again. I think there will be a massive demand. I think the new demand will be different from the massive demand from the past. I think it will be related to this absolutely new type of interactions that we're going to have in the new world, which we haven't even started. Imagine that all mobile apps, all websites, all kind of digital interactions that exist today, we have to be rebuilt and rethought with GenAI in the center.
Voicer.
Voice, more human-like interactions. None of our clients have started that journey yet. They are still just leveraging GenAI for operational performance. No one actually kind of starting putting their guns towards that problem yet. I think it will happen. I am certain that it will happen. It will happen exactly what happened with the mobile revolution. Back then, we were talking to CIOs. They said, we need to start doing mobile. I said, no, no, no. You have to see security. You have to look at the compliance of this. In 12 months, hey, let's talk about mobile. What happened? My CEO demanded that we build a mobile app. Why was that? I think that is what is going to happen again. What happened was actually consumer adoption of mobile.
Consumer adoption of mobile drove enterprises to respond to, how come you don't have a freaking mobile app? That drove the companies to respond. OK, now everybody has to have a mobile presence, have to build that. That will happen with GenAI, with people using ChatGPT, Gemini, and whatever Apple comes up with when it comes up with. When people actually start using this on a daily basis, their expectations on what a digital experience is will change. They will start pushing our clients in the enterprise world to say, how come your interaction is this stupid, is this dumb? You need to rebuild everything. That hasn't even started. We will start. When this starts, it will be a tsunami of demand. That will be the new face of demand that will be different from the digital era.
It will be a different thing. It will be still on the kind of customer interaction, customer experience, but driven by a different fuel.
Expectations of a consumer.
Yes.
OK, so watch the consumer companies see how that evolves maybe as a GenAI model.
Yes. My take is there will be a critical mass, a point of critical mass that happened to mobile that will happen to GenAI, where that expectation will change. That pressure will start, like people calling you guys.
Banks.
How come TD? You have this type of interaction with customer service. How come? That pressure will drive. It will drive because otherwise, people that are smart, there's competition. The people that actually take their risk and kind of put that together in first will start winning market. Everybody has to respond.
OK. I guess the good thing is you have a backlog there to support that build-up, right?
Yes. We're very excited because we feel like we're way ahead of the pack in terms of the GenAI adoption anyway. When that happens, we just point our guns to that opportunity. We're already kind of on the operational optimization side. We're way ahead of the pack in terms of digital adoption of GenAI by our workforce, the results that we're providing, the productivity gains that we're creating for clients. We've seen all metrics that we benchmark, we're ahead of the curve. We're very excited when that tsunami comes, we're able to surf it.
Let's dig into that. Your GenAI platform Flow, I think it's a worldwide 80%-85% of your engineers are using that day to day.
Yes.
Talk about, I guess, what has the impact been in your engineering base from that, when you think of productivity or any other metrics that you ran?
We track productivity in the lead time, like how fast we're being kind of producing software. We see impacts from all the way from 30% to 2X to 3X, depending on how advanced the client and our teams or that client is. Way bigger, to my point again, way bigger than what we see our peers reporting in terms of very timid 20%, 25%. The impact is because we're taking a broader approach. It's not only coding. We're not trying to kind of using just Copilot. Flow is like a broader approach, like from trying to apply GenAI all the way to the ideation, so upstream in the process, ideation, prototyping, requirements, software requirements, and then kind of generating a lot of those assets that are used through the software development process.
You have to think that people that do not understand software, software development is only about coding. Coding is less than 40% of the effort. There is a lot of activities that go into producing software that does not have to do with coding. What we are trying to apply is actually applying agents and GenAI to the whole lifecycle. With that, the impact is much greater.
How is that going as far as the agents go? Are you going to market now with humans and agents building?
Yes.
How do you contract for that?
We're experimenting at this point. We still, last year, we didn't try to kind of come up with any kind of innovations on pricing. We just wanted to kind of deliver a lot more productivity and capture market share and wallet share from our clients. We did that. We kind of replaced a lot of people that are laggards and people that didn't have that kind of productivity differentiation. This year, we're experimenting with different things, different price points because we have more productivity that we can exercise, different price points, different ways to capture that intellectual property. We're calling kind of ACUs, Agentic Computing Units, like the use of those agents that are creating, the consumption of those agents that are creating those assets and kind of creating a lot of that productivity, charging for them as well.
Again, they're not being meaningful in terms of gross margins in 2025 because they're experiments. But we're very excited to where that leads.
Just the point about using this as kind of a competitive wedge to push out some laggards, do you see a risk in that if the industry all of a sudden starts to try and leverage GenAI as more of a way to compete and push others out? Is that a risk? Are you guys thinking about that?
You mean like if everybody moves really fast in terms of productivity?
Yeah, exactly.
The way we think about this is like even if it does, worst case scenario, let's say the industry, there's a 3X productivity gains, and the industry shrinks by a factor of 3. The way we think, and we will win in that whoever survives will be there. That's how we think. There will be losers, yes, in the market that moves at that speed. If the number of software development professionals reduced by 3X in 10 years, we're going to be growing because we're going to survive and grow in that market. We're going to be one of the leaders of that new industry.
Yeah, I guess smaller, more nimble players will be able to.
The critical factor for us is to be ahead of the curve all the time in the next 5 years. We're already ahead of the curve now. We're foot on the floor to kind of keep ahead.
OK. OK, makes sense. Stepping back from GenAI, just on the theme of competition, there has been some peers have talked about more competitive behavior out in the market, pricing, things like that, various structures. What are you seeing out there?
Yes, like the government kind of laying off a lot of people. There are a lot of factors contributing for more competition. Again, it's just dumb. We're not afraid of dumb competition. We're afraid of people that are leveraging the one true superpower that's there. That's GenAI. That's what I know. That's the only thing that can scare me. At this point, no one is scaring me. Just competition, just kind of offering whatever what's yesterday's work, that's not going to do anything this year.
OK. As you developed Flow, how did you make the decision between kind of the build versus buy decision around models?
Flow, just to be clear, Flow is a layer of abstraction on top of LLMs. It is not an LLM per se. It is a multi-LLM platform. We can connect to whatever LLMs you want to use. There are LLMs that are better for some use cases than others. We use that as well within Flow. It is a platform to build agents that actually improve the software development process. For example, there are agents where you can create prototypes and many prototypes and see what actually you prefer. There is another agent that can take a prototype and create the software requirements out of that prototype. Then you can review those software requirements before you pass on to a developer.
There's agents that kind of do the peer review of your code and suggest kind of what you should be done and connect it to a client requirement, for example. Clients have requirements on how the code should be written. Then kind of apply those specific knowledge for that specific client to that code to see if the code is compliant and if they're suggested. There's 2,500 components that our people build on top of Flow during the last 24 months. That's the power of really embedding GenAI on actually the daily work of people. It's not the Flow team that's building all components. Actually, the people serving the clients, they're building the agents to actually make their work better and faster every day.
Do you have other clients that are kind of, they have an aversion to this just because of the risks? Do you have any clients that are saying, we don't want you to use this? How are they kind of controlling that?
No, they're not. We're not trying to, again, the way we kind of approach the market, we're not trying to push Flow as a product. So it's a tool that we use to be better and to be more productive. They haven't opposed to anything like that. We kind of just make, of course, all the security and compliance checks because we're using their data, connecting to their data. They want to make sure everything is kind of pristine in terms of security there. No concerns and no pushback from clients on us to just use this to be providing faster and better service for them.
Okay. What are you doing with it internally? Are you using it in different parts of the organization to become more efficient yourselves?
Yes. Legal is using, HR is using, like other areas of the company are using GenAI as well. Everybody's trying to embrace and kind of do better work and incorporate GenAI. The massive use, of course, is in the software development teams.
Okay. Okay. I'm going to pause and just see if there are any audience questions. If not, we'll keep going.
We're running like a machine gun here.
Yes. Gates.
Yeah. I was going to, can you talk a little bit about the shorter-term puts and takes on margin levers that you have? What would it take to get back to that 18%-20% adjusted EBITDA? Any sort of seasonality on margins as well to think about the cadence of margin improvements moving forward in the year?
There's a seasonality of margins in Q1 driven by the market in Brazil. Brazil has a specific, unfortunately, inflationary culture going there. It's kind of a, there's salary adjustments every year that happens in January in Brazil. They're seasonal out of the margins. The guidance for this year is actually the midpoint is around 19. There's not a lot of variation from what we've been in the last five years. In terms of opportunities for the future, it's all about kind of capturing different price points based on actually how we progress in terms of productivity and value creation for our clients. We think that we can capture a bit of that, be it through different pricing or through ACUs, different pricing models. There's opportunity. Again, there will be a lot of change in the next two to five years.
We'll try to be ahead of the curve and experiment and see if we can kind of improve that.
Let's talk about workforce planning. You have had four straight quarters now of sequential headcount growth. Obviously, a good indicator going forward. Just how are you thinking about this year? You did have a really strong start in Q1, 7% sequential. What are some of the drivers of that?
Again, I think there are two things we're seeing that are driving conversations and traction of clients. One is kind of replacing poor performers or the laggards that are not kind of embracing this and providing the same type of productivity gains and impact for clients. The other is actually new local conversations around usage of GenAI in the business. There's also another driver that we're seeing that is kind of exciting, which is helping clients modernize from older technologies because of GenAI, which kind of was very risky before. We have like three big engagements with financial services organizations where we're kind of migrating mainframe code.
Like COBOL.
Yeah, COBOL, 60, 70-year-old COBOL that no one was actually dared to touch because there's no one alive that understands that code. Now there's GenAI that actually can read that code, kind of reverse engineering, create the kind of this is actually what that code does, and then forward engineering to kind of modernize that code into a cloud-native code. That's kind of driving a lot of opportunities for us as well. That ability to use GenAI to kind of help our clients modernize their tech stack because they need a tech stack that's more modern to compete in this new world and just kind of clean up that legacy. That's a big opportunity that will last a couple of years, I think.
I mean, that's net new revenue. That wasn't being done before.
No, because no one was brave enough to touch that code. That is kind of a new revenue stream that is becoming very interesting for us.
That's interesting because then it opens up the back end on application development too in the new.
Yes.
Cool. Okay. Let's talk about go-to-market model and Salesforce investments. Over, I think, the last year or so, you've had a more specialized motion. Can you dig into that and how you're seeing any merits from that new model?
Yeah. Like a lot of our clients are kind of have Salesforce implementations. We just thought it would be just natural that we kind of integrate a lot in the past with that ecosystem and having just the ability to actually do work in that ecosystem and help them optimize. There's not a lot of net new implementation of Salesforce at the moment, but just kind of a lot of opportunities to optimize and improve their performance on top of the platform. That's what we're doing for them.
Okay. As you go to market yourselves, anything you're doing differently with your sellers as far as the structures?
We have a lot of verticalization. Kind of trying to go by vertical, trying to lead with what GenAI can do for our clients. I said kind of try to be a little more forward-thinking and kind of what are the parts of the business, what are the opportunities that clients can really benefit and explore when they look at data and they look at the GenAI opportunities. That's how we're going to market and kind of upskilling our sales teams to actually learn that and kind of being able to actually have that type of conversation with their prospective clients.
Okay. Okay. Last question here. I guess capital allocation, talk about the priorities. I know M&A is a component there. What would you look for in targets?
We're looking for companies that are similar to us. We don't think we need a lot of diversity in terms of capabilities at this point. We're very happy with the position we have. We're just looking for people that have a footprint in industries and geographies that we don't have a lot of footprint. We're looking for equals that have that footprint and have the ability to have a track record of growth as well. Our main strategy is organic growth. Once we incorporate one of those companies, we want to make sure that they are embedded with the mission of high growth themselves so they can kind of have a track record that they can do that. Once they're in industries that are targeted for us and they have a footprint that we don't have, that's kind of where we're thinking about it.
Just given a lot of uncertainty, is this an environment where you expect you can get some deals over the line or do you wait?
Yeah, we're actively looking, but we're not kind of compelled to do anything just because we need to do it. It's just we think it's right. We're going to do it. We're very picky. There's a lot of fits in terms of culture, in terms of, as I mentioned, market and industry fit. There are a lot of boxes to check. If we find the right targets, we're going to pull the trigger.
All right. We'll be watching. Thank you, Bruno, for the time.
Thank you. Thank you for the opportunity.