The Founder and CEO of CI&T. He's going to be fireside chat, have some Q&A for you. Before we get into that, for those less familiar with the history of CI&T, would you mind introducing yourself and CI&T, the types of services you provide, and the types of clients you work with?
Sure. Thank you for having me, and good morning, everyone. CI&T is a global digital specialist founded 30 years ago in Brazil. I'm a Co-Founder and CEO for three decades now. We have been growing consistently through all these three decades. We now have a global business. The largest market is the U.S., followed by Brazil. Brazil and the U.S. represent roughly 90% of our revenue. We have emerging new markets in Europe, and APAC represents 10% of our business. We specialize in end-to-end digital solutions from digital strategy, customer-centric design, and the full stack of software engineering. Now, of course, everything is boosted by AI. AI is a huge tailwind for our business because companies need to embed AI in everything they do. We are basically specialized in the cohort of very large companies.
Typical clients of CI&T are large consumer goods companies like Coca-Cola, ABI, PepsiCo, large retail companies in the U.S. and Brazil, large banks, and other insurance companies, and different players in the financial services. Basically, the main vertical is financial services, followed by consumer goods and retail and industrial goods.
Thank you. You mentioned AI. Let's just start there. High level, why do you think tech services companies are necessarily beneficiaries of the Gen AI opportunity compared to, say, software AI platform key replays? What do services providers bring to this that others cannot?
Sure. I think you can see this whole disruption. You have companies building the foundational infrastructure, foundational models, and then specialized companies fostering specific tools. We, tech service companies, are in the business of translating these new technology possibilities to the specifics of the companies, to the specific platforms, workflows, and also to fill the gaps between these platforms, models, and tools, and the reality of a large organization. We are in this game of really turning the potential of AI into real concrete results for large companies.
Understood. I think that goes towards your CI&T/FLOW platform. Would you mind talking to us about what that is? Then we'll get into some more around your usage of it, internal stakeholders versus, say, clients, and the % of revenue coming from them. Let's just start out with an overview of FLOW.
Sure, sure. Basically, three years ago, when this whole disruption started, we created our own CI&T/FLOW platform. It's an end-to-end platform where our teams and our clients are building agents to really streamline the whole process of producing digital solutions. A lot of use cases and agents are around efficiency and also vertical use cases focus on leveraging the potential of AI for customer experience, for data, for insights, and so on. What we did, we created a safe, a very secure, reliable environment for our clients, more than 150 clients, to play AI and to play the hard game of adopting AI. It's a way to really foster a necessary reskilling of the whole workforce and also evolve in creating new layers of value around AI. CI&T/FLOW now is basically heavily used by CI&T and our clients.
90% of our teams and hybrid teams with our clients are using FLOW daily. That means that roughly 85%- 90% of our revenue now is somehow impacted by CI&T/FLOW.
Understood. With more 85%- 90% of revenue being impacted by CI&T/FLOW, is there any variability in profit for those clients that are more mature in the usage of FLOW versus those that are not?
Yeah, we see a lot of correlation of expanding within our portfolio and the adoption of CI&T/FLOW. CI&T/FLOW is a huge differentiator for CI&T now. I would say in the last two years, where we are turning this differentiation in growth for CI&T as the main focus, now we are experimenting with new pricing models that potentially can also create some improvements in margin. The whole industry is, I would say, standardized in a time-mature model, especially for digital solutions. There will be a normal transition time for, I estimate, in two to five years, when you're going to see a more different set of pricing models, not only time-mature fixed price, but outcome-based and even consumption-based. We are talking about agents.
There's a lag from the possibilities of AI-driven new business and pricing models and the reality of large organizations where they have to adapt their procurement practice to this new reality. Probably we're going to see this incremental change. This is almost mandatory because of the new possibilities around AI. It will take a few years. Probably companies that know how to play this new game of AI will have some opportunities to leverage margin scalability.
Understood. Do you see, you mentioned AI being a lot still for productivity gains. Do you see movement in the future for more revenue generation from AI? Where is CI&T/FLOW in that journey?
Yeah, I think these first two to three years, basically, the main opportunity was around efficiency. Companies looking for opportunities to streamline their process, to reinvent workflows based on the new AI capabilities. Now we are seeing the beginning of, I think, what I think is going to be a huge source of demand. That's the reinvention of customer experience based on AI. I think a new layer will be introduced in the way we interact with the machines, not only based on screens and buttons and the queuing paradigm, but more conversational, more intentional-based customer experience. This is a huge transformation in the customer journey. Every single company will have to rethink and reinvent the whole layer of customer experience. This is a huge demand for companies like CI&T.
Understood. Now, with that, in addition to the profit side, there's the questions around deflationary impact of AI on revenue. What are your thoughts on the evolution of volume versus price and like as AI becomes more prevalent?
Sure. I think if you look, we, in a very macro way, we look at IT services as 80% volume-based and 20% value-added-based or value-based. It's easy to see that AI will be deflationary for the volume-based, but will be expansionary for the value-based. We are playing the value-based. Things in the volume-based, BPO, help desk, system maintenance, a lot of very commoditized, repetitive kind of work will be deflationary. If you look at the opportunities around customer experience, leveraging the benefits of data, AI, and even the AI transformation, how you change the culture, the mindset of your workforce to embrace AI, everything is about leveraging value. I think we are very well positioned in the value-based part of our industry.
Understood. Do you see differences in vertical adoption of AI? I know you've had strength in financial services. Talk to us about that.
Yeah, it's clear that industries more heavily based on customer-facing roles and industries heavily based on data and tech are early adopters of the benefits. The time-to-value of applying AI is much shorter. When you go for more legacy industries or B2B industries, you're going to see a different curve of adoption. It's unavoidable for every single industry, but the pace will depend on the time-to-value. Clearly, financial services is probably the most aggressive adopter of AI. You have retail, even consumer goods, with all the data. The opportunities around data and AI insights are huge. Different opportunities in different timelines depend on how exposed the verticals are to tech and consumers.
Understood. Switching gears to the markets and clients. You know, overall, how is client behavior? How is Q3 shaping up? You've had strong double-digit growth the past several quarters. What are you seeing today?
We see a year of budget and demand stability. That is a very good scenario for playing our main game, which is replacing low-performance competitors and getting more client share based on the differentiation we could achieve with CI&T/FLOW and a new set of offerings we are creating around AI, like legacy modernization, customer experience renovation, and so on. I see a good scenario for growth, basically, not because the budgets are increasing, but there is much more stability around budgets than last year.
Got it. Are you seeing any difference between those U.S. clients and the LATAM clients around spending patterns, project types, or AI adoption?
I think Brazil and the United States are similar. I don't see a huge difference related to adoption. I see a more meaningful difference based on vertical, not on geographies.
Got it. Got it. Is there any difference between how the two regions are addressing potential tariff impact or just generally macro environment?
We see, of course, a lot of discussions and expected volatility regarding the macro environment. I think mainly because we are playing this specific AI opportunity, somehow we see that things continue to move on because AI is, I think, number one priority for every single client we are talking to.
Got it. Regarding the sequential improvement in LATAM, what are your views on the IT budgets there and just the industry overall, maybe some folks who are less familiar with that market?
Yeah, what we see is stability. Maybe we're going to see a small increment for next year following the natural demand that companies need to continue to modernize their infrastructure, their tech infrastructure. They need to continue to evolve in their data strategy and so on if they want to leverage the huge potential of artificial intelligence. There is a lot of value also to be captured by efficiency. If you apply AI in the right way, you can open a space for innovation based on savings you can collect in the short term. It's an equation of applying AI for efficiency and leveraging investment space for more aggressive innovation.
Are you able to give us any examples of the type of work you're doing with companies? You know, call that specific verticals, just that general and specific verticals, or pick a client, no need to disclose them.
Yeah, basically, we see two kinds of demand. Part of it is horizontal demand, basically, legacy modernization, speed up moving systems to the cloud, improve the overall security and customer experience layer, and so on. This is, I would say, half of our demand. There are vertical opportunities where we are getting specific kinds of problems related to the market or B2B or B2C opportunities to really speed up customer adoptions, consumer experience that we will leverage through using a new kind of customer service experience based on chatbots or improving the e-commerce experience based on the new possibilities around capturing the intention of the consumers and turning it in a streamlined way to convert in sales. Basically, this is what we call vertical demand. This is more specific to the industry, to the customer. Everyone is doing the run of preparing the whole digital infrastructure for this new game.
Got it. You mentioned winning share from competitors. Are there specific types of competitors that you're running into a lot in winning share from? Are you seeing more digital pure plays? Are these the big system integrators? What type of companies are you winning share from?
I think companies that were not prepared to play the adoption of AI in their workforce. I think we were very pioneers since day one. We started reskilling 8,000 people to be heavy users of AI and reshaped our workflows, our daily activities, not only our tech teams, but our non-tech teams, our designers, our leaders, our project managers. This is paying off in a very strong way because now we see that the kind of methodology we create for this reskilling is now being requested by our clients. Everyone is now seeing the potential of AI, facing the challenge of how you leverage your workforce capabilities and engagements around AI. We have also a specific offering around adoption. It's based on our own experience on reshaping our own team capabilities.
Are you training your teams by vertical, or does CI&T/FLOW go by vertical? How are you thinking about this in terms of go-to-market and industry focus versus, say, a horizontal capability?
I would say that the reskilling is very horizontal, and our go-to-market is very vertical-based. This is a combination of creating the foundational capabilities and also convert or translate that for specific industries and clients.
Got it. You know what's working well with your top client? Obviously, it's growing very nicely. Talk to us about them, types of work you're working on for them generally, if possible.
Sure. Our main client is a huge financial service company in several different businesses. They are executing a huge AI-powered digital transformation across the board. We are the main partner for that. We are leveraging our methodology and CI&T/FLOW as a way to really translate the new possibilities in speeding customer value in a very concrete way and going from one business unit to another. This has sequentially improved the way we are supporting them in this huge transformation.
Have you seen other success with other top 10 clients or maybe even smaller, kind of getting that initial proof of concept and then moving forward with more land and expand opportunities?
Yeah, I think we have a very good penetration of CI&T/FLOW and our AI-powered digital transformation services in our top 10 clients. We are growing. Even if we remove the top one, our top 10, the rest of our top 10 clients are growing 10% year- over- year. That's huge. This is basically because we are showing them concrete ways to get efficiency and improve their value capture around AI.
Got it. What are you seeing in terms of pricing environment with clients today?
I think it's stable. We see opportunities around new pricing models. As I mentioned before, it will depend on, let's say, a re-education of the procurement areas of our clients, our huge clients, to understand the new possibilities of evolving from time-mature or fixed price to different models, especially outcome-based, consumption-based models.
Do you have clients using outcome- and consumption-based pricing models?
Yes.
Got it.
We have several clients. It's not relevant yet, but it's clearly a curve that will continue to evolve along the next years.
In terms of growth for the year, in terms of visibility, are you able to break down kind of contractually committed for fiscal 2025 versus, say, what's still in the pipeline and go get and need to achieve?
For 2025, basically, our guidance is based on our uncommitted revenue. Conversion of pipeline would add on top of that. Conversion of pipeline from now on is really important to allow us to project a very strong 2026.
Got it. In terms of switching gears from growth in clients to profitability, if you just talk to us about your EBITDA margin drivers that you have at your disposal.
I think our EBITDA margin is following the seasonality curve that is normal for CI&T, with a higher cost in Q1 based on salary readjustments in Brazil. Along the year, we have price adjustments, especially in our Brazilian realized contracts. We also have the incremental dilution of our G&A based on our incremental growth. We are following the same pattern this year and aiming the midpoint of our gains.
Are you, in terms of utilization or, say, attrition, in terms of utilization, how is that shaping up? Do you think your bench is adequate for your growth thereafter? Do you think you have additional capability to increase utilization?
We are keeping our utilization rate in the healthy range of 85%- 89%. We like to play in this space, and we continue to increase our headcount based on basically meeting the curve of revenue. We don't see any meaningful difference in terms of utilization or headcount increase along the next quarters.
In terms of attrition, I know historically you've always been pretty low. How is that faring today? I know you typically talk about kind of senior management and then the broader employee base. How is that trending?
I think the market is, let's say, comfortable in terms of supply. We have been able to hire and retain people in a very good fashion. This is a combination of, I would say, a less aggressive environment. Also, our value prop for our teams is very strong around AI. We are turning every single CI&T in an AI-boosted profession. I think this is helping keeping our attrition very low and also a very high level of engagement.
Can you talk to us about your hiring? Like, do you use a lot of kind of more junior talent that you can attract with CI&T/FLOW and have this opportunity to work on interesting AI opportunities? Or is there like a push for more mid-management or senior management? Just talk to us where you're at with the pyramid of employees.
We are playing both. We are reskilling our most senior CI&T to be very strong AI players. We also invest a lot on fresh grad and trainees because we believe that there is a huge opportunity around creating a new generation of native tech coders. We had a lot of good results on speeding up careers of juniors and mid-term engineerings. We are playing both. I think it's part of our long-term strategy of developing our own people, of course, combining with some specific hiring for specific skills that we need.
Can you talk to us about your hiring in terms of where you've seen the talent come from or maybe the attrition? Where are the people going if they do leave?
I think we, in terms of geography, for our two main markets, that is U.S. and Brazil, we count a lot on Brazil and Colombia. Colombia is growing a lot. It will be a second source of talent for CI&T, especially to support our largest market, that is the U.S. In terms of, we have a strategy of creating partnerships with the best universities in every single geography we are playing and fostering long-term relationships with them, creating a reputation inside these schools so we can have access to the best talent. I think we evolve a lot. Really, we apply a lot of AI in our hiring process. I can say we reinvent the whole workflow of hiring in the last two years. Now we have a very effective way to really screen the market and find the right talent we need in the right moment.
That brings me to work from home. What is your, you know, do you see your staff working a lot on-site? Is there a work-from-home component still? How does that look like for CI&T?
It's a combination of remote and in-person. We have a very flexible model. It varies from geography and business units. There's a lot of flexibility. We believe the possibility of hybrid work is a value to our teams. We learned since the beginning of the pandemic, we learned how to do that. I think we do in a very streamlined way. We are comfortable, and the way we operate gives us a lot of scalability in terms of expanding new geographies and combining impulse moments, rituals, and to create the kind of relationship we think is necessary to preserve the culture, but also with the flexibility and scalability that remote work can give us. We are very comfortable with our very flexible model.
Understood. In terms of locations, both for clients and employees, know that the U.S. and Brazil are your core markets, but you have some exposure to other markets. Can you just talk to us about CI&T's ambitions to grow? We see competitors growing globally. What is your plan and your strategy towards this?
Sure. Despite Latin America that we are serving with Brazil and Colombia now, and North America, also counting on Colombia, we have Canada. We also have a good team in Portugal, basically focused on supporting the UK. Our business is in the UK. Recently, we started the Philippines as a way to support Australia. We have China and Japan as locations to support our global clients around the world. I think we are expanding based on our client demand and the way we see our business evolve.
Understood. Are these mostly clients, like local clients' champions, or say, like a global PepsiCo operation that you're working with globally? Is it local clients?
It's heavily based on global players, where we are supporting these companies in different geographies and time zones.
Understood. We have about five minutes left. I'll pause in case any questions in the crowd. Else, we'll move on to capital allocation as our final section. If none, one more question on capital allocation. Can you just talk to us about your priorities for the year, specifically M&A and R&D? We'll start there, then maybe talk about some past acquisitions.
Sure. I think our very strong cash flow generation allows us to focus on continuing to invest on our R&D team to develop CI&T/FLOW and the capabilities of our teams, especially around AI. Secondly, we continue our stock repurchase, buyback program. I think it's also a way to generate value to our stakeholders, our shareholders. We are ready for M&A opportunities that we continue to screen the market, especially in the U.S. If we find opportunities that will add on top of our organic growth, we will execute. Basically, CI&T/FLOW, the buyback program, and be ready for some M&A opportunities.
In terms of M&A, are there specific areas that you're focused on? Is it, say, specific verticals you want to bolster? Is it specific capabilities or maybe a geography?
Our main criteria is basically companies that are working with very large customers, customers that we see expanding to become CI&T global typical clients. The main geography is the U.S., where we see, especially in short and mid-term, the largest opportunity for high growth.
I know, like post-IPO, you went through that whole phase of a certain set of number four, so acquisitions. You made it clear that you're going to work on integrating those correctly and then perhaps looking again. We seem to be in that kind of phase two stage. You know, are you seeing opportunities that you like? Is it kind of like, why might you not be acquiring right now?
Yeah, I think we were after the initial wave of acquisition we did after the IPO. We decided to focus on our own AI transformation. I think this reskilling the whole CI&T, creating new offerings, evolve our positioning was the main priority. I didn't want any distraction from that. Now that I think we are very comfortable with the way our AI strategy is evolving, we are again open for opportunities. With one additional, I think pricing is a good moment for pricing in terms of M&A. Now there is a new factor we need to check if these target companies, they have the kind of relationship CI&T can leverage in terms of AI transformation. It's an additional criteria we are adding on top of the typical ones. We continue to see screening the market.
We probably will consider M&A a good way to speed up our main source of value creation that is organic growth, basically careful regarding if we are finding the right profile.
Understood. That's all we had today. Thank you so much, Cesar, for your insights. Hope everyone enjoys the rest of the conference.
Thank you, Deb.
Thank you, Cesar.