CINT - CI&T Inc. (CINT) Q4 2022 Earnings Call Transcript
2023-03-08 15:06:08 ET
CI&T, Inc. (CI&T)
Q4 2022 Earnings Conference Call
March 8, 2023 08:00 ET
Company Participants
Eduardo Galvao - Head of Investor Relations
Cesar Gon - Founder & Chief Executive Officer
Bruno Guicardi - Director of Operations
Stanley Rodrigues - Chief Financial Officer
Conference Call Participants
Ashwin Shirvaikar - Citi
Tyler DuPont - Bank of America Merrill Lynch
Puneet Jain - JPMorgan Chase & Co.
Presentation
Eduardo Galvao
Good morning, everyone. Welcome to CI&T Earnings Call for the Fourth Quarter of 2022. I am Eduardo Galvao, Investor Relations Director at CI&T, and it's a pleasure to be here again to talk about our results. With me on today's call are Cesar Gon, Founder and CEO; Bruno Guicardi, Co-Founder and President for North America and Europe; and Stanley Rodrigues, our CFO. This event is being recorded and all participants will be in a listen-only mode during the company's presentation. After that, there will be a question-and-answer session for analysts and investors only. If you'd like to submit a question, please send it via e-mail to investors@ciandt.com. The presentation is available on the company's Investor Relations website at investors.ciandt.com. The replay will be available shortly after the event is concluded.
Some of the matters we'll discuss on this call, including our expected business outlook are forward-looking statements, and as such, are subject to and unknown risks and uncertainties, including, but not limited to those factors described in our earnings release and discussed in the Risk Factors section of our annual report on Form 20-F. In other reports we may file from time to time with the SEC. These risks and uncertainties could cause actual results to differ materially from those expressed on this call. We caution you not to place 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 financial measures in the appendix for more details. Our agenda for today includes an update on our financial highlights, followed by some of our successful business cases. We'll then talk about our people and ESG strategy and deep dive on our quarterly financial results. After the presentation, there will be a Q&A session.
Now, I invite Cesar Gon to begin our presentation.
Cesar Gon
Thanks, Eduardo. Good day, everyone. It's a pleasure to be here with you today. As we reflect on 2022, I want to take a few moments to talk about our vision for the future. Innovation is the ability to create a president and effective solutions to solve complex human problems. The best opportunities arise from the intersection between 2 secular forces, changes in values and behaviors of society and exponential advancements of technological possibilities. Its new tech paradigm always demands a radical shift in the practice, process and at for connecting the dots of digital strategy, customer-centric design and full stack software engineering. And before the advent of these new ways of work, it's impossible to capture and scale the value of the latest technologies.
CI&T's core competency is method driving innovation for large and fast-growing corporations by reshaping the way we connect new technologies, management systems and leadership models, CI&T created a sustainable impact in the corporate world. It's undisputed now that a powerful set of emerging technologies, such as artificial intelligence, IoT, blockchain and 5G are reaching maturity and critical mass to move consumers and in the price. Notably, the whole industry should thank the team of open AI for bringing generative AI to the forefront of public and corporate consciousness. It creates ideal momentum to speed up the adoption of AI and accelerate the flywheel of digital as a secular trend. In such a rapidly changing landscape, Santi has an essential role in helping our client is to capture digital opportunities efficiently -- we call it digital efficiency and to increase the perfect time for companies to turn years of foundational investment into scalable business ventures.
At CI&T, we are obsessed with efficiency for our clients and for ourselves. We have always been in the cutting edge of digital innovation with our method driven approach. It's an infinite game, and we are designed to continue leading the way in the years to come. Now let me comment on some of our financial highlights. 2022 was a nontrivial year, and I'm pleased with our accomplishments. Our net revenue reached BRL2.19 billion in 2022, an increase of 51% year-over-year or a 50%, 80% growth at constant currency. CI high growth pace has been a combination of the expansion of our engagements with existing clients demonstrated by a robust net revenue retention rate of 126% in 2022, the addition of 84 new clients to our portfolio, reaching 178 clients with annual revenue above BRL1 million and our programmatic M&A strategy.
The adjusted EBITDA margin for the full year was 19.1%, a solid profitability mark considering the consolidation of the acquired companies. We ended 2022 with more than 6,900 CI&Ts, a net addition of 1,300 employees during the year. Again, I want to take this opportunity to express gratitude to all CI and tiers across the globe who have been very dedicated to making this happen. Sterne will deep dive into our financial results shortly. Since its foundation in 1995, CMT has recorded consecutive profitable revenue growth over 280 years. We faced several challenging times throughout this period. And we have not only grown, but always emerged is stronger.
In the last 4 years, from 2019 to 2022, our CAGR was a solid 48%. As we face on certain times, I'm confident that CI&T is even better prepared now to navigate the ongoing challenges. Today, CI&T is more diversified in terms of the markets we serve. Europe represents almost 10% of our revenue compared to 2% in 2020. The U.S. and Europe are the regions that are growing faster organically. More than 55% of our revenue today comes from mature economies, trending to 60% by the end of 2023. Our top 10 client revenue share evolved from 67% in 2020 to under 50% in 2022, trending to 40% by the end of this year. This diversification results from the disciplined and recurring addition of new clients to foster our sustainable growth. In a nutshell, we are confident we will continue our profitable growth journey by generating impactful results for our long-term plans.
Now, let's go through some updates and concrete examples of how we are creating value across the globe. Dream Lab is a specialist crowd sourcing app. That harnesses your smartphones processing power to create a secure virtual supercomputer are made of thousands of smartphones to accelerate scientific research, developed by Vodafone Foundation and CI&T. This groundbreaking and award-winning app has 2 million users across 17 countries and it has already helped accelerate research into treatments for COVID-19 and cancer. Dream Lab's latest update is turning its power to help researchers at Imperial College London to better understand tropical cyclones.
Tropical cyclones are a major global hazard adversely affecting millions of people and causing billions of dollars in damage every year. Professor Ralph Tumi, Co-Director of the Grantham Institute of Climate Change in the environment from Imperial College London set, a desktop computer running 24 hours a day, would take decades to process the data, but a network of 100,000 smartphones could do the job in just a couple of months by simulating extreme weather events to understand their effects on communities. We can help people to better prepare and adapt to some of the worst effects of climate change.
Dream Lab is free and ready to download now giving you the chance to be a part of the world's biggest virtual supercomputer and participate in this important research. Anima is an educational organization with 18 higher education institutions and more than 600 centers for digital education in Brazil, intending to strengthen its learning ecosystem. Anima joined CI&T to integrate and unify its learning management system, supporting the demand of more than 389,000 students Anima and INT also designed a new reference architecture to replace the original legacy system using the latest technologies that could offer continuous delivery. They reduced integration time by 95% and enabled app modernization, the role of AWS in the project was to provide data transactions using Apache Kafka, an open source platform for data processing.
Medco and set Ben together, strengthening the learning ecosystem in order to prepare the company for a key moment in its business. Panis well known as an electronics manufacturer, and Panasonic Connect is a developer of software suites that enable manufacturing automation, the Panasonic users and licenses to other manufacturers. CI&T helped Panasonic Connect and its partners develop modern asset management solutions that improve productivity, flexibility and scalability deployed in the cloud or on-premise, all from the single code base. The first step was to avoid disrupting what was already in use since manufacturing downtime is unacceptable. -- using a single customer as a pilot, CI and TD work with Panasonic Connect to navigate through its desire to maintain current functionality, security and compliance while beginning the work of modernization.
CAT understood the hybrid environments in which most companies work and the solution single code base address those environments. -- keeping the focus on user outcomes, utilizing analytics to determine impacts and seeing application modernization as part of a more significant overall digital transformation. CI&T was able to deploy cloud-based software to a current customer within 4 months, validating the technology, staying in close touch to get feedback and iterating along the way. The results of the architecture that CI&T developed with Panasonic Connect are delivering impact and value beyond the initial scope of the engagement.
Welcome to our news latest update. We have gathered the most recent information and insights from our leadership team to share with you. CI&T will return to South by Southwest for the fourth time on March 14 for a full day of interactive programming to nurture relationships and boost brand awareness, CI&T will host panels with brands like Sun Life, Audi, YouTube and more panels will feature important leaders of CI&T from retail customer experiences and EV adoption to product-based teams, the developer workforce and decoding culture. The day will deliver mine shifting perspectives and must have insights to make organizations efficient in the post digital transformation era.
On January 15 to 17, CI&T-sponsored NRF Retail's big show in New York City; Melissa Minco, Director of Retail Strategy at CI&T joined Petco's Chief Administrative Officer; John Zevada for a conversation highlighting the findings from CI&T's annual Connected Retail report. CI&T also had a booth presence and a prospect dinner in collaboration with Crown Peak -- on January 6, CI&T and Box 1824 launched trends for the future report, a study on the main drivers and trends in the digital economic labor and sustainability fields for the next 5 years, the research connected the themes of innovation in digital efficiency, healthiness for business and avenues for growth.
CI&T received the best supplier award in the innovation category from Cielo, a leader in electronic payments in Brazil and Latin America. Cielo recognized the company for being a valued partner and for its commitment to delivering high-quality digital initiatives at speed and scale Hosted by CI&T President and Co-Founder, Bruno Bacardi, Straightforward is a web series featuring thought leaders in the digital transformation space. The sixth and last episode of the first season was released in November, and the second season was launched in February. The opening episode of Season 2 was understanding the complexities of AI to create business value. Upcoming episodes will feature conversations on team-based organizations and data. This is our CI&T latest news. Our aim is to keep you informed and up to date on our latest developments and achievements.
CI&T announced the launch of Work ready. This comprehensive guide covers the principles that guide how our people work, the workplaces of the future and the skills required to make work happen with research, market insights and the perspectives of CI and tea leaders. WorkReady provides a unique point of view on the transformations in the workplace and what it takes to be prepared for them. better future, the world's largest network of design award programs announced CI&T as a winner of the Australian Design Awards 2023. CI&T's empathy lab work shop was awarded silver in the category systems, social design, recognizing initiatives that optimize system performance by focusing on human elements.
The empathy lab workshop is a digital series of exercises designed to build empathy for people with disabilities. It is a highly interactive experience where participants complete tasks using technology with various sensory simulations designed to mirror the experience of a person with disabilities -- the next gen, people with disabilities addition is our training and hiring program for interims and assistance with some kind of disability. More than 2,000 people registered, seeking training opportunities. taking place in Brazil, CI&T offered over 500 free scholarships and hired 10% of the program alumni. 136 CIN tiers facilitated the program, investing a cumulative 12,000 hours in practical training for participants. The program has been changed in my life in many, many different ways. That's something I've always wanted to do. And now this is possible.
Today, the people are hired already by more than 20 different clients. And this partnership is important in helping with real inclusion, putting people into operation, generating accessible and inclusive digital products with professionals with disabilities in all stages of the process, making it a business benefit for CI&T and clients Implementations that meet the search for digital efficiency such as generative AI tools are constantly experienced at CI&T -- we're seeing an explosion in applications across text and image and video, audio, data and code. It's a step change powering the efficiency opportunities and digital software developments.
Today, every industry sector should examine the potential application of generative AI across their user journeys. CI&T has been evaluating generative AI innovation in relation to time savings in creating repetitive or pattern-based code. Thus far, CI&T has been exploring various tools, including TAB 9, GitHub CoPilot and Chat GPT with great enthusiasm due to the significant productivity gains achieved. As this technology is still in its nascent stages, we are proud to be trailblazing a new path for software development with the expectation of realizing exponential improvements in our team's performance.
In the automotive space, we are working on an initiative to use general AI to create vehicle assets, images, descriptions, mato information. In the asset management space, we're using large language models to ingest disparate bodies of financial information and research and then transform that into accessible information, products and services that they can use for their clients and also sell back into their clients. In the pharma sector, we're working on a proof of concept to curate scientific content from different sources and then produce summarized information about the latest research, drug information and usage and then provide that to the MSL or the medical science liaison to use in conversations with physicians.
I hope you enjoyed our client stories, news and highlights selection. Now, I invite Bruno to address our talent management and ESG strategies.
Bruno Guicardi
Thank you, Cesar, and good morning, everyone. It's a pleasure to be here again to talk about our people and our operations. We ended 2022 with an outstanding mark of over 6,900 selling tiers, a net addition of 1,300 people. Since 2019, we have pretty much tripled our global team. Our strategy to attract and hire the most talented people is based on processes and practices we have been evolving for decades. More recently, we are penetrating new talent markets based on the work for anywhere approach, which has proved to be a successful model in our industry. The working environment that we created at CT based on a culture of trust, allows us to retain our people for longer.
Our attrition rate at the end of 2022 was 14% compared to 16% in 2021 and continues trending down on a monthly basis. The leadership attrition remains below 5%, guaranteeing consistency and quality in our delivery. In 2022, we strengthened our global presence with bright people from acquisitions in 4 different geographies, adding complementary expertise in industry verticals and technologies. We are proud to have such a diverse and global team of almost 7,000 people, creating a company that stands out, not only based on its growth and financial performance, but mainly based on its human values and its contribution to improve the lives of the people we touch.
Today, we published our second ESG report, detailing our initiatives, actions and goals in the environmental, social and governance front. ESG is a key pillar at CI&T and being able to share our progress with our stakeholders is a matter of proud for all of us. Our ESG strategy is driven by a shared vision to create equitable advancement opportunities for everyone, provide educational and workforce experience for under-representative groups and reduce our environmental impact to create a more sustainable world. Our ESG journey was initiated back in 2009 when we created a sustainability area. Since then, we have evolved our governance and created several programs and action groups, decentralizing this decision-making and providing power to the edge. Since July 2021, CT has been a signatory to the UN Global Compact, reinforcing our commitment to sustainable development. And in 2022, we conduct our first materiality analysis, which allowed us to clearly articulate our ESG strategy based on our stakeholders' valuable contributions. I invite you all to download and read our ESG report available in our Investors Relations website.
Let me provide with some data that gives us the confidence we are on the right track. In 2022, 43% of the people we hired were from underrepresented groups. This is an upward trend and shows our commitment to ensure that CI&T represents the communities where we operate. In this International Women's Day, we're happy to share that women in top leadership positions increased from 23% in 2021 to 25.7% last year, and our goal is to reach 30% by the end of 2025. We also impacted more than 22,000 people with our social initiatives during the year. It is a fantastic achievement and aligned with our vision of creating a more equitable world. We conclude our first greenhouse gas inventory to measure the company's carbon footprint in scopes 1, 2 and 3 for our Brazilian operation. And early this year, we neutralized 100% of these emissions via nature-based carbon removal projects, supporting the conservation and restorations of the Brazilian biomes. For 2023, we are committed to expand our greenhouse gas emissions inventory to our operations in the U.S. and the U.K.
Now, I invite Stanley to comment on our financial results.
Stanley Rodrigues
Thank you, Bruno, and good morning, everyone. I'm glad to be here with you to talk about our financial results. Starting with our performance in the fourth quarter of 2022, our net revenue was BRL612 million, an increase of 34% year-over-year, eliminating the FX variation, our net revenue grew 42% compared to the fourth quarter of 2021. Our adjusted EBITDA in the fourth quarter was $127.4 million, 25% higher than the fourth quarter '21. Adjusted EBITDA margin was 20.8% and a reduction of 1.5 percentage points compared to the fourth quarter '21 due to higher SG&A expenses in the quarter. Sequentially, the adjusted EBITDA margin improved 1.6 percentage points from 19.2% in the third quarter '22 to 20.8% in the fourth quarter '22 due to better utilization rate and lower SG&A expenses as a percentage of revenue.
The adjusted net profit was BRL54.5 million in the fourth quarter '22, 4.3% higher than the same quarter in 2021. I -- the adjusted net profit margin reduced from 11.4% in the Q4 '21 to 8.9% in the Q4 '22, mainly due to a negative foreign exchange variation of BRL25 million in the comparable period that impacted our financial expenses. Now let's deep dive in our annual results. For the full year of 2022, our net revenue was BRL2.9 billion, a 51.5% growth compared to 2021, of which 36% was organic growth and 15% was the contribution from the companies acquired in 2022. The negative foreign currency translation impact was 6.4%. So the net revenue growth at constant currency was 58%. And -- the 2022 net revenue is 3.2x the net revenue of 2019, recording a CAGR of 48% in the period.
Let me break down the components of our high-growth profile. Our net revenue retention rate was 126% in 2022, demonstrating our ability to continuously strengthening our relationship with our existing clients through value creation. In addition, we added 84 new logos with revenue above BRL1 million to our portfolio during 2022, of which about half are organic net additions. This cohort of clients will contribute to accelerate our revenue growth in the coming years as these engagements ramp up over time. Analyzing the numbers of our multimillion accounts, you can see that our growth engine based on our land and expand strategy has been robust. The number of clients generating more than BRL20 million annually doubled from 2020 to 2022. And an analogous growth is also valid for our accounts generating more than 5 million and more than BRL10 million. The addition of new clients combined with our strategic M&A approach contributed to diversify our revenue base.
Cesar already mentioned how we evolve our revenue breakdown over time in terms of geography and top client share. I would like to emphasize that we are growing faster organically in the U.S. and Europe and recent acquisitions should speed up our growth within those regions. Thus, by the end of 2023, we expect about 60% of our revenues coming from 2 economies, including the U.S. and Europe, while our top 10 client share should evolve to 40%. Now talking about our profitability metrics, our adjusted EBITDA was BRL47.5 million, an increase of 28.8% compared to 2021. The adjusted EBITDA margin was 19.1% in the year, a solid result already including the impact of lower margins from the acquired companies and the increase in G&A expenses, driven by the strengthening of our back office teams associated with our IPO.
Most of these general and administrative are fixed expenses and should be diluted over time. In addition, in the fourth quarter of '22, we reduced our real estate property lease based on the flexible working environment that we have been operating, such as the hybrid mode and the work from anywhere approach. Thus, we expect lower leases expenses going forward. In the fourth quarter '22, we already noted a reduction in our SG&A expenses as a percentage of revenue compared to the third quarter '22. And we are fully committed to optimize our cost structure to benefit from operating leverage opportunities and optimize our profitability. In 2022, adjusted net profit was BRL213.6 million, 30.2% higher than 2021, while the adjusted net profit margin for 2022 was 9.8%. And -- the incremental debt position at the end of the year was mainly to finance the Enter -- so acquisition.
As we mentioned in our previous earnings call, last year, we concluded our first wave of M&A, and we are now dedicated to the integration of the acquired companies. In 2022, we generated BRL112.4 million in cash from operating activities net of taxes. If we analyze our organic operating cash generation, excluding acquisition-related cash outflows, the cash generated from operating activities, net of taxes, would have been BRL172.1 million in 2022. We ended the year with BRL282 million in cash and a sound financial position to foster our growth.
Now, I invite back Cesar to comment on our business outlook. Cesar, please.
Cesar Gon
Thank you, Stanley. As I mentioned, we are bullish regarding a growing number of technology advancements and the import for companies to continue to increase their investment in digital initiatives. Nevertheless, the global economic situation remains with a high level of unserved hold. As our clients define their budget for 2023, we see consistency in keeping the current digital investments in programs. But we noted a more conservative attitude regarding opening new initiatives. We also see less tolerance for low performance and a focus on efficiency, increasing the room for CI&T and a drop of digital efficiency and more opportunities to replace low-performance competitors, including more willingness to near sharing services. So reflecting this macro scenario in our projections, we expect our net revenue for the first quarter of 2023 to be at least BRL590 million, a 20% growth year-over-year. And we are also projecting sequential growth throughout the year.
So for the full year of 2023, we expect FX-neutral net revenue growth in the range of 13% to 17% year-over-year. We expect our adjusted EBITDA margin to be at least 19% for the full year of 2020, maintaining our current margin level. Our 2023 outlook is based on the current market conditions and reflects the uncertainties we see in the demand environment. Finally, I sincerely thank our stakeholders, clients, investors, partners and CI tiers for our continued support and commitment to our long-term shared vision and goals.
Thank you all for attending our call today. We now conclude our presentation and may begin the Q&A session. Thank you.
Question-and-Answer Session
A - Eduardo Galvao
Thank you, Sasha. Thank you all for joining us today. We'll now begin the Q&A session. I'll announce each participant name once you hear it, please mute your line and ask your question. Then when you're done, please mute your line. First question comes from Ashwin from Citi.
Ashwin Shirvaikar
Thank you all for the opportunity in the presentation. My question is on if you could provide various incremental revenue metrics for '23 in terms of how the revenue projection breaks down organic versus inorganic? And given that you are now more diversified, how do you see growth across your various regions, if you can start with that.
Cesar Gon
Sure. Thank you, Asha. Good to see you. I think let me start by giving you the components. Our 15% of projected growth for year-over-year for 2023 is estimated now to be 90% organic growth and 6 percentage points coming from M&A. And regarding -- we are forecasting an incremental sequential quarter increase along the year. And what -- in terms of geographies, I think we are -- what we are seeing since last year, and it will continue this year as more traction on the U.S.A. and Europe. And I think it's based on marketing conditions, but also, I think there is a specific fact that we acquired amazing companies in those geographies. So we have plan opportunities for upselling, cross-selling organically expanding this new acquired platforms for growth. So basically, we are expecting a sequential expansion along the year.
Ashwin Shirvaikar
Okay. And the follow-up is taking a look at the underlying both macro assumptions as well as you look at your own conversations with your clients, how would you characterize the visibility that you currently have? Many other companies that we have spoken with have kind of mentioned that maybe things slowed down dramatically in the December time frame, January was very quiet. But in February, things have maybe started normalizing. Some say things have started picking up. Are you seeing actual visibility that things are picking up as we go out as budgets get set and so on and so forth. Any color that you can provide on visibility would be a…
Cesar Gon
Sure, sure. Based on my conversation with our clients, I believe the macro and the demand of in there is -- you can obviously see the half for basin they have plans. I think first, I would start saying that we are bullish regarding the growing number of technology advancements, a lot of trends in consumer behaviors, and we still see the imperative for companies to continue to increase their bets, their investment in digital. I think this is reinforce our vision of long-term vision of digital as a secular opportunity. Nevertheless, I think December and early January, we could not that this global economic situation adds a lot of uncertainty during the budget process of our clients. And as they define the budget for 2020, we could saw first consistence. -- they are keeping their current digital investment and programs, but we also noted, I would say, a more conservative editor regarding open new initiatives. And then as the year move on, I think I see the half full glass now because what I see that is resonated with CI&T is much less tolerance for low performance and a focus on efficiency. This increased the room for CI in Tel drop of digital efficiency and a lot of opportunities regarding replacing low-performance competitors, including more willingness to nearshoring services in the developed economies. I think this is a good prospectus for the way we are positioning in the way we are fostering efficient among our clients.
Eduardo Galvao
Thank you, Ashwin. Next question comes from Tyler DuPont from Bank of America.
Tyler DuPont
Just to dive a little bit deeper into Ashwin's visibility question. Particularly, are you seeing any change in client contracts or changes in what clients are looking for with those contracts? For example, have you seen any elongations or client delays in new existing projects? Any clarity there would be helpful.
Cesar Gon
Thank you, Tyler. I will get this one, too. What I see is changing in the nature of the use case. I think there's a great prevalence of focus on proven use case. We call Horizon and Horizon 2 initiatives, over more experimental initiatives we name Horizon 3 more, I would say, long-term that on digital and technology. So if you go for a vertical, you're going to see financial services, banking and insurance companies focus on concrete things like customer experience, online banking, open finance that is training now. Of course, you have more Horizon 2 initiatives like blockchain trading protease. And if you go forward retail, you're going to see omnichannel, e-commerce, marketplaces. And of course, if horizon, AI, customer serves a remainder reality, you're going to see lots of this in more concrete, I would say, use case that are read proven in the vertical and the same for consumer goods and so on. So I think the main change that we note is a more pragmatic approach on digital that again, resonate with CI&T when prop of really combined strategy design engineering, very short cycles to see results, concrete results and then expand from real evidence of success.
Tyler DuPont
Great. I appreciate that. And just regarding as a follow-up to the go-to-market strategy. I’m just curious if you can speak to the revenue contribution mix between winning new locos and upselling cross-selling within the existing client base and just the – how willing clients are to take on those upselling cross-selling opportunities given the current market environment?
Cesar Gon
Sure, Tyler. 2022 was an impressive year of expansion in our portfolio, our net rev retention reached 126% along the year, and we could add 84 new clients -- long-term clients with revenue above BRL1 million. So was a good combination of land expand. And the way we are seeing 2023 is, I would say, the same mix that's probably the growth our results were basically 5 million to 90% based on expansion on current relationship with the current clients and 15%, 10% max comes from new logo, even though we always emphasize that it's important, the discipline of every single quarter you add new logos to the game because this is -- we will not be relevant in terms of revenue in the short term, but will be very important for -- in the year 2, year 3 for sustainable long-term growth. So of course, this uncertain time is as a special moment where you need to reinforce the commercial -- the business development discipline of not only supporting the current portfolio and expansion on them, but also keeping the direction of adding new logos to our portfolio.
Tyler DuPont
That’s very helpful.
Cesar Gon
Thank you, Tyler.
Eduardo Galvao
Next question comes from Puneet Jain from JPMorgan.
Puneet Jain
So you had like very strong new client addition and expansion in existing clients during this quarter. In fact, both metrics were better than what they were in third quarter. How do we view those metrics against like the backdrop of deteriorating macro environment throughout last quarter, what drove those clients to sign with CI&T considering that that is going to be a big part of sequential growth beyond Q1.
Cesar Gon
Sure. As I mentioned, thank you for your question. Great to see you, Pune. As I mentioned, I think there’s this change in the nature of the use case. And also, there is – for us, normally, I think in the last years, if you look at the kind of engagements and the way we – the entry point for CIN was noraly half of our new engagements starting with strategy, digital strategy, and then we follow with design and the full stack software New Year. I think – and probably 25% to 30% was regarding replacing good performance, really turnaround of engagements that was not moving in a good way in our clients’ perspective. So – but now we see probably 70% 70% of what we are doing is regarding digital efficiency and meaning replacing or adding CI&T approach method driving innovation approach to engagements that are already running and now we are really transferred to CI&T portfolio. So I would say that this is probably the main difference. There’s last new initiatives in this beginning of the year and more focused on engagements where efficiency – or digital efficiency and turnarounds are the main point of the engagement.
Puneet Jain
And can you also share various puts and takes for margins this year? Like what do you expect for wage inflation, supply pressure, pricing, utilization rates? And what should we expect for hiring over the near term?
Cesar Gon
I think it’s tally can get this one right.
Stanley Rodrigues
Yes. Well, we see with regard to inflation, Pune, lower pressure pressure compared to the previous year. So we see things settling down in that field. We -- as you may recall, in our operation, we have this seasonality in terms of margins because in the first quarter, we have the salary adjustments in Brazil. And throughout the year, we improved margins again when we have the price adjustments. You know also that in Brazil, we have the built-in price adjustment clause in the contract. So -- and we see, as we navigate in this type of digital engagements that we have high flexibility in terms of talking about price and negotiating -- once a year, we set with our clients to add new functionalities, adjust our contracts. So we see a normal environment for that. Of course, we have all the efficiency conversations going on, and this is also an opportunity for us to adjust in our proposal of value prop in each of our clients. So we see a good perspective in -- for the year in that manner.
Puneet Jain
Got it. And what should we expect for hiring, like your net headcount was about flattish on a sequential basis from 3Q to 4Q. What should we expect for hiring trends over the near term?
Bruno Guicardi
We can take that one. So similar to the seasonality. So Q1 is usually slower, right? So we see that speeding up sequentially over the next quarters. So probably you're going to see more additions in Q2, Q3 and Q4 than we [indiscernible]. And the market, of course, has kind of -- with the economic downturn, it's been easier to hire, of course, across the board in all geographies that we operate. So that's the new reality there. It's still competitive, but that's easy, just easier.
Puneet Jain
Yes. I appreciate that answer.
Cesar Gon
Thank you for the question, Puneet. Sure. Thank you, everyone, for your time and attention. Thanks, Eduardo, Stanley, Bruno for joining me today. Well, I think our results reflect the talent and hard work of our team, and I'm proud to work with all the CIN tiers across the globe. Confident we are confident that -- our foundations are solid, and we will continue our journey of growth and value creation for all our stakeholders. Thank you once again for your support. Stay well, and we look forward to seeing you next quarter. Bye.
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CI&T, Inc. (CINT) Q4 2022 Earnings Call Transcript