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As filed with the Securities and Exchange Commission on March 28, 2024
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 20-F
(Mark One)
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
Commission file number: 001-41035
CI&T Inc
(Exact Name of Registrant as specified in its charter)
Cayman Islands
(Jurisdiction of incorporation or organization)
Estrada Giuseppina Vianelli de Napoli, 1455 - Bl. C,
pavimento superior, Globaltech,
Campinas - State of São Paulo
13086-530 - Brazil
+55 19 21024500
(Address of principal executive offices)
Stanley Rodrigues
Chief Financial Officer
Phone: +55 19 21024500
Estrada Guiseppina Vianelli De Napoli, 1455 – Bl. C, pavimento superior, Globaltech
Campinas – State of São Paulo
13086-530- Brazil
Securities registered or to be registered pursuant to Section 12(b) of the Act:
|
Title of Each Class |
Trading Symbol |
Name of Each Exchange on Which Registered | ||
|
Class A common shares, par value US$0.00005 per share |
CINT |
New York Stock Exchange |
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
The number of outstanding shares of each class of stock of CI&T Inc as of December 31, 2023 was:
21,365,297 Class A common shares, each with par value of US$0.00005
113,046,717 Class B common shares, each with par value of US$0.00005
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See definition of “accelerated filer,” “large accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
|
Large accelerated filer ☐ |
Accelerated filer ☐ |
Non-accelerated filer ☒ |
Emerging growth company ☒ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☒
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☒
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☐ International Financial Reporting Standards as issued by the International Accounting Standards Board ☒ Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Unless otherwise indicated or the context otherwise requires, all references in this report to “CI&T” or the “Company,” “we,” “our,” “ours,” “us” or similar terms refer to CI&T Inc, together with its subsidiaries.
The term “Brazil” refers to the Federative Republic of Brazil and the phrase “Brazilian government” refers to the federal government of Brazil. “Central Bank” refers to the Brazilian Central Bank (Banco Central do Brasil). References in the report to “real,” “reais” or “R$” refer to the Brazilian real, the official currency of Brazil and references to “U.S. dollar,” “U.S. dollars” or “US$” refer to U.S. dollars, the official currency of the United States.
All references to “IFRS” are to International Financial Reporting Standards, as issued by the International Accounting Standards Board, or “IASB”.
Financial Statements
We are a Cayman Islands-exempted company, incorporated with an indefinite term and limited liability on June 7, 2021 for purposes of carrying out our initial public offering. Until the contribution of shares of CI&T Software S.A., or CI&T Brazil, to us prior to the consummation of the initial public offering, we had not commenced operations and had only nominal assets and liabilities and no material contingent liabilities or commitments. On October 4, 2021, we established, as a sole member, our subsidiary CI&T Delaware LLC, or CI&T Delaware. On November 8, 2021, all CI&T Brazil’s shares were contributed to CI&T Delaware and, subsequently the CI&T Delaware’s shares were transferred to CI&T Inc. Until this corporate reorganization, CI&T Brazil, an operating company, was the ultimate holding of our group, and it consolidated the results of all companies until that date. We accounted for the restructuring as a business combination of entities under common control, and the pre-combination carrying amounts of CI&T Brazil are included in the CI&T’s consolidated financial statements with no fair value uplift. Thus, our consolidated financial statements reflect:
| (i) | For the year ended December 31, 2021, the historical operating results of CI&T Brazil prior to the restructuring; | |
| (ii) | Our consolidated results following the restructuring; and | |
| (iii) | The number of ordinary shares issued by CI&T, as a result of the restructuring, is reflected retroactively, for purposes of calculating earnings per share for the year ended December 31, 2021; |
We maintain our books and records in Brazilian reais, the functional currency of our operations in Brazil and the presentation currency for our financial statements. Our annual consolidated financial statements were prepared in accordance with IFRS, as issued by the IASB. Unless otherwise noted, the financial information presented herein has been derived from our audited consolidated financial statements as of December 31, 2023 and 2022 and for the years ended December 31, 2023, 2022 and 2021, together with the accompanying notes thereto. All references herein to “our financial statements” and “our audited consolidated financial statements” are to our consolidated financial statements included elsewhere in this annual report.
This financial information should be read in conjunction with “Item 5. Operating and Financial Review and Prospects” and our consolidated financial statements, including the notes thereto, included elsewhere in this annual report.
Financial Information in U.S. dollars
Solely for the convenience of the reader, we have translated some of the real amounts included in this report from reais into U.S. dollars. You should not construe these translations as representations by us that the amounts actually represent these U.S. dollar amounts or could be converted into U.S. dollars at the rates indicated. Unless otherwise indicated, we have translated real amounts into U.S. dollars using a rate of R$4.8413 to US$1.00, the commercial selling rate for U.S. dollars as of December 31, 2023, as reported by the Brazilian Central Bank.
Special Note Regarding Non-IFRS Financial Measures
This report presents our Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Profit, Adjusted Net Profit Margin, Net Revenue at Constant Currency and Net Revenue Increase at Constant Currency, which are non-IFRS financial measures used by management in the evaluation of our performance. A non-IFRS financial measure is generally defined as one that purports to measure financial performance but excludes or includes amounts that would not be so adjusted in the most comparable IFRS measure.
We calculate Adjusted Gross Profit as Gross Profit, adjusted to exclude costs and expenses that do not relate to the direct management of our services (depreciation and amortization related to costs of services provided and share-based compensation expenses). We calculate Adjusted Gross Profit Margin by dividing Adjusted Gross Profit by the Net Revenue of the same period.
We calculate Adjusted EBITDA as Net Profit, plus net finance costs, income tax expense, depreciation and amortization and (i) share-based compensation expenses; (ii) government grants related to tax reimbursement in the Chinese subsidiary; (iii) acquisition-related expenses: fair value adjustment on accounts payable for business combination, consulting expenses, and retention packages; and (iv) business restructuring expenses, associated with severance payments made to senior employees from acquired companies. We calculate Adjusted EBITDA Margin by dividing Adjusted EBITDA by the Net Revenue of the same period. We make these adjustments to isolate our operating results in a given period, in order to verify whether we are being efficient in generating operating profits, or how much of our Net profit is being consumed by operating costs, and how much is reverting to operating profitability.
We calculate Adjusted Net Profit as Net Profit, adjusted to exclude (i) acquisition-related expenses: amortization of intangible assets from acquired companies, fair value adjustment on accounts payable for business combination, consulting expenses, and retention packages; (ii) business restructuring expenses, associated with severance payments made to senior employees from acquired companies; (iii) income tax effects on Non-IFRS adjustments. We calculate Adjusted Net Profit Margin by dividing Adjusted Net Profit by Net Revenue for the same period.
We calculate Net Revenue at Constant Currency and Net Revenue Increase at Constant Currency by translating Net revenue from entities reporting in foreign currencies into Brazilian reais using the comparable foreign currency exchange rates from the prior period. For example, the comparable rates in effect for the fiscal year ended December 31, 2022 were used to convert revenue for the fiscal year ended December 31, 2023, rather than the actual exchange rates in effect during the respective period. The Net Revenue Increase at Constant Currency considers the percentage growth in relation to the Reported Net Revenue from the previous year.
We present Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Profit, Adjusted Net Profit Margin, Net Revenue at Constant Currency and Net Revenue Increase at Constant Currency because management uses them in evaluating our performance and we believe these measures provide investors with a supplemental measure of the financial performance of our core operations that facilitates period-to-period comparisons on a consistent basis.
The non-IFRS financial measures described in this report are not a substitute for the IFRS measures of earnings. Additionally, our calculations of Adjusted Gross Profit, Adjusted EBITDA and Adjusted Net Profit, may be different from the calculations used by other companies, including our competitors, and therefore, our measures may not be comparable to those of other companies. For a reconciliation of Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Profit, Adjusted Net Profit Margin and Net Revenue at Constant Currency and Net Revenue Increase at Constant Currency, each to its most directly comparable IFRS measure, see “Item 5. Operating and Financial Review and Prospects — Non-IFRS Measures.”
Market Share and Other Information
This report contains data related to economic conditions in the market in which we operate. The information contained in this report concerning economic conditions is based on publicly available information from third-party sources that we believe to be reasonable. Market data and certain industry forecast data used in this report were obtained from internal reports and studies, where appropriate, as well as estimates, market research, publicly available information (including information available from the United States Securities and Exchange Commission, or SEC, website) and industry publications, including industry research reports we commissioned from International Data Corporation, or IDC.
Industry publications, governmental publications and other market sources generally state that the information they include has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. While we are not aware of any misstatements regarding the market and industry data presented herein, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed in the section entitled “Risk Factors.”
Except as disclosed in this report, none of the publications, reports or other published industry sources referred to in this report were commissioned by us or prepared at our request. Except as disclosed in this report, we have not sought or obtained the consent of any of these sources to include such market data in this report.
Rounding
We have made rounding adjustments to some of the figures included in this report for ease of presentation. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that preceded them.
This annual report includes statements that constitute estimates and forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act, as amended, or Exchange Act. The words “believe,” “will,” “may,” “may have,” “would,” “estimate,” “continues,” “anticipates,” “intends,” “plans,” “expects,” “budget,” “scheduled,” “forecasts” and similar words are intended to identify estimates and forward-looking statements. Estimates and forward-looking statements refer only to the date when they were made, and we do not undertake any obligation to update or revise any estimate or forward-looking statement due to new information, future events or otherwise, except as required by law. Estimates and forward-looking statements involve risks and uncertainties and do not guarantee future performance, as actual results or developments may differ substantially from the expectations described in the forward-looking statements.
Forward-looking statement include, but are not limited to, statements about:
| ● | the impact of the ongoing war in Ukraine and economic sanctions imposed by Western economies over Russia, as well as the Israel and Hamas conflict, and their impact on global economy, which are highly uncertain and are difficult to predict; | |
| ● | global economic conditions including supply chain disruptions, market volatility (volatility in the global banking sector), inflation and measures to control inflations (e.g., high interest rates), lack of liquidity in the capital and financial markets, and labor challenges, among other factors; | |
| ● | our ability to retain existing clients and attract new clients, including our ability to increase revenue from existing clients and diversify our revenue concentration; | |
| ● | our ability to maintain favorable pricing, productivity levels and utilization rates; | |
| ● | our ability to adapt to technological change and innovate solutions for our clients; | |
| ● | our ability to effectively manage our international operations, including our exposure to foreign currency exchange rate fluctuations; | |
| ● | the effects of increased competition as well as innovations by new and existing competitors in our market; | |
| ● | our ability to sustain our revenue growth rate in the future; | |
| ● | our ability to successfully identify acquisition targets, consummate acquisitions and successfully integrate acquired businesses and personnel, such as relating to our recent acquisitions; | |
| ● | our expectations of future operating results of financial performance; |
| ● | our ability to attract and retain highly-skilled IT professionals at cost-effective rates; | |
| ● | our ability to retain continued services of our senior development team or other key employees, | |
| ● | our plans for growth and future operations, including our ability to manage our growth; | |
| ● | uncertainty concerning the current economic, political, and social environment in Latin America, specifically in Brazil, including changes in laws and regulations and in the interpretation thereof, and impacts of legal decisions by the Brazilian Federal Supreme Court (Supremo Tribunal Federal, or STF); and | |
| ● | the impact of pandemics, epidemics or disease outbreaks (such as the COVID-19 pandemic) and measures taken in response thereto. |
Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results and developments may be substantially different from the expectations described in the forward-looking statements for a number of reasons, many of which are not under our control, among them the activities of our competition, the future global economic situation, exchange rates, and operational and financial risks. The unexpected occurrence of one or more of the abovementioned events may significantly change the results of our operations on which we have based our estimates and forward-looking statements.
In light of the risks and uncertainties described above, the events referred to in the estimates and forward-looking statements included in this report may or may not occur, and our business performance and results of operation may differ materially from those expressed in our estimates and forward-looking statements, due to factors that include but are not limited to those mentioned above.
These forward-looking statements are made as of the date of this annual report, and we assume no obligation to update them or revise them to reflect new events or circumstances. There can be no assurance that the forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements.
Not applicable.
Not applicable.
Not applicable.
Not applicable.
Not applicable.
Not applicable.
Not applicable.
Summary of Risk Factors
An investment in our Class A common shares is subject to a number of risks, including risks relating to our business and industry, risks relating to Brazil and risks relating to our Class A common shares. The following list summarizes some, but not all, of these risks. Please read the information in the section entitled “Risk Factors” for a more thorough description of these and other risks.
Certain Risks Relating to Our Business and Industry
| ● | If any of our largest clients terminates, decreases the scope of, or fails to renew its business relationship or contract with us, our revenues, business and results of operations may be adversely affected. | |
| ● | Our clients may terminate engagements before completion or choose not to enter into new engagements with us. | |
| ● | Geopolitical tensions and the outbreak of military hostilities, including the ongoing military conflict between Russia and Ukraine and Israel and Hamas, and the economic sanctions imposed as a result of these conflicts may materially adversely affect us. | |
| ● | Pandemics, epidemics or disease outbreaks and measures taken in response thereto may impact our business, financial condition, results of operations and prospects. | |
| ● | Degradation of the quality of the solutions we offer could diminish demand for our services or cause disruptions in our clients’ businesses, adversely affecting our ability to attract and retain clients, harming our business, results of operations and corporate reputation and subjecting us to liability. | |
| ● | Our contracts could be or become unprofitable. | |
| ● |
Our business depends on a strong brand and corporate reputation. | |
| ● | We face intense competition. | |
| ● | We must attract and retain highly skilled IT professionals. Increases in our current levels of attrition may increase our operating costs and adversely affect our future business prospects. | |
| ● | Breaches of, or significant disruptions to, our information technology systems and solutions and those of our third-party service providers and subprocessors and unauthorized access to or misuse of the information and data we collect, transmit, use, store and otherwise process may cause us to lose current or future clients and our reputation and business may be harmed. |
Certain Risks Relating to Our Growth Strategy
| ● | We may not be able to sustain our revenue growth rate in the future. | |
| ● | We are focused on growing our client base internationally and may not be successful. | |
| ● | Potential future acquisitions could prove difficult to integrate, disrupt our business, dilute shareholder value and strain our resources. | |
| ● |
If we do not continue to innovate and remain at the forefront of emerging technologies and related market trends, we may lose clients and not remain competitive. | |
| ● | We are subject to numerous risks associated with the evolving market for products with artificial intelligence (AI) capabilities, and the evolving legal and regulatory landscape applicable to AI could adversely affect our business, financial condition and results of operations. |
Certain Risks Relating to Our Organizational Structure
| ● | We have identified a material weakness in our internal control over financial reporting, which resulted in the restatement of previously issued financial statements. If we fail to maintain effective internal controls over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations and/or prevent fraud. | |
| ● | Requirements associated with being a public company in the United States demand significant company resources and management attention. | |
| ● | We are dependent on members of our senior management team and other key employees, including key executives of acquired companies. | |
| ● | We are exposed to fluctuations in foreign currency exchange rates and enter into derivatives transactions to manage our exposure to exchange rate risk. | |
| ● | Our holding company structure makes us dependent on the operations of our subsidiaries. |
Certain Compliance, Tax, Legal and Regulatory Risks
| ● | Changes in laws and regulations related to the Internet or changes in the Internet infrastructure itself may diminish the demand for our services, and could have a negative impact on our business. | |
| ● | We and our clients may be subject to new and evolving privacy and data protection-related laws and regulations that impose obligations concerning the collection, storage, use, processing, disclosure, protection, transmission, retention and disposal of personal, sensitive, regulated or confidential data. | |
| ● | Changes in tax or labor laws, incentives or benefits, or differing interpretations of such laws may adversely affect our results of operations. |
| ● | Exchange rate instability may have adverse effects on the Brazilian economy, us and the price of our Class A common shares. | |
| ● | The Brazilian federal government has exercised, and continues to exercise, significant influence over the Brazilian economy. This involvement and Brazil’s political and economic conditions could harm us and the price of our Class A common shares. | |
| ● |
Risks related to the global economy may affect the perception of risks in other countries, particularly in the United States, Europe and emerging markets, adversely affecting the Brazilian economy and the market price of securities of issuers with principal operations in Brazil, including our Class A common shares. |
Certain Risks Relating to Our Class A Common Shares
| ● | An active trading market for our Class A common shares may not be sustainable. If an active trading market is not maintained, investors may not be able to resell their shares and our ability to raise capital in the future may be impaired. | |
| ● | The dual class structure of our common stock has the effect of concentrating voting control with the holders of our Class B common shares (“Class B Shareholders”); this will limit or preclude your ability to influence corporate matters. | |
| ● | Class A common shares eligible for future sale may cause the market price of our Class A common shares to drop significantly. | |
| ● | We are a Cayman Islands-exempted company with limited liability. The rights of our shareholders, including with respect to fiduciary duties and corporate opportunities, may be different from the rights of shareholders of companies incorporated under and governed by the laws of U.S. jurisdictions. |
Certain Risks Relating to Our Business and Industry
If any of our largest clients terminate, decrease the scope of, or fail to renew its business relationship or contract with us, our revenues, business and results of operations may be adversely affected.
We generate a significant portion of our revenues from our ten largest clients. During the year ended December 31, 2023, our largest client based on revenues accounted for 8% of our Net revenue, and our ten largest clients together accounted for 40% of our Net revenue. During the year ended December 31, 2022, our largest client based on revenues accounted for 15% of our Net revenue, and our ten largest clients together accounted for 49% of our Net revenue.
Our ability to maintain close relationships with these and other major clients is essential to the growth and profitability of our business. The volume of work we perform for each client may vary from year to year, and as a result, a major client in one year may not provide the same level of revenues for us in any subsequent year. The technology services we provide to our clients, and the revenues associated with those services, may decline or vary as the type and quantity of technology services we provide change over time. In addition, our reliance on any individual client for a significant portion of our revenues may give that client a certain degree of pricing leverage against us when negotiating contracts and terms of service.
Our clients may terminate engagements before completion or choose not to enter into new engagements with us.
A substantial part of our revenue is for software development and maintenance services and is typically generated from clients who also contributed to our revenue during the prior year. We constantly seek to obtain new engagements, and maintain relationships with existing clients when our current engagements are successfully completed or are terminated. Notwithstanding our efforts, our contracts provide that our clients can terminate many of our master services agreements and work orders with or without cause.
Our clients may terminate or reduce their use of our services for several reasons, including if they are not satisfied with our services, the value proposition of our services or our ability to meet their needs and expectations. Even if we successfully deliver on contracted services and maintain close relationships with our clients, many factors outside of our control could cause the loss of or reduction in business or revenue from our existing clients. These factors include, among other things:
| ● | the business or financial condition of that client or the economy generally; | |
| ● | a change in strategic priorities by our clients, resulting in a reduced level of spending on technology services; | |
| ● | changes in the personnel at our clients who are responsible for procurement of information technology, or IT, services or with whom we primarily interact; | |
| ● | a demand for price reductions by our clients; | |
| ● | mergers, acquisitions or significant corporate restructurings involving one of our clients; and | |
| ● | a decision by that client to move work in-house or to one or several of our competitors. |
The ability of our clients to terminate their engagement with us at any time makes our future revenue uncertain. We may not be able to replace any client that chooses to terminate or not renew its contract with us, which could materially adversely affect our revenue and, thus, our results of operations. Furthermore, terminations in engagements may make it difficult to plan our project resource requirements. If a significant number of clients cease using or reduce their usage of our services, we may be required to spend significantly more on sales and marketing than we currently plan to spend in order to maintain or increase revenue from clients. Such additional sales and marketing expenditures could adversely affect our business, results of operations and financial condition.
Geopolitical tensions and the outbreak of military hostilities and the economic sanctions imposed as a result of these conflicts may materially adversely affect us
Our business is subject to risks and uncertainties related to our global operations. The U.S. and global markets have experienced and may continue to experience volatility and disruption following the escalation of geopolitical tensions and the military conflict between Russia and Ukraine. Although the length and impact of the ongoing military conflict involving Russia and Ukraine and the economic sanctions imposed by the United States, the European Union and other countries are highly unpredictable, the conflict and resulting sanctions may significantly affect prices, disrupt supply chains, cause turmoil in the global financial system and lead to market disruptions, including significant volatility in credit and capital markets. These factors could materially affect our business and financial condition, along with our operating and development costs, and may impact the demand for our services and our ability to execute our growth plans. The war in Ukraine may also increase geopolitical tensions, further affecting the world economy. Further escalation of the conflict in Ukraine or in other locations, and the related imposition of sanctions or other trade barriers, could disrupt the global markets in ways that cannot yet be anticipated and we cannot predict the impact on our business, financial position or results of operations.
On October 7, 2023, Hamas, a group in control of Gaza, carried out a surprise attack on Israeli cities and towns near the Gaza Strip. Following this attack, Israel declared war on Hamas and other organizations in Gaza. The military conflict is ongoing, and its length and outcome are highly unpredictable. Further escalation of this conflict could lead to significant market and other disruptions, which could have a material adverse effect on our business, financial position or results of operations.
Pandemics, epidemics or disease outbreaks, and measures taken in response thereto may impact our business, financial condition, results of operations and prospects
Pandemics, epidemics or disease outbreaks (such as the COVID-19 pandemic) and related restrictions could limit our clients’ ability to continue to operate, obtain inventory, generate sales, invest in digital solutions or make timely payments to us. It could disrupt or delay the ability of employees to work because they become sick or are required to care for those who become sick, or for dependents for whom external care is unavailable. It could cause delays or disruptions in services provided by key suppliers and vendors, make us and our service providers more vulnerable to security breaches, denial of service attacks or other hacking or phishing attacks, or have other unpredictable effects.
To the extent there is a sustained general economic downturn and our solutions are perceived by clients and potential clients as costly, or too difficult to deploy or migrate to, our revenue may be disproportionately affected. Our revenue may also be disproportionately affected by delays or reductions in general information technology spending. Competitors may also respond to market conditions by lowering prices and attempting to lure away our clients. We cannot predict the timing, strength, or duration of any economic slowdown, instability, or recovery, generally or within any particular industry.
With COVID-19 sufficiently controlled, we may also generally experience decreases or decreased growth rates in sales of digital transformation solutions to clients, as our prospective and existing clients may be less dependent on digital solutions, which would negatively affect our business, financial condition and operating results.
Degradation of the quality of the solutions we offer could diminish demand for our services or cause disruptions in our clients’ businesses, adversely affecting our ability to attract and retain clients, harming our business, results of operations and corporate reputation and subjecting us to liability.
Our clients expect a consistent level of quality in the provision of our solutions and services. Our clients use our products for important aspects of their businesses, and any errors, defects, security vulnerabilities, service interruptions or disruptions to our products and any other performance problems with our products could disrupt and cause damage to our clients’ businesses. Although we regularly update our products, they may contain undetected errors, failures, vulnerabilities and errors, faults or flaws in our computer program or hardware system (bugs) when first introduced or released. Real or perceived errors, failures or bugs in our products could result in negative publicity, loss of, or delay in, market acceptance of our solutions, loss of competitive position, lower client retention or claims by clients for losses sustained by them. In such events, we may be required, or may choose, for client relations or other reasons, to expend additional resources to help correct the problem, which may result in increased costs to us. Any failure to maintain the high quality of our products and services, or a market perception that we do not maintain a high-quality service, could erode client trust and adversely affect our reputation, business, results of operations and financial condition.
Any defects or errors or failure to meet clients’ expectations in the performance of our contracts could result in claims for substantial damages against us. Our contracts generally limit our liability for damages that arise from negligent acts, error, mistakes or omissions in rendering services to our clients. However, there can be no assurance that these contractual provisions will be enforceable or adequate or will otherwise protect us from liability for damages if we are subject to any client claims. In addition, certain liabilities, such as claims of third parties for intellectual property infringement, breaches of data protection and security requirements, or breaches of confidentiality obligations, for which we may be required to indemnify our clients, could be substantial. The successful assertion of one or more large claims against us in amounts greater than those covered by our current insurance policies could materially adversely affect our business, financial condition and results of operations. Even if such assertions against us are unsuccessful, a claim brought against us by any of our clients would likely be time-consuming and costly to defend and could seriously damage our reputation and brand, making it harder for us to sell our solutions and services. A client could also share information about bad experiences on social media or other publicly available sources, which could result in damage to our reputation and loss of future revenue. In addition, a failure or inability to meet a contractual requirement could seriously damage our corporate reputation and limit our ability to attract new business.
In certain instances, we guarantee to clients that we will complete a project by a scheduled date or that we will maintain certain service levels. We are generally not subject to monetary penalties for failing to complete projects by the scheduled date, but may suffer reputational harm and loss of future business if we do not meet our contractual commitments. In addition, if the project experiences a performance problem, we may not be able to recover the additional costs we will incur, which could exceed the revenue realized from a project.
Our contracts could be or become unprofitable.
Most of the services performed by our employees are usually charged at monthly rates agreed upon at the time we enter into the contracts. The rates and other pricing terms negotiated with our clients are highly dependent on the internal forecasts of our operating costs and predictions of increases in those costs influenced by marketplace factors, as well as the proposed scope of work. Typically, we do not have the ability to increase the rates established at the outset of a client service agreement, other than on an annual basis and are often subject to caps. Independent of our right to increase our rates annually, client expectations regarding the anticipated cost of our services may limit our practical ability to increase our rates for ongoing work.
In addition, a small proportion of the contracts are priced by project, which is highly dependent on our assumptions and forecasts about the costs we expect to incur to complete the related services, which are based on limited data and could be inaccurate. Any failure by us to accurately estimate the resources, including the skills and seniority of our employees, required to complete a fixed-price contract on time and on budget, or any unexpected increase in the cost of our employees assigned to a client account, office space or materials could expose us to risks associated with cost overruns and could have a material adverse effect on our business, financial condition, results of operations and prospects. In addition, any unexpected changes in economic conditions that affect any of the previous assumptions and predictions could render contracts that would have been favorable to us when signed, subsequently unfavorable.
Our business depends on a strong brand and corporate reputation.
Since many of our specific client engagements involve highly tailored solutions, our corporate reputation is a significant factor in our clients’ and prospective clients’ determination of whether to engage us. We believe the CI&T brand name and our reputation are important corporate assets that help distinguish our services from those of our competitors and also contribute to our efforts to recruit and retain talented IT professionals. Successfully maintaining our brand will depend largely on the effectiveness of our marketing efforts, our ability to provide reliable and useful solutions to meet the needs of our clients at competitive prices, our ability to maintain our clients’ trust, our ability to continue to develop new functionalities and solutions, and our ability to successfully differentiate our solutions and services from competitive products and services. Additionally, our business partners’ performance may affect our brand and reputation if clients do not have a positive experience. Our efforts to build and maintain our brand have involved and will continue to involve significant expenses and we anticipate that these expenditures will increase as our market becomes more competitive and as we expand into new markets. Brand promotion activities may not generate client awareness or yield increased revenue. Even if they do, any increased revenue may not offset the expenses we incurred in building our brand. We strive to establish and maintain our brand in part by obtaining, maintaining and protecting our trademark rights. However, if our trademark rights are not adequately obtained, maintained or protected, we may not be able to build name recognition in our markets of interest and our competitive position may be harmed. If we fail to successfully promote, protect and maintain our brand, we may fail to attract enough new clients or retain our existing clients to realize a sufficient return on our brand-building efforts, and our business could suffer.
Furthermore, our corporate reputation is susceptible to damage by actions or statements made by current or former employees or clients, competitors, vendors, and adversaries in legal proceedings, as well as members of the investment community and the media. There is a risk that negative information about our company could adversely affect our business, even if based on false rumors or misunderstandings. In particular, damage to our reputation could be difficult and time-consuming to repair, and could make potential or existing clients reluctant to select us for new engagements, resulting in a loss of business, and could adversely affect our employee recruitment and retention efforts. Damage to our reputation could also reduce the value and effectiveness of our CI&T brand name and could reduce investor confidence in us and our business, financial condition, results of operations and prospects may be materially adversely affected.
We face intense competition.
The market for technology and IT solutions and services is intensely competitive, highly fragmented and subject to rapid change and evolving industry standards and we expect competition to intensify. We believe that the principal competitive factors that we face are the ability to innovate; technical expertise and industry knowledge; end-to-end solution offerings; location of operation; price; reputation and track record for high-quality and on-time delivery of work; effective employee recruiting; training and retention; responsiveness to clients’ business needs; scale; and financial stability.
Our primary competitors include digital transformation and software engineering service providers, such as Endava plc, Globant S.A, EPAM Systems INC and Thoughtworks Holding, INC. Other competitors include traditional IT services companies, such as Accenture PLC, Capgemini SE, Cognizant Technology Solutions Corporation and Tata Consultancy Services Limited. To a lesser extent, other competitors include digital agencies and consulting companies, such as Ideo, McKinsey & Company, The Omnicom Group, Sapient Corporation and WPP plc. Many of our competitors have, and our potential competitors could have, substantial competitive advantages such as substantially greater financial, technical and marketing resources, greater name recognition, longer operating histories, greater client support resources, lower labor and development costs, and larger and more mature intellectual property portfolios. As a result, they may be able to compete more aggressively on pricing or devote greater resources to the development and promotion of technology and IT services. If successful, their development efforts could render our services less desirable to clients, resulting in the loss of clients or a reduction in the fees we could generate from our offerings. In addition, there are relatively few barriers to entry into our markets and we have faced, and expect to continue to face, competition from new market entrants. Further, there is a risk that our clients may elect to increase their internal resources to satisfy their services needs instead of relying on third-party service providers, such as us. The technology services industry may also undergo consolidation, which may result in increased competition in our target markets from larger firms that may have substantially greater financial, marketing or technical resources, may be able to respond more quickly to new technologies or processes and changes in client demands, and may be able to devote greater resources to the development, promotion and sale of their services than we can. Increased competition could also result in price reductions, reduced operating margins and loss of our market share.
Moreover, as we expand the scope and reach of our solutions, we may face additional competition. If one or more of our competitors were to merge or partner with other competitors, the change in the competitive landscape could also adversely affect our ability to compete effectively.
We cannot assure you that we will be able to compete successfully with existing or new competitors or that competitive pressures will not materially adversely affect our business, financial condition, results of operations and prospects.
We must attract and retain highly skilled IT professionals. Increases in our current levels of attrition may increase our operating costs and adversely affect our future business prospects.
In order to sustain our growth, we must attract and retain a large number of highly skilled and talented IT professionals. Our business is people-driven and, accordingly, our success depends upon our ability to attract, develop, motivate, retain and effectively utilize highly-skilled IT professionals in our delivery. We believe there is significant competition for technology professionals in the geographic regions in which we operate and that such competition is likely to continue for the foreseeable future. Our ability to properly staff projects, maintain and renew existing engagements and win new business depends, in large part, on our ability to recruit, train and retain IT professionals.
In addition, the technology industry generally experiences a significant rate of turnover of its workforce. There is a limited pool of individuals with the skills and training needed to help us grow our company. We compete for such talented individuals not only with other companies in our industry but also with companies in other industries, such as software services, engineering services, financial services and technology generally, among others. High attrition rates of IT personnel would increase our hiring and training costs and could have an adverse effect on our ability to complete existing contracts on time, meet client objectives and expand our business. Failure to hire, train and retain IT professionals in sufficient numbers could have a material adverse effect on our business, financial condition, results of operations and prospects.
Potential clients may be reluctant to switch to a new provider of digital solutions.
As we expand our offerings into new solutions, our potential clients may be concerned about disadvantages associated with switching providers, such as a loss of accustomed functionality, increased costs and business disruption. For prospective clients, switching from one vendor of solutions similar to those provided by us (or from an internally developed system) to a new vendor may be a significant undertaking. As a result, certain potential clients may resist changing vendors. There can be no assurance that our investments to overcome potential clients’ reluctance to change vendors will be successful, which may adversely affect our business, financial condition, results of operations and prospects.
We must maintain adequate resource utilization rates and productivity levels.
Our profitability and the cost of providing our services are affected by the utilization rates of our employees in the locations in which we operate. If we are not able to maintain appropriate utilization rates for our employees involved in delivering our services, our profit margin and our profitability may suffer. Our utilization rates are affected by a number of factors, including:
| ● | our ability to promptly transition our employees from completed projects to new assignments and to hire and integrate new employees; | |
| ● | our ability to forecast demand for our services and thereby maintain an appropriate number of employees in each of the locations in which we operate; | |
| ● | our ability to deploy employees with appropriate skills and seniority to projects; | |
| ● | our ability to manage the attrition of our employees; and | |
| ● | our need to devote time and resources to training, professional development and other activities that cannot be billed to our clients. |
If the demand for our services decreases, we may have idle capacity, our margins may be adversely impacted and we may need to lay off employees. Our revenue could also suffer if we misjudge demand patterns and do not recruit sufficient personnel to satisfy our future demand. Employee shortages could prevent us from completing our contractual commitments on time and cause us to lose contracts or clients. Further, to the extent that we lack sufficient personnel with lower levels of seniority and daily or hourly rates, we may be required to deploy more senior employees with higher rates on projects without the ability to pass such higher rates along to our clients, which could adversely affect our profit margin and profitability.
Our profitability could suffer if we are not able to maintain favorable pricing.
Our profitability and operating results are dependent on the rates we are able to charge for our services.
Our rates are affected by a number of factors, including:
| ● | our clients’ perception of our ability to add value through our services; | |
| ● | our competitors’ pricing policies; | |
| ● | bid practices of clients and their use of third-party advisors; | |
| ● | the ability of large clients to exert pricing pressure; | |
| ● | employee wage levels and increases in compensation costs; | |
| ● | employee utilization levels; | |
| ● |
our ability to charge premium prices when justified by market demand or the type of service; and | |
| ● | general economic conditions, including inflation rates. |
Pricing pressures and increased competition generally could result in reduced revenue, reduced margins, increased losses or the failure of our solutions to achieve or maintain widespread market acceptance. If we are not able to maintain favorable pricing for our services, our profitability could suffer, and our business, financial condition, results of operations and prospects may be materially adversely affected.
We have experienced, and may in the future experience, a long selling cycle with respect to certain projects that require significant investment of human resources and time by both our clients and us.
The length of our selling cycle for clients, from initial evaluation to contract execution, is generally 1 to 12 months for large enterprise clients and 1 to 6 months for small and mid-market clients, but can vary substantially. The timing of our sales with our clients is difficult to predict because of the length and unpredictability of the selling cycle for these clients. Mid-market and large enterprise clients, particularly those in highly regulated industries and those requiring highly customized solutions, may have an even more lengthy selling cycle for the evaluation and implementation of our products and services.
Before committing to use our services, potential clients may require us to expend substantial time and resources educating them on the value of our services and our ability to meet their requirements. Therefore, our selling cycle is subject to many risks and delays over which we have little or no control, including our clients’ decision to choose alternatives to our services (such as other technology and IT service providers or in-house resources) and the timing of our clients’ budget cycles, approval and integration processes. If our sales cycle unexpectedly lengthens for one or more projects, it would negatively affect the timing of our revenue and hinder our revenue growth. For certain clients, we may begin work and incur costs prior to executing the contract. A delay in our ability to obtain a signed agreement or other persuasive evidence of an arrangement, or to complete certain contract requirements in a particular quarter, could reduce our revenue in that quarter or render us entirely unable to collect payment for work already performed.
Implementing our services also involves a significant commitment of resources over an extended period of time from both our clients and us. Our clients may experience delays in obtaining internal approvals or delays associated with technology, thereby further delaying the implementation process. Our current and future clients may not be willing or able to invest the time and resources necessary to implement our services, and we may fail to close sales with potential clients to which we have devoted significant time and resources. Any significant failure to generate revenue or delays in recognizing revenue after incurring costs related to our sales or services process could materially adversely affect our business.
Our cash flows and results of operations may be adversely affected if we are unable to collect on billed and unbilled receivables from clients.
Our business depends on our ability to successfully receive payment from our clients for the amounts they owe us for work performed. We evaluate the financial condition of our clients and maintain provisions for expected losses against receivables. Actual losses on client balances could differ from those we currently anticipate and, as a result, we may need to adjust our provisions. We may not accurately assess the creditworthiness of our clients. Macroeconomic conditions, such as a potential credit crisis in the global financial system as well as in the local markets in which we operate, could also result in financial difficulties for our clients, including limited access to the credit markets, insolvency or bankruptcy. Such conditions could cause clients to delay payment, request modifications of their payment terms, or default on their payment obligations to us, all of which could increase our receivables balance and our provision for doubtful debts. Timely collection of fees for client services also depends on our ability to complete our contractual commitments on schedule and subsequently bill for and collect our contractual service fees. If we are unable to meet our contractual obligations, we might experience delays in the collection of or be unable to collect our client balances, which would adversely affect our results of operations and could adversely affect our cash flows. In addition, if we experience an increase in the time required to complete our services, bill and collect for our services, our cash flows could be adversely affected, which in turn could adversely affect our ability to make necessary investments and, therefore, our results of operations.
If we fail to offer high-quality client support, our business and reputation could suffer.
Our clients rely on our personnel for support related to their solutions. High-quality support is important for the renewal and expansion of our agreements with existing clients. The importance of high-quality support will increase as we expand our business and pursue new clients, particularly mid-market and large enterprise clients. If we do not help our clients quickly resolve issues and provide effective ongoing support, our ability to sell new solutions to existing and new clients could suffer and our reputation with existing or potential clients could be harmed.
Our revenue is dependent on a limited number of industry verticals, and any decrease in demand for technology services in these sectors or our failure to effectively penetrate new sectors could adversely affect our revenue, business, financial condition, results of operations and prospects.
Historically, we have focused on developing industry expertise and deep client relationships in a limited number of industry verticals. As a result, a substantial portion of our revenue has been generated by clients operating in the financial services, food and beverage and pharmaceutical and cosmetics industry verticals. Net revenue from the Financial Services, Consumer Goods and Technology and Communications industry verticals represented 29%, 20% and 17% of total Net revenue for the year ended December 31, 2023 respectively, and 30%, 22% and 15% of total Net revenue for the fiscal year ended December 31, 2022, respectively. Our business growth largely depends on continued demand for our services from clients in these sectors, and any slowdown or reversal of the trend to spend on technology services in these sectors could result in a decrease in the demand for our services and materially adversely affect our revenue, business, financial condition, results of operations and prospects.
Other developments in the industries in which we operate may also lead to a decline in the demand for our services, and we may not be able to successfully anticipate and prepare for any such changes. For example, consolidation or acquisitions, particularly involving our clients, may adversely affect our business. Our clients and potential clients may experience rapid changes in their prospects, substantial price competition and pressure on their profitability. This, in turn, may result in increasing pressure on us from clients and potential clients to lower our prices, which could adversely affect our revenue, business, financial condition, results of operations and prospects.
If we are unable to comply with our contractual security obligations or are required to indemnify our clients for data breaches or any significant failure related to their equipment or systems, we may face reputational damage and lose clients and revenue.
The services we provide are often critical to our clients’ businesses. Certain of our client contracts require us to comply with security obligations, which could include maintaining network security and backup data, ensuring our network is virus-free, maintaining business continuity planning procedures, and verifying the integrity of employees who work with our clients by conducting background checks. Any failure in a client’s or third-party service provider’s system, whether or not a result of or related to the services we provide, or a breach of security relating to the services we provide to the client could damage our reputation or result in a claim for substantial damages against us. Our liability for breaches of data security requirements or breaches or incidents affecting our clients’ equipment or systems, for which we may be required to indemnify our clients, may be extensive and could result in reputational damage or a loss of clients and revenue.
Breaches of, or significant disruptions to, our information technology systems and solutions and those of our third-party service providers and subprocessors and unauthorized access to or misuse of the information and data we collect, transmit, use, store and otherwise process may cause us to lose current or future clients and our reputation and business may be harmed.
We have access to or are required to collect, transmit, use, store and otherwise process confidential client and consumer data. We also use third-party service providers (including cloud infrastructure and data center providers) and subprocessors to help us deliver services to clients and their end-consumers. These service providers and subprocessors may also collect, transmit, use, store and otherwise process personal information, credit card information and/or other confidential information of our employees, clients and our clients’ end-consumers. Despite our efforts with respect to security measures, this information, and the information technology systems that are used to store and otherwise process such information, including those information technology systems of our service providers and subprocessors, may be vulnerable to cyberattacks and other security threats or disruptions, including unauthorized access or intrusion, breaches, damage or other interruptions, including as a result of third-party action, criminal conduct, physical or electronic break-ins, telecommunications or network failures or interruptions, malicious or inadvertent acts of employee or contractors, nation-state malfeasance, computer viruses, malware, denial-of-service attacks, phishing, hackers, system error, software bugs or defects, fraud, process failure or otherwise. While we strive to maintain reasonable preventative and data security controls, it is not possible to prevent all security threats to our systems and data and those of our third-party service providers, over which we exert less control. In addition, cybersecurity threats and techniques used to obtain unauthorized access, disable or degrade service or sabotage systems continue to increase, evolve in nature and become more sophisticated. If any person circumvents our network security, accidentally exposes our data or code, or misappropriates data or code that belongs to us, our clients or our clients’ end users, or causes our systems to malfunction, we could face numerous risks, including risk related to breach of contract, diversion of management resources, increased costs relating to mitigation and remediation of such problems, regulatory actions, penalties and fines, litigation and future costs related to information security.
We may incorporate third-party open source software in our solutions, and any defects or security vulnerabilities in the open source software or our failure to comply with the terms of the underlying open source software licenses could adversely impact our clients, negatively affect our business, subject us to litigation, and create potential liability.
Certain of our solutions and software that is delivered to our clients may incorporate software components that are licensed to us by third parties under various “open source” licenses, including the GNU General Public License, the GNU Lesser General Public License, the BSD License, the Apache License and others, and we may also rely on licensed software for the provision of our services. Despite our efforts to comply with such licenses, we or our clients may be subject to claims from third parties that our use or our clients’ use of certain open-source software infringes the claimants’ intellectual property rights. Generally, our agreements require that we indemnify clients against such claims. In addition, the use of open-source software may entail greater risks than the use of third-party commercial software, as open-source licensors generally do not provide warranties or other contractual protections regarding infringement claims or the quality of the code. To the extent that our solutions and software depend upon the successful operation of open-source software, any undetected errors or defects in this open-source software could prevent the deployment or impair the functionality of our solutions and software, delay the introduction of new solutions, result in a failure of our software, and injure our reputation. For example, undetected errors or defects in open-source software could render it vulnerable to breaches or security attacks, making our systems more vulnerable to data breaches.
Certain open source licenses require that users who distribute or convey the open source software subject to such licenses make available the source code of any modifications or derivative works based on such open source software. Although we monitor our use of open source software in an effort both to comply with the terms of the applicable open source licenses and to avoid subjecting our solutions and software to restrictions we do not intend, the terms of many open source licenses have not been interpreted by courts in relevant jurisdictions, and therefore the potential impact of such licenses on our business is not fully known or predictable. There is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to market certain of our software solutions or our clients’ ability to use the software we develop for them and operate their businesses as they intend. The terms of certain open-source licenses may require our clients or us to release the source code of the software we develop for our clients that is combined with or linked to open-source software, and to make such software available under the applicable open-source licenses. In the event that portions of our solutions or client deliverables are determined to be subject to an open source license, we or our clients could be required to publicly release the affected portions of source code, pay damages for breach of contract, re-engineer all, or a portion of, the applicable software, discontinue sales of one or more of our solutions in the event reengineering cannot be accomplished on a timely basis or take other remedial action that may divert resources away from our development efforts. Disclosing could allow our competitors or our clients’ competitors to create similar products with lower development effort and time and ultimately could result in a loss of sales for us or our clients. Any of these events could create liability for us to our clients, increase our costs and damage our reputation, which could have a material adverse effect on our revenue, business, financial condition, results of operations and prospects.
We may not receive sufficient intellectual property rights from our employees and independent contractors to comply with our obligations to our clients and we may not be able to prevent unauthorized use of our intellectual property. We may also be subject to claims by third parties asserting that we, the companies we have acquired, our employees or our independent contractors have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property.
Our client contracts generally require, and our clients typically expect, that we will assign to them all intellectual property rights associated with the deliverables that we create in connection with our engagements. To assign these rights to our clients, we must ensure that our employees and independent contractors validly assign to us all intellectual property rights that they have in such deliverables. Our employment and independent contractor agreements include terms regarding the assignment of inventions. These agreements provide that the employee or independent contractor assign to us all of the intellectual property rights of the employee and/or independent contractor to such deliverables, but there can be no assurance that we will be able to enforce our rights under such agreements. Given that we operate in a variety of jurisdictions with different and evolving legal regimes, we face increased uncertainty regarding whether such agreements will be found to be valid and enforceable by competent courts and whether we will be able to avail ourselves of the remedies provided for by applicable law, see “Risk Factors — Certain Compliance, Tax, Legal and Regulatory Risks — Our business, financial condition and results of operations may be adversely affected by the various conflicting and/or onerous legal and regulatory requirements imposed on us by the countries where we operate.” Considering the expectations described above, we can also be subject to claims from our clients regarding the use of certain open-source software infringing the claimants’ intellectual property rights.
Our success also depends in part on certain methodologies, practices, tools and technical expertise we utilize in designing, developing, implementing, protecting, enforcing and maintaining our proprietary and intellectual property rights. To protect our proprietary and intellectual property rights, we rely upon a combination of technical measures, license agreements, nondisclosure and other contractual arrangements as well as trade secret, copyright, trademark laws and other similar laws. We consider trade secrets and confidential know-how to be important to our business. However, trade secrets and confidential know-how are difficult to maintain as confidential. We attempt to protect this type of information and our proprietary and intellectual property rights generally by requiring our employees, consultants, contractors and advisors to enter into confidentiality agreements with us. We also seek to preserve the integrity and confidentiality of our technology, data, trade secrets and know-how by maintaining physical security of our premises and physical and electronic security of our information technology systems. Despite our efforts to protect our confidential information, intellectual property, and technology, unauthorized third parties may gain access to our confidential proprietary information, develop and market solutions similar to ours, or use trademarks similar to ours, any of which could materially harm our business and results of operations. Moreover, policing our intellectual property rights is expensive, time-consuming and unpredictable. If a competitor lawfully obtained or independently developed any of our trade secrets, we would have no right to prevent such a competitor from using that technology or information to compete with us, which could harm our competitive position. Further, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating the trade secret. To the extent that we seek to enforce our rights, we could be subject to defenses, counterclaims, and claims that our intellectual property rights are invalid, unenforceable, or licensed to the party against whom we are pursuing a claim. If we are not successful in defending or enforcing such claims in litigation, we could lose valuable intellectual property rights or we may be subject to damages that could, in turn, harm our results of operations. Even if we are successful in defending or enforcing our claims, litigation could result in substantial costs and diversion of resources and could negatively affect our business, reputation, results of operations and financial condition. If we are unable to protect our technology and to adequately maintain and protect our intellectual property rights, we may find ourselves at a competitive disadvantage to others who need not incur the additional expense, time and effort required to create the innovative solutions that have enabled us to be successful to date.
We may be subject to claims by third parties asserting that we, our clients, companies we have acquired, our employees or our independent contractors have infringed, misappropriated or violated their intellectual property, or claiming ownership of what we regard as our own intellectual property.
We may be subject to claims by third parties that we, our clients, companies we have acquired, our employees, or our independent contractors have misappropriated their intellectual property. For example, many of our employees were previously employed at our competitors or potential competitors. Some of these employees executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment. Although we try to ensure that our employees do not use the proprietary information of others in their work for us, we may be subject to claims that we or these employees have used or disclosed confidential information or intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. Litigation may be necessary to defend against these claims. In addition, we are subject to additional risks related to intellectual property infringement as a result of our recent acquisitions and any future acquisitions we may complete. For instance, the developers of the technology that we have acquired or may acquire may not have appropriately created, maintained, protected or enforced their intellectual property rights in such technology. Indemnification and other rights we have under acquisition documents may be limited in terms and scope and may therefore provide us with little or no protection from these risks.
Further, we have in the past, and may in the future be subject to legal proceedings and claims in the ordinary course of our business, including claims of alleged infringement, violation or misappropriation of intellectual property rights of third parties by us or our clients in connection with their use of our solutions or the software we develop for them.
Although we take steps to avoid infringement, misappropriation or violation by us or our clients of the intellectual property rights of third-parties, any such claims, whether or not meritorious, could result in costly litigation and divert the efforts of our management and personnel. Should we be found liable for infringement or misappropriation, we may lose valuable intellectual property rights or personnel or we may be required to enter into royalty arrangements (including licensing agreements, which may not be available on reasonable terms, or at all) or to pay damages or result in us being unable to use certain intellectual property. Any of these events could seriously harm our business, results of operations and financial condition.
If our current insurance coverage is or becomes insufficient to protect against losses incurred, our business, financial condition, results of operations and prospects may be adversely affected.
We provide technology services that are critical to our clients’ businesses. If we were to default in the provision of any contractually agreed-upon services, our clients could suffer significant damages and make claims against us for those damages. Our insurance coverage is very limited, for instance, CI&T Brazil’s errors and omissions liability coverage for all of its services is limited to R$10 million, subject to lower sub-limits in certain cases. Our insurance policies, including our errors and omissions insurance, may be inadequate or insufficient to compensate us for the potentially significant losses resulting from claims arising from breaches of our contracts, disruptions in our services, failures or disruptions to our infrastructure, catastrophic events and disasters or otherwise. Additionally, we do not carry cyber insurance, which may expose us to certain potential losses for damages in an amount exceeding our resources. Further, such insurance may not be available to us in the future on economically reasonable terms, or at all. To the extent client damages are deemed recoverable against us in amounts substantially in excess of our insurance coverage, or if our claims for insurance coverage are denied by our insurance carriers for any reason, including reasons beyond our control, there could be a material adverse effect on our revenue, business, financial condition, results of operations and prospects.
We are subject to costs and risks associated with increased or changing laws and regulations affecting our business, including those relating to the sale of consumer products. Specifically, developments in data protection and privacy laws could subject us to fines and reputational harm, which could in turn harm our business, financial condition or results or operations.
We operate in a complex regulatory and legal environment that exposes us to compliance and litigation risks that could materially affect our results of operations. These laws may change, sometimes significantly, as a result of political, economic or social events. Some of the federal, state or local laws and regulations in Brazil that affect us include: those relating to consumer products, product liability or consumer protection; those relating to the manner in which we advertise, market or sell products; labor and employment laws, including wage and hour laws; tax laws or interpretations thereof; bank secrecy laws, data protection and privacy laws and regulations; and securities and exchange laws and regulations. For instance, laws and regulations regarding privacy and the collection, storage, use, retention, processing, transfer, transmission, disclosure and protection of personal, sensitive or other regulated data are developing and evolving to take into account the changes in cultural and consumer attitudes towards the protection of personal data. See “Certain Compliance, Tax, Legal and Regulatory Risks” for further information related to our obligations to comply with increased or changing laws and regulations affecting our business. There can be no guarantee that we will have sufficient financial resources to comply with any new regulations or successfully compete in the context of a shifting regulatory environment.
Internet regulation in Brazil is recent and still limited and several legal issues related to the internet are uncertain.
In 2014, Brazil enacted a law, which we refer to as the Brazilian Civil Rights Framework for the Internet (Marco Civil da Internet), setting forth principles, guarantees, rights and duties for the use of the Internet in Brazil, including provisions about internet service provider liability, internet user privacy and internet neutrality. In May 2016, further regulations were passed in connection with the referred law. The administrative penalties imposed by the Brazilian Civil Rights Framework for the Internet include notification, fines (up to 10% of the revenues in Brazil of the relevant entity’s economic group in the preceding fiscal year) and suspension or prohibition from engaging in data processing activities. The Brazilian Civil Rights Framework for the Internet also determines joint and several liabilities between foreign parent companies and the local Brazilian subsidiary for the payment of fines that may be imposed for breach of its provisions. Administrative penalties may be applied cumulatively. Daily fines may be imposed in judicial proceedings, as a way to compel compliance with a Brazilian court order. If for any reason a company fails to comply with the court order, the fine can reach significant amounts. We may be subject to liability under these laws and regulations should we fail to adequately comply with the Brazilian Civil Rights Framework.
However, unlike in the United States, little case law exists around the Brazilian Civil Rights Framework for the Internet and existing jurisprudence has not been consistent. Legal uncertainty arising from the limited guidance provided by current laws in force allows for different judges or courts to decide very similar claims in different ways and establish contradictory jurisprudence. This legal uncertainty allows for rulings against us and could set adverse precedents, which individually or in the aggregate could seriously harm our business, results of operations and financial condition. In addition, legal uncertainty may harm our clients’ perception and use of our service.
Unfavorable developments and economic, political, social and other risks in the countries where we operate may materially adversely affect us.
We may be materially and adversely affected by unfavorable economic developments in any country where we have operations. Activities outside of Brazil accounted for 59% of our Net revenue for the year ended December 31, 2023 and 55% of our Net revenue for the fiscal year ended December 31, 2022. A significant deterioration in economic conditions in any of the markets that are most significant for our operations, including economic slowdowns or recessions, inflationary pressures and/or disruptions in the credit and capital markets, could lead to decreased consumer spending and decreased consumer confidence generally, thereby reducing demand for our services. Unfavorable economic conditions may also negatively impact our clients, suppliers and financial counterparties, who may face cash flow problems, increased defaults or other financial problems. In addition, volatility in the credit and capital markets caused by unfavorable economic developments and uncertainties may result in the unavailability of financing or an increase in its cost. In Brazil, for example, credit markets have been significantly impacted by the Americanas case, which has led lenders to be more cautious and selective in granting credit and widened banking spreads, which may increase the risk of default by our clients, suppliers, service providers and other counterparties, and reduce the ability of our clients to make additional investments. Our business may also be affected by other economic developments, such as fluctuations in exchange rates, the imposition of any import, investment or foreign exchange restrictions, including tariffs and import quotas, or any restrictions on the repatriation of earnings and capital. Any of these developments could materially adversely affect our business, financial condition, results of operations and prospects.
Our operations are also subject to a variety of other risks and uncertainties related to their global operations, including political, social or other adverse developments. Political and/or social unrest, possible health problems, natural disasters, disease outbreaks or pandemics (such as the COVID-19 pandemic), politically motivated violence, and terrorist threats and/or actions may also occur in countries where we operate. Any of these developments could materially adversely affect our business, financial condition and performance.
Many of the risks above occur more frequently and with more strength in emerging markets, such as in Latin America. In general, emerging markets are also exposed to relatively higher risks of liquidity constraints, inflation, devaluation, price volatility, currency translation, corruption, crime and law enforcement, asset expropriation and sovereign default, as well as additional legal and regulatory risks and uncertainties.
Developments in emerging markets may affect our ability to import or export products and services and repatriate funds, as well as impact levels of consumer demand and, therefore, our profitability levels. Any of these factors could affect us disproportionately or differently than our competitors, depending on our specific exposure to any particular emerging market, and could materially adversely affect our business, financial condition, results of operations and prospects.
Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults, or non-performance by financial institutions or transactional counterparties, could adversely affect our operating results, financial condition and prospects.
Events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. For example, in March 2023, Silicon Valley Bank, or SVB, was closed and placed in receivership and subsequently, additional financial institutions have been placed into receivership. If any financial institution at which we hold deposits or other direct investments were to be placed into receivership, we may be unable to access such funds. In addition, if any of our customers, suppliers or other parties with whom we conduct business are unable to access funds with such a financial institution, such parties’ ability to pay their obligations to us or to enter into new commercial arrangements requiring additional payments to us could be adversely affected, which in turn, could have a material adverse effect on our current and/or projected business operations and results of operations and financial condition.
Our access to funding sources and other credit arrangements in amounts adequate to finance or capitalize our current and projected future business operations could be significantly impaired by factors that affect us, the financial services industry or the economy in general. These factors could include, among others, events such as liquidity constraints or failures, the ability to perform obligations under various types of financial, credit or liquidity agreements or arrangements, disruptions or instability in the financial services industry or financial markets or concerns or negative expectations about the prospects for companies in the financial services industry and in other industries. Any decline in access to cash or credit and liquidity resources could, among other risks, adversely impact our ability to meet our operating expenses, financial obligations or fulfill our other obligations, result in breaches of our financial and/or contractual obligations, and could have material adverse impacts on our liquidity and our current and/or projected business operations and financial condition and results of operations.
Certain Risks Relating to Our Growth Strategy
We may not be able to sustain our revenue growth rate in the future.
We have experienced rapid revenue growth in recent periods. Our Net revenue increased by 2.1% and 51.5% in the years ended December 31, 2023 and 2022 respectively, compared to the prior year. We may not be able to sustain revenue growth consistent with our recent history or at all. You should not consider our revenue growth in recent periods as indicative of our future performance. We believe our ability to attract new clients and our revenue growth depends on a number of factors, including:
| ● | our current or potential clients’ spending levels; | |
| ● | competitive factors affecting the digital transformation market, including the introduction of competing services, discount pricing and other strategies that may be implemented by our competitors; | |
| ● | our ability to execute our growth strategy and operating plans; | |
| ● | our clients’ level of satisfaction with our solutions; | |
| ● | changes in our relationships with third parties, including our business partners, app developers, theme designers, referral sources and payment processors; | |
| ● | the timeliness and success of our solutions; | |
| ● | the frequency and severity of any system outages; | |
| ● | technological change; | |
| ● | our ability to adequately obtain, maintain, protect and enforce our intellectual property and proprietary rights; | |
| ● | concerns relating to actual or perceived breaches of our IT systems or the data contained therein; | |
| ● | the continued willingness of the end-consumers of our clients to use the internet for commerce; and | |
| ● | our focus on long-term value over short-term results, through strategic decisions that may not maximize our short-term revenue or profitability if we believe that the decisions are consistent with our mission and will improve our financial performance over the long term. |
As we grow our business, our revenue growth may decline in future periods due to a number of factors, which may include slowing demand for our services, increasing competition, decreasing growth of our overall market, our inability to engage and retain a sufficient number of IT professionals or otherwise scale our business, prevailing wages in the markets in which we operate or our failure, for any reason, to capitalize on growth opportunities.
Moreover, as we introduce new services or enter into new markets, we may face new market, technological and operational risks and challenges with which we are unfamiliar, and it may require substantial management efforts and skills to mitigate these risks and challenges. We expect to continue to spend substantial financial and other resources on, among other things:
| ● | investments in our IT team, improvements in security and data protection, the development of new products, features and functionality and enhancements to our solutions; | |
| ● | sales and marketing, including the continued expansion of our direct sales and marketing programs, especially for businesses outside of Brazil; | |
| ● |
expansion of our operations and infrastructure, both domestically and internationally; and | |
| ● | general administration, including legal, accounting and other expenses related to being a public company. |
These investments may not result in increased revenue or the growth of our business. Accordingly, we may not be able to generate sufficient revenue to offset our expected cost increases and achieve and sustain profitability.
As a result of any of these problems associated with expansion, our business, financial condition and results of operations could be materially adversely affected.
We are focused on growing our client base internationally and may not be successful.
We are focused on geographic expansion, particularly in North America and Europe. In the year ended December 31, 2023, 54% of our Net revenue came from clients in North America and Europe, an increase of 2 percentage points when compared to the year ended December 31, 2022. In the fiscal year 2021, 52% of our Net revenue came from clients in North America and Europe, an increase of 4 percentage points compared to fiscal year 2021. We have made significant investments to expand in North America and Europe, however, our ability to add new clients depends on a number of factors, including the market perception of our services, our ability to successfully add nearshore delivery center capacity and pricing, competition and overall economic conditions. In January 2022, we completed the acquisition of Somo Global Ltd. to accelerate our growth in the EMEA region. In addition, in June 2022 we acquired Box 1824 Planejamento e Marketing Ltda. to accelerate our global strategic capabilities. In September 2022, we completed the acquisition of Transpire Technology Pty Ltd and, in November 2022, we completed the acquisition of NTERSOL Consulting LLC, with a view to enhancing our growth in the Asia-Pacific region (“APAC”) and North America, respectively. If we are unable to retain existing clients and attract new clients in North America, Europe and elsewhere, we may be unable to grow our revenue and our business and results of operations could be adversely affected.
Potential future acquisitions could prove difficult to integrate, disrupt our business, dilute shareholder value and strain our resources.
We may continue to expand our operations through strategically targeted acquisitions of additional businesses. For example, in 2021 we acquired Dextra Investimentos S.A. in Brazil, in January 2022 we acquired Somo Global Ltd, in June 2022 we acquired Box 1824 Planejamento e Marketing LTDA., in September 2022, we acquired Transpire Technology Pty Ltd in APAC and in November 2022 we acquired NTERSOL Consulting LLC in the United States. In the future, we may acquire additional businesses that we believe could complement or expand our business. The success of an acquisition or investment will depend on our ability to make accurate assumptions regarding the valuation, operations, growth potential, integration and other factors related to that business. We cannot assure you that any of these acquisitions will produce the results that we expect at the time we enter into or complete a given transaction. Future acquisitions may increase our level of indebtedness and negatively affect our liquidity.
Integrating the operations of acquired businesses successfully or otherwise realizing any of the anticipated benefits of acquisitions, including anticipated cost savings and additional revenue opportunities, involves a number of potential challenges. The failure to meet these integration challenges could seriously harm our financial condition and results of operations. Realizing the benefits of acquisitions depends partly on the integration of operations and personnel. These integration activities are complex and time- consuming, and we may encounter unexpected difficulties or incur unexpected costs, including:
| ● | our inability to achieve the operating synergies anticipated in the acquisitions; | |
| ● | diversion of management attention from ongoing business concerns to integration matters; | |
| ● | consolidating and rationalizing information technology platforms and administrative infrastructures; | |
| ● | complexities associated with managing the geographic separation of the combined businesses and consolidating multiple physical locations; | |
| ● | retaining IT professionals and other key employees; | |
| ● | integrating personnel from different corporate cultures while maintaining focus on providing consistent, high quality service; | |
| ● | demonstrating to our clients and to clients of acquired businesses that the acquisition will not result in adverse changes in client service standards or business focus; | |
| ● | possible cash flow interruption or loss of revenue as a result of transitional matters; and | |
| ● | inability to generate sufficient revenue to offset acquisition costs. |
Further, there can be no assurance that we had or will have full access to all necessary information to assess any assets acquired or will acquire and identify and mitigate the risks, liabilities and contingencies in connection with the due diligence performed. We may discover liabilities or deficiencies associated with the assets or companies we acquire or ineffective or inadequate controls, procedures or policies at an acquired business that were not identified in advance, any of which could result in significant unanticipated costs and adversely impact our business. Also, in the context of our acquisitions, we may face contingent liabilities in connection with, among others things, (i) judicial and/or administrative proceedings of the business we acquire, including civil, regulatory, tax, labor, social security, environmental and intellectual property proceedings, and (ii) financial, reputational and technical issues, including with respect to accounting practices, financial statement disclosures and internal controls, as well as other regulatory matters, all of which may not be sufficiently indemnifiable under the relevant acquisition agreement and may impact our financial reporting obligations and the preparation of our audited consolidated financial statements, resulting in delays to such preparation.
In particular, to the extent that prior owners of any acquired businesses or properties failed to comply with or otherwise violated applicable laws or regulations, or failed to fulfill their contractual obligations to clients, we, as the successor owner, may be financially responsible for these violations and failures and may suffer financial or reputational harm or otherwise be adversely affected. Similarly, our acquisition targets may not have as robust internal controls over financial reporting as would be expected of a public company. Acquisitions also frequently result in the recording of goodwill and other intangible assets which are subject to potential impairment in the future that could harm our financial results. We may also become subject to new regulations as a result of an acquisition, including if we acquire a business serving clients in a regulated industry or acquire a business with clients or operations in a country in which we do not already operate. In addition, if we finance acquisitions by issuing convertible debt or equity securities, our existing shareholders may be diluted, which could affect the market price of our Class A common shares. As a result, if we fail to properly evaluate acquisitions or investments, we may not achieve the anticipated benefits of any such acquisitions, and we may incur costs in excess of what we anticipate. Acquisitions frequently involve anticipated benefits related to the integration of operations of the acquired business. The failure to successfully integrate the operations or to otherwise realize any of the anticipated benefits of the acquisition could seriously harm our results of operations.
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If we do not continue to innovate and remain at the forefront of emerging technologies and related market trends, we may lose clients and not remain competitive.
Our success depends on delivering innovative solutions that leverage emerging technologies and emerging market trends to generate business impact, which may include revenue growth, cost reduction, expansions into new lines of business and other initiatives. Technological advances and innovation are constant in the technology services industry, and the technology services industry increasingly relies on data engineering, artificial intelligence, digital analytics and business intelligence for innovation, which increases our pressure for innovation. As a result, we must continue to invest significant resources to stay abreast of technology developments so that we may continue to deliver solutions that our clients will wish to purchase. We cannot guarantee that product enhancements and new solutions will perform as well as or better than our existing offerings. Product enhancements and new solutions we develop may not be introduced in a timely or cost-effective manner, may contain errors or defects, may have interoperability difficulties or may not achieve the broad market acceptance necessary to generate significant revenue.
In addition, we need to understand our clients’ behavior and needs to prepare for the next shift in the relationship between businesses and their end-consumers so that we are well-positioned to propose and develop new solutions to support this change in consumer trends and behavior. We cannot guarantee that we will always be able to offer the products and services sought by our clients. We are subject to potential changes to consumer habits and demand for products and services by our clients (and the end-consumers of our clients). This requires us to adapt to their preferences on an ongoing basis. Accordingly, we may not be able to anticipate or respond adequately to changes in consumer habits, and we cannot guarantee that we will be efficient and effective in adapting to meet those habits. Also, the use of automation and artificial intelligence by our clients may reduce the demand for our services and products and adversely impact our business model and results.
If we are unable to anticipate technology developments, adopt innovative technologies, enhance our existing solutions or develop and introduce new solutions to keep pace with such changes and meet changing client needs, we may lose clients and our revenue and results of operations could suffer. Our results of operation would also suffer if our employees are not responsive to the needs of our clients, not able to help clients in driving innovation and not able to help our clients effectively bringing innovative ideas to market. Our competitors may be able to offer engineering, design and innovation services that are, or that are perceived to be, substantially similar or better than those we offer. This may force us to reduce our daily rates and to expend significant resources to remain competitive, which we may be unable to do profitably or at all. Because many of our clients and potential clients regularly contract with other IT service providers, these competitive pressures may be more acute than in other industries.
We are subject to numerous risks associated with the evolving market for products with artificial intelligence (AI) capabilities, and the evolving legal and regulatory landscape applicable to AI could adversely affect our business, financial condition and results of operations.
The markets and applications for products with artificial intelligence (AI) capabilities are evolving rapidly. The evolution of these technologies are difficult to predict, and may affect the demand for our products and services. We use machine learning and AI technologies in our services, platforms and solutions, and we are making investments to expand our artificial intelligence capabilities, including ongoing deployment and improvement of existing machine learning and AI technologies, as well as developing new product features using AI technologies, such as the CI&T/FLOW AI-powered platform launched in July 2023. The investments we have been making to develop products to address what we believe will be increasing demand for AI capabilities may not be sufficient, and we face significant hurdles, including whether demand will materialize, and whether we will be successful in developing products that can compete with offerings by established competitors.
Our use of AI technology may subject us to reputational, financial, legal or regulatory risks. As we incorporate AI technology into our products and services, any failure to address concerns relating to aggregate AI technology in our products and services, especially concerns related to intellectual property, may cause harm to our reputation or financial liability and, as such, may increase our costs to address or mitigate such risks and issues. AI technology may create ethical issues, generate defective algorithms, increase cybersecurity risks and present other risks that create challenges with respect to its adoption. In addition, evolving rules, regulations, and industry standards governing AI may require us to expend significant resources to modify, maintain, or align our business practices or products to comply with U.S. and non-U.S. rules and regulations, the nature of which cannot be determined at this time. The use of AI technologies in our services, platforms and solutions may result in governmental or regulatory scrutiny, ethical concerns, legal liability, or other implications that could adversely affect our reputation, business, financial condition, or results of operations.
We may need additional capital, and a failure by us to raise additional capital on terms favorable to us, or at all, could limit our ability to grow our business and develop or enhance our service offerings to respond to market demand or competitive challenges.
We believe that our current cash balances, cash flow from operations, and credit facilities should be sufficient to meet our anticipated cash needs for at least the next 12 months. We may, however, require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If these resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or seek credit agreement financing. The sale of additional equity securities could result in dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financing covenants that would restrict our operations. Our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties, including investors’ perception of, and demand for, companies of our segment, conditions in the capital markets in which we may seek to raise funds, our future results of operations and financial condition, and general economic and political conditions. Financing may not be available in amounts or on terms acceptable to us, or at all, and could limit our ability to grow our business and develop or enhance our service offerings to respond to market demand or competitive challenges.
Certain Risks Relating to Our Organizational Structure
We have identified a material weakness in our internal control over financial reporting, which resulted in the restatement of previously issued financial statements. If we fail to maintain effective internal controls over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations and/or prevent fraud.
Our management has identified a material weakness in our internal controls over financial reporting.
The identified material weakness relates to insufficient number of trained resources with expertise in technical accounting internal control over certain areas of the financial statements. As a result, we were unable to maintain effective risk assessment and did not have effective process-level control activities over the following areas:
(i) deferred income taxes (specifically over tax deductible goodwill amortization); and
(ii) presentation of the effects of exchange differences related to Loans and borrowings denominated in foreign currency
Our management concluded that this material weakness resulted in material misstatement in deferred income taxes and the classification corrections of non-derivatives hedge accounting and loans and borrowings and resulted in the restatement of our audited consolidated financial statements as of and for the year ended December 31, 2022 and our condensed consolidated interim financial statements as of and for the periods ended March 31, 2023, June 30, 2023 and September 30, 2023. Following the identification of the material weakness, we have begun taking measures, and we will continue to take measures, to remediate control deficiencies. See “Item 15. Controls and Procedures for further information about the remediation plan for the material weakness.
Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. However, these remediation measures have been and may continue to be time consuming and costly and we cannot assure you that these initiatives will ultimately have the intended effects. If we are unable to remediate our material weaknesses in a timely manner or identify additional material weaknesses, we may be unable to provide required financial information in a timely and reliable manner and may incorrectly report financial information. If our financial statements are not filed on a timely basis, we could be subject to sanctions or investigations by the NYSE, the SEC or other regulatory authorities. Failure to timely file may also cause us to be ineligible to utilize short form registration statements on Form F-3 or Form F-4, which may impair our ability to obtain capital in a timely fashion, to provide liquidity to our employees and shareholders, to execute our business strategies or issue shares to effect an acquisition. Similarly, if we are unable to successfully remediate the identified material weakness, if we discover any additional material weaknesses or if we are otherwise unable to report financial statements accurately or in a timely manner, we would be required to continue disclosing any such material weaknesses in future filings with the SEC, which could adversely affect our business, investor confidence in the company and the market price of our ordinary shares and could subject us to litigation or regulatory enforcement actions. As a result, shareholders could lose confidence in our financial and other public reporting, which would harm our business and the market value of our shares.
Until we cease to be an “emerging growth company” as such term is defined in the JOBS Act, which may not be until after five full fiscal years following the date of the initial public offering, our independent registered public accounting firm is not required to attest to and report on the effectiveness of our internal control over financial reporting.
Requirements associated with being a public company in the United States require significant company resources and management attention.
We are subject to certain reporting requirements of the Exchange Act, and the other rules and regulations of the SEC and the NYSE. We are also subject to various other regulatory requirements, including the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. These rules and regulations increase our legal, accounting and financial compliance costs and make some activities more time-consuming and costly. For example, these rules and regulations make it more difficult and expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantial costs to maintain the same or similar coverage. As of the date of this document, our director and officer liability insurance coverage is limited to US$10 million. New rules and regulations relating to information disclosure (including cybersecurity risk), financial reporting and controls and corporate governance, which could be adopted by the SEC, the NYSE or other regulatory bodies or exchange entities from time to time, could result in a significant increase in legal, accounting and other compliance costs and make certain corporate activities more time-consuming and costly, which could materially affect our business, financial condition and results of operations. These rules and regulations may also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers.
These new obligations may also require substantial attention from our senior management and could divert their attention away from the day-to-day management of our business. Given that most of the individuals who now constitute our management team have limited experience managing a U.S. publicly traded company and complying with the increasingly complex laws pertaining to public companies, initially, these new obligations could demand even greater attention. These cost increases and the diversion of management’s attention could materially and adversely affect our business, financial condition and operation results.
We are dependent on members of our senior management team and other key employees, including key executives of acquired companies.
Our future success heavily depends upon the continued services of our senior management team, particularly, our Chief Executive Officer, key executives of acquired companies, and other key employees. We currently do not maintain key person life insurance for any of the members of our senior management team, key executives or other key employees. Our entitlement to receive notice of an executive offer or senior executive terminating their respective employment varies across offices and positions and for some positions, no notice is required. We seek to incentivize retention by granting our senior executives stock options with vesting periods that range from 5 to 7 years and we are consistently assessing the market to align our executive compensation packages. However, if one or more of our senior executives or key employees are unable or unwilling to continue in their present positions, it could disrupt our business operations, and we may not be able to replace them easily, on a timely basis or at all. The loss of the services of one or more of our senior management or other key employees for any reason could adversely affect our business, financial condition and operating results and require significant amounts of time, training and resources to find suitable replacements and integrate them within our business, and could affect our corporate culture. In addition, if the perceived value of our stock awards declines, it may adversely affect our ability to recruit and retain highly skilled employees.
In addition, competition for senior executives and key employees in our industry is intense, and we may be unable to retain our senior executives and key employees or attract and retain new senior executives and key employees in the future, in which case our business may be severely disrupted. Our senior executives have non-compete clauses in their employment contracts with us, however, if any of our senior executives or key personnel joins a competitor or forms a competing company, we may lose clients, suppliers, know-how and key IT professionals and staff members to them. Also, if any of our business development managers, who generally keep a close relationship with our clients, join a competitor or form a competing company, we may lose clients, and our revenues may be materially adversely affected. Additionally, there could be unauthorized disclosure or use of our technical knowledge, practices or procedures by such personnel. If any dispute arises between our senior executives or key personnel and us, any non-competition, non-solicitation and non-disclosure agreements we have with our senior executives or key personnel might not provide effective protection to us.
If we fail to attract new personnel or fail to retain and motivate our current personnel, it could adversely affect our business and future growth prospects.
We are exposed to fluctuations in foreign currency exchange rates and enter into derivatives transactions to manage our exposure to exchange rate risk.
We hold certain funds in non-Brazilian real currencies, and may enter into derivatives transactions such as foreign exchange hedges, and our offshore operating subsidiaries generate revenue in non-Brazilian real currencies. Accordingly, our financial results are affected by the translation of these non-real currencies into reais. In addition, to the extent that we need to convert future financing proceeds into Brazilian reais for our operations, any appreciation of the Brazilian real against the relevant foreign currencies would materially reduce the Brazilian real amounts we would receive from the conversion, and any depreciation of the Brazilian real against the relevant foreign currencies could increase the amounts in Brazilian reais that we are required to convert into the relevant foreign currencies to service such relevant foreign currency financings. No assurance can be given that fluctuations in foreign exchange rates will not have a significant impact on our business, financial condition, results of operations and prospects. We may also have foreign exchange risk on any of our other assets and liabilities denominated in currencies, or with pricing linked to currencies, other than our functional currency, including certain contract assets. Fluctuations in the Brazilian real versus any of these foreign currencies may have a material adverse effect on our financial position and results of operations, for example as a result of overall market declines and increased market volatility due to the global macroeconomic conditions.
We may enter into derivatives transactions to manage our exposure to exchange rate risk. While such derivative transactions are designed to protect us against increases or decreases in exchange rates, they may not be effective. If we have entered into derivatives transactions to protect against, for example, decreases in the value of the real and the real instead increases in value, we may incur financial losses. Such losses could materially and adversely affect us.
Our holding company structure makes us dependent on the operations of our subsidiaries.
We are a Cayman Islands-exempted company with limited liability. As a holding company, our corporate purpose is to invest, as a partner or shareholder, in other companies, consortia or joint ventures in Brazil, where most of our operations are located, in the United States, where a significant amount of our revenues come from, and other countries such as United Kingdom, Portugal, Canada, China, Japan and Australia, Colombia and Argentina. Accordingly, our material assets are our direct and indirect equity interests in our subsidiaries, and we are therefore dependent upon the results of operations and, in turn, the payments, dividends and distributions from our subsidiaries for funds to pay our holding company’s operating and other expenses and to pay future cash dividends or distributions, if any, to holders of our Class A common shares, and we may have tax costs in connection with any dividend or distribution. In addition, the payments, dividends and distributions from our subsidiaries to us for funds to pay future cash dividends or distributions, if any, to holders of our Class A common shares, could be restricted under financing arrangements that we or our subsidiaries may enter into in the future and we and such subsidiaries may be required to obtain the approval of lenders to make such payments to us in the event they are in default of their repayment obligations. Furthermore, we may be adversely affected if the Brazilian government, or the governments of any of the jurisdictions in which our subsidiaries are located, impose legal restrictions on dividend distributions by our existing subsidiaries. Exchange rate fluctuations will also affect the U.S. dollar value of any distributions our subsidiaries make with respect to our equity interests in those subsidiaries.
For further information, see “— Risks Relating to Brazil — Exchange rate instability may have adverse effects on the Brazilian economy, us and the price of our Class A common shares,” “— Risks Relating to Brazil — The Brazilian federal government has exercised, and continues to exercise, significant influence over the Brazilian economy. This involvement as well as Brazil’s political and economic conditions could harm us and the price of our Class A common shares” and “Dividends and Dividend Policy.”
Certain Compliance, Tax, Legal and Regulatory Risks
Changes in laws and regulations related to the Internet or changes in the Internet infrastructure itself may diminish the demand for our services, and could have a negative impact on our business.
The future success of our business depends upon the continued use of the internet as a primary medium for commerce, communication and business applications. Federal, state or foreign government bodies or agencies have in the past adopted, and may in the future adopt, laws or regulations affecting the use of the internet as a commercial medium. Legislators, regulators and courts may make legal and regulatory changes or apply existing laws that require us to incur substantial costs, expose us to unanticipated civil or criminal liability, cause us to change our business practices, or bring legal uncertainty to our business. Changes in these laws or regulations, or in their interpretation, could impact internet neutrality, tariffs, content, copyright protection, distribution, electronic contracts and other communications, consumer protection, and data privacy, and adversely affect the demand for our services or require us to modify our solutions to comply with these changes. In addition, government agencies or private organizations may begin to impose taxes, fees, or other charges for accessing the internet or commerce conducted via the internet. These laws or charges could limit the growth of internet-related commerce or communications generally, resulting in reductions in the demand for technology services such as ours. Also, such laws and regulations are often inconsistent and may be subject to amendment or re-interpretation, which may cause us to incur significant costs and expend significant effort to ensure compliance. These laws and regulations and resulting increased compliance and operational costs could materially harm our business, results of operations and financial condition.
In addition, the use of the internet as a business tool could be adversely affected due to delays in the development or adoption of new standards and protocols to handle increased demands of internet activity, security, reliability, cost, ease of use, accessibility, and quality of service. The performance of the internet and its acceptance as a business tool have been adversely affected by “ransomware,” “viruses,” “worms,” “malware,” “phishing attacks,” “data breaches” and similar malicious programs, behavior, and events, and the internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure. If the use of the internet is adversely affected by these or any other issues, demand for our services and solutions could suffer, and our business, financial condition, results of operations and prospects may be materially adversely affected.
We and our clients may be subject to new and evolving privacy and data protection-related laws and regulations that impose obligations in connection with the collection, storage, use, processing, disclosure, protection, transmission, retention and disposal of personal, sensitive, regulated or confidential data.
The privacy and security of personal, sensitive, regulated or confidential data is a major focus in our industry and we and our clients that use our products are subject to federal, state, local and foreign privacy and data protection-related laws and regulations that impose obligations in connection with the collection, storage, use, processing, disclosure, protection, transmission, retention and disposal of personal, sensitive, regulated or confidential data. Laws and regulations governing data privacy, data protection and information security are constantly evolving and there has been an increasing focus on privacy and data protection issues with the potential to affect our business. The nature of our business exposes us to risks related to possible shortcomings in data protection and information security laws and regulations. Any perceived or actual unauthorized disclosure of personally identifiable information, whether through breach of our network by an unauthorized party, employee theft, misuse or error or otherwise, including the data protection of our clients, the end-consumers of our clients and employees or third parties, could harm our reputation, impair our ability to attract and retain our clients, or subject us to claims or litigation arising from damages suffered by individuals.
For additional information about applicable laws and regulations relating to data privacy, see “Business Overview — Regulatory Overview — Data protection and privacy.” We also may be bound by contractual obligations relating to our collection, use and disclosure of personal, financial and other data.
While we strive to comply with all applicable privacy, data protection and information security laws and regulations, as well as our contractual obligations, posted privacy policies and applicable industry standards, such laws, regulations, obligations and standards continue to evolve and are becoming increasingly complex, and sometimes conflict among the various jurisdictions and countries in which we operate, which makes compliance challenging and expensive. For example, we continue to see jurisdictions imposing data localization laws, which require personal information, or certain subcategories of personal information to be stored in the jurisdiction of origin. These regulations may inhibit our ability to expand into those markets or prohibit us from continuing to offer services in those markets without significant additional costs. In addition, any failure or perceived failure by us, or any third parties with whom we do business, to comply with laws, regulations, policies, industry standards or contractual or other legal obligations relating to privacy, data protection or information security may result in governmental investigations, inquiries, enforcement actions and prosecutions, private litigation, fines and penalties, adverse publicity or potential loss of business.
We expect that there will continue to be new proposed laws, rules of self-regulatory bodies, regulations and industry standards concerning privacy, data protection and information security in Brazil and other jurisdictions, and we cannot yet determine the impact such future laws, rules, regulations and standards may have on our business. Moreover, existing Brazilian and foreign privacy and data protection-related laws and regulations are evolving and subject to potentially differing interpretations, and various legislative and regulatory bodies may expand current or enact new laws and regulations regarding privacy and data protection-related matters. Additionally, our clients may be subject to differing privacy laws, rules and legislation, which may mean that they require us to be bound by varying contractual requirements applied to certain other jurisdictions. Because global laws, regulations and industry standards concerning privacy and data security have continued to develop and evolve rapidly, compliance with such new laws or changes to existing laws may impact our business and practices, requiring us to expend significant resources to adapt to these changes, or to stop offering our solutions in certain countries. These developments could adversely affect our business, results of operations and financial condition.
Changes in tax or labor laws, incentives or benefits, or differing interpretations of such laws may adversely affect our results of operations.
We conduct business globally and file income tax returns in multiple jurisdictions. Our consolidated effective income tax rate could be materially adversely affected by several factors, including: changing tax laws, regulations and treaties, or the interpretation thereof; tax policy initiatives and reforms; the practices of tax authorities in jurisdictions in which we operate; the resolution of issues arising from tax audits or examinations and any related interest or penalties. Such changes may include (but are not limited to) the taxation of operating income, investment income, dividends received or (in the specific context of withholding tax) dividends paid.
In addition, our financial condition and results of operations may decline if certain tax incentives are not retained or renewed. For a discussion of certain key tax benefits, see “Taxation.” The Brazilian Federal Government also recently announced and presented to Congress (i) the Bill of Law No. 3,887/2020, focused on several changes to the taxes currently levied on revenues; and (ii) the Bill of Law No. 2,337/2021, the so-called “second phase” of the envisaged Brazilian Tax Reform Plan, focused on income taxation, which includes several topics such as the taxation of dividends, adjustments in corporate taxation basis and rates of Brazilian entities, changes in the taxation of income and gains in connection with investments in the Brazilian capital markets, such as financial assets and investment funds, among others. While such legislation has not been enacted, and it is not possible to determine at this time, what changes to tax laws and regulations will come into effect (if any), any such change may have an adverse effect on our results and operations.
In 2023, the STF issued decisions that loosened the application of the res judicata doctrine, which could have a material impact on our business and practices. In these proceedings, the STF ruled that a decision rendered with respect to a taxpayer cannot prevail over subsequent decisions issued by the STF that apply to all taxpayers and, consequently, decisions rendered on an individual basis can be reversed if the STF changes its understanding. In this sense, if the decisions are reversed, the company will have to bear the payments of any taxes from which it obtained exemption. Changes in labor laws, incentives or benefits, or differing interpretations of such laws may adversely affect our results of operations.
Our business, financial condition and results of operations may be adversely affected by the various conflicting and/or onerous legal and regulatory requirements imposed on us by the countries where we operate.
Since we maintain operations and provide services to clients throughout the world, we are subject to numerous, and sometimes conflicting, legal requirements on matters as diverse as import/export controls, content requirements, trade restrictions, tariffs, taxation, sanctions, government affairs, anti-bribery, whistleblowing, internal and disclosure control obligations, intellectual property, data protection and privacy and labor relations and work visa policies. Our failure to comply with these regulations in the conduct of our business could result in fines, penalties, criminal sanctions against us or our officers, disgorgement of profits, prohibitions on doing business and an adverse impact on our reputation. Our failure to comply with these regulations in connection with the performance of our obligations to our clients could also result in liability for monetary damages, fines and/or criminal prosecution, unfavorable publicity, restrictions on our ability to process information and allegations by our clients that we have not performed our contractual obligations. Due to the varying degree of development of the legal systems of the countries in which we operate, local laws might be insufficient to defend and preserve our rights.
We are also subject to risks relating to compliance with a variety of Brazilian national and local laws including multiple tax regimes, labor laws, employee health safety and wages and benefits laws.
In addition, we may, from time to time, be subject to litigation or administrative actions resulting from claims against us by current or former employees individually or as part of class actions, including claims of wrongful terminations, discrimination, misclassification or other violations of labor law or other alleged conduct. We may also, from time to time, be subject to litigation resulting from claims against us by third parties, including claims of breach of non-compete and confidentiality provisions of our employees’ former employment agreements with such third parties. Our failure to comply with applicable regulatory requirements could have a material adverse effect on our business, financial condition, results of operations and prospects.
As we expand into new industries and regions, we will likely need to comply with new requirements to compete effectively. The uncertainty and changes in the requirements of multiple jurisdictions may increase the cost of compliance, delay or reduce demand for our services, restrict our ability to offer services in certain locations, impact our clients’ ability to deploy our solutions in certain jurisdictions, or subject us to sanctions by national data protection regulators, all of which could harm our business, financial condition and results of operations. Additionally, although we endeavor to have our products and platform comply with applicable laws and regulations, these and other obligations may be modified, they may be interpreted and applied in an inconsistent manner from one jurisdiction to another, and they may conflict with one another, other regulatory requirements, contractual commitments or our internal practices.
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We are subject to anti-corruption, anti-bribery, anti-money laundering and sanctions laws and regulations.
We operate in jurisdictions that have a high risk of corruption and we are subject to anti-corruption, anti-bribery anti-money laundering and sanctions laws and regulations, including the Brazilian Federal Law No. 12,846/2013, or the Clean Company Act, the United States Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, and the Bribery Act 2010 of the United Kingdom, or the Bribery Act. Each of the Clean Company Act, the FCPA and the Bribery Act prohibit us and our employees and intermediaries from authorizing, promising, offering, or providing, directly or indirectly, improper or prohibited payments, or anything else of value, to government officials or other persons to obtain or retain business or gain some other business advantage, and impose liability against companies who engage in bribery of government officials, either directly or through intermediaries. We cannot assure that our compliance program, designed to manage the risks of doing business in light of these new and existing legal and regulatory requirements, will prevent violations of these laws and regulations. Violations of the anti-corruption, anti-bribery, anti-money laundering and sanctions laws and regulations could result in criminal liability, administrative and civil lawsuits, significant fines and penalties, forfeiture of significant assets, as well as reputational harm.
Regulators may increase enforcement of these obligations, which may require us to adjust our compliance and anti-money laundering programs, including the procedures we use to verify the identity of our clients and to monitor our transactions and transactions made through our platform. Regulators regularly reexamine the transaction volume thresholds at which we must obtain and keep applicable records, verify clients' identities, and report any change in such thresholds to the applicable regulatory authorities, which could result in increased costs to comply with these legal and regulatory requirements. Costs associated with fines or enforcement actions, changes in compliance requirements, or limitations on our ability to grow could harm our business, and any new requirements or changes to existing requirements could impose significant costs, result in delays to planned product improvements, make it more difficult for new clients to join our network and reduce the attractiveness of our products and services.
We are subject to the Economic Substance Regime in the Cayman Islands.
The Cayman Islands enacted the International Tax Co-operation (Economic Substance) Act (As Revised) (the “Economic Substance Act”). The Economic Substance Act is supplemented by the issuance of related Guidance on Economic Substance for Geographically Mobile Activities, version 3.2 of which was issued in July 2022. We are currently subject to the Economic Substance Act. Given our business activities and operations may change from time to time, it is difficult to predict if we will continue to be subject to the Economic Substance Act and the impact that the Economic Substance Act could have on us and our subsidiaries. For example, compliance with any applicable obligations may create significant additional costs that may be borne by us or otherwise affect our management and operation. We will continue to consider the implications of the Economic Substance Act on our business activities and operations and reserve the right to adopt such arrangements as we deem necessary or desirable to comply with any applicable requirements.
Our operations may be adversely affected by a failure to timely obtain or renew any licenses required to operate our occupied properties.
The operation of the properties we occupy or may come to occupy are subject to certain license and certification requirements under applicable law, including operation and use licenses (alvará de licença de uso e funcionamento) from the municipalities in which we operate and certificates of inspection from applicable local fire departments. Our operations may be adversely affected by a failure to timely obtain or renew any licenses required to operate our occupied properties. We have not yet obtained licenses for all of our occupied properties, and we cannot assure that we will be able to obtain the licenses for which we have applied in a timely manner, as applicable. In addition, we cannot assure you that we will obtain such licenses in a timely manner for the opening of new properties.
If we are unable to renew or obtain such licenses, we may be subject to certain penalties, which include the imposition of fines and/or the suspension or termination of our operations at the respective property. The imposition of such penalties, or, in extreme scenarios, the sealing off of the premises by relevant public authorities pending compliance with all the requirements demanded by the municipalities and fire departments, may adversely affect our operations and our ability to generate revenues at the relevant location.
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We may be subject to various legal proceedings which could adversely affect our business, financial condition or results of operations.
We may be involved in various legal proceedings, investigations and similar matters from time to time arising from tax, civil and labor claims, among others. Such matters can be time-consuming, divert management’s attention and resources and cause us to incur significant expenses. Any insurance or indemnities that we may have may not cover all claims that may be asserted against us, and any claims asserted against us, regardless of merit or eventual outcome, may harm our reputation. If we are unsuccessful in our defense in these legal proceedings, we may be forced to pay damages or fines, enter into consent decrees or change our business practices, any of which could adversely affect our business, financial condition or results of operations.
Certain Risks Relating to Brazil
Exchange rate instability may have adverse effects on the Brazilian economy, us and the price of our Class A common shares.
The Brazilian currency has been historically volatile and devalued frequently over the past three decades. Throughout this period, the Brazilian government has implemented various economic plans and used various exchange rate policies, including sudden devaluations, periodic mini-devaluations (during which the frequency of adjustments has ranged from daily to monthly), exchange controls, dual exchange rate markets and floating exchange rate system. Although long-term depreciation of the real is generally linked to the rate of inflation in Brazil, depreciation of the real occurring over shorter periods of time has resulted in significant variations in the exchange rate between the real, the U.S. dollar and other currencies. The real/U.S. dollar exchange rate reported by the Central Bank was R$5.580 per U.S.$1.00 on December 31, 2021, which reflected a 7.4% depreciation in the real against the U.S. dollar during 2021. The real/U.S. dollar exchange rate reported by the Central Bank was R$5.2177 per U.S.$1.00 on December 31, 2022, which reflected a 7.85% appreciation in the real against the U.S. dollar during 2022. The real/U.S. dollar exchange rate reported by the Central Bank was R$4.8413 per U.S.$1.00 on December 31, 2023, which reflected a 7.8% appreciation in the real against the U.S. dollar during 2023. Although the real appreciated in 2023, there can be no assurance that the real will not again depreciate against the U.S. dollar or other currencies in the future.
A devaluation of the real relative to the U.S. dollar could create inflationary pressures in Brazil and cause the Brazilian government to, among other measures, increase interest rates. Any depreciation of the real may generally restrict access to the international capital markets. It would also reduce the U.S. dollar value of our results of operations. Restrictive macroeconomic policies could reduce the stability of the Brazilian economy and harm our results of operations and profitability. In addition, domestic and international reactions to restrictive economic policies could have a negative impact on the Brazilian economy. These policies and any reactions to them may harm us by curtailing access to foreign financial markets and prompting further government intervention. A devaluation of the real relative to the U.S. dollar may also, as in the context of the current economic slowdown, decrease consumer spending, increase deflationary pressures and reduce economic growth.
On the other hand, an appreciation of the real relative to the U.S. dollar and other foreign currencies may deteriorate the Brazilian foreign exchange current accounts. Depending on the circumstances, either depreciation or appreciation of the real relative to the U.S. dollar and other foreign currencies could restrict the growth of the Brazilian economy, as well as our business, results of operations and profitability.
The Brazilian federal government has exercised, and continues to exercise, significant influence over the Brazilian economy. This involvement as well as Brazil’s political and economic conditions could harm us and the price of our Class A common shares.
The Brazilian federal government frequently exercises significant influence over the Brazilian economy and occasionally makes significant changes in policy and regulations. The Brazilian government’s actions to control inflation and other policies and regulations have often involved, among other measures, increases or decreases in interest rates, changes in fiscal policies, wage and price controls, foreign exchange rate controls, blocking access to bank accounts, currency devaluations, capital controls and import and export restrictions. We have no control over and cannot predict what measures or policies the Brazilian government may take in the future. We and the market price of our securities may be harmed by changes in Brazilian government policies, as well as general economic factors, including, without limitation:
● expansion and contraction of the Brazilian economy, measured by the gross domestic product growth rates;
● growth or downturn of the Brazilian economy;
● interest rates and monetary policies;
● exchange rates and currency fluctuations;
● inflation;
● liquidity of the domestic capital and lending markets;
● import and export controls;
● exchange controls and restrictions on remittances abroad and payments of dividends;
● modifications to laws and regulations according to political, social and economic interests;
● fiscal policy and changes in tax laws;
● economic, political and social instability, including general strikes and mass demonstrations;
● the regulatory framework governing the education industry;
● labor and social security regulations;
● energy and water shortages and rationing;
● commodity prices; and
● other political, diplomatic, social and economic developments in or affecting Brazil.
Uncertainty about the implementation of reforms or changes by the Brazilian federal government generates instability in the Brazilian economy, as well as greater volatility in the domestic capital market and in the securities of issuing companies. We cannot predict what measures the Brazilian federal government will take in the face of mounting macroeconomic pressures or otherwise.
Political crises have affected and continue to affect the confidence of investors and the general public, which have historically resulted in economic deceleration and heightened volatility in the securities offered by companies with significant operations in Brazil. The Brazilian markets have seen an increase in volatility due to the uncertainties resulting from investigations in progress, which have affected the country’s economic and political environment. In addition, public disagreements between the Brazilian former government officials and members of the Brazilian Supreme Court, social and political unrest and demonstrations have exacerbated uncertainty around an already unstable political environment in Brazil, which may adversely affect our business, operations, results and share price.
Uncertainties regarding the recently elected government’s implementation of changes in monetary, fiscal and social policies, as well as concerns with government expenditures and fiscal responsibility, may contribute to economic instability. These uncertainties and new measures may increase the volatility of the Brazilian securities market.
The president of Brazil has the power to establish policies and perform governmental acts related to the conduction of the Brazilian economy and, consequently, affect the operations and financial performance of companies, including ourselves. We cannot predict which policies the newly appointed President will adopt, much less whether such policies or changes in current policies could have an adverse effect on us or on the Brazilian economy. Any lack of decision by the Brazilian government to implement changes in certain policies or regulations may contribute to economic uncertainty for investors with respect to Brazil and increase market volatility.
These uncertainties, the recession with a slow recovery period in Brazil and other future developments in the Brazilian economy may adversely affect our business and, consequently, our results of operations, and may also adversely affect the trading price of our shares.
Risks related to the global economy may affect the perception of risks in other countries, particularly in the United States, Europe and emerging markets, adversely affecting the Brazilian economy and the market price of securities of issuers with principal operations in Brazil, including our Class A common shares.
The market value of securities of an issuer with principal operations in Brazil is affected to varying degrees by economic and market conditions in other countries, including the United States, European countries and other Latin American and emerging market countries. Although economic conditions in the United States and European countries may differ significantly from economic conditions in Brazil, investors’ reactions to developments in these countries may adversely affect the market value of securities of issuers with principal operations in Brazil, including our common shares. Moreover, crises or significant developments in other countries and capital markets may diminish investors’ interest in securities of issuers with principal operations in Brazil, including our Class A common shares, and their trading price, limiting or preventing our access to capital markets and to funds to finance our operations on acceptable terms.
Economic, health, political, environmental or any other type of crisis that can impact the Brazilian economy can affect the purchasing power of the population, which can adversely affect us.
Economic, health, political, environmental or any other type of crisis that can impact the Brazilian economy can affect the purchasing power of the Brazilian population, which — in turn — can adversely affect us. Our performance depends on the overall health and growth of the Brazilian economy. Brazilian GDP growth has fluctuated over the past few years, with a contraction of 3.3% in 2016, followed by growth of 1.3% in 2017, 1.8% in 2018, 1.1% in 2019, a contraction of 4.1% in 2020, a growth of 4.6% in 2021, a growth of 2.9% in 2022, and a growth of 2.9% for the year ended December 31, 2023. Growth is limited by inadequate infrastructure, including potential energy shortages and deficient transportation, logistics and telecommunication sectors, general strikes, the lack of a qualified labor force, and the lack of private and public investments in these areas, which limit productivity and efficiency. Any of these factors could lead to labor market volatility and generally impact income, purchasing power and consumption levels, which could limit growth and ultimately have a material adverse effect on us.
The financial crisis that originated in the United States in the third quarter of 2008, for example, caused the dollar to rise against the real. This led to a credit restriction in the domestic market, increased unemployment rates, increased defaults, and, consequently, a reduction in consumption in Brazil. Similarly, the political-economic crisis experienced in Brazil between 2013-2016 had a relevant impact on unemployment rates, decreased the purchasing power of the population and, consequently, decreased consumption in the country.
Recently, the world has been affected by the COVID-19 pandemic which has caused negative global economic impacts. As a result of the pandemic, we believe that the purchasing power of the Brazilian population will decrease, which could cause a significant reduction in consumption and adversely affect us.
Inflation and certain measures by the Brazilian government to curb inflation have historically harmed the Brazilian economy and Brazilian capital markets, and high levels of inflation in the future would harm our business and the price of our Class A common shares.
In the past, prior to 1994, Brazil experienced extremely high rates of inflation. Inflation and some of the measures taken by the Brazilian government in an attempt to curb inflation have had significant negative effects on the Brazilian economy generally. Inflation policies adopted to curb inflationary pressures and uncertainties regarding possible future governmental intervention have contributed to economic uncertainty and heightened volatility in the Brazilian capital markets.
According to the National Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo, “IPCA”), which is published by the Brazilian Institute for Geography and Statistics (Instituto Brasileiro de Geografia e Estatística, or IBGE), Brazilian inflation rates were 4.62%, 5.79% and 10.06%, as of December 31, 2023, 2022 and 2021, respectively. Brazil may experience high levels of inflation in the future and inflationary pressures may lead to the Brazilian government’s intervening in the economy and introducing policies that could harm our business and the price of our Class A common shares. In the past, the Brazilian government’s interventions included the maintenance of a restrictive monetary policy with high interest rates that restricted credit availability and reduced economic growth, causing volatility in interest rates. For example, the official interest rate in Brazil oscillated from 14.25% as of December 31, 2015 to 6.50% as of December 31, 2018, as established by the Monetary Policy Committee (Comitê de Política Monetária do Banco Central do Brasil - COPOM). As of August 5, 2020, the SELIC rate target was set at 2.0% p.a. From 2021, COPOM started to gradually increase the interest rate, until it reached 13.75% p.a. on August 3, 2022. Since August 3, 2023, the COPOM has been gradually lowering the interest rate. As of December 31, 2023, the SELIC rate target was 11.75% p.a..
Conversely, more lenient government and Central Bank policies and interest rate decreases have triggered and may continue to trigger increases in inflation, and, consequently, growth volatility and the need for sudden and significant interest rate increases, which could negatively affect us and increase our indebtedness.
In addition, our employees’ salaries are adjusted annually according to inflation indexes and based on labor union negotiations. Therefore, an increase in inflation may increase our costs and expenses and reduce our profitability metrics.
Any further downgrading of Brazil’s credit rating could reduce the trading price of our Class A common shares.
Credit ratings affect the perception of risk of investors. Rating agencies regularly review Brazil’s sovereign credit ratings based on a number of factors, including macroeconomic trends, tax and budgetary conditions, indebtedness metrics and the prospect of changes in any of these factors.
Rating agencies started to review Brazil’s sovereign ratings in September 2015. Subsequently, Brazil lost its investment grade, according to the credit rating reviewed by the three main credit rating agencies. After an initial downgrade in September 2015, Standard & Poor’s downgraded again from BB-plus to BB and, in January 2018, downgraded Brazil’s sovereign credit rating from BB to BB-minus, in addition to changing the outlook from negative to stable. In December 2015, Moody’s placed Brazil’s Baa3 issuer and bond rating under review for a downgrade and subsequently downgraded Brazil’s ratings to below investment grade, or Ba2, with a negative outlook. In April 2018, Moody’s maintained Brazil’s Ba2 rating and changed the outlook from negative to stable. In December 2015, Fitch downgraded Brazil’s sovereign credit rating to BB- plus, with a negative outlook, and made a further downgrade in May 2016 to BB with a negative outlook, which was maintained in 2017. In February 2018, Fitch further downgraded Brazil’s sovereign credit rating to BB-minus, with a stable outlook, which was maintained in 2022. In June 2023, Standard & Poor’s raised Brazil’s sovereign credit outlook to positive.
As of the date of this annual report, Brazil’s sovereign credit ratings were BB- positive, Ba2 stable and BB- stable by Standard & Poor’s and Moody’s and Fitch, respectively. We cannot assure that rating agencies will maintain Brazil’s sovereign credit ratings and any downgrades may adversely affect us.
Certain Risks Relating to Our Class A Common Shares
Shares prices, particularly of technology companies, are subject to significant volatility. Also, an active trading market for our Class A common shares may not be sustainable. If an active trading market is not maintained, investors may not be able to resell their shares and our ability to raise capital in the future may be impaired.
Although our Class A common shares are listed and being traded on the NYSE, an active trading market for our shares may not be maintained. If an active market for our Class A common shares is not maintained, it may be difficult for you to sell shares without depressing the market price for the shares or at all. An inactive trading market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration. Also, in an environment of depressed share prices, our shareholders, including affiliates, may purchase our Class A common shares in the market, which may further reduce the liquidity of the trading market for our shares.
In addition to the risks described above, the market price of our Class A common shares may be influenced by many factors, some of which are beyond our control, including:
| ● | actual or forecast fluctuations in revenue or in other operating and financial results; | |
| ● | variations between our actual operating results and the expectations of securities analysts, investors and the financial community; | |
| ● | action by securities analysts who begin or continue to cover us, changes in the financial estimates of any securities analysts who follow our company or our failure to meet these estimates or investors’ expectations; | |
| ● | announcements by us or by our competitors of significant products or features, technical innovations, acquisitions, strategic partnerships, joint ventures or capital commitments; | |
| ● | negative media coverage or publicity affecting us, whether true or not; | |
| ● | changes in the operating performance and stock market valuations of digital transformation companies in general, including our competitors; | |
| ● | fluctuations in the price and volume of the stock market in general, including as a result of trends in the economy as a whole; | |
| ● | threats of lawsuits and actions brought against us or decided against us; | |
| ● | developments in the legislation or regulatory action, including interim or final decisions by judicial or regulatory bodies; | |
| ● | changes in accounting standards, policies, guidelines, interpretations or principles; | |
| ● | any significant changes in our board of directors or management; | |
| ● | any security incidents or public reports of security incidents related to us or our sector; | |
| ● | statements, comments or opinions from public officials that our offerings are or may be illegal, regardless of interim or final decisions of judicial or regulatory bodies; and | |
| ● | other events or factors, including those resulting from war, terrorist incidents, natural disasters or responses to such events. |
In addition, price and volume fluctuations in the stock markets have affected and continue to affect the stock prices of many technology companies. Often, their stock prices fluctuate in ways that are unrelated or disproportionate to the operating performance of companies. In some instances, shareholders have filed a class action lawsuit after periods of market volatility. If we are involved in litigation regarding securities, this could subject us to substantial costs, divert resources and management attention from our business and seriously undermine our business. In addition, the occurrence of any of the factors listed above, along with others, may cause our share price to drop significantly and there is no guarantee that our share price will recover.
The dual class structure of our common stock has the effect of concentrating voting control with our Class B Shareholders and certain of our Class B Shareholders will have the right to appoint members to our board of directors; this will limit or preclude your ability to influence corporate matters.
Each Class A common share entitles its holder to one vote per share, and each Class B common share entitles its holder to ten votes per share, so long as the total number of the issued and outstanding Class B common shares is at least 10% of the total number of shares outstanding. Due to the ten-to-one voting ratio between our Class B and Class A common shares, the Class B Shareholders are expected to collectively continue to control a majority of the combined voting power of our common shares so long as the total number of the issued and outstanding Class B common shares is at least 10% of the total number of shares outstanding. In addition, in connection with the initial public offering, we entered into a shareholders’ agreement with our founder shareholders and the investment vehicles of Advent International (“Advent Managed Fund LLCs”) pursuant to which our founder shareholders and the Advent Managed Fund LLCs will have the right to appoint directors to our board. See “Principal and Selling Shareholders — Shareholders’ Agreement.”
In addition, our Articles of Association provide that Class B common shares may only be issued pursuant to (i) a share split, subdivision of shares or similar transaction or where a dividend or other distribution is paid by the issue of shares or rights to acquire shares or following capitalization of profits, (ii) subject to the Class B Shareholder Consent (as defined in our Articles of Association), a merger, consolidation, or other business combination involving the issuance of Class B common shares as full or partial consideration, or (iii) an issuance of Class A common shares, whereby holders of the Class B common shares are entitled to purchase a number of Class B common shares that would allow them to maintain their proportional ownership interests in CI&T (following an offer by us to each holder of Class B common shares to issue to such holder, upon the same economic terms and at the same price, such number of Class B common shares as would ensure such holder may maintain a proportional ownership interest in CI&T pursuant to our Articles of Association), provided that such rights to purchase additional Class B common shares may only be exercised with Class B Shareholder Consent.
Future transfers by holders of Class B common shares will generally result in those shares converting to Class A common shares, subject to limited exceptions, such as certain transfers effected to permitted transferees or for estate planning or charitable purposes. The conversion of Class B common shares to Class A common shares will have the effect, over time, of increasing the relative voting power of those holders of Class B common shares who retain their shares in the long term.
In light of the above provisions relating to the issuance of additional Class B common shares, the fact that future transfers by holders of Class B common shares will generally result in those shares converting to Class A common shares, subject to limited exceptions as provided in the Articles of Association; as well as the ten-to-one voting ratio of our Class B common shares and Class A common shares, holders of our Class B common shares will in many situations continue to maintain control of matters requiring shareholder approval. This concentrated control will limit or preclude your ability to influence corporate matters for the foreseeable future. For a description of our dual class structure, see “Additional Information — B. Memorandum and Articles of Association — Description of Share Capital — Voting Rights.”
Class A common shares eligible for future sale may cause the market price of our Class A common shares to drop significantly.
The market price of our Class A common shares may decline as a result of sales of a large number of our Class A common shares in the market (including Class A common shares issuable upon conversion of Class B common shares) or the perception that these sales may occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
As of the date of this annual report, we have 21,365,297 Class A common shares and 113,046,717 Class B common shares outstanding. Our shareholders or entities controlled by them or their permitted transferees will be able to sell their shares in the public market from time to time without registering them, subject to certain limitations on the timing, amount and method of those sales imposed by regulations promulgated by the SEC. If any of our shareholders, the affiliated entities controlled by them or their respective permitted transferees were to sell a large number of their Class A common shares, the market price of our Class A common shares may decline significantly. In addition, the perception in the public markets that sales by them might occur may also cause the trading price of our Class A common shares to decline.
We are a Cayman Islands exempted company with limited liability. The rights of our shareholders, including with respect to fiduciary duties and corporate opportunities, may be different from the rights of shareholders of companies incorporated under and governed by the laws of U.S. jurisdictions.
We are a Cayman Islands exempted company with limited liability. Our corporate affairs are governed by our Articles of Association, the Companies Act (As Revised) of the Cayman Islands (the “Companies Act”) and by the laws of the Cayman Islands. The rights of shareholders and the responsibilities of members of our board of directors may be different from the rights of shareholders and responsibilities of directors in companies governed by the laws of U.S. jurisdictions.
In particular, as a matter of Cayman Islands law, directors and officers owe the following fiduciary duties: (i) duty to act in good faith in what the director or officer believes to be in the best interests of the company as a whole; (ii) duty to exercise powers for the purposes for which those powers were conferred and not for a collateral purpose; (iii) directors should not improperly fetter the exercise of future discretion; (iv) duty to exercise powers fairly as between different sections of shareholders; (v) duty to exercise independent judgment; and (vi) duty not to put themselves in a position in which there is a conflict between their duty to the company and their personal interests. With respect to the duty of directors to avoid conflicts of interest, our Articles of Association vary from the applicable provision of Cayman Islands law mentioned above by providing that a director must disclose the nature and extent of his or her interest in any contract or arrangement, and following such disclosure and subject to any separate requirement under applicable law or the listing rules of the NYSE, and unless disqualified by the chairperson of the relevant meeting, such director may vote in respect of any transaction or arrangement in which he or she is interested and may be counted in the quorum at the meeting. In addition to the above, under Cayman Islands law, directors also owe a duty of care that is not fiduciary in nature. This duty has been defined as a requirement to act as a reasonably diligent person having both the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company and the general knowledge, skill and experience that director has. As stated above, directors have a duty not to put themselves in a position of conflict and this includes a duty not to engage in self-dealing, or to otherwise benefit as a result of their position. However, in some instances what would otherwise be a breach of this duty can be forgiven and/or authorized in advance by the shareholders provided that there is full disclosure by the directors. This can be done by way of permission granted in the memorandum and articles of association or alternatively by shareholder approval at general meetings, and our Articles of Association provide for such permission in relation to conflicts of interest as noted above. Accordingly, as a result of multiple business affiliations, our officers and directors may have similar legal obligations relating to presenting business opportunities meeting the above-listed criteria to multiple entities. In addition, conflicts of interest may arise when our board evaluates a particular business opportunity with respect to the above-listed criteria. We cannot assure you that any of the above-mentioned conflicts will be resolved in our favor. Furthermore, each of our officers and directors has pre-existing fiduciary obligations to other businesses of which they are officers or directors. Conversely, under Delaware corporate law, a director has a fiduciary duty to the corporation and its stockholders (made up of two components) and the director’s duties prohibit self-dealing by a director and mandate that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. See “Description of Share Capital — Principal Differences between Cayman Islands and U.S. Corporate Law.”
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We may lose our foreign private issuer status, which would then require us to comply with the Exchange Act’s domestic reporting regime and cause us to incur significant legal, accounting and other expenses.
In order to maintain our current status as a foreign private issuer, either (i) more than 50% of the Company’s outstanding shares must be either directly or indirectly owned of record by non-residents of the United States or (ii) (a) a majority of our executive officers or directors may not be U.S. citizens or residents, (b) more than 50% of our assets cannot be located in the United States and (c) our business must be administered principally outside the United States. If we lose this status, we would be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirements for foreign private issuers. We may also be required to make changes in our corporate governance practices in accordance with various SEC and NYSE rules. The regulatory and compliance costs to us under U.S. securities laws if we are required to comply with the reporting requirements applicable to a U.S. domestic issuer may be significantly higher than the costs we will incur as a foreign private issuer. As a foreign private issuer, we are permitted to, and we will rely on exemptions from certain NYSE corporate governance standards applicable to U.S. issuers, including the requirement that a majority of an issuer’s directors consist of independent directors. This may afford less protection to holders of our Class A common shares.
The NYSE equity rules require listed companies to have, among other things, a majority of independent members on their board, and to have independent director oversight of executive compensation, the nomination of directors and corporate governance matters. As a foreign private issuer, however, we are permitted to, and we will follow the home country practice in lieu of the above requirements. See “Additional Information — B. Memorandum and Articles of Association — Description of Share Capital — Principal Differences between Cayman Islands and U.S. Corporate Law.”
Our Articles of Association contain anti-takeover provisions that may discourage a third-party from acquiring us and adversely affect the rights of holders of our Class A common shares.
Our Articles of Association contain certain provisions that could limit the ability of others to acquire control of us, including a provision that grants authority to our board of directors to establish and issue from time to time one or more series of preferred shares without action by our shareholders and to determine, with respect to any series of preferred shares, the terms and rights of that series. In addition, our capital structure concentrates ownership of voting rights in the hands of the holders of Class B common shares. These provisions could have the effect of depriving our shareholders of the opportunity to sell their shares at a premium over the prevailing market price by discouraging third parties from seeking to obtain our control in a tender offer or similar transactions.
We do not anticipate paying any cash dividends in the foreseeable future.
We currently intend to retain our future earnings, if any, for the foreseeable future, to fund the operation of our business and future growth. We do not intend to pay any dividends to holders of our Class A common shares. As a result, capital appreciation in the price of our Class A common shares, if any, will be your only source of gain on an investment in our Class A common shares.
Holders of our Class B common shares have preemptive rights to acquire shares that we may sell in the future, which preemptive rights are only exercisable with Class B Shareholder Consent, which may impair our ability to raise funds.
Under our Memorandum and Articles of Association, the Class B Shareholders are entitled to preemptive rights to purchase additional common shares in the event that there is an increase in our share capital and additional common shares are issued (which may only be exercised with Class B Shareholder Consent), upon the same economic terms and at the same price, in order to maintain their proportional ownership interests. The exercise by holders of our Class B common shares of their preemptive rights may impair our ability to raise funds, or adversely affect the terms on which we are able to raise funds, as we may not be able to offer to new investors the quantity of our shares that they may desire to purchase. For more information see “Additional Information — B. Memorandum and Articles of Association — Description of Share Capital — Preemptive or Similar Rights.”
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If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, the price of our Class A common shares and our trading volume could decline.
The trading market for our Class A common shares will depend in part on the research and reports that securities or industry analysts publish about us or our business. If no or too few securities or industry analysts maintain coverage of our company, the trading price for our Class A common shares would likely be negatively affected. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our Class A common shares or publish inaccurate or unfavorable research about our business, the price of our Class A common shares would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our Class A common shares could decrease, which might cause the price of our Class A common shares and trading volume to decline. Our dual class capital structure means our shares will not be included in certain indices. We cannot predict the impact this may have on our share price.
In 2017, FTSE Russell, S&P Dow Jones and MSCI announced changes to their eligibility criteria for inclusion of shares of public companies on certain indices to exclude companies with multiple classes of common shares from being added to such indices. FTSE Russell announced plans to require new constituents of its indices to have at least five percent of their voting rights in the hands of public stockholders. In July 2017, S&P Dow Jones announced changes to their eligibility criteria for the inclusion of shares of public companies on certain indices, including the S&P 500, the S&P MidCap 400, and the S&P SmallCap 600, to exclude companies with multiple classes of shares of common stock, such as ours, from being added to these indices; however, in April 2023, S&P Dow Jones announced its decision that companies with multiple share class structures will be considered eligible candidates for addition to the S&P Composite 1500 and its component indices provided they meet all other eligibility criteria. MSCI also opened public consultations on their treatment of no-vote and multi-class structures and has temporarily barred new multi-class listings from its ACWI Investable Market Index and U.S. Investable Market 2500 Index; however, in October 2018, MSCI announced that equity securities of companies with “unequal voting structures” would be eligible for addition to the ACWI IMI and other relevant indexes. These policies are still relatively new, and it remains unclear what effect, if any, they will have on the valuations of publicly traded companies excluded from the indices in the longer term, but it is possible that they may depress these valuations compared to those of other similar companies that are included. In addition, there can be no assurance that other stock indices will not adopt a similar approach to S&P Dow Jones or FTSE Russell in the future. Exclusion from indices could make our Class A common stock less attractive to investors and, as a result, the market price of our Class A common stock could be adversely affected.
As a foreign private issuer and an “emerging growth company” (as defined in the JOBS Act), we have different disclosure and other requirements than U.S. domestic registrants and non-emerging growth companies.
As a foreign private issuer and emerging growth company, we are subject to different disclosure and other requirements than domestic U.S. registrants and non-emerging growth companies. For example, as a foreign private issuer, in the United States, we are not subject to the same disclosure requirements as a domestic U.S. registrant under the Exchange Act, including the requirements to prepare and issue quarterly reports on Form 10-Q or to file current reports on Form 8-K upon the occurrence of specified significant events, the proxy rules applicable to domestic U.S. registrants under Section 14 of the Exchange Act or the insider reporting and short-swing profit rules applicable to domestic U.S. registrants under Section 16 of the Exchange Act. In addition, we intend to rely on exemptions from certain U.S. rules which will permit us to follow Cayman Islands legal requirements rather than certain of the requirements that are applicable to U.S. domestic registrants. Such Cayman Islands legal requirements may differ significantly from those that are applicable to U.S. domestic registrants (for example, as noted below) and accordingly, shareholders may be afforded less protection than they otherwise would have had if we were a U.S. domestic registrant.
We follow Cayman Islands laws and regulations that are applicable to Cayman Islands companies. However, Cayman Islands laws and regulations applicable to Cayman Islands companies do not contain any provisions comparable to the U.S. proxy rules, the U.S. rules relating to the filing of reports on Form 10-Q or 8-K or the U.S. rules relating to liability for insiders who profit from trades made in a short period of time, as referred to above. Furthermore, foreign private issuers are required to file their annual report on Form 20-F within 120 days after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year. Foreign private issuers are also exempt from Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information, although we will be subject to Cayman Islands laws and regulations having substantially the same effect as Regulation Fair Disclosure. As a result of the above, even though we are required to file reports on Form 6-K disclosing the limited information which we have made or are required to make public pursuant to Cayman Islands law, or are required to distribute to shareholders generally, and that is material to us, you may not receive information of the same type or amount that is required to be disclosed to shareholders of a U.S. company.
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Our shareholders may face difficulties in protecting their interests because we are a Cayman Islands exempted company.
Our corporate affairs are governed by our Articles of Association, by the Companies Act and the common law of the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under the laws of the Cayman Islands are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. Therefore, you may have more difficulty protecting your interests than would shareholders of a corporation incorporated in a jurisdiction in the United States, due to the comparatively less prescriptive nature of Cayman Islands law in this area.
While Cayman Islands law allows a dissenting shareholder to express the shareholder’s view that a court sanctioned reorganization of a Cayman Islands company would not provide fair value for the shareholder’s shares, Cayman Islands statutory law does not specifically provide for shareholder appraisal rights in connection with a court sanctioned reorganization (by way of a scheme of arrangement). This may make it more difficult for you to assess the value of any consideration you may receive in a merger or consolidation (by way of a scheme of arrangement) or to require that the acquirer give you additional consideration if you believe the consideration offered is insufficient. However, Cayman Islands statutory law provides a mechanism for a dissenting shareholder in a merger or consolidation that does not take place by way of a scheme of arrangement to apply to the Grand Court of the Cayman Islands for a determination of the fair value of the dissenter’s shares if it is not possible for the company and the dissenter to agree on a fair price within the time limits prescribed.
Shareholders of Cayman Islands exempted companies (such as us) have no general rights under Cayman Islands law to inspect corporate records and accounts or to obtain copies of lists of shareholders. Our directors have discretion under our Articles of Association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.
United States civil liabilities and certain judgments obtained against us by our shareholders may not be enforceable.
We are a Cayman Islands exempted company and substantially all of our assets are located outside of the United States. In addition, the majority of our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons is located outside of the United States. As a result, it may be difficult to effect service of process within the United States upon these persons. It may also be difficult to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors who are not resident in the United States and the substantial majority of whose assets are located outside of the United States.
Further, it is unclear if original actions predicated on civil liabilities based solely upon U.S. federal securities laws are enforceable in courts outside the United States, including in the Cayman Islands and Brazil. Courts of the Cayman Islands may not, in an original action in the Cayman Islands, recognize or enforce judgments of U.S. courts predicated upon the civil liability provisions of the securities laws of the United States or any state of the United States on the grounds that such provisions are penal in nature. Although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, courts of the Cayman Islands will recognize and enforce a foreign judgment of a court of competent jurisdiction if such judgment is final, for a liquidated sum, provided it is not in respect of taxes or a fine or penalty, is not inconsistent with a Cayman Islands’ judgment in respect of the same matters, and was not obtained in a manner which is contrary to the public policy of the Cayman Islands. In addition, a Cayman Islands court may stay proceedings if concurrent proceedings are being brought elsewhere.
Judgments of Brazilian courts to enforce our obligations with respect to our Class A common shares may be payable only in reais, and the applicable exchange rate in force at the time may not offer non-Brazilian investors full compensation for any claim arising from our obligations.
Most of our assets are located in Brazil. If proceedings are brought in the courts of Brazil seeking to enforce our obligations in respect of our Class A common shares, we may not be required to discharge our obligations in a currency other than the real. Under Brazilian exchange control laws, an obligation in Brazil to pay amounts denominated in a currency other than the real may only be satisfied in Brazilian currency at the exchange rate, as determined by the Central Bank, in effect on the date (i) of actual payment, (ii) on which such judgment is rendered, or (iii) on which collection or enforcement proceedings are started against us, and such amounts are then adjusted to reflect exchange rate variations through the effective payment date. The then-prevailing exchange rate may not afford non-Brazilian investors with full compensation for any claim arising out of or related to our obligations under the Class A common shares.
CI&T Software S.A. was founded in 1995 in Brazil and began working with research and development (R&D) companies for software development before expanding to provide technical services to “nearshore” customers. Over the course of more than 29 years of operations, we have demonstrated a strong track record of revenue growth and have grown to provide services to a client list consisting of over 150 large enterprises and fast-growing companies from several industries across the globe.
During this period, we evolved from a niche R&D internet software company operating in Brazil to a global end-to-end digital transformation specialist impacting some of the world’s leading brands by combining digital strategy with customer-centric design and best-in-class software engineering. From our initial operations mainly in the Brazilian market, we began to work with large companies. We later expanded our business to include development centers located in Brazil and China, to accommodate our clients worldwide. As of December 31, 2023, our clients are located mainly in the United States and Brazil, which accounted for 44% and 41% of our Net revenue for the year ended December 31, 2023, respectively.
In 2019, funds managed by Advent International, or Advent, a global private equity firm and asset manager, raised funds with investors, making a strategic minority investment in CI&T through Advent-Managed Vehicles. Meanwhile, our founders, Cesar Nivaldo Gon, Bruno Guiçardi Neto and Fernando Matt Borges Martins, remained the majority shareholders of the business. This strategic and financial partnership has enabled us to accelerate our global growth strategy, which is focused on increasing market share and brand awareness, attracting new talent, strengthening capabilities and expanding geographically. With its deep sector expertise, global platform, and operational resources, Advent has helped us build on our strong momentum.
We successfully expanded our operations in 2020, opening “nearshore” service hubs in Europe (London and Lisbon) and Canada (Toronto). In 2021, we expanded our China delivery center with a new office in Chengdu. As global development centers, these “nearshore” hubs are focused on expanding our technology integration services to support our digital marketing engagements with our clients. We expect that these “nearshore” hubs will allow us to increase our delivery capacity of solutions to major international brands operating in the key markets of North America and Europe and enable us to energize innovation and digital transformation worldwide. In 2020, we also continued our global expansion with a new push into Australia. Our expansion into these countries offers our international clients more worldwide coverage and enables us to target new ones.
In August 2021, we completed the acquisition of Dextra Group, based in Brazil and focused on customized software development, and an expert in combining design methodology, agile development and data science to deliver digital products to its clients.
On November 10, 2021, our Class A common shares began trading on the NYSE under the symbol “CINT” in connection with our initial public offering.
In January 2022, we completed the acquisition of Somo Global Ltd, or Somo, to accelerate our growth in EMEA, the second-largest market for digital services.
In June 2022, we completed the acquisition of Box 1824 Planejamento e Marketing Ltda., a strategic consulting firm headquartered in São Paulo, Brazil, to accelerate our global strategic capabilities.
In September 2022, we completed the acquisition of Transpire Technology Pty Ltd (“Transpire”), an Australian technology consultancy, to enhance our growth in APAC.
In November 2022, we completed the acquisition of NTERSOL Consulting LLC (“NTERSOL”), a U.S.-based digital transformation provider, to expand our financial services expertise in North America.
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CI&T is a provider of strategy, design and software engineering services to enable digital transformation for some of the world’s largest enterprises and fast-growing companies. As companies race to provide their end-customers with a digital-first experience, our highly talented multidisciplinary teams of strategists, designers and engineers bring a 29-year track record of accelerating business innovations through our end-to-end scalable digital solutions. Through our collaborative approach, we are deeply embedded within our clients’ organizations helping drive digital transformation in their day-to-day business operations and strategic thinking. We do this at scale with a global presence of over 6,100 professionals spread across nine countries. As a result, many blue-chip companies and fast-growing companies across geographies and industry verticals trust CI&T as their partner for digital transformation.
In recent years, many emerging technologies and market trends, such as mobility, cloud computing, artificial intelligence and hyper-connectivity, have revolutionized and continue to alter how end-users interact with their brands, forcing businesses to redefine engagement models and customer experiences. As companies across industries seek to transform their businesses, they require specialized engineering and creative talent to design customized, innovative solutions rapidly and at scale. Many companies and traditional IT outsourcing vendors today often lack the know-how and talent to implement these transformational changes at speed and scale. We believe this dynamic creates an attractive opportunity for a digitally native company like ours to help companies rapidly adapt while meeting the demands of their end customers.
According to the International Data Corporation, or IDC, the digital transformation services market is massive. While this market encompasses several distinct technology solutions, we focus on application development and deployment, consulting, technology outsourcing, and support of IT systems to enable enterprise-wide digital change.
Born in the digital space, CI&T has been at the forefront of innovation delivering business impact by transforming ideas into reality. Our end-to-end offering starts by addressing our clients’ challenges and identifying opportunities where digital technologies can create value (Strategy), then iterating with multidisciplinary teams to create viable solutions (Design) and finally, implementing these digital products and platforms at speed and scale (Engineering). We believe this approach uniquely positions us to capitalize on the massive scale and continuous growth within the digital transformation services market.
We serve our clients by organizing our delivery operations into autonomous units called Growth Units.
Our Growth Units are industry-agnostic and multidisciplinary, incorporating talent from across the organization to provide clients with holistic solutions. Growth Units are empowered to focus on the needs of clients and leverage CI&T’s centralized shared services platform for branding, human capital strategy and corporate learning support. Four to eight multidisciplinary senior leaders comprise an executive leadership team and work together to lead each Growth Unit. This structure enables our executives to actively manage their teams while staying close to our clients. Within each Growth Unit, multiple teams of approximately 10 people are dedicated to a specific client or project, typically including a project manager, designers, architects, data scientists, and developers, among others, or the Squads. Using Dunbar’s number as a guide, when a Growth Unit reaches approximately 400 people, we split it into smaller units to ensure our organization stays flat, agile and collaborative. Our Growth Units are further supported by our PowerHouses, specialized teams with deep digital competencies that help our clients remain updated with the latest emerging trends and technologies regardless of their sector. By empowering smaller teams, we have found that our employees remain more engaged and entrepreneurial while we continue to expand our global reach and scale.
Our approach has enabled us to attract numerous blue-chip companies, such as Johnson & Johnson, AB InBev, Nestlé, Google, Itaú Unibanco, Coca-Cola, LifeScan, Audi and Kraft Heinz among many others. While focused on expanding our business in North America and Europe, we believe our deep roots in Latin America, especially in Brazil, benefit our growth strategy given the region’s massive size and heightened demand for digital transformation services. Our end-to-end solutions and collaborative approach allow us to establish deeply embedded, long-term relationships with our clients that in some instances date back over 17 years. We actively help our clients innovate through these trusted relationships while increasing our share of revenues, as demonstrated by our Net Revenue Retention Rate, which is the ratio of the difference between the Net revenue and the Net revenue generated from new clients in a given year, over Net revenue from the previous year. Over the last five years, our Net Revenue Retention Rate was 120% on average.
In July 2023, we launched CI&T/FLOW, our groundbreaking AI-powered platform that redefines the very essence of software and digital development. With its comprehensive set of boosters powered by AI, CI&T/FLOW unleashes hyper-productivity, igniting a new level of efficiency and innovation at enterprises.
INDUSTRY AND MARKET OPPORTUNITY
The rapid expansion of technology, driven by the ubiquity of mobile applications and other connected devices, has increased the prevalence of connected consumers. Empowered by these technologies, consumers are more sophisticated than ever and are increasingly demanding seamless digital experiences. Meanwhile, companies across industries with new, tech-centric business models that embrace these trends challenge traditional enterprises. To meet rising consumer expectations and compete against these emerging digital-first companies, traditional enterprises invest in digital transformation to digitize their legacy applications and processes and increase the efficiency of customer interactions.
This paradigm shift in business models was underway before the outbreak of the COVID-19 pandemic; however, the pandemic has accelerated the adoption of digital technology to support remote working environments and remote customer engagement. Despite significant budget pressures and cost containment measures, according to IDC, overall investments in digital resiliency increased steadily throughout 2020 and continue to increase as businesses prioritize or accelerate the adoption of cloud computing, collaboration, and digital transformation projects.
Companies have recognized this shift in customer demand and competitive landscape. However, to maximize their investments, organizations must adopt digital technologies to specific products and customer experiences, embedding digital strategies into their operating model to create new value and efficiencies that differentiate them from competitors. This digital journey is not simply a matter of a single process or application, but is the result of iterative development across the entire organization. Notable digital transformation use cases, in terms of global spending, include improving operational efficiency through innovation, scaling and operation, back-office support and infrastructure and enhancing customer experience. According to IDC, global spending on Digital Transformation is expected to approach $3.9 trillion by 2027, with a projected five-year CAGR of 16.1%.
In 2023, numerous companies underwent a significant realignment in their technology investments, focusing on the implementation of artificial intelligence (“AI”) and the integration of AI-enabled products and services. In particular, generative AI (“Gen AI”) has emerged as a key driver of investments in traditional AI solutions, as it enables revenue growth and improved business outcomes. In addition, it plays a critical role in reducing the time and cost associated with use cases related to customer and employee productivity.
According to IDC, expenditures on GenAI solutions are expected to reach $151.1 billion by 2027. This forecast underscores the growing prominence of generative AI as a key driver in shaping the AI investment landscape and its expected significant impact on the technological trajectory of businesses in the coming years.
Despite this potential, many organizations lack the resources or expertise to develop and execute a digital transformation plan. According to IDC, 73% of organizations are still 12 to 24 months away from developing a plan to operationalize their enterprise digital strategies. Faced with these challenges, some organizations have turned to large IT outsourcers for support. However, most of these providers have an embedded cost-first approach, are burdened with a legacy strategy and are unable to provide clients with digital-first multidisciplinary teams and a holistic digital transformation strategy to clients. These limitations have supported the emergence of a new class of digital-only, such as CI&T.
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The CI&T Way: Our Delivery & Growth Model
The CI&T Way is concentrated into three pillars: impact, people and learning. This approach informs how we deliver end-to-end digital transformation solutions to our clients to enable them to grow and expand their businesses. We attribute a great part of our success to our proprietary methodology based on three main pillars, which have Environmental, Social and Corporate Governance, or ESG, principles as a foundation:
| ● | Impact. Combines a results-focused strategy with client-centric design and technical mastery to deliver end-to-end solutions in short 90-day cycles to improve operating and financial results. | |
| ● | People. Our employees represent our culture, allowing us to unlock people’s potential and keep them always evolving. Trust is a foundation of our people’s culture with important cornerstones such as: Human First, Power of Choice, Continuous Learning & Developing, Collective Intelligence and Diversity and Inclusion & Respect. We unlock our team’s potential by promoting from within and investing in individualized development plans for each one of our employees while creating an environment of diversity and trust. We have built a lean operation that helps us attract, keep, engage, and motivate talent. We believe this makes us an attractive company for employees and creates an environment that fosters long and rewarding careers, as evidenced by our strong employee engagement and retention levels. We are currently recognized as one of the top employers in our sector by the Glassdoor “Overall rating” and “Recommend to a Friend” indicators, and over the last 17 consecutive years we have been certified as a “Great Place to Work” in Brazil by the GPTW Institute. We also received GPTW certifications in the United States, Canada, Colombia, the UK, Portugal, Japan and Australia. | |
| ● | Learning. We manage the business and our people through an Adhocracy model, a decentralized decision-making process that promotes entrepreneurship and autonomy, enabling us to quickly adapt and learn. We believe that the combination of Adhocracy and an attitude of being an “always learning” organization makes us unique. Our growth and delivery model is focused on bringing together multidisciplinary teams that gain a comprehensive view of the client’s challenges and strategic objectives. By leveraging our PowerHouses’ deep domain capabilities and vertical expertise, we support our clients through a multi-year digital transformation journey. As a form of recognition, our Adhocracy managerial approach was featured in a case study at the London Business School in 2020. |
Our Growth Units structure allows us to expand with accountability while keeping a sense of ownership and belonging across our organization. This structure is also complementary to our inorganic growth strategy through which we seek to expand by acquiring companies whose businesses are strategically aligned with our growth plans, as this structure enables quick and efficient integration of an acquired company into our growth model.
Our Growth Units are further supported by our PowerHouses, specialized teams with very deep digital competencies that help our clients remain up to date with the latest emerging trends and technologies regardless of their sector.
By empowering smaller teams, we have found that our employees remain more engaged and entrepreneurial while we continue to expand our global reach and scale.
Through the use of our Squads, Growth Units and PowerHouses, we believe that we can bring together everything that our clients need in terms of digital competencies as we aim to assemble teams that:
| (i) | are fluent in the relevant industry verticals; | |
| (ii) | have deep expertise on the lifecycle of digital products; | |
| (iii) | master a wide range of technologies and full-stack digital practices; | |
| (iv) | are well versed in the leadership and culture of agile organizations, to deliver success to our clients; and | |
| (v) | foster physical presence, shoulder-to-shoulder engagement between our clients, executives and local teams to perform critical engineering tasks and complement this on the ground service delivery with nearshore teams in compatible time zones. |
Our proximity to clients deepens our relationships while providing an extensive understanding of their business models and digital transformation needs. Such closeness allows us to seamlessly integrate with our clients’ teams, foster collaboration, and expedite delivery solutions.
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Our Solutions and Services
In a vast and very fragmented market, we are among the category of companies, which we refer to as digital native specialists, capable of delivering end-to-end digital solutions. As a digital native specialist, we provide an end-to-end digital offering focused on business impact, helping our clients by combining three significant competencies:
(i) Digital Strategy.
| ● | Roadmapping: We first work closely with our client teams to understand business challenges and align on opportunities to improve the client business. We define the parameters that guide our strategy and the priorities for the engagement, and pursue solutions that promote the most business impact. Together, we develop a co-designed strategy that identifies the business problem, provides an assessment of the organization’s people, processes and technology and maps out a digital initiative roadmap. This planning also encompasses developing skills, team structure, processes, and technologies to implement the prioritized digital solutions. | |
| ● | Digital Transformation: We work shoulder-to-shoulder with our clients’ teams to constantly improve and change how they work. We leverage our expertise in digital services, processes, and practices to evolve our clients’ business model, operating model, and culture so they can adapt faster to change. |
(ii) Customer-Centric Design.
| ● | Customer Experience: We help our clients identify issues with their customers’ experiences and run interviews, collect surveys, and use different data sources to map the customer experience. These maps have all the information (e.g., channels, influencers, opportunities, and others) that we can analyze and apply to base our decisions on fueling growth and improving customer satisfaction. | |
| ● | Digital Products and Platform: We apply cutting-edge user interface and user experience design practices coupled with customer-centric product management and multi-disciplinary teams working on short cycles to build apps and digital services that work together seamlessly to deliver digital solutions. | |
| ● | Data, AI and Machine-Learning: We foster a data-driven approach to increase our clients’ confidence and preparedness to make decisions. We utilize data engineering, artificial intelligence, digital analytics, and business intelligence to deeply understand consumers and have more agility in delivering valuable experiences. |
(iii) Top-of-the-Line Software Engineering.
| ● | Agile Software Development and IT Modernization: We combine our agile methodologies with Lean Principles, DevOps, and best-in-class software engineering, to structure teams to deliver value to the final customers quickly and at scale. |
Our services are highly customized and provide end-to-end solutions created by first understanding our clients’ businesses and the desired outcomes for their end-customers through our consulting services. This involves our teams of strategists, data scientists, value-stream managers, solutions architects and designers working closely with clients to build and test solutions that include digital products such as mobile applications, eCommerce experiences, data/AI platforms and digital journeys designed to reach target customers. CI&T works to deliver quarterly impact that can ultimately scale and digitally transform a business.
While most of our revenue is generated from the software development and software maintenance services we provide, consulting services are an important part of our revenue generation and play a crucial role in how we engage with clients to identify business needs and develop customized software development solutions to enable digital transformation. This process focuses on quickly identifying and prioritizing digital initiatives that will create the most impact and value for our clients and their end-customers, which we typically aim to deliver in 90-day cycles to promote quarterly impact. The majority of our strategy, design, and software architecture services is delivered by onsite teams that seamlessly integrate within our clients’ environments, while the majority of software coding and testing work is delivered by nearshore teams located in compatible time zones.
In the United States, our teams focus on strategy definition, design, and in a few instances, software engineering. As a result, for most of our United States-based clients, we leverage our onsite Strategy and Design teams, and complement them with our nearshore Engineering teams in Brazil. We maintain the same operations, services and engagement model between Brazil and the United States, with differences in pricing due to the location of our employees and clients.
People Platform
For sustainable growth and strengthening of our talented employees, we rely on the platform strategy to accelerate entrepreneurship, and ensure corporate governance, global culture and sustainable talent growth. These processes have been refined for more than two decades. The result is a very attractive company for talent acquisition and high levels of retention and engagement.
The platform is divided into two strategies:
(i) Strategies in a Journey
| ● | Attracting: We aim to attract outsiders to work with us. | |
| ● | Belonging: We foster a community of belonging at CI&T. | |
| ● | Learning: We are continuously learning and adapting in order to face new challenges and opportunities. |
(ii) Horizontal strategy
| ● | Center of Culture, Leadership and Emotional Safety: Leadership empowerment initiative driven by the CI&T culture and an emotionally safe environment. | |
| ● | People Lab: The People Lab uses technology to support the People’s strategy at CI&T. | |
| ● | People Operations: A sustainable people operation that enables safe decision-making and focuses on a positive and collaborative experience. |
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Sales and Marketing
Our strategy for expanding engagements with current clients and attracting new clients is based on a concept we call “Land & Expand,” which combines pursuing business opportunities with existing clients, landing new businesses through Account Based Marketing actions and traditional marketing, leveraging our strong partnership program with companies such as Google, and turning to our Advisory Growth Boards to provide us with opportunities and introduce us to potential clients. Over 100 CI&T executives are dedicated to this process, in addition to regular client interactions for engagements. Under this strategy, we pursue the following:
| ● | Land new client relationships. We believe there are significant untapped opportunities to win new large enterprises and other fast-growing companies across different industries globally. With an Account Based Marketing, or ABM, approach, we gather creativity, intelligence and data in an engine that transforms leads into new clients by identifying the Ideal Customer Profile, or ICP. Our ABM approach further allows us to understand the ICP’s needs and objectives allowing us to customize the strategic sales pitch that suits their specific needs. In addition to large enterprises, we also work with smaller, fast-growing companies that require a different set of services that allow us to test new offerings and develop new capabilities, or what we call our “muscle builder” strategy for learning and constantly evolving our offerings. We prioritize our efforts to develop business in different regions including North America & Europe, Latin America, and Asia Pacific. | |
| ● | Expand existing client relationships. We have a successful track record of leveraging our existing client relationships to add new capabilities and/or help solve new challenges as shown by our five-year average Net Revenue Retention Rate of 120%. As part of our strong culture, we take it upon ourselves to always deliver for our clients and we believe that, as a result, they end up becoming our biggest advocates and promoters over time. | |
| ● | Partner relationships. As digital transformation trends take hold across industries, we actively develop new strategic channels and connections that provide us with significant new and ongoing business within our partners’ ecosystems (Google, Acquia, Microsoft, VTEX, Bain & Company etc.). In addition, our close ties with our main shareholder, Advent, has also opened doors to many new opportunities that we are capitalizing on. | |
| ● | Advisory Growth Boards. We have established advisory boards, called Growth Boards, comprising seasoned senior executives from different industries and specialties that generate business opportunities to support our go-to-market strategy. Many Growth Board members are former CI&T clients who deeply understand our differentiators and introduce us to and help us target new clients who can benefit from our digital expertise. We have Growth Boards in North America, Europe, and Asia that actively help us onboard new business opportunities. |
Clients
Over 150 large enterprises and fast-growing companies trust CI&T as one of their go-to partners for digital transformation. Our clients are primarily blue-chip enterprises based in the United States and Brazil operating in the financial services, consumer goods, and technology and telecommunications. We are also focused on growing our client base in other industry verticals, including retail and industrial goods, life sciences and others. Today, some of our Top 10 clients have been with us for over 17 years.
Our approach has enabled us to attract numerous blue-chip companies, such as Johnson & Johnson, AB InBev, Nestlé, Google, Itaú Unibanco, Coca-Cola, LifeScan, Audi and Kraft Heinz, among many others. While focused on expanding our business in North America and Europe, we believe our deep roots in Latin America, especially in Brazil, benefit our growth strategy given the region’s massive size and heightened demand for digital transformation services. Our end-to-end solutions and collaborative approach allow us to establish deeply embedded, long-term relationships with our clients that in some instances date back over 17 years. We actively help our clients innovate throughout these trusted relationships while increasing our share of revenues, as demonstrated by our five-year average Net Revenue Retention Rate of 120%.
Top Clients' share of Revenue
The following table represents the breakdown of our Net revenue based on our top clients:
|
|
Year ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|---|
|
|
2023 |
2023 |
2022 | ||||||
|
|
(in thousands of US$)1 |
(in thousands of Brazilian reais, except for | |||||||
|
Top Clients' share of revenue |
|
|
|
|
| ||||
|
Top Client |
38,278 |
185,317 |
8% |
325,505 |
15% | ||||
|
Top Ten Clients |
183,274 |
887,282 |
40% |
1,079,941 |
49% | ||||
|
Total Net Revenue |
461,336 |
2,233,466 |
100% |
2,187,710 |
| ||||
| (1) | For convenience purposes only, amounts in reais for the year ended December 31, 2023 have been translated to U.S. dollars using an exchange rate of R$4.8413 to US$1.00, the commercial selling rate for U.S. dollars as of December 31, 2023, as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. |
We typically enter into a master services agreement with our clients, which provides a framework for services that is then supplemented by statements of work, which specify the particulars of each individual engagement, including the services to be performed, pricing terms, and performance criteria.
We are focused on expanding our relationship with all clients and have a track record of executing this strategy as indicated by an increasing number of multi-million reais accounts based on annual Net revenue per client in recent years. The table below shows the number of clients that generated greater than R$10 million, R$5 million and R$1 million of Net revenue for the periods indicated.
|
Year ended December 31, | |||||
|---|---|---|---|---|---|
|
2023 |
2022 |
2021 | |||
|
R$10 million+ |
50 |
38 |
25 | ||
|
R$5 million + |
85 |
78 |
43 | ||
|
R$1 million + |
176 |
178 |
94 | ||
Clients by Industry Vertical
The following table sets forth a breakdown of Net revenue by industry vertical and as a percentage of our total Net revenue for the years indicated:
|
|
Year ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|---|
|
|
2023 |
2023 |
2022 | ||||||
|
|
(in thousands of US$)1 |
(in thousands of Brazilian reais, except for | |||||||
|
By Industry Vertical |
|
|
|
|
| ||||
|
Financial Services |
133,655 |
647,063 |
29.0% |
652,089 |
29.8% | ||||
|
Consumer Goods |
92,658 |
448,587 |
20.1% |
473,871 |
21.7% | ||||
|
Technology and Telecommunications |
79,997 |
387,291 |
17.3% |
329,787 |
15.1% | ||||
|
Retail and Industrial Goods |
56,711 |
274,557 |
12.3% |
307,995 |
14.1% | ||||
|
Life Sciences |
51,027 |
247,038 |
11.1% |
274,353 |
12.% | ||||
|
Others |
47,287 |
228,930 |
10.3% |
149,615 |
6.8% | ||||
|
Total Net Revenue |
461,336 |
2,233,466 |
100% |
2,187,710 |
100% | ||||
| (1) | For convenience purposes only, amounts in reais for the period ended December 31, 2023 have been translated to U.S. dollars using an exchange rate of R$4.8413 to US$1.00, the commercial selling rate for U.S. dollars as of December 31, 2023, as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. |
Competition
We believe that our early-stage approach, focusing on preparing companies for the future and helping build emerging businesses instead of merely tackling operational issues, distinguishes us and places CI&T in a competitive position to develop potential business and opportunities with clients instead of responding to specific demands or projects. We focus our business development efforts on nurturing relationships in order to build trust instead of working with the procurement teams.
Given the large market, there are numerous players; however, only a few are digital native specialists like CI&T. Our primary competitors include Globant S.A., EPAM Systems, Inc.,Endava plc and Thoughtwork Holdings, Inc.. We also compete with traditional IT providers such as Accenture PLC, Capgemini SE, Cognizant Technology Solutions Corporation; and digital agencies and consulting firms including Ideo and McKinsey & Company.
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Corporate and Social Responsibility
Since 2009 we have been improving and evolving our environmental, social and governance (ESG) efforts as a foundational part of our business. ESG-driven business resonates with our purpose and we believe it increases our attractiveness for people, customers and the communities of which we are a part.
CI&T has been a signatory of the UN Global Compact since July 2021, which is an initiative with a special focus on reducing inequality and creating economic development through business. On December 31, 2023, we reached 50.3% of representation in our teams by the following groups: women, people of color, people from the LGBTQIAP+ community and people with disabilities.
We also have made progress towards our gender diversity goals and have increased the representation of women across our teams from 22% in 2018 to 29.2% in 2023. In addition, we have been increasing the percentage of women in our top leadership from 20% in 2018 to 24.3% in 2023. These indicators include the acquired companies.
In March 2024, we adopted our Environmental Policy, which provides guidance on the principles that we intend to uphold to minimize our impact across various relevant areas, including climate, waste and water, energy, as well as our relationships with customers and suppliers. This policy is public on the company's website.
To oversee these initiatives, we have committees with regular meetings ranging from CI&T’s board of directors to the regional action groups consisting of employees who voluntarily engage with these actions.
Intellectual Property
We currently do not depend on any patents or registrations for our services or the products we develop for our customers, which are highly customized to our clients’ needs. Based on our contractual arrangements, our clients usually own the intellectual property in the software solutions we deliver.
As a result, most of the intellectual property matters we manage are related to our trademarks and tradenames. We have registered or are registering certain trademarks and tradenames with the agency responsible for registering trademarks in Brazil (INPI — Instituto Nacional Propriedade Intelectual).
Regulatory Overview
Data protection and privacy
Not only our employees' data, but also the customer data that our platform uses collects, stores, transmits, and processes to run our business is an integral part of our business model. As a result, our compliance with federal, state and foreign laws and regulations dealing with the use, collection, storage, transmission, disclosure, disposal and other processing of personal data is core to the operation of our business. Regulators worldwide have adopted or proposed requirements regarding the collection, use, transfer, security, storage, destruction, and other processing of personal data. The applicability of these laws and regulations to us, and their scope and interpretation, are constantly evolving, often uncertain, and may conflict between jurisdictions, and we anticipate the number of data privacy laws and the scope of individual data privacy and protection rights will increase, and as a result, the associated compliance burdens and costs could increase in the future. It may be costly to implement security or other measures designed to comply with these laws and regulations, as well as any new or updated laws or regulations. Any actual or perceived failure to safeguard data adequately, destroy data securely, or otherwise comply with the requirements of these laws and regulations, may subject us to litigation, regulatory investigations or enforcement actions under federal, state or foreign data security, unfair practices or consumer protection laws and contractual penalties, and result in monetary damages, damage to our reputation or adversely affect our ability to retain customers or attract new customers.
A number of the jurisdictions in which we operate have adopted or are considering adopting data protection and privacy laws and regulations, including, among others, Brazil, the United States, the European Union, the United Kingdom, China and Japan.
Brazil
In August2020, Brazilian Federal Law No. 13,709/2018, the Brazilian General Data Protection Law (Lei Geral de Proteção de Dados Pessoais), or LGPD, came into effect to regulate the processing of personal data in Brazil. The LGPD establishes general principles, obligations and detailed rules to be observed by individuals or public or private companies in operations involving the processing of personal data in Brazil, including the collection, use, processing and storage of personal data, which affects all economic sectors, including the relationship between customers and suppliers of goods and services, employees and employers and other relationships in which personal data is processed, whether in a digital or physical environment. The LGPD provides for, among others, the rights of holders of personal data, the legal bases applicable to the processing of personal data, the requisites for obtaining consent, the obligations and requisites related to security incidents and leakages and transfers of data, either Brazilian or international, as well as the creation of the National Authority for Data Protection (Autoridade Nacional de Proteção de Dados), or ANPD, responsible for the inspection, promotion, disclosure, regulation, the establishment of guidelines and application of the law.
In case of non-compliance with the LGPD, we are subject to administrative sanctions applicable by the ANPD from August 1, 2021 onwards, on an isolated or cumulative basis, that can range from a warning, obligation to disclose incidents, temporary blocking and/or elimination of personal data related to the infraction, a fine of up to 2.0% of our revenue, or revenue of the company or group of companies in Brazil for the last fiscal year, excluding taxes, up to the global amount of R$50 million per violation, a daily fine, up to the aforesaid global limit, suspension of the operation of the database related to the infraction for a maximum period of six months, which can be extended for an equal period, until the regularization of the processing by the controlling shareholder, suspension of activities related to the processing of personal data related to the infraction for a period of six months, which can be extended for an equal period, and partial or total prohibition to exercise activities related to data processing.
The imposition of the administrative sanctions of the LGPD does not prevent the imposition of administrative sanctions set forth by other laws that address issues related to data privacy and protection, such as the Brazilian Code of Consumer Defense and the Brazilian Civil Rights Framework for the Internet. These administrative sanctions can be applied by other public authorities, such as the Attorney General’s Office and consumer protection agencies. We can also be subject to civil liabilities for indemnifications related to the violation of these laws.
In addition to the administrative sanctions due to the noncompliance with the obligations established by the LGPD, we can be held liable for individual or collective material damages, and non-material damages caused to holders of personal data, including when caused by service providers, including SaaS partners, that serve as processors of personal data on our behalf.
European Union and the United Kingdom
The General Data Protection Regulation 2016/679, or the GDPR, became effective in May 2018, and is applicable to companies processing personal data of individuals in the European Union, or the EU, and the European Economic Area, or the EEA. The GDPR is wide-ranging in scope and implements stringent requirements in relation to the collection, use, retention, protection, disclosure, transfer and other processing of personal data relating to EU individuals, with substantial monetary penalties for violations. Personal data as defined under the GDPR includes any type of information that can identify a living individual, including name, identification number, email address, location, internet protocol addresses, and cookie identifiers. Among other requirements, the GDPR mandates more stringent administrative requirements for controllers and processors of personal data, including, for example, a notice of and a lawful basis for data processing activities, data protection impact assessments, a right to “erasure” of personal data, and data breach reporting. If we do not comply with our obligations under the GDPR, we could be exposed to significant fines of up to €20 million or up to 4.0% of the total worldwide annual turnover of the preceding financial year, whichever is higher. The GDPR also provides that EU member states may enact their own additional laws and regulations in relation to certain data processing activities. Recent legal developments in the EU have also created complexity and uncertainty regarding transfers of personal information from the EU to “third countries”, especially the United States. For example, last year, the Court of Justice of the European Union, or CJEU, invalidated the EU-U.S. Privacy Shield Framework, a mechanism for the transfer of personal information from the EU to the United States, and made clear that reliance on Standard Contractual Clauses, an alternative mechanism for the transfer of personal information outside of the EU alone may not be sufficient in all circumstances.
Further, the United Kingdom’s withdrawal from the European Union and ongoing developments in the United Kingdom have created uncertainty regarding data protection regulation in the United Kingdom. Following the United Kingdom’s withdrawal from the EU on January 31, 2020, pursuant to the transitional arrangements agreed to between the United Kingdom and European Union, the GDPR continued to have effect in law in the United Kingdom, and continued to do so until December 31, 2020 as if the United Kingdom remained a member state of the EU for such purposes. Following December 31, 2020, and the expiry of those transitional arrangements, the data protection obligations of the GDPR continue to apply to United Kingdom-related processing of personal data in substantially unvaried form by virtue of section 3 of the European Union (Withdrawal) Act 2018, as amended, which, together with the amended UK Data Protection Act of 2018, retains the GDPR in UK national law. However, going forward, there may be increasing scope for divergence in the application, interpretation and enforcement of the data protection law between the United Kingdom and the EEA, and the relationship between the United Kingdom and the EEA in relation to certain aspects of data protection law remains uncertain.
United States
In the United States, various laws and regulations apply to the security, collection, storage, use, disclosure and other processing of certain types of data. In 2020, California enacted the California Consumer Privacy Act, or CCPA. The CCPA marked the beginning of the first comprehensive consumer privacy law in a U.S. state. Since then, an increasing number of states have enacted or are in the process of enacting comprehensive consumer privacy laws. All 50 states have enacted laws requiring consumers to be notified of a security breach involving their personal information. The CCPA continues to be used as a benchmark, as compliance with California's stringent requirements often leads to compliance with similar standards in other states. The state's privacy and data security laws are extensive and cover diverse areas, with many statutes addressing multiple topics. The CCPA establishes a privacy framework for covered businesses, including a broad definition of personal information and data privacy rights for California residents. Among other requirements, the CCPA grants consumers the right to know what personal information businesses collect about them, the right to request deletion of that information, and the right to opt out of the sale of their personal information. The CCPA also requires businesses to disclose information about their data practices, provide equal service and price regardless of privacy choices, and enhance safeguards for the personal information they handle. In addition, in November 2020, California voters passed the California Privacy Rights Act, or CPRA, which added additional privacy compliance requirements to the CCPA and established a regulatory agency to enforce those requirements.
Anti-corruption and sanctions
We are subject to anti-corruption, anti-bribery, anti-money laundering and sanction laws and regulations, including the Brazilian Federal Law No. 12,846/2013, or the Clean Company Act, the United States Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, and the Proceeds of Crime Act, as amended. The Clean Company Act, the FCPA and the Proceeds of Crime Act prohibit corporations and individuals from engaging in improper activities to obtain or retain business or to influence a person working in an official capacity. These laws and regulations prohibit, among other things, providing, directly or indirectly, anything of value to any foreign government official, or any political party or official thereof, or candidate for political influence to improperly influence such a person. Similar laws exist in other countries, such as the UK, restricting improper payments to persons in the public or private sector. Many countries have laws prohibiting these types of payments within the respective country. Historically, technology companies have been the target of FCPA and other anti-corruption investigations and penalties.
If any person in the Cayman Islands knows or suspects, or has reasonable grounds for knowing or suspecting that another person is engaged in criminal conduct or money laundering, or is involved with terrorism or terrorist financing and property, and the information for that knowledge or suspicion came to their attention in the course of business in the regulated sector, or other trade, profession, business or employment, the person will be required to report such knowledge or suspicion to (i) the Financial Reporting Authority of the Cayman Islands (the “FRA”), pursuant to the Proceeds of Crime Act (as revised) of the Cayman Islands, if the disclosure relates to criminal conduct or money laundering, or (ii) a police officer of the rank of constable or higher, or the FRA, pursuant to the Terrorism Act (As Revised) of the Cayman Islands, if the disclosure relates to involvement with terrorism or terrorist financing and property.
On October 29th, 2021, our Board of Directors adopted the CI&T Anti-corruption Policy, which is applicable to CI&T Inc and all of its subsidiaries. This policy is publicly available on our website.
In addition, we are subject to U.S. and foreign laws and regulations that restrict our activities in certain countries and with certain persons. These include the economic sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Control and the export control laws administered by the U.S. Commerce Department’s Bureau of Industry.
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Taxation
In 2023, the STF issued decisions that loosened the application of the res judicata doctrine, which could have a material impact on our business and practices. In these proceedings, the STF ruled that a decision rendered with respect to a taxpayer cannot prevail over subsequent decisions issued by the STF that apply to all taxpayers and, consequently, decisions rendered on an individual basis can be reversed if the STF changes its understanding. As a result, court decisions that have been issued in the past suspending the application of tax for any reason (including by declaration of its unconstitutionality) may potentially be reviewed and reversed by government authorities if the STF changes its understanding on that matter.
We benefit from certain tax incentives in Brazil. For example, Brazilian Law No. 12.546/2011, enacted as part of the Brazilian Federal Government’s program called “Plano Brasil Maior,” currently grants tax benefits regarding social security contributions levied on the company’s payroll. This tax benefit authorizes us to calculate and collect social security contributions based on 4.5% of our gross revenues, instead of 20% of salaries on our payroll, reducing our social security burden. This program is expected to expire by the end of 2027, and thereafter, we will be required to calculate and collect social security contributions based on our payroll, which will increase our tax burden and reduce our margins. There can be no assurance that we will continue to be able to benefit from such a program.
Another example is the benefits provided by Brazilian Law No. 11,196/2005, which currently grants tax benefits to companies that invest in research and development, provided that some requirements are met, which reduces our annual corporate income tax expense. If the taxes applicable to our business increase or any tax benefits are revoked and we cannot alter our cost structure to pass our tax increases on to clients, our financial condition, results of operations and cash flows could be adversely affected. In Brazil, our activities are also subject to a Municipal Tax on Services (Imposto Sobre Serviços, or ISS). Any increases in ISS rates could also harm our profitability. Furthermore, Brazilian governmental authorities at the federal, state and local levels are considering changes in tax laws in order to cover budgetary shortfalls resulting from the recent economic downturn in Brazil and also in order to simplify the tax system. If these proposals are enacted they may harm our profitability by increasing our tax liabilities, increasing our tax compliance costs, or otherwise affecting our financial condition, results of operations and cash flows. Tax rules in Brazil, particularly at the local level, can change sometimes at short notice given the dynamics allowed by the tax legislation system based on a combination of voting, sanction and veto powers from the many legislators. Additionally, the Brazilian tax system is quite complex and requires substantial compliance costs, time and effort from companies operating in Brazil. Despite the fact that the company applies all the proper efforts to manage its tax obligations, we may not always be timely aware of all such changes that affect our business and we may therefore fail to pay the applicable taxes or otherwise comply with tax regulations, which may result in additional tax assessments and penalties for our company.
At the municipal level, the Brazilian government enacted Supplementary Law No. 157/16, which imposed changes regarding the ISS collection applied to the rendering of part of our services. These changes created new obligations, as ISS will now be due in the municipality in which the acquirer of our services is located rather than in the municipality in which the service provider’s facilities are located. This obligation took force in January 2018, but has been delayed by Direct Unconstitutionality Action No. 5835, or ADI, filed by taxpayers. The ADI challenges the constitutionality of Supplementary Law No. 157/16 before the Supreme Court, arguing that the new legislation would adversely affect companies’ activities due to the increase of costs and bureaucracy related to the ISS payment to several municipalities and the compliance with tax reporting obligations connected therewith. As a result, the Supreme Court granted an injunction to suspend the enforcement of Supplementary Law No. 157/16. In June 2020, the ADI was included in the judgment agenda of the Supreme Court but, as of the date of this annual report, a final decision on this matter is currently pending.
We are also subject to tax laws and regulations that may be interpreted differently by tax authorities and us. The application of indirect taxes, such as sales and use tax, value-added tax, or VAT, provincial taxes, goods and services tax, business tax and gross receipt tax, to businesses such as ours is complex and continues to evolve. We are required to use significant judgment in order to evaluate applicable tax obligations. In many cases, the ultimate tax determination is uncertain because it is unclear how existing statutes apply to our business. One or more states or municipalities, the federal government or other countries may seek to challenge the taxation or procedures applied to our transactions, which could impose the charge of taxes or additional reporting, record-keeping or indirect tax collection obligations on businesses like ours. New taxes could also require us to incur substantial costs to capture data and collect and remit taxes.
Corporate Events
We are a Cayman Islands exempted company, incorporated with an indefinite term and limited liability on June 7, 2021 for purposes of carrying out our initial public offering.
Before the consummation of our initial public offering, existing shareholders of CI&T Brazil contributed all of their shares in CI&T Brazil to our wholly-owned subsidiary CI&T Delaware, and subsequently contributed their shares of CI&T Delaware to us, or the Contribution. In return for this Contribution, we issued 121,086,785 new Class B common shares to the existing shareholders of CI&T Brazil in a one to 68.14 exchange for the shares of CI&T Brazil indirectly contributed to us. As a result, CI&T Brazil is our indirect wholly-owned subsidiary as of the consummation of the Contribution. After accounting for the Contribution and the new 11,111,111 Class A common shares that were issued and sold by us in our initial public offering and the 3,888,889 Class A Common shares sold by the selling shareholders, including through the exercise of the over-allotment option, we had a total of 132,197,896 common shares issued and outstanding immediately following the offering, of which, 117,197,896 were Class B common shares beneficially owned by our pre-IPO shareholders, and 15,000,000 were Class A common shares beneficially owned by investors purchasing in the IPO and as of December 31, 2021.
Organizational Chart
A simplified organizational chart showing our corporate structure as of December 31, 2023 is shown below:
In 2024, we intend to implement a corporate reorganization to simplify the corporate structure of our subsidiaries in Australia and in the UK.
Corporate Information
Our principal executive office is located at Estrada Giuseppina Vianelli De Napoli, 1455 – Bl. C, pavimento superior, Globaltech, Zip Code: 13086-530, Campinas — state of São Paulo, Brazil. Our telephone number at this address is +55 19 21024500.
Investors should contact us for any inquiries through the address and telephone number of our principal executive office. Our principal website is https://ciandt.com/us/en-us. The information contained in, or accessible through, our website is not incorporated into this report.
Our corporate headquarters are located at Campinas, São Paulo — Brazil, where we lease approximately 10,000 square meters of office space. We provide services from delivery centers located in Brazil, Colombia, China, Japan, Portugal and the U.S., as well as provide services by staff working remotely from Canada, Australia and the UK. We rent all of our facilities. We believe that our current facilities are suitable and adequate to meet our current and foreseeable future needs.
Not applicable.
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our financial statements and the related notes included elsewhere in this report, as well as the information presented under “Presentation of Financial and Other Information”. The following discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Cautionary Statement Regarding Forward-Looking Statements”, “Risk Factors” and elsewhere in this report.
Factors Affecting Our Results of Operations
We believe that the trends affecting our performance for historical periods and future periods include the following key factors:
| ● | High global demand for digital transformation services: Demand for digital transformation services has increased in recent periods. Many of our key clients which had previously invested in digital transformation projects, accelerated their investment in initiatives to digitize legacy applications and processes and increase the efficiency of their customer interactions as the COVID-19 pandemic led to an accelerated adoption of digital technology to support remote working environments and remote customer engagement. The rate at which such demand continues to grow and is sustained will be a key driver of our growth. | |
| ● | Ability to recruit and retain talent: Our ability to attract and retain highly skilled IT professionals is key. In order to sustain our growth, we must attract and retain a large number of highly skilled and talented IT professionals. Our business is people-driven and, accordingly, our success depends upon our ability to attract, develop, motivate, retain and effectively utilize highly-skilled IT professionals in our delivery. We believe that there is significant competition for technology professionals in the geographic regions in which we operate and that such competition is likely to continue for the foreseeable future. |
| ● | The impact of macroeconomic uncertainty and global geopolitical tensions, including associated with the war in Ukraine and related economic sanctions imposed over Russia as a result of the ongoing conflict; | |
| ● | The impact of pandemics, epidemics or disease outbreaks (such as the COVID-19 pandemic) on the global macroeconomic environment (including how long and how deeply it will generate economic uncertainty and reduced economic activity); | |
| ● | Economic growth rates in the industries and countries in which our clients operate, as well as their impact on our client’s expenditures on digital services; | |
| ● | Economic, health, political, social and environmental policies and development in the countries we operate, particularly in Brazil and in the United States, where most of our clients are based; | |
| ● | Wage rates and operating costs in the countries where we operate, particularly in Brazil and the United States, where most of our employees are based; | |
| ● | Changes in foreign exchange rates, particularly fluctuations in exchange rates between the U.S. Dollar and the Brazilian Real, Euro, British Pound, Australian Dollar, Yen and Yuan; | |
| ● | Our ability to retain existing clients, as well as to increase our revenue from existing clients pursuant to the expansion of services provided to them; | |
| ● | Our ability to attract new clients; | |
| ● | Our ability to maintain favorable pricing; | |
| ● | Our ability to expand and deepen the quality, range and diversity of our portfolio of service offerings while maintaining excellent quality standards; | |
| ● | Our ability to maintain adequate resource utilization rates and productivity levels; | |
| ● | Our ability to maintain and strengthen a strong brand and corporate reputation; | |
| ● | Our ability to continuously innovate, and continuously remain at the forefront of emerging technologies and related market trends; and | |
| ● | Our ability to identify, integrate and effectively manage future acquisitions. |
The following is a summary of the principal components comprising consolidated statements of profit or loss.
Net revenue
In accordance with our strategy, we analyze revenue results by industry vertical, geography, and client concentration.
Net revenue by Industry Vertical
We provide technology services to enterprises in a range of industry verticals including Financial Services, Consumer Goods, Technology and Communications, Retail and Industrial Goods, Life Sciences, among others.
Net Revenue by Geography
We present our Net revenue by geographic market based on the location where the sale was made. Our Net revenue derives from three main geographic regions: North America (primarily from the United States), Europe (primarily from the United Kingdom), Latin America (primarily from Brazil), and Asia Pacific (primarily from Japan, Australia and China).
Net revenue by client concentration
We present our Top clients’ revenue share by aggregating the Net revenue from our top client and top ten clients by the amount and as a percentage of our Net revenue for the periods indicated.
Cost of services provided
Our cost of services provided includes employee expenses and non-reimbursable project-related costs. Within employee expenses, we have salaries, benefits, payroll taxes, and training and development costs. The non-reimbursable project-related costs include short-term lease agreements and depreciation of machinery and equipment, as well as the amortization of software and intangible assets.
Operating expenses net
Our operating expenses, net, include (i) selling expenses, (ii) general and administrative expenses, (iii) research and technological innovation expenses, (iv) impairment loss on trade receivables and contract assets, and (v) other expenses. Selling expenses are composed primarily of sales and marketing expenses. General and administrative expenses include expenses for personnel that provide services that are not allocated into specific projects, real property short-term lease agreements, and additional expenses related to the maintenance of such real property, depreciation of machinery and equipment related to such real property, as well as the amortization of software and intangible assets.
Net finance costs
Our finance income consists of income from financial investments, foreign-exchange gains, gains on derivatives, interest received, and other finance income. Our finance costs are mainly related to interest and charges on loans and leases, exchange variation losses, loss on derivatives, commissions and brokerage, negative monetary variation and other finance costs.
Income taxes
Income tax expenses consist primarily of income taxes current and deferred, in certain foreign jurisdictions where we conduct business. The current and deferred income taxes are calculated on the basis of the tax laws enacted at the end of the reporting period in the countries where we operate and generate taxable income. In our subsidiary in Brazil, the tax rate is 34%; in our subsidiaries in the United States, the federal tax rate is 21%; in our subsidiary in Canada, the tax rate is 26.5%; in our subsidiary in Japan, the tax rate is 23.2%; in our subsidiary in China, the tax rate is 25%; in our subsidiary in Australia, the tax rate is 26%; in our subsidiaries in the United Kingdom, the tax rate is 19%; in our subsidiary in Portugal, the tax rate is 21% and in our subsidiaries in Colombia, the tax rate is 35%.
Consolidated Results of Operations
The Consolidated Financial Statements for the year ended December 31, 2022 have been restated to reflect the correction of certain errors identified by us. See note 30 - Correction of errors to the financial statements included elsewhere in this annual report.
Year ended December 31, 2023 compared to the year ended December 31, 2022 (restated)|
|
Year ended December 31, |
|
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2023 |
2023 |
2022 |
Var.% | |||||||
|
|
|
(restated) |
|||||||||
|
|
(in thousands of US$)(1) |
(in thousands of Brazilian reais, except for percentages) |
|||||||||
|
Net revenue |
461,336 |
2,233,466 |
2,187,710 |
2.1 |
% | ||||||
|
Costs of services provided |
(307,302 |
) |
(1,487,742 |
) |
(1,425,219 |
) |
4.4 |
% | |||
|
Gross Profit |
154,034 |
745,724 |
762,491 |
-2.2 |
% | ||||||
|
Selling, general, administrative and other expenses (2) |
94,746 |
(458,692 |
) |
(488,244 |
) |
-3.3 |
% | ||||
|
Impairment loss on trade receivables and contract assets |
(321 |
) |
(1,556 |
) |
(329 |
) |
372.9 |
% | |||
|
Operating profit before net finance costs and income tax expense |
58,967 |
285,476 |
273,918 |
4.2 |
% | ||||||
|
Finance income |
15,542 |
75,245 |
172,996 |
-56.5 |
% | ||||||
|
Finance costs |
(31,278 |
) |
(151,426 |
) |
(246,642 |
) |
-38.9 |
% | |||
|
Net finance costs |
(15,736 |
) |
(76,181 |
) |
(73,646 |
) |
3.4 |
% | |||
|
Profit before income tax |
43,231 |
209,295 |
200,272 |
4.5 |
% | ||||||
|
Income tax expense (3) |
(15,847 |
) |
(76,722 |
) |
(104,562 |
) |
-26.6 |
% | |||
|
Net profit for the year |
27,384 |
132,573 |
95,710 |
38.5 |
% | ||||||
| (1) | For convenience purposes only, amounts in reais for the year ended December 31, 2023 have been translated to U.S. dollars using an exchange rate of R$4.8413 to US$1.00, the commercial selling rate for U.S. dollars as of December 31, 2023, as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. | |
| (2) | Includes for the years ended December 31, 2023 and 2022, respectively, selling expenses of R$173,643 thousand and R$163,871 thousand, general and administrative expenses of R$290,499 thousand and R$315,915 thousand, and other income (expense) of R$5,450 thousand and R$(8,458) thousand. | |
| (3) | Includes for the years ended December 31, 2023 and 2022, respectively, current income tax and social contribution expenses of R$34,536 thousand and R$59,570 thousand and deferred income tax expenses of R$42,186 thousand and R$44,992 thousand. | |
Our main source of revenue comes from offering technology services to primarily medium and large-sized companies worldwide. Net revenue in 2023 was R$2,233,466 thousand, representing an increase of R$45,756 thousand, or 2.1%, from R$2,187,710 thousand in 2022. The increase was mainly due to an expansion of our contracts with our clients that generates more than R$10.0 million in revenue per annum, which increased from 38 clients in 2022 to 50 clients in 2023. This effect was partially offset by a reduction in revenue from our top client, due to our top client's decision to decrease the scope of our existing contract.
We provide below the breakdown of our net revenue by industry vertical, geography, and client concentration.
Net revenue by industry vertical
The following table sets forth a breakdown of Net revenue by industry vertical and as a percentage of our total Net revenue for the years indicated:
|
|
Year ended December 31, |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2023 |
2023 |
2022 |
|||||||||||
|
|
(in thousands of US$)(1) |
(in thousands of Brazilian reais, except for percentages) |
||||||||||||
|
By Industry Vertical |
|
|
|
|
|
|||||||||
|
Financial Services |
133,655 |
647,063 |
29.0 |
% |
652,089 |
29.8 |
% | |||||||
|
Consumer Goods |
92,658 |
448,587 |
20.1 |
% |
473,871 |
21.7 |
% | |||||||
|
Technology and Telecommunication |
79,997 |
387,291 |
17.3 |
% |
329,787 |
15.1 |
% | |||||||
|
Retail and Industrial Goods |
56,711 |
274,557 |
12.3 |
% |
307,995 |
14.1 |
% | |||||||
|
Life Sciences |
51,027 |
247,038 |
11.1 |
% |
274,353 |
12.5 |
% | |||||||
|
Others |
47,287 |
228,930 |
10.3 |
% |
149,615 |
6.8 |
% | |||||||
|
Total Net Revenue |
461,336 |
2,233,466 |
100 |
% |
2,187,710 |
100 |
% | |||||||
| (1) | For convenience purposes only, amounts in reais for the year ended December 31, 2023 have been translated to U.S. dollars using an exchange rate of R$4.8413 to US$1.0000, the commercial selling rate for U.S. dollars as of December 31, 2023, as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. | |
Net revenue by geography
The following table sets forth a breakdown of net revenue by geographic region and as a percentage of our total Net revenue for the years indicated:
|
|
Year ended December 31, |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2023 |
2023 |
2022 |
|||||||||||
|
|
(in thousands of US$)(1) |
(in thousands of Brazilian reais, except for percentages) |
||||||||||||
|
By Geography |
|
|
|
|
|
|||||||||
|
North America |
201,943 |
977,663 |
43.8 |
% |
923,174 |
42.2 |
% | |||||||
|
Europe |
46,413 |
224,698 |
10.1 |
% |
205,992 |
9.4 |
% | |||||||
|
Latin America |
191,038 |
924,874 |
41.4 |
% |
975,948 |
44.6 |
% | |||||||
|
Asia Pacific |
21,943 |
106,231 |
4.8 |
% |
82,596 |
3.8 |
% | |||||||
|
Total Net revenue |
461,336 |
2,233,466 |
100 |
% |
2,187,710 |
100 |
% | |||||||
| (1) | For convenience purposes only, amounts in reais for the year ended December 31, 2023 have been translated to U.S. dollars using an exchange rate of R$4.8413 to US$1.00, the commercial selling rate for U.S. dollars as of December 31, 2023, as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. | |
Net revenue by client concentration
The following table sets forth the Net revenue derived from our Top Client and Top Ten Clients by Net revenue and as a percentage of our total Net revenue for the periods indicated:
|
|
Year ended December 31, |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2023 |
2023 |
2022 |
|||||||||||
|
|
(in thousands of US$)(1) |
(in thousands of Brazilian reais, except for percentages) |
||||||||||||
|
Top Clients' share of revenue |
|
|
|
|
|
|||||||||
|
Top Client |
38,278 |
185,317 |
8 |
% |
325,505 |
15 |
% | |||||||
|
Top Ten Clients |
183,274 |
887,282 |
40 |
% |
1,079,941 |
49 |
% | |||||||
|
Total Net Revenue |
461,336 |
2,233,466 |
|
2,187,710 |
|
|||||||||
| (1) | For convenience purposes only, amounts in reais for the year ended December 31, 2023 have been translated to U.S. dollars using an exchange rate of R$4.8413 to US$1.00, the commercial selling rate for U.S. dollars as of December 31, 2023, as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. | |
We generate a significant portion of our net revenue from our ten largest clients. Revenue from our top client reduced to R$185,317 thousand in 2023 from R$325,505 thousand in 2022, due to a decrease in the scope of our contract with our top client As a result, the revenue share from our top client reduced to 8% in 2023 from 15% in 2022.
Revenue from our top ten clients reduced to R$887,282 thousand in 2023 from R$1,079,941 thousand in 2022, mainly due to the reduction in revenue from our top client described above. The share of revenue from our top ten clients reduced from 49% in 2022 to 40% in 2023.
Costs of services provided
Costs of services provided for 2023 amounted to R$1,487,742 thousand, an increase of R$62,523 thousand, or 4.4%, from R$1,425,219 thousand in 2022.
The increase in costs of services provided was mainly due to personnel expenses, which increased 4.3% to R$1,352,623 thousand in 2023, from R$1,297,342 thousand in 2022, due to an increase of salaries paid in U.S. dollars or Australian dollars, as a result of the acquisitions of Ntersol in the US and Transpire in Australia in 2022, partially offset by lower profit-sharing expenses.
Additionally, our costs of services provided also increased as a result of the share-based compensation grants we made in 2023, which increased to R$13,842 thousand from R$4,235 million, in 2022.
Gross profit
As a result of the foregoing, gross profit for 2023 was R$745,724 thousand, an increase of 2.2% from R$762,491 thousand for 2022.
Operating expenses, net
Operating expenses decreased by R$28,325 thousand, or 5.8%, to R$460,248 thousand in 2023, from R$488,573 thousand in 2022, due to a decrease in general and administrative expenses and other expenses, partially offset by the increase in selling expenses.
Selling expenses increased by R$9,772 thousand, or 6.0%, to R$173,643 thousand in 2023, from R$163,871 thousand in 2022. This increase was mostly driven by an increase in share-based compensation expenses of R$ 10,508 thousand, from revaluation of plans already in force in 2022, partially offset by lower personnel expenses, which were reduced by R$ 2,789 thousand, due to lower profit-sharing expenses.
General and administrative expenses decreased by R$25,416 thousand, or 8.0%, to R$290,499 thousand in 2023, from R$315,915 thousand in 2022. This decrease was driven by (i) a R$15,995 thousand reduction in consulting expenses related to acquisitions occurred in 2022; (ii) a reduction in post-acquisition expenses of R$15,195 thousand related to retention packages paid in 2022; and (iii) a decrease in personnel expenses of R$10,053 thousand primarily due to lower profit-sharing expenses. These effects were partially offset by an increase of R$20,997 thousand in expenses associated with severance payments made to senior employees from acquired companies.
Other income (expenses) net was an income of R$5,450 thousand in 2023 compared to an expense of R$8,458 thousand in 2022. This variation was mainly due to (i) a decrease of R$7,810 thousand in other post-acquisition expenses, which include fair value adjustment on account payable for business acquired and acquisition price adjustments; and (ii) a reversal of R$2,866 thousand of provision relative to the re-imposition of Social Security Contribution on Gross Revenue in Brazil.
Operating profit before net finance costs and income tax expense
As a result of the foregoing, operating profit before net finance costs and income tax expense for 2023 was R$285,476 thousand, an increase of R$11,558 thousand, or 4.2%, from R$273,918 thousand for 2022.
Net finance costs
In 2023, net finance costs increased by R$2,535 thousand, or 3.4%, to R$76,181 thousand in 2023, from R$73,646 thousand in 2022, mainly due to; (i) an increase of R$9,704 thousand in interest and charges on loans and leases, as a result of higher interest rates in the market; and; (ii) a negative foreign exchange rate impact of R$8,175 thousand in 2023, compared to a positive impact of R$4,574 thousand in 2022 due to the Brazilian Real appreciation against the U.S. dollar in the period. This increase in our net finance costs was partially offset by an increase in our net derivative gains to R$14,735 thousand in 2023, from R$10,289 thousand in 2022.
Profit before income tax
As a result of the foregoing, profit before income tax was R$209,295 thousand in 2023, an increase of 4.5%, compared to R$200,272 thousand in 2022.
Income tax expense
Income tax expense was R$76,722 thousand in 2023, a decrease of 27%, compared to R$104,562 thousand in 2022. This decrease was primarily attributable to lower non-deductible expenses, including post-acquisition expenses, and an increase in deductible expenses, such as the business restructuring associated with senior employees' termination from acquired companies.
Net profit for the year
As a result of the foregoing, our net profit for 2023 was R$132,573 thousand, an increase of 38.5% compared to a net profit of R$95,710 thousand recorded in 2022.
Year ended December 31, 2022 (restated) compared to the year ended December 31, 2021
|
|
Year ended December 31, |
Var.% |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|
|
2022 |
2021 |
||||||||
|
|
(restated) |
|||||||||
|
|
(in thousands of Brazilian reais, except for percentages) |
|||||||||
|
Net revenue |
2,187,710 |
1,444,380 |
51.5 |
% | ||||||
|
Costs of services provided |
(1,425,219 |
) |
(935,732 |
) |
52.3 |
% | ||||
|
Gross Profit |
762,491 |
508,648 |
49.9 |
% | ||||||
|
Selling, general, administrative and other expenses (1) |
(488,244 |
) |
(263,545 |
) |
85.3 |
% | ||||
|
Impairment loss on trade receivables and contract assets |
(329 |
) |
(497 |
) |
-33.8 |
% | ||||
|
Operating profit before net finance costs and income tax expense |
273,918 |
244,606 |
12.0 |
% | ||||||
|
Finance income |
172,996 |
69,816 |
147.8 |
% | ||||||
|
Finance costs |
(246,642 |
) |
(104,048 |
) |
137.0 |
% | ||||
|
Net finance costs |
(73,646 |
) |
(34,232 |
) |
115.1 |
% | ||||
|
Profit before income tax |
200,272 |
210,374 |
-4.8 |
% | ||||||
|
Income tax expense (2) |
(104,562 |
) |
(84,417 |
) |
23.9 |
% | ||||
|
Net profit for the year |
95,710 |
125,957 |
-24.0 |
% | ||||||
| (1) | Includes for the year ended December 31, 2022, selling expenses of R$163,871 thousand, general and administrative expenses of R$315,915 thousand, and other expenses of R$8,458 thousand. Includes for the year ended December 31, 2021, selling expenses of R$89,654 thousand, general and administrative expenses of R$151,681 thousand, research and technological innovation expenses of R$4 thousand, and other expenses of R$22,206 thousand | |
| (2) | Includes for the year ended December 31, 2022, current income tax and social contribution expenses of R$59,570 thousand and deferred income tax expenses of R$44,992 thousand. Includes for the year ended December 31, 2021, current income tax and social contribution expenses of R$ 95,375 thousand and a deferred tax benefit of R$10,958 thousand. | |
Net revenue
Net revenue in 2022 was R$ 2,187,710 thousand, representing an increase of R$743,330 thousand, or 51.5%, from R$1,444,380 thousand in 2021. The increase was mainly due to (i) the expansion of the relationship with our current clients, demonstrated by our Net Revenue Retention rate of 126% in 2022, (ii) the addition of 84 new clients with revenue above R$1 million each in 2022, reaching 178 clients in 2022, compared to 94 in 2021, and (iii) the acquisitions concluded in 2022, which contributed with R$234.2 million in net revenue.
Net revenue by industry vertical
The following table sets forth a breakdown of Net revenue by industry vertical and as a percentage of our total Net revenue for the years indicated:
|
|
Year ended December 31, |
||||||||||
|
|
2022 |
|
2021 |
||||||||
|
|
(in thousands of Brazilian reais, except for percentages) |
||||||||||
|
By Industry Vertical |
|
|
|
|
|
||||||
|
Financial Services |
652,089 |
29.8 |
% |
494,189 |
34.2 |
% | |||||
|
Consumer Goods |
473,871 |
21.7 |
% |
370,152 |
25.6 |
% | |||||
|
Technology and Telecommunication |
329,787 |
15.1 |
% |
170,296 |
11.8 |
% | |||||
|
Retail and Industrial Goods |
307,995 |
14.1 |
% |
145,846 |
10.1 |
% | |||||
|
Life Sciences |
274,353 |
12.5 |
% |
197,286 |
13.7 |
% | |||||
|
Others |
149,615 |
6.8 |
% |
66,611 |
4.6 |
% | |||||
|
Total Net Revenue |
2,187,710 |
100 |
% |
1,444,380 |
100 |
% | |||||
Net revenue by geography
The following table sets forth a breakdown of net revenue by geographic region and as a percentage of our total Net revenue for the years indicated:
|
|
Year ended December 31, |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|
2022 |
2021 |
||||||||||
|
|
(in thousands of Brazilian reais, except for percentages) |
||||||||||
|
By Geography |
|
|
|
|
|||||||
|
North America |
923,174 |
42.2 |
% |
664,858 |
46.0 |
% | |||||
|
Europe |
205,992 |
9.4 |
% |
28,148 |
1.9 |
% | |||||
|
Latin America |
975,948 |
44.6 |
% |
701,206 |
48.5 |
% | |||||
|
Asia Pacific |
82,596 |
3.8 |
% |
50,168 |
3.5 |
% | |||||
|
Total Net Revenue |
2,187,710 |
100 |
% |
1,444,380 |
100 |
% | |||||
Net revenue by client concentration
The following table sets forth the Net revenue derived from our Top Client and Top Ten Clients by Net revenue and as a percentage of our total Net revenue for the periods indicated:
|
|
Year ended December 31, |
||||||||||
|
|
2022 |
2021 |
|||||||||
|
|
(in thousands of Brazilian reais, except for percentages) |
||||||||||
|
Top Clients' share of revenue |
|
|
|
|
|||||||
|
Top Client |
325,505 |
14.9 |
% |
283,311 |
19.6 |
% | |||||
|
Top Ten Clients |
1,079,941 |
49.6 |
% |
913,890 |
63.3 |
% | |||||
|
Total Net Revenue |
2,187,710 |
|
1,444,380 |
|
|||||||
We generate a significant portion of our net revenue from our ten largest clients. We reduced the share of net revenue from our top ten clients to 49% in 2022 compared to 63% in 2021, mainly as a result of the addition of 84 new clients with revenue above R$1 million each and the acquisitions of Somo, Box 1824, Transpire and NTERSOL in 2022, which contributed to the dilution of the revenue share from our top ten clients.
Costs of services provided
Costs of services provided for 2022 amounted to R$1,425,219 thousand, an increase of R$489,487 thousand, or 51.5%, from R$935,732 thousand in 2021.
The most significant increase in costs of services provided was associated with employee expenses, which increased to R$1,297,342 thousand in 2022 from R$861,225 thousand in 2021, due to new hires, employee promotions and headcount additions from acquired companies. Our number of employees grew to 6,904 in 2022 from 5,564 in 2021, an increase of 24%.
Other factors that contributed to the increase in our costs of services provided were (i) additional third-party services, especially from acquired companies, which increased by R$31,496 thousand in 2022, and (ii) depreciation and amortization which increased by R$9,084 thousand in 2022.
Gross profit
As a result of the foregoing, gross profit for 2022 was R$762,491 thousand, an increase of 49.9% from R$508,648 thousand for 2021.
Operating expenses, net
Operating expenses increased by R$224,531 thousand, or 85.0%, to R$488,573 thousand in 2022, from R$264,042 thousand in 2021, due to the increase in selling expenses, general and administrative expenses, partially offset by a decrease in other expenses net.
Selling expenses increased by R$74,217 thousand, or 82.8%, to R$163,871 thousand in 2022, from R$89,654 thousand in 2021. This increase was mostly driven by an increase in employee expenses of R$68,743 thousand or 108%, to R$132,233 thousand in 2022, from R$63,490 thousand in 2021.
General and administrative expenses increased by R$164,234 thousand, or 108%, to R$315,915 thousand in 2022, from R$151,681 thousand in 2021. This increase was driven by (i) an increase in employee expenses of R$57,390 thousand due to new hires and employee promotions for back-office teams; (ii) an increase in depreciation and amortization of R$35,603 thousand to R$50,236 thousand in 2022 from R$14,633 thousand in 2021 related to the amortization of intangible assets from acquired companies in the amount of R$43,069 thousand; (iii) an increase in third-party services of R$24,003 thousand related to additional expenses with business licenses and permits, and consulting expenses; (iv) an increase in post-acquisition expenses of R$14,153 thousand related to bonus packages; (v) an increase in the Directors and Officers ("D&O") insurance of R$11,742 thousand; and (vi) an increase in Mergers and Acquisitions ("M&A") consulting expenses of R$11,577 thousand.
Other expenses decreased to an expense of R$8,458 thousand in 2022 from an expense of R$22,206 thousand in 2021, mainly explained by the recognition of certain expenses in 2021 which did not reoccur in 2022, namely impairment of intangible assets related to the Dextra acquisition in the amount of R$21,895 thousand in 2021, and IPO expenses in the amount of R$2,220 thousand in 2021.
Operating profit before finance costs
As a result of the foregoing, operating profit before net finance costs for 2022 was R$273,918 thousand, an increase of R$29,312 thousand, or 12.0%, from R$244,606 thousand for 2021.
Net finance costs
In 2022, net finance costs increased by R$39,414 thousand, or 115.1%, to R$73,646 thousand in 2022, from R$34,232 thousand in 2021, mainly due to an increase in interest and charges on loans and leases, which increased to R$73,837 thousand in 2022, from R$29,729 thousand in 2021, as a result of higher interest rates in the market and an increase in our debt position, mainly to finance the Ntersol acquisition in an amount of R$341,170 thousand. This effect was partially offset by (i) higher income from financial investments, that increased to R$7,406 thousand in 2022 from R$4,321 thousand in 2021, (ii) a net foreign exchange gain of R$4,574 thousand in 2022, compared to a net foreign exchange loss of R$2,935 thousand in 2021, and (iii) net derivative gains of R$10,289 thousand in 2022, compared to a net derivative gain of R$473 thousand in 2021.
Profit before income tax
As a result of the foregoing, profit before income tax was R$200,272 thousand in 2022, a decrease of 4.8%, compared to R$210,374 thousand in 2021.
Income tax expense
Income tax expense was R$104,562 thousand in 2022, an increase of 24%, compared to R$84,417 thousand in 2021. This increase was primarily due to higher expenses such as post-acquisition expenses, depreciation and amortization, and exchange variations in non-taxable jurisdiction, where the tax rate is zero.
Net profit for the year
As a result of the foregoing, our net profit for 2022 was R$95,710 thousand, a decrease of 24%, compared to R$125,957 thousand in 2021.
Non-IFRS Measures
We regularly monitor a number of financial and operating metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. These non-IFRS financial measures include Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Profit for the period, Adjusted Net Profit Margin for the period, Net Revenue at Constant Currency, and Net Revenue Increase at Constant Currency are not measures calculated in accordance with IFRS, has limitations as an analytical tool, and should be considered in addition to results prepared in accordance with IFRS, but not as substitutes for IFRS results.
In addition, our calculation of these non-IFRS financial measures may be different from the calculation used by other companies, and therefore comparability may be limited. These non-IFRS financial measures are provided as additional information to enhance investors’ overall understanding of the historical and current financial performance of our operations.
3Adjusted Gross Profit and Adjusted Gross Profit Margin
We use Adjusted Gross Profit as the main key performance indicator (“KPI”) for monitoring the operational performance of our projects. In calculating Adjusted Gross Profit, we exclude costs and expenses which do not relate to the direct management of our services (depreciation and amortization related to costs of services provided, and share-based compensation expenses). These adjustments are applied in order to allow us to evaluate the profitability of a project or customer reflecting only the outcome under the direct management of the project managers, and to assist us and our project managers in evaluating risks and opportunities associated with potential contract renewals or renegotiations with customers for existing and future projects.
We calculate Adjusted Gross Profit as Gross profit, adjusted to:
| ● | exclude costs and expenses that are not related to the direct management of our services (depreciation and amortization costs related to costs of services provided); and | |
| ● | exclude share-based compensation expenses. |
In addition, we also monitor Adjusted Gross Profit Margin, which is Adjusted Gross Profit divided by Net revenue. Adjusted Gross Profit Margin is a useful metric of our profitability and allows us to have a view of the profitability, on a percentage point basis, that we expect to derive from different projects and clients.
Adjusted EBITDA and Adjusted EBITDA Margin
We also regularly monitor Adjusted EBITDA and Adjusted EBITDA Margin.
We calculate Adjusted EBITDA, as Net Profit, plus net finance costs, income tax expense, depreciation and amortization, plus:
| ● | share-based compensation expenses (for additional information, see note 23 to our audited consolidated financial statements); | |
| ● | government grants related to tax reimbursements in our Chinese subsidiary (for additional information, see note 23.1 to our audited consolidated financial statements); | |
| ● |
acquisition-related expenses: fair value adjustment on accounts payable for business combination, consulting expenses and retention packages; and | |
| ● |
business restructuring expenses, associated with severance payments made to senior employees from acquired companies. |
We make these adjustments to isolate our operating results in a given period, in order to verify whether we are being efficient in generating operating profits, how much of our Net profit is being consumed by operating costs, and how much is reverting to operating profitability.
In addition, we also monitor the Adjusted EBITDA Margin, which is Adjusted EBITDA divided by Net revenue for the same period. Adjusted EBITDA Margin allows us to compare and track operating profitability for different periods.
Adjusted Net Profit for the year and Adjusted Net Profit Margin for the year
We regularly monitor our Adjusted Net Profit for the year and Adjusted Net Profit Margin for the year. We calculate Adjusted Net Profit for the year by excluding certain impacts on Net profit for the year.
We calculate Adjusted Net Profit as Net Profit, plus:
| ● | acquisition-related expenses: amortization of intangible assets from acquired companies, fair value adjustment on accounts payable for business acquired, consulting expenses and retention packages; | |
| ● | business restructuring expenses, associated with severance payments made to senior employees from acquired companies. | |
| ● |
the income tax effects on non-IFRS adjustments. |
We monitor the Adjusted Net Profit Margin for the year, which is Adjusted Net Profit for the period divided by Net revenue. Adjusted Net Profit Margin for the year is a useful metric since it allows us to have a view of profit creation efficiency regardless of changes in the scale of Net profit for different years.
Net Revenue at Constant Currency and Net Revenue Increase at Constant Currency
We monitor our Net Revenue at Constant Currency and Net Revenue Increase at Constant Currency. As the impact of foreign currency exchange rates is highly volatile and difficult to predict, we believe Net Revenue at Constant Currency and Net Revenue Increase at Constant Currency allow us to better understand the underlying business trends and performance of our ongoing operations on a period-over-period basis by eliminating the effect of fluctuations in the exchange rates we use in the translation of our Net revenue in foreign currencies into Brazilian reais. We calculate Net Revenue at Constant Currency and Net Revenue Growth at Constant Currency by translating Net Revenue from entities reporting in foreign currencies into Brazilian reais using the comparable foreign currency exchange rates from the prior period. For example, the comparable rates in effect for the fiscal year ended December 31, 2022 were used to convert revenue for the fiscal year ended December 31, 2023, rather than the actual exchange rates in effect during the respective period.
While we believe that Net Revenue at Constant Currency and Net Revenue Increase at Constant Currency provide useful information to investors in understanding and evaluating our results of operations in the same manner as our management, our use of Net Revenue at Constant Currency and Net Revenue Increase at Constant Currency has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under IFRS. Further, other companies, including companies in our industry, may report Net Revenue at Constant Currency and Net Revenue Increase at Constant Currency differently.
|
|
Net revenue increase % (2) |
Year ended December 31, |
||||||
|---|---|---|---|---|---|---|---|---|
|
|
2023 |
2022 |
||||||
|
|
|
(in thousands of Brazilian reais) |
||||||
|
Net Revenue (as reported) |
2.1 |
% |
2,233,466 |
2,187,710 |
||||
|
Net Revenue at Constant Currency(1) |
4.1 |
% |
2,277,403 |
2,187,710 |
||||
| (1) | We calculate Net Revenue at Constant Currency and Net Revenue Increase at Constant Currency by translating Net revenue from entities reporting in foreign currencies into Brazilian reais using the comparable foreign currency exchange rates from the prior period. The annual average rates in effect for the fiscal year ended December 31, 2022 that were used to calculate Net Revenue at Constant Currency for the fiscal year ended December 31, 2023 and 2022 were 5.1655 Brazilian reais to U.S. dollars, 3.5863 Brazilian reais to Australian dollars, 3.9705 Brazilian reais to Canadian dollars, 0.7686 Brazilian reais to renminbi, 5.4420 Brazilian reais to euros, 6.3867 Brazilian reais to British pounds and 0.0395 Brazilian reais to Japanese yen. |
| (2) | Net revenue increase is the percentage increase in Net revenue or Net Revenue at Constant Currency, as applicable from one period to the following comparable period, as measured using Net revenue (as reported) or Net Revenue at Constant Currency, as applicable. |
|
|
Year ended December 31, |
|||||||
|---|---|---|---|---|---|---|---|---|
|
|
2023 |
2023 |
2022 |
|||||
|
|
|
(restated) |
||||||
|
|
(in thousands of US$)(1) |
(in thousands of Brazilian reais) |
||||||
|
Net revenue |
461,336 |
2,233,466 |
2,187,710 |
|||||
|
Reconciliation of Adjusted Gross Profit |
|
|
|
|||||
|
Gross Profit |
154,034 |
745,724 |
762,491 |
|||||
|
Adjustments |
|
|
|
|||||
|
Depreciation and amortization (cost of services provided) |
7,426 |
35,953 |
40,968 |
|||||
|
Share-based compensation |
2,859 |
13,842 |
4,235 |
|||||
|
Adjusted Gross Profit |
164,319 |
795,518 |
807,694 |
|||||
|
Adjusted Gross Profit Margin |
35.6 |
% |
35.6 |
% |
36.9 |
% | ||
|
Reconciliation of Adjusted EBITDA |
|
|
|
|||||
|
Net profit for the year |
27,384 |
132,573 |
95,710 |
|||||
|
Adjustments |
|
|
|
|||||
|
Net finance costs |
15,736 |
76,181 |
73,646 |
|||||
|
Income tax expense |
15,847 |
76,722 |
104,562 |
|||||
|
Depreciation and amortization |
19,254 |
93,213 |
94,558 |
|||||
|
Share-based compensation |
5,808 |
28,116 |
5,486 |
|||||
|
Government grants |
(192 |
) |
(931 |
) |
(1,141 |
) | ||
|
Acquisition-related expenses (2) |
1,071 |
5,184 |
44,652 |
|||||
|
Business restructuring |
4,337 |
20,997 |
- |
|||||
|
Adjusted EBITDA |
89,244 |
432,056 |
417,473 |
|||||
|
Adjusted EBITDA Margin |
19.3 |
% |
19.3 |
% |
19.1 |
% | ||
|
Reconciliation of Adjusted Net Profit |
|
|
|
|||||
|
Net profit for the period |
27,384 |
132,573 |
95,710 |
|||||
|
Adjustments |
|
|
|
|||||
|
Acquisition-related expenses(3) |
10,476 |
50,717 |
87,721 |
|||||
|
Business restructuring |
4,337 |
20,997 |
- |
|||||
|
Tax effects on Non-IFRS adjustment |
(2,136 |
) |
(10,341 |
) |
(13,970 |
) | ||
|
Adjusted Net profit for the year |
40,061 |
193,946 |
169,460 |
|||||
|
Adjusted Net profit Margin for the year |
8.7 |
% |
8.7 |
% |
7.7 |
% | ||
| (1) | For convenience purposes only, amounts in reais for the year ended December 31, 2023 have been translated to U.S. dollars using an exchange rate of R$4.8413 to US$1.00, the commercial selling rate for U.S. dollars as of December 31, 2023, as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been, or could be converted at that or any other exchange rate. |
| (2) | Include present value and fair value adjustments on accounts payable for business acquired, consulting expenses, and retention packages. |
| (3) | Includes amortization of intangible assets from acquired companies totaling (R$45,533) thousand in 2023 and (R$43,069) thousand in 2022, present value and fair value adjustment on accounts payable for business acquired, consulting expenses and retention packages. |
As of December 31, 2023, we had R$211,638 thousand in cash and cash equivalents and R$3,164 thousand in financial investments.
In the ordinary course of business, our principal funding requirements are for working capital requirements, capital expenditures and investments, servicing our indebtedness and distributions to our shareholders. We typically meet these requirements through operational cash flow and borrowings from private banks. As a result of such borrowings, we may be subject to restrictions and covenants in the agreements governing these transactions that may place limitations on us. See “Indebtedness” below. Our financing strategy is to fund our necessary capital expenditures and to preserve our liquidity while meeting our debt payment obligations.
We believe that our cash and cash equivalents (in the amount of R$211,638 thousand as of December 31, 2023), and financial investments (in the amount of R$3,164 thousand as of December 31, 2023) will be adequate to meet our capital expenditure requirements and liquidity needs in 2024.
We have R$112,719 thousand in loans and borrowings maturing in 2024. We have non-current loans and borrowings of R$614,744 thousand, of which R$168,738 thousand will mature in 2025, and R$446,006 thousand will mature up to 2028. We believe that the cash generated from operations, new borrowings in the financial and capital markets, or additional equity issuance will be adequate to meet our capital expenditure requirements and liquidity needs for the next twelve months.
As of December 31, 2023, 71% of our cash and cash equivalents are held in U.S. dollars and Brazilian reais, with the remaining 29% held in Australian dollars, euros, British pounds, Canadian dollars, Chinese Yuan and Japanese yen based on the relevant subsidiary. Additionally, as of December 31, 2023, we had R$3,164 thousand in financial investment in U.S. dollars and British pound , presenting immediate liquidity.
We aim to maintain adequate liquidity levels at each of our subsidiaries, based on the cash generated from operating activities and borrowings from private banks. However, our liquidity assumptions may prove to be incorrect, and we could exhaust our available financial resources sooner than we currently expect. We may seek to raise additional funds at any time through equity, equity-linked or debt-financing arrangements. Our future capital requirements and the adequacy of available funds will depend on many factors, including those described in the section of this report captioned “Risk Factors”. We may not be able to secure additional financing to meet our operating requirements on acceptable terms, or at all.
We believe we have an efficient cash flow control system that allows us to maintain cash available in sufficient amounts to meet our obligations as they become due, and we also have an investment policy to direct our available resources to the available options in the market. Our investment policy is designed to minimize the credit risk of our counterparties.
In 2023 and 2022, we did not declare and paid dividends. The following table shows the generation and use of cash for the years ended December 31, 2023 and 2022:
Cash Flow Data:
|
Year ended December 31, |
||||||||
|---|---|---|---|---|---|---|---|---|
|
|
2023 |
2023 |
2022 |
|||||
|
|
(in thousands of US$)(1) |
(in thousands of Brazilian reais) |
||||||
|
Net cash from operating activities |
60,984 |
295,242 |
36,092 |
|||||
|
Net cash from (used in) investing activities |
13,672 |
66,189 |
(82,560 |
) | ||||
|
Net cash from (used in) financing activities |
(68,848 |
) |
(333,315 |
) |
100,663 |
|||
|
Exchange variation effect on cash and cash equivalents |
(455 |
) |
(2,205 |
) |
(4,195 |
) | ||
|
Cash and cash equivalents as of January 1st |
38,363 |
185,727 |
135,727 |
|||||
|
Net increase in Cash and cash equivalents at end of period(2) |
5,352 |
25,911 |
50,000 |
|||||
| (1) | For convenience purposes only, amounts in reais for the year ended December 31, 2023 have been translated to U.S. dollars using an exchange rate of R$4.8413 to US$1.00, the commercial selling rate for U.S. dollars as of December 31, 2023, as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. |
| (2) | It includes exchange variation. |
Net cash generated from operating activities
Net cash from operating activities was R$295,242 thousand for 2023, compared to net cash from operating activities of R$36,092 thousand for 2022. This increase is mainly attributed to a reduction in operating assets, including trade receivables and contract assets in 2023, partially offset by a reduction in operating liabilities, including salaries and welfare charges paid and other taxes payable. In addition, income tax paid in 2023 was R$27,407 in 2023 from R$48,299 thousand in 2022, a decrease of R$20,892 thousand.
Net cash from (used in) investing activities
Net cash from investing activities was R$66,189 thousand for 2023, compared to net cash used in investing activities of R$82,560 thousand for 2022. In 2023, the amount of redemption in financial investments was R$90,298 thousand and the investments in the acquisition of property, plant and equipment and intangible assets totaled R$24,109 thousand. In 2022, the amount of redemption in financial investments was R$655,533 thousand, mainly to finance the acquisitions of subsidiaries, which totaled R$722,665 thousand. The investments in the acquisition of property, plant and equipment and intangible assets was R$22,967 thousand in 2022.
Net cash from (used in) financing activities
Net cash used in financing activities was R$333,315 thousand for 2023, compared to net cash generated from financing activities of R$100,663 thousand in 2022. This increase in cash used is mainly attributed to: (i) a decrease in the amount of proceeds from loans and borrowings to R$205,093 thousand in 2023 from R$527,507 thousand in 2022; (ii) higher payment of loans and borrowings, to R$407,013 thousand in 2023 from R$350,571 thousand in 2022; (iii) cash used to repurchase shares in 2023, in an amount of R$43,414 thousand; (iv) higher payment of account payables of business acquired to R$77,338 thousand in 2023 from R$62,338 thousand in 2022; (v) the lower inflow from exercised stock-options, to R$1,227 thousand in 2023 from R$12,668 thousand in 2022; partially offset by (vi) a higher inflow from the settlement of derivatives to R$12,200 thousand in 2023 from R$390 thousand in 2022 and; (vii) lower payment of lease liabilities to R$24,070 thousand from R$26,993 thousand in 2022.
Indebtedness
As of December 31, 2023, our total outstanding consolidated indebtedness (non-current and current loans and borrowings) was R$727,463 thousand, consisting of R$112,719 thousand of short-term indebtedness, and R$614,744 thousand of long-term indebtedness. The decrease of R$262,300 thousand in total outstanding consolidated indebtedness from December 31, 2022 is mainly related to regular payments of short-term debts. The outstanding debt as of December 31, 2023 is presented in the table below. We seek to obtain financing at the most favorable rate available to maintain a balanced debt profile combining fixed and variable rate debt.
|
|
Average interest rate (%) |
Year of maturity |
December 31, 2023 |
|
|
In US$ |
|
|
|
|
|
Export Credit Note (NCE) |
SOFR Overnight(a) + 2.33% p.a. |
2026 |
110,648 |
|
|
Working Capital Loan |
5.02% p.a. / SOFR Overnight(a) + 2.79% p.a. to 2.90% p.a. |
2026 to 2028 |
380,757 |
|
|
Total |
|
|
491,405 |
|
|
|
|
|
|
|
|
In R$ |
|
|
|
|
|
Export Credit Note (NCE) |
CDI(b) + 1.10% p.a. to 1.75% p.a. |
2023 to 2028 |
236,058 |
|
|
Total |
|
|
236,058 |
|
|
|
|
|
|
|
|
Total loans and borrowings |
|
|
727,463 |
The loans and borrowings are subject to covenants, which establish the early maturity of debts. Early maturity of the loans could be caused by:
| (i) | Disposal, merger, incorporation, spin-off, or any other corporate reorganization process that implies a change in the shareholding control, without prior consent from the creditor; | |
| (ii) | Some of the debt contracts demand the maintenance of specific ratios, such as the Net Debt to EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) ratio. |
We were in compliance with financial covenants as of December 31, 2023, 2022 and 2021.
Capital Expenditures
In 2023, we made investments in property, plant and equipment and intangible assets of R$25,599 thousand, and in 2022, we made investments in property and equipment and intangible assets of R$22,967 thousand. These capital expenditures are mainly related to new IT equipment and software investments.
The increase in capital expenditures is mainly due to the increase in intangible assets to R$18,702 thousand in 2023 from R$3,624 thousand in 2022, related to software in progress to support the Company's growth, implementation of corporate management systems to adhere to new compliance and regulatory standards, and improvement of corporate databases to align with information security, data protection and regulatory protocols. This effect was partially offset by a decrease in the acquisition of fixed assets, related to lower IT equipment (laptops, monitors and smartphones) acquired, which reduced to R$5,980 thousand in 2023 from R$18,777 thousand in 2022. The following table sets forth our capital expenditures for the fiscal years 2023 and 2022:
|
|
Year ended December 31, |
|||||||
|---|---|---|---|---|---|---|---|---|
|
|
2023 |
2023 |
2022 |
|||||
|
|
(in thousands of US$)(1) |
(in thousands of Brazilian reais) |
||||||
|
Fixed assets acquisitions |
1,425 |
6,897 |
19,343 |
|||||
|
Intangible assets acquisitions |
3,863 |
18,702 |
3,624 |
|||||
|
Total Capital Expenditures |
5,288 |
25,599 |
22,967 |
|||||
| (1) |
For convenience purposes only, amounts in reais for the year ended December 31, 2023 have been translated to U.S. dollars using an exchange rate of R$4.8413 to US$1.00, the commercial selling rate for U.S. dollars as of December 31, 2023, as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. |
We expect to increase our capital expenditures, mainly related to IT equipment, as we hire new people to support the growth of our business and operations. We expect to meet our capital expenditure requirements for the next 12 months from our cash generated from operations, new borrowings in the financial and capital markets or additional equity issuances.
Our future capital requirements will depend on several factors, including our growth rate, the expansion of our research and development efforts, employee headcount, marketing and sales activities, the introduction of new features to our existing products and the continued market acceptance of our products.
See “Item 4. Business Overview — Intellectual Property.”
See “Item 5. Operating and Financial Review and Prospects — Factors Affecting Results of Operations.”
Our audited consolidated financial statements are prepared in conformity with IFRS as issued by the IASB. In preparing our audited consolidated financial statements, we make assumptions, judgments and estimates that can have a significant impact on amounts reported in our audited consolidated financial statements. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions.
We regularly reevaluate our assumptions, judgments, and estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. The revisions to estimates are recognized prospectively. See note 5 to our audited consolidated financial statements.
Our Articles of Association provide that, unless otherwise determined by a special resolution of shareholders, the board of directors will be composed of four to eleven directors, with the number being determined by a majority of the directors then in office. There are no provisions relating to the retirement of directors upon reaching any age limit.
Our Articles of Association provide that directors shall be elected by an ordinary resolution of shareholders, which requires the affirmative vote of a simple majority of the votes cast on the resolution by the shareholders entitled to vote who are present, in person or by proxy, at the meeting. Each director shall be appointed and elected for annual terms or such other terms as the resolution appointing him or her may determine or until his or her death, resignation or removal.
Any vacancies on the board of directors that arise other than upon the removal of a director by resolution passed at a general meeting can be filled by the remaining directors (notwithstanding that they may constitute less than a quorum). Any such appointment shall be as an interim director to fill such vacancy until the next annual general meeting of shareholders. Our board of directors is composed of eight members.
The following table presents the names of the members of our board of directors:
|
Name |
Age |
Position | ||
|
Fernando Matt Borges Martins |
51 |
Director | ||
|
Brenno Raiko de Souza |
39 |
Chairperson | ||
|
Cesar Nivaldo Gon |
52 |
Director | ||
|
Patrice Philippe Nogueira Baptista Etlin |
60 |
Director | ||
|
Silvio Romero de Lemos Meira |
69 |
Independent Director | ||
|
Maria Helena dos Santos Fernandes de Santana |
64 |
Independent Director | ||
|
Eduardo Campozana Gouveia |
59 |
Independent Director | ||
|
Carla Alessandra Trematore |
48 |
Independent Director |
The following is a brief summary of the business experience of our directors. Unless otherwise indicated, the current business address for our directors is Estrada Guiseppina Vianelli De Napoli, 1455 – Bl. C, pavimento superior, Globaltech, Zip Code: 13086-530 , Campinas — state of São Paulo — Brazil.
Fernando Matt Borges Martins. Mr. Martins is a member of our board of directors and one of the founders of CI&T. Mr. Martins was CI&T Brazil’s CFO from 2002 until 2014. He is an experienced executive in the information technology industry and was the Chairperson of CI&T Brazil from June 2014 to May 2021, as well as a member of CI&T Brazil’s finance committee, nominating committee and ESG committee. Mr. Martins also serves as director of Sensedia, CFO of Neowrk and is an angel investor in tech and non-tech start-ups and actively contributes to the entrepreneurship ecosystem in Brazil. Mr. Martins holds a master’s degree in Economics and Finance from Fundação Getúlio Vargas — EAESP, Brazil and degrees in business administration and computer engineering from Fundação Getúlio Vargas — CEAG, Brazil and the State University of Campinas (UNICAMP).
Brenno Raiko de Souza. Mr. Raiko is the Chairperson of our board of directors. Mr. Raiko is a Managing Director of Advent, which he joined in 2011, and is based in Advent’s São Paulo office and is responsible for the technology sector in Latin America. Mr. Raiko has worked on 14 investments while at Advent, including CI&T, Easynvest, EBANX, Nubank, YDUQS, Fortbras Group, Grupo Biotoscana, Sophos Solutions and Fleury. Previously, he was an associate at Kearney in São Paulo and New York. His consultancy experience includes M&A strategy, commercial due diligence, and corporate strategy and operations for a broad range of industries. Mr. Raiko holds a BS in Economics from Fundação Getulio Vargas in Rio de Janeiro and earned an MBA from Harvard Business School, with a Fundação Estudar merit-based scholarship.
Cesar Nivaldo Gon. Cesar Nivaldo Gon. Mr. Gon is a member of our board of directors and our global CEO. Mr. Gon has been leading CI&T since he co-founded it in 1995. Mr. Gon is an entrepreneur in the technology and digital space. He taught himself computer programming by the age of 11, and at 13 sold the code of a chess game to a tech magazine. At the age of 23, he founded CI&T. Under his leadership as CEO, the company has grown and expanded globally. He is also an active investor in venture funds and startups, and a board member at Itaú Unibanco Holdings S.A., Lean Enterprise Institute, and Sensedia. Co-author of the book “Faster, Faster: The Dawn of Lean Digital” (2020) and a columnist for MIT Sloan Management Review. In 2019, he was awarded EY Entrepreneur Of The Year™ in Brazil. Mr. Gon is a computer engineer, with a master’s degree in Computer Science from UNICAMP.
Eduardo Campozana Gouveia. Mr. Gouveia is an independent member of our board of directors, a member of our audit committee, and an investor and board member at start-ups such as Allya, PinPeople, Hands, AsaaS, Hublocal and Marvin, and a board member at large companies such as Mapfre Seguradora ( chairman of the board), Quero-Quero, Raymundo da Fonte, Baterias Moura and Inspirali Educacao. Mr. Gouveia was the CEO of Cielo, a payment solutions, technology and retail services company, until August 2018. Before taking over Cielo in early 2017, he was the CEO of Alelo, a voucher Company. He also founded and was the CEO of Livelo, a customer loyalty company of Banco do Brasil and Bradesco. Mr. Gouveia was also the first CEO of Multiplus Fidelidade. Prior to that, Mr. Gouveia was Vice President of Sales and Marketing at Cielo between 2006 and 2010. He held the positions of Vice President of Marketing (Walmart Brasil), Chief Marketing Officer (Bompreço) and General Officer (HiperCard). He started his career in the IT department of Banco Banorte then served in the bank’s product, marketing and sales departments. Mr. Gouveia holds a bachelor’s degree in Computer Science from the Universidade Federal do Pernambuco (UFPE), a specialization degree in Finance from IBMEC and an MBA in Marketing from the Fundação Getúlio Vargas (FGV).
Patrice Philippe Nogueira Baptista Etlin. Mr. Etlin is a member of our board of directors and also a managing partner at Advent. Mr. Etlin joined Advent in 1997 and started the firm’s investment activities in Brazil. As one of Advent’s global managing partners and a member of its executive committee, he helps oversee the firm’s strategic direction and investment activities, with a particular focus on Latin America. Mr. Etlin has 30 years of private equity experience and has led, co-led or participated in over 30 investments in the region. Before joining Advent, from 1994 to 1997, he was a partner at International Venture Partners in São Paulo, where he was responsible for the overall operation of a media and communications fund focused on Brazil. Previously, he was a general representative for Brazil at Matra Marconi Space for five years. He received an undergraduate degree in electronic engineering from the University of São Paulo, a master’s degree in industrial engineering from École Centrale de Paris and an MBA from INSEAD. He also served for six years as Chairperson of the Latin American Private Equity & Venture Capital Association (LAVCA) and was a board member of the Associação Brasileira de Private Equity e Venture Capital (ABVCAP) from 2000 to 2017.
Silvio Romero de Lemos Meira. Mr. Meira is an independent member of our board of directors, and a special teacher at the Recife Center for Advanced Studies and Systems (CESAR), where he was also chief scientist until 2014, and “emeritus” professor at the Centre of Informatics of the Federal University of Pernambuco. He is a founder of The Digital Strategy Company and of Porto Digital where he also chairs the board of directors. Mr. Meira is a member of the boards of Magazine Luiza, MRV Engenharia and TEMPEST. He is part of the innovation committees of BBCE, Anima and Ypê. Mr. Meira works in strategy, digital transformation, software engineering, innovation, new business and education. He served as a fellow and faculty associate at the Berkman Klein Center for Internet and Society at Harvard University from 2012 to 2015 and as associate professor of law at FGV in Rio de Janeiro from 2014 to 2017.
Maria Helena dos Santos Fernandes de Santana. Ms. Santana is an independent member of our board of directors and chair of our audit committee, since August 2021. She is an independent director and chair of the audit committee of Itau Unibanco Holding S.A and an independent director and member of the audit committee of Fortbras S.A. Ms. Santana has, since 2013, acted as non-executive director for companies as XP Inc, Bolsas y Mercados Españoles – BME, Companhia Brasileira de Distribuicao S.A. – CBD, Totvs S.A. , CPFL Energia S.A and Oi S.A. In addition, she served as the executive chairperson of the Brazilian Securities and Exchange Commission – CVM from July 2007 to July 2012 and as a commissioner from 2006 to 2007. She was chair of the executive committee of IOSCO - International Organization of Securities Commissions from 2011 to 2012. Among other roles, she served as a member of the board of trustees of the International Financial Reporting Standards Foundation from 2014 to 2019 and worked for the São Paulo Stock Exchange for 12 years, acting as head of listings and issuer relations from 2000 to June 2006. She is a member of the Latin-American Corporate Governance Roundtable of the Organization for Economic Co-operation and Development. She holds a bachelor’s degree in economics from the Faculdade de Economia e Administração da Universidade de São Paulo – USP in Brazil.
Carla Alessandra Trematore. Ms. Trematore is an independent member of our board of directors and member of our audit committee, since September 2022. She worked at big four audit firms from 1996 to 2010, and also served as accounting partner at Hirashima & Associados, a boutique consulting firm specializing in advisory services for M&A transactions. Among other previous roles, Ms. Trematore was the chairperson of the audit committee of Caixa Econômica Federal from 2017 to 2020 and member of the board of directors of BRB – Banco de Brasília. She currently serves as (i) independent member of the board of directors and coordinator of the audit committee of BR Partners Participações; (ii) independent member of the board of directors and audit committee of Allied Tecnologia; (iii) independent member of the audit committee of Cosan, Agrogalaxy and Grupo Oncoclínicas, and (iv) member of the fiscal councils of Embraer, Rumo, Comgás, Ânima Educação, Localiza and ISA-CTEEP. She graduated in Computer Science from the Universidade Estadual Paulista – UNESP and in Accounting from Pontifícia Universidade Católica de Minas Gerais – PUC Minas, both in Brazil.
Executive Officers
Our executive officers are responsible for the management and representation of our company. We have a strong centralized management team led by Cesar Nivaldo Gon, our CEO, with broad experience in the technology/IT services industry.
The following table lists our executive officers:
|
Name |
Age |
Position | ||
|
Cesar Nivaldo Gon |
52 |
Chief Executive Officer | ||
|
Stanley Rodrigues |
53 |
Chief Financial Officer | ||
|
Bruno Guiçardi Neto |
52 |
Director of Operations |
The following is a brief summary of the business experience of our executive officers. Unless otherwise indicated, the current business address for our executive officers is Estrada Guiseppina Vianelli De Napoli, 1455 – Bl. C, pavimento superior, Globaltech, Zip Code: 13086-530 , Campinas — São Paulo State — Brazil.
Cesar Nivaldo Gon, Chief Executive Officer. See “Board of Directors” above.
Stanley Rodrigues, Chief Financial Officer. Mr. Rodrigues is our CFO and has been the CFO of CI&T Brazil since 2014. He has 28 years of work experience in the information technology industry in both private and public companies, with extensive experience in mergers & acquisitions transactions. He was previously the CFO of Sonda IT in Brazil and Mexico and controller of Atos Origin. He holds a degree in Civil Engineering from UNICAMP and an MBA from Fundação Instituto de Administração — Universidade de São Paulo.
Bruno Guiçardi Neto, Director of Operations. Mr. Guiçardi is a co-founder of CI&T and president of the North America and Europe operations. With over 30 years of experience, he has been a global pioneer in applying agile and lean methodologies to the digital space. He has a proven track record of delivering revenue growth and customer engagement to CI&T clients competing globally in an environment of fast-paced change and continuous innovation. He has a strong digital products and professional services background and is responsible for the senior leadership of many award-winning large-scale programs and business transformation initiatives. Mr. Guiçardi has a degree in computer engineering from UNICAMP.
Family Relationships
There are no family relationships among our directors and officers named herein.
Compensation of Directors and Executive Officers
Under Cayman Islands law, we are not required to disclose compensation paid to our executive officers or management on an individual basis and we have not otherwise publicly disclosed this information elsewhere.
For the year ended December 31, 2023, the aggregate compensation expense for the members of our board of directors and executive officers for services in all capacities was R$11,232 thousand, which includes both benefits paid in kind and compensation. See note 28 to our audited consolidated financial statements included elsewhere in this report.
Following the restatement of our financial statements as of and for the year ended December 31, 2022, our board of directors performed a recovery analysis based on our clawback policy. Our board of directors concluded that no recovery was applicable, as no compensation has been awarded to our executive officers based on financial reporting measures impacted by such restatement.
Employment Agreements
Some of our executive officers have entered into employment agreements with us, certain of which provide for notice of termination periods and include restrictive covenants, including with respect to confidentiality, non-compete and exclusivity and severance obligations. None of our directors have entered into service agreements with us.
Long-Term Incentive Plan
Currently, the Company has three types of long-term incentive plans: the Stock Options Plans, the Equity, Incentive Plan and Restricted Stock Units.
Our current stock option plan comprises two plans. The 1st Plan, with grants in 2020 and 2021, has four separate stock option programs, while the 2nd Plan, with grants in 2022, has only one program, in which we grant, for both plans, eligible options to executives, officers and directors who are settled in shareholders' equity, observing, among others, criteria determined by the Board of Directors and/or the Nomination Committee.
Our Incentive Stock Option plan provides eligible stock options to US resident employees that are settled in equity, subject, without limitation, to criteria determined by the Board of Directors and/or the Nominating Committee. Additionally, our Restricted Stock plan granted eligible shares to managers, employees and directors that are settled in equity, subject, among others, to criteria determined by the Board of Directors and/or Nominating Committee.
In 2023, we granted a total of 379,337 options and shares related to the 2nds Stock Option Plan, Incentive Stock Options and Restricted Stock Units (“RSU”), while in 2022, we granted a total of 2,053,908 options and shares. For more information regarding the exercise price, see note 20 to our audited consolidated financial statements.
In 2023, we issued 597,703 Class A common shares in connection with our long-term incentive plans. In 2022, we issued 1,049,135 class A common shares upon exercise of the options of the existing 1st Stock Option Plan. Further issuance of Class A common stock upon the exercise of options will have a dilutive effect on existing shareholders. In 2023, we established a matching program under the Restricted Stock Units Plan, which provides for the granting of Restricted Stock Units (“RSUs”) to selected participants who fulfill the condition acquiring CI&T’s shares and holding the acquired shares as restricted and non-negotiable shares for the respective vesting period. Under the matching program, participants have the right to receive, on each grant date, the matching shares granted in accordance with the vesting period, equivalent to 50% of the shares they acquired. The Matching Shares shall become vested on the second anniversary of the grant date. In December 2023, we granted 6,719 RSUs in the form of matching shares.
Directors’ and Officers’ Insurance
We have civil liability insurance coverage for acts carried out by our directors and executive officers in the course of their duties.
Committees
Audit Committee
Our audit committee, which consists of Eduardo Campozana Gouveia, Maria Helena dos Santos Fernandes de Santana and Carla Alessandra Trematore, assists our board of directors in overseeing our accounting and financial reporting processes and the audits of our financial statements. In addition, the audit committee is directly responsible for the appointment, compensation, retention and oversight of the work of our independent registered public accounting firm. Maria Helena dos Santos Fernandes de Santana serves as a Chairperson of the committee. The audit committee consists exclusively of independent members of our board of directors who are financially literate, and Carla Alessandra Trematore is considered an “audit committee financial expert” as defined by the SEC. Our board of directors has determined that Eduardo Campozana Gouveia, Maria Helena dos Santos Fernandes de Santana and Carla Alessandra Trematore satisfy the “independence” requirements set forth in Rule 10A-3 under the Exchange Act.
The audit committee is governed by a charter that complies with applicable SEC and NYSE rules. The audit committee is responsible for, among other things:
| ● | the appointment, compensation, retention and oversight of any auditor or accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services; | |
| ● | pre-approving the audit services and non-audit services to be provided by our independent auditor before the auditor is engaged to render such services; | |
| ● | reviewing and discussing with the independent auditor its responsibilities under generally accepted auditing standards, the planned scope and timing of the independent auditor’s annual audit plan(s) and significant findings from the audit; | |
| ● | obtaining and reviewing a report from the independent auditor describing all relationships between the independent auditor and the Company consistent with the applicable PCAOB requirements regarding the independent auditor’s communications with the audit committee concerning independence; | |
| ● | confirming and evaluating the rotation of the audit partners on the audit engagement team as required by law; | |
| ● | reviewing with management and the independent auditor, in separate meetings whenever the Audit Committee deems appropriate, any analyses or other written communications prepared by the management and/or the independent auditor setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative IFRS methods on the financial statements; and other critical accounting policies and practices of the Company; | |
| ● | reviewing, in conjunction with our Chief Executive Officer and Chief Financial Officer our disclosure controls and procedures and internal control over financial reporting; | |
| ● | establishing procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters, and for the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters and also is responsible for handling complaints against any member of our senior management team, if not involved; and | |
| ● | approving or ratifying any related person transaction (as defined in our related person transaction policy) in accordance with our related person transaction policy. |
The audit committee meets as often as it determines to be appropriate to carry out its responsibilities, but in any event, meets at least 4 times per year.
Nominating Committee
Our Nominating Committee, which consists of Fernando Matt Borges Martins, Eduardo Campozana Gouveia and Brenno Raiko de Souza, assists our board of directors in nominating candidates for election to the board of directors and overseeing the human resources policies and practices adopted by the Company and its subsidiaries, as appropriate. Fernando Matt Borges Martins serves as Chairperson of the committee. As a foreign private issuer, our nominating committee is not required to satisfy the “independence” requirements as set forth in NYSE Rule 303.A.00. The nominating committee is governed by a charter that complies with otherwise applicable SEC and NYSE rules. The nominating committee is responsible for, among other things:
| ● | identifying, evaluating and recommending individuals qualified to become directors for nomination for election to the Board and appointments to committees of the board or other senior management positions; | |
| ● | managing and developing compensation, benefits and incentive policies; and | |
| ● | monitoring KPIs and performance targets of directors and others in senior management positions. |
Code of Ethics
We have adopted a code of ethics applicable to our personnel and our subsidiaries’ personnel, including board members, directors, officers, employees, interns and all people acting on our behalf or on behalf of our corporate group. Our code of ethics also applies to relevant third parties involved in our activities, such as suppliers, consultants and other service providers. Our code of ethics describes our mission, vision and values and provides the relevant conduct standards that must be followed by our personnel and our subsidiaries’ personnel. It regulates our interactions with our suppliers, clients, governmental entities and agents. Our code of ethics also provides fundamental rules of conduct related to conflict of interest situations, protecting our confidential information and assets and guaranteeing our compliance with applicable laws and relevant information on whistleblowing procedures.
In addition, there are policies in place to mitigate other Compliance risks, such as Conflicts of Interest, Insider Trading, Disclosure Controls and Procedures, Anti-corruption and Related Person Transactions.
CI&T has a 9 pillar-based Compliance Program to prevent, detect and correct acts inconsistent with the company's principles and values. In other words, this program aims to protect the company's value by creating a fair and transparent corporate environment and guaranteeing compliance with applicable laws, rules and regulations. Its pillars are: a) Tone at the Top; b) Code of Ethics and Conduct and Policies; c) Risk Assessment; d) Internal Controls; e) Reporting Channel f) Training and Communication g) Internal Investigations h) Due Diligence and i) Auditing and Monitoring.
All of our employees receive annual mandatory Ethics and Conduct training, in order to reinforce all directives described on our Code of Ethics and Conduct and key Compliance Policies.
All violations to our Code of Ethics and policies may be reported through our whistleblower channel (ethics.ciandt.com), which is publicly available on our website. Reports are confidential and may be made anonymously. We have an Ethics Commission to review and discuss about complaints and determines the disciplinary measures to be taken.
Other Corporate Governance Matters Foreign Private Issuer Exemption
The Sarbanes-Oxley Act of 2002, as well as related rules subsequently implemented by the SEC, requires foreign private issuers, including our company, to comply with various corporate governance practices. In addition, rules provide that foreign private issuers may follow the home country's practice in lieu of corporate governance standards, subject to certain exceptions and except to the extent that such exemptions would be contrary to U.S. federal securities laws. We intend to take all actions necessary for us to maintain compliance as a foreign private issuer under the applicable corporate governance requirements of the Sarbanes-Oxley Act of 2002, the rules adopted by the SEC and the NYSE listing standards.
Our People
Since our incorporation, we have considered our employees our greatest asset, making sure that we have a healthy and humane environment, and that we offer an opportunity for people to grow professionally along with us. From 2022 through 2023, our employee attrition rate based on voluntary employee departures was 9.25% (excluding employee departures with less than a six-month tenure). Our employees’ salaries are adjusted annually according to inflation indexes and based on labor union negotiations.
In 2023, our employee base decreased 11%, from 6,904 in 2022 to 6,111.
As of the periods shown below, we had the following employees, broken out by geography:
|
Year ended December 31, |
||||||||
|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2021 | ||||||
|
United States |
249 |
358 |
130 |
|||||
|
Canada |
27 |
30 |
28 |
|||||
|
United Kingdom |
146 |
160 |
13 |
|||||
|
Portugal |
65 |
48 |
39 |
|||||
|
Brazil |
5,182 |
5,843 |
5,139 |
|||||
|
Colombia |
105 |
107 |
- |
|||||
|
Japan |
14 |
19 |
24 |
|||||
|
China |
280 |
241 |
188 |
|||||
|
Australia |
43 |
98 |
3 |
|||||
|
Total |
6,111 |
6,904 |
5,564 |
|||||
The shares and any outstanding shares beneficially owned by our directors and officers and/or entities affiliated with these individuals are disclosed in the section entitled “Major Shareholders.”
Not applicable.
F.Disclosure of a registrant’s action to recover erroneously awarded compensation The following table and accompanying footnotes present information relating to the beneficial ownership of our Class A common shares and Class B common shares by: (i) each person, or group of affiliated persons, known by us to own beneficially 5% or more of our outstanding shares; and (ii) our executive officers and directors, as a group, as of the date of this annual report, unless otherwise noted. Percentages in the table below are based on 21,365,297 outstanding Class A common shares and 113,046,717 outstanding Class B common shares.
|
Class A |
Class B |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|
Shareholders |
Shares |
% of Class A |
Shares |
% of Class B |
|||||||
|
5% Shareholders |
|
|
|
|
|||||||
|
Cesar Nivaldo Gon(2) |
66,392 |
0.3% |
23,303,273 |
20.6% |
|||||||
|
Fernando Matt Borges Martins(3) |
82,196 |
0.4% |
22,722,913 |
20.1% |
|||||||
|
Bruno Guiçardi Neto(4) |
85,775 |
0.4% |
15,298,381 |
13.5% |
|||||||
|
Advent Managed Fund LLCs(5) |
556,699 |
2.6% |
49,081,192 |
43.4% |
|||||||
|
Brasil Capital(6) |
2,280,038 |
10.7% |
- |
- |
|||||||
|
T. Rowe Price Associates(7) |
2,239,515 |
10.5% |
- |
- |
|||||||
|
GIC Private Limited(8) |
1,559,909 |
7.3% |
- |
- |
|||||||
|
WCM Investment Management(9) |
1,326,624 |
6.2% |
- |
- |
|||||||
|
Grandeur Peak Global Advisors(10) |
1,236,343 |
5.8% |
- |
- |
|||||||
|
Other Officers and Directors(11) |
54,852 |
0.3% |
166,122 |
0.1% |
|||||||
| (1) | Percentage of total voting power represents voting power with respect to all of our Class A common shares and Class B common shares, as a single class. Holders of our Class B common shares are entitled to 10 votes per share, whereas holders of our Class A common shares are entitled to one vote per share. For more information about the voting rights of our Class A common shares and Class B common shares, see “Additional Information — B. Memorandum and Articles of Association — Description of Share Capital.” |
| (2) | Mr. Cesar Nivaldo Gon, our Chief Executive Officer and member of our board of directors, beneficially owns Class B common shares in us indirectly through his ownership of interests in ENIAC Capital Group Ltd., an entity incorporated under the laws of the British Virgin Islands with registered office at Craigmuir Chambers, Road Town, Tortola, VG 1110, British Virgin Islands. |
| (3) |
Mr. Fernando Matt Borges Martins, a member of our board of directors, beneficially owns Class B common shares in us indirectly through his ownership of interests in Guaraci Investments Ltd., an entity incorporated under the laws of the British Virgin Islands with registered office at Craigmuir Chambers, Road Town, Tortola, VG 1110, British Virgin Islands. |
| (4) | Mr. Bruno Guiçardi Neto, our Director of Operations, owns 8,998,381 Class B common shares directly and beneficially owns 6,300,000 Class B common shares through The Ferreira Guiçardi Family Trust, an entity incorporated under the laws of the State of Delaware with registered office at 200 Bellevue Parkway, Suite 250, Wilmington, DE 19809, United States of America. |
| (5) | Includes 16,360,375 Class B common shares owned by AI Calypso Brown LLC (“Calypso Brown”), 16,360,375 Class B common shares owned by AI Iapetus Grey LLC (“Iapetus Grey”) and 16,360,442 Class B common shares owned by AI Titan Black LLC (“Titan Black”). The managing members and beneficial owners of each of Calypso Brown, Iapetus Grey and Titan Black are the following funds (the “Advent LAPEF VI Funds”): Advent Latin American Private Equity Fund VI Limited Partnership, Advent Latin American Private Equity Fund VI-A Limited Partnership (of which Advent LAPEF VI Feeder Limited Partnership is a limited partner), Advent Latin American Private Equity Fund VI-B Limited Partnership, Advent Latin American Private Equity Fund VI-C Limited Partnership, Advent Latin American Private Equity Fund VI-D Limited Partnership, Advent Latin American Private Equity Fund VI-E Limited Partnership, Advent Latin American Private Equity Fund VI-F Limited Partnership, Advent Latin American Private Equity Fund VI-G Limited Partnership, Advent Latin American Private Equity Fund VI-H Limited Partnership, Advent Partners LAPEF VI Limited Partnership and Advent Partners LAPEF VI-A Limited Partnership. The Advent LAPEF VI Funds have direct or indirect ownership interests in Calypso Brown, Iapetus Grey and Titan Black, but none of the Advent LAPEF VI Funds has voting or dispositive power over any shares. LAPEF VI GP Limited Partnership (“LAPEF VI GP LP”) is the general partner of the Advent LAPEF VI Funds, and Advent International LAPEF VI, LLC (“Advent LAPEF VI GP LLC”) is the general partner of LAPEF VI GP LP. Advent International Corporation (“Advent”) is the sole member and manager of Advent LAPEF VI GP LLC and may be deemed to have voting and dispositive power over the shares held by the Advent Managed Fund LLCs. Voting and investment decisions by the Advent Managed Fund LLCs are made by a number of individuals currently comprised of John L. Maldonado, David M. McKenna and David M. Mussafer. The address of each of the entities and individuals named in this footnote is c/o Advent International Corporation, Prudential Tower, 800 Boylston St., Suite 3300, Boston, MA 02199.n |
| (6) | As reported by Brasil Capital, a group of investment advisors including BC Gestão de Recursos Ltda and Brasil Capital Adviser LLC, in its Schedule 13G/A filed with SEC on February 16, 2024. Includes 1,384,990 shares deemed beneficially owned by BC Gestão de Recursos Ltda; 895,048 shares deemed beneficially owned by Brasil Capital Adviser LLC. |
| (7) | As reported by T. Rowe Price Associates, Inc. and T. Rowe Price International Discovery Fund in its Schedule 13G filed with SEC on February 14, 2024. |
| (8) | As reported by GIC Private Limited in its Schedule 13G/A filed with SEC on February 9, 2024. |
| (9) | As reported by WCM Investment Management, LLC in its Schedule 13G/A filed with SEC on January 30, 2024. |
| (10) | As reported by Grandeur Peak Global Advisors, LLC. in its Schedule 13G filed with SEC on February 9, 2024. |
| (11) | Shares held by Stanley Rodrigues, our chief financial officer. Mr. Rodrigues also holds 37,663 options. Disclosure regarding the equity interest held by Cesar Nivaldo Gon, Fernando Matt Borges Martins and Bruno Guiçardi Neto is above. Silvio Romero de Lemos Meira, Eduardo Campozana Gouveia and Maria Helena dos Santos Fernandes Santana, members of our board of directors hold 23,216, 22,566 and 3,952 options, respectively. Carla Alessandra Trematore holds no options as of the date of the current report, but is entitled to 4,959 RSUs in 2024. |
The holders of our Class A common shares and Class B common shares have identical rights, except that the Class B Shareholders as holders of Class B common shares (i) are entitled to ten votes per share, whereas holders of our Class A common shares are entitled to one vote per share, (ii) have certain conversion rights and (iii) are entitled to maintain a proportional ownership interest by purchasing additional Class B common shares in the event that additional Class A common shares are issued, save that such rights to purchase additional Class B common shares may only be exercised with Class B Shareholder Consent. For more information see “Additional Information — B. Memorandum and Articles of Association — Description of Share Capital — Preemptive or Similar Rights” and “Description of Share Capital — Conversion.” Each Class B common share is convertible into one Class A common share.
We enter into intercompany commercial transactions with related parties regarding software development, support, and consultancy services and intercompany financial transactions. All outstanding balances with these related parties are priced on an arm’s length basis and are to be settled in cash within three to four months of the reporting date.
Related Party Transactions Policy
Prior to the consummation of our initial public offering, we entered into a Related Party Transactions policy. In October 2021, our board of directors approved our Related Party Transaction Policy, which is available on our Investors’ website (Governance Documents) and reviewed annually. The information contained in, or accessible through, our website is not incorporated into this report.
Shareholders’ Agreements
In connection with our initial public offering, we entered into a shareholders’ agreement (the “Shareholders’ Agreement”) with Cesar Nivaldo Gon, Bruno Guiçardi Neto, Fernando Matt Borges Martins (the “Founders”), entities controlled by the Founders and the Advent Managed Fund LLCs. The Shareholders’ Agreement provides that, so long as the agreement is in force, the Founders will have the right to appoint a majority of our board of directors. The Shareholders’ Agreement also provides that, so long as the Advent Managed Fund LLCs hold shares representing at least 20% of the voting rights of the Company, the Advent Managed Fund LLCs will have the right to appoint two directors; and for so long as the Advent Managed Fund LLCs hold shares representing at least 10% of the voting rights of the company, the Advent Managed Fund LLCs will have the right to appoint one director. The Shareholders’ Agreement shall terminate at such time as either the Founders hold shares representing less than 30% of the voting rights of the Company or the Advent Managed fund LLCs hold shares representing less than 10% of the voting rights of the Company.
Registration Rights Agreement
In connection with the initial public offering, we entered into a registration rights agreement whereby we grant certain registration rights to the Advent Managed Fund LLCs, ENIAC Capital Group Ltd. (the investment vehicle of Mr. Cesar Nivaldo Gon), Bruno Guiçardi Neto, and Guaraci Investments Ltd. (the investment vehicle of Mr. Fernando Matt Borges Martins), including the right, under certain circumstances and subject to certain restrictions, to require us to register under the Securities Act our common shares held by them. In addition, we have committed to file as promptly as possible, after receiving a request from the Advent Managed Fund LLCs, ENIAC Capital Group Ltd., Bruno Guiçardi Neto, and Guaraci Investments Ltd., a shelf registration statement registering secondary sales of our common shares held by the Advent Managed Fund LLCs, ENIAC Capital Group Ltd., Bruno Guiçardi Neto, and Guaraci Investments Ltd. The Advent Managed Fund LLCs, ENIAC Capital Group Ltd., Bruno Guiçardi Neto, and Guaraci Investments Ltd. also have the ability to exercise certain piggyback registration rights in respect of common shares held by them in connection with registered offerings requested by other holders of registration rights or initiated by us.
Indemnification Agreements
We entered into indemnification agreements with our directors and executive officers. The indemnification agreements and our amended and restated memorandum and articles of association require us to indemnify our directors and executive officers to the fullest extent permitted by law.
CI&T IOT
In connection with the spin-off of Neowrk Sistemas Inteligentes S/A. (formerly known as CI&T IOT Comércio de Hardware e Software Ltda. and herein referred to as “NeoWrk”) from CI&T Brazil, on July 22, 2021, the companies entered into a partnership agreement governing the terms of their cooperation for a period of 18 months, which was later extended for until March 2024. Pursuant to the terms of this agreement, CI&T Brazil is required to rent space inside its building to NeoWrk in the amount of R$7.400,00 per month, referring to the square footage occupied by NeoWrk according to CI&T’s contract with the property owner, and NeoWrk is required to offer CI&T Brazil certain workplace management and monitoring services through CI&T IOT’s software application Free Room in the amount of R$6.708,50 per month, which was determined based on market value for this type of rental. The partnership agreement does not restrict in any way the Company’s ability to operate in any market or industry.
One of our directors, Fernando Matt Borges Martins, is the CFO, board member, and shareholder of Neowrk.
Not applicable
We have included the Consolidated Financial Statements as part of this annual report. See “Item 18. Financial Statements.”
Legal Proceedings
We may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management time and resources and other factors. For additional information, see note 18 to our audited consolidated financial statements included elsewhere in this report.
Dividends and Dividend Policy
We have not adopted a dividend policy concerning future distributions of dividends. The amount of any distributions will depend on many factors such as our results of operations, financial condition, cash requirements, prospects and other factors deemed relevant by our board of directors and, where applicable, our shareholders. We currently intend to retain all available funds and any future earnings, if any, to fund the development and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future.
Certain Cayman Islands Legal Requirements Related to Dividends
Under the Companies Act and our Articles of Association, a Cayman Islands company may pay a dividend out of either its profit or share premium account, but a dividend may not be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business. According to our Articles of Association, dividends can be declared and paid out of funds lawfully available to us, which include the share premium account. Dividends, if any, would be paid in proportion to the number of common shares a shareholder holds. For further information, see “Taxation — Cayman Islands Tax Considerations.”
CI&T Inc has not declared or paid any dividends to its shareholders since its incorporation in the Cayman Islands on June 7, 2021.
Certain Brazilian Legal Requirements Related to Dividends
Our ability to pay dividends is directly related to positive and distributable net results from our Brazilian subsidiary. See “Risk Factors — Certain Risks Relating to Our Business and Industry — We depend on dividend distributions by our subsidiaries, and we may be adversely affected if the performance of our subsidiaries is not positive.” Our Brazilian subsidiary is required under its by-laws and Federal Law No. 6,404 dated December 15, 1976, as amended, to distribute a mandatory minimum dividend to shareholders each year, which cannot be lower than 25% of its adjusted net income for the prior year, calculated under Article 202 of the Brazilian Corporate Law, unless such distribution is suspended by a decision of such subsidiary’s shareholders at its annual shareholders’ meeting based on a report by its board of directors that such distribution would be incompatible with its financial condition at that time. In addition, if, for any legal reasons due to new laws or bilateral agreements between countries, our Brazilian subsidiary is unable to pay dividends to Cayman Islands companies, or if a Cayman Islands company becomes incapable of receiving them, we may not be able to make any dividend payments in the future.
None.
Our Class A common shares began trading on the NYSE under the symbol “CINT” in connection with our IPO on November 10, 2021.
Not applicable.
Our Class A common shares began trading on the NYSE under the symbol “CINT” in connection with our IPO on November 10, 2021.
Not applicable.
Not applicable.
Not applicable.
Not applicable.
We were incorporated on June 7, 2021, as a Cayman Islands exempted company with limited liability duly registered with the Cayman Islands Registrar of Companies. Our corporate purposes are unrestricted, and we have the authority to carry out any object not prohibited by the Companies Act or any other law as provided by Section 7(4) of the Companies Act.
Our affairs are governed principally by: (i) CI&T’s Articles (the “Articles”); (ii) the Companies Act; and (iii) the common law of the Cayman Islands. As provided in the Articles, subject to Cayman Islands law, we have full capacity to carry on or undertake any business or activity, do any act or enter into any transaction, and, for such purposes, full rights, powers and privileges. Our registered office is c/o Maples Corporate Services Limited, P.O. Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands.
Our Articles of Association authorize the issuance of up to 1,000,000,000 shares of a nominal or par value of US$0.00005 each, which at the date of this annual report comprise 500,000,000 Class A common shares and 250,000,000 Class B common shares (which may be converted into Class A common shares in the manner contemplated in our Articles of Association), and 250,000,000 shares of such class or classes (howsoever designated) and having the rights that our board of directors may determine. As of the date of this annual report, we have 21,365,297 Class A common shares and 113,046,717 Class B common shares of our authorized share capital issued and outstanding.
The following is a summary of the material provisions of our authorized share capital and the Articles.
Share Capital
The Articles authorize two classes of common shares: Class A common shares, which are entitled to one vote per share, and Class B common shares, which are entitled to ten votes per share and to maintain a proportional ownership interest in the event that additional Class A common shares are issued (save that the right to maintain a proportional ownership interest may only be exercised with Class B Shareholder Consent). Any holder of Class B common shares may convert his or her shares at any time into Class A common shares on a share-for-share basis. The rights of the two classes of common shares are otherwise identical, except as described below. See “— Anti-Takeover Provisions in the Articles — Two Classes of Shares.”
As of the date of this annual report, CI&T’s total authorized share capital was US$50,000, divided into shares with par value of US$0.00005 each, of which:
| ● | 500,000,000 shares are designated as Class A common shares; | |
| ● | 250,000,000 shares are designated as Class B common shares; | |
| ● | 250,000,000 are yet undesignated and may be issued as common shares or shares with preferred, deferred or other special rights or restrictions. |
As of December 31, 2023 we have a total issued share capital of R$36,903 divided into 134,412,014 shares of a nominal or par value of US$0.00005 each, comprising (i) 21,365,297 Class A common shares; and (ii) 113,046,717 Class B common shares.
Treasury Stock
On May 17, 2023, our board of directors approved a share repurchase program, pursuant to which we repurchased 1,500,000 of the Company’s Class A common shares, all of which were held as treasury shares following the repurchases. In November 2023, we distributed this entire amount of treasury share to fulfill obligations to former owners of Ntersol and related to the exercise of restricted stock units (note 21.c to our audited consolidated financial statements).
On November 16, 2023, our board of directors approved a new share repurchase program, pursuant to which we may repurchase up to 2.5 million of our outstanding class A common shares until December 31, 2024.
Issuance of Shares
Except as expressly provided in our Articles, our board of directors has general and unconditional authority to allot, grant options over, offer or otherwise deal with or dispose of any unissued shares in the company’s capital without the approval of our shareholders (whether forming part of the original or any increased share capital), either at a premium or at par, with or without preferred, deferred or other special rights or restrictions, whether in regard to dividend, voting, return of capital or otherwise and to such persons, on such terms and conditions, and at such times as the directors may decide, but so that no share shall be issued at a discount, except in accordance with the provisions of the Companies Act. In accordance with our Articles, we shall not issue bearer shares. We shall not issue any class of shares with dividend rights, conversion rights, redemption rights and/or liquidation preference superior to the rights of the Class B common shares, or shares having more than one vote per share, without the Class B Shareholder Consent.
The Articles provide that additional Class B common shares may only be issued pursuant to (1) a share split, subdivision of shares or similar transaction or where a dividend or other distribution is paid by the issue of shares or rights to acquire shares or following capitalization of profits, (2) subject to the Class B Shareholder Consent, a merger, consolidation, or other business combination involving the issuance of Class B common shares as full or partial consideration, or (3) an issuance of Class A common shares, whereby holders of the Class B common shares would be entitled to purchase a number of Class B common shares that would allow them to maintain their proportional ownership and voting interests in CI&T (following an offer by CI&T to each holder of Class B common shares to issue to such holder, upon the same economic terms and at the same price, such number of Class B common shares as would ensure such holder may maintain a proportional ownership interest in CI&T pursuant to the Articles), save that such rights to purchase additional Class B common shares may only be exercised with Class B Shareholder Consent. In light of: (a) the above provisions; (b) the fact that future transfers by holders of Class B common shares will generally result in those shares converting to Class A common shares, subject to limited exceptions as provided in the Articles; and (c) the ten-to-one voting ratio between our Class B common shares and Class A common shares, holders of our Class B common shares will in many situations continue to maintain control of matters requiring shareholder approval. This concentration of ownership and voting power will limit or preclude your ability to influence corporate matters for the foreseeable future. For more information see “— Preemptive or Similar Rights.”
The Articles also provide that the issuance of non-voting common shares requires the affirmative vote of a majority of the then-outstanding Class A common shares.
Fiscal Year
Our fiscal year begins on January 1 of each year and ends on December 31 of the same year.
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Voting Rights
The holders of the Class A common shares and Class B common shares have identical rights, except that (1) the holders of Class B common shares are entitled to ten votes per share, whereas holders of Class A common shares are entitled to one vote per share, (2) Class B common shares have certain conversion rights and (3) the holders of Class B common shares are entitled to maintain a proportional ownership interest in the event that additional Class A common shares are issued, save that such rights to purchase additional Class B common shares may only be exercised with Class B Shareholder Consent. For more information see “— Preemptive or Similar Rights” and “— Conversion.” The holders of Class A common shares and Class B common shares vote together as a single class on all matters (including the election of directors) submitted to a vote of shareholders, except as provided below and as otherwise required by law.
The Articles provide as follows regarding the respective rights of holders of Class A common shares and Class B common shares:
| (i) | Class consents from the holders of Class A common shares or Class B common shares, as applicable, shall be required for any variation to the rights attached to their respective class of shares, however, the Directors may treat any two or more classes of shares as forming one class if they consider that all such classes would be affected in the same way by the proposal; | |
| (ii) | The rights conferred on holders of Class A common shares shall not be deemed to be varied by the creation or issue of further Class B common shares and vice versa; and | |
| (iii) | The rights attached to the Class A common shares and the Class B common shares shall not be deemed to be varied by the creation or issue of shares with preferred or other rights, including, without limitation, shares with enhanced or weighted voting rights. |
As set forth in the Articles, the holders of Class A common shares and Class B common shares, respectively, do not have the right to vote separately if the number of authorized shares of such class is increased or decreased. Rather, the number of authorized Class A common shares and Class B common shares may be increased or decreased (but not below the number of shares of such class then outstanding) by the affirmative vote of the holders of a majority of the voting power of the issued and outstanding Class A common shares and Class B common shares, voting together in a general meeting.
Preemptive or Similar Rights
The Class A common shares are not entitled to any preemptive rights, including upon transfer of such shares, and conversion, redemption or sinking fund provisions.
The Class B common shares are not subject to conversion (except as described below under “—Conversion”), redemption or sinking fund provisions. The holders of Class B common shares are not entitled to preemptive rights upon conversion, and so long as their Class B common shares have not been converted into Class A common shares, the holders of Class B common shares are entitled to preemptive rights (which may only be exercised with Class B Shareholder Consent) in order to maintain their proportional ownership and voting interest as determined immediately prior to such issuance in the event that additional Class A common shares are issued. As such, except for certain exceptions, including the issuance of Class A common shares other than for cash and the issuance of Class A common shares under a management incentive plan, if CI&T issues Class A common shares, it must first make an offer to each holder of Class B common shares to issue to such holder on the same economic terms such number of Class B common shares as would ensure such holder may maintain a proportional ownership and voting interest in CI&T equivalent to such holder’s ownership and voting interest immediately prior to such issuance and each such holder may only exercise their preemptive rights and accept such offer with Class B Shareholder Consent.
Conversion
The outstanding Class B common shares are convertible at any time as follows: (1) at the option of the holder, a Class B common share may be converted at any time into one Class A common share or (2) upon the election of the holders of a majority of the then outstanding Class B common shares, all outstanding Class B common shares may be converted into a like number of Class A common shares. In addition, each Class B common share will convert automatically into one Class A common share upon any transfer, whether or not for value, except for certain transfers described in the Articles, including transfers to the holder’s heirs, successors and affiliates, a trust established for the benefit of the holder or its affiliate, a partnership, corporation or other entity exclusively owned or controlled by the holder or its affiliate and certain transfers to organizations that are exempt from taxation under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended. Furthermore, each Class B common share will convert automatically into one Class A common share and no Class B common shares will be issued thereafter if, at any time, the total number of the issued and outstanding Class B common shares is less than 10% of the total number of shares outstanding.
No class of CI&T’s common shares may be subdivided or combined unless the other class of common shares is concurrently subdivided or combined in the same proportion and in the same manner.
Equal Status
Except as expressly provided in our Articles of Association, Class A common shares and Class B common shares have the same rights and privileges and rank equally, share proportionally and are identical in all respects as to all matters. In the event of any merger, consolidation, scheme, arrangement or other business combination requiring the approval of our shareholders entitled to vote thereon (whether or not CI&T is the surviving entity), the holders of Class A common shares shall have the right to receive, or the right to elect to receive, the same form of consideration as the holders of Class B common shares, and the holders of Class A common shares shall have the right to receive, or the right to elect to receive, at least the same amount of consideration on a per share basis as the holders of Class B common shares. In the event of any (i) tender or exchange offer to acquire any Class A common shares or Class B common shares by any third-party pursuant to an agreement to which CI&T is a party, or (ii) any tender or exchange offer by CI&T to acquire any Class A common shares or Class B common shares, the holders of Class A common shares shall have the right to receive, or the right to elect to receive, the same form of consideration as the holders of Class B common shares, and the holders of Class A common shares shall have the right to receive, or the right to elect to receive, at least the same amount of consideration on a per share basis as the holders of Class B common shares.
Record Dates
For the purpose of determining shareholders entitled to notice of, or to vote at any general meeting of shareholders or any adjournment thereof, or shareholders entitled to receive dividend or other distribution payments, or in order to make a determination of shareholders for any other purpose, our board of directors may set a record date.
General Meetings of Shareholders
As a condition of admission to a shareholders’ meeting, a shareholder must be duly registered as a shareholder of CI&T at the applicable record date for that meeting and, in order to vote, all calls or installments then payable by such shareholder to CI&T in respect of the shares that such shareholder holds must have been paid.
Subject to any special rights or restrictions as to voting then attached to any shares, at any general meeting every shareholder who is present in person or by proxy (or, in the case of a shareholder being a corporation, by its duly authorized representative not being himself or herself a shareholder entitled to vote) shall have one vote per Class A common share and ten votes per Class B common share.
As a Cayman Islands exempted company, we are not obliged by the Companies Act to call annual general meetings; however, our Articles of Association provide that in each year the company will hold an annual general meeting of shareholders, at a time determined by the board of directors. For the annual general meeting of shareholders, the agenda will include, among other things, the presentation of the annual accounts and the report of the existing directors and the election of new directors. In addition, the agenda for an annual general meeting of shareholders will only include such items as have been included therein by the board of directors.
Also, we may, but are not required to (unless required by the laws of the Cayman Islands), hold other extraordinary general meetings during the year. General meetings of shareholders are generally expected to take place in São Paulo, Brazil, but may be held elsewhere if the directors so decide.
The Companies Act provides shareholders a limited right to request a general meeting and does not provide shareholders with any right to put any proposal before a general meeting in default of a company’s articles of association. However, these rights may be provided in a company’s articles of association. Our Articles provide that upon the requisition of one or more shareholders representing not less than one-third of the voting rights entitled to vote at general meetings, the board will convene an extraordinary general meeting and put the resolutions so requisitioned to a vote at such meeting. The Articles provide no other right to put any proposals before annual general meetings or extraordinary general meetings.
Subject to regulatory requirements, the annual general meeting and any extraordinary general meetings must be called by not less than 14 clear days’ notice prior to the relevant shareholders meeting and convened by a notice, as discussed below. Alternatively, upon the prior consent of all holders entitled to receive notice, with regards to the annual general meeting, and the holders of 95% in par value of the shares entitled to attend and vote at an extraordinary general meeting, that meeting may be convened by a shorter notice and in a manner deemed appropriate by those holders.
We will give notice of each general meeting of shareholders by publication on our website and in any other manner that it may be required to follow in order to comply with Cayman Islands law and NYSE and SEC requirements. The holders of registered shares may be given notice of a shareholders’ meeting by means of letters sent to the addresses of those shareholders as registered in our shareholders’ register, or, subject to certain statutory requirements, by electronic means.
Holders whose shares are registered in the name of DTC or its nominee, which we expect will be the case for all holders of Class A common shares, will not be a shareholder or member of the company and must rely on the procedures of DTC regarding notice of shareholders’ meetings and the exercise of rights of a holder of the Class A common shares.
The quorum required to hold a general meeting consists of any one or more persons holding or representing by proxy not less than one-third of the aggregate voting power of all shares in issue and entitled to vote upon the business to be transacted.
A resolution put to a vote at a general meeting shall be decided on a poll. An ordinary resolution to be passed by the shareholders at a general meeting requires the affirmative vote of a simple majority of the votes cast by, or on behalf of, the shareholders entitled to vote, present in person or by proxy and voting at the meeting. A special resolution requires the affirmative vote on a poll of no less than two-thirds of the votes cast by the shareholders entitled to vote who are present in person or by proxy at a general meeting. Both ordinary resolutions and special resolutions may also be passed by a unanimous written resolution signed by all the shareholders of our Company, as permitted by the Companies Act and the Articles.
Pursuant to the Articles, general meetings of shareholders are to be chaired by the chairperson of our board of directors or in his absence the vice-chairperson of the board of directors. If both the chairperson and vice-chairperson of our board of directors are absent, the directors present at the meeting shall appoint one of them to be chairperson of the general meeting. If neither the chairperson nor another director is present at the general meeting within 15 minutes after the time appointed for holding the meeting, the shareholders present in person or by proxy and entitled to vote may elect any one of the shareholders to be chairperson. The order of business at each meeting shall be determined by the chairperson of the meeting, and he or she shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation, the establishment of procedures for the maintenance of order and safety, limitations on the time allotted to questions or comments on the affairs of the Company, restrictions on entry to such meeting after the time prescribed for the commencement thereof, and the opening and closing of the polls.
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Liquidation Rights
If CI&T is voluntarily wound up, the liquidator, after taking into account and giving effect to the rights of preferred and secured creditors and to any agreement between CI&T and any creditors that the claims of such creditors shall be subordinated or otherwise deferred to the claims of any other creditors and to any contractual rights of set-off or netting of claims between CI&T and any person or persons (including without limitation any bilateral or any multilateral set-off or netting arrangements between the CI&T and any person or persons) and subject to any agreement between CI&T and any person or persons to waive or limit the same, shall apply CI&T’s property in satisfaction of its liabilities pari passu and subject thereto shall distribute the property amongst the shareholders according to their rights and interests in CI&T.
Changes to Capital
Pursuant to our Articles of Association, we may from time to time by ordinary resolution:
| ● | increase our share capital by such sum, to be divided into shares of such amount, as the resolution shall prescribe; | |
| ● | consolidate and divide all or any of our share capital into shares of a larger amount than our existing shares; | |
| ● | convert all or any of our paid-up shares into stock and reconvert that stock into paid up shares of any denomination; | |
| ● | subdivide our existing shares or any of them into shares of a smaller amount, provided that in the subdivision the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived; or | |
| ● | cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and diminish the amount of our share capital by the amount of the shares so canceled. |
Our shareholders may by special resolution, subject to confirmation by the Grand Court of the Cayman Islands on an application by the Company for an order confirming such reduction, reduce our share capital or any capital redemption reserve in any manner permitted by law.
In addition, subject to the provisions of the Companies Act and the Articles, we may:
| ● | issue shares on terms that they are to be redeemed or are liable to be redeemed; | |
| ● | purchase our own shares (including any redeemable shares); and | |
| ● | make a payment in respect of the redemption or purchase of our own shares in any manner authorized by the Companies Act, including out of our own capital. |
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Transfer of Shares
Subject to any applicable restrictions set forth in our Articles of Association, any of our shareholders may transfer all or any of his or her common shares by an instrument of transfer in the usual or common form or in the form prescribed by the New York Stock Exchange or “NYSE” or any other form approved by our board of directors.
The Class A common shares sold in our initial public offering are traded on the NYSE in book-entry form and may be transferred in accordance with our Articles and NYSE’s rules and regulations.
However, our board of directors may, in its absolute discretion, decline to register any transfer of any common share which is either not fully paid up to a person of whom it does not approve or is issued under any share incentive scheme for employees which contains a transfer restriction that is still applicable to such common share. The board of directors may also decline to register any transfer of any common share unless:
| ● | a fee of such maximum sum as the NYSE may determine to be payable or such lesser sum as the board of directors may from time to time require is paid to us in respect thereof; | |
| ● | the instrument of transfer is lodged with us, accompanied by the certificate (if any) for the common shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer; | |
| ● | the instrument of transfer is in respect of only one class of shares; | |
| ● | the instrument of transfer is properly stamped, if required; | |
| ● | the common shares transferred are free of any lien in our favor; and | |
| ● | in the case of a transfer to joint holders, the transfer is not to more than four joint holders. |
If the directors refuse to register a transfer they are required, within two months after the date on which the instrument of transfer was lodged, to send to the transferee notice of such refusal.
Share Repurchase
The Companies Act and the Articles permit us to purchase our own shares, subject to certain restrictions. The board of directors may only exercise this power on behalf of CI&T, subject to the Companies Act, the Articles and to any applicable requirements imposed from time to time by the SEC, the NYSE, or by any recognized stock exchange on which our securities are listed.
On May 17, 2023, our board of directors approved a share repurchase program, pursuant to which we may repurchase up to 1.5 million of our outstanding Class A common shares in the next 12 months. The program was approved taking into consideration our commitment to deliver shares under our stock-based compensation plan and corporate reorganization.
On November 16, 2023, our board of directors approved a new share repurchase program, pursuant to which we may repurchase up to 2.5 million of its outstanding class A common shares until December 31, 2024.
Dividends and Capitalization of Profits
We have not adopted a dividend policy with respect to payments of any future dividends by us. Subject to the Companies Act, our shareholders may, by resolution passed by a simple majority of the voting rights entitled to vote at a general meeting, declare dividends (including interim dividends) to be paid to shareholders but no dividend shall be declared in excess of the amount recommended by the board of directors. The board of directors may also declare dividends. Dividends may be declared and paid out of funds lawfully available to us. Except as otherwise provided by the rights attached to shares and the Articles, all dividends shall be paid in proportion to the number of Class A common shares or Class B common shares a shareholder holds at the date the dividend is declared (or such other date as may be set as a record date); but, (i) if any share is issued on terms providing that it shall rank for dividend as from a particular date, that share shall rank for dividend accordingly and (ii) where we have shares in issue which are not fully paid up (as to par value) we may pay dividends in proportion to the amounts paid up on each share.
The holders of Class A common shares and Class B common shares are entitled to share equally in any dividends that may be declared in respect of our common shares from time to time. In the event that a dividend is paid in the form of Class A common shares or Class B common shares, or rights to acquire Class A common shares or Class B common shares, (i) the holders of Class A common shares shall receive Class A common shares, or rights to acquire Class A common shares, as the case may be and (ii) the holders of Class B common shares shall receive Class B common shares, or rights to acquire Class B common shares, as the case may be.
Appointment, Disqualification and Removal of Directors
We are managed by our board of directors. Our Articles of Association provide that, unless otherwise determined by a special resolution of shareholders, the board of directors will be composed of four to eleven directors, with the number being determined by a majority of the directors then in office. There are no provisions relating to retirement of directors upon reaching any age limit. The Articles also provide that, while our shares are admitted to trading on the NYSE, and so long as we are relying on foreign private issuer status, the board of directors must comply with the residency and citizenship requirements of the U.S. securities laws applicable to foreign private issuers.
Our Articles of Association provide that directors shall be elected by an ordinary resolution of our shareholders, which requires the affirmative vote of a simple majority of the votes cast on the resolution by the shareholders entitled to vote who are present, in person or by proxy, at the meeting. Each director shall be appointed for annual terms or such other terms as the resolution appointing him or her may determine or until his or her death, resignation or removal.
Our Articles of Association also provide that we may enter into agreements with one or more shareholders granting them the right to appoint and remove one or more directors on such terms as our board of directors may determine from time to time. In this regard, in connection with the offering, we entered into the Shareholders’ Agreement with the Founders, entities controlled by the Founders and the Advent Managed Fund LLCs. The Shareholders’ Agreement provided that, so long as the agreement is in force, the Founders will have the right to appoint a majority of our board of directors. The Shareholders’ Agreement also provided that, so long as the Advent Managed Fund LLCs hold shares representing at least 20% of the voting rights of the Company, the Advent Managed Fund LLCs will have the right to appoint two directors; and for so long as the Advent Management Fund LLCs hold shares representing at least 10% of the voting rights of the company, it will have the right to appoint one director.
As of the date of this annual report, the directors are those listed in “Management — Board of Directors.” Maria Helena dos Santos Fernandes de Santana, Silvio Romero de Lemos Meira, Eduardo Campozana Gouveia and Carla Alessandra Trematore are “independent” as that term is defined under the applicable rules and regulations of the SEC and the listing standards of the NYSE applicable to foreign private issuers.
Any vacancies on the board of directors that arise other than upon the removal of a director by resolution passed at a general meeting can be filled by the remaining directors (notwithstanding that they may constitute less than a quorum). Any such appointment shall be as an interim director to fill such vacancy until the next annual general meeting of shareholders.
Additions to the existing board (within the limits set pursuant to the Articles) may be made by ordinary resolution of the shareholders.
Grounds for Removing a Director
A director, other than a director appointed by the Founders and the Advent Managed Fund LLCs in accordance with the Shareholders’ Agreement, may be removed with or without cause by ordinary resolution. The notice of the general meeting must contain a statement of the intention to remove the director and must be served on the director not less than ten calendar days before the meeting. The director is entitled to attend the meeting and be heard on the motion for his removal.
The office of a director will be vacated automatically if he or she (i) becomes prohibited by law from being a director, (ii) becomes bankrupt or makes an arrangement or composition with his creditors, (iii) dies or is, in the opinion of all his co-directors, incapable by reason of mental disorder of discharging his duties as director, (iv) resigns his office by notice to us or (v) has for more than six months been absent without permission of the directors from meetings of the board of directors held during that period, and the remaining directors resolve that his or her office be vacated.
Proceedings of the Board of Directors
Our Articles of Association provide that our business is to be managed and conducted by the board of directors. The quorum necessary for the board meeting shall be a simple majority of the directors then in office (subject to there being a minimum of two directors present) and business at any meeting shall be decided by a majority of votes. In the case of an equality of votes, the chairperson shall have a casting vote.
Subject to the provisions of our Articles, the board of directors may regulate its proceedings as they determine is appropriate. Board meetings shall be held at least once a quarter and shall take place either in Campinas, Brazil or at such other place as the directors may determine.
Subject to the provisions of Our Articles of Association , to any directions given by ordinary resolution of the shareholders and the listing rules of the NYSE, our board of directors may from time to time at its discretion exercise all powers of CI&T, including, subject to the Companies Act, the power to issue debentures, bonds and other securities of the company, whether outright or as collateral security for any debt, liability or obligation of our company or of any third party.
Inspection of Books and Records
Holders of our shares have no general right under Cayman Islands law to inspect or obtain copies of the list of shareholders or corporate records of the Company. However, the board of directors may determine from time to time whether and to what extent our accounting records and books shall be open to inspection by shareholders who are not members of the board of directors. Notwithstanding the above, the Articles provide shareholders with the right to receive annual financial statements. Such right to receive annual financial statements may be satisfied by publishing the same on our website or filing such annual reports as we are required to file with the SEC.
Register of Shareholders
The Class A common shares are held through DTC, and DTC or Cede & Co., as nominee for DTC, and recorded in the shareholders’ register as the holder of our Class A common shares.
Under Cayman Islands law, CI&T must keep a register of shareholders that includes:
| ● | the names and addresses of the shareholders, a statement of the shares held by each member, and of the amount paid or agreed to be considered as paid, on the shares of each member; | |
| ● | the date on which the name of any person was entered on the register as a member; and | |
| ● | the date on which any person ceased to be a member. |
Under Cayman Islands law, the register of shareholders of CI&T is prima facie evidence of the matters set out therein (i.e., the register of shareholders will raise a presumption of fact on the matters referred to above unless rebutted) and a shareholder registered in the register of shareholders is deemed as a matter of Cayman Islands law to have prima facie legal title to the shares as set against his or her name in the register of shareholders.
If the name of any person is incorrectly entered in or omitted from the register of shareholders, or if there is any default or unnecessary delay in entering on the register the fact of any person having ceased to be a shareholder of CI&T, the person or member aggrieved (or any shareholder of CI&T, or CI&T itself) may apply to the Cayman Islands Grand Court for an order that the register be rectified, and the Court may either refuse such application or it may, if satisfied of the justice of the case, make an order for the rectification of the register.
Exempted Company
We are an exempted company with limited liability under the Companies Act. The Companies Act distinguishes between ordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be registered as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary company except for the exemptions and privileges listed below:
| ● | an exempted company does not have to file an annual return of its shareholders with the Registrar of Companies; | |
| ● | an exempted company’s register of shareholders is not open to inspection; | |
| ● | an exempted company does not have to hold an annual general meeting; | |
| ● | an exempted company may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first instance); | |
| ● | an exempted company may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands; | |
| ● | an exempted company may register as a limited duration company; and | |
| ● | an exempted company may register as a segregated portfolio company. |
“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil).
We are subject to reporting and other informational requirements of the Exchange Act, as applicable to foreign private issuers. Except as otherwise disclosed in this annual report, we currently intend to comply with the NYSE rules in lieu of following home country practice.
Anti-Takeover Provisions in the Articles
Some provisions of the Articles may discourage, delay or prevent a change in control or management that shareholders may consider favorable. In particular, the capital structure of CI&T concentrates ownership of voting rights in the hands of the holders of Class B common shares. These provisions, which are summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids.
These provisions are also designed to encourage persons seeking to acquire control of CI&T to first negotiate with the board of directors. However, these provisions could also have the effect of discouraging others from attempting hostile takeovers and, consequently, they may also inhibit temporary fluctuations in the market price of the Class A common shares that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions that shareholders may otherwise deem to be in their best interests.
Two Classes of Common Shares
Our Class B common shares are entitled to ten votes per share, while the Class A common shares are entitled to one vote per share. The holders of all of our Class B common shares will together have the ability to appoint all directors and to determine the outcome of most matters submitted for a vote of shareholders. This concentrated voting control could discourage others from initiating any potential merger, takeover, or other change of control transaction that other shareholders may view as beneficial.
So long as the holders of Class B common shares have the ability to determine the outcome of most matters submitted to a vote of shareholders, third parties may be deterred in their willingness to make an unsolicited merger, takeover, or other change of control proposal, or to engage in a proxy contest for the appointment of directors. As a result, the fact that we have two classes of common shares may have the effect of depriving you as a holder of Class A common shares of an opportunity to sell your Class A common shares at a premium over prevailing market prices and make it more difficult to replace our directors and management.
Preferred Shares
Our board of directors is given wide powers to issue one or more classes or series of shares with preferred rights. Such preferences may include, for example, dividend rights, conversion rights, redemption privileges, enhanced voting powers and liquidation preferences.
We shall not issue any class of shares with dividend rights, conversion rights, redemption rights and/or liquidation preference superior to the rights of the Class B common shares, or shares having more than one vote per share, without the Class B Shareholder Consent.
Despite the anti-takeover provisions described above, under Cayman Islands law, our board of directors may only exercise the rights and powers granted to them under the Articles, for what they believe in good faith to be in our best interests.
Protection of Non-Controlling Shareholders
The Grand Court of the Cayman Islands may, on the application of shareholders holding not less than one fifth of our shares in issue, appoint an inspector to examine the Company’s affairs and report thereon in a manner as the Grand Court shall direct.
Subject to the provisions of the Companies Act, any shareholder may petition the Grand Court of the Cayman Islands which may make a winding up order, if the court is of the opinion that this winding up is just and equitable.
Notwithstanding the U.S. securities laws and regulations that are applicable to us, general corporate claims against CI&T by its shareholders must, as a general rule, be based on the general laws of contract or tort applicable in the Cayman Islands or their individual rights as shareholders as established by our Articles.
The Cayman Islands courts ordinarily would be expected to follow English case law precedents, which permit a minority shareholder to commence a representative action against us, or derivative actions in CI&T’s name, to challenge (i) an act which is ultra vires or illegal, (ii) an act which constitutes a fraud against the minority and the wrongdoers themselves control CI&T and (iii) an irregularity in the passing of a resolution that requires a qualified (or special) majority.
Registration Rights and Restricted Shares
Certain of our shareholders entered into a registration rights agreement. In addition, Certain of our shareholders or entities controlled by them or their permitted transferees will be able to sell their shares in the public market from time to time without registering them, subject to certain limitations on the timing, amount and method of those sales imposed by regulations promulgated by the SEC.
Principal Differences between Cayman Islands and U.S. Corporate Law
The Companies Act was modeled originally after similar laws in England and Wales but does not follow subsequent statutory enactments in England and Wales. In addition, the Companies Act differs from laws applicable to U.S. corporations and their shareholders. Set forth below is a summary of the significant differences between the provisions of the Companies Act applicable to us and the laws applicable to companies incorporated in the United States and their shareholders.
Mergers and Similar Arrangements
The Companies Act permits mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non-Cayman Islands companies.
For these purposes, (i) “merger” means the merging of two or more constituent companies and the vesting of their undertaking, property and liabilities in one of such companies as the surviving company and (ii) a “consolidation” means the combination of two or more constituent companies into a consolidated company and the vesting of the undertaking, property and liabilities of such companies in the consolidated company. In order to effect such a merger or consolidation, the directors of each constituent company must approve a written plan of merger or consolidation, which must then be authorized by (i) a special resolution of the shareholders of each constituent company; and (ii) such other authorization, if any, as may be specified in such constituent company’s articles of association. The plan must be approved by the directors of each constituent company and filed with the Registrar of Companies together with a declaration as to: (i) the solvency of the consolidated or surviving company, (ii) the merger or consolidation is bona fide and not intended to defraud unsecured creditors of the constituent companies, (iii) no petition or other similar proceeding has been filed and remains outstanding and no order or resolution to wind up the company in any jurisdiction, (iv) no receiver, trustee, administrator or similar person has been appointed in any jurisdiction and is acting in respect of the constituent company, its affairs or property, (v) no scheme, order, compromise or similar arrangement has been entered into or made in any jurisdiction with creditors, (vi) a list of the assets and liabilities of each constituent company, (vii) the non-surviving constituent company has retired from any fiduciary office held or will do so (viii) that the constituent company has complied with any requirements under the regulatory laws, where relevant, and (ix) an undertaking that a copy of the certificate of merger or consolidation will be given to the members and creditors of each constituent company and published in the Cayman Islands Gazette.
Dissenting shareholders have the right to be paid the fair value of their shares (which, if not agreed between the parties, may be determined by the Cayman Islands’ court) if they follow the required procedures, subject to certain exceptions. Court approval is not required for a merger or consolidation which is effected in compliance with these statutory procedures.
In addition, there are statutory provisions that facilitate the reconstruction and amalgamation of companies, provided that the arrangement in question is approved by each class of shareholders and creditors with whom the arrangement is to be made, by shareholders or creditors representing three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder would have the right to express to the court the view that the transaction should not be approved, the court can be expected to approve the arrangement if it satisfies itself that:
| ● | CI&T is not proposing to act illegally or ultra vires and the statutory provisions as to majority vote have been complied with; | |
| ● | the shareholders have been fairly represented at the meeting in question; | |
| ● | the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of his interest; and | |
| ● | the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Act or that would amount to a “fraud on the minority.” |
When a takeover offer is made and accepted by holders of 90.0% in value of the shares affected within four months, the offeror may, within a two-month period, require the holders of the remaining shares to transfer such shares on the terms of the offer. An objection may be made to the Grand Court of the Cayman Islands but is unlikely to succeed unless there is evidence of fraud, bad faith or collusion.
If the arrangement and reconstruction are thus approved, any dissenting shareholders would have no rights comparable to appraisal rights, which might otherwise ordinarily be available to dissenting shareholders of U.S. corporations and allow such dissenting shareholders to receive payment in cash for the judicially determined value of their shares.
Shareholders’ Suits
Class actions are not recognized in the Cayman Islands, but groups of shareholders with identical interests may bring representative proceedings, which are similar. However, a class action suit could nonetheless be brought in a U.S. court pursuant to an alleged violation of U.S. securities laws and regulations.
In principle, CI&T itself would normally be the proper plaintiff and as a general rule, whilst a derivative action may be initiated by a minority shareholder on behalf of CI&T in a Cayman Islands court, such shareholder will not be able to continue those proceedings without the permission of a Grand Court judge, who will only allow the action to continue if the shareholder can demonstrate that CI&T has a good case against the defendant, and that it is proper for the shareholder to continue the action rather than the Company’s board of directors. Examples of circumstances in which derivative actions would be permitted to continue are where:
| ● | a company is acting or proposing to act illegally or beyond the scope of its authority; | |
| ● | the act complained of, although not beyond the scope of its authority, could be effected duly if authorized by more than a simple majority vote that has not been obtained; and | |
| ● | those who control the company are perpetrating a “fraud on the minority.” |
Borrowing Powers
Our directors may exercise all of our powers to borrow money and to mortgage or charge its undertaking, property and assets (present and future) and uncalled capital or any part thereof and to issue debentures, debenture stock, mortgages, bonds and other such securities whether outright or as security for any debt, liability or obligation of us or of any third party. Such powers may be varied by a special resolution of shareholders (requiring a two-thirds majority vote of those shareholders attending and voting at a quorate meeting).
Indemnification of Directors and Executive Officers and Limitation of Liability
The Companies Act does not limit the extent to which a company’s articles of association may provide for indemnification of directors and officers, except to the extent that it may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Our Articles provide that we shall indemnify and hold harmless our directors and officers against all actions, proceedings, costs, charges, expenses, losses, damages, liabilities, judgments, fines, settlements and other amounts incurred or sustained by such directors or officers, other than by reason of such person’s dishonesty, willful default or fraud, in or about the conduct of our company’s business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by such director or officer in defending (whether successfully or otherwise) any civil, criminal or other proceedings concerning us or our affairs in any court whether in the Cayman Islands or elsewhere. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling the Company under the foregoing provisions, we have been informed that, in the opinion of the SEC, this indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Directors’ Fiduciary Duties
As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company. Accordingly, directors owe fiduciary duties to their companies to act bona fide in what they consider to be the best interests of the company, to exercise their powers for the purposes for which they are conferred and not to place themselves in a position where there is a conflict between their personal interests and their duty to the company. Accordingly, a director owes a company a duty not to make a profit based on his or her position as director (unless the company permits him or her to do so) and a duty not to put himself or herself in a position where the interests of the company conflict with his or her personal interest or his or her duty to a third party. However, this obligation may be varied by the company’s articles of association, which may permit a director to vote on a matter in which he has a personal interest provided that he has disclosed that nature of his interest to the board of directors. Our Articles provides that a director must disclose the nature and extent of his or her interest in any contract or arrangement, and following such disclosure and subject to any separate requirement under applicable law or the listing rules of the NYSE, and unless disqualified by the chairperson of the relevant meeting, such director may vote in respect of any transaction or arrangement in which he or she is interested and may be counted in the quorum at the meeting.
A director of a Cayman Islands company also owes to the company duties to exercise independent judgment in carrying out his functions and to exercise reasonable skill, care and diligence, which has both objective and subjective elements. Recent Cayman Islands case law confirmed that directors must exercise the care, skill and diligence that would be exercised by a reasonably diligent person having the general knowledge, skill and experience reasonably to be expected of a person acting as a director. Additionally, a director must exercise the knowledge, skill and experience which he or she actually possesses.
A general notice may be given to the board of directors to the effect that (i) the director is a member or officer of a specified company or firm and is to be regarded as interested in any contract or arrangement which may after the date of the notice be made with that company or firm; or (ii) he or she is to be regarded as interested in any contract or arrangement which may after the date of the notice to the board of directors be made with a specified person who is connected with him or her, will be deemed sufficient declaration of interest. This notice shall specify the nature of the interest in question. Following the disclosure being made pursuant to our Articles and subject to any separate requirement under applicable law or the listing rules of the NYSE, and unless disqualified by the chairperson of the relevant meeting, a director may vote in respect of any transaction or arrangement in which he or she is interested and may be counted in the quorum at the meeting.
Shareholder Proposals
Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders, provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.
The Companies Act provides shareholders with only limited rights to requisition a general meeting and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Our Articles provide that upon the requisition of one or more shareholders representing not less than one-third of the voting rights entitled to vote at general meetings, the board will convene an extraordinary general meeting and put the resolutions so requisitioned to a vote at such meeting. The Articles provide no other right to put any proposals before annual general meetings or extraordinary general meetings.
Furthermore, as a matter of Cayman Islands law and in contrast to the position under Delaware corporate law, controlling shareholders of Cayman Islands companies do not owe fiduciary duties to those companies, other than the limited duty that applies to all shareholders to exercise their votes to amend a company’s articles of association in good faith in the interests of the company. The absence of this minority shareholder protection might impact the ability of minority shareholders to protect their interests.
Cumulative Voting
Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder’s voting power with respect to electing such director. As permitted under Cayman Islands law, our Articles do not provide for cumulative voting. As a result, our shareholders are not afforded any less protections or rights on this issue than shareholders of a Delaware corporation.
Removal of Directors
The office of a director shall be vacated automatically if, among other things, he or she (i) becomes prohibited by law from being a director, (ii) becomes bankrupt or makes an arrangement or composition with his creditors, (iii) dies or is, in the opinion of all his co-directors, incapable by reason of mental disorder of discharging his duties as director, (iv) resigns his office by notice to us or (v) has for more than six months been absent without permission of the directors from meetings of the board of directors held during that period, and the remaining directors resolve that his/her office be vacated.
Transaction with Interested Shareholders
The Delaware General Corporation Law provides that; unless the corporation has specifically elected not to be governed by this statute, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that this person becomes an interested shareholder.
An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the target’s outstanding voting shares or who or which is an affiliate or associate of the corporation and owned 15% or more of the corporation’s outstanding voting shares within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which the shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction with the target’s board of directors.
Cayman Islands law has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders, it does provide that the board of directors owe duties to ensure that these transactions are entered into bona fide in the best interests of the company and for a proper corporate purpose and, as noted above, a transaction may be subject to challenge if it has the effect of constituting fraud on the minority shareholders.
Dissolution; Winding Up
Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. If the dissolution is initiated by the board of directors, it may be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board. Under Cayman Islands law, a company may be wound up by either an order of the courts of the Cayman Islands or by a special resolution of its members or, if the company resolves by ordinary resolution that it be wound up because it is unable to pay its debts as they fall due. The court has the authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so.
Under the Companies Act, we may be dissolved, liquidated or wound up by a special resolution of shareholders (requiring a two-thirds majority vote of those shareholders attending and voting at a quorate meeting). Our Articles also give our board of directors the authority to petition the Cayman Islands Court to wind up CI&T.
Variation of Rights of Shares
Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of that class, unless the certificate of incorporation provides otherwise. Under our Articles, if the share capital is divided into more than one class of shares, the rights attached to any class may only be varied with the written consent of the holders of two-thirds of the shares of that class or the sanction of a special resolution passed at a separate meeting of the holders of the shares of that class or, in the case of Class B common shares, a Class B Shareholder Consent.
Also, except with respect to share capital (as described above), alterations to our Articles may only be made by special resolution of shareholders (requiring a two-thirds majority vote of those shareholders attending and voting at a quorate meeting).
Amendment of Governing Documents
Under the Delaware General Corporation Law, a corporation’s certificate of incorporation may be amended only if adopted and declared advisable by the board of directors and approved by a majority of the outstanding shares entitled to vote, and the bylaws may be amended with the approval of a majority of the outstanding shares entitled to vote and may, if so provided in the certificate of incorporation, also be amended by the board of directors. Under Cayman Islands law, our Articles generally (and save for certain amendments to share capital described in this section) may only be amended by special resolution of shareholders (requiring a two-thirds majority vote of those shareholders attending and voting at a quorate meeting).
Rights of Non-Resident or Foreign Shareholders
There are no limitations imposed by our Articles on the rights of non-resident or foreign shareholders to hold or exercise voting rights on our shares. In addition, there are no provisions in the Articles governing the ownership threshold above which shareholder ownership must be disclosed.
Handling of Mail
Mail addressed to us and received at our registered office will be forwarded unopened to the forwarding address, which will be supplied by us. None of us, our directors, officers, advisors or service providers (including the organization that provides registered office services in the Cayman Islands) will bear any responsibility for any delay howsoever caused in mail reaching the forwarding address.
Except as otherwise described in this annual report on Form 20-F, we have not entered into any material contracts other than in the ordinary course of business. See “Information on the Company — History and Development of the Company” for information on the contracts related to recent acquisitions.
Not applicable.
The following summary contains a description of certain Cayman Islands and U.S. federal income tax consequences of the acquisition, ownership and disposition of our Class A common shares. It does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase the Class A common shares, is not applicable to all categories of investors, some of which may be subject to special rules, and does not address all of the Cayman Islands and U.S. federal income tax considerations applicable to any particular holder. The summary is based upon the tax laws of the Cayman Islands and regulations thereunder and upon the tax laws of the United States and regulations thereunder as of the date hereof, which are subject to change.
Prospective purchasers of our Class A common shares should consult their own tax advisors about the particular Cayman Islands and U.S. federal, state, local and other tax consequences to them of the acquisition, ownership and disposition of our Class A common shares, including any other tax consequences under the laws of their country of citizenship, residence or domicile.
Cayman Islands Tax Considerations
Cayman Islands Taxation
The following is a discussion on certain Cayman Islands income tax consequences of an investment in Class A common shares. The discussion is a general summary of the present law, which is subject to prospective and retroactive change. It is not intended as tax advice, does not consider any investor’s particular circumstances, and does not consider tax consequences other than those arising under Cayman Islands law.
Under Existing Cayman Islands Laws:
Payments of dividends and capital in respect of the Class A common shares will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of interest and principal or a dividend or capital to any holder of Class A common shares, as the case may be, nor will gains derived from the disposal of Class A common shares be subject to Cayman Islands income or corporation tax. The Cayman Islands currently have no income, corporation or capital gains tax and no estate duty, inheritance tax or gift tax.
No stamp duty is payable in respect of the issue of our Class A common shares or on an instrument of transfer in respect of a Class A common share.
We have been incorporated under the laws of the Cayman Islands as an exempted company with limited liability and, as such, have applied for and obtained an undertaking from the Governor in Cabinet of the Cayman Islands in the following form:
THE TAX CONCESSIONS LAW UNDERTAKING AS TO TAX CONCESSIONS
In accordance with the Tax Concessions Law the following undertaking is hereby given to the Issuer. “the Company”:
| (i) | That no Law which is hereafter enacted in the Islands imposing any tax to be levied on profits, income, gains or appreciations shall apply to the Company or its operations; and | |
| (ii) | In addition, that no tax to be levied on profits, income, gains or appreciations or which is in the nature of estate duty or inheritance tax shall be payable |
| (i) | on or in respect of the shares debentures or other obligations of the Company; or | |
| (ii) | by way of the withholding in whole or in part of any relevant payment as defined in the Tax Concessions Law. |
These concessions shall be for a period of TWENTY years from the 9th day of June 2021.
United States Federal Income Tax Considerations
The following is a summary of material U.S. federal income tax considerations that are likely to be relevant to the purchase, ownership and disposition of our Class A common shares by a U.S. Holder (as defined below).
This summary is based on provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and regulations, rulings and judicial interpretations thereof, in force as of the date hereof. Those authorities may be changed at any time, perhaps retroactively, so as to result in U.S. federal income tax consequences different from those summarized below.
This summary is not a comprehensive discussion of all of the tax considerations that may be relevant to a particular investor’s decision to purchase, hold, or dispose of Class A common shares. In particular, this summary is directed only to U.S. Holders that hold Class A common shares as capital assets and does not address particular tax consequences that may be applicable to U.S. Holders who may be subject to special tax rules, such as banks, brokers or dealers in securities or currencies, traders in securities electing to mark to market, financial institutions, life insurance companies, tax-exempt entities, regulated investment companies, real estate investment trusts, entities or arrangements that are treated as partnerships for U.S. federal income tax purposes (or partners therein), holders that own or are treated as owning 10% or more of our stock by vote or value, persons holding Class A common shares as part of a hedging or conversion transaction or a “straddle”, or as part of a “synthetic security” or other integrated financial transaction, former U.S. citizens and residents, nonresident alien individual present in the United States for a period or periods aggregating 183 days or more during the taxable year, or persons whose functional currency is not the U.S. dollar. Moreover, this summary does not address state, local or foreign taxes, the U.S. federal estate and gift taxes, or the Medicare contribution tax applicable to net investment income of certain non-corporate U.S. Holders, or alternative minimum tax consequences of acquiring, holding or disposing of Class A common shares.
For purposes of this summary, a “U.S. Holder” is a beneficial owner of Class A common shares that is a citizen or resident of the United States or a U.S. domestic corporation or that otherwise is subject to U.S. federal income taxation on a net income basis in respect of such Class A common shares.
You should consult your own tax advisors about the consequences of the acquisition, ownership, and disposition of Class A common shares, including the relevance to your particular situation of the considerations discussed below and any consequences arising under foreign, state, local or other tax laws.
Taxation of Dividends
Subject to the discussion below under “— Passive Foreign Investment Company Status,” the gross amount of any distribution of cash or property with respect to our shares that is paid out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) will generally be included in your taxable income as ordinary dividend income on the day on which you receive the dividend and will not be eligible for the dividends-received deduction allowed to corporations under the Code.
We do not expect to maintain calculations of our earnings and profits in accordance with U.S. federal income tax principles. U.S. Holders therefore should expect that distributions generally will be treated as dividends for U.S. federal income tax purposes.
If you are a U.S. Holder, dividends paid in a currency other than U.S. dollars generally will be includible in your income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the day you receive the dividends. Any gain or loss on a subsequent sale, conversion or other disposition of such non-U.S. currency by such U.S. Holder generally will be treated as ordinary income or loss and generally will be income or loss from sources within the United States.
The U.S. dollar amount of dividends received by an individual with respect to the shares will be subject to taxation at a preferential rate if the dividends are “qualified dividends.” Subject to certain exceptions for short-term positions, dividends paid on the shares will be treated as qualified dividends if:
| ● | the shares are readily tradable on an established securities market in the United States or we are eligible for the benefits of a comprehensive tax treaty with the United States that the U.S. Treasury determines is satisfactory for purposes of this provision and that includes an exchange of information program; and | |
| ● | we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a PFIC. |
Our Class A common shares are listed on the New York Stock Exchange, and will qualify as readily tradable on an established securities market in the United States so long as they are listed. Based on our audited consolidated financial statements and relevant market and shareholder data, we believe that we were not treated as a PFIC for U.S. federal income tax purposes with respect to our prior taxable year. In addition, based on our audited consolidated financial statements and our current expectations regarding the value and nature of our assets, the sources and nature of our income, and relevant market and shareholder data, we do not anticipate becoming a PFIC for our current taxable year or in the foreseeable future. Holders should consult their own tax advisors regarding the availability of the reduced dividend tax rate in light of their own particular circumstances.
Dividend distributions with respect to our Class A common shares generally will be treated as “passive category” income from sources outside the United States for purposes of determining a U.S. Holder’s U.S. foreign tax credit limitation.
U.S. Holders that receive distributions of additional Class A common shares or rights to subscribe for Class A common shares as part of a pro rata distribution to all our shareholders generally will not be subject to U.S. federal income tax in respect of the distributions, unless the U.S. Holder has the right to receive cash or property, in which case the U.S. Holder will be treated as if it received cash equal to the fair market value of the distribution.
Taxation of Dispositions of Shares
Subject to the discussion below under “—Passive Foreign Investment Company Status,” upon a sale, exchange or other taxable disposition of Class A common shares, U.S. Holders will realize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount realized on the disposition and the U.S. Holder’s adjusted tax basis in the Class A common shares. Such gain or loss will be capital gain or loss, and will generally be long-term capital gain or loss if the Class A common shares have been held for more than one year. Long-term capital gain realized by a U.S. Holder that is an individual generally is subject to taxation at a preferential rate. The deductibility of capital losses is subject to limitations.
Gain, if any, realized by a U.S. Holder on the sale or other disposition of Class A common shares generally will be treated as U.S. source income for U.S. foreign tax credit purposes.
Passive Foreign Investment Company Status
Special U.S. tax rules apply to companies that are considered to be PFICs. We will be classified as a PFIC in a particular taxable year if, taking into account our proportionate share of the income and assets of our subsidiaries under applicable “look-through” rules, either
| ● | 75 percent or more of our gross income for the taxable year is passive income; or | |
| ● | 50 percent or more of the value of our assets (generally determined on the basis of a quarterly average) is attributable to assets that produce, or are held for the production of, passive income. |
For this purpose, passive income generally includes dividends, interest, gains from certain commodities transactions, rents, royalties and the excess of gains over losses from the disposition of assets that produce passive income.
Based on our audited financial statements and our current expectations regarding the value and nature of our assets, the sources and nature of our income, and relevant market and shareholder data, we do not believe that we were a PFIC in 2023, and we do not anticipate becoming a PFIC for our current taxable year or in the reasonably foreseeable future. However, the determination whether we are a PFIC must be made annually after the close of each taxable year and based on the facts and circumstances at that time, such as the valuation of our assets, including goodwill and other intangible assets, which may depend on the value of our Class A common shares at the time and can be expected to vary over time.
If we are classified as a PFIC, and you do not make a mark-to-market election, you will be subject to a special tax at ordinary income tax rates on “excess distributions,” including certain distributions by us and gain that you recognize on the sale of your Class A common shares. The amount of income tax on any excess distributions will be increased by an interest charge to compensate for tax deferral, calculated as if the excess distributions were earned ratably over the period you hold your Class A common shares. Classification as a PFIC may also have other adverse tax consequences, including, in the case of individuals, the denial of a step-up in the basis of your Class A common shares at death.
If you are a U.S. Holder that owns an equity interest in a PFIC, you generally must annually file IRS Form 8621, and may be required to file other IRS forms. A failure to file one or more of these forms as required may toll the running of the statute of limitations in respect of each of your taxable years for which such form is required to be filed. As a result, the taxable years with respect to which you fail to file the form may remain open to assessment by the IRS indefinitely, until the form is filed.
You should consult your own tax advisor regarding the potential application of the PFIC regime to your investment in the Company and the U.S. federal income tax considerations discussed above .
Foreign Financial Asset Reporting.
Certain U.S. Holders that own “specified foreign financial assets” with an aggregate value in excess of U.S.$50,000 on the last day of the taxable year or U.S.$75,000 at any time during the taxable year are generally required to file an information statement along with their tax returns, currently on IRS Form 8938, with respect to such assets. “Specified foreign financial assets” include any financial accounts held at a non-U.S. financial institution, as well as securities issued by a non-U.S. issuer that are not held in accounts maintained by financial institutions. The understatement of income attributable to “specified foreign financial assets” in excess of U.S.$5,000 extends the statute of limitations with respect to the tax return to six years after the return was filed. U.S. Holders who fail to report the required information could be subject to substantial penalties. Investors are encouraged to consult with their own tax advisors regarding the possible application of these rules, including the application of the rules to their particular circumstances.
Backup Withholding and Information Reporting
Dividends paid on, and proceeds from the sale or other disposition of, the Class A common shares to a holder that is a United States person (as defined in the code) generally may be subject to the information reporting requirements of the Code and may be subject to backup withholding unless such holder provides an accurate taxpayer identification number and makes any other required certification or otherwise establishes an exemption.
A holder that is not a United States person may be required to comply with certification and identification procedures in order to establish its exemption from information reporting and backup withholding.
Backup withholding is not an additional tax. The amount of any backup withholding from a payment to a holder will be allowed as a refund or credit against the holder’s U.S. federal income tax liability, provided the required information is furnished to the U.S. Internal Revenue Service in a timely manner.
Not applicable.
Not applicable.
We are subject to the informational requirements of the Exchange Act applicable to foreign private issuers. Accordingly, we are required to file reports and other information with the SEC, including annual reports on Form 20-F within four months from the end of each of our fiscal years, and reports on Form 6-K. You can read our SEC filings over the Internet at the SEC’s website at www.sec.gov. You may also read and copy any document we file with the SEC at its public reference room at 100 F. Street, N.E., Washington, D.C. 20549. You may obtain copies of these documents upon the payment of the fees prescribed by the SEC. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room.
See note 2 to our audited consolidated financial statements for a description of the Company’s subsidiaries.
Not applicable.
Our exposure to market risks results from operational activities and political and economic changes, consisting of credit, interest rate, currency, price and liquidity risk, as well as from operations with derivative financial instruments.
Credit Risk
Credit risk refers to the risk that a counterparty will not comply with its contractual obligations, causing us to incur financial losses. Credit risk is the risk of a counterparty in a business transaction not complying with an obligation provided by a financial instrument or an agreement with a client, which would cause financial loss. To mitigate these risks, we analyze the financial and equity condition of our counterparties, as well as the definition of credit limits and permanent monitoring of outstanding positions.
We apply the simplified standard approach to commercial financial assets, where the provision for losses is analyzed over the remaining life of the asset.
In addition, we are exposed to credit risk with respect to financial guarantees granted to banks.
We held cash and cash equivalents of R$211,638 thousand on December 31, 2023 (R$185,727 as of December 31, 2022) and financial investments of R$3,164 thousand on December 30, 2023 (R$96,299 as of December 31, 2022). The cash and cash equivalents and financial investments are held with bank and financial institution counterparties, which are rated BB- to A-, based on Standard & Poor’s, Moody’s and Fitch ratings.
The carrying amount of our financial assets represents the maximum credit exposure. The maximum credit risk exposure on the date of the financial statements is:
|
|
December 31, 2023 |
December 31, 2022 |
|||
|---|---|---|---|---|---|
|
Hedge financial instruments - SWAP |
9,620 |
11,194 |
|||
|
Cash and cash equivalents |
211,638 |
185,727 |
|||
|
Financial investments |
3,164 |
96,299 |
|||
|
Trade receivables |
471,951 |
501,671 |
|||
|
Contract assets |
147,620 |
217,250 |
|||
|
Other receivables (current and non-current) |
28,099 |
41,923 |
|||
|
Total |
872,092 |
1,054,064 |
Foreign Currency — Exchange rate risk
Foreign currency risk is intrinsic to our business model. Our revenue is mostly in foreign currency and thus is exposed to exchange rate variation. Our expenses, on the other hand, are mostly in our functional currency (Brazilian reais) and, as a consequence, are not as exposed to exchange rate risks (when compared to our revenue). We are exposed to exchange rate risk on our financial investments, trade payables, trade receivables, loans and borrowing, accounts payable for business acquired, lease liabilities and derivatives.
| Year ended December 31, | |||||||||||||||||
| December, 2023 |
|
December, 2022 | |||||||||||||||
| US$ |
£ | Other currencies(1) |
|
US$ |
£ | Other currencies(1) |
|||||||||||
|
Financial investments |
2,695 |
469 |
- |
96,299 |
- |
- |
|||||||||||
|
Suppliers and other payables |
(3,987 |
) |
(793 |
) |
(1,700 |
) |
(4,229 |
) |
(2,264 |
) |
(2,078 |
) | |||||
|
Trade receivables |
245,763 |
65,196 |
11,100 |
304,617 |
51,152 |
12,306 |
|||||||||||
|
Loans and borrowings |
(110,648 |
) |
- |
- |
(239,044 |
) |
- |
- |
|||||||||
|
Lease liabilities |
(20,880 |
) |
(1,085 |
) |
(1,796 |
) |
(29,147 |
) |
(1,009 |
) |
(2,493 |
) | |||||
|
Accounts payable for business acquired |
(74,499 |
) |
(20,051 |
) |
- |
(81,955 |
) |
(83,768 |
) |
- |
|||||||
|
Restricted cash - escrow account |
- |
20,021 |
- |
- |
20,209 |
- |
|||||||||||
|
Derivatives |
2,728 |
- |
- |
(4,109 |
) |
- |
- |
||||||||||
|
Net exposure |
41,172 |
63,757 |
7,604 |
42,432 |
(15,680 |
) |
7,735 |
||||||||||
(1) Includes amounts in Euro, Australian dollars, Canadian dollars, Japanese yen, Colombian pesos, and Chinese yuan
Sensitivity analysis for exchange rate risk
The Company, based on information from rating agencies, estimates that in a reasonably possible scenario, the foreign exchange rate variation against the Real on December 31, 2024, will be a depreciation of 2% for the US dollar and 4% for the British pound. The Company conducted a historical analysis of the last 5 years of its exposure and impacts on the results due to currency volatility, considering an adverse scenario compared to the reasonably possible scenario, and realized a variation of approximately 25%.
| Net effect - Profit or loss | |||||
| Reasonably Possible Scenario US$ 2% / £ 4% |
Adverse Scenario 25% |
||||
|
Year ended on December 31, 2023 |
|||||
|
US$ |
823 |
10,293 |
|||
|
£ |
2,550 |
15,940 |
|||
| Net effect - Profit or loss | |||||
| Reasonably Possible Scenario US$ 2% / £ 4% |
Adverse Scenario 25% |
||||
|
Year ended on December 31, 2022 |
|||||
|
US$ |
1,697 |
10,608 |
|||
|
£ |
(314 |
) |
(3,920 |
) | |
Interest Rate Risk
Interest rate risk exists due to the possibility of incurring gains or losses resulting from fluctuations in interest rates on our financial assets and liabilities. We may also enter into derivative contracts in order to mitigate this risk.
| Year ended December 31, | ||||||||||||||
|
December, 2023 |
|
December, 2022 | ||||||||||||
|
CDI |
|
SOFR |
|
CDI |
SOFR |
Libor |
||||||||
|
Short-term financial investments |
147,948 |
- |
|
58,464 |
- |
- |
||||||||
|
Loans and borrowings |
(236,058 |
) |
(406,786 |
) |
(298,443 |
) |
(341,170 |
) |
(142,658 |
) | ||||
|
Accounts payable for business acquired |
(40,529 |
) |
- |
|
(43,348 |
) |
- |
- |
||||||
|
Derivatives (interest rate swap) |
- |
110,648 |
- |
- |
142,658 |
|||||||||
|
Net exposure |
(128,639 |
) |
(296,138 |
) |
(283,327 |
) |
(341,170 |
) |
- |
|||||
The Company, based on information from rating agencies, estimates that in a reasonably possible scenario, the interest rates could increase by up to 154 basis points for CDI and up to 60 basis points for SOFR on December 31, 2024. The Company conducted a historical analysis of the last 10 years of its exposure and impacts on the results due to the interest rate changes, considering an adverse scenario compared to the reasonably possible scenario, and estimated a variation by 291 basis points for CDI and by 60 basis points for SOFR.
|
|
|
Net effect - Profit or loss |
||||
|
Reasonably Possible Scenario CDI 154 bp SOFR 60 bp |
Adverse Scenario CDI 291 bp SOFR 60 bp |
|||||
|
Year ended on December 31, 2023 |
|
|
|
|||
|
Variable-rate instruments CDI |
|
(1,981 |
) |
(3,743 |
) | |
|
Variable-rate instruments SOFR |
|
(2,441 |
) |
2,441 |
||
|
Interest rate swaps SOFR |
|
664 |
(664 |
) | ||
|
Cash flow sensitivity (net) |
|
(3,758 |
) |
(1,967 |
) | |
|
|
|
|
|
|||
|
Year ended on December 31, 2022 |
|
|
|
|||
|
Variable-rate instruments CDI |
|
(4,363 |
) |
(9,661 |
) | |
|
Variable-rate instruments SOFR |
|
(2,047 |
) |
2,047 |
||
|
Cash flow sensitivity (net) |
|
(6,410 |
) |
(7,614 |
) | |
Liquidity risk is related to maintaining cash and meeting our obligations through cash generation. We monitor our liquidity risk through the management of our cash resources and financial investments. We also manage our liquidity risk through our cash flow projections, which aims to ensure the availability of funds to meet our both operational and financial obligations.
We also maintain approved credit lines with financial institutions in order to adequate levels of liquidity in the short, medium and long terms.
The maturity of the long-term installments of the loans and borrowings are described in note 15 to our audited consolidated financial statements.
|
|
|
|
Year Ended December 31, 2023 |
||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
|
R$(thousands) |
||||||||||||||
|
|
Carrying amount |
Cash contractual cash flow |
6 months (or less) |
6-12 months |
1-2 years |
2-5 years |
|||||||||||
|
Non-derivative financial liabilities |
|
|
|
|
|
|
|||||||||||
|
Suppliers and other payables |
21,690 |
21,690 |
21,690 |
- |
- |
- |
|||||||||||
|
Loans and borrowings |
727,463 |
911,313 |
57,697 |
113,549 |
453,672 |
286,395 |
|||||||||||
|
Lease liabilities |
44,899 |
50,749 |
13,047 |
8,907 |
13,361 |
15,434 |
|||||||||||
|
Accounts payable for business acquired |
136,054 |
148,335 |
3,866 |
86,013 |
35,108 |
23,348 |
|||||||||||
|
Contract liabilities |
48,079 |
48,079 |
48,079 |
- |
- |
- |
|||||||||||
|
Other liabilities (current and non-current) |
35,097 |
35,097 |
35,097 |
- |
- |
- |
|||||||||||
|
|
1,013,282 |
1,215,263 |
179,476 |
208,469 |
502,141 |
325,177 |
|||||||||||
|
|
|
|
Year Ended December 31, 2022 |
||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
|
R$(thousands) |
||||||||||||||
|
|
Carrying amount |
Cash contractual cash flow |
6 months (or less) |
6-12 months |
1-2 years |
2-5 years |
|||||||||||
|
Non-derivative financial liabilities |
|
|
|
|
|
|
|||||||||||
|
Suppliers and other payables |
33,376 |
33,376 |
33,376 |
- |
- |
- |
|||||||||||
|
Loans and borrowings |
989,763 |
1,176,743 |
146,564 |
107,207 |
273,298 |
649,674 |
|||||||||||
|
Lease liabilities |
62,808 |
70,837 |
13,903 |
11,480 |
17,981 |
27,473 |
|||||||||||
|
Accounts payable for business acquired |
210,045 |
234,643 |
69,984 |
7,484 |
95,858 |
61,317 |
|||||||||||
|
Contract liabilities |
32,136 |
32,136 |
32,136 |
- |
- |
- |
|||||||||||
|
Other liabilities (current and no-current) |
51,031 |
51,031 |
51,031 |
- |
- |
- |
|||||||||||
|
Derivatives |
4,109 |
4,109 |
4,109 |
- |
- |
- |
|||||||||||
|
|
1,383,268 |
1,602,875 |
351,103 |
126,171 |
387,137 |
738,464 |
|||||||||||
Derivative financial instruments risk
We use derivative financial instruments to hedge our foreign currency and interest rate risk exposures. We entered into an interest rate swap operation with the purpose of hedging the exposure to variable interest rate related to the Export Credit Note – NCE. In May 2022, we entered a swap operation exchanging the CDI based rate to a US$ prefixed rate, related to a portion of an Export Credit Note - NCE.
The interest rate profile of our interest-bearing financial instruments, as reported to our Management, is as follows:
|
|
December 31, 2023 |
||||||||||||
|
Maturity |
Notional (US$) |
Notional in R$ |
Floating rate receivable |
Fixed rate payable |
Fair value |
||||||||
|
07/16/2026 |
22,500 |
108,929 |
SOFR Overnight |
3.07% |
6,892 |
||||||||
|
07/07/2026 |
- |
78,571 |
CDI |
Foreign Exchange + 4.90% |
2,728 |
||||||||
|
|
|
|
|
|
9,620 |
||||||||
|
|
December 31, 2022 |
||||||||||||
|
Maturity |
Notional (US$) |
Notional in R$ |
Floating rate receivable |
Fixed rate payable |
Fair value |
||||||||
|
07/16/2026 |
30,000 |
152,100 |
3-months LIBOR |
3.07% |
11,194 |
||||||||
|
07/07/2026 |
- |
100,000 |
CDI |
Foreign Exchange + 4.90% |
(4,109) |
||||||||
|
|
|
|
|
|
7,085 |
||||||||
Not applicable.
Not applicable.
Not applicable.
Not applicable.
Disclosure controls and procedures, pursuant to Rules 13a-15(e) and 15d-15(e) of the Exchange Act, are required to be designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that information relating to the Company is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2023. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as of December 31, 2023 were not effective because of a material weakness in internal control over financial reporting as described below.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15-d15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS as issued by IASB.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of the effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in “Internal Control – Integrated Framework,” issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission (2013). Based on this assessment, our management concluded that our internal control over financial reporting was ineffective as of December 31, 2023 due to the material weakness described below.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
Our management concluded that we did not have a sufficient number of trained resources with expertise in technical accounting internal control over certain areas of the financial statements. As a result, we were unable to maintain effective risk assessment and did not have effective process-level control activities over the following areas:
| (i) | deferred income taxes (specifically over tax deductible goodwill amortization); and | |
| (ii) | presentation of the effects of exchange differences related to Loans and borrowings denominated in foreign currency |
This material weakness resulted in the restatement of our audited consolidated financial statements as of and for the year ended December 31, 2022 and our condensed consolidated interim financial statements as of and for the periods ended March 31, 2023, June 30, 2023 and September 30, 2023. The restatement is described in Note 30 to the financial statements included elsewhere in this annual report.
Notwithstanding such material weakness, in internal control over financial reporting, our Chief Executive Officer and Chief Financial Officer have concluded that our consolidated financial statements included in this annual report present fairly, in all material respects, our financial position, results of operations and cash flows at and for the periods presented in conformity with IFRS.
We are taking and will continue to take steps to remediate the material weakness. Our management, under the oversight of our Audit Committee, is in the process of developing and implementing a remediation plan to address the material weakness.
We are committed to ensuring that our internal controls over financial reporting are effective.
Our remediation plan includes:
| ● | Regular technical training for our employees, mainly those involved with the financial reporting process. | |
| ● |
Enhancement of risk assessment and prioritization of remediation activities to reduce the risk that a material misstatement to the consolidated financial statements would not be prevented or detected on a timely basis. | |
| ● | Implementation and monitoring of our phased approach to remediation of process-level control activities. | |
| ● | Reporting regularly to the audit committee on the progress and results of the remediation plan, including the identification, status, and resolution of internal control deficiencies. |
The process of implementing and operating an effective financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a financial reporting system that is adequate to satisfy our reporting obligations. Additional time is required to complete implementation as well as to assess and ensure the sustainability of these procedures. We believe that the actions we take will be effective in remediating the material weakness described above and we will continue to devote significant time and attention to these remediation efforts. As we continue to evaluate and take actions to improve our internal control over financial reporting, we may take additional actions to address control deficiencies or modify certain of the remediation measures described above. We cannot assure you that the actions we are taking and will take will be sufficient to remediate the material weakness by December 31, 2024. At this time, we cannot provide an estimate of costs expected to be incurred in connection with implementing this remediation plan; however, these remediation measures will be time consuming and may incur significant costs.
This annual report does not include an attestation report by our independent registered public accounting firm because, as an “emerging growth company,” as defined under the JOBS Act, we are exempt from this requirement.
Except as described under “-Remediation Plan for the Material Weakness” above, there have been no changes in our internal control over financial reporting identified in connection with an evaluation thereof that occurred during the period covered by this Annual Report on Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
The audit committee, which currently consists of Eduardo Campozana Gouveia, Maria Helena dos Santos Fernandes de Santana and Carla Alessandra Trematore, assists our board of directors in overseeing our accounting and financial reporting processes and the audits of our financial statements. In addition, the audit committee is directly responsible for the appointment, compensation, retention and oversight of the work of our independent registered public accounting firm. Maria Helena dos Santos Fernandes de Santana serves as Chairperson of the audit committee. The audit committee consists exclusively of independent members of our board of directors who are financially literate, and Carla Alessandra Trematore qualifies as “audit committee financial expert” as defined in Item 16A of Form 20-F. Our board of directors has determined that Eduardo Campozana Gouveia, Maria Helena dos Santos Fernandes de Santana and Carla Alessandra Trematore satisfy the “independence” requirements set forth in Rule 10A-3 under the Exchange Act. For more information, see “Directors, Senior Management and Employees — C. Board Practices — Board Committees —Committees —Audit Committee.”
We have adopted a code of ethics applicable to our personnel and our subsidiaries’ personnel, including board members, directors, officers, employees, interns and all people acting on our behalf or on behalf of our corporate group. Our code of ethics is also applicable to relevant third parties involved in our activities, such as suppliers, consultants and other service providers. Our code of ethics describes our mission, vision and values and provides the relevant conduct standards that must be followed by our personnel and our subsidiaries’ personnel. It regulates our interactions with our suppliers, clients, and governmental entities and agents. Our code of ethics also provides fundamental rules of conduct related to conflict of interest situations, the protection of our confidential information and assets and our compliance with applicable laws and relevant information on whistleblowing procedures. Our Code of Ethics and Conduct is available on our Investors' website (Governance Documents). The information contained in, or accessible through, our website is not incorporated by reference in this report.
The following table sets forth the fees billed by categories specified below in connection with certain professional services rendered by KPMG Auditores Independentes Ltda. (“KPMG”), our principal accountants, for the periods indicated.
|
|
Year ended December 31, |
||||
|---|---|---|---|---|---|
|
|
2023 |
2022 |
|||
|
|
(US$ thousand) |
||||
|
Audit fees |
462 |
359 |
|||
|
Audit-related fees |
13 |
52 |
|||
|
Total fees |
475 |
411 |
|||
“Audit Fees” are the aggregate fees billed by KPMG for the audit of our consolidated annual financial statements, reviews of interim financial statements and attestation services that are provided in connection with statutory and regulatory filings or engagements.
“Audit-Related Fees” are fees charged by KPMG for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.” This category comprises fees for review of registration statements and comfort letters for the Company, agreed upon procedure engagements and other attestation services subject to regulatory requirements. It also includes, among others: accounting consultations and audits in connection with acquisitions, internal control reviews, attest services that are not required by statue or regulation and consultation concerning financial accounting and reporting standards.
We have established policies and procedures that require any engagement of our independent auditor for audit or non-audit services to be submitted to and pre-approved by the audit committee. In addition, our audit committee may delegate its authority to pre-approve services to one or more members of the audit committee, provided that such designees present any such approvals to the full audit committee at the next audit committee meeting following such pre-approval.
Not applicable. For a discussion on our audit committee, see “Directors, Senior Management and Employees — C. Board Practices — Board Committees —Committees —Audit Committee.”
The table below sets forth the information of our purchases of our Class A common shares in 2023. See note 21 to our consolidated financial statements for further information about our share repurchase programs.
|
Total number of common shares purchased |
Average price paid per common share (US$) |
Total number of common shares purchased as part of publicly announced programs(1)(2) |
Maximum number of shares that may yet be purchased under the programs |
||||||||
|
January 2023 |
- |
- |
- |
- |
|||||||
|
February 2023 |
- |
- |
- |
- |
|||||||
|
March 2023 |
- |
- |
- |
- |
|||||||
|
April 2023 |
- |
- |
- |
- |
|||||||
|
May 2023 |
- |
- |
- |
- |
|||||||
|
June 2023 |
640,148 |
$5.87 |
42.7 |
% |
859,852 |
||||||
|
July 2023 |
180,945 |
$6.36 |
12.1 |
% |
678,907 |
||||||
|
August 2023 |
183,448 |
$5.06 |
12.2 |
% |
495,459 |
||||||
|
September 2023 |
313,840 |
$5.97 |
20.9 |
% |
181,619 |
||||||
|
October 2023 |
181,619 |
$6.11 |
12.1 |
% |
- |
||||||
|
November 2023 |
- |
- |
- |
- |
|||||||
|
December 2023 |
- |
- |
- |
- |
|||||||
|
Total |
1,500,000 |
|
100 |
% |
0 |
| (1) | On May 17, 2023, our board of directors approved a share repurchase program, pursuant to which we may repurchase up to 1.5 million of our outstanding Class A common shares in the following 12 months. |
| (2) | On November 16, 2023, our board of directors approved a new share repurchase program, pursuant to which we may repurchase up to 2.5 million of its outstanding class A common shares until December 31, 2024. |
Not applicable.
Cayman Islands law restricts transactions between a company and its directors unless there are provisions in the articles of association that provide a mechanism to alleviate possible conflicts of interest. Additionally, Cayman Islands law imposes on directors’ duties of care and skill and fiduciary duties to the companies which they serve. Under our Articles, a director must disclose the nature and extent of his interest in any contract or arrangement, and following such disclosure and subject to any separate requirement under applicable law or the listing rules of the NYSE, and unless disqualified by the chairperson of the relevant meeting, the interested director may vote in respect of any transaction or arrangement in which he or she is interested. The interested director shall be counted in the quorum at such meeting and the resolution may be passed by a majority of the directors present at the meeting.
Subject to the foregoing and the Articles, our directors may exercise all of our powers to vote for compensation to themselves or any member of their body in the absence of an independent quorum. We currently have no intention to establish a separate compensation committee.
As a foreign private issuer, we are permitted to follow home country practices in lieu of certain Stock Exchange corporate governance rules, subject to certain requirements. We currently rely, and will continue to rely, on the foreign private issuer exemption with respect to the following rules:
| ● | NYSE Rule 303A.01, which requires that independent directors comprise a majority of a company’s board of directors. As allowed by the laws of the Cayman Islands, independent directors do not comprise a majority of our board of directors. | |
| ● |
NYSE Rule 303A.04, which requires that a company have a nomination/corporate governance committee composed entirely of “independent directors.” Although we currently have a nominating committee, we are not required by the laws of the Cayman Islands, nor do we intend to have such committee comply with NYSE Rule 303A.04. | |
| ● | NYSE Rule 303A.05, which requires that a company have a compensation committee composed entirely of independent directors. Although our nominating committee also serves as a compensation committee, we are not required by the laws of the Cayman Islands, nor do we intend to have such committee comply with NYSE Rule 303A.05. |
Not applicable.
Not applicable.
Not applicable.
Risk Management and Strategy
We maintain a comprehensive process for assessing, identifying and managing material risks from cybersecurity threats including risks relating to disruption of business operations or financial reporting systems, intellectual property theft; fraud; extortion; harm to employees or customers; violation of privacy laws and other litigation and legal risk; and reputational risk, as part of our overall risk management system and processes.
Our cybersecurity risk management processes include the following:
| ● | Aligning our cyber practices with internationally established cybersecurity frameworks is a key focus. In addition to being ISO 27001 certified, we have adhered to market best practices and frameworks, including CIS Controls, NIST SCF, and Mitre ATT&CK. We prioritize the use of monitoring solutions for security, implementing systems to identify anomalous traffic on the local network or in the cloud, along with antimalware measures for endpoint security. Cloud monitoring is supported by a specific solution, and logs from critical assets are sent to our central Security Information and Event Management (“SIEM”) system. SIEM is operated 24/7 by outsourced professionals, who promptly notify our security team of critical alerts for appropriate intervention. | |
| ● | Maintaining a strict cybersecurity protocol to protect sensitive data and ensure system integrity. Our advanced security measures include multifactor authentication, robust firewalls, and an eXtended Detection and Response (“XDR”) system serving as antivirus, regularly updated. Proactive vulnerability management is conducted to identify and address potential breaches promptly. As part of our ongoing cybersecurity efforts, we undergo penetration testing twice a year by an accredited external firm to assess our security posture and further enhance defenses against digital threats. | |
| ● |
Involving a comprehensive team responsible for day-to-day cybersecurity related matters. Our legal department provides guidance on regulatory and legal matters, ensuring compliance with cybersecurity laws and regulations. Internal audit conducts independent assessments of the effectiveness of our security controls, identifying areas for improvement. Our human resources department plays a crucial role in ensuring that every new hire is trained on safe computing practices and data protection. Our compliance area ensures that our policies are aligned with applicable regulatory standards. Our IT team works closely with SecOps experts to implement and maintain robust defense systems. Additionally, our corporate security team plays a complementary role in protecting physical assets that can impact digital security. | |
| ● | Carrying insurance against potential losses resulting from cybersecurity incidents and regularly reviewing our policy and coverage levels based on relevant risks. Our insurance policies provide financial protection in the event of data breaches, cyberattacks, or other security incidents, helping to mitigate the financial impact on our organization. By regularly assessing our policies and coverage levels, we aim to ensure that our insurance is adequately aligned with the constantly evolving threat landscape and potential vulnerabilities in our systems. |
| ● |
Conducting annual cybersecurity awareness training sessions, mandatory for all company employees. These sessions are designed to educate about the latest cybersecurity threats, best practices for protecting sensitive information, and the importance of maintaining vigilance in their digital activities. Additionally, weekly posts are made on our corporate social network, along with simulated phishing exercises and real-world case studies. Our trainings are intended to equip employees with the knowledge and skills necessary to identify and effectively respond to potential security risks. | |
| ● | Maintaining a robust incident response plan which defines the procedures and protocols to be followed in the event of any cyber incident, from initial detection to full resolution. Our incident response plan establishes the roles and responsibilities of the various teams involved, to ensure a prompt and coordinated response. Additionally, the plan includes steps for impact mitigation and recovery of affected systems and data. In the event of an incident, the plan also provides for an internal escalation process, pursuant to which incidents are initially addressed by the cybersecurity team and, if necessary, escalated to higher levels of leadership, aiming at swift and effective responses. We regularly review and update our incident response plan in order to ensure its effectiveness in light of the constantly evolving cyber threat landscape. | |
| ● |
Involvement in broader industry initiatives and organizations relating to cybersecurity, such as collaborating with organizations across different industries to share best practices, fight cybercrime, enhance privacy, discuss new technologies, and advance capabilities in these areas. We are actively involved in initiatives and organizations related to cybersecurity as members of an external group composed of several companies that discuss information security topics. Participating in this group provides us with access to valuable insights and best practices in cybersecurity, allowing us to keep our security posture updated and aligned with the latest industry trends. |
As of the date of this report, our business strategy, results of operations and financial condition have not been materially affected by risks from cybersecurity threats, including as a result of previous cybersecurity incidents. We cannot provide assurance that they will not be materially affected in the future by such risks and any future material incidents.
Governance
Board of Directors
Our board of directors and our audit committee are primarily responsible for overseeing risks related to information security. As noted below, such risks are managed by our security team, an independent division led by a senior manager, an executive manager, and a director. This team regularly participates in meetings with our audit committee, where information security and security risk management agendas are discussed. Additionally, topics discussed at these meetings, including significant incidents and potential impacts, are presented and discussed at meetings of the board of directors.
Management
The cyber risk management processes described above are overseen by the information security team and audited annually by internal and external audit teams as part of the ISO 27001 certification review. As part of this management, we are attentive to the risks in our supply chain, and have established a policy to annually assess the security maturity level of the most critical third parties.
Our security team follows market-recognized best practices and frameworks such as MITRE, CIS, NIST, among others. Furthermore, we hold ISO 27001 certification and subject our Information Security Management System (ISMS) to internal and external audits annually to validate ISO 27001 controls, ensuring certification renewal.
The following documents are filed or incorporated by reference as part of this registration statement
|
Exhibit No. |
Exhibit | |
|
1.1 |
||
|
2.1 |
||
|
8.1 |
||
|
10.1 |
||
|
10.2 |
||
|
10.3 |
||
|
12.1 |
||
|
12.2 |
||
|
13.1 |
||
|
23.1 |
||
|
97 |
||
|
101 |
Interactive Data File | |
|
104 |
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
† Incorporated by reference
** Certain schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule will be furnished supplementally to the SEC upon request.
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| CI&T Inc | |||
| By: | /s/ Cesar Nivaldo Gon | ||
| Name: Cesar Nivaldo Gon | |||
| Title: Chief Executive Officer | |||
| By: | /s/ Stanley Rodrigues | ||
| Name: Stanley Rodrigues | |||
| Title: Chief Financial Officer | |||
Date: March 28, 2024
Auditor Name: KPMG Auditores Independentes Ltda.
Auditor Location: São Paulo, Brazil
Auditor Firm ID: 1124
 |
KPMG Auditores Independentes Ltda. |
| Av. Coronel Silva Teles, 977, 10º andar, Conjuntos 111 e 112 - Cambuí | |
| Edifício Dahruj Tower | |
| 13024-001 - Campinas/SP - Brasil | |
| Caixa Postal 737 - CEP: 13012-970 - Campinas/SP - Brasil | |
| Telefone +55 (19) 3198-6000 | |
| kpmg.com.br |
To the Stockholders and Board of Directors
CI&T Inc
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statement of financial position of CI&T Inc and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of profit or loss, other comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
Correction of a Misstatement
As discussed in Note 30 to the consolidated financial statements, the 2022 financial statements have been restated to correct a misstatement.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
KPMG Auditores Independentes Ltda.
We have served as the Company’s auditor since 2018.
Campinas, Brazil
March 28, 2024
|
KPMG Auditores Independentes Ltda., uma sociedade simples brasileira, de responsabilidade limitada e firma-membro da organização global KPMG de firmas-membro independentes licenciadas da KPMG International Limited, uma empresa inglesa privada de responsabilidade limitada. |
KPMG Auditores Independentes Ltda., a Brazilian limited liability company and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. |
CI&T Inc
Consolidated statements of financial position as of December 31, 2023 and 2022
(In thousands of Brazilian Reais - R$)
|
Assets |
Note |
December 31, 2023 |
|
December 31, 2022 restated |
|
Liabilities and equity |
Note |
December 31, 2023 |
|
December 31, 2022 restated |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Cash and cash equivalents |
10.1 |
211,638 |
|
185,727 |
|
Suppliers and other payables |
|
21,690 |
|
33,376 |
||||||||
|
Financial investments |
10.2 |
3,164 |
|
96,299 |
|
Loans and borrowings |
15 |
112,719 |
|
236,030 |
||||||||
|
Trade receivables |
11.a |
471,951 |
|
501,671 |
|
Lease liabilities |
14.b |
17,862 |
|
21,539 |
||||||||
|
Contract assets |
11.b |
147,620 |
|
217,250 |
|
Salaries and welfare charges |
16 |
196,396 |
|
260,156 |
||||||||
|
Recoverable taxes |
|
23,588 |
|
17,922 |
|
Accounts payable for business acquired |
17 |
13,365 |
|
76,746 |
||||||||
|
Tax assets |
|
17,483 |
|
2,959 |
|
Derivatives |
27.1 |
- |
|
4,109 |
||||||||
|
Derivatives |
27.1 |
9,620 |
|
11,194 |
|
Tax liabilities |
|
2,602 |
|
3,890 |
||||||||
|
Other assets |
|
27,072 |
|
38,269 |
|
Other taxes payable |
|
15,275 |
|
14,382 |
||||||||
|
|
|
|
|
|
Contract liability |
|
48,079 |
|
32,136 |
|||||||||
| Other liabilities | 27,290 | 47,501 | ||||||||||||||||
|
Total current assets |
|
912,136 |
|
1,071,291 |
|
Total current liabilities |
|
455,278 |
|
729,865 |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Recoverable taxes |
|
959 |
|
3,624 |
|
|
|
|
||||||||||
|
Deferred tax assets |
25 |
18,284 |
|
15,571 |
|
|
|
|
|
|||||||||
|
Judicial deposits |
18.b |
7,280 |
|
9,819 |
|
|
|
|
|
|
||||||||
|
Restricted cash - Escrow account and indemnity asset |
18.c |
29,061 |
|
31,552 |
|
Loans and borrowings |
15 |
614,744 |
|
753,733 |
||||||||
|
Other assets |
|
1,027 |
|
3,654 |
|
Deferred tax liabilities |
25 |
68,465 |
|
20,942 |
||||||||
|
Property, plant and equipment |
12 |
38,584 |
|
55,266 |
|
Lease liabilities |
14.b |
27,037 |
|
41,269 |
||||||||
|
Intangible assets and goodwill |
13 |
1,669,865 |
|
1,755,994 |
|
Provisions |
18.a |
9,620 |
|
12,347 |
||||||||
|
Right-of-use assets |
14.a |
39,695 |
|
56,187 |
|
Accounts payable for business acquired |
17 |
122,689 |
|
133,299 |
||||||||
|
|
|
|
|
|
|
Other liabilities |
|
7,807 |
|
3,530 |
||||||||
|
Total non-current assets |
|
1,804,755 |
|
1,931,667 |
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
Total non-current liabilities |
|
850,362 |
|
965,120 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
Equity |
21 |
|
|
|
||||||||
|
|
|
|
|
|
|
Share capital |
|
37 |
|
37 |
||||||||
|
|
|
|
|
|
|
Share premium |
|
980,893 |
|
946,173 |
||||||||
|
|
|
|
|
|
|
Capital reserves |
|
174,153 |
|
203,218 |
||||||||
|
|
|
|
|
|
|
Retained earnings reserves |
|
354,240 |
|
221,667 |
||||||||
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
(98,072 |
) |
|
(63,122 |
) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
Total equity |
|
1,411,251 |
|
1,307,973 |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Total assets |
|
2,716,891 |
|
3,002,958 |
|
Total equity and liabilities |
|
2,716,891 |
|
3,002,958 |
The accompanying notes are an integral part of these consolidated financial statements.
The comparative information is restated on account of correction of errors. See note 30.
CI&T Inc
Consolidated statements of profit or loss
For the years ended on December 31, 2023, 2022 and 2021
(In thousands of Brazilian Reais – R$)
|
|
Note |
December 31, 2023 |
|
December 31, 2022 restated |
|
December 31, 2021 |
||||
|
Net revenue |
22 |
2,233,466 |
|
2,187,710 |
|
1,444,380 |
||||
|
Costs of services provided |
23 |
(1,487,742 |
) |
|
(1,425,219 |
) |
|
(935,732 |
) | |
|
Gross profit |
745,724 |
|
762,491 |
|
508,648 |
|||||
|
Selling expenses |
23 |
(173,643 |
) |
|
(163,871 |
) |
|
(89,654 |
) | |
|
General and administrative expenses |
23 |
(290,499 |
) |
|
(315,915 |
) |
|
(151,681 |
) | |
|
Research and technological innovation expenses |
23 |
- |
|
- |
|
(4 |
) | |||
|
Impairment loss on trade receivables and contract assets |
23 |
(1,556 |
) |
|
(329 |
) |
|
(497 |
) | |
|
Other income (expenses) net |
23 |
5,450 |
|
(8,458 |
) |
|
(22,206 |
) | ||
|
Operating expenses net |
|
(460,248 |
) |
|
(488,573 |
) |
|
(264,042 |
) | |
|
Operating profit before net finance costs and income tax expense |
|
285,476 |
|
273,918 |
|
244,606 |
||||
|
Finance income |
24 |
75,245 |
|
172,996 |
|
69,816 |
||||
|
Finance cost |
24 |
(151,426 |
) |
|
(246,642 |
) |
|
(104,048 |
) | |
|
Net finance costs |
|
(76,181 |
) |
|
(73,646 |
) |
|
(34,232 |
) | |
|
Profit before income tax |
|
209,295 |
|
200,272 |
|
210,374 |
||||
|
Income tax expense |
|
|
||||||||
|
Current |
25 |
(34,536 |
) |
|
(59,570 |
) |
|
(95,375 |
) | |
|
Deferred |
25 |
(42,186 |
) |
|
(44,992 |
) |
|
10,958 |
||
|
Total income tax expense |
|
(76,722 |
) |
|
(104,562 |
) |
|
(84,417 |
) | |
|
Net profit for the year |
|
132,573 |
|
95,710 |
|
125,957 |
||||
|
Profit attributable to: |
|
|
|
|
|
|
||||
|
Controlling shareholders |
|
132,573 |
|
95,710 |
|
125,957 |
||||
|
Net profit for the year |
|
132,573 |
|
95,710 |
|
125,957 |
||||
|
Earnings per share |
|
|
|
|
|
|
||||
|
Earnings per share – basic (in R$) |
26 |
0.97 |
|
0.72 |
|
1.03 |
||||
|
Earnings per share – diluted (in R$) |
26 |
0.95 |
|
0.71 |
|
1.01 |
The accompanying notes are an integral part of these consolidated financial statements.
The comparative information is restated on account of correction of errors. See note 30.
CI&T Inc
For the years ended on December 31, 2023, 2022 and 2021
(In thousands of Brazilian Reais – R$)
|
|
Note |
December 31, 2023 |
|
December 31, 2022 restated |
|
December 31, 2021 |
||||
|
Net profit for the year |
|
132,573 |
|
95,710 |
|
125,957 |
||||
|
Other comprehensive income (OCI): |
|
|
|
|
|
|
||||
|
Items that are or may be reclassified subsequently to profit or loss |
|
|
|
|
|
|
||||
|
Exchange differences on translation of foreign operations |
|
(48,153 |
) |
|
(84,840 |
) |
|
23,830 |
||
|
Cash flow hedges - effective portion of changes in fair value |
27.3.a.1 |
13,203 |
|
(15,532 |
) |
|
- |
|||
|
Total comprehensive income for the year |
|
97,623 |
|
(4,662 |
) |
|
149,787 |
|||
|
Total comprehensive income attributed to |
|
|
|
|
|
|
||||
|
Owners of the Company |
|
97,623 |
|
(4,662 |
) |
|
149,787 |
|||
|
Total comprehensive income for the year |
|
97,623 |
|
(4,662 |
) |
|
149,787 |
The accompanying notes are an integral part of these consolidated financial statements.
The comparative information is restated on account of correction of errors. See note 30.
CI&T Inc
For the years ended on December 31, 2023, 2022 and 2021
(In thousands of Brazilian Reais – R$)
| Profit reserves | ||||||||||||||||||||||||||||
| Notes | Share capital | Share premium | Treasury share reserve | Capital reserve | Legal reserve | Retained earnings reserve |
Retained earnings | Other comprehensive income (loss) |
Total equity | |||||||||||||||||||
|
Balances as of January 1, 2021 |
|
68,968 |
|
- |
|
- |
|
6,764 |
|
13,793 |
|
95,515 |
|
- |
|
13,420 |
|
198,460 |
||||||||||
|
Comprehensive income for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net profit for the period |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
125,957 |
|
- |
|
125,957 |
||||||||||
|
Exchange variation in foreign investments |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
23,830 |
|
23,830 |
||||||||||
|
Total comprehensive income for the year |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
125,957 |
|
23,830 |
|
149,787 |
||||||||||
|
Transactions with the owner of the Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Contributions, distribution and constitution of reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Equity settled share-based compensation |
|
- |
|
- |
|
- |
|
2,498 |
|
- |
|
- |
|
- |
|
- |
|
2,498 |
||||||||||
|
Tax effect on the share-based compensation |
|
- |
|
- |
|
- |
|
- |
|
- |
|
(147 |
) |
- |
|
- |
|
(147 |
) | |||||||||
|
Shares exercised of executive officers |
|
28,697 |
|
- |
|
- |
|
(28,697 |
) |
- |
|
- |
|
- |
|
- |
|
- |
||||||||||
|
Corporate restructuring |
|
(88,206 |
) |
- |
|
- |
|
95,711 |
|
(13,793 |
) |
6,288 |
|
- |
|
- |
|
- |
||||||||||
|
Capital contribution |
|
3 |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
3 |
||||||||||
|
Initial public offering proceeds, gross |
|
- |
|
915,947 |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
915,947 |
||||||||||
|
Initial public offering costs, net of taxes |
|
- |
|
- |
|
- |
|
(66,876 |
) |
- |
|
- |
|
- |
|
- |
|
(66,876 |
) | |||||||||
|
2020 additional dividends |
|
- |
|
- |
|
- |
|
- |
|
- |
|
(95,368 |
) |
- |
|
- |
|
(95,368 |
) | |||||||||
|
Interest on shareholders´ equity |
|
- |
|
- |
|
- |
|
- |
|
- |
|
(6,288 |
) |
- |
|
- |
|
(6,288 |
) | |||||||||
|
Constitution of retained earnings reserve |
|
- |
|
- |
|
- |
|
- |
|
- |
|
125,957 |
|
(125,957 |
) |
- |
|
- |
||||||||||
|
Total contributions and distribution and constitution of reserves |
|
(59,506 |
) |
915,947 |
|
- |
|
2,636 |
|
(13,793 |
) |
30,442 |
|
(125,957 |
) |
- |
|
749,769 |
||||||||||
|
Changes in ownership interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Spin-off of the CI&T IOT |
|
(9,426 |
) |
- |
|
- |
|
597 |
|
- |
|
- |
|
- |
|
- |
|
(8,829 |
) | |||||||||
|
Merger of Hoshin |
|
- |
|
- |
|
- |
|
108 |
|
- |
|
- |
|
- |
|
- |
|
108 |
||||||||||
|
Total changes in ownership interest |
|
(9,426 |
) |
- |
|
- |
|
705 |
|
- |
|
- |
|
- |
|
- |
|
(8,721 |
) | |||||||||
|
Balances as of December 31, 2021 |
|
36 |
|
915,947 |
|
- |
|
10,105 |
|
- |
|
125,957 |
|
- |
|
37,250 |
|
1,089,295 |
||||||||||
|
Comprehensive income for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net profit for the year (restated) |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
95,710 |
|
- |
|
95,710 |
||||||||||
|
Exchange variation in foreign investments |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
(84,840 |
) |
(84,840 |
) | |||||||||
|
Cash flow hedges - effective portion of changes in fair value |
27.3.a.1 |
- |
|
- |
|
- |
- |
|
- |
|
- |
|
- |
|
(15,532 |
) |
(15,532 |
) | ||||||||||
|
Total comprehensive income for the year (restated) |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
95,710 |
|
(100,372 |
) |
(4,662 |
) | |||||||||
|
Transactions with the owner of the Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Contributions, distribution and constitution of reserves (restated) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Issues of ordinary shares related to business combinations |
21.b |
- |
|
30,226 |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
30,226 |
||||||||||
|
Equity settled share-based payment - Vested immediately |
21.d |
- |
|
- |
|
- |
|
174,898 |
|
- |
|
- |
|
- |
|
- |
|
174,898 |
||||||||||
|
Equity settled share-based payment |
20 |
- |
|
- |
|
- |
|
5,547 |
|
- |
|
- |
|
- |
|
- |
|
5,547 |
||||||||||
|
Share options exercised |
20.c.1 |
1 |
|
- |
|
- |
|
12,668 |
|
- |
|
- |
|
- |
|
- |
|
12,669 |
||||||||||
|
Constitution of retained earnings reserve (restated) |
|
- |
|
- |
|
- |
|
- |
|
- |
|
95,710 |
|
(95,710 |
) |
- |
|
- |
||||||||||
|
Total contributions and distribution and constitution of reserves (restated) |
|
1 |
|
30,226 |
|
- |
|
193,113 |
|
- |
|
95,710 |
|
(95,710 |
) |
- |
|
223,340 |
||||||||||
|
Restated balances as of December 31, 2022 |
|
37 |
|
946,173 |
|
- |
|
203,218 |
|
- |
|
221,667 |
|
- |
|
(63,122 |
) |
1,307,973 |
||||||||||
|
Comprehensive income for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net profit for the year |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
132,573 |
|
- |
|
132,573 |
||||||||||
|
Exchange variation in foreign investments |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
(48,153 |
) |
(48,153 |
) | |||||||||
|
Cash flow hedges - effective portion of changes in fair value |
27.3.a.1 |
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
13,203 |
|
13,203 |
||||||||||
|
Total comprehensive income for the year |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
|
132,573 |
|
(34,950 |
) |
97,623 |
||||||||||
|
Transactions with the owner of the Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Contributions, distribution and constitution of reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Treasury shares acquired |
21.c |
- |
|
- |
|
(43,414 |
) |
- |
|
- |
|
- |
|
- |
|
- |
|
(43,414 |
) | |||||||||
|
Equity settled share-based payment |
20 |
- |
|
- |
|
- |
|
47,371 |
|
- |
|
- |
|
- |
|
- |
|
47,371 |
||||||||||
|
Restricted stock units exercised |
21.b |
- |
|
16,119 |
|
5,090 |
|
(20,738 |
) |
- |
|
- |
|
- |
|
- |
|
471 |
||||||||||
|
Share options exercised |
20.c.1 |
- |
|
- |
|
- |
|
1,227 |
|
- |
|
- |
|
- |
|
- |
|
1,227 |
||||||||||
|
Treasury shares reissued |
21.b |
- |
|
18,601 |
|
38,324 |
|
(56,925 |
) |
- |
|
- |
|
- |
|
- |
|
- |
||||||||||
|
Constitution of retained earnings reserve |
|
- |
|
- |
|
- |
|
- |
|
- |
|
132,573 |
|
(132,573 |
) |
- |
|
- |
||||||||||
|
Total contributions and distribution and constitution of reserves |
|
- |
|
34,720 |
|
- |
|
(29,065 |
) |
- |
|
132,573 |
|
(132,573 |
) |
- |
|
5,655 |
||||||||||
|
Balance as of December 31, 2023 |
|
37 |
|
980,893 |
|
- |
|
174,153 |
|
- |
|
354,240 |
|
- |
|
(98,072 |
) |
1,411,251 |
||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
The comparative information is restated on account of correction of errors. See note 30.
CI&T Inc
Consolidated statements of cash flows
For the years ended on December 31, 2023, 2022 and 2021
(In thousands of Brazilian Reais – R$)
| Notes | December 31, 2023 |
December 31, 2022 restated |
December 31, 2021 | |||||||
|
Cash flows from operating activities |
|
|
|
|
|
|
||||
|
Net profit for the year |
|
132,573 |
|
95,710 |
|
125,957 |
||||
|
Adjustments for: |
|
|
|
|
|
|
||||
|
Depreciation and amortization |
12, 13, 14 |
93,213 |
|
94,558 |
|
48,354 |
||||
|
Loss on sale and write-off of fixed assets |
12, 13, 14, 15 |
1,689 |
|
3,781 |
|
1,237 |
||||
|
Interest, monetary variation and exchange rate changes |
|
86,793 |
|
57,156 |
|
55,087 |
||||
|
Unrealized loss (gain) on financial instruments |
|
(14,735 |
) |
(7,114 |
) |
3,084 |
||||
|
Income tax expenses |
25 |
76,722 |
|
104,562 |
|
84,417 |
||||
|
Impairment losses on trade receivables and contract assets |
11 |
1,556 |
|
329 |
|
497 |
||||
|
Impairment of intangible assets |
|
- |
|
- |
|
21,894 |
||||
|
(Reversal of) Provision for tax and labor risks |
18.a |
(424 |
) |
386 |
|
472 |
||||
|
Share-based plan |
23 |
28,116 |
|
5,486 |
|
2,531 |
||||
|
Restructuring expenses |
|
18,327 |
|
- |
|
- |
||||
|
Changes in fair value of accounts payable for business acquired |
|
4,863 |
|
11,497 |
|
- |
||||
|
Others |
|
(571 |
) |
(1,855 |
) |
98 |
||||
|
Changes in operating assets and liabilities |
|
|
|
|
|
|
||||
|
Trade receivables |
|
4,381 |
|
(116,574 |
) |
(102,300 |
) | |||
|
Contract assets |
|
63,327 |
|
(69,101 |
) |
(52,876 |
) | |||
|
Recoverable taxes |
|
(31,755 |
) |
(547 |
) |
(13,806 |
) | |||
|
Suppliers |
|
(13,112 |
) |
(29,769 |
) |
11,011 |
||||
|
Salaries and welfare charges |
|
(61,538 |
) |
10,729 |
|
63,083 |
||||
|
Tax liabilities |
|
1,720 |
|
(9,681 |
) |
(17,364 |
) | |||
|
Contract liabilities |
|
17,175 |
|
9,636 |
|
1,922 |
||||
|
Other receivables and payables, net |
|
5,976 |
|
1,467 |
|
(20,071 |
) | |||
|
Cash generated from operating activities |
|
414,296 |
|
160,656 |
|
213,227 |
||||
|
Income tax paid |
|
(27,407 |
) |
(48,299 |
) |
(64,150 |
) | |||
|
Interest paid on loans and borrowings |
15 |
(91,788 |
) |
(70,096 |
) |
(12,149 |
) | |||
|
Interest paid on lease |
15 |
(4,057 |
) |
(6,169 |
) |
(5,753 |
) | |||
|
Income tax refund |
|
4,198 |
|
- |
|
- |
||||
|
Net cash from operating activities |
|
295,242 |
|
36,092 |
|
131,175 |
||||
|
Cash flows from investing activities |
|
|
|
|
|
|
||||
|
Acquisition of property, plant and equipment and intangible assets |
|
(24,109 |
) |
(22,967 |
) |
(28,703 |
) | |||
|
Redemption (contribution in) of financial investments |
10.2 |
90,298 |
|
655,533 |
|
(784,915 |
) | |||
|
Acquisition of subsidiary net of cash acquired |
|
- |
|
(722,665 |
) |
(692,722 |
) | |||
|
Escrow deposit |
|
- |
|
(23,061 |
) |
- |
||||
|
Cash outflow on hedge accounting settlement |
27.3.a.1 |
- |
|
25,263 |
|
- |
||||
|
Hedge accounting – ineffective portion inflow |
27.3.a.1 |
- |
|
5,337 |
|
- |
||||
|
Net cash from (used in) investing activities |
|
66,189 |
|
(82,560 |
) |
(1,506,340 |
) |
CI&T Inc
Consolidated statements of cash flows
For the years ended on December 31, 2023, 2022 and 2021
(In thousands of Brazilian Reais – R$)
|
Cash flows from financing activities |
|
|
|
|
|
|
||||
|
Share-based plan contributions |
|
- |
|
- |
|
1,282 |
||||
|
Issuance of common shares at initial public offering |
|
- |
|
- |
|
915,947 |
||||
|
Transaction cost of offering |
|
- |
|
- |
|
(55,874 |
) | |||
|
Dividends paid |
|
- |
|
- |
|
(126,045 |
) | |||
|
Exercised share-based compensation |
|
1,227 |
|
12,668 |
|
- |
||||
|
Interest on equity, paid |
15 |
- |
|
- |
|
(6,288 |
) | |||
|
Payment of lease liabilities |
15 |
(24,070 |
) |
(26,993 |
) |
(17,656 |
) | |||
|
Proceeds from loans and borrowings |
15 |
205,093 |
|
527,507 |
|
740,596 |
||||
|
Settlement of derivatives |
15 |
12,200 |
|
390 |
|
- |
||||
|
Payment of loans and borrowings |
15 |
(407,013 |
) |
(350,571 |
) |
(75,196 |
) | |||
|
Payment of installment related to accounts payable of business acquired |
15 |
(77,338 |
) |
(62,338 |
) |
- |
||||
|
Repurchase of treasury shares |
15 |
(43,414 |
) |
- |
|
- |
||||
|
Net cash from (used in) financing activities |
|
(333,315 |
) |
100,663 |
|
1,376,766 |
||||
|
Net increase in cash and cash equivalents |
|
28,116 |
|
54,195 |
|
1,601 |
||||
|
Cash and cash equivalents as of January 1st |
|
185,727 |
|
135,727 |
|
162,827 |
||||
|
Exchange variation effect on cash and cash equivalents |
|
(2,205 |
) |
(4,195 |
) |
(20,949 |
) | |||
|
Cash reduction due to spin-off effect |
|
- |
|
- |
|
(7,752 |
) | |||
|
Cash and cash equivalents as of December 31st |
|
211,638 |
|
185,727 |
|
135,727 |
The accompanying notes are an integral part of these consolidated financial statements.
The comparative information is restated on account of corrections of errors. See note 30.
CI&T Inc.
Consolidated financial statements
December 31, 2023
(Amounts in thousands of Brazilian Reais – R$, unless otherwise stated)
| 1 | Operational context |
CI&T Inc (“CI&T” or “Company”) is a publicly held company incorporated in the Cayman Islands in June 2021, headquartered at Estrada Giuseppina Vianelli Di Napoli, 1455, Polo II de Alta Tecnologia, in the City of Campinas, State of São Paulo, Brazil. As a holding company, it is mainly engaged in the investment, as a partner or shareholder, in other companies, consortia or joint ventures in Brazil, and other countries. The Company’s subsidiaries are mainly engaged in the development of customizable software through the implementation of software solutions, including machine learning, artificial intelligence (AI), analytics, cloud migration and mobility technologies.
These consolidated financial statements comprise the Company and its subsidiaries (collectively referred to as the “Group”).
Since November 10, 2021 CI&T has been a publicly-held company registered with the US Securities and Exchange Commission (the “SEC”) and its shares are traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “CINT”.
| 2 | List of direct and indirect subsidiaries |
Information on the Company’s direct and indirect subsidiaries is presented below:
|
|
|
|
December 31,2023 |
|
December 31,2022 |
December 31,2021 |
|||||||||
|
Subsidiaries |
Country of origin |
|
Direct |
Indirect |
|
Direct |
Indirect |
Direct |
Indirect |
||||||
|
CI&T Delaware LLC |
United States |
|
100% |
- |
|
100% |
- |
100% |
- |
||||||
|
CI&T Software S.A. (“CI&T Brazil”) (a) |
Brazil |
|
- |
100% |
|
- |
100% |
- |
100% |
||||||
|
CI&T Japan, Inc. (“CI&T Japan”) |
Japan |
|
- |
100% |
|
- |
100% |
- |
100% |
||||||
|
CI&T China Inc. (“CI&T China”) |
China |
|
- |
100% |
|
- |
100% |
- |
100% |
||||||
|
CI&T Portugal Unipessoal Lda. (“CI&T Portugal”) |
Portugal |
|
- |
100% |
|
- |
100% |
- |
100% |
||||||
|
CI&T Australia PTY Ltd. |
Australia |
|
- |
100% |
|
- |
100% |
- |
100% |
||||||
|
Dextra Inc. (b) |
United States |
|
- |
- |
|
- |
100% |
- |
100% |
||||||
|
CINQ Inc. |
United States |
|
- |
100% |
|
- |
100% |
- |
100% |
||||||
|
CI&T Inc. (“CI&T US”) |
United States |
|
- |
100% |
|
- |
100% |
- |
100% |
||||||
|
CI&T Software Inc. (“CI&T Canada”) |
Canada |
|
- |
100% |
|
- |
100% |
- |
100% |
||||||
|
CI&T UK Limited. (“CI&T UK”) |
United Kingdom |
|
- |
100% |
|
- |
100% |
- |
100% |
||||||
|
CI&T Colombia |
Colombia |
|
- |
100% |
|
- |
100% |
- |
- |
||||||
|
CI&T Argentina S/A |
Argentina |
|
- |
100% |
|
- |
100% |
- |
100% |
||||||
|
CI&T Financial Services Solutions, LLC (c) |
United States |
|
- |
100% |
|
- |
100% |
- |
- |
||||||
|
CI&T FinTech Services, Inc. (c) |
United States |
|
- |
100% |
|
- |
100% |
- |
- |
||||||
|
Somo Global Ltd (“Somo”) (d) |
United Kingdom |
|
100% |
- |
|
100% |
- |
- |
- |
||||||
|
Somo Custom Ltd (“Somo UK”) (d) |
United Kingdom |
|
- |
100% |
|
- |
100% |
- |
- |
||||||
|
Somo Global Inc. (d) |
United States |
|
- |
100% |
|
- |
100% |
- |
- |
||||||
|
Somo Global SAS. (“Somo Colombia”) (d) |
Colombia |
|
- |
100% |
|
- |
100% |
- |
- |
||||||
|
Ideonyx Ltd (in liquidation) (d) |
United Kingdom |
|
- |
100% |
|
- |
100% |
- |
- |
||||||
|
Somo Ltd (dormant) (d) |
United Kingdom |
|
- |
100% |
|
- |
100% |
- |
- |
||||||
|
CI&T Oceania PTY Ltd (“CI&T Oceania”) (e) |
Australia |
|
100% |
- |
|
100% |
- |
- |
- |
||||||
|
Unconstrained Thinking PTY Ltd (e) |
Australia |
|
- |
- |
|
- |
100% |
- |
- |
||||||
| (a) | In June 2022, CI&T Brazil completed the acquisition of 100% of the shareholding control of Box 1824 Planejamento e Marketing Ltda (“Box 1824”). In December 2022, Box 1824 was merged with CI&T Brazil. |
| (b) |
In 2023, Dextra Inc. was extinct. |
| (c) | In November 2022, the Company completed the acquisition of 100% of the shareholding control of NTERSOL Consulting LLC (“NTERSOL”) and its subsidiary (see note 9). In 2023 NTERSOL was renamed to CI&T Financial Services Solutions, LLC and Core IP was renamed to CI&T FinTech Services, Inc. |
| (d) | In January 2022, the Company completed the acquisition of 100% of the shareholding control of Somo Global Ltd (“Somo”) and its subsidiaries (see note 9). |
| (e) | In September 2022, the Company completed the acquisition of 100% of the shareholding control of Transpire Technology Pty Ltd (“Transpire”) and its subsidiary (see note 9). In 2023, Transpire was renamed to CI&T Oceania PTY Ltd and Unconstrained Thinking PTY Ltd was extinct. |
| 3 | Basis of accounting |
These consolidated financial statements were prepared in accordance with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
These financial statements have been restated to reflect the correction of certain errors identified by the Company in its Consolidated Financial Statements for the year ended December 31, 2022, previously publicly available (see note 30).
The issuance of these consolidated financial statements was authorized by the Company’s Board of Directors and Audit Committee on March 28, 2024.
Details of the Group’s accounting policies are included in note 8.
| 4 | Functional and presentation currency |
| 5 | Use of judgments and estimates |
In preparing these consolidated financial statements, Management has made judgments and estimates about the future, that affect the application of the Group’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized prospectively.
a. Judgments
Information about judgments made in the application of accounting policies that have the most significant effects on the amounts recognized in the financial statements are included in the following note:
| • |
Note 14 – lease term: whether the Group is reasonably certain to exercise extension options; |
CI&T Inc.
Consolidated financial statements
December 31, 2023
b. Assumptions and estimation uncertainties
Information about assumptions and estimation uncertainties at the reporting date that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next fiscal year is included in the following notes:
| • |
Note 9 – acquisition of subsidiary: fair value of the consideration transferred (including contingent consideration), and fair value of identifiable intangibles; |
| • |
Note 13 – impairment test of intangible assets and goodwill: key assumptions underlying recoverable amounts; and |
| • |
Note 25 – recognition of deferred tax assets: availability of future taxable profit against which deductible temporary differences and tax losses carried forward can be utilized. |
c. Measurement of fair values
A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities.
The Group has established an internal process with respect to the measurement of fair value. This includes the review of significant fair value measurements, significant unobservable data and valuation adjustments. If third-party information, such as broker quotes or pricing services, is used to measure fair values, this information is evaluated to support the conclusion that such valuations meet the requirements of the Accounting Standards, including the level in the fair value hierarchy in which the valuations should be classified.
When measuring the fair value of an asset or a liability, the Group uses observable market data as much as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
| • |
Level 1: Quoted prices (not adjusted) in active markets for identical assets or liabilities. |
| • |
Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). |
| • |
Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs). |
If the inputs used to measure the fair value of an asset or liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of fair value hierarchy as the lowest level input that is significant to the entire measurement.
The Group recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the changes have occurred.
Further information about the assumptions made in measuring fair values is included in the following notes:
| • |
Note 9 – business combination – acquisition of subsidiary; |
| • |
Note 20 – share-based payment transactions and the compensation for the cancellation of the share based plan; and |
| • |
Note 27 – financial instruments. |
| F-13 |
CI&T Inc.
Consolidated financial statements
December 31, 2023
| 6 | Changes in material accounting policies |
(i) Deferred tax related assets and liabilities arising from a single transaction
The Group has adopted deferred tax related to assets and liabilities arising from a single transaction (amendments to IAS 12) from January 1, 2023. The amendments narrow the scope of the initial recognition exemption to exclude transactions that give rise to equal and offsetting temporary differences – e.g. leases. For leases, an entity is required to recognize the associated deferred tax asset and liabilities from beginning of the earliest comparative period presented, with any cumulative effect recognized as an adjustment to retained earnings or other components of equity at that date. For all other transactions, the amendments apply to transactions that occur after the beginning of the earliest period presented.
The Group previously accounted for deferred tax on leases by applying the integrally linked approach, resulting in a similar outcome as under the amendments, except that the deferred tax asset or liability was recognized on a net basis. Following the amendments, the Group has recognized a separate deferred tax asset in relation to its lease liabilities and a deferred tax liability in relation to its right-of-use assets. However, there was no impact on the statement of financial position because the balances qualify for offset under paragraph 74 of IAS 12. There was also no impact on the opening retained earnings as at January 1, 2022 as a result of the change. The key impact for the Group relates to disclosure of the deferred tax assets and liabilities recognized (see Note 25).
(ii) Material accounting policy information
The Group also adopted Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) from January 1, 2023. Although the amendments did not result in any changes to the accounting policies themselves, they impacted the accounting policies information disclosed in the financial statements.
The amendments require the disclosure of 'material', rather than 'significant', accounting policies. The amendments also provide guidance on the application of materiality to disclosure of accounting policies, assisting entities to provide useful, entity-specific accounting policy information that users need to understand other information in the financial statements.
Management reviewed the accounting policies and made updates to the information disclosed in
note 8 - Material accounting policies (2022: Significant accounting policies) in certain instances in line with the amendments.
(iii) Accounting standards issued but not yet effective
A number of new accounting standards are effective for annual periods beginning after January 1, 2024 and earlier application is permitted. However, the Group has not early adopted the following new or amended accounting standards in preparing these consolidated financial statements.
The following new and amended accounting standards are not expected to have a significant impact on the Group's consolidated financial statements:
| • |
Classification of Liabilities as Current or Non-Current and Non-current Liabilities with Covenants (Amendments to /AS 1) |
| • |
Supplier Finance Arrangements (Amendments to /AS 7 and IFRS 7) |
| • |
Lease Liability in a Sale and Leaseback (Amendments to IFRS 16) |
| • |
Lack of Exchangeability (Amendments to /AS 21) |
CI&T Inc.
Consolidated financial statements
December 31, 2023
| 7 | Basis of measurement |
| 8 | Material accounting policies |
The Group has consistently applied the following accounting policies to all the periods presented in these consolidated financial statements.
a. Basis of consolidation
(i) Business combination
The Group accounts for business combinations under the acquisition method when the acquired set of activities and assets meets the definition of a business and control is transferred to the Group. In determining whether a particular set of activities and assets is a business, the Group assesses whether the set of assets and activities acquired includes, at a minimum, an input and substantive process and whether the acquired set has the ability to produce outputs.
The Group has an option to apply a ‘concentration test’ that permits a simplified assessment of whether an acquired set of activities and assets is not a business. The optional concentration test is met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets.
The consideration transferred in the acquisition is measured at fair value, as are the identifiable net assets acquired. Any goodwill that may arise is tested annually for impairment. Any gain on a bargain purchase is recognized in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities.
The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognized in profit or loss.
Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, other contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognized in profit or loss.
If share-based payment awards (replacement awards) are required to be exchanged for awards held by the acquiree’s employee (acquiree’s awards), then all or a portion of the amount of the acquirer’s replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the market-based measure of the replacement awards compared with the market-based measure of the acquiree’s awards and the extent to which the replacement awards relate to pre-combination service.
(ii) Subsidiaries
Subsidiaries are entities controlled by the Company. The Company controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date in which control commences until the date on which control ceases.
(iii) Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealized income and expenses (except for foreign currency translation gains or losses) arising from intra-group transactions, are eliminated. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.
b. Foreign currency
(i) Foreign currency transactions
Transactions in foreign currencies are translated into the respective functional currencies of the Company and its subsidiaries by the exchange rates at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities that are measured at fair value in foreign currency are translated into the functional currency at the exchange rate when the fair value was determined. Non-monetary items that are measured based on historical cost in foreign currency are translated at the exchange rate on the date of the transaction. Foreign currency differences are generally recognized in profit or loss and presented within finance costs.
However, foreign currency differences arising from the translation of investments abroad and the qualifying cash flow hedges to the extent that the hedges are effective are recognized in other comprehensive income.
(ii) Foreign operations
The Company’s subsidiaries functional currencies are:
|
Subsidiaries |
Country of origin |
Functional currency/ defined as | ||
|
CI&T Delaware LLC |
United States |
Brazilian Reais (“R$” or “BRL”) | ||
| CI&T Software S.A. (“CI&T Brazil”) |
Brazil |
Brazilian Reais (“R$” or “BRL”) | ||
|
CI&T Japan, Inc. |
Japan |
Yen | ||
|
CI&T China Inc. |
China |
Yuan | ||
|
CI&T Portugal Unipessoal Lda. |
Portugal |
Euro | ||
|
CI&T Australia PTY Ltd. |
Australia |
Australian dollar (“AU$”) | ||
|
Dextra Inc. |
United States |
US dollar (“US$” or “USD”) | ||
|
CINQ Inc. |
United States |
US dollar (“US$” or “USD”) | ||
|
CI&T Inc. (“CI&T US”) |
United States |
US dollar (“US$” or “USD”) | ||
|
CI&T Software Inc. (“CI&T Canada”) |
Canada |
Canadian dollar | ||
|
CI&T UK Limited. (“CI&T UK”) |
United Kingdom |
Pound sterling (“£” or “GBP”) | ||
|
CI&T Colombia |
Colombia |
Colombian peso | ||
|
CI&T Argentina S/A |
Argentina |
Argentinian Peso | ||
|
CI&T Financial Services Solutions, LLC |
United States |
US dollar (“US$” or “USD”) | ||
|
CI&T FinTech Services, Inc. |
United States |
US dollar (“US$” or “USD”) | ||
|
Somo Global Ltd (“Somo”) |
United Kingdom |
Pound sterling (“£” or “GBP”) | ||
|
Somo Custom Ltd |
United Kingdom |
Pound sterling (“£” or “GBP”) | ||
|
Somo Global Inc. |
United States |
US dollar (“US$” or “USD”) | ||
|
Somo Global SAS. |
Colombia |
Colombian peso | ||
|
Ideonyx Ltd (in liquidation) |
United Kingdom |
Pound sterling (“£” or “GBP”) | ||
|
Somo Ltd (dormant) |
United Kingdom |
Pound sterling (“£” or “GBP”) | ||
|
CI&T Oceania PTY Ltd (“CI&T Oceania”) |
Australia |
Australian dollar (“AU$”) | ||
|
Unconstrained Thinking PTY Ltd |
Australia |
Australian dollar (“AU$”) |
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated into Brazilian Reais at the exchange rates at the reporting date. The income and expenses of operations abroad are translated into Brazilian Reais at the monthly average exchange rates. Equity and non-monetary items that are measured based on historical cost in foreign currency are translated at the exchange rate on the date of the transaction.
Foreign currency differences are recognized in other comprehensive income and accumulated in the translation reserve.
c. Revenue from contracts with customers
The revenue is measured based on the consideration specified in the contract with the client. The Group recognizes revenue when it transfers control over the service to the customer.
The following table provides information on the nature and timing of satisfaction of performance obligations in contracts with customers, including significant payment terms, and the related revenue recognition policies:
|
Type of service |
Nature and timing of performance obligations |
Revenue recognition |
|
Services provision: |
The Group has determined that the customer controls all work in progress as the services are provided. This is because, according to these contracts, services are provided according to the client’s specifications and, if a contract is terminated by the client, the Group will be entitled to reimbursement of the costs incurred to date, including a reasonable margin. |
The associated revenue and costs are recognized over time. The progress of the performance obligation is measured based on the hours incurred. |
| Invoices are issued in accordance with contractual terms. Unbilled amounts are presented as contract assets. |
||
|
Software License Agency |
The Group acts as an agent in software license agreements between the developer and the customer. |
Revenue related to fees as agent is recognized when contracts are entered into. |
| Invoices (related to agency fees) are issued in accordance with the contractual terms. |
d. Employee benefits
(i) Short-term employee benefits
Short-term employee benefits are expensed as the related service is provided. A liability is recognized for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
(ii) Defined contribution plan
Obligations for contributions to defined contribution plans are expensed as the related services is provided.
(iii) Long-term employee benefits
The grant-date fair value of equity-settled share-based payment arrangements granted to employees is generally recognized as an expense, with a corresponding increase in equity, over the vesting period of the awards. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognized is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant-date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.
The Group recognizes each expense according to the services rendered for each subsidiary where the employee participating in the plan works, with the counterpart at:
(a) increase in equity if the services rendered are received in a transaction with a share-based payment settled in equity instruments;
(b) or, if the services rendered are acquired in a transaction with a share-based payment settled in cash (or other assets), a liability is recognized.
The fair value of the amount payable to employees related to the rights on the valuation of shares, which are settled in cash, is recognized as an expense with a corresponding increase in liabilities during the period in which employees unconditionally acquire their right to payment. The liability is remeasured at each reporting date and on the settlement date, based on the fair value of the rights on the valuation of the shares. Any changes in the fair value of the liability are recognized in the profit or loss.
When the granting of an equity instrument is cancelled or settled during the vesting period, the entity must account for the cancellation or settlement as an acceleration of the vesting period and, therefore, must immediately recognize the amount that would be recognized as services received over the remaining vesting period.
In cases where the share-based compensation plan is cancelled, any payments made to employees at the time of the cancellation must be accounted for as a repurchase of an equity instrument, that is, in a reduction account of shareholders' equity, except if the payment exceeds the fair value of the equity instruments granted, measured on the repurchase date. Any surplus must be recognized as an expense for the period. However, if the share-based payment arrangement presents liabilities components, the entity must remeasure the fair value of the corresponding liability on the date of cancellation or settlement. Any payment made to settle these liability components should be accounted for as an extinguishment of the liability.
The Group does not have other long-term benefits, such as time-of-service leave, lifetime health plan and other time-service benefits, and post-employment obligation.
e. Finance income and finance costs
The Group's finance income and finance costs include:
Interest income or expense is recognized using the effective interest method.
The 'effective interest rate' is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to:
In calculating interest income or expense, the effective interest rate is applied to the gross carrying amount of the asset (when the asset is not credit-impaired) or the amortized cost of the liability. However, for financial assets that have become credit-impaired after the initial recognition, interest income is calculated by applying the effective interest rate to the amortized cost of the financial asset. If the asset is no longer credit-impaired, then the calculation of interest income reverts to the gross basis.
f. Income tax
Income tax expenses comprise current and deferred tax, and social security contribution tax. It is recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.
The Group has determined that interest and penalties related to income taxes, including uncertain tax treatments, do not meet the definition of income taxes, and therefore accounted for them under IAS 37 - Provisions, Contingent Liabilities and Contingent Assets.
CI&T Inc.
Consolidated financial statements
December 31, 2023
(i) Current tax
Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax payable or receivable in respect of previous years. The amount of current tax payable or receivable is the best estimate of the tax amount expected to be paid or received that reflects uncertainty related to income taxes, if any. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends. Current tax assets and liabilities are offset only if certain criteria are met.
(ii) Deferred taxes
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for:
Deferred tax assets are recognized for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Future taxable profits are determined based on the reversal of relevant taxable temporary differences. If the amount of taxable temporary differences is insufficient to recognize a deferred tax asset in full, then future taxable profits, adjusted for reversals of existing temporary differences, are considered, based on the business plans for each individual subsidiaries in the Group. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized; such reductions are reversed when the probability of future taxable profits improves.
The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset only if certain criteria are met.
g. Cash and cash equivalents and financial investments
For the purpose of presentation in the statement of cash flows, cash and cash equivalents include cash on hand and in banks and short-term highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
The financial investments include foreign currencies, which may be subject to a significant exchange rate variation once translated to R$. The financial investments are amounts that do not meet the definition of cash and cash equivalents and are kept with the purposes of payment of accounts payable for business acquired.
h. Property, plant and equipment
(i) Recognition and measurement
Items of property, plant and equipment items are measured at cost, less accumulated depreciation and any accumulated impairment losses.
If significant parts of an item of property, plant and equipment have different useful lives, then they are accounted for as separate items (major components) of property, plant and equipment.
Any gain or loss on the disposal of an item of property, plant and equipment is recognized in profit or loss.
(ii) Subsequent expenditure
Subsequent expenditure is capitalized only if it is probable that the future economic benefits associated with the expenditure will flow to the Group.
(iii) Depreciation
Depreciation is calculated to write-off the cost of items of property, plant and equipment less their estimated residual values under the straight-line method based over their estimated useful lives, and is generally recognized in profit and loss. The leasehold improvements are depreciated on a straight-line basis over the duration of the lease agreement. Land is not depreciated.
The estimated useful lives of property, plant and equipment for current and comparative periods are as follows:
|
IT equipment |
2 to 5 years |
|
Furniture and fixtures |
7-10 years |
|
Leasehold improvements |
1 to 8 years |
Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
i. Intangible assets and goodwill
(i) Recognition and measurement
Goodwill
Goodwill arising on the acquisition of subsidiaries is measured at cost less accumulated impairment losses.
Brands and Customer relationship
Brands and customer relationship acquired through business combinations are recognized at their fair value at the acquisition date and amortized over their expected benefit period.
Non-compete agreement
Non-compete agreements acquired through business combinations are recognized at their fair value at the acquisition date and are amortized over the term of the agreements.
Software
Software licenses are capitalized based on the costs incurred to acquire the software and prepare them to be ready for use and amortized over their expected benefit period.
Costs associated with software maintenance are recognized as expenses as incurred. Development costs directly attributable to the design and testing of identifiable and unique software products, controlled by the Group, are recognized as intangible assets.
Directly attributable costs, which are capitalized as a part of the software product, include the costs of employees allocated to software development and an appropriate portion of the applicable indirect expenses.
Other development costs that do not meet these criteria for capitalization are recognized as expenses as they are incurred. Development costs previously recognized as expenses are not recognized as assets in subsequent periods.
Software in progress
Software in progress is capitalized only if the expenditure can be measured reliably, the product or progress is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient intention and resources to complete development and use or sell the asset. Otherwise, it is recognized in profit and loss as incurred. Subsequent to initial recognition, intangible in progress is measured at cost less any accumulated impairment losses.
(ii) Subsequent expenditure
Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditures, including brands and patents, are recognized in profit or loss as incurred.
(iii) Amortization
Amortization is calculated to write-off the cost of intangible assets less their estimated residual values using the straight-line method over their estimated useful lives, and is generally recognized in profit or loss. Goodwill is not amortized.
The estimated useful lives for current and comparative periods are as follows:
|
Software |
5 years |
|
Internally developed software |
3 years |
|
Customer relationship |
6 – 19 years |
|
Non-compete agreement |
5 years |
|
Brands |
1-21 years |
Amortization methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
j. Financial instruments
(i) Recognition and initial measurement
Trade receivables are initially recognized on the date they are originated. All other financial assets and financial liabilities are initially recognized when the Group becomes a party to the contractual provisions of the instrument.
A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus or minus, for an item not measured at fair value through profit or loss (“FVTPL”), transaction costs that are directly attributable to its acquisition or issue. Trade receivable without a significant financing component is initially measured at the transaction price.
(ii) Classification and subsequent measurement
Financial assets - classification
Upon initial recognition, a financial asset is classified as measured at: amortized cost; fair value through other comprehensive income (“FVOCI”) — debt investment; FVOCI — equity investment; or at FVTPL.
Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.
A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL:
All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets.
Financial asset – Business model assessment
The Group makes an assessment of the objective of the business model in which a financial asset is held in the portfolio level because this best reflects the way the business is managed and information is provided to Management. Information considered includes:
| (i) | The stated policies and objectives set for the portfolio and the operation of those policies in practice. These include whether Management´s strategy focuses on achieving contractual interest income, maintaining a particular interest rate profile, matching the duration of financial assets with the duration of related liabilities or expected cash outflows or realizing cash flows through the sale of the assets; |
| (ii) | How the performance of the portfolio is evaluated and reported to the Group's Management; |
| (iii) | The risks that affect the performance of the business model (and the financial assets held according to that business model) and how those risks are managed; |
Financial asset – assessment of whether contractual cash flows are solely payments of principal and interest
In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Group considers:
A prepayment feature is consistent with the solely payments of principal and interest criterion if the prepayment amount substantially represents unpaid amounts of principal and interest on the principal amount outstanding, which may include reasonable compensation for early termination of the contract. In addition, for a financial asset acquired at a discount or premium to its contractual par amount, a feature that permits or requires prepayment at an amount that substantially represents the contractual par amount plus accrued (but unpaid) contractual interest (which may also include reasonable compensation for early termination) is treated as consistent with this criterion if the fair value of the prepayment feature is insignificant at initial recognition. The Group had no financial assets held outside trading business models that failed the solely payments of principal and interest assessment.
Financial assets - Subsequent measurement and gains and losses
Financial assets at FVTPL
These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in profit or loss.
Financial assets at amortized cost
These assets are subsequently measured at amortized cost under the effective interest method. The gross carrying amount is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.
Financial liabilities – classification, subsequent measurement and gains and losses
Financial liabilities are classified as measured at amortized cost or FVTPL. A financial liability is classified as measured at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition, and the net gains and losses, including any interest expense, are recognized in profit or loss. Other financial liabilities are subsequently measured at amortized cost under the effective interest method. Interest expense and foreign exchange gains and losses are recognized in profit or loss. Any gain or loss on derecognition is also recognized in profit or loss. See note 27.1 for financial liabilities recognized in profit or loss.
(iii) Derecognition
Financial assets are derecognized when:
Financial liabilities are derecognized when contractual obligations are withdrawn, canceled, or expired. The difference between the extinct book value and the consideration paid (including transferred assets or assumed liabilities) is recognized in the consolidated statements of profit or loss.
(iv) Offsetting
Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
(v) Derivative financial instruments
Derivatives are initially measured at fair value. Subsequent to initial recognition, derivatives are measured at fair value and changes therein are generally recognized in profit or loss.
(vi) Non-derivative financial instruments and hedge accounting
The Group designates certain non-derivative financial instruments as hedging instruments to hedge the variability in cash flows associated with highly probable forecast transactions arising from changes in foreign exchange rates.
At the inception of designated hedging relationships, the Group documents the risk management objective and strategy for undertaking the hedge. The Group also documents the economic relationship between the hedged item and the hedging instrument, including whether the changes in cash flows of the hedged item and the hedging instrument are expected to offset each other.
Cash flows hedges
When a non-derivative financial instrument is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the non-derivative financial instrument is recognized in Other Comprehensive Income (“OCI”) and accumulated in the hedging reserve. The effective portion of changes in the fair value of the non-derivative financial instrument that is recognized in OCI is limited to the cumulative change in fair value of the hedged item, determined on a present basis, from the inception of the hedge. Any ineffective portion of changes in the fair value of non-derivative financial instrument is recognized immediately in profit or loss, under the heading of “Net finance cost”.
The Group designates only the change in fair value of the spot element of forward exchange contracts as the hedging instrument in cash flow hedging relationships. The change in fair value of forward element of forward exchange contracts (forward points) is separately accounted for as a cost of hedging, recognized in other comprehensive income and accumulated in a separate component of equity.
When the hedged forecast transaction subsequently results in the recognition of a non-financial item such as financial investments, the amount accumulated in the hedging reserve and the cost of hedging reserve is included directly in the initial cost of the non-financial item when it is recognized.
For all other hedged forecast transactions, the amount accumulated in the hedging reserve and the cost of hedging reserve is reclassified to profit or loss, under the heading of “Net finance cost”, in the same period or periods during which the hedged expected future cash flows affect profit or loss.
If the hedge no longer meets the criteria for hedge accounting or the hedging instrument is sold, expires, is terminated or is exercised, then hedge accounting is discontinued prospectively. When hedge accounting for cash flow hedges is discontinued, the amount that has been accumulated in the hedge reserve remains in equity until, for a hedge of a transaction resulting in the recognition of a non-financial item, it is included in the non-financial item’s cost on its initial recognition or, for other cash flow hedges, it is reclassified to profit or loss in the same period or periods as the hedged expected future cash flows affect profit or loss, under the heading of “Net finance cost”.
If the hedged future cash flows are no longer expected to occur, then the amounts that have been accumulated in the hedging reserve and the cost of hedging reserve are immediately reclassified to profit or loss, under the heading of “Net finance cost”.
Additionally, when a financial instrument designated as a hedging instrument expires or is settled, the Group may replace it with another financial instrument, in order to ensure the continuity of the hedging relationship. Similarly, when a transaction designated as a hedged item takes place, the Group may designate the financial instrument that hedged that transaction as a hedging instrument in a new hedging relationship. The effective amount of gain or loss on the instrument is accounted in OCI and the ineffective amount under the heading of “Net finance cost”, with the accumulated gains and losses recognized in profit or loss. The ineffective portion of exchange rate variations arising from hedging instruments is recognized in profit or loss for the period, under the heading of “Net finance cost”.
k. Equity
Share capital
According to the Company’s Articles of Association, two classes of common shares are authorized: Class A common shares, which are entitled to one vote per share, and Class B common shares, which are entitled to ten votes per share and maintain a proportional ownership interest in the event that additional Class A common shares are issued. Incremental costs directly attributable to the issue of common shares are recognized as a deduction from equity.
Share premium
The share premium refers to the difference between the subscription price that the shareholders paid for the shares and their nominal value.
Treasury share reserve
Repurchase and reissue of shares:
When shares recognized as equity are repurchased, the amount of the consideration paid, which includes directly attributable costs, is recognized as a deduction from equity. Repurchased shares are recognized at the treasury shares reserve. When treasury shares are sold or reissued subsequently, the amount received is recognized as an increase in equity and the resulting surplus or deficit on the transaction is presented within share premium.
Capital reserve
The capital reserves arise from the corporate restructuring that occurred in 2021, share-based payment arrangements (note 20.c) and share repurchase and issuance costs.
l. Impairment
(i) Non-derivative financial assets
Financial instruments and contract assets
The Group recognizes loss allowances for expected credit losses on:
Loss allowances for trade receivables and contract assets are measured based on the estimate of lifetime expected credit losses.
When determining whether the credit risk of a financial assets has increased significantly since initial recognition and when estimating expected credit losses, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group’s historical experience and informed credit assessment, that includes forward-looking information.
The Group periodically reviews the economic circumstances and market conditions to define the client´s credit risk increasing.
The Group considers a trade receivables to be in default when the financial asset is more than 360 days past due.
The 12-month of expected credit losses are the portion of expected credit losses that result from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instruments is less than 12 months).
The maximum period considered when estimating the expected credit loss is the maximum contractual period over which the Group is exposed to credit risk.
CI&T Inc.
Consolidated financial statements
December 31, 2023
(ii) Measurement of expected credit losses
The expected credit losses (ECL) are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive).
(iii) Credit-impaired financial assets
At each reporting date, the Group assesses whether financial assets carried at amortized cost are credit-impaired. A financial asset is “credit-impaired” when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.
Evidence that a financial asset is credit-impaired includes the following observable data:
Presentation of allowance for expected credit losses in the statement of financial position
Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets.
(iv) Write-off
The gross carrying amount of a financial asset is written off when the Group has no reasonable expectation of recovering a financial asset in its entirety or a portion thereof. For individual customers, the Group may write off the gross carrying amount when the financial asset is 360 days past due based on historical experience of recoveries of similar assets, unless the Group has reasonable and supportable information to demonstrate that another writing off criterion is more appropriate. For corporate customers, the Group individually makes an assessment with respect to the timing and amount of write-off based on whether there is a reasonable expectation of recovery. The Group expects no significant recovery from the amount written off.
(v) Non-financial assets
At each reporting date, the Group reviews the carrying amounts of its non-financial assets (other than contract assets and deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill is tested annually for impairment.
For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or cash-generating units (CGUs). Goodwill arising from a business combination is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the combination.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs of disposal. Value in use is based on estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU.
An impairment loss is recognized if the carrying amount of an asset or CGU exceeds its recoverable amount.
Impairment losses are recognized in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro-rata basis.
An impairment loss in respect of goodwill is not reversed. For other assets, impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
m. Provisions
Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost.
(i) Disputes and litigations
The provision for disputes and litigation is recognized when it is probable that the Group will be required to make future payments as a result of past events. Such payments include, but are not limited to, the various claims, processes and actions initiated by both third parties and the Group, relating to labor disputes, complaints from tax authorities and other judicial matters.
n. Leases
At inception of a contract or on modification, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
As a lessee, at commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of its relative stand-alone prices. However, for the leases of property the Group has elected not to separate non-lease components and account for the lease and non-lease components as a single lease component.
The Group recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-to-use asset is initially measured at cost, which comprises the initial amount of the liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated under the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right-of-use asset reflects that the Group will exercise a purchase option. In that case, the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate.
The Group determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease and type of the asset leased.
The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, if the Group changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in the profit or loss if the carrying amount of the right-of-use asset has been reduced to nil.
Short-term leases and leases of low-value assets
The Group has elected not to recognize right-of-use assets and lease liabilities for leases of low-value assets and short-term leases, including IT equipment. The Group recognizes lease payments associated with these leases as expenses on a straight-line basis over the lease term.
The Group does not have any contract acting as a lessor.
o. Operating profit
Operating profit is the result generated from the continuing principal revenue-producing activities of the Group as well as other income and expenses related to operating activities. Operating profit excludes net finance costs, share of profit of equity-accounted investees and income taxes.
p. Fair value measurement
‘Fair value’ is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date of the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair value of a liability reflects its non-performance risk.
A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities (see note 5).
When one is available, the Group measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as ‘active’ if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
If there is no quoted price in an active market, then the Group uses valuation techniques that maximize the use of relevant observable inputs and minimize the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction.
If an asset or a liability measured at fair value has a bid price and an ask price, then the Group measures assets and long positions at a bid price and liabilities and short positions at an ask price.
The best evidence of the fair value of a financial instrument on initial recognition is normally the transaction price – i.e. the fair value of the consideration given or received. If the Group determines that the fair value on initial recognition differs from the transaction price and the fair value is evidenced neither by a quoted price in an active market for an identical asset or liability nor based in a valuation technique for which any unobservable inputs are judged to be insignificant in relation to the measurement, then the financial instrument is initially measured at fair value, adjusted to defer the difference between the fair value on initial recognition and the transaction price. Subsequently, that difference is recognized in profit or loss on an appropriate basis over the life of the instrument but not later than when the valuation is wholly supported by observable market data or the transaction is closed out.
CI&T Inc.
Consolidated financial statements
December 31, 2023
| 9 | Business combination |
|
Companies |
Somo |
Box 1824 |
Transpire |
NTERSOL |
|||||||
|
Acquisition/closing date |
January 27, 2022 |
June 1, 2022 |
September 1, 2022 |
November 1, 2022 |
|||||||
|
Cash consideration |
247,764 |
19,040 |
55,724 |
400,137 |
|||||||
|
Cash acquired in business combination |
98,701 |
1,728 |
5,397 |
17,870 |
|||||||
|
Other adjustments |
(5,688 |
) |
- |
(729 |
) |
- |
|||||
|
Cash transferred |
340,777 |
20,768 |
60,392 |
418,007 |
|||||||
|
Restricted cash in escrow account |
23,061 |
- |
- |
- |
|||||||
|
Earn-out |
59,868 |
- |
- |
- |
|||||||
|
Contingent consideration - Retained amount |
9,671 |
8,871 |
- |
75,096 |
|||||||
|
Class A common shares issued |
14,037 |
- |
16,189 |
- |
|||||||
|
Stock-based payment – vested immediately (i) |
- |
4,124 |
- |
170,774 |
|||||||
|
Other |
- |
974 |
- |
- |
|||||||
|
Price adjustment |
- |
(558 |
) |
729 |
5,871 |
||||||
|
Total consideration transferred at the acquisition date |
447,414 |
34,179 |
77,310 |
669,748 |
|||||||
|
Total identifiable net assets acquired |
(130,235 |
) |
(12,654 |
) |
(8,115 |
) |
(201,496 |
) | |||
|
Goodwill |
317,179 |
21,525 |
69,195 |
468,252 |
| (i) | Refers to the purchase price to be paid in common shares in connection with business combination, but considered as vested immediately at each acquisition date, measured at fair value on the same date. |
| 10 | Cash and cash equivalents and financial investments |
|
|
December 31, 2023 |
December 31, 2022 |
|||
|
Cash and cash equivalents |
63,690 |
127,263 |
|||
|
Short-term financial investments |
147,948 |
58,464 |
|||
|
Total |
211,638 |
185,727 |
Short-term financial investments are represented by fixed income securities, with interest rate ranging from 100% to 101% on December 31, 2023 (101% to 102% as of December 31, 2022) of the changes of Interbank Deposit Certificate (CDI) variation which (i) Management expects to use for short-term commitments; (ii) present daily liquidity; and (iii) are readily convertible into a known amount of cash, subject to an insignificant risk of change in value.
10.2 Financial investments
|
. |
December 31, 2023 |
December 31, 2022 |
|||
|
Financial investments |
3,164 |
96,299 |
As of December 31, 2023 the balance of R$ 3,164 (R$ 96,299 as of December 31, 2022), with bear interest rates ranging from 0.57% to 5.28% p.a. (from 0.57% to 4.2% p.a. on December 31, 2022). The Company holds US$ and £ amounts for short-term commitments in the same currencies.
| 11 | Trade receivables and contract assets |
11.1 Trade receivables
The balances of trade receivables are presented, as follows:
|
|
December 31, 2023 |
December 31, 2022 |
|||
|
Trade receivables – Dollar denominated – from US customers |
243,680 |
304,693 |
|||
|
Trade receivables – Reais denominated – from Brazilian customers |
151,456 |
133,582 |
|||
|
Trade receivables – in other foreign currencies |
78,527 |
64,049 |
|||
|
(-) Expected credit losses from trade receivables |
(1,712 |
) |
(653 |
) | |
|
Trade receivables, net |
471,951 |
501,671 |
The balances of trade receivables by maturity date are as follows:
|
|
December 31, 2023 |
December 31, 2022 |
|||||||||
|
|
Trade receivables |
(-) Expected credit losses |
Trade receivables |
(-) Expected credit losses |
|||||||
|
Not due |
438,076 |
(797 |
) |
458,802 |
(146 |
) | |||||
|
Overdue: |
|
|
|
|
|||||||
|
from 1 to 60 days |
30,182 |
(9 |
) |
36,995 |
(261 |
) | |||||
|
61 to 360 days |
5,401 |
(902 |
) |
6,140 |
(119 |
) | |||||
|
Over 360 days |
4 |
(4 |
) |
387 |
(127 |
) | |||||
|
Total |
473,663 |
(1,712 |
) |
502,324 |
(653 |
) | |||||
The movement of impairment loss on trade receivables is as follows:
|
|
|
|
|
Balance as of January 1, 2022 |
(1,059 |
) |
|
Provision |
(1,130 |
) |
|
Reversal |
707 |
|
|
Write-off |
655 |
|
|
Exchange variation |
174 |
|
|
|
|
|
|
Balance as of December 31, 2022 |
(653 |
) |
|
Provision |
(3,747 |
) |
|
Reversal |
2,705 |
|
|
Write-off |
20 |
|
|
Exchange variation |
(37 |
) |
|
|
|
|
|
Balance as of December 31, 2023 |
(1,712 |
) |
CI&T Inc.
Consolidated financial statements
December 31, 2023
11.2 Contract assets
Contract assets relate mainly to the Group’s rights to consideration for services performed, for which control has been transferred to the client, but not invoiced on the reporting date. Contract assets are transferred to receivables when the Group issues an invoice to the client.
The balances from contract assets are shown and segregated in the statement of financial position as follows:
|
|
December 31, 2023 |
December 31, 2022 |
|||
|
Contract assets – Reais denominated – from Brazilian customers |
77,933 |
94,613 |
|||
|
Contract assets – Dollar denominated – from US customers |
38,248 |
104,836 |
|||
|
Contract assets – from other customers |
32,632 |
18,474 |
|||
|
(-) Expected credit losses from contract assets |
(1,193 |
) |
(673 |
) | |
|
Total |
147,620 |
217,250 |
The movement of expected credit losses of contract assets, is as follows:
|
|
|
|
|
Balance as of December 31, 2021 |
(913 |
) |
|
Reversal |
94 |
|
|
Effect of movements in exchange rates |
146 |
|
|
Balance as of December 31, 2022 |
(673 |
) |
|
|
|
|
|
Balance as of December 31, 2022 |
(673 |
) |
|
Provision |
(534 |
) |
|
Effect of movements in exchange rates |
14 |
|
|
Balance as of December 31, 2023 |
(1,193 |
) |
| 12 | Property, plant and equipment |
|
December 31, 2023 |
December 31, 2022 |
||||
|
IT equipment |
26,288 |
37,963 |
|||
|
Furniture and fixtures |
3,117 |
5,064 |
|||
|
Leasehold improvements |
9,168 |
12,226 |
|||
|
Property, plant and equipment in progress |
11 |
13 |
|||
|
Total |
38,584 |
55,266 |
CI&T Inc.
Consolidated financial statements
December 31, 2023
The changes in the balances are as follows:
|
|
IT equipment |
Furniture and fixtures |
Leasehold improvements |
In progress |
Total |
|||||||||
|
Cost: |
|
|
|
|
|
|||||||||
|
Balance as of December 31, 2021 |
63,640 |
13,869 |
30,915 |
157 |
108,581 |
|||||||||
|
Exchange rate changes |
(1,308 |
) |
(289 |
) |
(533 |
) |
- |
(2,130 |
) | |||||
|
Addition due to business combination |
2,822 |
526 |
313 |
- |
3,661 |
|||||||||
|
Additions |
18,777 |
317 |
95 |
154 |
19,343 |
|||||||||
|
Disposals |
(8,390 |
) |
(4,115 |
) |
(9,554 |
) |
(30 |
) |
(22,089 |
) | ||||
|
Transfers |
6 |
- |
262 |
(268 |
) |
- |
||||||||
|
Balance as of December 31, 2022 |
75,547 |
10,308 |
21,498 |
13 |
107,366 |
|||||||||
|
Exchange rate changes |
(554 |
) |
(294 |
) |
(559 |
) |
- |
(1,407 |
) | |||||
|
Additions |
5,980 |
104 |
15 |
798 |
6,897 |
|||||||||
|
Disposals |
(5,328 |
) |
(3,035 |
) |
(972 |
) |
(1 |
) |
(9,336 |
) | ||||
|
Transfers |
5 |
18 |
776 |
(799 |
) |
- |
||||||||
|
Balance as of December 31, 2023 |
75,650 |
7,101 |
20,758 |
11 |
103,520 |
|||||||||
|
|
|
|
|
|
|
|||||||||
|
Depreciation: |
|
|
|
|
|
|||||||||
|
Balance as of December 31, 2021 |
(28,410 |
) |
(7,586 |
) |
(14,864 |
) |
- |
(50,860 |
) | |||||
|
Exchange rate changes |
775 |
104 |
162 |
- |
1,041 |
|||||||||
|
Additions |
(16,645 |
) |
(1,405 |
) |
(3,401 |
) |
- |
(21,451 |
) | |||||
|
Disposals |
6,696 |
3,643 |
8,831 |
- |
19,170 |
|||||||||
|
Balance as of December 31, 2022 |
(37,584 |
) |
(5,244 |
) |
(9,272 |
) |
- |
(52,100 |
) | |||||
|
Exchange rate changes |
441 |
132 |
237 |
- |
810 |
|||||||||
|
Additions |
(17,136 |
) |
(1,000 |
) |
(3,238 |
) |
- |
(21,374 |
) | |||||
|
Disposals |
4,917 |
2,137 |
674 |
- |
7,728 |
|||||||||
|
Transfers |
- |
(9 |
) |
9 |
- |
- |
||||||||
|
Balance as of December 31, 2023 |
(49,362 |
) |
(3,984 |
) |
(11,590 |
) |
- |
(64,936 |
) | |||||
|
Balance as of: |
|
|
|
|
|
|||||||||
|
December 31, 2022 |
37,963 |
5,064 |
12,226 |
13 |
55,266 |
|||||||||
|
December 31, 2023 |
26,288 |
3,117 |
9,168 |
11 |
38,584 |
| 13 | Intangible assets and goodwill |
|
|
December 31, 2023 |
December 31, 2022 restated |
|||
|
Customer relationship |
239,087 |
288,943 |
|||
|
Software in progress |
13,771 |
1,032 |
|||
|
Non-compete agreement |
7,833 |
10,865 |
|||
|
Internally developed software |
6,814 |
4,059 |
|||
|
Brands |
5,134 |
7,464 |
|||
|
Software |
4,407 |
5,641 |
|||
|
Subtotal |
277,046 |
318,004 |
|||
|
Goodwill |
1,392,819 |
1,437,990 |
|||
|
Total |
1,669,865 |
1,755,994 |
The change in the balances of intangible assets as follows:
|
|
Software |
Internally developed software |
Software in progress |
Customer relationship |
Non-compete agreement |
Brands |
Goodwill (i) |
Total |
|||||||||||||||
|
Cost: |
|
|
|
|
|
|
|
|
|||||||||||||||
|
Balance as of December 31, 2021 |
11,942 |
16,581 |
391 |
88,961 |
13,462 |
20,501 |
619,469 |
771,307 |
|||||||||||||||
|
Additions due to business combination restated (i) |
3,378 |
5 |
- |
222,278 |
- |
13,304 |
876,151 |
1,115,116 |
|||||||||||||||
|
Exchange rate changes |
(7 |
) |
- |
- |
2,020 |
- |
- |
(57,630 |
) |
(55,617 |
) | ||||||||||||
|
Additions |
901 |
- |
2,723 |
- |
- |
- |
- |
3,624 |
|||||||||||||||
|
Write-off |
(1,078 |
) |
- |
(32 |
) |
- |
- |
(7 |
) |
- |
(1,117 |
) | |||||||||||
|
Transfers |
50 |
2,000 |
(2,050 |
) |
- |
- |
- |
- |
- |
||||||||||||||
|
Balance as of December 31, 2022 restated |
15,186 |
18,586 |
1,032 |
313,259 |
13,462 |
33,798 |
1,437,990 |
1,833,313 |
|||||||||||||||
|
Exchange rate changes |
(293 |
) |
- |
- |
(11,229 |
) |
- |
(1 |
) |
(45,171 |
) |
(56,694 |
) | ||||||||||
|
Additions |
562 |
- |
18,140 |
- |
- |
- |
- |
18,702 |
|||||||||||||||
|
Write-off |
(5,317 |
) |
(429 |
) |
- |
- |
- |
- |
- |
(5,746 |
) | ||||||||||||
|
Transfers |
- |
5,401 |
(5,401 |
) |
- |
- |
- |
- |
- |
||||||||||||||
|
Balance as of December 31, 2023 |
10,138 |
23,558 |
13,771 |
302,030 |
13,462 |
33,797 |
1,392,819 |
1,789,575 |
|||||||||||||||
|
Amortization: |
|
|
|
|
|
|
|
|
|||||||||||||||
|
Balance as of January 1, 2022 |
(9,543 |
) |
(12,670 |
) |
- |
(4,766 |
) |
435 |
(5,960 |
) |
- |
(32,504 |
) | ||||||||||
|
Exchange rate changes |
89 |
- |
- |
- |
- |
- |
- |
89 |
|||||||||||||||
|
Additions |
(1,129 |
) |
(1,857 |
) |
- |
(19,550 |
) |
(3,032 |
) |
(20,374 |
) |
- |
(45,942 |
) | |||||||||
|
Write-off |
1,038 |
- |
- |
- |
- |
- |
- |
1,038 |
|||||||||||||||
|
Balance as of December 31, 2022 restated (i) |
(9,545 |
) |
(14,527 |
) |
- |
(24,316 |
) |
(2,597 |
) |
(26,334 |
) |
- |
(77,319 |
) | |||||||||
|
Exchange rate changes |
67 |
- |
- |
890 |
- |
- |
- |
957 |
|||||||||||||||
|
Additions |
(1,550 |
) |
(2,217 |
) |
- |
(39,517 |
) |
(3,032 |
) |
(2,329 |
) |
- |
(48,645 |
) | |||||||||
|
Write-off |
5,297 |
- |
- |
- |
- |
- |
- |
5,297 |
|||||||||||||||
|
Balance as of December 31, 2023 |
(5,731 |
) |
(16,744 |
) |
- |
(62,943 |
) |
(5,629 |
) |
(28,663 |
) |
- |
(119,710 |
) | |||||||||
|
Balance at: |
|
|
|
|
|
|
|
|
|||||||||||||||
|
December 31, 2022 restated (i) |
5,641 |
4,059 |
1,032 |
288,943 |
10,865 |
7,464 |
1,437,990 |
1,755,994 |
|||||||||||||||
|
December 31, 2023 |
4,407 |
6,814 |
13,771 |
239,087 |
7,833 |
5,134 |
1,392,819 |
1,669,865 |
(i) In November 2022, the Group signed the Share Purchase and Sale Agreement for the acquisition of all the shares of Ntersol. The measurement of the fair values of assets acquired and liabilities assumed, on a provisional basis, disclosed in the financial statements of December 31, 2022 was completed within one year after the acquisition date. In May 2023, after calculation of price adjustment conclusion, the Company registered the amount of R$ 5,096 in goodwill and account payable for business acquired, retrospectively.
In accordance with IFRS 3, during the measurement period, the acquirer shall retrospectively adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date and, if known, would have affected the measurement of the amounts recognize as of that date. Therefore, this adjustment was due to the application of the accounting standard and not an error in the previous year's disclosure, this matter was not included in note 30 Correction of errors.
CI&T Inc.
Consolidated financial statements
December 31, 2023
Impairment test – Goodwill
The recoverable amount of the CGU was based on the value in use, determined through the discounted future cash flows to be generated by the continuous use of the CGU.
The discounted cash flow methodology was used to determine the value in use of the CGU, calculated based on the capitalization of free cash flows discounted at a weighted-average cost of capital (WACC) that corresponds to the discount rate, considering the weighted average cost of the different financing forms present in the Group’s capital structure.
The values attributed to the main assumptions, as detailed below, represent the assessment of future management trends in relevant sectors and were based on historical data from internal and external sources.
|
|
December 31, 2023 |
December 31, 2022 |
|||
|
Discount rate - before tax |
17.64 |
% |
25.00 |
% | |
|
Discount rate - after tax |
13.65 |
% |
17.00 |
% | |
|
Budgeted EBITDA growth rate (average for the next five years) |
19 |
% |
22 |
% | |
|
Terminal value growth rate: |
3.5 |
% |
3 |
% | |
|
Projected period |
5 years |
5 years |
The discount rate was estimated after tax based on the historical weighted average cost of capital rate at which the CGU operates.
The cash flow projections were prepared for five years and a growth rate in perpetuity after this period was considered. The rate of growth in perpetuity was determined as the lower value between the inflation of the countries where the Group operates and the estimated annual compound rate of long-term growth of Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”), which Management believes to be consistent with the market.
The key estimates used were as follows:
| • |
Revenue growth was projected considering the average growth levels experienced over the past years and the growth for the next five years between 2.5% and 10.0%, considering effective tax rates on the base date of assessment. |
| • |
The variation in EBITDA follows revenues, costs, and expenses. The average EBITDA margin was 19% over the projected period. |
Management therefore believes that any changes to the key assumptions above would not result in the carrying value of goodwill to be unrecoverable.
The Group did not recognize any impairment loss for the years ended December 31, 2023, 2022 and 2021.
| 14 | Leases |
a. Right-of-use assets
|
|
December 31, 2023 |
December 31, 2022 |
|||
|
Properties |
33,903 |
48,415 |
|||
|
Vehicles |
5,792 |
7,772 |
|||
|
Total |
39,695 |
56,187 |
Some of the Group’s leases have the option of an extension that can be exercised for an indefinite period, and in these cases the Group has already considered in the measurement of the lease amounts the extensions that are reasonably certain to be exercised.
The Group applies the short-term lease recognition exemption to its short-term leases of properties (those leases that have a lease term of 12 months or less). It also applies the lease of low-value assets recognition exemption to leases that are considered of low value. Lease payments on short-term leases and leases of low-value assets are recognized as expenses on a straight-line basis. These rental expenses for the year totaled R$ 5,969 as of December 31, 2023 (R$ 7,497 as of December 31, 2022 and R$ 5,922 as of December 31, 2021).
The changes to balances of the right-of-use are:
|
|
Properties |
Vehicles |
IT equipment |
Total |
|||||||
|
Cost: |
|
|
|
|
|||||||
|
Balance on December 31, 2021 |
107,640 |
6,372 |
851 |
114,863 |
|||||||
|
Additions due to business combination |
11,035 |
- |
- |
11,035 |
|||||||
|
Exchange rate changes |
(3,226 |
) |
- |
- |
(3,226 |
) | |||||
|
Additions |
8,144 |
6,930 |
- |
15,074 |
|||||||
|
Derecognition of right-of-use assets |
(33,006 |
) |
(1,104 |
) |
(851 |
) |
(34,961 |
) | |||
|
Balance on December 31, 2022 |
90,587 |
12,198 |
- |
102,785 |
|||||||
|
Exchange rate changes |
(3,716 |
) |
- |
- |
(3,716 |
) | |||||
|
Additions |
8,152 |
3,276 |
- |
11,428 |
|||||||
|
Derecognition of right-of-use assets |
(7,303 |
) |
(4,129 |
) |
- |
(11,432 |
) | ||||
|
Balance on December 31, 2023 |
87,720 |
11,345 |
- |
99,065 |
|||||||
|
|
|
|
|
|
|||||||
|
Depreciation: |
|
|
|
|
|||||||
|
Balance on December 31, 2021 |
(38,200 |
) |
(2,199 |
) |
(638 |
) |
(41,037 |
) | |||
|
Exchange rate changes |
123 |
- |
- |
123 |
|||||||
|
Depreciation |
(23,679 |
) |
(3,273 |
) |
(213 |
) |
(27,165 |
) | |||
|
Derecognition of right-of-use assets |
19,584 |
1,046 |
851 |
21,481 |
|||||||
|
Balance on December 31, 2022 |
(42,172 |
) |
(4,426 |
) |
- |
(46,598 |
) | ||||
|
Exchange rate changes |
1,880 |
- |
- |
1,880 |
|||||||
|
Depreciation |
(19,196 |
) |
(3,998 |
) |
- |
(23,194 |
) | ||||
|
Derecognition of right-of-use assets |
5,671 |
2,871 |
- |
8,542 |
|||||||
|
Balance on December 31, 2023 |
(53,817 |
) |
(5,553 |
) |
- |
(59,370 |
) | ||||
|
|
|
|
|
|
|||||||
|
Net balance at: |
|
|
|
|
|||||||
|
December 31, 2022 |
48,415 |
7,772 |
- |
56,187 |
|||||||
|
December 31, 2023 |
33,903 |
5,792 |
- |
39,695 |
CI&T Inc.
Consolidated financial statements
December 31, 2023
b. Lease liabilities
|
. |
Average discount rate (per year) |
December 31, 2023 |
December 31, 2022 |
||||
|
Properties |
6.96% (2022: 8.26%) |
38,602 |
54,369 |
||||
|
Vehicles |
17.38% (2022: 16.63%) |
6,297 |
8,439 |
||||
|
Total |
|
44,899 |
62,808 |
||||
|
Current |
|
17,862 |
21,539 |
||||
|
Non-current |
|
27,037 |
41,269 |
The change in lease liabilities is disclosed in the reconciliation of change in liabilities to cash flows in note 15.
| 15 | Loans and borrowings (restated) |
|
|
Average interest rate (%) |
Year of maturity |
December 31, 2023 |
December 31, 2022 restated |
|||||
|
In US$ |
|
|
|
|
|||||
|
Advance on Foreign Exchange Contract (ACC) |
2.28% p.a. to 4.86% p.a. |
2023 |
- |
96,386 |
|||||
|
Export Credit Note (NCE) |
SOFR Overnight(a) + 2.33% p.a. |
2026 |
110,648 |
142,658 |
|||||
|
Working Capital Loan |
5.02% p.a. / SOFR Overnight(a) + 2.79% p.a. to 2.90% p.a. |
2026 to 2028 |
380,757 |
452,276 |
|||||
|
Total |
|
|
491,405 |
691,320 |
|||||
|
In R$ |
|
|
|
|
|||||
|
Export Credit Note (NCE) |
CDI(b) + 1.10% p.a. to 1.75% p.a. |
2023 to 2028 |
236,058 |
298,443 |
|||||
|
Total |
|
|
236,058 |
298,443 |
|||||
|
Total loans and borrowings |
|
|
727,463 |
989,763 |
| (a) | SOFR Overnight means Secured Overnight Financing Rate. |
| (b) | CDI (certificado de depósito interbancário) interest rate is an average of interbank overnight rates in Brazil, average during the corresponding period. |
These balances are presented as current and non-current borrowings in the consolidated statement of financial position as follows:
|
|
December 31, 2023 |
December 31, 2022 restated |
|||
|
Current |
|
|
|||
|
Advance on Foreign Exchange Contract (ACC) |
- |
96,386 |
|||
|
Export Credit Note (NCE) |
52,182 |
87,989 |
|||
|
Working Capital Loan |
60,537 |
51,655 |
|||
|
|
112,719 |
236,030 |
|||
|
Non-current |
|
|
|||
|
Export Credit Note (NCE) |
294,524 |
353,112 |
|||
|
Working Capital Loan |
320,220 |
400,621 |
|||
|
|
614,744 |
753,733 |
|||
|
|
727,463 |
989,763 |
CI&T Inc.
Consolidated financial statements
December 31, 2023
The principal balances of long-term loans and borrowings as of December 31, 2023, mature as follows:
|
Maturity |
|
|
|
2025 |
168,738 |
|
|
2026 |
190,639 |
|
|
2027 |
145,923 |
|
|
2028 |
109,444 |
|
|
Non-current liabilities |
614,744 |
The reconciliation of change in liabilities to cash flows arising from financing activities is shown below:
|
|
Liabilities |
|
|
Derivative (assets)/liabilities |
|
Net Equity |
|
|
||||||||||||
|
|
Loans and borrowings |
Leases (note 14.b) |
Accounts payable for business acquired |
|
Derivative – assets |
Derivative – liabilities |
|
Reserves |
Total |
|||||||||||
|
Balance as of January 1, 2023 |
989,763 |
62,808 |
210,045 |
|
(11,194 |
) |
4,109 |
|
1,371,095 |
2,626,626 |
||||||||||
|
Changes in cash flow from financing activities |
|
|
|
|
|
|
|
|
|
|||||||||||
|
Proceeds from loans and borrowings |
205,093 |
- |
- |
|
- |
- |
|
- |
205,093 |
|||||||||||
|
Payments related to loans, borrowings, lease liabilities and business acquired |
(407,013 |
) |
(24,070 |
) |
(77,338 |
) |
|
- |
- |
|
- |
(508,421 |
) | |||||||
|
Proceeds from exercise of share options |
- |
- |
- |
|
- |
- |
|
1,227 |
1,227 |
|||||||||||
|
Repurchase of treasury shares |
- |
- |
- |
|
- |
- |
|
(43,414 |
) |
(43,414 |
) | |||||||||
|
Settlement of derivatives |
- |
- |
- |
|
8,266 |
3,934 |
|
- |
12,200 |
|||||||||||
|
Total changes in cash flow from financing activities |
(201,920 |
) |
(24,070 |
) |
(77,338 |
) |
|
8,266 |
3,934 |
|
(42,187 |
) |
(333,315 |
) | ||||||
|
Exchange rate changes |
(48,031 |
) |
(2,054 |
) |
(7,020 |
) |
|
- |
- |
|
- |
(57,105 |
) | |||||||
|
Other changes - liabilities |
|
|
|
|
|
|
|
|
|
|||||||||||
|
New leases (note 14) |
- |
11,428 |
- |
|
- |
- |
|
- |
11,428 |
|||||||||||
|
Interest expenses |
79,439 |
4,102 |
- |
|
- |
- |
|
- |
83,541 |
|||||||||||
|
Present/fair value adjustment |
- |
- |
4,863 |
|
- |
- |
|
- |
4,863 |
|||||||||||
|
Interest paid |
(91,788 |
) |
(4,057 |
) |
- |
|
- |
- |
|
- |
(95,845 |
) | ||||||||
|
Early lease termination |
- |
(3,258 |
) |
- |
|
- |
- |
|
- |
(3,258 |
) | |||||||||
|
Unrealized loss (gain) on financial instruments |
- |
- |
- |
|
(6,692 |
) |
(8,043 |
) |
- |
(14,735 |
) | |||||||||
|
Monetary adjustment of accounts payable for business acquired |
- |
- |
4,677 |
|
- |
- |
|
- |
4,677 |
|||||||||||
|
Other changes |
- |
- |
827 |
|
- |
- |
|
- |
827 |
|||||||||||
|
Total other changes - liabilities |
(12,349 |
) |
8,215 |
10,367 |
|
(6,692 |
) |
(8,043 |
) |
- |
(8,502 |
) | ||||||||
|
Total other changes – equity |
- |
- |
- |
|
- |
- |
|
180,415 |
180,415 |
|||||||||||
|
Balance as of December 31, 2023 |
727,463 |
44,899 |
136,054 |
|
(9,620 |
) |
- |
|
1,509,323 |
2,408,119 |
||||||||||
CI&T Inc.
Consolidated financial statements
December 31, 2023
|
|
Liabilities |
|
Derivative (assets)/liabilities |
|
Net Equity |
|||||||||||||||
|
|
Loans and borrowings |
Leases (note 14.b) |
Accounts payable for business acquired (note 17) |
|
Derivative – assets |
Derivative – liabilities |
|
Reserves |
Total |
|||||||||||
|
Balance as of January 1, 2022 |
788,709 |
81,888 |
85,726 |
|
(896 |
) |
535 |
|
1,052,042 |
2,008,004 |
||||||||||
|
Changes in cash flow from financing activities |
|
|
|
|
|
|
|
|
|
|||||||||||
|
Proceeds from loans and borrowings |
527,507 |
- |
- |
|
- |
- |
|
- |
527,507 |
|||||||||||
|
Payments related to loans, borrowings, lease liabilities and business acquired |
(350,571 |
) |
(26,993 |
) |
(62,338 |
) |
- |
- |
|
- |
(439,902 |
) | ||||||||
|
Proceeds from exercise of share options |
- |
- |
- |
|
- |
- |
|
12,668 |
12,668 |
|||||||||||
|
Settlement of derivatives |
- |
- |
- |
|
(647 |
) |
1,037 |
|
- |
390 |
||||||||||
|
Total changes in cash flow from financing activities |
176,936 |
(26,993 |
) |
(62,338 |
) |
(647 |
) |
1,037 |
|
12,668 |
100,663 |
|||||||||
|
Exchange rate changes |
(13,954 |
) |
(2,689 |
) |
(11,114 |
) |
- |
- |
|
- |
(27,757 |
) | ||||||||
|
Other changes - liabilities |
|
|
|
|
|
|
|
|
|
|||||||||||
|
Additions due to business combination |
39,970 |
11,035 |
182,637 |
|
- |
- |
|
- |
233,642 |
|||||||||||
|
New leases (note 14) |
- |
15,074 |
- |
|
- |
- |
|
- |
15,074 |
|||||||||||
|
Interest expenses |
68,198 |
3,823 |
- |
|
- |
- |
|
- |
72,021 |
|||||||||||
|
Interest paid |
(70,096 |
) |
(6,169 |
) |
- |
|
- |
- |
|
- |
(76,265 |
) | ||||||||
|
Fair value adjustment |
- |
- |
11,497 |
|
- |
- |
|
- |
11,497 |
|||||||||||
|
Early lease termination |
- |
(12,697 |
) |
- |
|
- |
- |
|
- |
(12,697 |
) | |||||||||
|
Unrealized loss (gain) on financial instruments |
- |
- |
- |
|
(9,651 |
) |
2,537 |
|
- |
(7,114 |
) | |||||||||
|
Monetary adjustment of accounts payable for business acquired |
- |
- |
9,108 |
|
- |
- |
|
- |
9,108 |
|||||||||||
|
Price adjustment review related to business acquired |
- |
- |
217 |
|
- |
- |
|
- |
217 |
|||||||||||
|
Other changes |
- |
(464 |
) |
(5,688 |
) |
- |
- |
|
- |
(6,152 |
) | |||||||||
|
Total other changes – liabilities |
38,072 |
10,602 |
197,771 |
|
(9,651 |
) |
2,537 |
|
- |
239,331 |
||||||||||
|
Total other changes – equity (restated) |
- |
- |
- |
|
- |
- |
|
306,385 |
306,385 |
|||||||||||
|
Restated balance as of December 31, 2022 |
989,763 |
62,808 |
210,045 |
|
(11,194 |
) |
4,109 |
|
1,371,095 |
2,626,626 |
||||||||||
CI&T Inc.
Consolidated financial statements
December 31, 2023
|
|
Liabilities |
|
Derivative (assets)/liabilities |
|
Net Equity |
|||||||||||||||
|
|
Loans and borrowings |
Leases |
Accounts payable for business acquired |
|
Derivative – assets |
Derivative – liabilities |
|
Reserves |
Total |
|||||||||||
|
Balance as of January 1, 2021 |
89,230 |
75,228 |
- |
|
(8,837 |
) |
5,392 |
|
185,040 |
346,053 |
||||||||||
|
Changes in cash flow from financing activities |
|
|
|
|
|
|
|
|
|
|||||||||||
|
Proceeds from loans and borrowings |
740,596 |
- |
- |
|
- |
- |
|
- |
740,596 |
|||||||||||
|
Payments related to loans, borrowings and lease liabilities |
(75,196 |
) |
(17,656 |
) |
- |
|
- |
- |
|
- |
(92,852 |
) | ||||||||
|
Issuance of common shares at initial public offering |
- |
- |
- |
|
- |
- |
|
915,947 |
915,947 |
|||||||||||
|
Transaction cost of offering |
- |
- |
- |
|
- |
- |
|
(66,876 |
) |
(66,876 |
) | |||||||||
|
Share-based plan contributions |
- |
- |
- |
|
- |
- |
|
1,282 |
1,282 |
|||||||||||
|
Interest on equity paid |
- |
- |
- |
|
- |
- |
|
(6,288 |
) |
(6,288 |
) | |||||||||
|
Dividends paid |
- |
- |
- |
|
- |
- |
|
(126,045 |
) |
(126,045 |
) | |||||||||
|
Total changes in cash flow from financing activities |
665,400 |
(17,656 |
) |
- |
|
- |
- |
|
718,020 |
1,365,764 |
||||||||||
|
Exchange rate changes |
22,862 |
2,054 |
- |
|
- |
- |
|
- |
24,916 |
|||||||||||
|
Other changes - liabilities |
|
|
|
|
|
|
|
|
|
|||||||||||
|
Additions due to business combination |
- |
6,139 |
- |
|
- |
- |
|
- |
6,139 |
|||||||||||
|
New leases |
- |
15,504 |
- |
|
- |
- |
|
- |
15,504 |
|||||||||||
|
Remeasurement |
- |
1,351 |
- |
|
- |
- |
|
- |
1,351 |
|||||||||||
|
Interest expenses |
23,366 |
6,369 |
- |
|
- |
- |
|
- |
29,735 |
|||||||||||
|
Interest paid |
(12,149 |
) |
(5,753 |
) |
- |
|
- |
- |
|
- |
(17,902 |
) | ||||||||
|
Early lease termination |
- |
(1,135 |
) |
- |
|
- |
- |
|
- |
(1,135 |
) | |||||||||
|
Unrealized loss (gain) on financial instruments |
- |
- |
- |
|
7,941 |
(4,857 |
) |
- |
3,084 |
|||||||||||
|
Other changes |
- |
(213 |
) |
85,726 |
|
- |
- |
|
- |
85,513 |
||||||||||
|
Total other changes – liabilities |
11,217 |
22,262 |
85,726 |
|
7,941 |
(4,857 |
) |
- |
122,289 |
|||||||||||
|
Total other changes - equity |
- |
- |
- |
|
- |
- |
|
148,982 |
148,982 |
|||||||||||
|
Balance as of December 31, 2021 |
788,709 |
81,888 |
85,726 |
|
(896 |
) |
535 |
|
1,052,042 |
2,008,004 |
||||||||||
Loans and borrowings covenants
The loans and borrowings are subject to covenants, which establish the early maturity of debts. Early maturity of the loans could be caused by:
| • |
Disposal, merger, incorporation, spin-off, or any other corporate reorganization process that implies a change in the shareholding control, without prior consent from the creditor; |
| • |
Some of the debt contracts demand the maintenance of specific ratios, such as the Net Debt to EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) ratio. |
The Group has complied with financial covenants as of December 31, 2023, 2022 and 2021.
The loans and borrowings are not secured by property, plant or equipment, or trade receivables.
| 16 | Salaries and welfare charges |
|
|
December 31, 2023 |
December 31, 2022 |
|||
|
Salaries |
28,082 |
30,551 |
|||
|
Accrued vacation and charges |
109,025 |
107,801 |
|||
|
Bonus accrued |
9,571 |
64,815 |
|||
|
Withholding income tax |
27,013 |
29,267 |
|||
|
Payroll charges (social contributions) |
16,188 |
15,168 |
|||
|
Others |
6,517 |
12,554 |
|||
|
Total |
196,396 |
260,156 |
| 17 | Accounts payable for business acquired |
|
|
Interest rate per year |
Maturity |
December 31, 2023 |
December 31, 2022 restated (i) |
|||||
|
In R$ |
|
|
|
|
|||||
|
Retained amount |
CDI (13.04%) |
2024 to 2027 |
40,529 |
43,348 |
|||||
|
Other |
N/A |
2026 to 2027 |
974 |
974 |
|||||
|
Total |
|
|
41,503 |
44,322 |
|||||
|
|
|
|
|
|
|||||
|
In US$ |
|
|
|
|
|||||
|
Retained amount |
T-Bills (4.79%) |
2024 |
74,499 |
76,084 |
|||||
|
Other |
N/A |
2023 |
- |
5,871 |
|||||
|
Total |
|
|
74,499 |
81,955 |
|||||
|
|
|
|
|
|
|||||
|
In £ |
|
|
|
|
|||||
|
Earn-out |
N/A |
2023 |
- |
61,529 |
|||||
|
Escrow account |
England base rate (5.25%) |
2025 |
18,150 |
20,091 |
|||||
|
Other |
England base rate (5.25%) |
2025 |
1,902 |
2,148 |
|||||
|
Total |
|
|
20,052 |
83,768 |
|||||
|
|
|
|
|
|
|||||
|
Total accounts payable for business acquired |
|
|
136,054 |
210,045 |
These balances are presented as current and non-current accounts payable for business acquired in the consolidated statement of financial position as follows:
|
|
December 31, 2023 |
December 31, 2022 restated (i) |
|||
|
Current |
13,365 |
76,746 |
|||
|
Non-current |
122,689 |
133,299 |
|||
|
Total |
136,054 |
210,045 |
CI&T Inc.
Consolidated financial statements
December 31, 2023
| 18 |
Provisions, judicial deposits and restricted cash – escrow account and indemnity asset |
a. Provision
The Group is involved in tax and labor lawsuits that were considered probable losses and are provisioned according to the table below:
|
|
Tax |
Labor |
Total |
|||||
|
Balance as of December 31, 2021 |
131 |
502 |
633 |
|||||
|
Provisions |
77 |
582 |
659 |
|||||
|
Provision of obligations assumed in a business combination (i) |
- |
13,583 |
13,583 |
|||||
|
Reversal of obligations assumed in a business combination (i) |
- |
(2,240 |
) |
(2,240 |
) | |||
|
Reversal |
(3 |
) |
(270 |
) |
(273 |
) | ||
|
Payments |
- |
(15 |
) |
(15 |
) | |||
|
Balance as of December 31, 2022 |
205 |
12,142 |
12,347 |
|||||
|
|
|
|
|
|||||
|
Balance as of December 31, 2022 |
205 |
12,142 |
12,347 |
|||||
|
Provisions |
- |
18 |
18 |
|||||
|
Reversal |
(205 |
) |
(237 |
) |
(442 |
) | ||
|
Reversal of obligations assumed in a business combination (i) |
- |
(2,303 |
) |
(2,303 |
) | |||
|
Balance as of December 31, 2023 |
- |
9,620 |
9,620 |
|||||
|
|
|
|
|
| (i) | In relation to Box 1824 business combination, the Group has assumed an amount of R$ 13,583 related to labor contingencies liability, on the acquisition date. As of December 31, 2023, the amount provisioned was R$ 9,040 (R$ 11,343 as of December 31,2022). |
The Group is a party to civil, labor and tax lawsuits, whose likelihood of loss is regarded as possible, for which no provision was recorded, in the amount of R$ 8,519 as of December 31, 2023 (R$ 10,563 as of December 31, 2022).
b. Judicial deposits
As of December 31, 2023, the Group’s judicial deposits totaled R$ 7,280 (R$ 9,819 as of December 31, 2022), recognized in the statement of financial position, in non-current assets. Of this amount, R$ 7,008 (R$ 9,405 as of December 31, 2022) refers to tax lawsuits, and R$ 272 (R$ 415 as of December 31, 2022) refers to labor lawsuits.
c. Restricted cash – escrow account and indemnity asset
|
|
December 31, 2023 |
December 31, 2022 |
|||
|
Escrow account (i) |
20,021 |
20,209 |
|||
|
Indemnity asset (ii) |
9,040 |
11,343 |
|||
|
Total |
29,061 |
31,552 |
| (i) | Refers to guarantee in connection with business combination, in order to satisfy certain claims, if occur. |
| (ii) | Refers to an indemnification asset in connection with a business combination, where the Group has the right to be indemnified for all losses that may occur related to labor contingent liabilities. |
| 19 | Employee benefits |
Additionally, the Group offers its employees the option to participate in a private pension plan to which voluntary contributions are made. For CI&T US, CI&T UK and CI&T Canada, the subsidiaries contribute with the same amount as the participants up to 4% of the employee salary. There is no consideration to be paid by the subsidiaries, as there are no post-employment obligations. The nature of the plan allows employees to suspend or discontinue their contributions at any time and allows the Management to transfer the portfolio to another administrator.
The Group does not have additional post-employment obligations and none other long-term benefits, such as time-of-service leave, lifetime health plan and other time-service benefits.
| 20 | Share-based payment arrangements |
Stock option program
First plan (2020 / 2021)
The Group granted the Stock option programs 1, 2, 3 and 4, through which selected executives were granted options that concede the right to exercise the stock purchase, subject to certain conditions under the “Stock Option Plan” (“SOP”) , with the option by the Company to settle in equity or cash. The settlement in equity occurs through the controlling company CI&T Cayman, with each option granting the right to acquire one class A common share issued by the Company.
Second plan (2022)
On June 9, 2022, the Board of Directors approved the second stock option plan, through which selected executives were granted options that confer the right to exercise the stock purchase, subject to certain conditions under the “Stock Option Plan”, with the option to settle in equity.
In June, 2023 the Company's management modified the exercise price of the shares granted to $4.10 referring to second plan (2022) for all subsidiaries executives in order to promote the exercise of the shares. In counterpart to modifying the exercise price and to reduce the Plan's potential dilution in relation to the Company's current shareholders, it was agreed to reduce the total number of options granted regarding to second plan (2022) in 15% (fifteen percent). The Company remeasured the fair value of the stock options granted on the date of the plan modification. For the year ended December 31, 2023, the remeasurement to fair value of the stock options granted resulted in an adjustment of R$ 3,690 in the Company’s statement of profit or loss.
Incentive stock options program
In October 2022, the Board of Directors approved the Incentive Stock Options (“ISO”) program. The ISO may be granted only to Company employees or employees of certain of the Company’s subsidiaries and must have an exercise price of no less than 100% of the fair market value (or 110% with respect to a 10% shareholder) of a Class A common share of the Company on the grant date and a term of no more than 10 years (or five years with respect to a 10% shareholder). In October 2023 the Company's management approved the change in the exercise price of the options granted from US$ 16.75 to US$ 6.30, resulting an incremental fair value of the option in the total vesting period of R$ 790.
Restricted stock units program
In October 2022, the Board of Directors approved the Restricted Stock Units (“RSU”) program. A restricted stock unit is an unfunded and unsecured obligation to issue Class A common shares of the Company (or an equivalent cash amount) to participants in the future. The RSU become payable on terms and conditions determined by the Company and will vest and be settled at such times in cash, shares, or other specified property, as determined by the Company.
Matching shares
In 2023, the Company established a matching program under the Restricted Stock Units Plan, which provides for the granting of Restricted Stock Units (“RSUs”) to selected participants who fulfill the condition acquiring CI&T’s shares and holding the acquired shares as restricted and non-negotiable shares for the respective vesting period. Under the matching program, participants have the right to receive, on each grant date, the matching shares granted in accordance with the vesting period, equivalent to 50% of the shares they acquired. The 50% of the Matching Shares shall become vested on the second anniversary of the grant date.
CI&T Inc.
Consolidated financial statements
December 31, 2023
The summary of all shared-based payments are as follows:
|
Grant date |
Number of instruments |
Settlement |
Stock incentive plan |
Vesting Conditions |
Contractual life of options |
||||||
|
2020 |
3,940,478 |
Equity |
SOP |
Remains providing service in the Company until the expiration of the vesting periods. |
6.8 years |
||||||
| 2020 | 69,774 | Cash | SOP | Same as above | 6.76 years | ||||||
|
2021 |
854,436 |
Equity |
SOP |
Remains providing service in the Company until the expiration of the vesting periods. |
5.8 years |
||||||
|
2021 |
12,130 |
Cash |
SOP |
Same as above |
5.24 years |
||||||
|
2022 |
440,434 |
Equity |
SOP |
Remains providing service in the Company until the expiration of the vesting periods. |
5.3 - 5.8 years |
||||||
|
2022 |
93,896 |
Equity |
ISO |
Remains providing service in the Company until the expiration of the vesting periods. |
2.9 - 4.3 years |
||||||
|
2022 |
1,449,277 |
Equity |
RSU |
Remains providing service in the Company until the expiration of the vesting periods. |
1.0 - 3.5 years |
||||||
|
2022 |
13,101 |
Cash |
SOP |
Remains providing service in the Company until the expiration of the vesting periods. |
5.25 years |
||||||
|
2023 |
89,432 |
Equity |
SOP |
Remains providing service in the Company until the expiration of the vesting periods. |
3.5 - 4.5 years |
||||||
|
2023 |
265,167 |
Equity |
RSU |
Remains providing service in the Company until the expiration of the vesting periods. |
1.0 - 4.0 years |
||||||
|
2023 |
6,719 |
Equity |
Matching |
Remains providing service in the Company until the expiration of the vesting period and doesn´t trade the options during this period. |
2.4 years |
b. Measurement of fair values
The Group calculated the fair value on the grant date using the Black-Scholes option pricing model. The Black-Scholes model requires the input of highly subjective assumptions, including the fair value of the Company's shares, expected volatility, expected term, risk-free interest rate and dividend yield.
The Company's grants under its share-based compensation plan with employees are measured based on fair value of the Group's shares at the grant date and recognized as compensation expense on a straight-line basis over the requisite service period, with a corresponding impact reflected in additional paid-in capital.
The Company estimated the following assumptions for the calculation of the fair value of the share options:
|
Grant date |
Stock incentive plan |
Plan |
Settlement |
Fair value at grant date |
Share price at grant date |
Exercise price (weighted average) |
Expected volatility (weighted average) |
Expected life (weighted average) |
Expected dividends |
Interest Rate |
|
2020 |
SOP |
1st - 2nd |
Equity |
R$ 0.48 |
R$ 21.68 |
R$ 9.58 |
24.19% |
6.8 years |
5.05% |
1.53% |
|
2020 |
SOP |
2nd |
Cash |
R$ 4.69 |
R$ 21.68 |
R$ 9.58 |
31.71% |
3.7 years |
- |
1.53% |
|
2021 |
SOP |
3rd |
Equity |
R$ 1.81 |
R$ 21.68 |
R$ 19.84 |
27.73% |
5.8 years |
5.05% |
2.66% |
|
2021 |
SOP |
4th |
Cash |
R$ 16.86 |
R$ 21.68 |
R$ 19.84 |
27.73% |
4.3 years |
- |
2.66% |
|
2021 |
SOP |
4th |
Equity |
R$ 1.85 |
R$ 21.68 |
R$ 19.84 |
27.73% |
5.8 years |
5.05% |
2.66% |
|
2022 |
SOP |
1st |
Cash |
US$ 2.10 |
US$ 9.98 |
US$ 4.10 |
27.44% |
2.3 years |
- |
3.83% |
|
2022 |
SOP |
1st |
Equity |
US$ 0.39 - 3.63 |
US$ 5.57 - 17.50 |
US$ 4.10 |
29.91% |
5.0 years |
- |
0.39% - 3.73% |
|
2022 |
ISO |
1st |
Equity |
US$ 0.44 - 1.14 |
US$ 6.30 |
US$ 6.30 |
31.71% |
6.2 years |
- |
4.69% |
|
2022 |
RSU |
1st |
Equity |
US$ 8.29 - 9.39 |
US$ 8.29 - 9.39 |
n/a |
29.86% |
3.5 years |
- |
3.8% - 4.0% |
|
2023 |
SOP |
2nd |
Equity |
US$ 1.40 - 2.41 |
US$ 4.79 - 6.30 |
US$5.04 |
33.08% |
4.3 years |
- |
3.61% - 4.69% |
|
2023 |
RSU |
2nd |
Equity |
US$ 5.57 - 6.30 |
US$ 5.57 - 6.30 |
n/a |
33.63% |
4.4 years |
- |
3.7% - 4.7% |
|
2023 |
Matching |
1st |
Equity |
US$5.04 |
US$5.04 |
n/a |
32.22% |
2.0 years |
- |
4.18% |
The liabilities arising from the Cash-settled stock options were R$ 949 as of December 31, 2023 (R$ 915 as of December 31, 2022).
CI&T Inc.
Consolidated financial statements
December 31, 2023
Reconciliation of outstanding share options and RSUs:
|
|
SOP |
SOP |
ISO |
RSU |
Matching |
||||||||||||||||||||||||
|
|
Equity-settled |
Cash-settled |
Equity-settled |
Equity-settled |
Equity-settled |
||||||||||||||||||||||||
|
|
2023 |
2022 |
2023 |
2022 |
2023 |
2022 |
2023 |
2022 |
2023 |
2022 |
|||||||||||||||||||
|
|
Number of options |
Number of options |
Number of options |
Number of options |
Number of options |
Number of options |
Number of options |
Number of options |
Number of options |
Number of options |
|||||||||||||||||||
|
Outstanding at January 1 |
4,158,492 |
4,696,654 |
92,322 |
81,904 |
83,522 |
- |
1,446,312 |
- |
- |
- |
|||||||||||||||||||
|
Forfeited during the year |
(14,523 |
) |
- |
- |
- |
- |
- |
- |
- |
- |
- |
||||||||||||||||||
|
Exercised during the year |
(93,018 |
) |
(1,049,135 |
) |
- |
(2,683 |
) |
- |
- |
(504,685 |
) |
- |
- |
- |
|||||||||||||||
|
Modification during the year (a) |
(75,219 |
) |
- |
- |
- |
- |
- |
- |
- |
- |
- |
||||||||||||||||||
|
Granted during the year |
94,112 |
510,973 |
- |
13,101 |
10,374 |
83,522 |
268,132 |
1,446,312 |
6,719 |
- |
|||||||||||||||||||
|
Outstanding at December 31 |
4,069,844 |
4,158,492 |
92,322 |
92,322 |
93,896 |
83,522 |
1,209,759 |
1,446,312 |
6,719 |
- |
|||||||||||||||||||
|
Exercisable at December 31 |
1,585,656 |
2,011,471 |
44,570 |
32,344 |
18,779 |
- |
- |
- |
- |
- |
|||||||||||||||||||
| (a) | The modification of the plan is explained in the first part of this explanatory note. |
c. Expenses recognized in profit or loss
For the details of the related employee benefit expenses see note 23.
CI&T Inc.
Consolidated financial statements
December 31, 2023
| 21 | Equity |
|
|
December 31, 2023 |
December 31, 2022 |
|||||
|
Number of ordinary nominative shares |
134,412,014 |
133,814,311 |
|||||
|
Class A |
21,365,297 |
19,969,110 |
|||||
|
Class B |
113,046,717 |
113,845,201 |
|||||
|
Par value |
R$ 0.00027 |
R$ 0.00027 |
|||||
|
Share capital |
R$ |
37 |
R$ |
37 |
As of December 31, 2023, the total issued share capital of R$ 37 (R$ 37 as of December 31, 2022) is divided into 134,412,014 common shares (133,814,311 as of December 31, 2022).
The holders of the Class A common shares and Class B common shares have rights that differs in: (i) the holders of Class B common shares are entitled to ten votes per share, whereas holders of Class A common shares are entitled to one vote per share, (ii) Class B common shares have certain conversion rights and (iii) the holders of Class B common shares are entitled to maintain a proportional ownership interest in the event that additional Class A common shares are issued, however that such rights to purchase additional Class B common shares may only be exercised with Class B Shareholder Consent.
b. Share premium
After the Company completed its initial public offering in November 2021 (note 1), the share premium relates to the difference between the subscription price (US$ 15.00 per share) that the shareholders paid for the shares and their nominal value (US$ 0.00005 per share), as a total amount of R$ 915,947 (US$ 166,666). In connection with the subsidiaries acquired in 2022, the share premium increased by R$ 14,037 and R$ 16,189 from shares issued as part of the payment for some acquisitions.
In 2023, the share premium increased by R$ 34,720 due to the restricted stock units exercised and treasury shares reissued (see note 21.c). As of December 31, 2023, the total amount of share premium is R$ 980,893 (R$ 946,173 as of December 31, 2022).
c. Treasury share reserve
On May 17, 2023, the Board of Directors approved a share repurchase program, pursuant to which the Company may repurchase up to 1.5 million of its outstanding class A common shares. After this date, the Group conducted a series of shares repurchases, reaching the approved total of 1,500,000 shares (R$ 43,414) in October 2023.
In November 2023, the Company distributed the entire amount of its treasury shares in the amount of R$ 38,324 (1,333,333 shares) to fulfill obligations to former owners of Ntersol and for the exercise of restricted stock units the amount of R$ 5,090 (166,667 shares).
On November 16, 2023, the Board of Directors approved a new share repurchase program, pursuant to which the Company may repurchase up to 2.5 million of its outstanding class A common shares until December 31, 2024. In January 2024, the Company repurchased 15,000 of its outstanding class A common shares in the amount of R$ 2,116.
d. Capital reserve
Share-based compensation
As of December 31, 2023, the amount of R$123,056 (R$95,196 as of December 31, 2022) refers to the Group’s share-based compensation plans (see note 20).
Share-based payment – vested immediately
As of December 31, 2023, the amount of R$117,973 (R$174,897 as of December 31, 2022) refers to the purchase price to be paid in common shares in connection with business combination but considered as share-based payment vested immediately at each acquisition date (note 9). The amount is being converted into an equivalent number of shares on each anniversary of the closing date.
Share issuance costs
In November 2021, the Company incurred incremental costs directly attributable to the public offering in the amount of R$66,876, net of taxes.
e. Earnings reserves
|
|
December 31, 2023 |
December 31, 2022 restated |
December 31, 2021 |
|||||
|
Retained earnings reserve |
354,240 |
221,667 |
125,957 |
As of December 31, 2023, the Company’s Board of Directors has not yet decided on the earnings reserve application.
| 22 | Net revenue |
|
|
December 31, 2023 |
December 31, 2022 |
December 31, 2021 |
|||||
|
Software development revenue |
2,129,258 |
2,094,090 |
1,394,583 |
|||||
|
Software maintenance revenue |
58,874 |
57,035 |
30,026 |
|||||
|
Consulting revenue |
37,141 |
32,724 |
15,922 |
|||||
|
Other revenue |
8,193 |
3,861 |
3,849 |
|||||
|
Total net revenue |
2,233,466 |
2,187,710 |
1,444,380 |
CI&T Inc.
Consolidated financial statements
December 31, 2023
The following table sets forth the net revenue by industry vertical for the periods indicated:
|
|
December 31, 2023 |
December 31, 2022 |
December 31, 2021 |
|||||
|
By industry vertical |
|
|
|
|||||
|
Financial services |
647,063 |
652,089 |
494,189 |
|||||
|
Consumer goods |
448,587 |
473,871 |
370,152 |
|||||
|
Technology and telecommunications |
387,291 |
329,787 |
170,296 |
|||||
|
Retail and industrial goods |
274,557 |
307,995 |
145,846 |
|||||
|
Life sciences |
247,038 |
274,353 |
197,286 |
|||||
|
Others |
228,930 |
149,615 |
66,611 |
|||||
|
Total net revenue |
2,233,466 |
2,187,710 |
1,444,380 |
The table below summarizes net revenues by geographic region:
|
|
December 31, 2023 |
December 31, 2022 |
December 31, 2021 |
|||||
|
North America |
977,663 |
923,174 |
664,858 |
|||||
|
Latin America |
924,874 |
975,948 |
701,206 |
|||||
|
Europe |
224,698 |
205,992 |
28,148 |
|||||
|
Asia Pacific |
106,231 |
82,596 |
50,168 |
|||||
|
Total |
2,233,466 |
2,187,710 |
1,444,380 |
Net revenues by geographic area were determined based on the country where the sale was made. The net revenue from a single customer represents 8% of the Company’s total net revenues as of December 31, 2023 (15% as of December 31, 2022 and 20% as of December 31, 2021).
Revenue by client concentration
The following table sets forth net revenue contributed by the top client, and top ten clients for the periods indicated:
|
|
December 31, 2023 |
December 31, 2022 |
December 31, 2021 |
|||||
|
Top client |
185,317 |
325,505 |
283,311 |
|||||
|
Top 10 clients |
887,282 |
1,079,941 |
913,890 |
| 23 | Expenses by nature |
Information on the nature of expenses recognized in the consolidated statement of profit or loss is presented below:
| December 31, 2023 | December 31, 2022 | December 31, 2021 | ||||||
|
Employee expenses |
(1,613,380 |
) |
(1,570,942 |
) |
(1,010,989 |
) | ||
|
Third-party services and other inputs |
(131,197 |
) |
(120,742 |
) |
(65,023 |
) | ||
|
Short-term leases |
(5,969 |
) |
(7,497 |
) |
(5,922 |
) | ||
|
Insurance |
(12,243 |
) |
(15,045 |
) |
(3,214 |
) | ||
|
Travel expenses |
(15,462 |
) |
(13,396 |
) |
(4,156 |
) | ||
|
Depreciation and amortization (a) |
(93,213 |
) |
(94,558 |
) |
(48,354 |
) | ||
|
Training |
(3,421 |
) |
(6,788 |
) |
(4,353 |
) | ||
|
Share-based compensation (b) (note 20) |
(28,116 |
) |
(5,486 |
) |
(2,531 |
) | ||
|
Consulting |
(2,540 |
) |
(18,480 |
) |
(9,177 |
) | ||
|
Impairment loss on trade receivables and contract assets |
(1,556 |
) |
(329 |
) |
(497 |
) | ||
|
Impairment of intangible assets |
- |
- |
(21,895 |
) | ||||
|
Other post-acquisition expenses (c) |
(2,645 |
) |
(25,650 |
) |
- |
|||
|
Other costs and expenses (d) |
(38,248 |
) |
(34,879 |
) |
(23,663 |
) | ||
|
Total |
(1,947,990 |
) |
(1,913,792 |
) |
(1,199,774 |
) | ||
|
Disclosed as: |
|
|
|
|||||
|
Costs of services provided |
(1,487,742 |
) |
(1,425,219 |
) |
(935,732 |
) | ||
|
Selling expenses |
(173,643 |
) |
(163,871 |
) |
(89,654 |
) | ||
|
General and administrative expenses |
(290,499 |
) |
(315,915 |
) |
(151,681 |
) | ||
|
Research and technological innovation expenses |
- |
- |
(4 |
) | ||||
|
Impairment loss on trade receivables and contract assets |
(1,556 |
) |
(329 |
) |
(497 |
) | ||
|
Other income (expenses) net |
5,450 |
(8,458 |
) |
(22,206 |
) | |||
|
Total |
(1,947,990 |
) |
(1,913,792 |
) |
(1,199,774 |
) |
| (a) | Depreciation and amortization include R$35,953 (R$40,968 as of December 31,2022 and R$31,884 as of December 31, 2021) classified as cost of services; R$11,727 (R$10,521 as of December 31,2022 and R$9,365 as of December 31, 2021) classified as general and administrative expenses, and R$45,533 (R$43,069 as of December 31, 2022 and R$7,105 as of December 31, 2021) of amortization of intangible assets acquired also classified as general and administrative expenses. |
| (b) | Share-based compensation includes R$13,842 (R$4,235 as of December 31, 2022 and R$1,930 as of December 31, 2021) classified as cost of services and R$14,274 (R$1,251 as of December 31, 2022 and R$600 as of December 31, 2021) as general and administrative expenses. |
| (c) | Other post-acquisition expenses mainly include the fair value adjustment on account payable for business acquired (R$4,863 as of December 31, 2023 and R$11,497 as of December 31,2022) and other income (expenses) related to the obligation of business acquired. |
| (d) | Other costs and expenses include mainly the restructuring expenses occurred in 2023 (R$20,997) in some subsidiaries acquired. |
| 23.1 | Other income (expenses), net |
|
|
December 31, 2023 |
December 31, 2022 |
December 31, 2021 |
|||||
|
Costs attributable to secondary offering |
- |
- |
(2,220 |
) | ||||
|
Impairment of intangible assets |
- |
- |
(21,895 |
) | ||||
|
Government grant |
931 |
1,141 |
2,481 |
|||||
|
Fair value adjustment on accounts payable for business acquired |
(4,863 |
) |
(11,497 |
) |
- |
|||
|
Other(a) |
9,382 |
1,898 |
(572 |
) | ||||
|
Total |
5,450 |
(8,458 |
) |
(22,206 |
) |
| (a) | Refers mainly to: (i) in 2023, a reversal of provision relative to the re-imposition of Social Security Contribution on Gross Revenue in Brazil (R$2,866), other revenue related to the Brazilian Incentive Food Program (R$ 2,277) and a reversal of bonus retention (R$ 1,666); (ii) in 2022, the recognition of research and development tax credit (R$ 2,439); and (iii) in 2021, it comprises miscellaneous expenses. |
| 24 | Net finance costs |
|
|
December 31, 2023 |
December 31, 2022 |
December 31, 2021 |
|||||
|
Finance income: |
|
|
|
|||||
|
Income from financial investments |
8,207 |
7,406 |
4,321 |
|||||
|
Foreign-exchange gain |
38,877 |
136,544 |
46,302 |
|||||
|
Gains on derivatives |
24,451 |
25,655 |
18,585 |
|||||
|
Interest received |
1,325 |
2,549 |
99 |
|||||
|
Monetary variation |
2,374 |
117 |
314 |
|||||
|
Other finance income |
11 |
725 |
195 |
|||||
|
|
75,245 |
172,996 |
69,816 |
|||||
|
Finance costs: |
|
|
|
|||||
|
Exchange variation loss |
(47,052 |
) |
(131,970 |
) |
(49,237 |
) | ||
|
Loss on derivatives |
(9,716 |
) |
(15,366 |
) |
(18,112 |
) | ||
|
Interest and charges on loans and leases (note 15) |
(83,541 |
) |
(73,837 |
) |
(29,729 |
) | ||
|
Monetary variation |
(5,097 |
) |
(9,018 |
) |
(3,092 |
) | ||
|
Other finance costs |
(6,020 |
) |
(16,451 |
) |
(3,878 |
) | ||
|
|
(151,426 |
) |
(246,642 |
) |
(104,048 |
) | ||
|
Net finance costs |
(76,181 |
) |
(73,646 |
) |
(34,232 |
) |
| 25 | Income tax and social contribution (restated) |
Income tax and social security contribution recognized in profit or loss for the year are shown as follows:
|
|
December 31, 2023 |
December 31, 2022 restated |
December 31, 2021 |
|||||
|
Current income tax and social security contribution |
(34,536 |
) |
(59,570 |
) |
(95,375 |
) | ||
|
Deferred income tax |
(42,186 |
) |
(44,992 |
) |
10,958 |
|||
|
Income tax and social contributions |
(76,722 |
) |
(104,562 |
) |
(84,417 |
) |
The reconciliation of the effective rate with the average nominal rate is shown as follows:
|
|
December 31, 2023 |
December 31, 2022 restated |
December 31, 2021 |
|||||
|
Profit before income tax and social contribution |
209,295 |
200,272 |
210,374 |
|||||
|
Combined income tax and social contribution rate |
34% |
34% |
34% |
|||||
|
Tax using the Company’s domestic tax rate |
(71,160 |
) |
(68,092 |
) |
(71,527 |
) | ||
|
Interest on own capital |
- |
- |
2,138 |
|||||
|
Expected income tax expense and interest on own capital |
(71,160 |
) |
(68,092 |
) |
(69,389 |
) | ||
|
Taxation of profit before income tax generated abroad |
1,070 |
(1,362 |
) |
(9,610 |
) | |||
|
Write-off of intangible assets |
- |
- |
(6,864 |
) | ||||
|
Current-year losses for which no deferred tax asset is recognized. |
(3,220 |
) |
(11,342 |
) |
(2,650 |
) | ||
|
Tax effects on income of subsidiaries abroad (taxed at zero rate) (a) |
(4,403 |
) |
(22,122 |
) |
3,389 |
|||
|
Other permanent exclusions (additions) |
991 |
(1,644 |
) |
707 |
||||
|
Income tax and social contribution expenses |
(76,722 |
) |
(104,562 |
) |
(84,417 |
) | ||
|
|
|
|
|
|||||
|
Current |
(34,536 |
) |
(59,570 |
) |
(95,375 |
) | ||
|
Deferred |
(42,186 |
) |
(44,992 |
) |
10,958 |
|||
|
|
(76,722 |
) |
(104,562 |
) |
(84,417 |
) | ||
|
Effective rate |
37 |
% |
52 |
% |
40 |
% | ||
|
|
|
|
|
| (a) |
The income is substantially comprised of expenses related to post-acquisition expenses, depreciation and amortization, and exchange variations in non-taxable jurisdictions where the tax rate is zero. |
Amounts recognized directly in shareholders' equity
|
December 31, 2023 |
December 31, 2022 restated |
December 31, 2021 |
||||||
|
Share-based compensation plan |
- |
- |
(147 |
) | ||||
|
Total |
- |
- |
(147 |
) | ||||
|
Deferred |
- |
- |
(147 |
) | ||||
|
Total taxes recognized in equity |
- |
- |
(147 |
) |
CI&T Inc.
Consolidated financial statements
December 31, 2023
Movement in deferred tax balances:
| December 31, 2023 |
||||||||||||||||||||
|
|
Net balance on January 1st 2023 restated |
Recognition in profit or loss |
Other |
Exchange variation effect |
Net amount |
Deferred tax asset |
Deferred tax liabilities |
|||||||||||||
|
Goodwill - tax benefit on unamortized goodwill |
(40,509 |
) |
(46,477 |
) |
- |
90 |
(86,896 |
) |
- |
(86,896 |
) | |||||||||
|
Provisions |
3,014 |
1,140 |
- |
7 |
4,161 |
4,161 |
- |
|||||||||||||
|
Property, plant and equipment |
1,212 |
3,883 |
- |
71 |
5,166 |
6,447 |
(1,281 |
) | ||||||||||||
|
Derivatives |
(2,271 |
) |
3,817 |
- |
- |
1,546 |
1,546 |
- |
||||||||||||
|
Bonus accrued |
21,011 |
(15,601 |
) |
- |
(423 |
) |
4,987 |
4,987 |
- |
|||||||||||
|
Share-based compensation |
1,928 |
4,492 |
- |
(157 |
) |
6,263 |
6,263 |
- |
||||||||||||
|
Lease |
2,634 |
(126 |
) |
- |
(70 |
) |
2,438 |
36,082 |
(33,644 |
) | ||||||||||
|
Other temporary differences |
851 |
6,533 |
(217 |
) |
(68 |
) |
7,099 |
7,376 |
(277 |
) | ||||||||||
|
Research and development tax credit |
4,794 |
(69 |
) |
(1,472 |
) |
(122 |
) |
3,131 |
3,131 |
- |
||||||||||
|
Net tax loss carryforward |
1,965 |
222 |
- |
(263 |
) |
1,924 |
1,924 |
- |
||||||||||||
|
Tax assets (liabilities) before set-off |
(5,371 |
) |
(42,186 |
) |
(1,689 |
) |
(935 |
) |
(50,181 |
) |
71,917 |
(122,098 |
) | |||||||
|
Set-off of tax |
|
|
|
|
- |
(53,633 |
) |
53,633 |
||||||||||||
|
Net tax assets (liabilities) |
|
|
|
|
(50,181 |
) |
18,284 |
(68,465 |
) | |||||||||||
December 31, 2022 – restated (i)
|
|
Net balance on January 1st 2022 |
Recognition in profit or loss |
Deferred tax from business acquired |
Other |
Exchange variation effect |
Net amount |
Deferred tax asset |
Deferred tax liabilities |
|||||||||||||||
|
Goodwill - tax benefit on unamortized goodwill |
- |
(40,509 |
) |
- |
- |
- |
(40,509 |
) |
- |
(40,509 |
) | ||||||||||||
|
Provisions |
1,603 |
1,348 |
- |
102 |
(39 |
) |
3,014 |
3,014 |
- |
||||||||||||||
|
Property, plant and equipment |
652 |
1,047 |
- |
- |
(487 |
) |
1,212 |
1,212 |
- |
||||||||||||||
|
Derivatives |
826 |
(2,667 |
) |
- |
- |
(430 |
) |
(2,271 |
) |
- |
(2,271 |
) | |||||||||||
|
Bonus accrued |
25,768 |
(5,227 |
) |
- |
- |
470 |
21,011 |
21,011 |
- |
||||||||||||||
|
Share-based compensation |
287 |
1,636 |
- |
- |
5 |
1,928 |
1,928 |
- |
|||||||||||||||
|
Lease |
2,803 |
(250 |
) |
- |
- |
81 |
2,634 |
29,782 |
(27,148 |
) | |||||||||||||
|
Other temporary differences |
(3,178 |
) |
708 |
2,316 |
1,413 |
(408 |
) |
851 |
851 |
- |
|||||||||||||
|
Research and development tax credit |
- |
- |
5,745 |
- |
(951 |
) |
4,794 |
4,794 |
- |
||||||||||||||
|
Net tax loss carryforward |
3,228 |
(1,080 |
) |
- |
413 |
(596 |
) |
1,965 |
1,965 |
- |
|||||||||||||
|
Tax assets (liabilities) before set-off |
31,989 |
(44,994 |
) |
8,061 |
1,928 |
(2,355 |
) |
(5,371 |
) |
64,557 |
(69,928 |
) | |||||||||||
|
Set-off of tax |
|
|
|
|
|
- |
(48,986 |
) |
48,986 |
||||||||||||||
|
Net tax assets (liabilities) |
|
|
|
|
|
(5,371 |
) |
15,571 |
(20,942 |
) |
(i) See note 30.
|
December 31, 2021 |
||||||||||||||||||||||||
|
|
Net balance on January 1st 2021 |
Recognition in equity |
Recognition in profit or loss |
Other |
Exchange variation effect |
Net amount |
Deferred tax asset |
Deferred tax liabilities |
||||||||||||||||
|
Provisions |
2,038 |
- |
(437 |
) |
- |
2 |
1,603 |
1,665 |
(62 |
) | ||||||||||||||
|
Property, plant and equipment |
419 |
- |
233 |
- |
- |
652 |
652 |
- |
||||||||||||||||
|
Derivatives |
(854 |
) |
- |
1,695 |
- |
(15 |
) |
826 |
826 |
- |
||||||||||||||
|
Bonus accrued |
18,447 |
- |
6,354 |
- |
967 |
25,768 |
25,768 |
- |
||||||||||||||||
|
Lease |
1,778 |
- |
1,030 |
- |
(5 |
) |
2,803 |
21,021 |
(18,218 |
) | ||||||||||||||
|
Other temporary differences |
(7,805 |
) |
- |
(655 |
) |
5,500 |
(218 |
) |
(3,178 |
) |
68 |
(3,246 |
) | |||||||||||
|
Share-based compensation |
214 |
(147 |
) |
220 |
- |
- |
287 |
287 |
- |
|||||||||||||||
|
Tax loss carried forward |
915 |
- |
2,519 |
(206 |
) |
- |
3,228 |
3,228 |
- |
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
Tax assets (liabilities) before set-off |
15,152 |
(147 |
) |
10,959 |
5,294 |
731 |
31,989 |
53,515 |
(21,526 |
) | ||||||||||||||
|
Set-off of tax |
|
|
|
|
|
- |
(21,526 |
) |
21,526 |
|||||||||||||||
|
Net tax assets (liabilities) |
|
|
|
|
|
31,989 |
31,989 |
- |
||||||||||||||||
Unrecognized deferred tax assets
Deferred tax assets have not been recognized in respect of tax losses is an amount of R$ 3,220 as of December 31, 2023 (R$ 11,342 as of December 31, 2022 and R$ 2,650 as of December 31, 2021), because it is not probable that the future profit will be available against which the Group can use the benefits therefrom. These tax losses for which no deferred tax asset was recognized do not expire.
| 26 | Earnings per share (restated) |
Basic and diluted earnings per share
The calculation of basic earnings per share was based on the profit attributable to the holders of common shares and weighted-average number of outstanding common shares. The calculation of diluted earnings per share was based on the profit attributable to the holders of common shares and weighted-average number of outstanding common shares, after adjustments for the effects of all potentially dilutive common shares.
|
|
December 31, 2023 |
December 31, 2022 Restated |
December 31, 2021 |
|||||
|
Numerator |
|
|
|
|||||
|
Profit attributable to holders of common shares |
132,573 |
95,710 |
125,957 |
|||||
|
Denominator |
|
|
|
|||||
|
Weighted average number of basic shares held by shareholders |
136,419,395 |
133,186,441 |
121,777,128 |
|||||
|
Earnings per share – basic |
0.97 |
0.72 |
1.03 |
|||||
|
|
|
|
|
|||||
|
Numerator |
|
|
|
|||||
|
Profit attributable to holders of common shares |
132,573 |
95,710 |
125,957 |
|||||
|
Denominator |
|
|
|
|||||
|
Weighted average number of diluted shares held by shareholders |
139,148,469 |
134,774,674 |
125,155,798 |
|||||
|
Net earnings per share – diluted |
0.95 |
0.71 |
1.01 |
Weighted average number of common shares.
|
|
December 31, 2023 |
December 31, 2022 Restated |
December 31, 2021 |
|||||
|
Weighted average common shares |
136,419,395 |
133,186,441 |
121,777,128 |
|||||
|
Effect of share-based compensation when exercised |
2,729,074 |
1,588,233 |
3,378,670 |
|||||
|
Weighted average number of common shares |
139,148,469 |
134,774,674 |
125,155,798 |
CI&T Inc.
Consolidated financial statements
December 31, 2023
| 27 | Financial instruments – Fair values and risk management |
The Group maintains operations with derivative and non-derivative financial instruments. The control policy consists of monitoring the terms contracted against current terms and conditions in the market. The Company does not make investments of speculative nature in derivatives or any other risk assets.
27.1 Accounting classifications and fair values
The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including the levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.
|
December 31, 2023 |
||||||||||||
|
|
|
|
|
|
|
|||||||
|
|
Carrying amount |
|
Fair value |
|||||||||
|
Financial assets |
Amortized cost |
Assets / liabilities measured at FVTPL |
Total |
|
Level 2 |
|||||||
|
Derivatives |
- |
9,620 |
9,620 |
|
9,620 |
|||||||
|
Cash and cash equivalents |
211,638 |
- |
211,638 |
|
- |
|||||||
|
Financial investments |
3,164 |
- |
3,164 |
|
- |
|||||||
|
Trade receivables |
471,951 |
- |
471,951 |
|
- |
|||||||
|
Contract assets |
147,620 |
- |
147,620 |
|
- |
|||||||
|
Other assets |
28,099 |
- |
28,099 |
|
- |
|||||||
|
|
862,472 |
9,620 |
872,092 |
|
9,620 |
|||||||
|
Financial liabilities |
|
|
|
|
|
|||||||
|
Suppliers and other payables |
(21,690 |
) |
- |
(21,690 |
) |
|
- |
|||||
|
Loans and borrowings |
(727,463 |
) |
- |
(727,463 |
) |
|
- |
|||||
|
Lease liabilities |
(44,899 |
) |
- |
(44,899 |
) |
|
- |
|||||
|
Accounts payable for business acquired |
(136,054 |
) |
- |
(136,054 |
) |
|
- |
|||||
|
Contract liabilities |
(48,079 |
) |
- |
(48,079 |
) |
|
- |
|||||
|
Other liabilities |
(35,097 |
) |
- |
(35,097 |
) |
|
- |
|||||
|
|
(1,013,282 |
) |
- |
(1,013,282 |
) |
|
- |
|||||
CI&T Inc.
Consolidated financial statements
December 31, 2023
|
December 31, 2022 restated |
|||||||||||
|
|
|
|
|
|
|
||||||
|
|
Carrying amount |
|
Fair value |
||||||||
|
Financial assets |
Amortized cost |
Assets / liabilities measured at FVTPL |
Total |
|
Level 2 |
||||||
|
Derivatives |
- |
11,194 |
11,194 |
|
11,194 |
||||||
|
Cash and cash equivalents |
185,727 |
- |
185,727 |
|
- |
||||||
|
Financial investments |
96,299 |
- |
96,299 |
|
- |
||||||
|
Trade receivables |
501,671 |
- |
501,671 |
|
- |
||||||
|
Contract assets |
217,250 |
- |
217,250 |
|
- |
||||||
|
Other assets |
41,923 |
- |
41,923 |
|
- |
||||||
|
|
1,042,870 |
11,194 |
1,054,064 |
|
11,194 |
||||||
|
Financial liabilities |
|
|
|
|
|
||||||
|
Derivatives |
- |
(4,109 |
) |
(4,109 |
) |
|
(4,109 |
) | |||
|
Suppliers and other payables |
(33,376 |
) |
- |
(33,376 |
) |
|
- |
||||
|
Loans and borrowings |
(989,763 |
) |
- |
(989,763 |
) |
|
- |
||||
|
Lease liabilities |
(62,808 |
) |
- |
(62,808 |
) |
|
- |
||||
|
Accounts payable for business acquired |
(210,045 |
) |
- |
(210,045 |
) |
|
- |
||||
|
Contract liabilities |
(32,136 |
) |
- |
(32,136 |
) |
|
- |
||||
|
Other liabilities |
(51,031 |
) |
- |
(51,031 |
) |
|
- |
||||
|
|
(1,379,159 |
) |
(4,109 |
) |
(1,383,268 |
) |
|
(4,109 |
) | ||
27.2 Measurement of fair values
The Group has financial instruments measured at fair value, which are classified as defined in the note 5.c, and all of them are under the Level 2 in the fair value hierarchy. The estimated fair value of the Group’s financial instruments considered the following methods and assumptions:
27.3 Financial risk management
The Group has exposure to the following risk arising from financial instruments:
Risk management framework
The Group's risk management policies are established to identify and analyze the risks faced by the Group, in order to define appropriate risk limits and controls, and also to monitor risks and compliance with the limits. The risk management policies and systems are frequently reviewed to reflect changes in market conditions and in the activities of the Group.
a. Market risks
The Group is exposed to market risks resulting from the normal course of its activities, such as inflation, interest rates and exchange rate changes.
Thus, the Group's operating results may be affected by changes in economic policies especially regarding short and long-term interest rates, inflation targets and exchange rate policy. Exposures to market risk are measured by sensitivity analysis.
a.1 Currency risk
The Group is exposed to foreign exchange risk to the extent that there is a mismatch between the currencies in which sales, purchases, receivables, and borrowings are denominated and the respective functional currencies of the Company and its subsidiaries.
Therefore, foreign exchange risk is inherent to the Group’s business model. The Group’s revenue is mainly denominated in foreign currency and, consequently, is exposed to exchange rate changes. The Group’s expenses, on the other hand, are mainly denominated in the Group’s functional currency (Brazilian Reais) and, consequently, are not exposed to exchange rate changes. The Group is exposed to exchange rate risk on its financial investments, suppliers and other payables, trade receivables, loans and borrowings, accounts payable for business acquired, lease liabilities and derivatives. See below the total exposure to foreign currency:
|
|
December, 2023 |
|
December, 2022 |
||||||||||||||
|
|
US$ |
£ |
Other currencies |
|
US$ |
£ |
Other currencies |
||||||||||
|
Financial investments |
2,695 |
469 |
- |
|
96,299 |
- |
- |
||||||||||
|
Suppliers and other payables |
(3,987 |
) |
(793 |
) |
(1,700 |
) |
|
(4,229 |
) |
(2,264 |
) |
(2,078 |
) | ||||
|
Trade receivables |
245,763 |
65,196 |
11,100 |
|
304,617 |
51,152 |
12,306 |
||||||||||
|
Loans and borrowings |
(110,648 |
) |
- |
- |
|
(239,044 |
) |
- |
- |
||||||||
|
Lease liabilities |
(20,880 |
) |
(1,085 |
) |
(1,796 |
) |
|
(29,147 |
) |
(1,009 |
) |
(2,493 |
) | ||||
|
Accounts payable for business acquired |
(74,499 |
) |
(20,051 |
) |
- |
|
(81,955 |
) |
(83,768 |
) |
- |
||||||
|
Restricted cash - escrow account |
- |
20,021 |
- |
|
- |
20,209 |
- |
||||||||||
|
Derivatives |
2,728 |
- |
- |
|
(4,109 |
) |
- |
- |
|||||||||
|
Net exposure |
41,172 |
63,757 |
7,604 |
|
42,432 |
(15,680 |
) |
7,735 |
|||||||||
Cash flow hedge for the Group's future Revenues
The Group designates hedging relationships to account for the effects of the existing hedge between a foreign exchange gain or loss from proportions of its long-term debt obligations (denominated in U.S. dollars) and foreign exchange gain or loss of its highly probable future revenues denominated in U.S. dollar, so that gains or losses associated with the hedged transaction (the highly probable future revenues denominated U.S. dollar denominated) and the hedging instrument (debt obligations) are recognized in the statement of profit or loss in the same periods.
The schedule of cash flow hedge involving the Company´s future revenues as of December 31, 2023 is set below:
|
|
|
|
|
|
Present value of hedging instrument notional value on December 31, 2023 |
|||||||
|
Hedging instrument |
Hedged transaction |
Nature of the risk |
Maturity date |
US$ |
R$ |
|||||||
|
Foreign exchange gains and losses on proportion of non-derivative financial instruments cash flows |
Foreign exchange gains and losses of highly probable future monthly revenues |
Foreign Currency - Real vs U.S. Dollar Spot Rate |
|
|
|
|||||||
|
Export Credit Note (NCE) |
|
|
2024 to 2026 |
22,500 |
108,929 |
|||||||
|
Total amounts designated as of December 31, 2023 |
|
|
|
22,500 |
108,929 |
Changes in the fair value of US$ foreign exchange debt obligation (non-derivative financial instruments) designated as effective cash flow hedges have their effective component recorded in Equity, other comprehensive income (“OCI”) and the ineffective component recorded in statement of profit or loss, in finance income (expense). The amounts accumulated in Equity are recognized in the statement of profit or loss in the years in which the hedged item affects the result, the effects of which are appropriated to the result, in order to minimize the variations in the hedged item.
The individual hedge relationships are established on a one-to-one basis, that is, the “highly probable revenue” of each month and the proportions of cash flows from foreign exchange debt obligation made abroad, used in each relationship and individual hedge, have the same face value in US dollars.
The exposure of the Group's future revenues in hard currency to the risk of variations in the R$/US$ exchange rate (liability position) is offset by an inverse exposure equivalent to its US dollars debt (asset position) to the same type of risk.
Hedge accounting effects
The movement of exchange variation accumulated in other comprehensive income as of December 31, 2023, resulting from completed and expected revenues are set out below:
|
|
Exchange variation |
|
|
Balance as of January 1, 2022 |
- |
|
|
Recognized in other comprehensive income – future revenues denominated in U.S. dollar |
(23,855 |
) |
|
Reclassified to the statements of profit or loss - revenues denominated in U.S. dollar |
8,323 |
|
|
Balance as of December 31, 2022 |
(15,532 |
) |
|
Recognized in other comprehensive income–future revenues denominated in U.S. dollar |
11,591 |
|
|
Reclassified to the statements of profit or loss - revenues denominated in U.S. dollar |
4,055 |
|
|
Reclassified to the statements of profit or loss - ineffective portion |
(2,443 |
) |
|
Balance as of December 31, 2023 |
(2,329 |
) |
As of December 31, 2023, the annual expectation of realization of the exchange rate variation balance accumulated in equity is R$ 1,393.
a.2 Interest rate risk
Derives from the possibility of the Group incurring gains or losses resulting from changes in interest rates applicable to its financial assets and liabilities. The Group may also enter into derivative contracts in order to mitigate this risk.
|
|
December 31, 2023 |
December 31, 2022 |
||||||||||||
|
|
CDI |
SOFR |
CDI |
SOFR |
Libor |
|||||||||
|
Short-term financial investments |
147,948 |
- |
58,464 |
- |
- |
|||||||||
|
Loans and borrowings |
(236,058 |
) |
(406,786 |
) |
(298,443 |
) |
(341,170 |
) |
(142,658 |
) | ||||
|
Accounts payable for business acquired |
(40,529 |
) |
- |
(43,348 |
) |
- |
- |
|||||||
|
Derivatives (interest rate swap) |
- |
110,648 |
- |
- |
142,658 |
|||||||||
|
Net exposure |
(128,639 |
) |
(296,138 |
) |
(283,327 |
) |
(341,170 |
) |
- |
|||||
a.3 Sensitivity analysis
The Company, based on information from rating agencies, estimates that in a reasonably possible scenario, the foreign exchange rate variation against the Real on December 31, 2024, will be a depreciation of 2% for the US dollar and 4% for the British pound. The Company conducted a historical analysis of the last 5 years of its exposure and impacts on the results due to currency volatility, considering an adverse scenario compared to the reasonably possible scenario, and realized a variation of approximately 25%.
Sensitivity analysis for exchange rate risk
|
Net effect - Profit or loss |
||||||
|
Reasonably Possible Scenario |
Adverse Scenario |
|||||
| US$ 2% / £ 4% | 25% | |||||
|
December 31, 2023 |
||||||
|
US$ |
823 |
10,293 |
||||
|
£ |
2,550 |
15,940 |
||||
| Net effect - Profit or loss | ||||||
| Reasonably Possible Scenario | Adverse Scenario | |||||
| US$ 4% / £ 2% | 25% | |||||
| December 31, 2022 | ||||||
|
US$ |
1,697 |
10,608 |
||||
|
£ |
(314 |
) |
(3,920 |
) | ||
Sensitivity analysis for interest rate risk
The Company, based on information from rating agencies, estimates that in a reasonably possible scenario, the interest rates could increase by up to 154 basis points for CDI and by up to 60 basis points for SOFR on December 31, 2024. The Company conducted a historical analysis of the last 10 years of its exposure and impacts on the results due to the interest rate changes, considering an adverse scenario compared to the reasonably possible scenario, and estimated a variation by 291 basis points for CDI and by 60 basis points for SOFR.
|
Net effect - Profit or loss |
||||||
|
Reasonably Possible Scenario |
Adverse Scenario |
|||||
| CDI 154 bp / SOFR 60 bp | CDI 291 bp / SOFR 60 bp | |||||
|
|
||||||
| December 31, 2023 | ||||||
|
Variable-rate instruments CDI |
(1,981 |
) |
(3,743 |
) | ||
|
Variable-rate instruments SOFR |
(2,441 |
) |
2,441 |
|||
|
Interest rate swaps SOFR |
664 |
(664 |
) | |||
|
Cash flow sensitivity (net) |
(3,758 |
) |
(1,967 |
) | ||
| December 31, 2022 | ||||||
|
Variable-rate instruments CDI |
(4,363 |
) |
(9,661 |
) | ||
|
Variable-rate instruments SOFR |
(2,047 |
) |
2,047 |
|||
|
Cash flow sensitivity (net) |
(6,410 |
) |
(7,614 |
) | ||
CI&T Inc.
Consolidated financial statements
December 31, 2023
b. Credit risk
Credit risk refers to the risk that a counterparty will not comply with its contractual obligations, causing the Group to incur financial losses. Credit risk is the risk of a counterparty in a business transaction not complying with an obligation provided by a financial instrument or an agreement with a client, which would cause financial loss. To mitigate these risks, the Group analyzes the financial and equity condition of its counterparties, as well as the definition of credit limits and permanent monitoring of outstanding positions.
The Group applies the simplified standard approach to commercial financial assets, where the provision for losses is analyzed over the remaining life of the asset.
In addition, the Group is exposed to credit risk with respect to financial guarantees granted to banks.
The Group held cash and cash equivalents of R$ 211,638 on December 31, 2023 (R$ 185,727 as of December 31, 2022) and financial investments of R$ 3,164 on December 31, 2023 (R$ 96,299 as of December 31, 2022). The cash and cash equivalents and financial investments are held with bank and financial institution counterparties, which are rated BB- to A-, based on Standard & Poor’s, Moodys and Fitch ratings.
The carrying amount of financial assets represents the maximum credit exposure. The maximum credit risk exposure on the date of the financial statements is:
|
|
December 31, 2023 |
December 31, 2022 |
|||
|
Hedge financial instruments – SWAP |
9,620 |
11,194 |
|||
|
Cash and cash equivalents |
211,638 |
185,727 |
|||
|
Financial investments |
3,164 |
96,299 |
|||
|
Trade receivables |
471,951 |
501,671 |
|||
|
Contract assets |
147,620 |
217,250 |
|||
|
Other receivables (current and non-current) |
28,099 |
41,923 |
|||
|
|
872,092 |
1,054,064 |
As of 31 December 2023, the exposure to credit risk for trade receivables, contract assets and other receivables by geographic region was as follows:
|
|
December 31, 2023 |
December 31, 2022 |
|||
|
North America |
293,195 |
426,166 |
|||
|
Europe |
91,471 |
73,460 |
|||
|
Latin America |
249,959 |
246,270 |
|||
|
Asia Pacific |
13,045 |
14,948 |
|||
|
Total |
647,670 |
760,844 |
c. Liquidity risk
The Group monitors liquidity risk by managing its cash resources and financial investments.
Liquidity risk is also managed by the Group through its cash flow projection, which aims to ensure the availability of funds to meet the Group’s both operational and financial obligations.
The Group also maintains approved credit lines with financial institutions to adequate levels of liquidity in the short, medium and long terms.
The maturities of the long-term installments of the loans are described in note 15.
The following table shows the remaining contractual maturities of financial liabilities on the reporting date. The amounts are gross and undiscounted, including contractual interest payments and excluding the impact of netting agreements:
|
|
December 31, 2023 |
||||||||||||||||
|
|
Carrying amount |
Cash contractual cash flow |
6 months or less |
6-12 months |
1-2 years |
2-5 Years |
|||||||||||
|
Non-derivative financial liabilities |
|
|
|
|
|
|
|||||||||||
|
Suppliers and other payables |
21,690 |
21,690 |
21,690 |
- |
- |
- |
|||||||||||
|
Loans and borrowings |
727,463 |
911,313 |
57,697 |
113,549 |
453,672 |
286,395 |
|||||||||||
|
Lease liabilities |
44,899 |
50,749 |
13,047 |
8,907 |
13,361 |
15,434 |
|||||||||||
|
Accounts payable for business acquired |
136,054 |
148,335 |
3,866 |
86,013 |
35,108 |
23,348 |
|||||||||||
|
Contract liabilities |
48,079 |
48,079 |
48,079 |
- |
- |
- |
|||||||||||
|
Other liabilities (current and non-current) |
35,097 |
35,097 |
35,097 |
- |
- |
- |
|||||||||||
|
|
1,013,282 |
1,215,263 |
179,476 |
208,469 |
502,141 |
325,177 |
|||||||||||
|
|
December 31, 2022 |
||||||||||||||||
|
|
Carrying amount |
Cash contractual cash flow |
6 months or less |
6- 12 months |
1-2 years |
2-5 Years |
|||||||||||
|
Non-derivative financial liabilities |
|
|
|
|
|
|
|||||||||||
|
Suppliers and other payables |
33,376 |
33,376 |
33,376 |
- |
- |
- |
|||||||||||
|
Loans and borrowings |
989,763 |
1,176,743 |
146,564 |
107,207 |
273,298 |
649,674 |
|||||||||||
|
Lease liabilities |
62,808 |
70,837 |
13,903 |
11,480 |
17,981 |
27,473 |
|||||||||||
|
Accounts payable for business acquired |
210,045 |
234,643 |
69,984 |
7,484 |
95,858 |
61,317 |
|||||||||||
|
Contract liabilities |
32,136 |
32,136 |
32,136 |
- |
- |
- |
|||||||||||
|
Other liabilities (current and non-current) |
51,031 |
51,031 |
51,031 |
- |
- |
- |
|||||||||||
|
Derivatives |
4,109 |
4,109 |
4,109 |
- |
- |
- |
|||||||||||
|
|
1,383,268 |
1,602,875 |
351,103 |
126,171 |
387,137 |
738,464 |
|||||||||||
27.4 Derivative financial instruments
The Group may hold derivative financial instruments to hedge its foreign currency and interest rate risk exposures.
The Group entered into an interest rate swap transaction with the purpose of hedging the exposure to variable interest rate related to the Export Credit Note – NCE.
In May 2022, the Group entered a swap operation exchanging the CDI based rate to a US$ prefixed rate, related to a portion of an Export Credit Note - NCE.
The interest rate profile of the Group’s interest-bearing financial instruments, as reported to the Group’s Management, is as follows:
|
|
December 31, 2023 |
||||||||||||||
|
Maturity |
Notional (US$) |
Notional in R$ |
Floating rate receivable |
Fixed rate payable |
Fair value |
||||||||||
|
07/16/2026 |
22,500 |
108,929 |
SOFR Overnight |
3.07% |
6,892 |
||||||||||
|
07/07/2026 |
- |
78,571 |
CDI |
Foreign Exchange + 4.90% |
2,728 |
||||||||||
|
|
|
|
|
|
9,620 |
||||||||||
|
|
December 31, 2022 |
||||||||||||||
|
Maturity |
Notional (US$) |
Notional in R$ |
Floating rate receivable |
Fixed rate payable |
Fair value |
||||||||||
|
07/16/2026 |
30,000 |
152,100 |
3-months LIBOR |
3.07% |
11,194 |
||||||||||
|
07/07/2026 |
- |
100,000 |
CDI |
Foreign Exchange + 4.90% |
(4,109 |
) | |||||||||
|
|
|
|
|
|
7,085 |
||||||||||
| 28 | Related parties |
Transactions with key management personnel
The Group paid R$ 11,232 as of December 31, 2023 (R$ 10,997 as of December 31, 2022 and R$ 11,096 as of December 31, 2021) as direct compensation to key management personnel. These amounts correspond to the executive board compensation, related social charges and short-term benefits and are recorded under line “General and administrative expenses”.
The executive officers also participate in the Group's share-based compensation program. For the year ended on December 31, 2023, R$ 768 (R$ 21 as of December 31, 2022 and R$ 99 as of December 31, 2021) were recognized in the statement of profit or loss.
The Group has no additional post-employment obligation, as well as no other long-term benefits, such as premium leave and other severance benefits. The Group also does not offer other benefits in connection with the dismissal of its Senior Management’s members.
CI&T Inc.
Consolidated financial statements
December 31, 2023
| 29 | Operating segments |
Operating segments are defined based on business activities that reflect how CODM - Chief Operating Decision Maker reviews financial information for decision.
The Group's CODM is the Group's Board of Director. The CODM oversees operational decisions related to resource allocation and performance evaluation. The CODM considers the whole Group as a single operating and reportable segment, monitoring operations, making decisions on fund allocation and evaluating performance based on a single operating segment.
Geographic information
The geographic information analyses the Group’s net revenue and non-current assets by the Company’s country of domicile. In presenting the geographic information, the net revenue has been based on the country where the sale was made (see note 22) and the non-current assets, except deferred taxes, were based on the geographic location, as follows:
|
|
December 31, 2023 |
December 31, 2022 |
December 31, 2021 |
|||||
|
Brazil |
788,138 |
819,873 |
818,221 |
|||||
|
United States of America |
604,036 |
681,263 |
58,061 |
|||||
|
United Kingdom |
321,927 |
331,683 |
74 |
|||||
| Australia | 67,580 | 78,253 | 8 | |||||
|
China |
2,543 |
2,317 |
2,239 |
|||||
|
Portugal |
642 |
569 |
387 |
|||||
|
Canada |
199 |
280 |
284 |
|||||
|
Other countries |
1,406 |
1,858 |
176 |
|||||
|
Total |
1,786,471 |
1,916,096 |
879,450 |
CI&T Inc.
Consolidated financial statements
December 31, 2023
| 30 | Correction of errors |
The restated information presented correct the following errors as of and for the year ended December 31, 2022:
| (i) | failure to recognize deferred tax liabilities related to the amortization of tax-deductible goodwill; |
| (ii) | the amortization of the identifiable intangible assets arising from business combination was erroneously determined to be nondeductible in the income tax calculation; and |
| (iii) | misclassification of the effects of exchange differences related to debt loans denominated in foreign currency (USD) and designated as hedge instrument in a cash flow hedge relationship. |
The errors have been corrected by restating each of the affected financial statements line items and footnotes as of and for the year ended December 31, 2022. The impacted line items and the referred notes are identified in the tables below.
The following tables summarize the impacts on the Group’s consolidated financial statements:
|
Consolidated statements of financial position |
Note |
As previously reported |
Reclassification |
Adjustments |
As restated |
||||||||
|
Current assets |
|
|
|
|
|||||||||
|
Non-derivatives - hedge accounting (iii) |
19,637 |
(19,637 |
) |
- |
- |
||||||||
|
Recoverable taxes (ii) |
7,619 |
- |
10,303 |
17,922 |
|||||||||
|
Total current assets |
1,080,625 |
(19,637 |
) |
10,303 |
1,071,291 |
||||||||
|
|
|
|
|
|
|||||||||
|
Non-current assets |
|
|
|
|
|||||||||
|
Deferred tax assets (i) |
25 |
35,138 |
- |
(19,567 |
) |
15,571 |
|||||||
|
Total non-current assets |
1,951,234 |
- |
(19,567 |
) |
1,931,667 |
||||||||
|
Total assets |
3,031,859 |
(19,637 |
) |
(9,264 |
) |
3,002,958 |
|||||||
|
|
|
|
|
|
|||||||||
|
Current liabilities |
|
|
|
|
|||||||||
|
Loans and borrowings (iii) |
15 |
231,296 |
4,734 |
- |
236,030 |
||||||||
|
Non-derivatives - hedge accounting (iii) |
35,169 |
(35,169 |
) |
- |
- |
||||||||
|
Total current liabilities |
760,300 |
(30,435 |
) |
- |
729,865 |
||||||||
|
|
|
|
|
|
|||||||||
|
Non-current liabilities |
|
|
|
|
|||||||||
|
Loans and borrowings (iii) |
15 |
742,935 |
10,798 |
- |
753,733 |
||||||||
|
Deferred tax liabilities (i) |
25 |
- |
- |
20,942 |
20,942 |
||||||||
|
Total non-current liabilities |
933,380 |
10,798 |
20,942 |
965,120 |
|||||||||
|
Total liabilities |
1,693,680 |
(19,637 |
) |
20,942 |
1,694,985 |
||||||||
|
Total equity (i)/(ii) |
1,338,179 |
- |
(30,206 |
) |
1,307,973 |
||||||||
|
Total equity and liabilities |
3,031,859 |
(19,637 |
) |
(9,264 |
) |
3,002,958 |
|
Consolidated statements of profit or loss |
Note |
As previously reported |
Adjustments |
As restated |
||||||
|
Profit before income tax |
200,272 |
- |
200,272 |
|||||||
|
Current (ii) |
25 |
(69,873 |
) |
10,303 |
(59,570 |
) | ||||
|
Deferred (i) |
25 |
(4,483 |
) |
(40,509 |
) |
(44,992 |
) | |||
|
Total income tax expense |
(74,356 |
) |
(30,206 |
) |
(104,562 |
) | ||||
|
Net profit for the year |
125,916 |
(30,206 |
) |
95,710 |
||||||
|
Earnings per share – basic (in R$) |
26 |
0.95 |
(0.23 |
) |
0.72 |
|||||
|
Earnings per share – diluted (in R$) |
26 |
0.93 |
(0.22 |
) |
0.71 |
|
Consolidated statements of other comprehensive income |
As previously reported |
Adjustments |
As restated |
|||||
|
Total comprehensive income (loss) for the year (i)/(ii) |
25,544 |
(30,206 |
) |
(4,662 |
) |
|
Consolidated statements of changes in equity |
As previously reported |
Adjustments |
As restated |
|||||
|
Net profit for the year (i)/(ii) |
125,916 |
(30,206 |
) |
95,710 |
||||
|
Balance as of December 31, 2022 |
1,338,179 |
(30,206 |
) |
1,307,973 |
|
Consolidated statements of cash flows |
As previously reported |
Adjustments |
As restated |
|||||
|
Net profit for the year |
125,916 |
(30,206 |
) |
95,710 |
||||
|
Adjustments for: |
|
|
|
|||||
|
Income tax (i)/(ii) |
74,356 |
30,206 |
104,562 |
|||||
|
Other lines not affected by the error |
164,224 |
- |
164,224 |
|||||
|
Changes in operating assets and liabilities: |
(203,840 |
) |
- |
(203,840 |
) | |||
|
Cash generated from operating activities |
160,656 |
- |
160,656 |
CI&T Inc.
Consolidated financial statements
December 31, 2023
|
Basic and diluted earnings per share |
As previously reported |
Adjustments |
As restated |
|||||
|
Numerator |
|
|
|
|||||
|
Profit attributable to holders of common shares (i)/(ii) |
125,916 |
(30,206 |
) |
95,710 |
||||
|
Denominator |
|
|
|
|||||
|
Weighted average number of basic shares held by shareholders |
133,186,441 |
- |
133,186,441 |
|||||
|
Earnings per share – basic |
0.95 |
(0.23 |
) |
0.72 |
||||
|
Numerator |
|
|
|
|||||
|
Profit attributable to holders of common shares (i)/(ii) |
125,916 |
(30,206 |
) |
95,710 |
||||
|
Denominator |
|
|
|
|||||
|
Weighted average number of diluted shares held by shareholders |
134,774,674 |
- |
134,774,674 |
|||||
|
Net earnings per share – diluted |
0.93 |
(0.22 |
) |
0.71 |
| 31 | Subsequent events |
Loan agreement
On March 01, 2024, the Company signed a working capital loan contract with interest SOFR 6 months + 2.80%, semi-annual interest payment and grace period with the first installment of principal amount starting on June, 25. The agreed debt is R$ 49,5 million (US$ 10 million) at the transaction date.
| F-69 |
Exhibit 2.1
DESCRIPTION OF SECURITIES REGISTERED UNDER SECTION 12 OF THE EXCHANGE ACT
As of December 31, 2022, CI&T Inc (“CI&T,” the “Company,” “we,” “us,” and “our”) had the following classes of securities registered pursuant to Section 12(b) of the Exchange Act:
|
Title of each class |
Trading symbol(s) |
Name of each exchange on which registered |
|
Class A common shares, par value US$0.00005 per share |
CINT |
New York Stock Exchange |
Capitalized terms used but not defined herein have the meanings given to them in our annual report on Form 20-F for the fiscal year ended December 31, 2022.
CLASS A COMMON SHARES
The following is a summary of the material provisions of our authorized share capital and our articles of association (the “Articles of Association”). This description does not purport to be complete and is subject to and qualified in its entirety by reference to our Articles of Association, which is incorporated as an exhibit to our most recent annual report on Form 20-F, the Companies Act (As Revised) of the Cayman Islands (the “Companies Act”), and common law of the Cayman Islands. We encourage you to read our Articles of Association, the Companies Act, and applicable provisions of Cayman law for additional information.
General
We were incorporated on June 7, 2021, as a Cayman Islands exempted company with limited liability duly registered with the Cayman Islands Registrar of Companies. Our corporate purposes are unrestricted, and we have the authority to carry out any object not prohibited by the Companies Act or any other law as provided by Section 7(4) of the Companies Act.
Share Capital
Our Articles of Association authorize two classes of common shares: Class A common shares, which are entitled to one vote per share, and Class B common shares, which are entitled to ten votes per share and to maintain a proportional ownership interest in the event that additional Class A common shares are issued (save that the right to maintain a proportional ownership interest may only be exercised with Class B Shareholder Consent). Any holder of Class B common shares may convert his or her shares at any time into Class A common shares on a share-for-share basis. The rights of the two classes of common shares are otherwise identical, except as described below. See “— Anti-Takeover Provisions in the Articles — Two Classes of Shares.”
As of the date of this annual report, CI&T’s total authorized share capital was US$50,000, divided into shares with par value of US$0.00005 each, of which:
● 500,000,000 shares are designated as Class A common shares;
● 250,000,000 shares are designated as Class B common shares;
● 250,000,000 are yet undesignated and may be issued as common shares or shares with preferred, deferred or other special rights or restrictions.
As of the date of this annual report we have a total issued share capital of R$ 36,903 divided into 134,412,014 shares of a nominal or par value of US$0.00005 each, comprising (i) 21,365,297 Class A common shares; and (ii) 113,046,717 Class B common shares.
Our Class A common shares are traded in the United States on the New York Stock Exchange (or NYSE), under the symbol “CINT.”
| 1 |
Treasury Stock
On May 17, 2023, our board of directors approved a share repurchase program, pursuant to which we repurchased 1,500,000 of theCompany’s Class A common shares, all of which were held as treasury shares following the repurchases. In November 2023, we distributed thisentire amount of treasury share to fulfill obligations to former owners of Ntersol and related to the exercise of restricted stock units (note 21.c toour audited consolidated financial statements).
On November 16, 2023, our board of directors approved a new share repurchase program, pursuant to which we may repurchase up to2.5 million of our outstanding class A common shares until December 31, 2024.
Issuance of Shares
Except as expressly provided in our Articles of Association, our board of directors has general and unconditional authority to allot, grant options over, offer or otherwise deal with or dispose of any unissued shares in the company’s capital without the approval of our shareholders (whether forming part of the original or any increased share capital), either at a premium or at par, with or without preferred, deferred or other special rights or restrictions, whether in regard to dividend, voting, return of capital or otherwise and to such persons, on such terms and conditions, and at such times as the directors may decide, but so that no share shall be issued at a discount, except in accordance with the provisions of the Companies Act. In accordance with our Articles of Association, we shall not issue bearer shares. We shall not issue any class of shares with dividend rights, conversion rights, redemption rights and/or liquidation preference superior to the rights of the Class B common shares, or shares having more than one vote per share, without the Class B Shareholder Consent.
Our Articles of Association provide that additional Class B common shares may only be issued pursuant to (1) a share split, subdivision of shares or similar transaction or where a dividend or other distribution is paid by the issue of shares or rights to acquire shares or following capitalization of profits, (2) subject to the Class B Shareholder Consent, a merger, consolidation, or other business combination involving the issuance of Class B common shares as full or partial consideration, or (3) an issuance of Class A common shares, whereby holders of the Class B common shares would be entitled to purchase a number of Class B common shares that would allow them to maintain their proportional ownership and voting interests in CI&T (following an offer by CI&T to each holder of Class B common shares to issue to such holder, upon the same economic terms and at the same price, such number of Class B common shares as would ensure such holder may maintain a proportional ownership interest in CI&T pursuant to our Articles of Association), save that such rights to purchase additional Class B common shares may only be exercised with Class B Shareholder Consent. In light of: (a) the above provisions; (b) the fact that future transfers by holders of Class B common shares will generally result in those shares converting to Class A common shares, subject to limited exceptions as provided in our Articles of Association; and (c) the ten-to-one voting ratio between our Class B common shares and Class A common shares, holders of our Class B common shares will in many situations continue to maintain control of all matters requiring shareholder approval. This concentration of ownership and voting power will limit or preclude your ability to influence corporate matters for the foreseeable future. For more information see “— Preemptive or Similar Rights.”
Our Articles of Association also provide that the issuance of non-voting common shares requires the affirmative vote of a majority of the then-outstanding Class A common shares.
Distributions
Dividends and Capitalization of Profits
We have not adopted a dividend policy with respect to payments of any future dividends by us. Subject to the Companies Act, our shareholders may, by resolution passed by a simple majority of the voting rights entitled to vote at a general meeting, declare dividends (including interim dividends) to be paid to shareholders but no dividend shall be declared in excess of the amount recommended by the board of directors. The board of directors may also declare dividends. Dividends may be declared and paid out of funds lawfully available to us. Except as otherwise provided by the rights attached to shares and our Articles of Association, all dividends shall be paid in proportion to the number of Class A common shares or Class B common shares a shareholder holds at the date the dividend is declared (or such other date as may be set as a record date); but, (1) if any share is issued on terms providing that it shall rank for dividend as from a particular date, that share shall rank for dividend accordingly and (2) where we have shares in issue which are not fully paid up (as to par value) we may pay dividends in proportion to the amounts paid up on each share.
The holders of Class A common shares and Class B common shares are entitled to share equally in any dividends that may be declared in respect of our common shares from time to time. In the event that a dividend is paid in the form of Class A common shares or Class B common shares, or rights to acquire Class A common shares or Class B common shares, (1) the holders of Class A common shares shall receive Class A common shares, or rights to acquire Class A common shares, as the case may be and (2) the holders of Class B common shares shall receive Class B common shares, or rights to acquire Class B common shares, as the case may be.
| 2 |
Certain Cayman Islands Legal Requirements Related to Dividends
Under the Companies Act and our Articles of Association, a Cayman Islands company may pay a dividend out of either its profit or share premium account, but a dividend may not be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business. According to our Articles of Association, dividends can be declared and paid out of funds lawfully available to us, which include the share premium account. Dividends, if any, would be paid in proportion to the number of common shares a shareholder holds.
Certain Brazilian Legal Requirements Related to Dividends
Our ability to pay dividends is directly related to positive and distributable net results from our Brazilian subsidiary. Our Brazilian subsidiary is required under its by-laws and Federal Law No. 6,404 dated December 15, 1976, as amended, to distribute a mandatory minimum dividend to shareholders each year, which cannot be lower than 25% of its adjusted net income for the prior year, calculated under Article 202 of the Brazilian Corporate Law, unless such distribution is suspended by a decision of such subsidiary’s shareholders at its annual shareholders’ meeting based on a report by its board of directors that such distribution would be incompatible with its financial condition at that time. In addition, if, for any legal reasons due to new laws or bilateral agreements between countries, our Brazilian subsidiary is unable to pay dividends to Cayman Islands companies, or if a Cayman Islands company becomes incapable of receiving them, we may not be able to make any dividend payments in the future.
Voting Rights
The holders of the Class A common shares and Class B common shares have identical rights, except that (1) the holders of Class B common shares are entitled to ten votes per share, whereas holders of Class A common shares are entitled to one vote per share, (2) Class B common shares have certain conversion rights and (3) the holders of Class B common shares are entitled to maintain a proportional ownership interest in the event that additional Class A common shares are issued, save that such rights to purchase additional Class B common shares may only be exercised with Class B Shareholder Consent. The holders of Class A common shares and Class B common shares vote together as a single class on all matters (including the election of directors) submitted to a vote of shareholders, except as provided below and as otherwise required by law.
Our Articles of Association provide as follows regarding the respective rights of holders of Class A common shares and Class B common shares:
(1)Class consents from the holders of Class A common shares or Class B common shares, as applicable, shall be required for any variation to the rights attached to their respective class of shares, however, the Directors may treat any two or more classes of shares as forming one class if they consider that all such classes would be affected in the same way by the proposal;
(2)the rights conferred on holders of Class A common shares shall not be deemed to be varied by the creation or issue of further Class B common shares and vice versa; and
(3)the rights attached to the Class A common shares and the Class B common shares shall not be deemed to be varied by the creation or issue of shares with preferred or other rights, including, without limitation, shares with enhanced or weighted voting rights.
As set forth in our Articles of Association, the holders of Class A common shares and Class B common shares, respectively, do not have the right to vote separately if the number of authorized shares of such class is increased or decreased. Rather, the number of authorized Class A common shares and Class B common shares may be increased or decreased (but not below the number of shares of such class then outstanding) by the affirmative vote of the holders of a majority of the voting power of the issued and outstanding Class A common shares and Class B common shares, voting together in a general meeting.
| 3 |
Preemptive or Similar Rights
The Class A common shares are not entitled to any preemptive rights, including upon transfer of such shares, and conversion, redemption or sinking fund provisions.
The Class B common shares are not subject to conversion (except as described below under “—Conversion”), redemption or sinking fund provisions. The holders of Class B common shares are not entitled to preemptive rights upon conversion, and so long as their Class B common shares have not been converted into Class A common shares, the holders of Class B common shares are entitled to preemptive rights (which may only be exercised with Class B Shareholder Consent) in order to maintain their proportional ownership and voting interest as determined immediately prior to such issuance in the event that additional Class A common shares are issued. As such, except for certain exceptions, including the issuance of Class A common shares other than for cash and the issuance of Class A common shares under a management incentive plan, if CI&T issues Class A common shares, it must first make an offer to each holder of Class B common shares to issue to such holder on the same economic terms such number of Class B common shares as would ensure such holder may maintain a proportional ownership and voting interest in CI&T equivalent to such holder’s ownership and voting interest immediately prior to such issuance and each such holder may only exercise their preemptive rights and accept such offer with Class B Shareholder Consent.
Conversion
The outstanding Class B common shares are convertible at any time as follows: (1) at the option of the holder, a Class B common share may be converted at any time into one Class A common share or (2) upon the election of the holders of a majority of the then outstanding Class B common shares, all outstanding Class B common shares may be converted into a like number of Class A common shares. In addition, each Class B common share will convert automatically into one Class A common share upon any transfer, whether or not for value, except for certain transfers described in our Articles of Association, including transfers to the holder’s heirs, successors and affiliates, a trust established for the benefit of the holder or its affiliate, a partnership, corporation or other entity exclusively owned or controlled by the holder or its affiliate and certain transfers to organizations that are exempt from taxation under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended. Furthermore, each Class B common share will convert automatically into one Class A common share and no Class B common shares will be issued thereafter if, at any time, the total number of the issued and outstanding Class B common shares is less than 10% of the total number of shares outstanding.
No class of CI&T’s common shares may be subdivided or combined unless the other class of common shares is concurrently subdivided or combined in the same proportion and in the same manner.
Equal Status
Except as expressly provided in our Articles of Association, Class A common shares and Class B common shares have the same rights and privileges and rank equally, share proportionally and are identical in all respects as to all matters. In the event of any merger, consolidation, scheme, arrangement or other business combination requiring the approval of our shareholders entitled to vote thereon (whether or not CI&T is the surviving entity), the holders of Class A common shares shall have the right to receive, or the right to elect to receive, the same form of consideration as the holders of Class B common shares, and the holders of Class A common shares shall have the right to receive, or the right to elect to receive, at least the same amount of consideration on a per share basis as the holders of Class B common shares. In the event of any (1) tender or exchange offer to acquire any Class A common shares or Class B common shares by any third-party pursuant to an agreement to which CI&T is a party, or (2) any tender or exchange offer by CI&T to acquire any Class A common shares or Class B common shares, the holders of Class A common shares shall have the right to receive, or the right to elect to receive, the same form of consideration as the holders of Class B common shares, and the holders of Class A common shares shall have the right to receive, or the right to elect to receive, at least the same amount of consideration on a per share basis as the holders of Class B common shares.
Record Dates
For the purpose of determining shareholders entitled to notice of, or to vote at any general meeting of shareholders or any adjournment thereof, or shareholders entitled to receive dividend or other distribution payments, or in order to make a determination of shareholders for any other purpose, our board of directors may set a record date.
| 4 |
General Meetings of Shareholders
As a condition of admission to a shareholders’ meeting, a shareholder must be duly registered as a shareholder of CI&T at the applicable record date for that meeting and, in order to vote, all calls or installments then payable by such shareholder to CI&T in respect of the shares that such shareholder holds must have been paid.
Subject to any special rights or restrictions as to voting then attached to any shares, at any general meeting every shareholder who is present in person or by proxy (or, in the case of a shareholder being a corporation, by its duly authorized representative not being himself or herself a shareholder entitled to vote) shall have one vote per Class A common share and ten votes per Class B common share.
As a Cayman Islands exempted company, we are not obliged by the Companies Act to call annual general meetings; however, our Articles of Association provide that in each year the company will hold an annual general meeting of shareholders, at a time determined by the board of directors. For the annual general meeting of shareholders, the agenda will include, among other things, the presentation of the annual accounts and the report of the existing directors and the election of new directors. In addition, the agenda for an annual general meeting of shareholders will only include such items as have been included therein by the board of directors.
Also, we may, but are not required to (unless required by the laws of the Cayman Islands), hold other extraordinary general meetings during the year. General meetings of shareholders are generally expected to take place in São Paulo, Brazil, but may be held elsewhere if the directors so decide.
The Companies Act provides shareholders a limited right to request a general meeting and does not provide shareholders with any right to put any proposal before a general meeting in default of a company’s articles of association. However, these rights may be provided in a company’s articles of association. Our Articles of Association provide that upon the requisition of one or more shareholders representing not less than one-third of the voting rights entitled to vote at general meetings, the board will convene an extraordinary general meeting and put the resolutions so requisitioned to a vote at such meeting. Our Articles of Association provide no other right to put any proposals before annual general meetings or extraordinary general meetings.
Subject to regulatory requirements, the annual general meeting and any extraordinary general meetings must be called by not less than fourteen (14) clear days’ notice prior to the relevant shareholders meeting and convened by a notice, as discussed below. Alternatively, upon the prior consent of all holders entitled to receive notice, with regards to the annual general meeting, and the holders of 95% in par value of the shares entitled to attend and vote at an extraordinary general meeting, that meeting may be convened by a shorter notice and in a manner deemed appropriate by those holders.
We will give notice of each general meeting of shareholders by publication on our website and in any other manner that it may be required to follow in order to comply with Cayman Islands law and the NYSE and SEC requirements. The holders of registered shares may be given notice of a shareholders’ meeting by means of letters sent to the addresses of those shareholders as registered in our shareholders’ register, or, subject to certain statutory requirements, by electronic means.
Holders whose shares are registered in the name of DTC or its nominee, which we expect will be the case for all holders of Class A common shares, will not be a shareholder or member of the company and must rely on the procedures of DTC regarding notice of shareholders’ meetings and the exercise of rights of a holder of the Class A common shares.
The quorum required to hold a general meeting consists of any one or more persons holding or representing by proxy not less than one third of the aggregate voting power of all shares in issue and entitled to vote upon the business to be transacted.
A resolution put to a vote at a general meeting shall be decided on a poll. An ordinary resolution to be passed by the shareholders at a general meeting requires the affirmative vote of a simple majority of the votes cast by, or on behalf of, the shareholders entitled to vote, present in person or by proxy and voting at the meeting. A special resolution requires the affirmative vote on a poll of no less than two-thirds of the votes cast by the shareholders entitled to vote who are present in person or by proxy at a general meeting. Both ordinary resolutions and special resolutions may also be passed by a unanimous written resolution signed by all the shareholders of our Company, as permitted by the Companies Act and our Articles of Association.
| 5 |
Pursuant to our Articles of Association, general meetings of shareholders are to be chaired by the chairman of our board of directors or in his absence the vice-chairman of the board of directors. If both the chairman and vice-chairman of our board of directors are absent, the directors present at the meeting shall appoint one of them to be chairman of the general meeting. If neither the chairman nor another director is present at the general meeting within 15 minutes after the time appointed for holding the meeting, the shareholders present in person or by proxy and entitled to vote may elect any one of the shareholders to be chairman. The order of business at each meeting shall be determined by the chairman of the meeting, and he or she shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation, the establishment of procedures for the maintenance of order and safety, limitations on the time allotted to questions or comments on the affairs of the Company, restrictions on entry to such meeting after the time prescribed for the commencement thereof, and the opening and closing of the polls.
Liquidation Rights
If CI&T is voluntarily wound up, the liquidator, after taking into account and giving effect to the rights of preferred and secured creditors and to any agreement between CI&T and any creditors that the claims of such creditors shall be subordinated or otherwise deferred to the claims of any other creditors and to any contractual rights of set-off or netting of claims between CI&T and any person or persons (including without limitation any bilateral or any multi-lateral set-off or netting arrangements between the CI&T and any person or persons) and subject to any agreement between CI&T and any person or persons to waive or limit the same, shall apply CI&T’s property in satisfaction of its liabilities pari passu and subject thereto shall distribute the property amongst the shareholders according to their rights and interests in CI&T.
Changes to Capital
Pursuant to our Articles of Association, we may from time to time by ordinary resolution:
-increase our share capital by such sum, to be divided into shares of such amount, as the resolution shall prescribe;
-consolidate and divide all or any of our share capital into shares of a larger amount than our existing shares;
-convert all or any of our paid-up shares into stock and reconvert that stock into paid up shares of any denomination;
-subdivide our existing shares or any of them into shares of a smaller amount, provided that in the subdivision the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived; or
-cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and diminish the amount of our share capital by the amount of the shares so cancelled.
Our shareholders may by special resolution, subject to confirmation by the Grand Court of the Cayman Islands on an application by the Company for an order confirming such reduction, reduce our share capital or any capital redemption reserve in any manner permitted by law.
In addition, subject to the provisions of the Companies Act and our Articles of Association, we may:
-issue shares on terms that they are to be redeemed or are liable to be redeemed;
-purchase our own shares (including any redeemable shares); and
-make a payment in respect of the redemption or purchase of our own shares in any manner authorized by the Companies Act, including out of our own capital.
| 6 |
Transfer of Shares
Subject to any applicable restrictions set forth in our Articles of Association, any of our shareholders may transfer all or any of his or her common shares by an instrument of transfer in the usual or common form or in the form prescribed by the New York Stock Exchange or “NYSE” or any other form approved by the our board of directors.
The Class A common shares sold in our initial public offering are traded on the NYSE in book-entry form and may be transferred in accordance with our Articles of Association and the NYSE’s rules and regulations.
However, our board of directors may, in its absolute discretion, decline to register any transfer of any common share which is either not fully paid up to a person of whom it does not approve or is issued under any share incentive scheme for employees which contains a transfer restriction that is still applicable to such common share. The board of directors may also decline to register any transfer of any common share unless:
-a fee of such maximum sum as the NYSE may determine to be payable or such lesser sum as the board of directors may from time to time require is paid to us in respect thereof;
-the instrument of transfer is lodged with us, accompanied by the certificate (if any) for the common shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer;
-the instrument of transfer is in respect of only one class of shares;
-the instrument of transfer is properly stamped, if required;
-the common shares transferred are free of any lien in our favor; and
-in the case of a transfer to joint holders, the transfer is not to more than four joint holders.
If the directors refuse to register a transfer they are required, within two months after the date on which the instrument of transfer was lodged, to send to the transferee notice of such refusal.
Share Repurchase
The Companies Act and our Articles of Association permit us to purchase our own shares, subject to certain restrictions. The board of directors may only exercise this power on behalf of CI&T, subject to the Companies Act, our Articles of Association and to any applicable requirements imposed from time to time by the SEC, the NYSE, or by any recognized stock exchange on which our securities are listed.
On May 17, 2023, our board of directors approved a share repurchase program, pursuant to which we may repurchase up to 1.5 million of our outstanding Class A common shares in the next 12 months. The program was approved taking into consideration our commitment to deliver shares under our stock-based compensation plan and corporate reorganization.
On November 16, 2023, the Board of Directors approved a new share repurchase program, pursuant to which the Company may repurchase up to 2.5 million of its outstanding class A common shares until December 31, 2024.
| 7 |
Appointment of Members of the Board of Directors
Our Articles of Association provide that directors shall be elected by an ordinary resolution of shareholders, which requires the affirmative vote of a simple majority of the votes cast on the resolution by the shareholders entitled to vote who are present, in person or by proxy, at the meeting. Each director shall be appointed and elected for annual terms or such other terms as the resolution appointing him or her may determine or until his or her death, resignation or removal.
Any vacancies on the board of directors that arise other than upon the removal of a director by resolution passed at a general meeting can be filled by the remaining directors (notwithstanding that they may constitute less than a quorum). Any such appointment shall be as an interim director to fill such vacancy until the next annual general meeting of shareholders. Our board of directors is composed of seven members.
Rights of Non-Resident or Foreign Shareholders
There are no limitations imposed by our Articles of Association on the rights of non-resident or foreign shareholders to hold or exercise voting rights on our shares. In addition, there are no provisions in our Articles of Association governing the ownership threshold above which shareholder ownership must be disclosed.
Anti-Takeover Provisions in the Articles of Association
Some provisions of our Articles of Association may discourage, delay or prevent a change in control or management that shareholders may consider favorable. In particular, the capital structure of CI&T concentrates ownership of voting rights in the hands of the holders of Class B common shares. These provisions, which are summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids.
These provisions are also designed to encourage persons seeking to acquire control of CI&T to first negotiate with the board of directors. However, these provisions could also have the effect of discouraging others from attempting hostile takeovers and, consequently, they may also inhibit temporary fluctuations in the market price of the Class A common shares that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions that shareholders may otherwise deem to be in their best interests.
Two Classes of Common Shares
Our Class B common shares are entitled to ten votes per share, while the Class A common shares are entitled to one vote per share. The holders of all of our Class B common shares will together have the ability to elect all directors and to determine the outcome of most matters submitted for a vote of shareholders. This concentrated voting control could discourage others from initiating any potential merger, takeover, or other change of control transaction that other shareholders may view as beneficial.
So long as the holders of Class B common shares have the ability to determine the outcome of most matters submitted to a vote of shareholders as well as our overall management and direction, third parties may be deterred in their willingness to make an unsolicited merger, takeover, or other change of control proposal, or to engage in a proxy contest for the election of directors. As a result, the fact that we have two classes of common shares may have the effect of depriving you as a holder of Class A common shares of an opportunity to sell your Class A common shares at a premium over prevailing market prices and make it more difficult to replace our directors and management.
| 8 |
Preferred Shares
Our board of directors is given wide powers to issue one or more classes or series of shares with preferred rights. Such preferences may include, for example, dividend rights, conversion rights, redemption privileges, enhanced voting powers and liquidation preferences.
We shall not issue any class of shares with dividend rights, conversion rights, redemption rights and/or liquidation preference superior to the rights of the Class B common shares, or shares having more than one vote per share, without the Class B Shareholder Consent.
Despite the anti-takeover provisions described above, under Cayman Islands law, our board of directors may only exercise the rights and powers granted to them under our Articles of Association, for what they believe in good faith to be in our best interests.
Protection of Non-Controlling Shareholders
The Grand Court of the Cayman Islands may, on the application of shareholders holding not less than one fifth of our shares in issue, appoint an inspector to examine the Company’s affairs and report thereon in a manner as the Grand Court shall direct.
Subject to the provisions of the Companies Act, any shareholder may petition the Grand Court of the Cayman Islands which may make a winding up order, if the court is of the opinion that this winding up is just and equitable.
Notwithstanding the U.S. securities laws and regulations that are applicable to us, general corporate claims against CI&T by its shareholders must, as a general rule, be based on the general laws of contract or tort applicable in the Cayman Islands or their individual rights as shareholders as established by our Articles of Association.
The Cayman Islands courts ordinarily would be expected to follow English case law precedents, which permit a minority shareholder to commence a representative action against us, or derivative actions in CI&T’s name, to challenge (1) an act which is ultra vires or illegal, (2) an act which constitutes a fraud against the minority and the wrongdoers themselves control CI&T and (3) an irregularity in the passing of a resolution that requires a qualified (or special) majority.
| 9 |
Exhibit 8.1
List of Subsidiaries of CI&T Inc
|
Subsidiary |
Jurisdiction of incorporation |
|
CI&T Delaware LLC |
Delaware |
|
CI&T Software S.A. |
Brazil |
|
CI&T Portugal, Unipessoal Lda |
Portugal |
|
CI&T, Inc. |
Pennsylvania |
|
CI&T Australia PTY Ltd |
Australia |
|
CI&T Japan Inc |
Japan |
|
CI&T Software Inc. |
Canada |
|
CI&T UK Limited |
United Kingdom |
|
CI&T Argentina S.A. |
Argentina |
|
CI&T China, Inc Dextra Inc CINQ Technologies USA LLC SOMO Global LTD. SOMO Custom LTD. SOMO Global Inc. SOMO Global SAS. CI&T Oceania PTY LTD. Unconstrained Thinking PTY LTD NTERSOL CONSULTING, LLC COREIP HOLDINGS, INC. CI&T Colômbia S.A.S. |
China United States United States United Kingdom United Kingdom United States Colombia Australia Australia Delaware Delaware Colômbia |
Exhibit 12.1
CERTIFICATION PURSUANT TO RULES 13a-14(a) AND 15d-14(a) AS ADOPTED UNDER SECTION 302 OF THE SARBANES-OXLEY ACT
I, Cesar Nivaldo Gon, certify that:
| 1. | I have reviewed this annual report on Form 20-F of CI&T Inc; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; | |
| 4. | The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15-d-15(f)) for the company and have: | |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and | |
| 5. | The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): | |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. | |
| March 28, 2024 | ||
| By: | /s/ Cesar Nivaldo Gon | |
| Cesar Nivaldo Gon | ||
| Chief Executive Officer |
Exhibit 12.2
CERTIFICATION PURSUANT TO RULES 13a-14(a) AND 15d-14(a) AS ADOPTED UNDER SECTION 302 OF THE SARBANES-OXLEY ACT
I, Stanley Rodrigues, certify that:
| 1. | I have reviewed this annual report on Form 20-F of CI&T Inc; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; |
| 4. | The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15-d-15(f)) for the company and have: |
| (a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and | |
| 5. | The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): |
|
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. | |
| March 28, 2024 | ||
| By: | /s/ Stanley Rodrigues | |
| Stanley Rodrigues | ||
| Chief Financial Officer |
| 1 |
Exhibit 13.1
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of Title 18, United States Code), each of the undersigned officers of CI&T Inc (the “Company”), does hereby certify, to such officer’s knowledge, that:
The Annual Report on Form 20-F for the year ended December 31, 2023 of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results of operations of the Company.
| By: | /s/ Cesar Nivaldo Gon | |
| Name: | Cesar Nivaldo Gon | |
| Title: | Chief Executive Officer |
|
| Date: | March 28, 2024 | |
| By: | /s/ Stanley Rodrigues | |
| Name: | Stanley Rodrigues | |
| Title: | Chief Financial Officer | |
| Date: | March 28, 2024 | |
| 1 |
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the registration statements (No. 333-275725, 333-268732, 333-267589 and 333-261939) on Form S-8 of our report dated March 28, 2024, with respect to the consolidated financial statements of CI&T Inc..
/s/ KPMG Auditores Independentes Ltda.
Campinas, São Paulo
March 28, 2024
| 1 |
Exhibit 97
Compensation Clawback Policy
Version 1.0
March, 2023
|
TABLE OF CONTENTS |
|
| 1. Objective | 2 |
| 2. Applicability | 2 |
| 3. Directives | 2 |
| 4. Responsibilities and Violations | 4 |
| 5. Document Control | 4 |
| 1 |
Pursuant to SEC Exchange Act Rule 10D-1 and Section 303A.14 of the NYSE Listed Company Manual (the “Clawback Rules”), this policy establishes directives for the recovery of incentive-based compensation that was erroneously awarded to executive officers.
All references to "CI&T" or “Company” refer to CI&T, Inc - Cayman, the Holding Company.
This Policy applies to incentive based compensation awarded to people holding the following positions (“Executive Officers”) of the Company:
● CEO,
● CFO,
● vice-presidents in charge of a principal business unit, division, or function,
● officers,
● board members.
Each Executive Officer shall repay or forfeit, to the fullest extent permitted by law and as directed by the Nominating and Human Resources Committee (“Nominating Committee”) of the Company, any compensation (that is granted, earned or vested based wholly or in part upon the attainment of a Financial Reporting Measure (such compensation, the “Awards”) received by this person during the three completed fiscal years immediately preceding the date that the Company is required to prepare an accounting restatement described below if:
| ● | the payment of the Awards was based on the attainment of a financial reporting measure, |
| ● | the Company is required to prepare an accounting restatement due to the material noncompliance of the issuer with any financial reporting requirement under the securities laws, and |
| ● |
the amount of such Award exceeds the amount of Awards that otherwise would have been received had the Award been calculated based on the accounting restatement, provided that for Awards based on stock price or total shareholder return where the amount cannot be recalculated directly from the information in an accounting restatement, the amount of compensation clawed back will be based on a reasonable estimate of the effect of the accounting restatement on the magnitude of the applicable Award. |
| 2 |
For purposes of this Policy, “Financial Reporting Measures” shall mean measures that are determined and presented in accordance with the accounting principles used in preparing the Company’s financial statements, and all other measures that are derived wholly or in part from such measures. Stock price and total shareholder return (and any measures that are derived wholly or in part from stock price or total shareholder return) shall for purposes of this Policy be considered Financial Reporting Measures. For the avoidance of doubt, a Financial Reporting Measure need not be presented in the Company’s financial statements or included in a filing with the SEC.
The Nominating Committee shall have full and final authority to make all determinations under this Policy, including without limitation whether the Policy applies and if so, the amount of the Awards to be repaid or forfeited by the Executive Officer. Repayment can be made by (i) requiring reimbursement of any erroneously awarded Awards; (ii) seeking recovery of any gain realized on the vesting, exercise, settlement, sale, transfer, or other disposition of any equity-based Awards; (iii) offsetting the erroneously awarded Awards from any compensation otherwise owed by the Company to the Executive Officers; (iv) canceling outstanding vested or unvested Awards; and (v) taking any other remedial and recovery action permitted by law, as determined by the Nominating Committee. All determinations and decisions made by the Nominating Committee pursuant to the provisions of this Policy shall be final, conclusive and binding on all persons, including the Company, its affiliates, its shareholders and employees.
Each award agreement or other document setting forth the terms and conditions of any Award granted to an Executive Officer shall be deemed to include the provisions of this Policy. The remedy specified in this policy shall not be exclusive and shall be in addition to every other right or remedy at law or in equity that may be available to the Company.
For the avoidance of doubt, except to the extent permitted to be waived pursuant to the Clawback Rules, in no event may the Company accept an amount that is less than the amount of erroneously awarded compensation in satisfaction of an Executive Officer’s obligations hereunder. For example, notwithstanding anything herein to the contrary, the Company shall not be required to pursue recoupment of Awards if the Nominating Committee determines in good faith that recovery would be Impracticable. For purposes of this Policy, “Impracticable” shall mean, in accordance with the good faith determination of the Nominating Committee that either (i) the direct expenses paid to a third party to assist in enforcing the Policy against an Executive Officer would exceed the amount to be recovered, after the Company has made a reasonable attempt to recover the applicable Award, documented such attempts and provided such documentation to NYSE; (ii) recovery would violate home country law where that law was adopted prior to November 28, 2022, provided that, before determining that it would be impracticable to recover any amount of any Award based on violation of home country law, the Company has obtained an opinion of home country counsel, acceptable to NYSE, that recovery would result in such a violation and a copy of the opinion is provided to NYSE; or (iii) recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to employees of the Company, to fail to meet the requirements of 26 U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and regulations thereunder.
This Policy shall apply for all Awards received by Executive Officers on or after October 2nd, 2023 (the “Effective Date”) that results from attainment of a financial reporting measure based on or derived from financial information for any fiscal period ending on or after the Effective Date.
| 3 |
Any breach of this Policy or any other directive, rule or company policy must be reported through our Ethics Portal (ethics.ciandt.com). Violations may result in a breach of contract with the executive officer in question. Also, companies that violate SEC regulations may face legal consequences in court such as sanctions and money penalties or be delisted from its exchange.
The Company shall not be permitted to indemnify any Executive Officer against (i) the loss of any Award that is repaid, returned or recovered pursuant to the terms of this Policy; or (ii) any claims relating to the Company’s enforcement of its rights under this Policy. Further, the Company will not enter into any agreement that exempts any Awards from the application of this Policy or that waives the Company’s right to recovery of any Awards and this Policy shall supersede any such agreement (whether entered into before, on or after the Effective Date).
Any such purported indemnification (whether oral or in writing) shall be null and void.
5. Document Control
|
Date |
Description |
Author |
|
March/23 |
Policy creation - Compliance |
Flávia Cabral |
|
March/23 |
Policy review - Accounting and Legal |
Marina Domingues, Vanessa Martins, Claudia Cortez and Marcela Lindner |
|
May/23 |
Policy review |
Nominating and Human Resources Committee |
|
July/23 |
Policy approval |
Board Of Directors |
| 4 |