CGI Q1 2025 Earnings Report

CGI EPS Results

• Actual EPS: $1.41
• Consensus EPS: $1.41
• Beat/Miss: Met Expectations
• One Year Ago EPS: N/A

CGI Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $2.70 billion
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

CGI Announcement Details

• Quarter: Q1 2025
• Date: 1/29/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, January 29, 2025
• Conference Call Time: 9:00AM ET

CGI (NYSE:GIB), together with its subsidiaries, provides information technology (IT) and business process services. Its services include the business and strategic IT consulting, systems integration, and software solutions. The company also provides application development, modernization and maintenance, holistic enterprise digitization, automation, hybrid and cloud management, and business process services; intellectual property-based solutions; business consulting; managed IT services; and IT infrastructure services. It serves clients operating in government, banking and capital market, health, utility, communication and media, oil and gas, space, manufacturing, insurance, life sciences, retail and consumer service, and transportation and logistics sectors. The company operates in Canada, France, Spain, Portugal, the United States, Germany, Sweden, Norway, the United Kingdom, Australia, Finland, Poland, Baltics, the Netherlands, Denmark, Czech Republic, India, the Philippines, Asia Pacific, and internationally. Western and Southern Europe; Australia; Scandinavia; Finland, Poland, and Baltics; the United States; the United Kingdom; and the Asia Pacific. The company was formerly known as CGI Group Inc. and changed its name to CGI Inc. in January 2019. CGI Inc. was founded in 1976 and is headquartered in Montreal, Canada.

CGI Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Good morning, ladies and gentlemen, and welcome to CGI's First Quarter Fiscal 2025 Conference Call. And I would like to turn the meeting over to Mr. Kevin Linder, SVP of Investor Relations. Please go ahead, Mr. Linder.

[Kevin Linder, Senior VP of Finance & Treasury and Head of Investor Relations at CGI]

Thank you, Sylvia, and good morning. With me to discuss CGI's Q1 fiscal 2025 results are Francois Belanger, our President and CEO and Steve Perron, Executive Vice President and CFO. This call is being broadcast on cgi.com and recorded live at 9 am Eastern Time on Wednesday, January 29, 2025. Supplemental slides as well as the press release we issued earlier this morning are available for download along with our Q1 MD and A, financial statements and accompanying notes, all of which have been filed with both SEDAR Plus and EDGAR. Please note that some statements made on the call may be forward looking.

[Kevin Linder, Senior VP of Finance & Treasury and Head of Investor Relations at CGI]

Actual events or results may differ materially from those expressed or implied, and CGI disclaims any intent or obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise. The complete Safe Harbor statement is available in both our MD and A and press release as well as on cgi.com. We recommend our investors read it in its entirety. We are reporting our financial results in accordance with International Financial Reporting Standards or IFRS. As always, we will also discuss non GAAP performance measures, which should be viewed as supplemental.

[Kevin Linder, Senior VP of Finance & Treasury and Head of Investor Relations at CGI]

The MD and A contains definitions of each one used in our reporting. All of the dollar figures expressed on this call are Canadian, unless otherwise noted. We are also hosting our Annual General Meeting this morning, so we hope you will join us live via the broadcast at 11 am. Now I'll turn the call over to Francois for some introductory remarks. Francois?

[François Boulanger, President & CEO at CGI]

Thank you, Kevin, and good morning, everyone. Today, in line with the long term succession plan of CGI, Julie Gardin was appointed Executive Chair of CGI Board of Directors effective following today's Annual General Meeting of Shareholders. CGI's founder, Serge Gareng is now the co chair of the board and will continue to focus on transformational acquisitions and on large scale engagements with clients. During our Annual General Meeting this morning, Serge and Julie will provide further remarks on this key milestone. In addition, we announced this morning the signing of a new merger agreement.

[François Boulanger, President & CEO at CGI]

I will discuss this in my remarks. Now I'll turn the call over to Steve to review the Q1 financial results. Steve?

[Steve Perron, Executive VP & CFO at CGI]

Thank you, Francois, and good day, everyone. CGI once again delivered strong results in our Q1 of fiscal 2025. Before I begin, I would like to remind everyone about the adjustment we made to our reporting segments starting this quarter. Germany is now its own segment, and our operation in Scandinavia are now combined with our Northwest and Central East Europe segment. In Q1, we delivered $3,800,000,000 of revenue, up 5.1% year over year or up 2.7% when excluding the impact of foreign exchange.

[Steve Perron, Executive VP & CFO at CGI]

In constant currency, the CGI segments with strongest growth were U. S. Federal at 14% Canada at 5.9%, Asia Pacific at 5.2% and U. K. And Australia at 3.2%.

[Steve Perron, Executive VP & CFO at CGI]

In constant currency, our North American operations grew at 6.9% this quarter, while our European operations reported a change of minus 0.8% compared to last year, largely due to slower market conditions, mainly in Germany and France. From an industry perspective, constant currency revenue growth was led by government at 7.9% and financial services at 5.5%, driven by strong performance in North America. We experienced continued softness in the manufacturing sector, particularly in Europe. IP revenue grew in 7 of our 8 proximity segments on the strength of continued client interest for our business solutions. IP represented 21.6% of total revenue, down 40 basis points year over year due to recent business acquisitions.

[Steve Perron, Executive VP & CFO at CGI]

In Q1, bookings were $4,200,000,000 for a book to bill ratio of 110%. Our North American and Europe operations each have identical book to bill ratio at 110%. When looking at service type, book to bill ratios were 107% for managed services and 114% for Business and Strategic IT Consulting and System Integration. On a trailing 12 month basis, our book to bill ratio was 108%.

[Steve Perron, Executive VP & CFO at CGI]

On the

[Steve Perron, Executive VP & CFO at CGI]

same basis, managed services had a book to bill ratio of 113% and SI and C book to bill ratio was 101%. Our global backlog reached $29,800,000,000 or 2x revenue, providing good revenue visibility. Turning to profitability. Our results once again demonstrated our ability to manage our operation with discipline. Earnings before income taxes were $592,000,000 for a margin of 15.6%, up 100 basis points year over year.

[Steve Perron, Executive VP & CFO at CGI]

Adjusted EBIT in the quarter was $612,000,000 representing a margin of 16.2%. The favorable impacts generated from last year cost optimization program were offset by the temporary dilutive impact of recent business acquisition and lower billable utilization with some regions of Continental Europe. Margins were strongest in the following segments: Asia Pacific at 32.5 percent Canada at 24.1 percent and U. K. And Australia at 16.5%.

[Steve Perron, Executive VP & CFO at CGI]

Our effective tax rate in the quarter was 25.9%, down from 26.1% last year, and we expect our tax rate for future quarters to be in the range of 25.5% to 26.5%. Net earnings were $439,000,000 for a margin of 11 0.6%, up 80 basis points year over year. Diluted EPS was $1.92 representing an increase of 15% year over year. Adjusted net earnings were $449,000,000 This represents a margin of 11.9% stable year over year. On the same basis, diluted EPS was $1.97 an accretion of 7.7% when compared to Q1 last year.

[Steve Perron, Executive VP & CFO at CGI]

This quarter, we initiated targeted actions in Europe, mainly in Germany to realign our cost structure with current market conditions. As such, we incurred $8,000,000 of costs in Q1 and we expect to incur another $42,000,000 to finalize these actions by Q3. DSO was 38 days in the quarter, 3 days better than last year, contributing to the $646,000,000 in our cash from operation, a strong 17.1 percent of total revenue. Over the last 12 months, CGI has generated close to $2,300,000,000 up nearly $200,000,000 compared to the same period last year. In Q1, we used our cash to invest $83,000,000 into our business, invest $30,000,000 for business acquisition, representing the initial payment for the Doherty acquisition, invest $153,000,000 to buy back our stock and return $34,000,000 to our shareholders under our recently initiated dividend program.

[Steve Perron, Executive VP & CFO at CGI]

We continue to deliver a strong return on invested capital at 16.2%, up 30 basis points, demonstrating our proficiency and discipline on deployment of capital. In line with our capital allocation strategy and priorities, earlier today, we announced that CGI entered into a new agreement for merger in the UK. Francois will provide more commentary on the merger in a few minutes. Yesterday, our Board of Directors approved the extension of our NCIB program until February 2026, authorizing us to repurchase for cancellation up to 20,200,000 shares over the next 12 months. NCGI's Board of Directors also approved a quarterly cash dividend of $0.15 per share.

[Steve Perron, Executive VP & CFO at CGI]

This dividend is payable on March 21, 2025 to shareholders of records as of the close of business on February 14, 2025. As communicated in the past and consistent with our profitable growth strategy, CGI's capital allocation priorities remain focused on investing back in the business and pursuing accretive acquisitions. Now I will turn the call over to Francois to further discuss the insights on the quarter as well as the outlook for our business and markets. Francois?

[François Boulanger, President & CEO at CGI]

Thank you, Steve. I am pleased with our team's performance in the Q1 as we continue to successfully execute on our build and buy profitable growth strategy. We began the fiscal year in a strong position with positive momentum on a year over year basis. Revenue grew 5.1 percent or 2.7 percent on a constant currency basis. EPS accretion was 15% or 7.7% on an adjusted basis, resulting from a higher recurring revenue mix as well as proactive operational excellence actions.

[François Boulanger, President & CEO at CGI]

And cash from operations reached nearly $650,000,000 or 17.1 percent of revenue for an improvement of 110 basis points as a result of sustained quality delivery and business excellence. In the quarter, we also continue to see rising levels of engagement with our stakeholders. More than 87% of our 91,000 consultants and professionals are now CGI shareholders, up from 86% this time last year. And client satisfaction levels again rose now at 9.5 out of 10, with one of the highest scores being the intention of clients to engage CGI again in the future. The high satisfaction and deep confidence clients have in CGI's people and capabilities drove strong bookings in Q1, representing 110 percent book to bill ratio.

[François Boulanger, President & CEO at CGI]

1st quarter bookings continue to be led by wins within our 2 largest industry sectors of government and financial services. In the quarter, we saw an uptick in financial services as some clients reinitiated investments that were previously paused. Booking in this sector was were 123% of revenue, an increase of more than 40% compared to the same quarter last year. In the government sector, bookings increased more than 40% on a sequential basis, resulting in the Q1 book to bill of 124%. This increase was a result of a stronger client focus on driving monetization and operational efficiency.

[François Boulanger, President & CEO at CGI]

We expect this trend to continue as governments around the world adapt their IT priorities in line with evolving mission and policy priorities. Representative client awards in the quarter included Skyline, a leading provider of military pilot and aircrew training in Canada, selected CGI as its strategic technology partner to design the next generation of aircrew training for the Royal Canadian Air Force. Under the 25 year agreement, CGI will deliver a comprehensive suite of innovative, secure services including cybersecurity, business consulting and cloud computing. And Wells, the Harwell University Health Board initiated a 10 year, £75,000,000 strategic partnership with CGI to drive the digital transformation of healthcare to improve patient outcomes. CGI's consultants will partner with their board to streamline operations, modernize systems and processes and deliver innovative solutions such as AI integration.

[François Boulanger, President & CEO at CGI]

The Swedish Tax Agency extended its partnership with CGI to deliver advanced EID and electronic signature services. The agreement reinforces CGI roles in providing secure, innovative digital solutions that enhance citizen access to government services, while ensuring efficiency and compliance in Sweden's national digital ecosystem. And multiple North American banks extended their partnerships with CGI for consulting and systems integration services to design, build and deploy projects across multiple lines of business. We continue to see some clients exercising caution in their discretionary spending, primarily in Europe and the MRD sector. However, client interest remains strong across every industry to explore with CGI the opportunities for driving modernization and operational efficiency to manage services and IP.

[François Boulanger, President & CEO at CGI]

CGI remains well positioned as a partner of choice to help clients achieve the tangible and trusted business outcomes they seek. In fact, over the past 6 months, CGI has earned a record number of 3rd party analyst endorsements, which rank our expertise and capabilities in worldwide leading and major player categories. These reports and rankings cover our services related to AI, data modernization, cloud, cybersecurity and business consulting. CGI also achieved new partnership levels in Q1 with several emerging alliances, including Snowflake and Databricks. Since the start of the fiscal year, we also progress our strategic priority to pursue accretive acquisitions.

[François Boulanger, President & CEO at CGI]

In December, we expanded our positioning with Fortune 500 clients in the U. S. By merging with Darity, a professional services firm specializing in AI, IT consulting and business advisory services. Through the merger, our footprint increased in metro such as St. Louis, Atlanta, Minneapolis and Chicago.

[François Boulanger, President & CEO at CGI]

I would like to warmly welcome the 1100 new consultants who joined CGI from Dougherty. And this morning, we announced a newly signed acquisition agreement, which will close in the coming weeks pending regulatory approvals. BJSS is one of the largest independent IT and software engineering consultancies in the UK. This acquisition will accelerate our UK wide expansion strategy to deepen our presence in key commercial industries such as retail, financial services and energy and utilities. Upon completion, more than 2,400 highly skilled consultants will join CGI, bringing deep expertise in a range of services such as technology strategy, customer experience design, software engineering and AI.

[François Boulanger, President & CEO at CGI]

Through our buy strategy, we will continue to prioritize investment and aim at building critical mass and strategic metro markets in all CGI geographies. Our goal is to gradually grow this presence to mirror the economic sector distribution in each metro market and to deploy our full range of services and solutions. We remain in dialogue with a number of firms, both venture market and transformational opportunities. As always, we will be disciplined to ensure that mergers will be accretive to each of our stakeholders. Looking ahead, we continue to be well positioned to partner with clients as they evolve their strategies to address the ongoing macro trend within their geographies and industries.

[François Boulanger, President & CEO at CGI]

Client interest remains high for the value proposition CGI can deliver to our end to end offerings. This positioning is validated by CGI's pipeline of opportunities, which is up 20% compared to this time last year. In terms of client buying patterns, we continue to see some diversification by geographic region, which aligns well with CGI's greatest strengths, particularly our client relationship proximity model, our end to end portfolio of services and our global delivery network. In combination, these assets enable us to quickly adapt to evolving client needs. With this in mind, I will provide commentary on the demand environment in our North American and European operations.

[François Boulanger, President & CEO at CGI]

Starting in North America, across commercial industries, clients are sustaining their focus to drive operational resilience and innovation to capitalize on emerging growth opportunities. Given these priorities, our pipeline remains strong overall with another notable uptick for our managed services offerings. Also demand remains strong for our CGI Credit Studio IP, which is a cloud native platform that centralized services across the full credit lifecycle from originations to collections. Government sector clients in North America are balancing tight budgets with the need of our IT modernization and improving citizen services. Cybersecurity and cloud migration also are critical areas of investment as agencies work to enhance operational efficiency and mitigate risk in an uncertain environment.

[François Boulanger, President & CEO at CGI]

In the government sector, our pipeline for managed services opportunities remains high and continues to rise. CGI Government's ERP solutions continue to be in high demand with pipelines rising compared to this time last year. Turning now to Europe. The macroeconomic landscape continues to be defined by slower economic growth and geopolitical uncertainty. Clients continue to turn to CGI to help navigate these pressures, particularly across commercial industries, where they are focused on driving operational efficiency and addressing regulatory requirements.

[François Boulanger, President & CEO at CGI]

As a result, our managed services and IP pipelines across commercial industries remain strong. For example, the pipeline for CGI's financial crime detection solution is up by more than 50% compared to this time last year. In the government sector, our pipeline is high and rising as clients are focused on monetization as well as e governance platforms and green IT solutions. Macro level uncertainty is prompting government to adopt more efficiency driven IT investments with cybersecurity remaining a critical priority given the increasing risk to critical infrastructure and citizen data. These regional buying trends will continue to favor CGI as a partner of choice given our focus on value propositions that deliver trusted tangible business outcomes that are designed to help clients generate operational efficiencies and accelerate transformation, notably through our IP and managed services.

[François Boulanger, President & CEO at CGI]

Among managed services offerings gaining momentum right now is that of Global Capability Centers or GCCs. CGI has 20 years of experience with GCC models, particularly for clients in banking, retail and communications. Our global delivery centers of excellence enable full scale application development and operation with a proven track record of success. Our value proposition focuses on GCC's as strategic extensions of the client's organization to drive efficiency, resilience, scalability and growth in a fast changing business landscape. Naturally, across all industries, we remain deeply engaged with clients on their AI and Gen AI strategies and implementation.

[François Boulanger, President & CEO at CGI]

Over the past quarter, we have continued to see clients moving from investigation to implementation to drive efficiency, process of automation and legacy monetization. As previously shared, we are integrating AI and Gen AI technologies into our engagements and our pipeline of AI opportunities continues to grow, particularly for responsible AI adversary services, data integration and platform monetization. Booking in Q1 that integrated AI technologies included a global healthcare and insurance company selected CGI to support their enterprise intelligent automation platform and help build the foundation for their agentic AI strategy. The City of Interborough Council is collaborating with CGI to conduct comprehensive AI discovery sessions to identify and evaluate AI use cases for a wide range of missions from social services care to emergency and crisis management. And one of the world's leading financial services providers selected CGI to further their digital transformation by extending process automation with AI features as well as through our alliances with Google and Blue Prism.

[François Boulanger, President & CEO at CGI]

We continue to progress on our AI investments in line with our 3 year plan. We are on track with this plan to strengthen our expertise, offerings, delivery and positioning. Our investment plan includes continued initiatives such as advancing our training and tooling for developers and consultants, integrating AI and GenAI into our portfolio of IP solutions, enhancing our managed services and consulting offerings and methodologies. And with our clients, we are innovating to drive new business value through industry specific use cases, the establishment of AI factories, improvement of user experience and to generate operational efficiencies. In closing, we are off on a strong start for the year and reiterate our confidence in our fiscal 2025 plan.

[François Boulanger, President & CEO at CGI]

CGI remains well positioned as one of the few leading global firms with the scale, reach, insights and capabilities to help clients deliver their new business outcomes they require for their digital strategies. And we remain committed to achieving our strategic aspiration of doubling CGI over the next 5 to 7 years through the disciplined execution of our build and buy profitable growth strategy. Thank you for your continuing interest and support. Let's go to the question, Kevin.

[Kevin Linder, Senior VP of Finance & Treasury and Head of Investor Relations at CGI]

Thank you, Francois. Sylvie, we can now poll for questions.

[Operator]

Thank Your first question will be from Al Treiber at RBC Capital Markets.

[Paul Treiber, Director & Research Analyst at RBC Capital Markets]

Thanks very much and good morning. It's nice to see the acquisition announced this morning. Just hoping that you could speak to your M and A pipeline and capacity. You deployed a fair amount of capital in

[Paul Treiber, Director & Research Analyst at RBC Capital Markets]

the last couple of months.

[Paul Treiber, Director & Research Analyst at RBC Capital Markets]

Do you need to take a pause to integrate those acquisitions? Or do you have the capacity to continue to make acquisitions here in the short term?

[François Boulanger, President & CEO at CGI]

Thanks, Paul, for the question. No, we don't need to do a pause. These acquisition like this one that we announced this morning is in U. K, a long time we didn't do one in the U. K.

[François Boulanger, President & CEO at CGI]

So the U. K. Team is ready for this integration. The one that we did before was in the U. S.

[François Boulanger, President & CEO at CGI]

So the fact and we have a solid operation in all these countries. These each of these countries have the capabilities of doing these integrations. So we don't see any problem on that side. And as you know, on the financial side, naturally, we have the solid balance sheet and the capabilities to deploy more capital. So that's not stopping for the future.

[Paul Treiber, Director & Research Analyst at RBC Capital Markets]

And then looking at your business by the various regions, Germany, you called out softness there. Was it softer than usual this quarter? Or has Germany been a drag on growth for the last several quarters? And is it the mix of revenue different in Germany? Is it more short term SI and C than other regions?

[François Boulanger, President & CEO at CGI]

No, not necessarily a different mix, but for sure there's strong in the MRD side. And so as you know MRD, especially in Europe, has more difficulties. So that's why we see some short term pressure on some of the discretionary spending there. But I would say and you heard in the last quarter, we did sign a big managed services contract with a large manufacturer in Germany. So they're still very they are listening a lot for to see how we can bring some cost saving.

[François Boulanger, President & CEO at CGI]

So they are listening on that side. But for sure, on the short term, I would say, SI and C, we see that they are reducing the spending or be cautious to see what will happen in the next quarters. Okay. Thanks for taking the questions. Thanks, Paul.

[François Boulanger, President & CEO at CGI]

Thank you.

[Operator]

Next question will be from Jerome Dubreuil at Desjardins. Please go ahead.

[Jerome Dubreuil., VP & Research Analyst - Telecom, Media & Technology at Desjardins Group]

Hey, Paul, good morning. Thanks for taking my question. Another one on M and A. I guess what everyone wants to know today is, is this a new era of M and A? Is there maybe better appreciation of the benefits that M and A is bringing?

[Jerome Dubreuil., VP & Research Analyst - Telecom, Media & Technology at Desjardins Group]

Or I know you like to signal stability, but is it just the multiple that have changed? Or there's a bit of a tweak in terms of the strategy there?

[François Boulanger, President & CEO at CGI]

Yes. No, it's not a new era. It's not our strategy is to grow by to build and buy. So that didn't change. I think the environment did change.

[François Boulanger, President & CEO at CGI]

I think we have a certain alignment of stars where the pressure on the market on the SI and C, for example, I think is putting pressure on some of these targets to think more about perhaps selling the business. And we see less private equity competition that we were seeing in the past. So even some of them are thinking about even selling their piece of the business. So that's why I think it's really the environment that is more open for these acquisition. And that's why we want to be sure that we will capture these opportunities.

[Jerome Dubreuil., VP & Research Analyst - Telecom, Media & Technology at Desjardins Group]

Thank you. That's clear. Another one Francois, you've been in the role since October. Are there maybe other tweaks in terms of strategy that you're adopting? You're talking about new partnerships with some of the software providers.

[Jerome Dubreuil., VP & Research Analyst - Telecom, Media & Technology at Desjardins Group]

Am I sensing that the company is maybe a bit of a faster follower for new tech or business as usual?

[François Boulanger, President & CEO at CGI]

No, I think we were always fast on applying new technology. I think what we're pushing a bit more, to be honest, is on the branding. And so we want to be sure that people understand and companies and clients and future clients understand our capabilities. And so that's why we want to be sure also that we're working closely with our large partners. And so that's why you're seeing more news on that, but it's not a change of applying new technology or not that we were always there to apply new technology.

[Operator]

Next question will be from Surinder Thim at Jefferies. Please go ahead.

[Surinder Thind, Equity Research Analyst at Jefferies Financial Group]

Thank you. Can you perhaps talk a little bit about the lumpiness in the bookings that we're seeing, especially within SI and C? It just seems to be a bit more lumpy than it has been historically. And just what trends you're seeing underneath that?

[François Boulanger, President & CEO at CGI]

Yes. Actually, SI and C booking did increase versus last quarter. So last quarter, we were below 100% and we are higher than 100% this quarter on the SI and C side. So to be honest, we are seeing an uptick. But at the same time, like I was saying a bit, the pressure that we see, example, in the MRD side in Europe, we're seeing some pressure still in the especially in the consulting side.

[François Boulanger, President & CEO at CGI]

So that's why you'll still perhaps see some lumpiness on that side. But at least this quarter, we saw an uptick on the bookings on the SI and C side. So and the other thing also on the federal side or the U. S. Federal, Q1 and Q2 our Q1 and Q2 has always be historical our lowest booking quarter with Q3 and Q4 on the highest side.

[François Boulanger, President & CEO at CGI]

So that's a trend that you can see also on an annual

[François Boulanger, President & CEO at CGI]

basis.

[Surinder Thind, Equity Research Analyst at Jefferies Financial Group]

So just to clarify the comment there, is the messaging that if we were to exclude Germany, there's an overall improvement in the demand environment for discretionary spend or not? I just want to make sure.

[François Boulanger, President & CEO at CGI]

I would say yes, like I was saying MRD is a bit pressure, but I'll give you the other side on the financial sector. On the banking, we are seeing an uptick on the SI and C side. With the interest rate coming down, the banks, for example, are coming back and doing some investment on the SI and C. C. They don't have any choice.

[François Boulanger, President & CEO at CGI]

They delay some of these investments in the past quarters when interest rate were going up. But now that they are going down, they have regulatory pressures and changes to do. And so they don't have any choice to implement new solutions. So we are seeing an uptick on that side.

[Surinder Thind, Equity Research Analyst at Jefferies Financial Group]

That's helpful.

[Surinder Thind, Equity Research Analyst at Jefferies Financial Group]

And then on the commentary

[Surinder Thind, Equity Research Analyst at Jefferies Financial Group]

on the GCCs, the global capability centers, it sounds like there's growing interest there. Does that impact the global delivery model in the sense that there's increased demand for offshore and we should begin to see more of a mix shift there? Any color there would be helpful as well.

[François Boulanger, President & CEO at CGI]

Yes. But you see that we're still growing in India and that will continue. And the model when I was saying managed services is still in demand, it's true and it's continued to be big in demand and people and to see how we can help them reducing their costs. And GCC is one of the area on how to resolve to reduce our costs. So we have a lot of clients asking us to help them in creating their own GCCs or creating ourself a GCC that can be transferred back to the clients or even a lot of these captive already created by clients where they're asking help.

[François Boulanger, President & CEO at CGI]

And so we our Indian colleagues and operations will help clients directly in India to help them achieving their own objective on their India captives.

[Surinder Thind, Equity Research Analyst at Jefferies Financial Group]

Thank you.

[Operator]

Thank you. Next question will be from the Zavaya Goyal at Scotiabank. Please go ahead.

[Divya Goyal, Director - Equity Research - Technology, Software & Services at Scotiabank]

Good morning, everyone. Francois, I wanted to get a little more color on the acquisition that's announced. So as per the press release, there is CGI already has a significant footprint in UK. Now with this acquisition, the footprint expands. So I'm just trying to understand what is the company's broader growth plan across UK and European region given the German restructuring, the UK acquisitions.

[Divya Goyal, Director - Equity Research - Technology, Software & Services at Scotiabank]

So if you could provide some color on the growth broadly across that region? Thank you.

[François Boulanger, President & CEO at CGI]

Yes. Thanks. BJSS is mostly a company in UK. So they have very, very limited business outside the UK. And they're strong on the commercial side.

[François Boulanger, President & CEO at CGI]

And if you remember in the past, we always said, we are we want to acquire in UK and we were targeting to targets companies that would be more heavier on the commercial side. And that was the idea with this one. And for U. K. To a certain point, it is a game changer because it's first of all, it's increasing U.

[François Boulanger, President & CEO at CGI]

K. By, I would say on the headcount perhaps 30% to 35% more people in the UK and like I'm saying in the commercial area. And UK is nowhere where I'm saying we have some difficulties in Germany. In U. K, it's actually going well.

[François Boulanger, President & CEO at CGI]

We see some growth. We continue to see future growth in the U. K. And so it was a perfect timing, but also like I'm always saying, it needs to to dance. So we were able to convince BJSS to merge with us.

[François Boulanger, President & CEO at CGI]

And I think that will be great for the UK organization.

[Divya Goyal, Director - Equity Research - Technology, Software & Services at Scotiabank]

That's great. And are you also planning to grow across Europe or right now you are okay like the way the segments are structured across Europe?

[François Boulanger, President & CEO at CGI]

Like I'm saying, our the buy strategy is 50% of our strategy or growth strategy. So for sure, we're still looking in countries like Germany. Germany is a country that we want continue to grow. And these pressure or market pressure actually is putting some opportunities on potential acquisitions. So we are there for the long term.

[François Boulanger, President & CEO at CGI]

And so if we're seeing some good targets in Germany or in France or Scandinavian countries, we will look at them and see if it's making sense to trigger them.

[Divya Goyal, Director - Equity Research - Technology, Software & Services at Scotiabank]

That's great. I'll just ask one more question here. So the U. S. Federal as a segment grew pretty well this quarter and you did mention that it was partly driven by the growth in the transformational projects.

[Divya Goyal, Director - Equity Research - Technology, Software & Services at Scotiabank]

However, with obviously Doge and the new administration, I know a lot is in the flux. But what is your take on some of these new bookings and some of these new opportunities that you are seeing evolving across that specific business segment? And that's all for me. Thank you.

[François Boulanger, President & CEO at CGI]

Yes. But again, on the ferro side, with Doge, for sure, if they want to achieve their targets and priorities, they will need IT. To be capable of reducing costs and costs most on the U. S. Federal is people, they will need to bring automation, AI and new systems to be capable of reducing some of these costs.

[François Boulanger, President & CEO at CGI]

So we're seeing still this as opportunity to grow and helping them to achieve their objectives.

[Operator]

Thank you. Thank you. Next question will be from Robert Young at Canaccord Genuity. Please go ahead.

[Robert Young, Managing Director & Head of Research at Canaccord Genuity Inc]

Hi, good morning. Maybe a double pronged AI question. First part would be around, you mentioned in your prepared remarks AgenTek AI, which is kind of a growing buzzword and you announced an award with UiPath. And so just first part would be trying to get a better sense of what your efforts are around AgenTek AI and what the opportunities are. And then the second part would be just over the last couple of days, all this new information that suggests that it's going to get cheaper to run AI models.

[Robert Young, Managing Director & Head of Research at Canaccord Genuity Inc]

Maybe if you could just give us some initial thoughts on the impact on the IT services business in general and CGI more specifically?

[François Boulanger, President & CEO at CGI]

Yes. Okay. Thanks, Robert, for the question. I'll start with the second part with the announcement. For sure, I think some validation still needs to continue on that side.

[François Boulanger, President & CEO at CGI]

We'll see what's happening. But we are seeing that as a good news. I think any new initiatives to reduce the cost of AI will always be a good news for the end clients. And we are one of the end clients plus also we're helping clients to implement AI. So if the technology is cheaper and becoming cheaper, I think that's it's a good news for everybody, including on our side.

[François Boulanger, President & CEO at CGI]

On AgenTek AI, for sure, we continue our discussion with our alliances partner like Salesforce and Google and UiPath. But we already started to implement some of it even internally in some of our managed services solutions, right? We are managing a large mandate for clients and we are realizing that some of agentic AI can help us on specific processes. So that's something that we continue to investigate and starting even to do some implementation and we are seeing some benefit on that side.

[Robert Young, Managing Director & Head of Research at Canaccord Genuity Inc]

Do you get the sense that the bottleneck for deployment is cost or is it finding the right solutions? Does like this cost move like the revenue related to AI for CGI higher or is it more about finding the right applications and use cases?

[François Boulanger, President & CEO at CGI]

Like I'm saying, we are always trying to have industry specific use cases and not just implementing AI for AI. You saw some of the experience or contract that we signed in the past when we were saying example the federal Canadian when we implement AI to help them to reduce their bottleneck that they had with their payroll system. So that's the kind of implementation we're talking about. And when they're seeing benefits and cost saving, it's not necessarily it's not a showstopper for clients. So for sure, it needs to be applied in it needs to be relevant application for them.

[François Boulanger, President & CEO at CGI]

But and actually bringing some cost reduction. And now that if the tool or if the tooling will reduce in cost in the future, That's just under other benefits for the end clients. Okay.

[Robert Young, Managing Director & Head of Research at Canaccord Genuity Inc]

And then a second question. I mean, last quarter, I asked you a little bit about your strategic footing as it relates to infrastructure and whether that would be an impact on M and A targets. So I just want to maybe broaden that up a little bit. Maybe you just talk about infrastructure. I think you said it was 10% of the business thereabouts.

[Robert Young, Managing Director & Head of Research at Canaccord Genuity Inc]

Is that something that CGI is still working down? Is that a headwind to growth? Or is it have you changed your thought process there? Or is that something that given maybe the higher value placed on infrastructure, is that something you'd be willing even in some cases to see grow?

[Robert Young, Managing Director & Head of Research at Canaccord Genuity Inc]

And then I'll pass the line.

[François Boulanger, President & CEO at CGI]

Yes. Okay. Thanks for the question. So infrastructure, what we said in the past is that we wanted to go asset light and we didn't want necessarily to sign infrastructure deals just for the infrastructure deals. But we continue to have data centers and we will continue to have data centers because first of all, we have our IP and we are running our IPs also in our own data centers.

[François Boulanger, President & CEO at CGI]

So that's the first thing. And second, in these managed services contract that we're signing, we are signing sometimes full managed services. So not just the applications, but also the infrastructure. And that we will continue to do in the future. And so that's not something we want to stop.

[François Boulanger, President & CEO at CGI]

We're really an end to end services company. And so our strategy is to continue to sell end to end, including infrastructure business.

[Robert Young, Managing Director & Head of Research at Canaccord Genuity Inc]

Okay. Thanks. I'll pass the line.

[Operator]

Thank you. Next questions will be from Thanos Moschopoulos at BMO Capital Markets. Please go ahead.

[Thanos Moschopoulos, Managing Director - Equity Research at BMO Capital Markets]

Hi. Regarding the U. K. Acquisition, are there some financial metrics you can share? Or should we best wait for next quarter's MD and A?

[François Boulanger, President & CEO at CGI]

I think we'll be waiting for next quarter MD and A because again, we it's still not closed yet. We will close it in the next couple of weeks hopefully if we have the all the authorization. Just perhaps what I can say is that on the revenue side, we are talking like I would say, most of the

[Steve Perron, Executive VP & CFO at CGI]

GBP 275,000,000.

[Thanos Moschopoulos, Managing Director - Equity Research at BMO Capital Markets]

Okay. And that's very helpful.

[Steve Perron, Executive VP & CFO at CGI]

On an annual business.

[François Boulanger, President & CEO at CGI]

Annual business.

[Thanos Moschopoulos, Managing Director - Equity Research at BMO Capital Markets]

Yes. Great. And just to clarify, is it very heavily weighted to SI and C or is there a good size to manage services component in there as well?

[François Boulanger, President & CEO at CGI]

I would say it's perhaps a bit more SI and C than managed services. And again, the idea of one thing, they have great client relationship. And one of the fit that we're seeing with us is the fact that they don't have offshoring. And now that we have these client relationship, we will be able to sell a lot more offshoring to these clients. And that's really the idea.

[François Boulanger, President & CEO at CGI]

So yes, there are more SI and C today, but we think that we will be able to sell a lot more managed services now to these clients.

[Thanos Moschopoulos, Managing Director - Equity Research at BMO Capital Markets]

Great. And then finally, just how should we think about the margin trajectory just given some puts and takes? Obviously, with the recent tuck in acquisitions, should we assume kind of margins being kind of flat year over year, maybe down a little because you're going to be integrating? Or what trajectory would you assume?

[François Boulanger, President & CEO at CGI]

Yes. I think with the margin, with the acquisition, for sure, as you know, we need to integrate these companies. So that will put some bit of pressure on the margin. On the other side, we are doing some actions to improve the margin in some places like Germany, where we have some utilization pressure there. So I would say that one can offset the other.

[François Boulanger, President & CEO at CGI]

I don't think we'll see big changes in the EBIT margin.

[Thanos Moschopoulos, Managing Director - Equity Research at BMO Capital Markets]

Great. I'll pass the line. Thank you.

[Operator]

Thank you. Next question will be from Stephanie Price of CIBC. Please go ahead.

[Stephanie Price, Equity Research Analyst - Software & Services at CIBC World Markets]

Hi. Good morning. Just following on Thanos' question there. Margins in the U. S.

[Stephanie Price, Equity Research Analyst - Software & Services at CIBC World Markets]

Federal business seemed a bit weaker than normal. Was this a result of the margin profile of Aon? And how should we think about those U. S. Federal margins going forward?

[François Boulanger, President & CEO at CGI]

Yes. So that's you have it. It's really because of Aon acquisition. You see a lot of growth, but some pressure on the margin. And it's because of that this acquisition that we need to integrate.

[François Boulanger, President & CEO at CGI]

We signed at the end of September. Integration in federal government is taking a bit more time than other area because of some authorization that we need to have from the client side. So but the expectation is that you'll see some improvement quarter over quarter on their EBIT margin.

[Stephanie Price, Equity Research Analyst - Software & Services at CIBC World Markets]

Okay, perfect. And then maybe more broadly, can you talk a bit more about what you're seeing in Europe? It sounds like the slowdown right now is just in a few regions. How do what are clients saying in the rest of Europe? And how do you think about the region going forward?

[François Boulanger, President & CEO at CGI]

Well, I think in Europe, as you know, I would say 2 things. On the manufacturing, we see some concern

[François Boulanger, President & CEO at CGI]

or

[François Boulanger, President & CEO at CGI]

at least they're questioning where what's the future, especially example with tariffs and that U. S. Are talking about, will that have a major impact or not on some of these clients. So that's really what I'm hearing from clients. And I would say also on the government side, some example, we'll have election in Germany, in France, some discussion on the government side.

[François Boulanger, President & CEO at CGI]

So that can have an impact. We didn't see it yet, but that can have a certain impact. So that's really what we're hearing in Europe. But on the other side, I am saying, always a lot of discussion talking about how we can help them on the cost saving. And so very a lot of discussion on managed services still in Europe.

[Stephanie Price, Equity Research Analyst - Software & Services at CIBC World Markets]

Great. Thank you very much.

[Operator]

Thank you. Next question will be from Richard Tse of National Bank Financial. Please go ahead.

[Richard Tse, Analyst at National Bank]

Yes. Thank you. So you've obviously, I think, picked up the pace of acquisitions. Just wondering if you can maybe share with us whether you have it or not. Do you have a target with respect to the amount of capital you want to deploy this year on acquisitions?

[François Boulanger, President & CEO at CGI]

We don't no, we don't have necessarily a target. We are generating more than what $2,300,000,000 of cash from operations, investing back €400,000,000 in the business. So we have what €1,700,000,000, €1,800,000,000,000 of cash from free cash flow. And so and the dividend is very low, what, dollars 34,000,000 per month per quarter. So we still have a lot of dry powder to do acquisition.

[François Boulanger, President & CEO at CGI]

And again, also we have the balance sheet and we the leverage ratio is very low. So we still have a lot of capacity for larger acquisitions. So no, we don't have necessarily a number. And the only cap I would say to you is that we when we're saying that we're at 3 times leverage, that's really at the top. And we're very far from that.

[François Boulanger, President & CEO at CGI]

Steve, where what?

[Steve Perron, Executive VP & CFO at CGI]

Look, from a net basis, we are at 0.47. And from a gross debt to EBITDA basis, we're about at 1.2.

[François Boulanger, President & CEO at CGI]

So we have a lot of space for other ones, including that transformational acquisition.

[Richard Tse, Analyst at National Bank]

Okay. And then I appreciate your comments on elevating the brand. Obviously, you probably have sort of done a lot of work in terms of identifying opportunities. So when it comes to elevating the brand or some of these other initiatives that you've put in place since taking over the CEO role, can you help us understand the kind of amount of incremental growth you're targeting to achieve from these new incremental initiatives that you've put in place since taking over that role?

[François Boulanger, President & CEO at CGI]

Well, no, I didn't I don't have necessarily a target. And these kind of when we're talking branding and all that, it has a long term objective. So it's really we didn't necessarily put a number related to these actions. So it's really to improve the branding, especially in places where we were still perhaps the best kept secret. So and still in U.

[François Boulanger, President & CEO at CGI]

S, I think we still need to do more on that. And that's with the marketing group and with our leader there, Susan Balding. We will continue to do some good work

[François Boulanger, President & CEO at CGI]

on that side.

[Richard Tse, Analyst at National Bank]

Okay. And then just the last one for me. Some of your competitors talking to price competition in the market. Is that something that you may be seeing? And if so, is this sort of a temporary thing given the backdrop with respect to MRD or SI and C?

[Richard Tse, Analyst at National Bank]

Or is it something a bit more structural? That's it for me. Thanks.

[François Boulanger, President & CEO at CGI]

I would think it's not structural. We most of our especially in the managed services, we don't see pressure there. And our managed services, if we can show to them the business case and the outcomes for them, they'll that's making sense and they'll pay for the value. I think on the in some places where it's the discretionary spending that went down, for sure, we'll have some pressure to reduce some of the rates to be capable of taking out some of the utilization pressure. But I would say overall pricing is not necessarily an issue.

[François Boulanger, President & CEO at CGI]

People clients are still ready to pay for value.

[Kevin Linder, Senior VP of Finance & Treasury and Head of Investor Relations at CGI]

Sylvie, we have time for one more question, please.

[Operator]

Certainly. Our last question will be from Jason Koffelberger at Bank of America U. S. Please go ahead.

[Jason Kupferberg, Analyst at Bank of America]

Hi, good morning, Francois and Steve. This is Tyler Japon on for Jason. Thanks for taking the questions here. I'm trying to be fast knowing that that's the last one. I wanted to ask about initial demand trends and spending applications for 2025, but particularly from a bookings context.

[Jason Kupferberg, Analyst at Bank of America]

On an LTM basis, it looks like book to bill definitely appears healthy, 1.08 this quarter. But this is the Q2 of year on year declines. Obviously, they're very modest, but still the Q2 declines in this in the LTM metric. Just how do you juxtapose the modestly softening bookings number with the solid top line growth that you're putting up? And how does that translate into 2025 client spend?

[François Boulanger, President & CEO at CGI]

Yes. You're right, Don, last one, the booking went down, but some of it is timing. And again, we had large we had some discussion with some clients that didn't were not able to close for the quarter end. And we won't close a deal just to close a deal to have bookings at the end of the quarter. So we have some still good discussion on some of these large contract and you'll see some closing of them in the future.

[François Boulanger, President & CEO at CGI]

So we still see a lot of momentum on the managed services. So I don't see necessarily a problem there. And you're right that on the SI and C, some lumpiness. But this quarter, we did see an uptick on the SI and C. We finished with I think it's 114% book to bill on the SI and C side.

[François Boulanger, President & CEO at CGI]

So versus last quarter, we were under 1% on the SI and C side. So we are seeing still some momentum on that side and we'll see in the future, but we're still comfortable with bookings and from for the future.

[Jason Kupferberg, Analyst at Bank of America]

That's helpful. It's great to see the SI and C going above 1. Also just as a follow on, just want to ask about cash flow expectations as we look through the year. During the quarter, free cash flow was pretty strong. It looked like on a revenue conversion basis around just shy

[Jason Kupferberg, Analyst at Bank of America]

of

[Jason Kupferberg, Analyst at Bank of America]

15%, which in my understanding is sort of the medium term or long term target for you guys. Wondering if you could just touch on cash flow in the quarter. How should we look at conversion through 2025? Should we be thinking more than 15% on a full year basis? Or I know there's timing and everything there, but just love to get your thoughts.

[Steve Perron, Executive VP & CFO at CGI]

Thank you for the question. I think to if we say that on a long term basis, 15% makes sense. Obviously, in the quarter, the cash from ops was 17%, but it was with some improvement of the DSO. So on a long term basis at 15%, it makes sense.

[Jason Kupferberg, Analyst at Bank of America]

Great. Appreciate it.

[Steve Perron, Executive VP & CFO at CGI]

Thank you.

[Operator]

Please proceed, sir.

[Kevin Linder, Senior VP of Finance & Treasury and Head of Investor Relations at CGI]

Okay. Thank you, everyone for participating. As a reminder, a replay of the call will be available either by our website or by dialing 1-eight eighty eight-six 60 6264 and using the passcode 28,413. As well, a podcast of this call will be available for download within a few hours. Follow-up questions can be directed to me at 1-nine05 973-8363.

[Kevin Linder, Senior VP of Finance & Treasury and Head of Investor Relations at CGI]

Thanks again everyone and look forward to speaking soon.

[François Boulanger, President & CEO at CGI]

Thank you.

[Operator]

Thank you, sir.

[Steve Perron, Executive VP & CFO at CGI]

Thank you.

[Operator]

Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines.

Participants

Executives

• Kevin Linder, Senior VP of Finance & Treasury and Head of Investor Relations
• François Boulanger, President & CEO
• Steve Perron, Executive VP & CFO

Analysts

• Paul Treiber, Director & Research Analyst at RBC Capital Markets
• Jerome Dubreuil., VP & Research Analyst - Telecom, Media & Technology at Desjardins Group
• Surinder Thind, Equity Research Analyst at Jefferies Financial Group
• Divya Goyal, Director - Equity Research - Technology, Software & Services at Scotiabank
• Robert Young, Managing Director & Head of Research at Canaccord Genuity Inc
• Thanos Moschopoulos, Managing Director - Equity Research at BMO Capital Markets
• Stephanie Price, Equity Research Analyst - Software & Services at CIBC World Markets
• Richard Tse, Analyst at National Bank
• Jason Kupferberg, Analyst at Bank of America