CGI Group Q3 2025 Earnings Call Transcript

Quartr
Provided by Quartr
July 30, 2025

Key Takeaways

  • Positive Sentiment: CGI reported Q3 revenue of CAD4.1 billion, up 11.4% year-over-year (7% on a constant-currency basis), driven by recent acquisitions and strong financial services momentum.
  • Positive Sentiment: Bookings again topped CAD4 billion for a book-to-bill ratio of 101%, and global backlog reached CAD30.6 billion (2× revenue), led by U.S. commercial and government wins.
  • Positive Sentiment: Adjusted EBIT rose 10.5% to CAD666 million for a 16.3% margin, while adjusted EPS grew 10% to CAD2.10, despite integration-related headwinds.
  • Negative Sentiment: Demand in Continental Europe remained soft—particularly in the manufacturing, resource and defense (MRD) sector—dampening regional growth.
  • Neutral Sentiment: CGI continues to invest in IP and Gen AI, with 40% of IP revenue now AI-enabled and a robust pipeline of AI, managed services and systems-integration opportunities.
AI Generated. May Contain Errors.
Earnings Conference Call
CGI Group Q3 2025
00:00 / 00:00

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Operator

Good morning, ladies and gentlemen. Welcome to CGI's Third Quarter Fiscal twenty twenty five Conference Call. I would now like to turn the meeting over to Mr. Kevin Linder, SVP of Investor Relations. Go ahead, Mr. Linder.

Kevin Linder
SVP - IR at CGI

Thank you, Joelle, and good morning. With me to discuss CGI's third quarter fiscal twenty twenty five 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 nine a. M. Eastern Time on Wednesday, 07/30/2025.

Kevin Linder
SVP - IR at CGI

Supplemental slides as well as a press release we issued earlier this morning are available for download along with our Q3 MD and A, financial statements and accompanying notes, all of which have been filed with both Cedar Plus and EDGAR. Please note that some statements made on the call may be forward looking. 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.

Kevin Linder
SVP - IR at CGI

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. 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. Now I'll turn the call over to Steve to review our Q3 financial results. Steve?

Steve Perron
Executive VP & CFO at CGI

Thank you, Kevin, and good day, everyone. In our 2025, we continued to demonstrate discipline in managing our operations. We delivered $4,100,000,000 of revenue, up 11.4% year over year or up 7% when excluding the impact of foreign exchange. Growth was mainly driven by recent business acquisitions and continued momentum in the financial services sector. In constant currency, the CGI client proximity segments with the strongest growth were UK and Australia at 37%, which incorporates a full quarter's revenue of VJSS.

Steve Perron
Executive VP & CFO at CGI

And across our U. S. Segments, combined growth was 9%, primarily driven by our Aon and Dougherty merger investments. Geographically, our growth was balanced with North American operation at 7.4% and growth in our European segments at 6.6%. And demand remained strong for our Asia Pacific offshore delivery with revenue up 6.4.

Steve Perron
Executive VP & CFO at CGI

From an industry perspective, constant currency revenue growth was led by financial services at 9.6% and government at 8.7%, partially offset by continued softness in Continental Europe, particularly in the MRD sector. IP revenue grew in six of our eight proximity segments on the strength of continued client interest for our business solutions, especially with our financial services and energy and utilities clients. IP represented 20.6% of our total revenue, impacted by the dilutive effect of recent business acquisition and lower volumes in our U. S. Federal IP enabled business process services.

Steve Perron
Executive VP & CFO at CGI

Bookings in the quarter were again over $4,000,000,000 for a book to bill ratio of 101% led by U. S. Commercial and state government at 121% Finland, Poland and Baltics at 113% and Scandinavia, Northwest And Central East Europe at 106%. When looking at service type, book to bill ratios were 106% for managed services and 96% for business and strategic IT consulting and systems integration. IP also had another strong quarter with a book to bill ratio of 127%, driven by significant demand in the financial services at 195% and government at 134%.

Steve Perron
Executive VP & CFO at CGI

On a trailing twelve month basis, book to bill was 107 with North America at 106% and Europe at 108%. On the same basis, Managed Services had a book to bill ratio of 114% and the SI and C book to bill ratio was 98%. On a trailing twelve month basis, IP book to bill was 113%. Our global backlog reached $30,600,000,000 or 2x revenue. Turning to profitability.

Steve Perron
Executive VP & CFO at CGI

Adjusted EBIT in the quarter was $666,000,000 up 10.5% year over year for a margin of 16.3%, down 10 basis points due to the impact of recent mergers, which are in the process of being integrated. Including restructuring and acquisition related costs of $84,000,000 earnings before income taxes were $552,000,000 for a margin of 13.5%. Our effective tax rate in the quarter was 25.9%, stable compared to last year, and we expect our tax rate for future quarters to be in the range of 25.5% to 26.5%. Adjusted net earnings were $470,000,000 up $30,000,000 year over year for a margin of 11.5%. On the same basis, diluted EPS was $2.1 an accretion of 10% when compared to Q3 last year. Net earnings were $4.00 $9,000,000 for a margin of 10% and diluted EPS was $1.82 impacted by restructuring and acquisition related costs in the quarter. We expect to incur approximately $100,000,000 to complete our restructuring program over the remainder of calendar twenty twenty five. Turning to cash. We generated $487,000,000 in our cash from operation, representing 11.9% of total revenue, impacted by $97,000,000 in restructuring, acquisition and related integration payments. DSO was forty three days in the quarter, two days better than our target.

Steve Perron
Executive VP & CFO at CGI

This compared to forty two days in the prior year. In Q3, we invested $105,000,000 into our business, including in Gen AI, dollars $286,000,000 to buy back our stock and returned $34,000,000 to our shareholders under our dividend program. On a year to date basis, we invested $288,000,000 into our business, including in GenAI, dollars 1,600,000,000.0 in business acquisitions, $784,000,000 to buy back our stock and return $102,000,000 to our shareholders under our dividend program. Yesterday, our Board of Directors approved a quarterly cash dividend of $0.15 per share. This dividend is payable on 09/19/2025, to shareholder of record as of the close of business on 08/15/2025.

Steve Perron
Executive VP & CFO at CGI

CGI has $2,700,000,000 in capital resources readily available with access to more if needed to deliver on our profitable growth strategy. CGI's capital allocation priorities remain consistent, focused on investing back in the business and pursuing accretive acquisitions. Now I will turn the call over to Francois to further discuss insights on the quarter and the outlook for our

François Boulanger
President, CEO & Director at CGI

business and markets. Francois? Thank you, Steve, and good morning, everyone. CGI's performance in the third quarter again demonstrated the value of our resilient mix of services, industry sectors and global footprint as well as our ability to proactively manage the fundamentals of our business. Our strategic deployment of capital in line with CGI's build and buy profitable growth strategy drove our performance in the quarter.

François Boulanger
President, CEO & Director at CGI

CGI's results in the quarter place us in the top quartile of our IT services peer group. Today, I will focus on the first nine months of fiscal twenty twenty five, the current market environment and the outlook. For the first three quarters, revenue was up 8% or 4.4% on a constant currency basis to $11,900,000,000 Adjusted EBIT was up 7% to $1,900,000,000 Adjusted EPS was up 8.4% to $6.18 And on a trailing twelve month basis, cash from operations totaled $2,200,000,000 continuing to reinforce our financial position to execute on our profitable growth strategy. Delivering quality remained high and client satisfaction again increased across every dimension we measure. Clients continue to partner with CGI to address their most complex enterprise and ecosystem wide digitization initiatives.

François Boulanger
President, CEO & Director at CGI

This client trust has driven bookings of nearly $12,800,000,000 over the first three quarters of the fiscal year, up by more than five sixty million dollars compared to the same period a year ago. Backlog also grew representing two years of annual revenue. On a trailing twelve month basis, CGI's book to bill stands at 107% driven by sustained demand to help clients realize operational efficiencies, notably through managed services and RIP. In the quarter, we continue to see signs of renewed clients spending in banking and the broader financial services sector with year over year bookings up by more than $400,000,000 On a trailing twelve month basis, bookings in this sector increased by more than $1,000,000,000 as clients turned to CGI to help modernize core system and processes. Government sector demand remained strong with a Q3 book to bill of 112% led by strong wins in U.

François Boulanger
President, CEO & Director at CGI

S. Local government. Agencies around the world continue to turn to CGI to help them transform mission critical applications to more efficiently and effectively deliver government services, including through exploration of commercial best practices. Specific to our U. S.

François Boulanger
President, CEO & Director at CGI

Federal operations, while overall procurement volumes and contract values are down compared to historical levels, we are seeing early signs of stabilization. On a sequential basis, bookings in this segment increased by nearly $250,000,000 CGI remains well positioned to support a wide range of government missions through our end to end offering, notably our IP, which embeds generative AI, data protection and cybersecurity. In the third quarter, representative awards of our strong financial services and government bookings included the State of California awarded CGI a US200 million dollars contract extension for the delivery of end to end managed services for its case management, information and payroll system. The European Space Agency named CGI to support its new climate monitoring initiative, leveraging CGI's expertise in scientific data systems and large scale processing to enable high precision traceable observation data. A premier U.

François Boulanger
President, CEO & Director at CGI

S. Financial services company selected CGI to lead the modernization of its core IT systems, including integration of AI driven automation to drive IT efficiency, system resilience and enhance cybersecurity. Finnish Customs extended its partnership with CGI to modernize customs operations and advance their goals for trade facilitation through CGI's expertise in cybersecurity, data analytics and regulatory compliance. A prominent Canadian bank extended its commitment to CGI's Wealth three sixty platform to streamline its advanced portfolio management and trading, allowing advisors to spend more time engaging with customers. The Texas Controller's Office selected CGI to modernize and unify its core financial systems through the implementation of our cloud based advantage platform.

François Boulanger
President, CEO & Director at CGI

NHS Kaplan engaged CGI to deliver a user centric digital platform that will help patients connect more easily with care services, while also driving efficiency through innovation. And the Federal Aviation Administration selected CGI to develop, deliver and operate a modernized Notus or Airmen system to help improve aviation safety in The U. S. For this mission critical FAA project, we are collaborating with Google Public Sector, one of CGI's global alliance relationships. During the first nine months of fiscal twenty twenty five, our new bookings from these go to market partnerships totaled more than $2,600,000,000 up over 120% compared to last year.

François Boulanger
President, CEO & Director at CGI

In the quarter, we continue to see macroeconomic uncertainty impacting the timing of client decisions, notably for larger enterprise engagements. For example, subsequent to the quarter end, one of the largest banks in Europe selected CGI as one of its strategic IT partners through its vendor consolidation exercise, a buying trend we see globally. Under the five year agreement, up to 700 CGI consultants will deliver a wide range of IT services to manage the bank's in country IT operations and prepare for future international digital transformation. Across all buying trends, CGI's end to end offerings continue to position us well as a partner of choice. Specifically, CGI's outcome based value proposition for managed services and IP help clients generate cost savings and accelerate transformation at scale with lower capital costs and continuous innovation.

François Boulanger
President, CEO & Director at CGI

This focus on realizing business value from digital is front and center in client conversations. In short, they expect partners like us to take accountability for outcomes. This expectation aligns well with CGI's delivery track record and our ability to bridge strategy with execution through deep domain understanding, application of emerging technologies and flexible delivery models, including global capability centers. Looking ahead, client priorities and public sector globally are centered on cybersecurity, sovereign cloud solutions and the modernization of mission critical applications and systems. Within our CGI Federal segment, agencies are looking to the future and want to engage in discussions about how technology can more cost effectively enable their missions.

François Boulanger
President, CEO & Director at CGI

Our team is fully engaged in productive discussions to propose bold outcome driven ideas. This includes our Momentum ERP, one of two approved government ERP solutions as it blends commercial application with government mission requirements. Across commercial sectors, demand remains high for cloud enabled migration, platform monetization, traditional and generative AI with clients seeking practical use cases grounded in business reality. CGI's strong market positioning is validated by our growing pipeline. The managed services pipeline is up by more than 20% year over year with increases across all major industry sectors.

François Boulanger
President, CEO & Director at CGI

The pipeline of SI and C opportunities is up by more than 20% across government, the space sector and several commercial industries compared to this time last year. And the IP pipeline is up more than 10% year over year with significant increases in solutions that accelerate AI based automation, application modernization and cloud migration. To capture this demand, CGI continues to make targeted investment in our talent and offerings. This includes integrating AI and generative AI into our offerings and delivery. Across industries and geographies, AI remains a powerful enabler for monetization, optimization and transformation.

François Boulanger
President, CEO & Director at CGI

For example, in Canada, CGI partnered with a large insurance firm to use AI to accelerate quality engineering, resolve and document help desk queries using agentic AI and advance the development of a claim portal. In Germany, CGI is serving as one of the partners for the European Space Agency AI for Ops program, delivering AI based software to optimize satellite mission planning and execution. In The U. S, we are working with a manufacturer to help accelerate their monetization with AI powered processes and agentic automation. In Finland, CGI's Omni three sixty platform integrates AI directly into health clinician workflows with expansion plan with three of the largest social and health regions in the country.

François Boulanger
President, CEO & Director at CGI

In The Netherlands, CGI is providing AI expertise for our gas and electricity network operator to develop new solutions in the area of energy grids, energy technology and digital transformation. And in India, we are leveraging CGI's AgenTeq AI solution for IT services management and automated ticket management for multiple clients. In the third quarter, CGI continued to see strong momentum in AI related wins, demonstrating the depth of our expertise globally. Our pipeline of qualified AI opportunities also remains robust, reflecting the continuing strong demand to embed these capabilities within core client systems and operations. Given ongoing client demand, we continue to integrate AI in our IP, now driving 40% of our overall IP based revenue.

François Boulanger
President, CEO & Director at CGI

We also continue to launch new solutions to help client operations run faster, smarter and more efficiently. In fact, we announced this week the global launch of CGI SpeedUp, a new platform to digitize and optimize business processes for commercial clients and governments. Importantly, when combined with CGI's managed services and broader process automation initiatives, such as those enabled by CGI DigiOps, the platform can deliver sustainable double digit efficiency improvements for clients. CGI also continues to lead in responsible AI governance, including through the European AI Act pledge and the collaboration with government and industry programs in The U. S, Canada and The UK.

François Boulanger
President, CEO & Director at CGI

Turning now to the buy side, which remains an integral element of our profitable growth strategy. Integrating accretive mergers to create long term value for all stakeholders requires rigor and discipline. Our teams continue to finalize recent integrations. In addition, we continue to work through the regulatory and compliance processes to close the merger with Epcen headquarter in France. Our pipeline of additional merger targets remains robust.

François Boulanger
President, CEO & Director at CGI

We have a very active program in terms of sourcing, interactive dialogues and due diligence assessments. We are committed to making sure that we are we acquire the right companies for the right price at the right time, all three without exception. CGI's operational strength, stability and financial capacity will continue to enable us to move quickly with discipline on the right opportunities of all sizes. In closing, we will continue to proactively manage the fundamentals of our business and invest in our build and buy profitable growth strategy to further deepen our proximity model, our industry knowledge and technology expertise, our end to end offerings and our global network and scale. We are confident in the resilience of our model, the depth of our client relationships and the dedication of our talented consultants and professionals around the world.

François Boulanger
President, CEO & Director at CGI

Thank you for your interest and support. Let's go to the questions now, Kevin.

Kevin Linder
SVP - IR at CGI

Thanks, Francois and Joelle. We can now queue for questions.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from Surinder Thind with Jefferies. Your line is now open.

François Boulanger
President, CEO & Director at CGI

Surinder?

Kevin Linder
SVP - IR at CGI

Hello? Hi, Surinder. You're up.

Surinder Thind
Surinder Thind
Equity Research Analyst at Jefferies Financial Group

I apologize. Thank you. The line went out of key for about the last two minutes. So I guess where I'd like to start with is, can you talk a little bit about organic growth and organic growth in the two different segments and what you're seeing there? Just to provide some context given all of the FX noise as well as the acquisitions?

François Boulanger
President, CEO & Director at CGI

Okay. I won't talk about the numbers by itself. As you know, we are presenting constant currency growth because again, it's difficult to split from acquisition than organic. If I'm talking about the environment in general, we're still seeing some challenges, example with still with the tariffs. We have still some clients waiting a bit before investing to understand where tariffs will finish with.

François Boulanger
President, CEO & Director at CGI

So we see that a lot in Europe. But at the same time, it's bringing a lot of opportunities on the managed services side. But on the SI and C side, it's still a bit slow, including business consulting also. So we see that especially in the manufacturing side. But on the other side, if I'm taking example, the financial sector, we are seeing good growth on the organic side in that industry, especially in North America.

François Boulanger
President, CEO & Director at CGI

And also, I was talking about booking just after quarter end with large banks in Europe. So we are seeing good momentum in the banking side of the business. And so we saw growth organic growth in the past and we will see that also in the future.

Surinder Thind
Surinder Thind
Equity Research Analyst at Jefferies Financial Group

That's helpful. And then can you talk a little bit about just switching gears here, a little bit about the partnership strategy? It sounded like maybe a bit more revenues are coming through that channel. Just any color there and any evolution in that part of the strategy?

François Boulanger
President, CEO & Director at CGI

Yes. It's something that we invest in the last couple of years to promote more our partnership with a large technology company. So it's paying off. So we're investing in the training of these technology and certification of these technology, and we are talking with them to see how we can better team together in front of clients. So it's paying off and it will continue, I think, to pay off in the future.

François Boulanger
President, CEO & Director at CGI

So it's a good initiative that we did in the past and it will give us dividend more dividend even in the future.

Surinder Thind
Surinder Thind
Equity Research Analyst at Jefferies Financial Group

And I apologize, any color you can provide in terms of the percentage of bookings or any metric or quantitative measure of that strategy would be helpful if at all possible.

François Boulanger
President, CEO & Director at CGI

Well, I think that's the number we gave to you, right? So together and again, we just need to be clear, that's not what we're doing with this technology company, but it's really what we are working together on winning deals. So if I'm going back, what was the number? But we did say that we booked for $2,600,000,000 the go to market with them. So and that's an increase of 120% year over year.

François Boulanger
President, CEO & Director at CGI

So that's really the payoff of investing in these relationships.

Surinder Thind
Surinder Thind
Equity Research Analyst at Jefferies Financial Group

Thank you.

Operator

Your next question comes from Divya Goyul with Scotiabank. Your line is now open.

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

Good morning, everyone. Good quarter here. Good morning. Thank you. Francois, if you could provide us a little bit more color in terms of your margins broadly, like what are some of the margin expansion strategies that other than restructuring that you're deploying?

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

You made a ton of acquisitions recently. How do you expect those as they get integrated to help with upliftment of the margins? And I in the same vein, want to ask U. S. Federal margins, I did notice they are back to Q3 twenty twenty four levels. Is there seasonality in those as well?

François Boulanger
President, CEO & Director at CGI

Yes. So thanks, Divya, for the question. And Steve, you can comment also if you want. But on the margin, for sure, the integrations of our latest acquisition and especially BJSS will help to increase the margin. So it's the first full quarter of BJSS.

François Boulanger
President, CEO & Director at CGI

We closed it at the end of the last quarter and the integration only started. So the idea is that when it will be fully integrated, it will improve the margin in our UK environment. Same thing for The U. S. We still see yes, we see some improvement in The U.

François Boulanger
President, CEO & Director at CGI

S. Margin, but we still have some work to do on finalizing some of the integration of Dougherty and that will also again improve the margin. So the idea is that when these companies will be fully integrated, we are expecting margins to go up.

Steve Perron
Executive VP & CFO at CGI

Yes. And the effect also of the restructuring, are as you know, we're quite disciplined in making sure that the availability is there. And so we are taking action currently in order to improve some of the Continental Europe SBUs and reporting segments.

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

That's very helpful. One more question that I have is on the vendor consolidation trend. You noted some wins that you have observed across Europe and broadly on global basis, and we have been hearing about these trends. So could you help us understand what is it about CGI that is much more differentiated than the global IT players that is helping you with this vendor consolidation trend? And how should we expect you to stay differentiated and continue to win this race? Thank you.

François Boulanger
President, CEO & Director at CGI

Thank you, Tevye. I think it's our client centric approach. I think we are very close to the client and that's what we're trying always to be, understanding their challenges. And when we're delivering, we're delivering with a client approach. And for us, it's making a big, big difference.

François Boulanger
President, CEO & Director at CGI

And again, you'll see more of this. I was in Europe meeting with a client with we have a good business, and they have 1,200 suppliers. And they're feeling it's too much. They are saying that it's difficult to bring synergy when you have that much of suppliers. And so they want to reduce it.

François Boulanger
President, CEO & Director at CGI

And they like our approach. They like the fact that we are client centric. They like also the approach that our partnership approach, we are ready to co invest in some of these processes with them and bring innovation on the business side. So that's really what it's helping us to win in these vendor consolidation deals.

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

That's very helpful. I'll come back to questions. Thanks a lot.

François Boulanger
President, CEO & Director at CGI

Thank you.

Operator

Your next question comes from Jerome Dubey with Desjardins. Your line is now open.

Jérome Dubreuil
VP & Research Analyst - Telecom, Media & Technology at Desjardins Group

Hey, Bogota Malna. Thanks for taking my question. The first one is kind of a two pronged question on capital allocation. Accenture recently characterized the M and A environment as being a bit more difficult. So I wonder if you agree.

Jérome Dubreuil
VP & Research Analyst - Telecom, Media & Technology at Desjardins Group

And if you do, wondering what we should be expecting on the buyback side with results improving and the share price lagging the index?

François Boulanger
President, CEO & Director at CGI

I don't know with Accenture, but I would say I'm not in that same path. I think contrary, I think acquisition is still something that we're looking very closely. I think with evaluations that are, I would say, lower than before. And you have a lot of targets that are at a point now that they need to do taking again decision on their future. I think it's still a pretty active we have a pretty active pipeline, very good discussion.

François Boulanger
President, CEO & Director at CGI

And I think that will continue. And now I'm more, I would say, bullish on that side on the acquisition. I'm not saying that we won't continue to do some share buyback. We have the capacity and capabilities to do both. I don't know if Steve, you want to say a bit more.

Steve Perron
Executive VP & CFO at CGI

Yes. Look, you look at just the recent quarters, there was no cash out coming here business acquisition, and we invested close to $300,000,000 in share buybacks. So obviously, it's all our first priority is to invest in the business, after that to invest in accretive M and A and following that, it's the share buyback.

Jérome Dubreuil
VP & Research Analyst - Telecom, Media & Technology at Desjardins Group

Great. And second question, I'd like an update on those if possible. There's a big peer reported last week saying there's a bit of a shift from cost cutting to modernization initiatives in the U. S. Federal government.

Jérome Dubreuil
VP & Research Analyst - Telecom, Media & Technology at Desjardins Group

I'm wondering if you're seeing the same thing or if it's still very much 100% focused on cost cutting?

François Boulanger
President, CEO & Director at CGI

But for sure, at least all the demand of information, what are we delivering for the clients by agency, what type of contract we're doing, that's mostly finished. And no more question on that side. And so we're back to having good discussion with our agencies and our clients on a daily basis. Like I said in the past, right, to do some cost saving on their side, they will need new system. They will need more automations.

François Boulanger
President, CEO & Director at CGI

And to do that, they'll need services like us to help them to achieve these targets. So that's where you're right, that's where we are now. We have good discussion with them. How can we help them on the cost saving, what type of automation we can do with them. That's the kind of conversation we have with them.

François Boulanger
President, CEO & Director at CGI

And you see the booking did pick up on a sequential basis. We're still not at the same level that we were a year ago or one years point ago. But these discussions are now happening. And my expectation is that we will see some improvement in the future.

Jérome Dubreuil
VP & Research Analyst - Telecom, Media & Technology at Desjardins Group

Awesome.

Operator

Your next question comes from Thanos Moschopoulos with BMO Capital Markets. Your line is now open.

Thanos Moschopoulos
Thanos Moschopoulos
Managing Director - Equity Research at BMO Capital Markets

Morning. Your APAC BU continues to grow faster organically than the rest of the business. Can you speak to the key client geographies that are driving that? Is that heavily weighted to North America or other parts as well?

François Boulanger
President, CEO & Director at CGI

For sure, North America is big. And we're moving a lot of activities. Contract to create the GCCs from in The U. S. So that's bringing some growth.

François Boulanger
President, CEO & Director at CGI

I would say also Germany is another place where we're starting to see momentum on India. They have pressure. As you know, we have a lot of manufacturing clients in Germany, for example. And they we are talking managed services, and we're showing them our capabilities in India and they have a lot of interest. And so that's also good momentum on that side.

Thanos Moschopoulos
Thanos Moschopoulos
Managing Director - Equity Research at BMO Capital Markets

Great. And then on U. S. Federal, it seems like revenues were down a bit organically on sequential on a year over year basis. Just to clarify, would the lower BPO volumes be far and away the biggest reason for that? Or are there other factors? Yes.

François Boulanger
President, CEO & Director at CGI

No. Yes. For sure, as you know, we have a large contract, a visa contract where for 15 ish countries, we are producing visa for people who wants to come to U. S. And as we know, right, a lot less traveling in The U.

François Boulanger
President, CEO & Director at CGI

S. In general. And so that has an impact on the visa processes.

Thanos Moschopoulos
Thanos Moschopoulos
Managing Director - Equity Research at BMO Capital Markets

I'll pass the line. Thank you.

François Boulanger
President, CEO & Director at CGI

Thanks, Thanos.

Operator

Your next question comes from Richard Tse with National Bank Financial. Your line is now open.

Richard Tse
Managing Director & Technology Analyst at National Bank Financial

Yes. Thank you. With respect to the acquisitions, can you maybe talk about whether you have any sort of targets on that over the next twelve months? And I guess related, how do you rank transformational deals against the metro market deals?

François Boulanger
President, CEO & Director at CGI

I'll start with the second. The rank, I don't know what you mean by ranking. We are looking at all of them, small and big. And it's like I'm always saying, needs to be the right target at the right price at the right time. So large or small, we'll look at them.

François Boulanger
President, CEO & Director at CGI

And we are looking at large and smalls and smaller, and that will continue. So that's something and again, as for an outlook, I'm not sure if your first question was an outlook on this. It's difficult to say how many will close in the future. Again, we need to chew to dance and we need to have come to the right agreement. So but we have a good funnel, a lot of discussions.

François Boulanger
President, CEO & Director at CGI

And so we'll see how much we can close them in the future.

Richard Tse
Managing Director & Technology Analyst at National Bank Financial

Okay. That's helpful. Thanks. With respect to sort of AI, there's been a lot of discussion here just on like your customers, but just curious as to how CGI is applying this internally. And from that perspective, how do you think it impacts your headcount growth and also implications for your margins as we look ahead here?

François Boulanger
President, CEO & Director at CGI

Yes. We are using AI. We were using AI in the past, and we continue to use we'll continue to use AI in the future and Gen AI. And we are using it in our managed services to already we signed deals in the past where we're saying to the clients, we'll give you savings, we'll give you X percent of saving, and we need to produce that saving. Some of it is produced by example, offshoring or some activities to India, but some of it is also to apply automation tools, including AI.

François Boulanger
President, CEO & Director at CGI

And so we are using these tools today and will continue in the future to produce savings that we promise to clients and also naturally to help us of improving and doing also a profit on this delivery. So we are doing it today and we'll continue and even doing some acceleration of it in the future. So the impact of headcount, you can expect that you'll see headcount dollars or revenue by headcount going up. That will continue to increase in the future. And it's normal because our people will become more and more productive using more and more of these tools.

François Boulanger
President, CEO & Director at CGI

So and again, overall in AI, where we will need and clients will need expert to implement these tools and we are the right expert to help them on this.

Richard Tse
Managing Director & Technology Analyst at National Bank Financial

Okay, great. Thank you.

François Boulanger
President, CEO & Director at CGI

Thank you.

Operator

Your next question comes from Suthan Sukumar with Stifel. Your line is now open.

Suthan Sukumar
Suthan Sukumar
Managing Director at Stifel Financial Corp

Thank you. Good morning, gents, and thank you for taking my question. My first one, I wanted to touch on your IP strategy and the investments that you're making in this category. How much of your focus here will be on direct sort of in house R and D versus co development with clients? And I think you mentioned about 40% of your IP is now being driven by AI.

Suthan Sukumar
Suthan Sukumar
Managing Director at Stifel Financial Corp

From a roadmap perspective, what are some of the other IP product priorities you have beyond AI?

François Boulanger
President, CEO & Director at CGI

Yes. Well, first of all, on the second question, really the idea was to say 40% of our IP is now you have AI embedded in these IP. So that's really what we're saying. And our large IP where we have success, I'll tell you is like our ERP systems and we have embedded AI in our ERP systems. We have embedded AI in several of our financial sector like our trade platform, our wealth platform, Wealth three sixty platform, we are implementing AI functionality to help clients to gain even more savings by using some of these AI functionality.

François Boulanger
President, CEO & Director at CGI

So that's really why we're talking about AI. And overall on the IP side, a bit the same answer. Government sector IP is going very well. You saw a couple of announcements we did, the example with last quarter with State of California. And this quarter, again, another one with State California.

François Boulanger
President, CEO & Director at CGI

I talked about a Well360 deal or extension that we did in Canada. It's really in these two sectors that we're seeing very good momentum on our IP solutions.

Suthan Sukumar
Suthan Sukumar
Managing Director at Stifel Financial Corp

Great. Thank you. On my second question, I wanted to touch on some of the integration progress with the recent deals that you've done. Is there anything that may have stood out to you with respect to the ongoing integration or the growth opportunity with some of these recent deals relative to some of your initial assumptions going into them?

François Boulanger
President, CEO & Director at CGI

For sure, what we're saying is that I'll take example, the one in The U. S. We are seeing a good momentum on how we can integrate the CGI capabilities with the authority relationship that they have with their clients. And we have good discussions with some of these authority clients to show to them our expertise that we have, example, in India. So some of them did visit India and seeing what we have and what we can bring to the table.

François Boulanger
President, CEO & Director at CGI

Same thing with BJSS. We had the start of this, but still again already very good discussion with clients and really to show to them, yes, BJSS, you'll still have the great relationship and the great delivery from them. But here's what you can also have from the larger CGI. And for now, our clients are very happy or very impressed about what they're seeing.

Suthan Sukumar
Suthan Sukumar
Managing Director at Stifel Financial Corp

Great. Thank you for taking my questions. I'll pass it on.

François Boulanger
President, CEO & Director at CGI

Thank you. Thank you.

Operator

Your next question comes from Paul Treiber with RBC Capital Markets. Your line is now open.

Paul Treiber
Paul Treiber
Director & Research Analyst at RBC Capital Markets

Thanks and good morning. Just a couple of questions here on AI, further on AI. How do you see CGI's competitive position within AI in the IT services market? Meaning, do you see AI is increasing overall competition? Or do you think that AI raises the barriers to enter and then that would strengthen CGI's position versus competitors?

François Boulanger
President, CEO & Director at CGI

Well, I think AI to use it right and to help the clients, you need to have expertise. And I think that's where our that's what we're bringing at the table. And I think that's why we are doing investment in AI. That's why we're training our people in AI. And I'm a strong believer that clients to be able to implement these tools and use these tools the right way, they'll need experts like us.

François Boulanger
President, CEO & Director at CGI

And so I think that will bring a lot of new opportunities for us and solutions to our clients.

Paul Treiber
Paul Treiber
Director & Research Analyst at RBC Capital Markets

And in terms of the economics of AI and the potential productivity gains, are your clients starting to see productivity gains from AI? And then have they been reinvesting those gains back into other projects? Or have they just been using those gains to drive just higher ROI on those projects?

François Boulanger
President, CEO & Director at CGI

I would say that clients will have budget, right? And yes, some you'll have and that's more on the environment side, will have some sometimes requests from their CEOs to reduce some of the budget. But at the same time, they want to spend the money. And now with AI, they can do more with less. So it's really what's happening is that some of these like you're saying, Paul, some of these savings that we can produce by delivering faster, they're turning around and saying, oh, finally, I can do more and let's accelerate some transformation, for example, that we were not able to do in the past because I still have the run side of the business to happen.

François Boulanger
President, CEO & Director at CGI

So now we're coming in, we're showing them how we can reduce the run and they're taking that run saving and investing it back in the transformation side.

Paul Treiber
Paul Treiber
Director & Research Analyst at RBC Capital Markets

Okay. Thanks for taking the questions. Very helpful.

François Boulanger
President, CEO & Director at CGI

Thanks. Thanks, Paul.

Operator

Your next question comes from Stephanie Price with CIBC. Your line is now open.

Stephanie Price
Equity Research Analyst - Software and Services at CIBC World Markets

Good morning. Thanks. Hi, Hi. As you look into the second half of the calendar year here, it sounds like you're definitely seeing some green shoots out there. Just curious about how you think about overall constant currency organic growth as you look into the back half of the year. Do you think we could have seen a floor already? Or do you think that things are starting to turn, but it could take a few more quarters for the bottom?

François Boulanger
President, CEO & Director at CGI

Yes. I think we're at the floor, right? And but again, the environment, we'll see where the environment is finishing, especially on the tariff. I think we're starting to see an end to it or some agreement across the world. And I think when these agreements will be finalized, that will bring to the clients a certain certainty, right, of how much they need to pay and stuff like that and what will be the impact on the economy.

François Boulanger
President, CEO & Director at CGI

And when that will be digested, I think that's where we'll see some momentum coming back. So I think it will take a couple still a couple of quarters to arrive to that. But again, I was in Germany and Europe a couple of weeks You know, like I'm saying, I'm saying I went to see a bank and bank were very positive and doing some larger investments. But on the manufacturing side, you know, they were there and saying, okay, we're looking at the tariffs. We're trying to understand where it will finish to.

François Boulanger
President, CEO & Director at CGI

And after that, we'll be able to adjust our budgets and investments budget. So that's where we are. And like I'm saying, I think it will it can take still a couple of quarters.

Stephanie Price
Equity Research Analyst - Software and Services at CIBC World Markets

That makes sense. And then you mentioned in your prepared remarks that Momentum is one of two approved government systems. I wonder if you could talk a bit about your approach to winning share here and if there's any key contracts that are for renewal or how you think about momentum going forward in this environment?

François Boulanger
President, CEO & Director at CGI

Well, we're very momentum is a great tool. Our clients like it. It's a tool that is specific like let's be clear, right? Momentum is only for government, only for the federal government. So when the clients are looking at it, they're saying it's really answering all their needs.

François Boulanger
President, CEO & Director at CGI

So I'm very if they are really pushing to go to only two, I think that will create a lot of new opportunities for us in the future. That's for sure.

Stephanie Price
Equity Research Analyst - Software and Services at CIBC World Markets

Great. Thank you very much.

François Boulanger
President, CEO & Director at CGI

Thanks, Stephanie. Thank you.

Operator

There are no further questions at this time. I will now turn the call over to Kevin for closing remarks.

Kevin Linder
SVP - IR at CGI

Thanks everyone for participating. As a reminder, a replay of this call will be available either via our website or by dialing 80264 and using the passcode twenty eight thousand one hundred thirty five. 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 +1 907-0363. Thanks again, everyone, and look forward to speaking soon. Thank you.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

Analysts
    • Kevin Linder
      SVP - IR at CGI
    • Steve Perron
      Executive VP & CFO at CGI
    • François Boulanger
      President, CEO & Director at CGI
    • Surinder Thind
      Equity Research Analyst at Jefferies Financial Group
    • Divya Goyal
      Director - Equity Research - Technology, Software & Services at Scotiabank
    • Jérome Dubreuil
      VP & Research Analyst - Telecom, Media & Technology at Desjardins Group
    • Thanos Moschopoulos
      Managing Director - Equity Research at BMO Capital Markets
    • Richard Tse
      Managing Director & Technology Analyst at National Bank Financial
    • Suthan Sukumar
      Managing Director at Stifel Financial Corp
    • Paul Treiber
      Director & Research Analyst at RBC Capital Markets
    • Stephanie Price
      Equity Research Analyst - Software and Services at CIBC World Markets
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