Q4 2024 CGI Inc Earnings Call
Good morning ladies and gentlemen. Welcome to the CGI's fourth quarter fiscal 2024 conference call. I would now like to turn the meeting over to Mr. Kevin Linder, FBP of Investor Relations. Please go ahead, Mr. Linder.
Kevin Linder: Thank you, Joel and good morning. With me to discuss CGI's fourth quarter in fiscal 2024 results.
Kevin Linder: Our friends, well, Belonger, 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, November 6, 2024.
Supplemental Slides, as well as the press release we issued earlier this morning, are available for download along with our fiscal 2024 MDNA, audited 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 are results made differently from those expressed or implied. NCGI 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 MDN press release as well as on cgi.com. We recommend our investors read it in its entirety.
Kevin Linder: We are reporting our financial results in accordance with international financial reporting standards or IFRS. As always we will also discuss non-gap-alcoholance measures which should be due to supplemental.
The MDNA contains definitions of each one used in a reporting. All of the doll figures expressed on this call are Canadian and less otherwise noted.
Speaker Change: I'll not turn it over to Steve to review our Q4 financials and then friends who I will comment on our full year performance and business and market outlook. Thank you, Kevin and good morning everyone.
Steve: CJI once again delivered strong results in our Ford Quarter of fiscal 2024, and what continued to be a dynamic and challenging macro environment.
Kevin Linder: In Q4, we deliver $3.7 billion of revenue up 4.4% year over year or up 2% when excluding the impact of for an exchange.
Kevin Linder: The strongest CGI segments were. Nor twist and central east Europe at 7.5% constant currency growth.
Kevin Linder: UK and Australia at 7.2%. Asia-Pacific at 6.2%. And US federal at 5%.
Kevin Linder: From an industry perspective, we continue to have the IS growth in government representing 4.7% constant currency growth this quarter.
Kevin Linder: This was followed by manufacturing retail and distribution at 3.3% driven from North America.
Speaker Change: Financial Services in Europe and Communications in North America, remain challenge in line with the current market conditions.
Speaker Change: Our IP continued to grow at the faster pace with 3.7% constant currency growth in the quarter. As a percentage of total revenue, IP represented 22.9% of 30 basis points year over year.
Speaker Change: In Q4, bookings were $3.8 billion for a book to bid a ratio of 100 and 4%.
Speaker Change: Both to build ratios were 85% for business and strategic IT consulting and system integration, given the continued softness in discretionary spending and 120% for managed services that will drive net new recurring revenue.
Speaker Change: On the Trilling 12 Months basis, our book to build ratio was 109%.
Speaker Change: On the same basis, managed services at a book to build ratio of 117% and FINC book to build ratio was 100%.
Speaker Change: Our global backlog reached $28.7 billion or $1.9 times revenue reflecting our overall business resilience.
Speaker Change: Turning to profitability. Our performance this quarter once again demonstrated our operating discipline.
Speaker Change: Earnings before income taxes were $592 million, for a margin of 16.2%, up 30 basis points year-over-year.
Speaker Change: Adjusted EBIT in the quarter was $600 million, representing a margin of 16.4%, up 10 basis points year-over-year.
Speaker Change: The increase is mainly due to one more available data bill and savings generated from our cost optimization program.
Speaker Change: Margin or strong guess in the following segment.
Speaker Change: Asia-Pacific at 28%, Canada at 22%, Finland, Poland and Baltics at 19%, U.S. Federal at 18%, and U.S. Commercial and State Government at 16%.
Speaker Change: Our effective tax rate in the quarter was 26.4%, up from 25.7% last year, impacted by the tax credit adjustments and the increase in the UK statutory rate.
Speaker Change: Net earnings were $436 million for a margin of 11.9% of 10 basis points year over year. Diluted EPS was $1.91 representing an increase of 8.5% year over year.
Speaker Change: When excluding specific items, net earnings were $439 million. This represents a margin of 12% stable year-over-year.
Speaker Change: On the same basis, diluted EPS was $1.92, an accretion of 7.3% when compared to Q4 last year.
Speaker Change: In the quarter, cash provided by operating activities was $629 million, representing a strong 17.2% of total revenue.
Speaker Change: The ESO was 41 days in the quarter, three days better than last year.
Speaker Change: In Q4, we used our cash to invest $82 million into our business, invest $492 million for business acquisition upon completion of the acquisition of Aon and repayment of his debt.
Speaker Change: and invest $49 million to buy back our stock.
Speaker Change: Before the end of the quarter, we issued 750 million dollars of public Canadian senior notes. The proceeds were used to repay existing debt as planned and for general corporate purposes.
Speaker Change: We continue to deliver a strong return on invested capital at 16% consistent with the prior year, demonstrating our proficiency and discipline on deployment of capital.
Speaker Change: At the end of the quarter, CGI had $3 billion of cash readily available and access to more, if needed.
Speaker Change: As part of our profitable growth strategy, CGI capital allocation priorities remain focused on investing back in the business and pursuing accretive acquisitions.
Speaker Change: The company also has the flexibility to use a portion of its free cash flow for the repurchase of its stock and for the distribution of dividends to further enhance value for shareholders.
Speaker Change: Yesterday, CGI's Board of Directors approved a cash dividend of $0.15 per share.
Speaker Change: This dividend is payable on December 20th, 2024 to shareholder of record as of the close of business on November 20th, 2024.
Speaker Change: Before turning the call over to François, I would like to highlight a few adjustments that were made effective October 1st.
Speaker Change: Germany is now its own segment and our operations in Scandinavia are now combined with our Northwest and Central East Europe segment.
Speaker Change: starting next quarter. We will begin reporting on this new structure and we will provide restated historical data at that time.
Speaker Change: Now, I will turn the call over to François to discuss the insight on the quarter and the year, as well as the outlook for our business and markets. François?
Francois: Thank you, Steve, and good morning, everyone. I am pleased to be here today to review the fiscal 2024 results achieved by our outstanding team around the world.
Speaker Change: I also want to recognize George Schindler, who retired as of October 1st, following a nearly 40-year career at CGI.
Speaker Change: Thank you, George, for your leadership in guiding our company over the past eight years as CEO, including the delivery of these strong results for Fiscal 2024.
Speaker Change: CGI's performance for the year demonstrated our ability to execute on our plan in a dynamic market environment. Earnings expanded through a higher recurring revenue mix, as well as proactive operational excellence actions.
Speaker Change: Cash from operations remain robust as a result of sustained quality delivery for clients.
Speaker Change: And bookings represented a 109% book-to-bill ratio for the last 12 months, with every reporting segment at or above a 100% ratio.
Speaker Change: With regards to revenue, growth progressively increased in the back half of the year, ending Q4 with 4.4% year-over-year growth, or 2% on a constant currency basis.
Speaker Change: We also further our buy strategy by closing chill mergers, a meaningful acceleration over fiscal 2023.
Speaker Change: We began the year by merging with Miami-based Momentum Consulting to expand our digital and data offerings in our manufacturing, retail, and distribution sectors.
Speaker Change: In Canada, we acquired the credit union business of Celero, expanding our services to more than two-thirds of credit unions nationwide.
Speaker Change: And we acquired Aon and CGI Federal, deepening our digital and AI-based offerings for national security and civilian agency clients. I would like to warmly welcome all new consultants who joined CGI from these mergers.
Speaker Change: Each year our plans are designed to create value for all three of CGI stakeholders. This focus on seeking the best equilibrium among our clients, our consultants, and our shareholders is fundamental to our strategy and planning.
Speaker Change: With this principle in mind, I will review the annual performance highlights by stakeholder, starting with clients.
Speaker Change: CGI's deep and trusted client relationships remain critical to our growth agenda. Again this year, client satisfaction was up on every dimension we measure. In fact, two of the highest rated scores were related to the quality of our relationships.
Speaker Change: This includes CGI's commitment to clients, as well as their intent to engage us again in the future. Both of these scores, which come from signed client assessments, were at record high levels of over 9.6 out of 10.
Speaker Change: The expertise, insights, and commitment of our consultants and professionals make this high degree of client satisfaction possible. Thank you to all team members worldwide for partnering with clients to help them achieve tangible business and mission outcomes.
Speaker Change: Now turning to our consultants and professionals.
Speaker Change: CGI's culture of ownership is unique in the market and enabled us to retain and attract the best talent.
Speaker Change: This was demonstrated this year as we saw more of our consultants and professionals become CDGI shareholders, increasing from 85% to 87% year over year.
Speaker Change: This engagement, as owners, is why we call our employees CGI Partners.
Speaker Change: Next, the overall satisfaction of our people increased again this year, now at 8.9 out of 10. This result demonstrates the deep engagement of our CGI partners.
Speaker Change: Clients continue to cite this engagement as a key factor for why our people show up differently as an extension of their own teams. This makes a significant difference especially as clients navigate change and prioritize their business and mission goals.
Speaker Change: Lastly, the input of our people factored into multiple third-party recognitions for CGI, such as rankings for best places to work in numerous countries and our inclusion on the Time Magazine World's Best Company list.
Speaker Change: And for our shareholders in fiscal 2024, we continue to proactively manage the fundamentals of our business to deepen our resilience and our capacity to create added value for shareholders.
Speaker Change: On a full year basis, constant currency growth included 7.5% growth in our North-West and Central-East Europe segment.
Speaker Change: 6.1% in Asia-Pacific, 4.4% in UK and Australia. And from a services perspective, 5.2% in our IP-based revenue portfolio and 3.4% in managed services.
Speaker Change: On the profitability side, we also continue to improve on a year-over-year basis, with our results continuing to place us in the top quarter of our IT services peer group.
Speaker Change: Just the EBIT was up 4.5% for a margin of 16.5% up 30 basis points.
Speaker Change: adjusted net earnings were up 5.1% for a 12% margin.
Speaker Change: And cash generated from operations was over $2.2 billion, representing 15% of revenue.
Speaker Change: Sustained client demand for managed services and IP contributed to these strong results and also drove our total bookings.
Speaker Change: Again this year, booking surpassed $16 billion as clients continue to turn to CGI for help in progressing their digital and innovation agendas while reducing their cost base.
Speaker Change: Second half managed services bookings were particularly strong at nearly 5.3 billion dollars, up by more than 1 billion dollars compared to the first half of the year.
Speaker Change: This uptick was led by wins in manufacturing and government, both with second-half bookings up 16% compared to H1.
Speaker Change: These larger, longer-term engagements continue to require a tailored combination of our end-to-end offerings, notably for CGI's IP solutions as well as global delivery.
Speaker Change: For example, in Q4, the U.S. Patent and Trademark Office awarded CGI two modernization contracts covering a range of security, efficiency, and mission-oriented services.
Speaker Change: The projects have a total potential value of 119 million U.S. dollars and they expand CGI's momentum IP services to help the agency foster innovation and enable economic growth.
Speaker Change: one of the world's largest manufacturers.
Speaker Change: entered into an agreement with CGI to jointly launch an international development unit based in Germany to support group-wide digital projects and support their developers in line with the company's increasing demand for software performance.
Speaker Change: Through this initiative, the client aims to develop new IT systems faster and more efficiently.
Speaker Change: CGI's architects, developers, and consultants will deliver services and solutions grounded in technology expertise and manufacturing knowledge to help the client accelerate business outcomes in line with their digitalization vision and strategy.
Speaker Change: The Department of Justice, Northern Ireland Courts and Tribunals Service awarded CGI a 20-year agreement to serve as business transformation delivery partner.
Speaker Change: Our consultants will help modernize the justice system, enhance efficiency, and improve service access.
Speaker Change: and we are further into a new long-term agreement to transform the transaction processing function of McKenzie
Speaker Change: This is the latest in a series of operational enhancements McKinsey is making to further modernize and digitize its platforms and processes.
Speaker Change: As part of the new expanded relationship, McKinsey will transition the majority of its transaction processing services for account and plan administration to CGI.
Speaker Change: This will allow McKinsey to leverage CGI's innovative capabilities in redefining processes and integrating advanced levels of intelligent automation into workflows.
Speaker Change: As a result, McKinsey will be able to accelerate the speed, quality and efficiency of its client servicing capabilities, including faster transaction times.
Speaker Change: Looking ahead, our business plan for fiscal year 2025 includes ongoing and new investments in our end-to-end services to enable our consultants to tailor the most relevant solutions for clients.
Speaker Change: These investments are aligned to the client demand we see in our pipeline, which is up 20% on a year-over-year basis across all of our services.
Speaker Change: In managed services, we will continue to evolve our partnership models, backed by CGI's financial strength, to create compelling offerings.
Speaker Change: This includes embedding more AI to unlock new ways to help drive efficiency and innovation for clients.
Speaker Change: CGI's managed services remain in high demand because it enables our clients to generate cost savings, deepen agility to navigate the dynamic environment, and advance their digital initiatives.
Speaker Change: For CGI, managed services deliver long-term recurring revenue, which improves our resilience through all economic cycles.
Speaker Change: For IP, we will continue to invest in our solutions portfolio to meet increasing client expectations for innovation and embedded AI functionality.
Speaker Change: In collaboration with teams around the world, we are progressing multiple generative AI proofs of concept to address common use cases across multiple IPs, including for in-demand functionality such as recommendations on next best actions.
Speaker Change: Our IP value proposition provides clients with digital accelerators with lower capital costs.
Speaker Change: For CGI, IP provides recurring revenue with a higher margin profile.
Speaker Change: such as advisory services in cloud, cybersecurity, and responsible use of AI.
Speaker Change: Our SINC value proposition provides clients with the actionable advice and implementation capabilities they need to realize business value.
Speaker Change: For CGI, SINC provides a client entry point which creates future opportunities to deliver CGI's full range of services.
Speaker Change: CGI remains well-positioned globally as a leading trusted partner to help clients on an end-to-end basis, from defining their strategies to implementing AI-powered platforms and solutions.
Speaker Change: Our pipeline of AI opportunities continues to grow, particularly for data consulting, cloud migration, proof of concepts, and targeted use case implementation that drive business outcomes.
Speaker Change: Examples of recent awards leveraging AI include the Government of Canada selected CGI to develop and deploy a virtual assistant tool to help clear a backlog of over 200,000 payroll cases, thereby reducing processing time and improving user experience.
Speaker Change: UK's Network Rail expanded their proof-of-concept for CGI's Machine Vision IP to enhance their operational efficiency and continuous asset monitoring.
Speaker Change: and a clean energy technology company in the U.S. selected CGI to build a data-driven analytics platform using AI and machine learning for proactive plant monitoring and optimization.
Speaker Change: Our experts remain engaged in government initiatives around the world to reinforce CGI's commitment to responsible and ethical AI practices. In fact, during Q4, CGI signed the European Commission's AI Act Pledge to help shape the digital future of Europe.
Speaker Change: Finally, our fiscal 2024 business plan includes continued investment in M&A to accelerate our depth and breadth and geographic segments.
Speaker Change: The M&A environment remains more favorable as macroeconomic and geopolitical dynamics continue to reshape the consolidation activities within the IT services industry.
Speaker Change: We are in active dialogue with a larger number of merger targets at all stages of our pipeline and, as always, we will be disciplined to make sure that all CGI mergers will be equitative to each of our stakeholders.
Speaker Change: In closing, clients across industries continue to invest in the monetization and optimization of technology in order to transform their business value chains as well as their operating models.
Speaker Change: CGI remains well positioned as one of the few leading global firms with the scale, reach, insights and capabilities to help clients deliver the tangible business outcomes they require from their digital strategy investments.
Speaker Change: our strong performance in Tesco 2024 combined with our resilience as a company and our proven build and buy growth strategy underpin our plan for delivering profitable growth in the year ahead.
Speaker Change: Thank you for your continuing interest and support. Let's go to the question, Kevin.
Kevin Linder: Thank you, Francois. Joel, we can now pull for questions.
Speaker Change: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two.
Speaker Change: If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question.
Speaker Change: Your first question comes from Richard Seawith, National Bank Financial. Your line is now open.
Richard Seawith: Yes, thank you. With respect to your press release, you had a statement in there that seems to kind of emphasize acquisitions a bit more. That's sort of my read.
Richard Seawith: Is it fair to say that you'll be more active in the next 12 months than the last 12 months when it comes to deploying capital on acquisitions here?
Speaker Change: Like I said, the pipeline is pretty full on the M&A side. We are talking with a larger number of prospects.
Speaker Change: so it's going well on that side but again you know closing them it's a different story you know we need to agree on the price and it needs to make some make some sense for us
Speaker Change: So, you know, like I'm saying, we have a great pipeline, we are working with several different targets, but, you know, will we come to an agreement with that? That's still in the making. But we're pretty positive on that side.
Speaker Change: Okay, and then with respect to AI, when it comes to your pipeline, what's the mix of business that has anything sort of Gen AI tied to it, and how would that compare to like the prior year here?
Speaker Change: But, you know, you heard about the proof of concept that we did and some of the mandates that we received, like example with the government, the federal government, with the payroll cases.
Speaker Change: We have more and more of these proof of concept, and also we are using more and more AI internally also for our managed services. So that's also something we're working on. And on the IP side, we are using more and more Gen AI.
Speaker Change: on our IP services. So it's increasing naturally here versus last year and the expectation that will continue in the future.
Speaker Change: Okay, and the last one for me, as JNII does scale...
Speaker Change: What do you do in terms of retraining the workforce or in your hiring practices?
Speaker Change: Just trying to understand how that sort of labor market will shift and how
Speaker Change: to get ready ahead of that.
Speaker Change: Thank you. Thank you. Thank you.
Speaker Change: If you remember last year, George announced, and it's already now a year in the making, our billion dollars of investment in AI. And that billion of investment was also to train our people on these tools. So that's going pretty well. We had some basic training for all the members, all the CGI partners in CGI, but we had also more in-depth training.
Speaker Change: for our developers and programmers in the company. So that's going well, and that will continue in the future.
Speaker Change: And naturally on the hiring side, naturally we are hiring people with the right skills on the AI side.
Speaker Change: No problem on this side.
Speaker Change: Okay, thank you.
Speaker Change: Thank you.
Speaker Change: Your next question comes from Divya Goyal with Scotiabank. Your line is now open.
Divya Goyal: Good morning, everyone.
Speaker Change: Slide.
Divya Goyal: weakness in the booking supported this quarter. So just trying to understand what is the broader sentiment that you're seeing across the global enterprises and if there's something to call out for there.
Speaker Change: I can start and Steve you can give some color also on your side, but you know
Speaker Change: As you know, Bookings is always lumpy, and we had some contract that didn't hit the end of the quarter, but we feel that we'll have some good news again in the next couple of weeks. But I'll take the example of CGI Federal, they finished below 100%, and again this year
Speaker Change: We see a tendency these years of election that, you know,
Speaker Change: The administration will...
Speaker Change: will slow down some of the procurement to wait to see if their priorities will change. So that's one of the impacts that we saw in the quarter. I don't know, Steve, if you have other examples, but you always see some lumpiness in the... Yeah, and in the quarter, managed services, the bookings were strong at 120%. The projects, so the SINC side was 85%, but when you look at it from a last-12-month point of view, it was 100%.
Speaker Change: So I think it's better to look at it really from a last-12-month point of view.
Speaker Change: That's helpful.
Speaker Change: On this specific discussion on the CGI federal, that is actually an interesting topic that I'm sure you'll probably get a lot more questions on, but how do you see that part of the business generally
Speaker Change: evolve. I know in the past when George has commented on this discussion, I understand that the spending picks up early on, slows down closer to election, and then slowly picks up again. However, with this new potential government coming in, how do you see things shifting and changing, and could the tariffs potentially impact CGI negatively, if at all?
Speaker Change: No, I don't see that, you know, first of all, you know, as you know, we're dealing with the federal government for 40 years, so we know the client, and I would say that every time that a change of government is happening, priorities are changing.
Speaker Change: and when priorities are changing, guess what, they need IT to achieve their business goals.
Speaker Change: So, so...
Speaker Change: You know, the expectation we have is that no, we don't see any negative, even contrary.
Speaker Change: when the new administration will come in, you know, priority will change and we'll have a lot of discussion on how.
Speaker Change: IT can help them, because as you know, IT is a driver for all of this, and they'll need some IT services to help them to achieve their priorities.
Speaker Change: That's very helpful. Just one last question. The company obviously continues to generate pretty significant revenues from the government sector. Do you see that shifting at all in the near term? And if you could provide just some color on the banking and financial services sector globally, how are you seeing that? And I'll pass the line with that. Thank you.
Speaker Change: I know the government, I think, was strong in 2024 and we're seeing it continue to be strong in 2025.
Speaker Change: you know, a lot of governments across the world continue to do some investments and they need to continue. So we see that as positive on the financial sector, you know it was you know pew four was mostly flat
Speaker Change: And, you know, we had some reduction at the start of the year, mostly flat now in Q4.
Speaker Change: You know, with the rates coming down and the interest rates coming down and with, you know, the banks that slow down some of the discretionary expenses in the past.
Speaker Change: We feel that perhaps we can see a bounce back on that side because, again, you cannot retain these investments for a long time. So they need to invest back in their business. And so we are seeing some lights at the end of the tunnel on the financial sector side.
Speaker Change: Thank you so much.
Speaker Change: Your next question comes from Jérôme Dubreuil with Desjardins. Your line is now open.
Jerome Dubreuil: First one is on your Microsoft practice. I might be wrong, and don't hesitate to push back on this, but we don't...
Jerome Dubreuil: see you as much in Microsoft partner rankings relative to peers maybe. And this practice looks like it might be quite important in an AI world, especially AI enterprise.
Jerome Dubreuil: I think you can maybe start by qualifying the relative strength of your Microsoft practice and if you think this should be a bigger focus going forward.
Speaker Change: First of all, Microsoft. Microsoft is a real big partner of ours. And actually, I would say that it's the number one partner for CGI. So we have a lot of consultants having this station on Microsoft.
Speaker Change: And we are using their tools, like Copilot, that we deploy and using it on a daily basis.
Speaker Change: That's not a problem. For sure, we need to be, you know, as you know, you know, our value, we have an independent value. So, you know, we are working with all of them, and we're not just a Microsoft shop, but we are also using other technology.
Speaker Change: like AWS and Google, so we are capable of offering all these technologies to our clients.
Speaker Change: That's great, thanks. Second question on M&A.
Speaker Change: Revenue, maybe maybe if you can clarify this comment It seems like it contrasts maybe a little bit with a comment to you. You've been making on M&A today
Speaker Change: In terms of the comment on the pricing you mean, the one-time revenue?
Speaker Change: Yes, correct. On the target multiples for M&A.
Speaker Change: If you look just at the recent one we did with CGI Federal,
Speaker Change: and Ian.
Speaker Change: You will see, and you can see it in the financial statement, you will see that we paid more than one-time revenue. So it's all relative to what you're purchasing, obviously. We have paid more than one-time revenue because we believe we can generate a good return on it. So it's all part of the return we can generate on the transaction. But no, there's not a fixed limit of one-time revenue at all. In fact, Aon proves it differently because we paid more than that. Yeah, and again, example, Aon is in the federal, U.S. federal sector, especially in the-
Speaker Change: defense side and we thought that it was a great acquisition and we see a lot of growth on that side and a lot of capabilities so we were ready to pay more and we're still thinking it will be accretive to all the stakeholders of the company.
Speaker Change: Yep, makes sense. Merci beaucoup.
Speaker Change: Yeah, thank you.
Speaker Change: Your next question comes from Stephanie Price with CIBC. Your line is now open.
Stephanie Price: Good morning. Looking ahead to fiscal 25 high, peers have been guiding to kind of continuation of the current demand environment. Is this reasonable based on what you're hearing from clients? It sounds like maybe you're seeing a few green shoots here. How should we think about the demand environment evolving over 2025?
Speaker Change: Well, you know, we don't see necessarily material changes yet on the environment versus what we saw in the last quarter. I think, you know, managed services is still very strong.
Speaker Change: You know, we have and I had a lot of discussion with CEOs across the world that they are interested.
Speaker Change: about, you know, finding ways to have some cost savings. So that still continues to be...
Speaker Change: pretty strong on that side.
Speaker Change: But on the, as you know, on the business consulting, a bit like Steve alluded, you know, a little bit still soft on the SINC, especially in the business consulting. So that's where, you know, we still see that, you know, for now, the environment or the demand environment can still be a bit soft on the business consulting. So we'll be naturally close to it.
Speaker Change: but on demand services that continue to be pretty strong.
Speaker Change: That makes sense. And then maybe you could talk a little bit about the U.S. commercial and state government. It looks like the book-to-bill was was sub 100% of both the quarter and the year. How should we think about what's going on in that vertical?
Speaker Change: but you know a lot of discussion and we have large potential deals with especially on the state and local side that again you know it's a question of timing so we have a lot of discussion we have a lot of bids happening but you know the timing of when closing them can be lumpy and so I'm not nervous necessarily about that and I think you'll see in the future some bounce back on that side. Same thing a bit on the financial sector we have a big financial sector in the US commercial and again like I was saying it was tough a bit on the discretionary expenses.
Speaker Change: side. So now, you know, like I was saying, with the rates, interest rates going down, we think that the financial sector will start again to buy IT services in the future.
Speaker Change: Perfect, thank you very much.
Speaker Change: Your next question comes from Surinder Sindh with Jefferies. Your line is now open.
Surinder Sindh: Thank you. I'd like to touch base on just the continued softness in the discretionary spend.
Surinder Sindh: Just any incremental color that you can provide there.
Surinder Sindh: I know that you mentioned that, you know,
Surinder Sindh: within the SINC that bookings can be quite lumpy, but when I actually look at the absolute dollar value, it's below anything that you guys booked even during the pandemic. So just trying to understand what's exactly going on in that line item.
Speaker Change: I think it's two things. Like I was saying, in the financial sector, where we're pretty strong in business consulting side, they slowed down in the last two years, right, with the interest rate going up. So that had an impact to us, especially, for example, in Europe, we're pretty strong or stronger in business consulting. We saw that some slowed down in the financial sector on the business consulting. So that's really where it's coming from.
Speaker Change: And, you know, we think that we're at the end of it, especially in the financial sector.
Surinder Sindh: We need to see in the next couple of quarters. But it's really, I would say it's the environment. And we're not the only one. You see that elsewhere, that the business consulting side can be soft.
Surinder Sindh: So, I don't think we are different than the rest of the industry and we'll see if it's coming back pretty soon.
Surinder Sindh: When we think about the business model and kind of what's happened in this cycle
Surinder Sindh: There's been a lot more, I would say, client focus on managing costs.
Surinder Sindh: obviously that's helped the managed services side. It's been a bit more challenging for the the SINC side of the equation.
Speaker Change: given your more
Surinder Sindh: onshore type delivery model.
Surinder Sindh: If we remain in this current soft environment...
Speaker Change: Is there a risk that we see below industry growth in that line item given that your competitors arguably have a broader global delivery or lower cost footprint?
Speaker Change: No, not at all. First of all, we have a pretty large footprint in APAC, in Asia-Pacific. So we have no problem at all to take new managed services and delivering from Asia-Pac. And we have some several ones assigned in the last year. So that continues to be in our offshore and global delivery model.
Surinder Sindh: is pretty resilient.
Surinder Sindh: to be close to our clients and having the right relationship with our clients. So, I don't think and I don't see any issue with our model.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Okay, that's helpful. And then in the final question here perhaps, following up on some of the earlier commentary around the acquisitions...
Speaker Change: At what point do you perhaps evaluate
Speaker Change: the target return on investment that you need in the sense that
Speaker Change: Is it a fixed number here that from an absolute perspective or when you kind of think about
Speaker Change: others in the space that have been a
Surinder Sindh: perhaps build more capabilities or even if it's acquired more capabilities whether it be in the AI space or anything like that.
Speaker Change: You know, I'll start and Steve, perhaps you can, you can...
Speaker Change: put some more color. But for sure, you know, we always have been disciplined in our acquisition and it needs to be accretive, like I said.
Surinder Sindh: for all of our stakeholders.
Speaker Change: That's why we won't buy to buy something, but we need to believe that it will bring a return.
Speaker Change: Vrooom
Speaker Change: to the stakeholders, like I said. And so, you know, financially, but also, you know, for the clients, existing clients and new clients. So I don't know, Steve, on the financial side. Yeah, just, you know, when we look at acquisition, yes, there is a return, but there is also the culture. We want to make sure that when we do a deal,
Speaker Change: And we like to say that 1 plus 1 equals 3.
Speaker Change: We want the merger.
Speaker Change: to make sense and to generate more than the stand-alone entities.
Speaker Change: So so that's the goal. And and it's not only only a financial element of UC. We're looking a lot at the culture of the company to make sure that it would match with with CGI and it would be well integrated because you know when you're paying for something you want to make sure that you're going to get.
Speaker Change: Ultimately, the 1 plus 1 equals 3.
Speaker Change: It's not only financial, it's a mix of elements and we're, as Francois mentioned, really, really diligent. We want to make sure that the acquisition will benefit all stakeholders.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Your next question comes from Stephen Lee with Raymond James. Your line is now open.
Stephen Lee: First question is on Canadian margins, it was down quite a bit year over year, anything changing there and can we rebound this year?
Speaker Change: Yeah, I think we needed to do some adjustment in Q4, so, you know, we had some, a bit of utilization challenges that we tackled, and so I would say that you can expect some bounce back in the future.
Speaker Change: Okay, perfect. And Francois, under the Trump administration, what are the puts and takes on some of your larger contract vehicles like the EPA? Is it too early to tell or can you see some offsets?
Francois: Who are they to tell? And again, I'll go back, Stephen, to the first comment I had. You know, when you have change in the politics side, it will change naturally some of the priorities that they have.
Speaker Change: But, you know, we are mostly in all the agencies at the federal government, civilian side and on the defense side.
Speaker Change: So, depending on the priorities, you know, we will adjust properly, but, you know, we see that, like I was saying, change of priorities and more work for us. So, I see that as an opportunity.
Speaker Change: Got it. And then, on the dividend, is there a formal dividend policy set at this point, like growing it with free cash flow every year?
Speaker Change: No, look, uh...
Francois: You know, as you well know, the dividend, it's the responsibility, ultimately, of the board.
Francois: Obviously, we started issuing a dividend because the board understands the value for some shareholders.
Speaker Change: And what we can say is that we will review diligently each quarter the dividends, first of all the declaration, and also the amount. And that will be done.
Speaker Change: Billigency. But let's remember that our priorities are in terms of cash allocation is really on growth and growth investment in the business.
Speaker Change: and also in accretive M&A.
Speaker Change: and we also want to continue to be active on our share repurchase program. But we can confirm that the board obviously values and understands well the value of the dividend for the shareholders.
Speaker Change: Got it. And then a quick one, did you see how much AI bookings was during the quarter? I think I missed that.
Speaker Change: No, we didn't put AI in bookings, again, it's a...
Speaker Change: It's difficult to understand how much booking we have. We're using AI for...
Speaker Change: more and more of our projects. I think that the number of projects that we're using AI
Speaker Change: and we're using it in managed services and in the SINC. So, you know, we don't have necessarily a number of bookings that we can give.
Speaker Change: Got it. Perfect. Thank you.
Speaker Change: Thanks.
Speaker Change: Your next question comes from Thanos Moschopoulos with BMO Capital Markets. Your line is now open.
Thanos Moschopoulos: Hi, good morning. Hi. First of all, maybe expanding on the last point, can you comment just in terms of maybe some of the specific ways that you're using AI internally?
Speaker Change: And the runway in terms of what that could mean for efficiency and margins. I mean, has it been mostly around cogeneration, around automating client support, or what are some of the other ways you've been using it?
Speaker Change: We're using it naturally in our managed services with machine learning and to optimize some of our processes, IT processes, so that's bringing naturally some cost savings.
Speaker Change: that we're sharing with the clients. So that's one aspect. In our IP, we are also using more and more of our AI to do some development, like you were saying, to do some testing also.
Speaker Change: So that's another way we're using AI. And I am saying we have more and more proof of concept or like I was giving the example in the speech with clients specifically where we're putting in place.
Speaker Change: some AI to help them.
Speaker Change: and their own automation or monitoring of assets, for example.
Speaker Change: So, it's all area, and we're also using, Steve is looking at it, example on the financial, on his finance department, and the HR, and the internal processes, so we see how we can reduce the cost.
Speaker Change: Great, and as we think about margins heading into 2025...
Speaker Change: What are some of the puts and takes you might call out? So on the one hand, your managed services mix is increasing, which should be helpful, I would think, for margins. I'm in your hand.
Speaker Change: S&C is being impacted by letter utilization. So let's say if a spending environment remains status quo, borrowing and uptick, I mean, how would you think about your opportunities on the margin front?
Speaker Change: Bye.
Speaker Change: I think when you're looking at it, you saw that, you know, in Q4, we're in some region in Europe, you know, the...
Speaker Change: The margin is a bit weaker than the average of the company. So we still think there we can have some improvement year over year.
Speaker Change: So, we're working with the teams to see how we can improve the margin there. So, I'm positive on the margin for next year.
Speaker Change: But, naturally, it depends also where the SINC will go. But, you know, I think we are capable of improving the margin if everything is going well.
Speaker Change: Great. I'll pass the line. Thank you.
Speaker Change: Thanks. Thank you.
Speaker Change: Thanks very much and good morning. I just wanted to touch on M&A and the M&A environment. You mentioned it's more favorable. I was hoping if you can elaborate on that. Does that reflect the soft discretionary environment opening up potential opportunities or is there something else that's helping the environment here?
Speaker Change: But for sure, like we know, with the SINC that is a bit softer, it's putting pressure to some of these companies.
Speaker Change: and and so some of them needs to to do something and and that's why we have perhaps more discussion that we had in the past.
Speaker Change: So, with this environment that we still think it can be continued for the next couple of quarters, we see that as an opportunity to have this discussion. And some of this discussion was a discussion we had in the past.
Speaker Change: and actually we were not agreeing on the example on the on the price and you know now we have new discussion with the same the same targets.
Speaker Change: and the prices are more reasonable, if I can say. So that's the kind of market environment that we're seeing in the M&A side and we think that this will continue for some future quarters.
Speaker Change: Thank you.
Speaker Change: Secondly, just regarding Gen-AI, just hoping you could provide an update on what you're hearing from customers in terms of the impact of Gen-AI on purchasing decisions. It seems like companies are doing a lot of testing and evaluation of Gen-AI. Has it changed...
Speaker Change: from vendors, from IT services, or are you seeing a shift to more willingness to try to build homegrown or internal solutions? And also, where are they from a testing point of view? Are they moving past testing and starting to make deployments?
Speaker Change: No, not at all. They need us to do this proof of concept, this testing. They need us to prepare their data.
Speaker Change: to be capable of using the right way of AI.
Speaker Change: and they need our capabilities and our knowledge about these two, so it's really...
Speaker Change: more a driver of future growth for us because again, it's They need they need people with the right technology and the right expertise
Speaker Change: and we have that. So that's for me more an opportunity to grow in the future than anything else.
Speaker Change: and that's what we're seeing at least now in the pipeline and all that.
Speaker Change: Thank you.
Speaker Change: Your next question comes from Robert Young with Canaccord Genuity. Your line is now open.
Robert Young: Good morning, thanks for taking the question. Another M&A question. I also noted maybe a slightly higher priority on M&A and the materials and the monologue and so maybe just Francois, under your tenure as CEO do you expect to put more emphasis on M&A? Do you expect to have more intensity?
Robert Young: under your tenure, or I understand the pipeline is still very strong and active, I understand that you're going to have similar discipline, and I understand that the valuations are likely a little more positive, but do you expect to put more emphasis there?
Speaker Change: You know, you know, our strategy was always the build and buy strategy, you know, and grow 50% by organic and 50% by acquisition. So it's, it's
Speaker Change: always have been in the far front and in our strategy. So yes, I'll put a lot of focus on this.
Speaker Change: And yes, we think that the environment is pretty good for M&A. So, we will...
Speaker Change: be as active as possible and on that side but you know at the same time you know we will stay disciplined.
Speaker Change: and we won't buy just for buying, we need to buy the right one. But again...
Speaker Change: Like Steve was saying, Aeon, we were ready to buy at a certain price because we thought it was the right acquisition and we'll never be shy to pay a higher price if it's making sense for us.
Speaker Change: okay and then in the past I think my sense has been that you've avoided
Speaker Change: in Texas.
Speaker Change: Sorry, I missed the start. You're saying on the AI side, you're saying?
Speaker Change: And now that that's a more highly valuable part of the market, I'm just curious if that's something that you would consider, or is that still something that you would avoid? Or am I just wrong in that assumption?
Speaker Change: Bob, you know, a pure, pure infra, we would not necessarily be interested about it. We're, you know, we have some infrastructure business, we still have some, I would say, you know, 10% of our business is infrastructure.
Speaker Change: But buying infrastructure business only, that's not our interest. If we have a company where they have some infrastructure, we won't be shy to look at it, but we would not buy infrastructure pure business. No interest on that side.
Speaker Change: Okay, and then last one, just a quick one, looking back to the last time the Trump administration came in, I remember there was a lot of pressure on H-1B.
Speaker Change: and your onshore and modeling benefited from that like do you think of that as something might repeat itself or are you thinking about you know your relative onshore offshore mix and how that might change and then I'll pass the line
Speaker Change: How about, you know, on federal side, if I'm talking the federal business, you know, it's onshore, it's onshore, it's 100% delivered onshore. And we are also using some nearshore activities or region like Lafayette, like Southwest Virginia. So that's our model since decades.
Robert Young: to deliver, especially on the federal government side, onshore or nearshore, but in the U.S. So we didn't use offshore for that aspect of the business.
Speaker Change: So then that would be a positive for you, right? Yeah, for sure.
Robert Young: Okay. Okay. Thank you. Yeah, we're our metro market model, as you as you mentioned, and the delivery model we have at CGI. Obviously,
Robert Young: for for
Robert Young: As you said, if it becomes more difficult to use offshore from the U.S., obviously for us, our members are citizens of the U.S.
Robert Young: and our partners are citizens in the U.S. and obviously it's going to be, for us, it won't create any issue. No.
Speaker Change: Okay, thanks.
Speaker Change: Good morning, gents, one question.
Speaker Change: for next year across all sectors and it seems like your mix of new net new business seems to be picking up as well year over year. Can you speak a little bit about what what's underscoring that you know what verticals and capabilities are you seeing success on the new business side and and and who are you displacing?
Speaker Change: Who are we displacing? I think we're competing against all the major players, as you know. So sometimes it can be one or the other. So we don't have necessarily one in particular that we're displacing. As for new business, you're right, pretty good in the new business. And I think it's a focus that we're trying to do more and more is to win in new clients.
Speaker Change: and we think that example you know as you know we we won a big contract last year with Circo K on the retail side
Robert Young: and we continue to see retail as one area where we can win more new business because again they need some cost savings.
Robert Young: offshore capabilities.
Speaker Change: Okay, great. And now one quick one for me.
Speaker Change: SINC, you know, it's obviously still soft, but on a four-year basis, I think it looks relatively more resilient than some of your peers. Can you speak a little bit about what changes are you seeing in the discretionary demand picture now versus maybe a year ago? You know, any new pockets of strength or weakness? Is that indicative of what you're seeing?
Speaker Change: Well, I would say on the strength side, for sure, AI is a place where we have a lot of consulting and ask from clients.
Speaker Change: to help them on the AI side. So that's a place where we are seeing some growth.
Speaker Change: and we think that we will continue to see some growth on that side. Other places, like I was alluding in my speech when we talk about cyber security, for example, is another place where, you know, still a lot of demand on the business consulting side, how to help them with all the threat that we're seeing on the...
Speaker Change: in the world.
Speaker Change: Yeah. Okay. Agreed. Thank you for taking my question. So, last slide.
Speaker Change: Thank you.
Speaker Change: There are no further questions at this time. I will now turn the call over to Kevin for closing remarks.
Kevin Linder: Thank you, Joelle, and thanks, everyone, for participating. As a reminder, a replay of this call will be available either via our webcast or by dialing 1-888-433-4333.
Speaker Change: 660-6264 and using the passcode 25981. As well, a podcast of this call will be available for download within a few hours. Follow-up questions can be directed to me.
Speaker Change: at 1-905-973-8363. Thanks again, everyone, and look forward to speaking soon.
Speaker Change: Thank you