Q1 2025 CGI Group Inc Earnings Call
Operator: Good morning, ladies and gentlemen, welcome to CGI's Q1 fiscal 2025 conference call. I would like to turn the meeting over to Mr. Kevin Linder, SVP of Investor Relations. Please go ahead, Mr. Linder.
Speaker Change: Good morning, ladies and gentlemen, and welcome to CGI's first quarter fiscal 2025 conference call, and I would like to turn the meeting over to Mr. Kevin Linder, SVP of investor relations. Please go ahead. Mr. Linder.
Kevin Linder: Thank you, Sylvia. Good morning. With me to discuss CGI's Q1 fiscal 2025 results are Francois Boulanger, our President and CEO, and Steve Perron, Executive Vice President and CFO. This call is being broadcast on cgi.com, recorded live at 9:00 AM Eastern Time on Wednesday, 29 January 2025. Supplemental slides as well as the press release we issued earlier this morning are available for download along with our Q1 MD&A, financial statements, and accompanying notes, all of which have been filed with both SEDAR+ 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. 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.
Kevin Linder: Thank you, Sylvia, and good morning. With me to discuss CGI's first quarter fiscal 2025 results.
Speaker Change: are president and CEO and Steve Perron, executive vice president and CFO. This call is being broadcast on cgi.com and recorded live at 9 a.m eastern time on Wednesday, January 29, 2025.
Speaker Change: Supplemental slides as well as the press release we issued earlier this morning are available for download along with our Q1 MD&A, financial statements, and accompanying notes, all of which have been filed with both Cedar Plus and Edgar.
Speaker Change: 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. 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.
Kevin Linder: The complete safe harbor statement is available in both our MD&A and press release, as well as on cgi.com. We recommend our investors read it in its entirety. We are reporting our financial results in accordance with International Financial Reporting Standards, or IFRS. As always, we will also discuss non-GAAP performance measures, which should be viewed as supplemental. The MD&A contains definitions of each one used in our reporting. All of the dollar figures expressed on this call are Canadian, unless otherwise noted. We are also hosting our annual general meeting this morning. We hope you'll join us live via the broadcast at 11:00 a.m. Now I'll turn the call over to Francois for some introductory remarks. Francois?
Speaker Change: The complete safe harbor statement is available in both our MD&A and press release as well as on CGI.com
We recommend our investors read it in its entirety.
Speaker Change: We're reporting our financial results in accordance with international financial reporting standards or IFRS.
Speaker Change: As always, we will also discuss non-GAAP performance measures, which should be viewed as supplemental. The MD&A contains definitions of each one used in our reporting.
Speaker Change: All of the dollar figures expressed on this call are Canadian, unless otherwise noted. We are also hosting our annual general meeting this morning, so we hope you will join us live via the broadcast at 11 a.m. Now I'll turn the call over to Francois for some introductory remarks. Francois.
Francois Boulanger: Thank you, Kevin. Good morning, everyone. Today, in line with the long-term succession plan of CGI, Julie Godin was appointed Executive Chair of CGI Board of Directors, effective following today's annual general meeting of shareholders. CGI's founder, Serge Godin, is now the co-chair of the board and will continue to focus on transformational acquisitions and on large-scale engagements with clients. During our annual general meeting this morning, Serge and Julie will provide further remarks on this key milestone. In addition, we announced this morning the signing of a new merger agreement. I will discuss this in my remarks. Now I'll turn the call over to Steve to review the Q1 financial results. Steve?
Thank you, Kevin, and good morning, everyone.
Speaker Change: Today, in line with the long-term succession plan of CGI, Julie Garin was appointed Executive Chair of CGI Board of Directors, effective following today's Annual General Meeting of Shareholders.
Speaker Change: CGI's founder Serge Garin is now the core chair of the board and will continue to focus on transformational acquisitions and on large-scale engagements with clients.
Speaker Change: During our Annual General Meeting this morning, Serge and Julie will provide further remarks on this key milestone.
Speaker Change: In addition, we announced this morning the signing of a new merger agreement. I will discuss this in my remarks. Now I'll turn the call over to Steve to review the Q1 financial results. Steve? Thank you, Francois, and good day everyone.
Steve Perron: Thank you, Francois, and good day, everyone. CGI once again delivered strong results in our Q1 of fiscal 2025. Before I begin, I would like to remind everyone about the adjustments we made to our reporting segments starting this quarter. Germany is now its own segment, and our operations in Scandinavia are now combined with our Northwest and Central East Europe segment. In Q1, we delivered CAD 3.8 billion of revenue, up 5.1% year over year, or up 2.7% when excluding the impact of foreign exchange. In constant currency, the CGI segments with strongest growth were US Federal at 14%, Canada at 5.9%, Asia Pacific at 5.2%, and UK and Australia at 3.2%. In constant currency, our North American operations grew at 6.9% this quarter, while our European operations reported a change of -0.8% compared to last year, largely due to slower market conditions, mainly in Germany and France.
Steve Perron: CGI once again delivered strong results in our first quarter of fiscal 2025.
Steve Perron: Before I begin, I would like to remind everyone about the adjustments we made to our reporting segment starting this quarter.
Steve Perron: Germany is now its own segment and our operation in Scandinavia are now combined with our Northwest and Central East Europe segment.
Steve Perron: In Q1, we delivered $3.8 billion of revenue, up 5.1% year-over-year, or up 2.7% when excluding the impact of foreign exchange.
Steve Perron: In constant currency, the CGI segments with strongest growth were U.S. Federal at 14%.
Canada at 5.9 percent
Asia-Pacific at 5.2 percent
and UK and Australia at 3.2% in constant currency.
Steve Perron: Our North American operations grew at 6.9% this quarter, while our European operations reported a change of minus 0.8% compared to last year, largely due to slower market conditions, mainly in Germany and France.
Steve Perron: From an industry perspective, constant currency revenue growth was led by government at 7.9% and financial services at 5.5%, driven by strong performance in North America. We experienced continued softness in the manufacturing sector, particularly in Europe. IP revenue grew in 7 of our 8 proximity segments on the strength of continued client interest for our business solutions. IP represented 21.6% of total revenue, down 40 basis points year-over-year due to recent business acquisitions. In Q1, bookings were CAD 4.2 billion for a book-to-bill ratio of 110%. Our North American and Europe operations each had identical book-to-bill ratio at 110%. When looking at service type, book-to-bill ratios were 107% for managed services and 114% for business and strategic IP consulting and system integration. On a trailing 12 months basis, our book-to-bill ratio was 108%.
Steve Perron: We experience continued softness in the manufacturing sector, particularly in Europe.
Steve Perron: IP revenue grew in seven of our eight proximity segments on the strength of continued client interest for our business solutions.
Steve Perron: IT represented 21.6% of total revenue, down 40 basis points year-over-year due to recent business acquisitions.
Steve Perron: In Q1, bookings were $4.2 billion for a book-to-bill ratio of 110%. Our North American and Europe operations each had identical book-to-bill ratios at 110%.
Steve Perron: When looking at service type, book-to-bill ratios were 107% for managed services, and 114% for business and strategic IT consulting and system integration.
Steve Perron: On the same basis, managed services had a book-to-bill ratio of 113%, and FINC book-to-bill ratio was 101%. Our global backlog reached CAD 29.8 billion or 2 times revenue, providing good revenue visibility. Turning to profitability, our results once again demonstrated our ability to manage our operations with discipline. Earnings before income taxes were CAD 592 million, for a margin of 15.6%, up 100 basis points year over year. Adjusted EBIT in the quarter was CAD 612 million, representing a margin of 16.2%. The favorable impacts generated from last year's cost optimization programs were offset by the temporary dilutive impact of recent business acquisitions and lower billable utilization with some regions of Continental Europe. Margins were strongest in the following segments: Asia Pacific at 32.5%, Canada at 24.1%, and UK and Australia at 16.5%.
Steve Perron: On the same basis, managed services had a book-to-bill ratio of 113%, and FINC book-to-bill ratio was 101%.
Steve Perron: Our global backlog reached $29.8 billion, or two times revenue, providing good revenue visibility. Turning to profitability.
Steve Perron: Our results once again demonstrated our ability to manage our operations with discipline.
Steve Perron: Earnings before income taxes were $592 million for a margin of 15.6%, up 100 basis points year-over-year.
Steve Perron: Adjusted EBIT in the quarter was $612 million, representing a margin of 16.2%.
Steve Perron: The favorable impacts generated from last year's cost optimization program were offset by the temporary dilutive impact of recent business acquisition and lower billable utilization with some regions of continental Europe.
Steve Perron: Margin were strongest in the following segments. Asia-Pacific at 32.5%, Canada at 24.1% and UK and Australia at 16.5%.
Steve Perron: Our effective tax rate in the quarter was 25.9%, down from 26.1% last year. We expect our tax rate for future quarters to be in the range of 25.5% to 26.5%. Net earnings were CAD 439 million, for a margin of 11.6%, up 80 basis points year over year. Diluted EPS was CAD 1.92, representing an increase of 15% year over year. Adjusted net earnings were CAD 449 million. This represents a margin of 11.9% stable year over year. On the same basis, diluted EPS was CAD 1.97, an accretion of 7.7% when compared to Q1 last year. This quarter, we initiated targeted actions in Europe, mainly in Germany, to realign our cost structure with current market conditions. As such, we incurred CAD 8 million of costs in Q1. We expect to incur another CAD 42 million to finalize these actions by Q3.
Steve Perron: Our effective tax rate in the quarter was 25.9%, down from 26.1% last year, and we expect our tax rate for future quarters to be in the range of 25.5% to 26.5%.
Steve Perron: Net earnings were $439 million for a margin of 11.6%, up 80 basis points year-over-year. Diluted EPS was $1.92, representing an increase of 15% year-over-year.
Steve Perron: Adjusted net earnings were $449 million. This represents a margin of 11.9% stable year-over-year.
Steve Perron: On the same basis, diluted EPS was $1.97, an accretion of 7.7% when compared to Q1 last year.
This quarter
Steve Perron: DSO was 38 days in the quarter, 3 days better than last year, contributing to the CAD 646 million in our cash from operations, a strong 17.1% of total revenue. Over the last 12 months, CGI has generated close to CAD 2.3 billion, up nearly CAD 200 million compared to the same period last year. In Q1, we used our cash to invest CAD 83 million into our business, invest CAD 30 million for business acquisition, representing the initial payment for the Daugherty acquisition, invest CAD 153 million to buy back our stock, and return CAD 34 million to our shareholders under our recently initiated dividend program. We continue to deliver a strong return on invested capital at 16.2%, up 30 basis points, demonstrating our proficiency and discipline on deployment of capital. In line with our capital allocation strategy and priorities, earlier today, we announced that CGI entered into a new agreement for merger in the UK.
Steve Perron: The ESO was 38 days in the quarter, three days better than last year, contributing to the $646 million in our cash-from-operation, a strong 17.1% of total revenue.
Steve Perron: Over the last 12 months, CGI has generated close to $2.3 billion, up nearly $200 million compared to the same period last year.
Steve Perron: In Q1, we used our cash to invest $83 million into our business, invest $30 million for business acquisition, representing the initial payment for the Doherty acquisition.
Steve Perron: invest 153 million dollars to buy back our stock and return 34 million dollars to our shareholders under our recently initiated dividend program.
Steve Perron: We continue to deliver a strong return on invested capital at 16.2% up 30 basis points, demonstrating our proficiency and discipline on deployment of capital.
Speaker Change: in line with our capital allocation strategy and priorities. Earlier today we announced that CGI entered into a new agreement for merger in the UK. Francois will provide more commentary on the merger in a few minutes.
Steve Perron: Francois will provide more commentary on the merger in a few minutes. Yesterday, our board of directors approved the extension of our NCIB program until February 2026, authorizing us to repurchase for cancellation up to 20.2 million shares over the next 12 months. CGI's board of directors also approved a quarterly cash dividend of CAD 0.16 per share. This dividend is payable on 21 March 2025, to shareholders of record as of the close of business on 14 February 2025. As communicated in the past, and consistent with our profitable growth strategy, CGI's capital allocation priorities remain focused on investing back in the business and pursuing accretive acquisitions. Now, I will turn the call over to Francois to further discuss the insights on the quarter as well as the outlook for our business and markets. Francois?
Speaker Change: Yesterday, our Board of Directors approved the extension of our NCIB program until February 2026, authorizing us to repurchase for cancellation up to 20.2 million shares over the next 12 months.
Speaker Change: And CGI's Board of Directors also approved a quantity cash dividend of $0.15 per share. This dividend is payable on March 21, 2025 to shareholder of records as of the close of business on February 14, 2025.
Speaker Change: As communicated in the past and consistent with our profitable growth strategy, CGI's capital allocation priorities remain focused on investing back in the business and pursuing accretive acquisitions.
Speaker Change: Now, I will turn the call over to Francois to further discuss the insights on the quarter as well as the outlook for our business and markets. Francois?
Francois Boulanger: Thank you, Steve. I am pleased with our team's performance in Q1 as we continue to successfully execute on our build and buy profitable growth strategies. We began the fiscal year in a strong position with positive momentum on a year-over-year basis. Revenue grew 5.1%, or 2.7% on a constant currency basis. EPS accretion was 15%, or 7.7% on an adjusted basis, resulting from a higher recurring revenue mix as well as proactive operational excellent actions. Cash from operation reached nearly CAD 650 million, or 17.1% of revenue, for an improvement of 110 basis points as a result of sustained quality delivery and business economics. In the Q1, we also continued to see rising levels of engagement with our stakeholders. More than 87% of our 91,000 consultants and professionals are now CGI shareholders, up from 86% this time last year.
Francois: Thank you, Steve. I am pleased with our team's performance in the first quarter as we continue to successfully execute on our build and buy a profitable growth strategy.
Francois: We began the fiscal year in a strong position, with positive momentum on a year-over-year basis.
Revenue grew 5.1% or 2.7% on a constant currency basis.
Francois: EPS accretion was 15% or 7.7% on an adjusted basis resulting from a higher recurring revenue mix as well as proactive operational excellence actions.
Francois: and cash from operation reached nearly 650 million dollars or 17.1 percent of revenue for an improvement of a hundred and ten basis points as a result of sustained quality delivery and business excellence.
Francois: More than 87% of our 91,000 consultants and professionals are now CGI shareholders, up from 86% this time last year.
Francois Boulanger: Client satisfaction levels again rose, now at 9.5 out of 10, with one of the highest scores being the intention of clients to engage CGI again in the future. The high satisfaction and deep confidence clients have in CGI's people and capabilities drove strong bookings in Q1, representing 110% book-to-bill ratio. First quarter bookings continued to be led by wins within our two largest industry sectors of government and financial services. In the quarter, we saw an uptick in financial services as some clients reinitiated investments that were previously paused. Booking in this sector was 123% of revenue, an increase of more than 40% compared to the same quarter last year. In the government sector, bookings increased more than 40% on a sequential basis, resulting in a Q1 book-to-bill of 124%. This increase was a result of a stronger client focus on driving modernization and operational efficiency.
Francois: And client satisfaction levels again rose, now at 9.5 out of 10, with one of the highest scores being the intention of clients to engage CGI again in the future.
Francois: The high satisfaction and deep confidence clients have in CGI's people and capabilities drove strong bookings in Q1, representing a 110% book-to-bill ratio.
Francois: First quarter bookings continue to be led by wins within our two largest industry sectors of government and financial services.
Francois: In the quarter, we saw an uptick in financial services as some clients re-initiated investments that were previously paused.
Francois: Booking in this sector was where a hundred and twenty three percent of revenue, an increase of more than forty percent compared to the same quarter last year.
Francois: This increase was the result of a stronger client focus on driving monetization and operational efficiency.
Francois Boulanger: We expect this trend to continue as governments around the world adapt their IP priorities in line with evolving mission and policy priorities. Representative client awards in the quarter included SkyAlyne, a leading provider of military pilot and aircrew training in Canada, selected CGI as its strategic technology partner to design the next generation of aircrew training for the Royal Canadian Air Force. Under the 25-year agreement, CGI will deliver a comprehensive suite of innovative, secure services, including cybersecurity, business consulting, and cloud computing. In Wales, the Hywel Dda University Health Board initiated a 10-year, £75 million strategic partnership with CGI to drive the digital transformation of healthcare to improve patient outcomes. CGI's consultants will partner with the board to streamline operations, modernize systems and processes, and deliver innovative solutions such as AI integration.
Francois: We expect this trend to continue as governments around the world adapt their IT priorities in line with evolving mission and policy priorities.
Klein: Representative Klein awards in the quarter included Skyline, a leading provider of military pilot and aircrew training in Canada, selected CGI as its strategic technology partner to design the next generation of aircrew training for the Royal Canadian Air Force.
Klein: Under the 25-year agreement, CGI will deliver a comprehensive suite of innovative, secure services including cybersecurity, business consulting, and cloud computing.
Klein: And WELLS, the Hiawatha University Health Board, initiated a 10-year, 75-million-pound strategic partnership with CGI to drive the digital transformation of healthcare to improve patient outcomes.
Klein: CGI's consultants will partner with their board to streamline operations, modernize systems and processes, and deliver innovative solutions such as AI integration.
Francois Boulanger: The Swedish Tax Agency extended its partnership with CGI to deliver advanced eID and electronic signature services. The agreement reinforces CGI roles in providing secure, innovative digital solutions that enhance citizen access to government services while ensuring efficiency and compliance in Sweden's national digital ecosystem. Multiple North American banks extended their partnerships with CGI for consulting and systems integration services to design, build, and deploy projects across multiple lines of business. We continue to see some clients exercising caution in their discretionary spending, primarily in Europe and the MRD sector. However, client interest remains strong across every industry to explore with CGI the opportunities for driving modernization and operational efficiency to manage services and IP. CGI remains well positioned as a partner of choice to help clients achieve the tangible and trusted business outcomes they seek.
Klein: The Swedish Tax Agency extended its partnership with CGI to deliver advanced EID and electronic signature services.
Klein: The agreement reinforces CGI roles in providing secure, innovative digital solutions that enhance citizen access to government services, while ensuring efficiency and compliance in Sweden's national digital ecosystem.
Klein: and multiple North American banks extended their partnerships with CGI for consulting and systems integration services to design, build and deploy projects across multiple lines of business.
Klein: We continue to see some clients exercising caution in their discussory spending, primarily in Europe and the MRD sector.
Klein: However, client interest remains strong across every industry to explore with CGI the opportunities for driving monetization and operational efficiency to manage services in IP.
Klein: CGI remains well positioned as the partner of choice to help clients achieve the tangible and trusted business outcomes they seek.
Francois Boulanger: In fact, over the past 6 months, CGI has earned a record number of third-party analyst endorsements, which rank our expertise and capabilities in worldwide leading and major player categories. These reports and rankings cover our services related to AI, data modernization, cloud, cybersecurity, and business consulting. CGI also achieved new partnership levels in Q1 with several emerging alliances, including Snowflake and Databricks. Since the start of the fiscal year, we also progressed our strategic priority to pursue accretive acquisitions. In December, we expanded our positioning with Fortune 500 clients in the US by merging with Daugherty, a professional services firm specializing in AI, IP consulting, and business advisory services. Through the merger, our footprint increased in metros such as St. Louis, Atlanta, Minneapolis, and Chicago. I would like to warmly welcome the 1,100 new consultants who joined CGI from Daugherty.
Klein: In fact, over the past six months, CGI has earned a record number of third-party analyst endorsements which rank our expertise and capabilities in worldwide leading and major player categories.
Klein: CGI also achieved new partnership levels in Q1 with several emerging alliances, including Snowflake and Databricks.
Klein: Since the start of the fiscal year, we also progressed our strategic priority to pursue accretive acquisitions.
Klein: In December, we expanded our positioning with Fortune 500 clients in the U.S. by merging with Doherty, a professional services firm specializing in AI, IT consulting, and business advisory services.
Klein: Through the merger, our footprint increased in metros such as St. Louis, Atlanta, Minneapolis, and Chicago.
Klein: I would like to warmly welcome the 1,100 new consultants who joined CGI from Doherty.
Francois Boulanger: This morning, we announced a newly signed acquisition agreement, which will close in the coming weeks pending regulatory approvals. BJSS is one of the largest independent IP and software engineering consultancies in the UK. This acquisition will accelerate our UK-wide expansion strategy to deepen our presence in key commercial industries such as retail, financial services, and energy and utilities. Upon completion, more than 2,400 highly skilled consultants will join CGI, bringing deep expertise in a range of services such as technology service strategy, customer experience design, software engineering, and AI. To our buy strategy, we will continue to prioritize investment and aim at building critical mass in strategic metro markets in all CGI geographies. Our goal is to gradually grow this presence to mirror the economic sector distribution in each metro market and to deploy our full range of services and solutions.
Klein: and this morning we announced a newly signed acquisition agreement which will close in the coming weeks pending regulatory approvals.
Klein: This acquisition will accelerate our UK-wide expansion strategy to deepen our presence in key commercial industries such as retail, financial services, and energy and utilities.
Klein: Up in completion, more than 2,400 highly skilled consultants will join CGI, bringing deep expertise in a range of services such as technology strategy, customer experience design, software engineering, and AI.
Klein: Through our buy strategy, we will continue to prioritize investment and aim at building critical mass and strategic metro markets in all CGI geographies.
Klein: Our goal is to gradually grow this presence to mirror the economic sector distribution in each metro market and to deploy our full range of services and solutions.
Francois Boulanger: We remain in dialogue with a number of firms, both metro markets and transformational opportunities. As always, we will be disciplined to ensure that mergers will be accretive to each of our stakeholders. Looking ahead, we continue to be well positioned to partner with clients as they evolve their strategies to address the ongoing macro trends within their geographies and industries. Client interest remains high for the value proposition CGI can deliver through our end-to-end offerings. This positioning is validated by CGI's pipeline of opportunities, which is up 20% compared to this time last year. In terms of client buying patterns, we continue to see some diversification by geographic region, which aligns well with CGI's greatest strengths, particularly our client relationship proximity model, our end-to-end portfolio of services, and our global delivery network. In combination, these assets enable us to quickly adapt to evolving client needs.
Klein: We remain in dialogue with a number of firms, both venture markets and transformational opportunities. As always, we will be disciplined to ensure that mergers will be accretive to each of our stakeholders.
Klein: Looking ahead, we continue to be well-positioned to partner with clients as they evolve their strategies to address the ongoing macro trend within their geographies and industries.
Klein: Client interest remains high for the value proposition CGI can deliver through our end-to-end offerings.
Klein: This positioning is validated by CGI's pipeline of opportunities, which is up 20% compared to this time last year.
Klein: In terms of client buying patterns, we continue to see some diversification by geographic region, which aligns well with CGI's greatest strengths.
Klein: particularly our client relationship proximity model, our end-to-end portfolio of services, and our global delivery network. In combination, these assets enable us to quickly adapt to evolving client needs.
Francois Boulanger: With this in mind, I will provide commentary on the demand environment in our North American and European operations. Starting in North America. Across commercial industries, clients are sustaining their focus to drive operational resilience and innovation to capitalize on emerging growth opportunities. Given these priorities, our pipeline remains strong overall, with a notable uptick for our managed services offerings. Also, demand remains strong for our CGI Credit Studio IP, which is a cloud-native platform that centralizes services across the full credit lifecycle from originations to collections. Government sector clients in North America are balancing tight budgets with the need for IP modernization and improving citizen services. Cybersecurity and cloud migration also are critical areas of investment as agencies work to enhance operational efficiency and mitigate risk in an uncertain environment. In the government sector, our pipeline for managed services opportunities remains high and continues to rise.
Klein: With this in mind, I will provide commentary on the demand environment in our North American and European operations.
Klein: Starting in North America, across commercial industries, clients are sustaining their focus to drive operational resilience and innovation to capitalize on emerging growth opportunities.
Klein: Given these priorities, our pipeline remains strong overall with a notable uptick for our managed services offerings.
Klein: Also, demand remains strong for our CGI Credit Studio IP, which is a cloud-native platform that centralizes services across the full credit lifecycle, from originations to collections.
Klein: Government sector clients in North America are balancing tight budgets with the need for IT modernization and improving citizen services.
Klein: Cyber security and cloud migration also are critical areas of investment as agencies work to enhance operational efficiency and mitigate risk in our uncertain environment.
Klein: In the government sector, our pipeline for managed services opportunities remains high and continues to rise. CGI government's ERP solutions continue to be in high demand, with pipelines rising compared to this time last year.
Francois Boulanger: CGI's government ERP solutions continue to be in high demand, with pipelines rising compared to this time last year. Turning now to Europe. The macroeconomic landscape continues to be defined by slower economic growth and geopolitical uncertainty. Clients continue to turn to CGI to help navigate these pressures, particularly across commercial industries where they are focused on driving operational efficiency and addressing regulatory requirements. As a result, our managed services and IP pipelines across commercial industries remain strong. For example, the pipeline for CGI Credit Studio is up by more than 50% compared to this time last year. In the government sector, our pipeline is high and rising as clients are focused on modernization as well as eID platforms and green IP solutions.
Klein: Turning now to Europe, the macroeconomic landscape continues to be defined by slower economic growth and geopolitical uncertainty.
Klein: Clients continue to turn to CGI to help navigate these pressures, particularly across commercial industries where they are focused on driving operational efficiency and addressing regulatory requirements.
Klein: As a result, our managed services and IP pipelines across commercial industries remain strong. For example, the pipeline for CGI's financial crime detection solution is up by more than 50% compared to this time last year.
Klein: In the government sector, our pipeline is high and rising as clients are focused on monetization as well as e-governance platforms and green IT solutions.
Francois Boulanger: Macro level uncertainty is prompting government to adopt more efficiency-driven IP investments, with cybersecurity remaining a critical priority given the increasing risk to critical infrastructure and citizen data. These regional buying trends will continue to favor CGI as a partner of choice, given our focus on value propositions that deliver trusted, tangible business outcomes that are designed to help clients generate operational efficiencies and accelerate transformation, notably through our IP and managed services. Among managed services offerings, gaining momentum right now is that of global capability centers or GCCs. CGI has 20 years of experience with GCC models, particularly for clients in banking, retail, and communications. Our global delivery centers of excellence enable full-scale application development and operation with a proven track record of success. Our value proposition focuses on GCCs as strategic extensions of the client's organization to drive efficiency, resilience, scalability, and growth in a fast-changing business landscape.
Klein: Macro-level uncertainty is prompting government to adopt more efficiency-driven IT investments, with cybersecurity remaining a critical priority given the increasing risk to critical infrastructure and citizen data.
Klein: These regional buying trends will continue to favor CGI as a partner of choice given our focus on value propositions that deliver trusted, tangible business outcomes that are designed to help clients generate operational efficiencies and accelerate transformation, notably through our IP and managed services.
Klein: Among managed services offerings gaining momentum right now is that of global capability centers or GCCs.
Klein: CGI has 20 years of experience with GCC models, particularly for clients in banking, retail, and communications.
Klein: Our global delivery centers of excellence enable full-scale application development and operation with a proven track record of success.
Klein: Our value proposition focuses on GCCs as strategic extensions of the client's organization to drive efficiency, resilience, stability, and growth in a fast-changing business landscape.
Francois Boulanger: Naturally, across all industries, we remain deeply engaged with clients on their AI and GenAI strategies and implementation. Over the past quarter, we have continued to see clients moving from investigation to implementation to drive efficiency, process automation, and legacy monetization. As previously shared, we are integrating AI and GenAI technologies into our engagements, and our pipeline of AI opportunities continues to grow, particularly for responsible AI advisory services, data integration, and platform monetization. Booking in Q1, the integrated AI technologies included: a global healthcare and insurance company selected CGI to support their enterprise intelligent automation platform and help build the foundation for their agentic AI strategy. The City of Edinburgh Council is collaborating with CGI to conduct comprehensive AI discovery sessions to identify and evaluate AI use cases for a wide range of missions, from social services care to emergency and crisis management.
Klein: Over the past quarter, we've continued to see clients moving from investigation to implementation to drive efficiency, process automation, and legacy monetization.
Klein: As previously shared, we are integrating AI and Gen-AI technologies into our engagements and our pipeline of AI opportunities continues to grow, particularly for responsible AI adversary services, data and integration, and platform modernization.
Klein: Booking and Q1 that integrated AI technologies included a global health care and insurance company selected CGI to support their enterprise intelligent automation platform and help build the foundation for their agentic AI strategy.
Francois Boulanger: One of the world's leading financial services providers selected CGI to further their digital transformation by extending process automation with AI features, as well as through our alliances with Google and Blue Prism. We continue to progress on our AI investments in line with our 3-year plan. We are on track with this plan to strengthen our expertise, offerings, delivery, and positioning. Our investment plan includes continued initiatives such as advancing our training and tooling for developers and consultants; integrating AI and GenAI into our portfolio of IP solutions; enhancing our managed services and consulting offerings and methodologies; and with our clients, we are innovating to drive new business value through industry-specific use cases, the establishment of AI factories, improvement of user experience, and to generate operational efficiencies. In closing, we are off on a strong start for the year and reiterate our confidence in our fiscal 2025 plan.
Klein: and one of the world's leading financial services providers selected CGI to further their digital transformation by extending process automation with AI features as well as through our alliances with Google and Blue Prism.
Klein: We continue to progress on our AI investments in line with our three-year plan.
Klein: We are on track with this plan to strengthen our expertise, offerings, delivery, and positioning.
Klein: Our investment plan includes continued initiatives such as advancing our training and tooling for developers and consultants.
Klein: integrating AI and Gen AI into our portfolio of IP solutions.
N. Singh: and N. Singh are managed services and consulting offerings and mythologies.
N. Singh: and with our clients, we are innovating to drive new business value through industry-specific use cases.
N. Singh: the establishment of AI factories, improvement of user experience, and to generate operational efficiency.
N. Singh: In closing, we are off on a strong start for the year and reiterate our confidence in our fiscal 2025 plan.
Francois Boulanger: CGI remains well-positioned as one of the few leading global firms with the scale, reach, insights, and capabilities to help clients deliver the new business outcomes they require for their digital strategies. We remain committed to achieving our strategic aspiration of doubling CGI over the next five to seven years through the disciplined execution of our build and buy profitable growth strategy. Thank you for your continuing interest and support. Let's go to the questions. Kevin?
N. Singh: CGI remains well positioned as one of the few leading global firms with the scale, reach, insights and capabilities to help clients deliver the new business outcomes they require for their digital strategies.
N. Singh: And we remain committed to achieving our strategic aspiration of doubling CGI over the next five to seven years through the disciplined execution of our build and buy profitable growth strategy.
Speaker Change: Thank you for your continuing interest and support. Let's go to the questions, Kevin. Thank you, Francois. Sylvie, we can now poll for questions.
Kevin Linder: Thank you, Francois. Sylvie, we can now poll for questions.
Operator: Thank you. Ladies and gentlemen, if you do have any questions, please press star followed by one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to withdraw from the question process, please press star followed by two. If on a speakerphone, you will need to lift the handset first. Your first question will be from Paul Treiber at RBC Capital Markets.
Speaker Change: Thank you. Ladies and gentlemen, if you do have any questions, please press star followed by one on your touchtone phone. You will hear a prompt that your hand has been raised.
Speaker Change: Should you wish to withdraw from the question process, please press star followed by 2. And if on a speakerphone, you will need to lift the handset first.
Speaker Change: Your first question will be from Paul Traber at RBC Capital Markets.
Paul Treiber: Paul, thanks very much, and good morning. It was nice to see the acquisition announced this morning. Just hoping that you could speak to your M&A pipeline and capacity. You deployed a fair amount of capital in the last couple of months. Do you need to take a pause to integrate those acquisitions, or do you have the capacity to continue to make acquisitions here in the short term?
Paul Traber: Thanks very much and good morning. It's nice to see the acquisition announced this morning. Just hoping that you could speak to your M&A pipeline and capacity. You deployed a fair amount of capital in the last couple of months. Do you need to take a pause to integrate those acquisitions, or do you have the capacity to continue to make acquisitions here in the short term?
Francois Boulanger: Thanks, Paul, for the question. No, we don't need to do a pause. These acquisitions, like this one that we announced this morning, is in the UK. A long time we didn't do one in the UK. The UK team is ready for this integration. The one that we did before was in the US. The fact that we have a solid operation in all these countries, each of these countries have the capabilities of doing these integrations. We don't see any problem on that side. As you know, on the financial side, naturally, we have the solid balance sheet and the capabilities to deploy more capital. That's not stopping for the future.
Speaker Change: Thanks Paul for the question. No, we don't need to do a pause. You know, these acquisitions like this one that we announced this morning is in the UK. A long time we didn't do one in the UK.
Speaker Change: So, you know, the UK team is ready for this integration. You know, the one that we did before was in the U.S. So the fact that, you know, we have, you know, a solid operation in all these countries, you know, these...
Speaker Change: Each of these countries have the capabilities of doing this integration, so we don't see any problem on that side.
Speaker Change: And as you know, on the financial side, naturally we have the solid balance sheet and the capabilities to deploy more capital, so that's not stopping for the future.
Paul Treiber: Looking at your business by the various regions, Germany, you called out softness there. Was it softer than usual this quarter, or has Germany been a drag on growth for the last several quarters? Is the mix of revenue different in Germany? Is it more short-term SI&C than other regions?
Speaker Change: And looking at your business by the various regions, you know, Germany, you know, you called out softness there. Was it softer than usual this quarter? Or is Germany being a drag on on growth for the last?
Speaker Change: several quarters. And is the mix of revenue different in Germany? Is it more short-term SINC than other regions?
Francois Boulanger: No, not necessarily a different mix, for sure, there's strong in the MRD side. As you know, MRD, especially in Europe, has more difficulty. That's why we see some short-term pressure on some of the discretionary spending there. I would say, you heard in the last quarter, we did sign a big managed services contract with a large manufacturer in Germany. They are listening a lot to see how we can bring some cost saving. They are listening on that side. For sure, on the short term, I would say at SI&C, we see that they are reducing the spending or be cautious to see what will happen in the next quarters.
short-term pressure on some of the discretionary spending there.
Speaker Change: But, you know, I would say, and you heard last quarter, you know, we did sign a big managed services contract with a large manufacturer in Germany. So they're still very, you know, they are listening a lot to see how we can bring some cost savings. So they are listening on that side. But for sure, you know, on the short term, I would say S&C.
Speaker Change: We see that they are reducing the spending, or be cautious to see what will happen in the next quarters.
Operator: Okay.
Francois Boulanger: Thanks for taking the questions. Thanks, Paul.
Thanks for taking the questions.
Operator: Thank you. Next question will be from Jerome Dubreuil at Desjardins. Please go ahead.
Thanks, Paul.
Speaker Change: Next question will be from Jérôme Dubreuil at Desjardins. Please go ahead.
Jerome Dubreuil: Jerome, thanks for taking my questions. Another one on M&A. I guess what everyone wants to know today is this a new era of M&A? Is there maybe their appreciation of the benefits that M&A is bringing, or I know you like to signal stability, but is it just the multiples that have changed or there's a bit of a tweak in terms of the strategy there?
Jerome Dubreuil: Thanks for taking my question. Another one on M&A. I guess what everyone wants to know today is, is this a new era of M&A? Is there maybe a better appreciation of the benefits
Jerome Dubreuil: that M&A is bringing? Or, you know, I know you like to signal stability, but is it just the multiple that have changed? Or there's a bit of a tweak in terms of the strategy there?
Francois Boulanger: Yeah. No, it's not a new era. Our strategy is to grow by to build and buy, so that didn't change. I think the environment did change. I think we have a certain alignment of stars, where the pressure on the market, on the SI&C, for example, I think, is putting pressure on some of these targets to think more about perhaps selling the business. We see less private equity competition that we were seeing in the past. Even some of them are thinking about even selling their piece of the business. That's why I think it's really the environment that is more open for these acquisitions. That's why we want to be sure that we will capture these opportunities.
Jerome Dubreuil: Yeah, no, it's not a new era, it's not, you know, our strategy is to grow by, to build and buy, so that didn't change.
Jerome Dubreuil: I think the environment did change. I think we have a certain alignment of stars.
Jerome Dubreuil: where, you know, the pressure on the market, on the S&C, for example, I think, you know, is...
Jerome Dubreuil: is putting pressure on some of these targets to think more about perhaps selling the business. And we see less private equity competition than we were seeing in the past.
Jerome Dubreuil: So, even some of them are thinking about, you know, even selling their piece of the business. So, that's why I think it's really, you know, the environment that is more open for these acquisitions.
Jerome Dubreuil: And that's why, you know, we want to be sure that we will capture these opportunities.
Jerome Dubreuil: Thank you. That's clear. Another one, Francois, you've been in the role since October. Are there maybe other tweaks in terms of strategy that you're adopting? You're talking about new partnerships with some of the software providers. Am I sensing that the company is maybe a bit of a faster follower for new tech or business as usual?
Thank you. Bye.
Speaker Change: Am I sensing that the company is maybe a bit of a faster follower for new tech or business as usual?
Francois Boulanger: No, I think we were always fast on applying new technology. I think what we're pushing a bit more, to be honest, is on the branding. We want to be sure that people understand, and companies and clients and future clients understand our capabilities. That's why we want to be sure also that we're working closely with our large partners. That's why you're seeing more news on that, but it's not a change of applying new technology or not, that we were always there to apply new technology.
Speaker Change: No, I think we were always fast on applying new technology. I think what we're pushing a bit more, to be honest, is on the branding.
Speaker Change: And so, you know, we want to be sure that people understand and companies and clients and future clients understand our capabilities.
Speaker Change: and so that's why we want to ensure also that we're working closely with our large partners and so that's why you're seeing more news on that but it's not a change of you know applying new technology or not that we were always there to apply new technology.
Thank you.
Merci beaucoup
Operator: Merci. Thank you. Next question will be from Surinder Thind at Jefferies. Please go ahead.
Merci. Thank you.
Speaker Change: Next question will be from Sir Inderthin at Jeffreys. Please go ahead.
Surinder Thind: Thank you. Can you perhaps talk a little bit about the lumpiness in the bookings that we're seeing, especially within SI&C? It just seems to be a bit more lumpy than it has been historically and just what trends you're seeing underneath that.
Thank you.
Sir Inderthin: Can you perhaps talk a little bit about the lumpiness in the bookings that we're seeing, especially within SINC? It just seems to be a bit more lumpy than it has been historically.
what trends you're seeing underneath that.
Francois Boulanger: Yeah. Actually, SI&C booking did increase versus last quarter. Last quarter we were below 100%, and we are higher than 100% this quarter on the SI&C side. To be honest, we are seeing an uptick. At the same time, like I was saying, a bit the pressure that we're seeing, example in the MRD side in Europe, we're seeing some pressure still especially in the consulting side. That's why you'll still perhaps see some lumpiness on that side. At least this quarter, we saw an uptick on the bookings on the SI&C side. The other thing also on the federal side or the US Federal, Q1 and Q2, our Q1 and Q2 is always the historical our lowest booking quarter with the Q3 and Q4 on the higher side. That's a trend that you can see also on an annual basis.
Yeah, but you know
Sir Inderthin: Actually, SINC booking did increase versus last quarter. So last quarter, we were below 100% and we are higher than 100% this quarter on the SINC side. So to be honest, we are seeing an uptick. But at the same time, like I was saying a bit, the
Sir Inderthin: The pressure that we see, for example, on the MRD side in Europe, we're seeing some pressure still, especially in the consulting side. So that's why you'll still perhaps see some lumpiness on that side.
Sir Inderthin: But at least this quarter we saw an uptick on the bookings on the SINC side.
Sir Inderthin: with Q3 and Q4 on the higher side. So that's a trend that you can see also on an annual basis.
Surinder Thind: Just to clarify the comment there, is the messaging that if we were to exclude Germany, there's an overall improvement in the demand environment for discretionary spend or not? I just want to make sure.
Speaker Change: Just to clarify the comment there, is the messaging that if we were to exclude Germany
Speaker Change: there's an overall improvement in the demand environment for discretionary spend or not?
Francois Boulanger: I would say, yeah. Like I was saying, MRD is at this pressure. I'll give you the other side on the financial sector, on the banking, we are seeing an uptick on the SI&C side. With the interest rate coming down, the banks, for example, are coming back and doing some investment on the SI&C. They don't have any choice. They delay some of these investments in the past quarters when interest rate were going up. Now that they are going down, they have regulatory pressures and changes to do. They don't have any choice to implement new solutions. We are seeing an uptick on that side.
I would say, yeah.
Speaker Change: Like I was saying, MRD is at this pressure, but I'll give you the other side on the financial sector.
Speaker Change: On the banking, we are seeing an uptick on the SINC side.
with the interest rate coming down.
Speaker Change: But now that they are going down, they have regulatory pressures and changes to do. And so they don't have any choice to implement new solutions. So we are seeing an uptick on that side.
Surinder Thind: That's helpful. On the commentary on the GCCs, the Global Capability Centers, it sounds like there's growing interest there. Does that impact the global delivery model in the sense that there's increased demand for offshore and we should begin to see more of a mix shift there? Any color there would be helpful as well.
Speaker Change: And then on the comments around the GCCs, the Global Capability Centers,
Speaker Change: It sounds like there's there's growing interest there. Does that impact the global delivery model in the sense that you know there's increased demand for offshore and we should begin to see more of a mix shift there? Any color there would be helpful as well.
Francois Boulanger: Yeah. You see that we're still growing in India, and that will continue. The model, when I was saying managed services is still in demand, it's true, and it's continued to be big in demand. To see how we can help them reducing their cost. GCCs is one of the area on how to reduce the cost. We have a lot of clients asking us to help them in creating their own GCC or creating ourself a GCC that can be transferred back to the clients. Even a lot of these captive already created by clients where they're asking help. Our Indian colleagues and operations will help clients directly in India to help them achieving their own objective on their India captives.
Speaker Change: Yeah, but you see that we're still growing in India and that will continue and, you know, the model, you know, when I was saying managed services is still in demand, it's true, and it's continued to be big in demand and people and
Speaker Change: Our Indian colleagues and operations will help clients directly in India to help them achieving their own objective on their India captives.
Surinder Thind: Thank you.
Thank you.
Operator: Thank you. Next question will be from Divya Goyal at Scotiabank. Please go ahead.
Speaker Change: Thank you. Next question will be from Davia Goyal at Scotiabank. Please go ahead.
Divya Goyal: Good morning, everyone. Francois, I wanted to get a little more color on the acquisition that is announced. As per the press release, CGI already has a significant footprint in UK. Now with this acquisition, the footprint expands. I am just trying to understand, what is the company's broader growth plan across UK and European region, given the German restructuring, the UK acquisition. If you could provide some color on the growth broadly across that region. Thank you.
Good morning, everyone.
Speaker Change: Francois, I wanted to get a little more color on the acquisition that's announced.
Speaker Change: given the German restructuring, the UK acquisitions, if you could provide some color on the growth broadly across that region. Thank you.
Francois Boulanger: Yeah. Thanks. BJSS is mostly a company in UK, so they have very limited business outside the UK. They're strong on the commercial side. If you remember in the past, we always said we want to acquire in UK, and we were targeting companies that would be heavier on the commercial side. That was the idea with this one. For UK, to a certain point, it is a game changer, because first of all, it's increasing UK by, I would say, on the headcount, perhaps 30% to 35% more people in the UK, and like I'm saying, in the commercial area. UK is where I'm saying we have some difficulties in Germany, and UK is actually doing well. We see some growth. We continue to see future growth in the UK. It was perfect timing.
Speaker Change: BJSS is mostly a company in UK, so they have very, very limited business outside the UK.
and they're strong on the commercial side.
Speaker Change: You remember in the past we always said, you know, we want to acquire in UK and we were targeting to target companies that would be more heavier on the commercial side.
Speaker Change: and that was the idea with this one and for UK to a certain point it is a game changer because it's first of all it's increasing UK by I would say on the head count.
Speaker Change: perhaps 30 to 35 percent more people in the UK and like I'm saying
Speaker Change: in the commercial area. And UK is, you know, where I'm saying we have some difficulties in Germany. In UK it's actually going well. We see some growth. We continue to see future growth in the UK. And so it was a perfect timing. But also, you know, like I'm always saying, it needs two to dance. So we were able to
Francois Boulanger: Also, like I'm always saying, it needs two to dance. We were able to convince BJSS to merge with us. I think that will be great for the UK organization.
Speaker Change: to convince BJASS to merge with us and I think that will be great for the UK organization.
Divya Goyal: That's great. Are you also planning to grow across Europe? Right now you are okay, like the way the segments are structured across Europe?
Francois Boulanger: Like I'm saying, the buy strategy is 50% of our growth strategy. For sure, we're still looking in countries like Germany. Germany is a country that we want to continue to grow. This pressure or market pressure actually is putting some opportunities on potential acquisitions. We are there for the long term. If we're seeing some good targets in Germany or in France or Scandinavian countries, we will look at them and see if it's making sense to trigger that.
Speaker Change: So, like I'm saying, you know, the buy strategy is 50% of our strategy, our growth strategy. So for sure, we're still, you know...
Speaker Change: looking in countries like Germany. Germany is a country that we want to continue to grow and needs pressure or market pressure.
actually is putting some opportunities.
Speaker Change: on potential acquisitions. So, you know, we are there for the long term. And so, if we're seeing some good targets in Germany or in France or Scandinavian countries, we will look at them and see if it's making sense to trigger them.
Divya Goyal: That's great. I'll just ask one more question here. The US Federal as a segment grew pretty well this quarter, and you did mention that it was partly driven by the growth in the transformation project. However, with obviously DOGE and the new administration, I know a lot is in the flux, but what is your take on some of these new bookings and some of these new opportunities that you are seeing evolving across that specific business segment? That's all for me. Thank you.
Speaker Change: That's great. I'll just ask one more question here. So the U.S. federal as a segment grew pretty well this quarter, and you did mention that it was partly driven by the growth in the transformational projects.
Speaker Change: However, with obviously DOJ and the new administration, I know a lot is...
Speaker Change: in the flux, but what is your take on some of these new bookings?
Speaker Change: and some of these new opportunities that you are seeing evolving across that specific business segment. And that's all for me. Thank you.
Francois Boulanger: Yeah. Again, on the Federal side, with DOGE, for sure, if they want to achieve their targets and priorities, they will need IP to be capable of reducing costs. Costs most on the US Federal is people. They will need to bring automation, AI, and new systems to be capable of reducing some of these costs. We're seeing still this as opportunity to grow and helping them to achieve their objectives.
Yeah.
you know, to be capable of reducing costs.
Speaker Change: and Koss, most of the U.S. Federalist people, they will need to bring automation, AI.
Speaker Change: and new systems to be capable of reducing some of these costs. So we're seeing still this as opportunity to grow and helping them to achieve their objectives.
Divya Goyal: Thank you.
Thank you.
Operator: Thank you. Next question will be from Robert Young at Canaccord Genuity. Please go ahead.
Speaker Change: Thank you. Next question will be from Robert Young at Canaccord Genuity. Please go ahead.
Robert Young: Hi, good morning. Maybe a double-pronged AI question. First part would be around, you mentioned in your prepared remarks, agentic AI, which is kind of a growing buzzword, and you announced an award with UiPath. First part would be just trying to get a better sense of what your efforts are around agentic AI and what the opportunities are. The second part would be just over the last couple of days, all this new information that suggests that it's going to get cheaper to run AI models. Maybe just give us some initial thoughts on the impact on the IP services business in general and CGI more specifically.
Speaker Change: Hi, good morning. Maybe a double-pronged AI question. First part would be around, you mentioned in your prepared remarks, agentic AI, which is kind of a growing buzzword. And you announced an award with UiPath. And so just
Speaker Change: First part would be trying to get a better sense of what your efforts are around a genetic AI and what the opportunities are and then the second part would be just
the IT services business in general and CGI more specifically.
Francois Boulanger: Yeah. Okay. Thanks, Robert, for the question. I'll start with the second part, with the announcement. For sure, I think some validation still needs to continue on that side. We'll see what's happening. We are seeing that as a good news. I think any new initiatives to reduce the cost of AI will always be a good news for the end clients. We are one of the end clients, plus we're also helping clients to implement AI. If the technology is cheaper and becoming cheaper, I think that it's a good news for everybody, including on our side. On agentic AI, for sure, we continue our discussion with our alliances partner like Salesforce, Google, and UiPath. We already started to implement some of it, even internally in some of our managed services solutions.
Speaker Change: Thanks, Robert, for the question. I'll start with the second part with the announcement. For sure, I think some validation still needs to continue on that side. We'll see what's happening. But we are seeing that as good news, I think.
any new initiatives to reduce the cost of AI.
Speaker Change: and we are one of the end clients plus who also we're helping clients to implement AI. So, you know, if the technology is cheaper and becoming cheaper, I think that's a good news for everybody, including on our side. You know, on agentic AI, you know, for sure we continue our discussion with our alliances partner like Salesforce and Google and UiPath.
Speaker Change: But we already started to implement some of it, even internally, in some of our managed services.
Francois Boulanger: We are managing a large mandate for clients, and we are realizing that some of agentic AI can help us on specific processes. That's something that we continue to investigate and starting even to do some implementation, and we are seeing some benefit on that side.
Speaker Change: solutions, right? We are, you know, managing a large, large mandate for clients and we are realizing that some of agent AI can help us on specific processes.
Speaker Change: So, that's something that we continue to investigate and starting even to do some implementation and we are seeing some benefits on that side.
Robert Young: Do you get the sense that the bottleneck for deployment is cost or is it finding the right solutions? Does cost move the revenue related to AI for CGI higher, or is it more about finding the right applications and use cases?
Speaker Change: Do you get the sense that the bottleneck for deployment is cost, or is it finding the right solutions? Does, like, does cost move, like, the revenue related to AI for CGI higher, or is it more about finding the right applications and use cases?
Francois Boulanger: Like I'm saying, we are always trying to have industry-specific use cases and not just implementing AI for AI. Some of the experience or contract that we signed in the past when we were saying, example, the Federal Canadian, when we implement AI to help them to reduce their bottleneck that they had with their payroll system. That's the kind of implementation we're talking about. When they're seeing benefits and cost saving, it's not a showstopper for clients. For sure it needs to be applied, it needs to be relevant application for them, and actually bringing some cost reduction. Now that if the tool or if the tooling will reduce in cost in the future, that's just other benefits for the end clients.
Speaker Change: But like I'm saying, you know, we are always trying to have industry-specific use cases and not just implementing AI for AI. You saw some of the experience or contract that we signed in the past when we were saying, for example,
Speaker Change: the federal Canadian when we implement AI to help them to reduce their bottleneck that they had with their payroll system. So, that's the kind of implementation we're talking about. And when they're seeing benefits
Speaker Change: and cost-saving, it's not necessarily, it's not a showstopper for our clients.
Robert Young: Okay, a second question. Last quarter, I asked you a little bit about your strategic footing as it relates to infrastructure and whether that would be an impact on M&A targets. I just want to maybe broaden that up a little bit. Maybe just talk about infrastructure. I think you said it was 10% of the business there about. Is that something that CGI is still working down? Is that a headwind to growth, or have you changed your thought process there? Is that something that, given the higher value placed on infrastructure, is that something you'd be willing even in some cases to see grow? I'll pass the line.
Speaker Change: Okay, and then a second question. I mean, last quarter, I asked you a little bit about your.
Speaker Change: putting as it relates to infrastructure and whether that would be an impact on M&A targets. And so I just want to maybe broaden that up a little bit. Maybe you just talk about.
Speaker Change: infrastructure, I think you said it was 10% of the business thereabouts. Is that something that CGI is still working down? Is that a headwind to growth? Or have you changed your thought process there? Or is that something that, you know, given.
Speaker Change: Maybe the higher value placed on infrastructure is that something you'd be willing even in some cases to see grow? No, pass the line.
Francois Boulanger: Okay, thanks for the question. Infrastructure, what we said in the past is that we wanted to go a bit asset-light, and we didn't want necessarily to sign infrastructure deals just for the infrastructure deals. We continue to add data centers, and we will continue to add data centers because, first of all, we have our IP, and we are running our IPs also in our own data centers. That's the first thing. Second, in these managed services contract that we're signing, we are signing sometimes full managed services. Not just the applications, but also the infrastructure. That we will continue to do in the future. That's not something we want to stop. We're really an end-to-end services company, and so our strategy is to continue to sell end-to-end, including infrastructure business.
Speaker Change: Ok, thanks for the question. So, infrastructure, you know, what we said in the past is that we wanted to go a bit asset light, and we didn't want necessarily to sign infrastructure deals just for the infrastructure deals.
Speaker Change: But we continue to have data centers, and we will continue to have data centers, because
Speaker Change: an end-to-end services company. And so our strategy is to continue to sell end-to-end, including infrastructure business.
Robert Young: Okay, thanks. I'll pass the line.
Okay, thanks. I'll pass the line.
Operator: Thank you. Next questions will be from Thanos Moschopoulos at BMO Capital Markets. Please go ahead.
Speaker Change: Thank you. Next question will be from Thanos Moschapoulos at BMO Capital Markets. Please go ahead.
Thanos Moschopoulos: Hi. Regarding the UK acquisition, are there some financial metrics you can share, or should we just wait for next quarter's MD&A?
Speaker Change: Hi, regarding the UK acquisition, are there some financial metrics you can share or should we best wait for next quarter's NDNA?
Francois Boulanger: I think we'll be waiting for next quarter MD&A, because again, it's still not closed yet. We will close it in the next couple of weeks, hopefully, if we have all the authorization. Just perhaps what I can say is that on the revenue side, we are talking, like I would say, most.
Speaker Change: I think we'll be waiting for next quarter MDNA because again we you know we it's still not closed yet we will close it in the next couple of weeks hopefully if we have the
Speaker Change: All the authorizations. Just perhaps what I can say is that, you know, on the revenue side, we are talking, like I would say, Steve, 275 million pounds.
Steve Perron: 275 million.
Thanos Moschopoulos: Okay. That's annual?
Thank you.
and that's our manual business manual business
Steve Perron: On an annual basis.
Thanos Moschopoulos: Annual basis.
Thanos Moschopoulos: Yeah.
Thanos Moschopoulos: Okay. Great. Just to clarify, is it very heavily weighted to FNC or is there a good size managed services component in there as well?
Speaker Change: Great. And just to clarify, is it very heavily weighted to SINC or is there a good-sized managed services component in there as well?
Francois Boulanger: I would say it's perhaps a bit more FMC than managed services. Again, the idea of one thing, they have great client relationship, and one of the fits that we're seeing with us is the fact that they don't have offshoring. Now that we have these client relationships, we will be able to sell a lot more offshoring to these clients, and that's really the idea. Yes, they're more FMC today, but we think that we will be able to sell a lot more managed services now to these clients.
Speaker Change: I would say it's perhaps a bit more SINC than managed services.
Speaker Change: We will be able to sell a lot more offshore ring to these clients, and that's really the idea. So, yes, there are more SINC today, but we think that we will be able to sell a lot more managed services now to these clients.
Thanos Moschopoulos: Great. Finally, just how should we think about the margin trajectory, just given the puts and takes? Obviously with the recent tuck-in acquisitions, should we assume margins being flat year over year, maybe down a little because you are going to be integrating, or what trajectory would you assume?
Francois Boulanger: Yeah, I think with the margin, with the acquisition for sure as you know, we need to integrate these companies. That will put some bit of pressure on the margin. On the other side, we are doing some actions to improve the margin in some places like Germany, where we have some utilization pressure there. I would say that one can offset the other. I don't think we'll see big changes in the EBIT margin.
Speaker Change: Yeah, I think, you know, with with the margin with the acquisition, for sure, as you know, you know, we need to integrate these these companies. So that will put some
Speaker Change: the margin in some places like Germany where we have some utilization pressure there. So, you know, I would say that, you know, one cannot set the other. I don't think I will see big changes in the EBIT margin.
Thanos Moschopoulos: Great. That's the one. Thank you.
Great, I'll pass the line. Thank you.
Operator: Thank you. Next question will be from Stephanie Price at CIBC. Please go ahead.
Speaker Change: Thank you. Next question will be from Stephanie Price at CIBC. Please go ahead.
Stephanie Price: Hi, good morning.
Francois Boulanger: Hi.
Stephanie Price: Just following on Thanos' question there. Margins in the US Federal business seemed a bit weaker than normal. Was this a result of the margin profile at Atos and how should we think about US Federal margins going forward?
Stephanie Price: Hi, good morning. I'm following on Thanos' question there. It's margins in the US federal business seem to be a bit weaker than normal. With this result of the margin profile of Aeon and how should we think about the US federal margins going forward?
Francois Boulanger: Yeah. You have it. It's really because of Atos acquisition. You see a lot of growth, but some pressure on the margin, and it's because of this acquisition that we need to integrate. We signed at the end of September. Integration in the federal government is taking a bit more time than other area because of some authorization that we need to have from the client side. The expectation is that you'll see some improvement quarter over quarter on their EBIT margin.
Speaker Change: Yeah, so you have it. It's really because of Aon Acquisition. You see a lot of growth.
But there's some pressure on the...
Speaker Change: the margin, and it's because of this acquisition that we need to integrate. We signed at the end of September and integration in the federal government is taking a bit more time than other areas because of some authorization that we need to have from the client side, but the expectation is that you'll see some improvement quarter over quarter on their EBIT margin.
Stephanie Price: Okay, perfect. Maybe more broadly, can you talk a bit more about what you're seeing in Europe? It sounds like the slowdown right now is just a few regions. What are clients saying in the rest of Europe, and how do you think about the region going forward?
Speaker Change: Okay, perfect. And then maybe more broadly, can you talk a bit more about what you're seeing in Europe? It sounds like the slowdown right now is just in a few regions. What are clients saying in the rest of Europe and how do you think about the region going forward?
Francois Boulanger: Well, I think in Europe, as you know, I would say two things. On the manufacturing, we see some concern, or at least they're questioning what's the future, especially example with tariffs that the US are talking about. Will that have a major impact or not on some of these clients? That's really what I'm hearing from clients. I would say also on the government side, example, we'll have election in Germany. In France, some discussion on the government side. That can have an impact. We didn't see it yet, but that can have a certain impact. That's really what we're hearing in Europe. On the other side, like I'm saying, always a lot of discussion talking about how we can help them on the cost saving. A lot of discussion on managed services still in Europe.
Speaker Change: Well, I think in Europe, as you know, I would say two things. On the manufacturing, we see some concern, or at least they're questioning where...
Speaker Change: What's the future, especially, for example, with tariffs that the U.S. is talking about. Will that have a major impact or not on some of these clients?
Speaker Change: And some example, we'll have election in Germany, in France, some discussion on the government side. So that can have an impact. We didn't see it yet, but that can have a certain impact.
Speaker Change: So, that's really what we're hearing in Europe. But on the other side, like I'm saying...
Speaker Change: always a lot of discussion talking about how we can help them on the cost saving. And so a lot of discussion on managed services still in Europe. Great. Thank you very much.
Stephanie Price: Great. Thank you very much.
Operator: Thank you. Next question will be from Richard Tse at National Bank Financial. Please go ahead.
Speaker Change: Thank you. Next question will be from Richard C. at National Bank Financial. Please go ahead.
Richard Tse: Yes, thank you. You've obviously, I think, picked up the pace of acquisitions. Just wondering if you can maybe share with us whether you have it or not. Do you have a target with respect to the amount of capital you want to deploy this year on acquisitions?
Richard C.: Yes, thank you. So you've obviously, I think, picked up the pace of acquisitions. Just wondering if you could maybe share with us whether you have it or not. Do you have a target with respect to the amount of capital you want to deploy this year on acquisitions?
Francois Boulanger: No, we don't have necessarily a target. We are generating more than, what, CAD 2.3 billion of cash from operations, investing back CAD 400 million in the business. We have, what, CAD 1.7 billion, CAD 1.8 billion, CAD 1.9 billion of cash from free cash flow. The dividend is very low at CAD 30 million, what, CAD 34 million per month?
Richard C.: We don't have necessarily a target. We are generating more than $2.3 billion of cash from operations, investing back $400 million in the business. So we have $1.7, $1.8, $1.9 billion of cash from free cash flow.
Richard C.: and the dividend is very low at $34 million per month per quarter. So we still have a lot of
Richard Tse: Per quarter.
Francois Boulanger: Per quarter. We still have a lot of dry powder to do acquisition. Again, also we have the balance sheet and our leverage ratio is very low. We still have a lot of capacity for larger acquisitions. No, we don't have necessarily a number. The only cap I would say to you is that when we're saying that we're at 3 times leverage, that's really at the top, and we're very far from that, Kevin. I see we're what?
drive poverty to do acquisition.
And again, also, we, we, we
Richard C.: We have the balance sheet and their leverage ratio is very low.
Richard C.: So we still have a lot of capacity for larger acquisitions, so no.
We don't have necessarily a number.
Richard C.: And, you know, the only cap I would say to you is that, you know, we, when we're saying that we're at three points, three times leverage, that's really at the top.
Speaker Change: And we're very far from that, Steve. Look, from a net basis, we're at 0.47. And from a gross debt to EBITDA basis, we're about at 1.2.
Kevin Linder: From a net basis, we are at 0.47x, and from a gross debt to EBITDA basis, we're about at 1.2x.
Francois Boulanger: We have a lot of space for other ones, including the transformational acquisition.
Richard Tse: Okay. I appreciate your comments on elevating the brand.
Speaker Change: Okay. And then, you know, I appreciate your comments on elevating the brand.
Richard Tse: Obviously, you probably have done a lot of work in terms of identifying opportunities. When it comes to elevating the brand or some of these other initiatives that you've put in place since taking over the CEO role, can you help us understand the amount of incremental growth you're targeting to achieve from these new incremental initiatives that you've put in place since taking over that role?
Steve Perron: Obviously you've probably sort of done a lot of work in terms of identifying opportunities. So when it comes to elevating the brand or some of these other initiatives that you've put in place since taking over the CEO role, can you help us understand
Steve Perron: the kind of amount of incremental growth you're targeting to achieve from these all new incremental initiatives that you've put in place since taking over that role.
Francois Boulanger: Well, no, I don't have necessarily a target. When we're talking branding and all that, it has a long-term objective. We didn't necessarily put a number related to these actions. It's really to improve the branding, especially in places where we're still perhaps the best-kept secret. Still in the US, I think we still need to do more on that. That's with the marketing group and with our leader there, Susan Balding. We will continue to do some good work.
Steve Perron: It's really, you know, we didn't necessarily put a number related to these actions.
Steve Perron: So it's really to improve the branding, especially in places where we were still, you know, perhaps the best kept secret. So, and still in U.S., I think we still need to do more on that.
Steve Perron: And that's with the marketing group and with our leader there, Susan Balding. We will continue to do some good work.
Richard Tse: Okay. Just the last one from me. Some of your competitors, I'm talking to price competition in the market. Is that something that you may be seeing? If so, is it sort of a temporary thing given the backdrop with respect to the MRD or SI&C, or is it something a bit more structural? That's it for me. Thanks.
Speaker Change: price competition in the market, you know, is that something that you may be seeing? And if so, is this sort of a temporary thing given the backdrop with respect to MRD or SINC, or is it something a bit more structural? And that's it for me. Thanks.
Francois Boulanger: I would think it's not structural. Especially in the managed services, we don't see pressure there. In our managed services, if we can show to them the business case and the outcomes for them, that's making sense and they'll pay the value for the value. I think in some places where it's the discretionary spending that went down, for sure, we'll have some pressure to reduce some of the rates to be capable of taking out some of the utilization pressure. I would say overall, pricing is not necessarily an issue. Clients are still ready to pay for value.
Speaker Change: I would think it's not structural, you know, you know, we
Speaker Change: You know most of our, especially in the managed services, we don't we don't see a pressure there and our managed services We you know if we can show to them the business case
Speaker Change: and the outcomes for them, that's making sense and they'll pay for the value. I think in some places where it's the discretionary spending that went down, for sure we'll have some pressure to reduce some of the rates to be capable of.
Speaker Change: of taking out some of the utilization pressure. But I would say overall, you know, pricing is not necessarily an issue. People, clients are still ready to pay for value.
and Donald Trump.
Kevin Linder: Shelby, we have time for one more question, please.
Sylvie, we have time for one more question, please.
Operator: Certainly. Our last question will be from Jason Kupferberg at Bank of America US. Please go ahead.
Speaker Change: Certainly. Our last question will be from Jason Kupferberger at Bank of America U.S. Please go ahead.
Tyler DuPont: Hi, good morning. Francois Boulanger and Steve Perron, this is Tyler DuPont on for Jason Kupferberg. Thanks for taking the questions here. Try to be fast knowing that it's the last one. I wanted to ask about initial demand trends and spending applications for 2025, particularly from a bookings context. On an LTM basis, it looks like book-to-bill definitely appears healthy, 1.08 this quarter. This is the second quarter of year-on-year declines. Obviously, they're very modest, but still, it's the second quarter declines in the LTM metric. Just how do you juxtapose the modestly softening bookings number with the solid top-line growth that you're putting up, and how does that translate into 2025 client spend?
Speaker Change: Good morning, Francois and Steve. This is Tyler DuPont on for Jason. Thanks for taking the questions here. I try to be fast knowing that that's the last one. I wanted to ask about initial demand trends and spending applications for 2025, but particularly from a bookings context.
Speaker Change: How do you juxtapose the modestly softening bookings number with the solid top-line growth that you're putting up, and how does that translate into 2025 client spend?
Francois Boulanger: Yeah. You're right on the last one, the booking went down, but some of it is timing. Again, we had some discussion with some clients that were not able to close for the quarter. We won't close a deal just to close a deal to have the bookings at the end of the quarter. We have some still good discussion on some of these large contracts and you'll see some closing of them in the future. We still see a lot of momentum on the managed services. I don't see necessarily a problem there. You're right that on the SI&C, some lumpiness, but this quarter, we did see an uptick on the SI&C. We finished with, I think it's 114% of book-to-bill on the SI&C side. Versus last quarter, we were under 1 on the SI&C side.
Yeah.
Speaker Change: We're not able to close for the quarter end and we won't close a deal just to close a deal to have bookings at the end of the quarter. So we have some still good discussion on some of these large contracts.
Speaker Change: on the SINC side. So we are seeing still some momentum on that side and we'll see in the future, but we're still comfortable with bookings and for the future.
Francois Boulanger: We are seeing still some momentum on that side, and we'll see in the future, but we're still comfortable with bookings for the future.
Tyler DuPont: That's helpful. It's great to see SI&C going above 1. Just as a follow-on, just want to ask about cash flow expectations as we look through the year. During the quarter, free cash flow was pretty strong. It looked like on a revenue conversion basis around just shy of 15%, which in my understanding is sort of the medium-term or long-term target for you guys. Wondering if you could just touch on cash flow in the quarter. How should we look at conversion through 2025? Should we be thinking more than 15% on a full year basis, or I know there's timing and everything there, but just love to get your thoughts.
Speaker Change: That's helpful. It's great to see the FANC going above 1. Also, just as a follow-on, I just want to ask about cash flow expectations as we look through the year.
Speaker Change: During the quarter, free cash flow was pretty strong. It looked like on a revenue conversion basis around just shy of 15 percent.
Speaker Change: which in my understanding is sort of the medium term or long term target for you guys. Wondering if you could just touch on cash flow in the quarter, how should we look at conversion through 2025, should we be thinking...
Speaker Change: More than 15 on a full year basis or I know there's timing and everything there, but just love to get your thoughts
Francois Boulanger: Thank you for the question. I think if we say that on a long-term basis, 15% makes sense. Obviously, in the quarter, cash from ops was 17%, but it was with some improvement of the DSO. On a long-term basis at 15%, it makes sense.
Speaker Change: Obviously, in the quarter, the cash from Ops was $17,000, but it was with some improvement of the DSO, so on a long-term basis, at 15%, it makes sense.
Tyler DuPont: Great. Appreciate it.
Great, appreciate it.
Francois Boulanger: Thank you.
Thank you.
Kevin Linder: Please proceed.
Kevin Linder: Okay. Thank you everyone for participating. As a reminder, a replay of the call will be available either via our website or by dialing 1-888-660-6264 and using the passcode 28413. 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 1-905-973-8363. Thanks again, everyone. Look forward to speaking soon.
Please proceed, sir.
Speaker Change: Thank you everyone for participating. As a reminder, a replay of the call will be available either via our website or by dialing 1-888-660-6264 and using the passcode 28413.
Speaker Change: 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 1-905-973-8363. Thanks again, everyone, and look forward to speaking soon.
Kevin Linder: Thank you.
Kevin Linder: Thank you.
Thank you.
Operator: Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines.