Q2 2025 CGI Group Inc Earnings Call
Good morning, ladies and gentlemen, welcome to Cgi's second quarter fiscal 2025 conference call and I would like to turn the meeting over to Mr. Kevin Linda SVP of Investor Relations. Please go ahead Sir.
Speaker Change: Thank you Sylvia and good morning, with me to discuss <unk> second quarter fiscal 2025 results, our Francois Boulanger, our president and CEO and Steve parole Executive Vice President and CFO.
Speaker Change: This call is being broadcast on CGI Com and recorded live at nine a M. Eastern time on Wednesday April 30th 2025.
Speaker Change: Supplemental slides as well as our press release, we issued earlier. This morning are available for download along with our Q2 MD&A financial statements and accompanying notes all of which have been filed with both SEDAR plus.
Speaker Change: Kurt please.
Speaker Change: Note that some statements made on the call maybe forward looking actual events or results may differ materially from those expressed or implied and CGI disclaims any intent or obligation to update or revise any forward looking statements, whether as a result of new information future events or otherwise.
Speaker Change: A complete safe Harbor statement is available in both our MD&A and press release as well as on CGI Dotcom, we recommend our investors read it in its entirety, we're reporting our financial results in accordance with international financial reporting standards or <unk>.
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 all of the dollar figures expressed on this call are Canadian unless otherwise noted.
Speaker Change: Now I'll turn the call over to Steve to review, our Q2 financial results Steve. Thank.
Steve: Thank you, Kevin and good day everyone.
Steve: C. J I continued to operate with discipline and our second quarter of fiscal 2025.
Steve: In Q2.
Steve: We delivered $4 billion of revenue.
Steve: Seven 6% year over year or up three 3% when excluding the impact of foreign exchange.
Steve: Growth was mainly driven by recent business acquisition, partially offset by one less available that you build in most segments equating to approximately 8%.
Steve: In constant currency, the CGI client proximity segment with strongest broke where U K and Australia.
Steve: 1.1%, which includes just over one month of P. J S. That's revenue.
Steve: And across our U S segments combined growth was seven 2%, primarily driven by our E N N Dougherty merger investments.
Steve: Geographically, our North American operation grew at 6.4 person.
Steve: In Europe, our operation grew at four 7% given softer market conditions, particularly in the manufacturing sector.
Steve: And demand remains strong for global delivery.
Steve: Specifically, our Asia Pacific Operation with revenue up six 8%.
Steve: From an industry perspective constant currency revenue growth was led by government at six 5% and financial services at six 1%, partially offset by continued softness in continental Europe, particularly in the M. R D and telecommunications sectors.
Steve: I see revenue grew in five of our eight proximity segments on the strength of continued client interest for our business solution.
Steve: I T represented 21, 5% of total revenue.
Steve: 90 basis points year over year due to the dilutive impact of recent business acquisition.
Steve: In Q2 bookings were $4 $5 billion for a book to Bill the ratio of 112%.
Steve: Book to Bill was strong in North America at 124%.
Steve: Europe was 101%.
Steve: When looking at service type.
Steve: Book to Bill ratio was worth 122% for our managed services and 98% for business and strategic consulting and system integration.
Steve: On a trailing 12 months basis.
Steve: Book to Bill ratio was for North America, and Europe were 111% and 110% respectively.
Steve: On the same basis.
Steve: Managed services had a book to bill ratio of 122% and the S. I N C book to Bill ratio was 97%.
Steve: Our global backlog reached $31 billion or two times revenue.
Steve: Turning to profitability.
Steve: Adjusted EBIT in the quarter was $666 million up.
Steve: Five 9% year over year for a margin of 16, 5%.
Steve: Earnings before income taxes were $583 million for a margin of 14, 5% down 90 basis points year over year, mainly due to restructuring and acquisition related costs.
Steve: Our effective tax rate in the quarter was 26, 2% stable compared to last year, and we expect our tax rate for future quarters to be in the range of $25 five to 26, 5%.
Steve: Adjusted net earnings were $481 million up $21 million year over year for a margin of 11, 9%.
Steve: On the same basis diluted EPS was $2.12 and accretion of seven 6% when compared to Q2 last year.
Steve: Yeah.
Steve: Net earnings were $430 million for a margin of 10, 7%.
Steve: Diluted EPS was $1.89, representing an increase of three 3% year over year.
Steve: We remain in constant dialogue with our clients regarding the evolving business dynamics they are facing.
Steve: Do remain strong we regularly assess these dynamics and take proactive actions to expand shareholder value for the benefit of our stakeholders, namely our shareholders.
Steve: As such C.
Steve: C G I increase the scope of our previously announced restructuring program most of which continues to be targeted within our continental Europe operations.
Steve: In the quarter, we incurred $44 million of costs, and we expect to incur an additional $137 million to implement these actions over the next few quarters.
Steve: These actions will impact approximately one 5% of CGI employees.
Steve: As always well.
Steve: But it does impact its fairly and with respect.
Steve: Turning to cash.
Steve: We generated $438 million and our cash from operation, representing 11% of total revenue unfavorably.
Steve: Unfavorably impacted by $101 million in the restricted ring and business acquisition related payments.
Steve: DSO was 40 days in the quarter identical to last year.
Steve: In Q2.
Steve: We invested $100 million into our business, including an AI.
Steve: $156 billion for business acquisitions.
Steve: $345 million to buyback our stock.
Steve: And returned $34 million to our shareholders under our dividend program.
Steve: We continue to deliver a strong return on invested capital at 15, 4% down 50 basis points year over year, mainly as a result of the capital allocated to recent business acquisition, which are in the process of being integrated.
Steve: Yesterday, our board of directors approved a quarterly cash dividend of <unk> 15 per share.
Steve: This dividend is payable on June 20th 2025 to shareholders of record as of the close of business on May 16 2025.
Steve: As communicated in the past and consistent with our profitable growth strategy C.
Steve: C. G is capital allocation priorities remain focused on investing back into business and pursuing accretive acquisitions.
Steve: Now I will turn the call over to possible to further discuss the insights on the quarter as well as the outlook for our business and markets.
Steve: That's what.
Speaker Change: Thank you, Steve and good morning, everyone.
Speaker Change: I am pleased with our team's disciplined execution of our profitable growth strategy during the second quarter and throughout the first half of the fiscal year.
Speaker Change: Our operational rigor again enabled us to deliver solid results in the quarter underscoring Cgi's resilience as many clients began to navigate our more predictable business environment compare to the first quarter.
Speaker Change: Today, I will focus our performance for the first half of the year there.
Speaker Change: The current market environment and the outlook.
Speaker Change: Year over year for the first half of 2025 revenue was up six 3% or 3% on a constant currency basis to more than $7 8 billion.
Speaker Change: Adjusted EBIT was up five 3% to $1 $28 billion.
Speaker Change: Adjusted EPS was up seven 4% to $4 eight.
Speaker Change: And on a trailing 12 month basis cash from operations totaled over $2 $2 billion up nearly $100 million compared to the previous year.
Speaker Change: Given the ongoing strength of our balance sheet and confidence in Cgi's positioning as a trusted partner during all economic cycles, we invested $2 $3 billion during the first half, including $183 million invested back into the business to drive future growth.
Speaker Change: One $6 billion toward business acquisitions.
Speaker Change: $498 million for share repurchase.
Speaker Change: And $68 million returned to shareholders through our dividend program.
Speaker Change: Our capital allocation priorities remain focused on progressing our build and buy profitable growth strategy.
Speaker Change: By continuing to reinvest in our business, we are expanding our portfolio of in demand offerings in areas, such as AI and generative AI cyber security cloud and it services.
Speaker Change: By furthering our M&A strategy, we are expanding and deepening CGI as local presence in key metro markets around the world.
Speaker Change: In the second quarter, we completed three acquisitions P. J S. S to expand our U K wide presence in commercial industries, such as financial services and to deepen our presence and government.
Speaker Change: Novatel to expand our presence in Germany, and Spain across commercial industries, including financial services.
Speaker Change: And my mental technologies to grow our public sector presence in Quebec City.
Speaker Change: I would like to warmly welcome nearly 3000, new consultants, who joined CGI from these mergers.
Speaker Change: Additionally, at the end of the quarter.
We announced an exclusive agreement to acquire I've said.
Speaker Change: Leading AI cloud engineering, and digital services firm headquarter in France.
Speaker Change: Up in successful closing, which is expected in June more than 2500 professionals, what John CGI deepening our local presence in France, Canada, Portugal, Belgium, Morocco and Switzerland.
Speaker Change: Following the successful closing of that's in the five mergers we announced this fiscal year will increase the total number of metro markets, where CGI is at scale.
Speaker Change: This is a critical element of Cgi's growth strategy to ensure we are in proximity with existing and new clients.
Speaker Change: I understand and adapt to their needs.
To progress our profitable growth strategy, we will continue to prioritize investments aimed at building critical mass in key metro markets and all CGI geographies.
Speaker Change: We remain in dialogue with a number of firms both metro market and transformational opportunities.
Speaker Change: As always we will be disciplined to ensure that mergers will be accretive to each of our stakeholders.
Speaker Change: Turning now to the market environment, starting with bookings.
Speaker Change: C. G. I ended the first half with bookings of $8 6 billion up $700 million year over year.
Speaker Change: This was driven by expanded modernization projects, which help clients realize operational efficiencies, notably true managed services and IP.
Speaker Change: For the first half managed services bookings exceeded $5 billion up 21% year over year.
Speaker Change: Additionally, in Q2, IP solutions designed to help clients achieve business objectives drove 134% IP book to Bill.
Speaker Change: From an industry perspective, we saw strength in financial services with 157% book to Bill.
Speaker Change: And government at 108%.
Speaker Change: Globally, we continue to see early signs in Q2, our renewed client spending in the banking sector.
Speaker Change: Banks remain focused on modernizing core systems and processes through managed services and IP.
Speaker Change: Government Awards were notable and local government, particularly for our industry, leading IP solutions, which embed AI data privacy and cybersecurity.
Speaker Change: Representative client wins in the second quarter included the state of California awarded CGI U S. A seven year 524 million U S dollar engagement to modernize and unify its payroll and HR systems through the implementation of the CGI advantaged platform.
Speaker Change: The European Space Agency selected CGI, Germany to develop advanced AI solutions to automate and streamline satellite mission operations.
Speaker Change: CGI consultants will combine domain expertise with AI models to help the agency optimize mission planning and bring satellite store, but it's faster and with greater precision.
Speaker Change: A leading U S financial institution expanded their strategic partnership with CGI to establish a dedicated global capabilities Center in India.
Speaker Change: The GCC will help accelerate the bank's capacity to launch innovative offerings.
Speaker Change: Leverage AI solutions for business outcomes, and improve scalability and access to talent.
Speaker Change: This agreement underscores <unk> deep expertise and value added solutions for consumer lending trade finance and capital markets.
Speaker Change: And one of the largest retail banks in France selected CGI as dynamic process 360 platform.
Speaker Change: To serve as a core technology supporting their digital transformation.
Speaker Change: The CGI IP helps organizations digitize and streamline their end to end business processes. So they can operate more efficiently.
Speaker Change: Over the past few months there has been an uptick in uncertainty as clients globally considered the implications of macroeconomic and geopolitical dynamics, most notably related to tariffs.
Speaker Change: Across industries, our clients are navigating fast changing and challenging business environment.
Speaker Change: Many clients are balancing strategy caution with offer so urgency.
This dual business agenda is not new but the pace and intensity of change has accelerated and its shaping the priorities and investments.
Speaker Change: Despite this cautionary approach across some industries and client organizations overall client interest remains strong for CGI as managed services, which help clients realized cost savings and drive business transformation.
Speaker Change: As a result, the pipeline of managed services opportunities is up by more than 15% compared to this time last year.
Speaker Change: Specific to our U S federal operations for more than 40 years CGI federal as supported U S government agencies, and using technology and innovation to achieve efficiencies and deliver outcomes aligned to their missions.
Speaker Change: In line with recent administration initiatives, we are collaborating closely with our clients to provide all requested inputs on our current state portfolio of projects.
Speaker Change: More importantly, our team is proposing bold ideas to help the client at the administration achieve additional cost efficiencies, including through the use of commercial approaches.
Speaker Change: Merging technologies and upcoming based contracting.
Speaker Change: For context, CGI federal constituted 14% of our global revenue in fiscal 2024.
Speaker Change: The vast majority of this revenue is earned from it and business process services much of which users CGI IP such as momentum.
Speaker Change: And just 2% of our federal revenue is derived from discrete consulting services.
Speaker Change: We remain well positioned as a strategic partner for helping the U S administration achieve their objectives and.
Speaker Change: In fact this month the federal Aviation administration announced that CGI federal was selected to develop deliver and operate and modernized notice to air man or no time system.
Speaker Change: This critical system cutting any states more than 4 million temporary changes annually to pilots and flight planners in area, such as run rate of closures and aerospace restrictions.
Speaker Change: CGI Federal also has extensive experience in building systems that foster transparency and prevent fraud.
Speaker Change: In line with the administration's priorities, we announced earlier this week the launch of a new government wide platform to help federal agencies, the attack and prevent potential improper payments before they happen.
Speaker Change: This new platform brings together real time risk in that litigation.
Speaker Change: I powered predictive analytics and robust core financial integration.
Speaker Change: We remain fully committed to helping our government clients in the U S and around the world.
Speaker Change: The right technology services to enable more efficient and effective delivery of government services to taxpayer.
Speaker Change: As we look to the second half of the year client demand across geographies and industries is strong for digital transformation, even with the cautionary approaches client are currently taking.
Technology remains at the heart of achieving the objectives of companies and governments in particular demand for monetization data cyber security and AI are viewed as more important than ever to helping clients achieve their ambitions.
Speaker Change: These overarching findings are part of the or the insights we ended up buying from our discussion our leaders held during Q2 with more than 1800 client executives.
Speaker Change: Part of our annual planning.
Speaker Change: I would like to share three insights, we see shaping client demand in the near term.
Speaker Change: First the evolution of the industry value chains continues to accelerate.
Speaker Change: Three quarters of executives see their industry is being reshaped by Digitization.
Speaker Change: And over half said that macro trends are highly impacted their business models, which is requiring new approaches to value creation.
Speaker Change: The second finding reveals that structural constraints are enduring tangible ROI from digitization.
Speaker Change: Globally, only 35% of executives stated their digital implementations are achieving the ROI there expected essentially flat compared to last year.
Speaker Change: Nearly half of executives noted that the complexity of legacy systems and processes are slowing the adoption of emerging technologies and limiting measurable outcomes.
Speaker Change: Lastly executives are exploring holiday will advance transformation.
Speaker Change: Many executives are rethinking how their organization will deliver transformation moving more towards managed services and ecosystem partnerships.
Speaker Change: Naturally AI continues to be viewed as a key lever for driving this innovation.
Speaker Change: Compared to last year more organizations are implementing traditional and generative AI.
Overall, however, the metro Ritchie of AI adoption remains in early stages.
Speaker Change: There are clear takeaway from these findings is that the shift towards outcome focused delivery.
Speaker Change: As a permanent one and represents 70 extent opportunities for CGI.
Speaker Change: Against the backdrop of the challenging business environment.
Speaker Change: Many clients are seeking fewer partners, who can bring not just technical expertise, but industry context business alignment and operational scale.
Speaker Change: Including flexible managed services capabilities C.
Speaker Change: CGI is this partner.
Speaker Change: Our combination of local relationships and global scale with deep industry expertise and end to end offerings enables clients to achieve tangible business outcomes.
Speaker Change: Our robust managed services and IP solutions.
Speaker Change: Kelly and monetization and AI integrations are outcome focus and help clients to close that gap.
Speaker Change: The strategy to execution through tailored transformation strategies.
Speaker Change: CGI roles as a digital transformation partner to clients has never been more vital.
Speaker Change: Thank you to our now 94000 CGI partners around the World for your continued commitment to the success of our clients.
Speaker Change: In closing.
Speaker Change: We have a resilient model with a diversified mix of Geography's economic sectors and end to end services and solutions to enable profitable growth now in the future.
Speaker Change: We have world class talent with deep understanding of our industry domains and expertise and technologies.
Speaker Change: We have proven value proposition and trusted relationships are well aligned to evolving client demand.
Speaker Change: We have a proven track record for operational excellence and for tracking and for taking proactive actions to expand shareholder value.
Speaker Change: And we have a strong balance sheet to execute on our capital allocation priorities to advance our build and buy profitable growth strategy.
Kevan Silver: Thank you for your interest and support let's go to the question now Kevan silver.
Sylvia: Sylvia you we can now poll for questions. Please thank.
Speaker Change: Thank you, Sir ladies and gentlemen, if you do have any questions. Please press star followed by one on you touched on something you will hear a prompt that your hand has been raised but should you decide to decline from the polling process. Please press star followed by two.
Speaker Change: Using a speaker phone you will need to lift the handset first before pressing any keys. Please go ahead and press star one now if you have any questions.
Stephanie Price: First question will be from Stephanie price of CIBC. Please go ahead.
Speaker Change: Hi, good morning.
Stephanie Price: First question Stephanie.
Speaker Change: Just on the U S. Federal I'm, just wondering how the U S. Federal contract growth has trended since attention administration are you seeing changes in consumer behavior, there and maybe not spending to the ceiling on some of the contracts or task orders coming in Marcellus or just a little context on yes right over here. Please.
Stephanie Price: Yeah. So so thanks.
Stephanie Price: Thanks, Stephanie for questions. So when do we see on the bookings if we're talking bookings.
Stephanie Price: For sure you saw the booking at where it's at 40% book to Bill and what's happening is that.
Stephanie Price: Instead of.
Stephanie Price: Signing in our renewals at five year renewal or three years. When you watch what's happening is that they'll sign bridge contract to continue their work right.
Stephanie Price: But not necessarily doing big renewal until they will have a better understanding and the new processes and the new way that they would that broker in the future. So so that's that's really what we want we see but as as I indicated when it's time.
Stephanie Price: They don't have any.
Stephanie Price: Our choice to sign new projects, they will find it like I was talking about that no time in our system and the new platform for fraud detection and not just in point in time, they need to move on and especially if it's bringing you know.
Stephanie Price: <unk> base.
Stephanie Price: Objective that they wanted to achieve data will continue to Dubai.
Speaker Change: That makes sense and then just maybe on the administrative side of the U S. Federal business are you seeing anything there or dsos being pushed English appeared well, it's taking longer or anything like that.
Stephanie Price: No no.
Stephanie Price: The year over year, my understanding Steve the DSO that drop and dropped yeah. So so we are quite diligent in looking at that and it was our first thing that we check if any of you sleep.
Stephanie Price: But on that front no there is no deal.
Stephanie Price: Delayed on payments and has triggered our business.
Stephanie Price: Great. Thank you very much.
Stephanie Price: Okay.
Speaker Change: Next question will be from Richard Tse at National Bank Financial. Please go ahead.
Richard Tse: Yes. Thank you.
Speaker Change: So obviously, the environment's challenging, but when you talk to your customers broadly.
Speaker Change: What are the conditions, they are saying that would make them return to their normal cadence of services spend is it just kind of some certainty on tariffs or is it something else beyond that.
Speaker Change: But it's not just <unk>, but that's the overall environment.
Speaker Change: Where we're going so because what we saw in some places example in Europe, even before the tariff discussion.
Speaker Change: That especially example, an industry like manufacturing.
Speaker Change: They were seeing sign of slowdown in the market and all that they had some cost pressure already to manage.
Speaker Change: So they have tendency to too.
Speaker Change: Wait a bit.
Speaker Change: Where the environmental where the economy would go before especially on the short term prop.
Speaker Change: Projects right the science C project consulting so consulting slowdown.
Speaker Change: And some of the project implementation, but on the other side right on the managed services.
Speaker Change: It's a it was always still relevant in understanding how we can help them and the cost savings side. So that's how we signed some large deal like like I was saying last quarter with the with Volkswagen on the.
Speaker Change: On the outsourcing side or the managed services side so.
Speaker Change: It's really you know.
Speaker Change: <unk> they'll see some some sign of.
Speaker Change: Recovery, but at least more center D above the market.
Speaker Change: They will come back in the market and we saw that the example in the financial sector.
Speaker Change: Are seeing growth in the financial sector.
Speaker Change: Came back.
Speaker Change: Especially in Canada with the rates that went down and we saw some good growth on that sector.
Speaker Change: And so other sectors will naturally a wait to CFS.
Speaker Change: When the.
Speaker Change: The market will come back.
Speaker Change: Okay, and then I know the current environment.
Speaker Change: <unk> and macro does it change.
Speaker Change: Capital allocation ranking two acquisitions move up that ranking or buybacks.
Speaker Change: Sort of help me understand how you're thinking about that.
Speaker Change: But for sure it's creating opportunities on the M&A side.
Speaker Change: Because again, we would naturally as you know we have a strong balance sheet.
Speaker Change: But it's not necessarily everybody who has a strong balance sheet and some companies are we seeing that.
Speaker Change: It's a little bit more difficult, so I, especially don't want that are pure ethane C companies.
Speaker Change: Where are they and they don't have managed services and they don't necessarily have the.
Speaker Change: Capability to invest in managed services. So they are at a point now they're thinking okay. What's the next move and.
Speaker Change: Yes.
Speaker Change: These are these potential are coming good targets for us to look at.
Speaker Change: Yeah.
Speaker Change: And then just last one from me is there a certain target of capital you want to deploy on acquisitions here over the next.
Speaker Change: 12 months.
Speaker Change: Right.
Speaker Change: I am saying.
Speaker Change: We are generating.
Speaker Change: $2 million.
Speaker Change: Cash.
Speaker Change: Free cash flow of one two points.
Speaker Change: One 7 billion of free cash flow and as you know.
Speaker Change: So we are also a very low on the leverage side. So we have the capabilities of again continued to do more acquisition and even transformational one.
Speaker Change: Okay, great. Thank you.
Speaker Change: Next question will be from Steven Li of Raymond James. Please go ahead.
Steven Li: Thank you.
Speaker Change: That's about the acquisition, so BJ SaaS and <unk> can.
Steven Li: Can I say they are.
Speaker Change: Mostly S AMC versus managed service.
Steven Li: Yes.
Steven Li: Both of them.
Speaker Change: Our way more ethane C that managed services and that.
Steven Li: I was talking about the example.
Speaker Change: The M&A. That's that's clear example, I'll take Vijay assess great company with great relationship and.
Steven Li: In UK.
Speaker Change: But where there were stock.
Speaker Change: Just capable of delivering an assigned seat and some of their clients, whereas asking for.
Speaker Change: Managed services capabilities that they were not able to deliver and now since they are from they are with us and CGI now they can present.
Speaker Change: Our managed services as one of their offering and already we see some momentum and good meetings with clients, where we're showcasing.
Speaker Change: These activities a lot of these BJ SaaS clients and same thing for Dougherty, where we're able to to bring them to India and see our ads.
Speaker Change: See our capabilities there and they were already very impressed with what we have so again nothing signed yet, but that's the kind of strategy that we have.
Speaker Change: When we are buying these.
I would say.
Speaker Change: Larger.
Speaker Change: <unk>.
Speaker Change: 1005 hundred 2500 in the case of BJ SaaS.
Speaker Change: And our size company, where they have good relationships and now we can sell a lot more in these companies.
Speaker Change: Okay. So yeah. So I appreciate the upside there potentially.
Going back to the core <unk> business can I ask how they're doing in this market like for example, this quarter. The book to Bill can I assume they were at least one times for these two companies.
Speaker Change: Harvey.
Speaker Change: We need to look at.
Speaker Change: We're not at that level.
Speaker Change: Level of detail, but I would say to you that.
Speaker Change: For sure a managed services overall, we had a book to Bill.
Speaker Change: And what does Steve under there.
Speaker Change: 22, <unk> hundred 22 book to Bill for our managed services overall and just below one overall for <unk>.
Speaker Change: For S ICD.
Speaker Change: Okay, I guess, what I'm trying to get that is.
Speaker Change: Like on an organic basis, the bookings from <unk> and Dorothy would that have contributed to the to your overall bookings.
Speaker Change: Yeah for sure I don't know of course that they had bookings.
Speaker Change: <unk> contributed.
Speaker Change: Ill take B J S said, it's P. J S says, it's only one month right now so we have only one month of booking on BJ SaaS since.
Speaker Change: Dorothy we have a full quarter of bookings coming from Dougherty.
Speaker Change: Okay got it and then last question for me like the the bigger restructuring, but you.
Speaker Change: You alluded to in the MD&A.
Speaker Change: Does that have any implications on margins year over year, how much of an improvement in margin should we expect year over year. Thank you.
Speaker Change: Yeah.
Speaker Change: No.
Speaker Change: Most of the.
Speaker Change: The restructuring will be in the continental.
Speaker Change: Europe for sure it will improve.
Speaker Change: Nation.
Speaker Change: These are countries. So naturally will help to improve also the EBIT margin, but I don't have necessarily a target or something.
Steve: I don't know Steve.
Steve: You can see in D. M D N a the margin that's where we're at.
Steve: And he came in.
Steve: In Europe.
Steve: Obviously, we want to grow with that and that's why we're taking the action we wanted to make sure that.
Steve: We are a strong company and we want to make sure that they are they come back with.
Steve: With a higher margin than they are right now what the they can achieve and take take the Scandinavian one.
Steve: We did some of the restructuring already in the last couple of quarters and you see a good uplift on the on the on the.
Steve: On the EBIT margin 202 hundred bps more.
Steve: And Scandinavia.
Steve: We're not saying that we're going to achieve that unnecessarily.
Steve: At least for four.
Steve: For the other country, but that cycle right. We know we can generate.
Steve: The 16% that you're used to and that's that's that's our target.
Steve: Yep.
Steve: Yes.
Steve: Thank you.
Speaker Change: Next question will be from sorry, Dunston at Jefferies. Please go ahead.
Steve: Okay.
Speaker Change: Thank you following up on the expansion of the restructuring initiatives.
Speaker Change: I assume it is can you help me understand kind of what changed relative to what your thoughts were last quarter.
Speaker Change: And then is it primarily like within <unk>. So you can see in primarily onshore delivery within continental Europe or just any other color would be helpful.
Speaker Change: Yeah no. It's it's.
Speaker Change: Youre assessing that but it's really in the Si and C.
Speaker Change: And that business consulting side also I bet, it's continued to be.
Speaker Change: <unk> solved.
Speaker Change: That sign and so.
Speaker Change: We decided that we needed to do a bigger program to be sure that the.
Speaker Change: We are improving the utilization and.
Speaker Change: In these countries.
Speaker Change: So that's really why we're doing it and at the same time also it's not just to improve the utilization, but we are doing more and more and more with some of the automation.
Speaker Change: On some of the SG&A. So we will have also some.
Speaker Change: Our restructuring in the SG&A area, because again versus some of our investment that we did.
Speaker Change: For example, with the use of AI.
Speaker Change: Yes.
Speaker Change: That's helpful and then related to that.
Speaker Change: Any color on just how we think about.
Speaker Change: The demand for where delivery services are.
Speaker Change: One of the things that kind of came out of the pandemic was his company.
Speaker Change: Companies, maybe focus a bit more on cost.
Speaker Change: Obviously, you're seeing some benefits.
Speaker Change: Within the managed services, but.
Speaker Change: <unk> projects are they've been asking for more offshore delivery or how should we think about that dynamic because.
Speaker Change: On the cost conscious.
Speaker Change: Yeah.
Speaker Change: Yeah, that's a good question.
Speaker Change: You saw the growth in India, we continue to grow.
Speaker Change: A rapidly in India faster than anywhere else and for sure it's not just.
Speaker Change: It's not just for <unk>.
Speaker Change: Managed services, but it's also for resi and <unk> and it's not just because of costs. Yes cost is a portion of it but it's also for talent.
Speaker Change: And that's a that's also a place where we have a lot of talent and we are using that talent to deliver across the world. So so yes its cost, but it's also expertise that is.
Speaker Change: We still have a lot of expertise in India, and we're using a lot of and therefore delivering.
Speaker Change: All lines of business.
Speaker Change: And I think I'll leave it there.
Speaker Change: Okay. Thanks.
Speaker Change: Next question will be from Mcdonalds I suppose BMO capital markets. Please go ahead.
Speaker Change: Hi, good morning.
Speaker Change: First of all maybe just to clarify a point.
Speaker Change: As of right now have there been any meaningful contract cancellations or nonrenewals in central or nothing of that nature to call out.
Speaker Change: Nothing nothing meaningful that happened on that side.
Speaker Change: Okay.
Speaker Change: U S state is that looking a status quo or have you seen any change in demand.
Speaker Change: With the new administration.
Speaker Change: The level of anything happening on the state side.
Speaker Change: On the state department level Yeah.
Speaker Change: Sorry about states states per se, but just given that there is the.
Speaker Change: The federal government's obviously.
Speaker Change: Okay.
Speaker Change: Yeah, that's yeah, that's the state and local which we then yes, no and and like like I was indicating we just sign up.
Speaker Change: 500 million you Wes a deal with the state of California, and so now it's a it's still pretty good on that side for sure.
Speaker Change: They're looking at solutions to four.
Speaker Change: For our cost savings like like anything else.
Speaker Change: And and so.
That's what we're talking with them, but for now the states locals are still continuing to spend and we don't we don't see a slowdown on that side.
Speaker Change: Okay.
Speaker Change: One for me is just on the pricing environment, you mentioned using more AI for automation.
Speaker Change: Your peers are doing the same obviously given that and given that we're in a bit of a more challenging environments.
Speaker Change: What are you seeing as far as pricing.
Speaker Change: The large managed services deals you're pursuing.
Speaker Change: Well, you know like I'm, saying in pricing when it's time to price.
Speaker Change: Actually in managed services as you know their clients are expecting savings right and day one savings.
Speaker Change: From from their side versus what they are delivering so so.
Speaker Change: Is that an extra another tool to be used for delivering some of these savings. So you know I would say that we are using it it's contributing to.
Speaker Change: Gave cost saving to the clients and actually also to help us to improve our bottom line. So so it's for now I would say, it's a sure sure.
Speaker Change: Sure benefit that we're sharing with our clients.
Speaker Change: Great Best of luck takes us off.
Speaker Change: Thanks Dennis.
Speaker Change: Next question will be from Paul Treiber RBC capital markets. Please go ahead.
Paul Treiber: Oh, thanks, very much and good morning, just a question on that.
Paul Treiber: Hey, good morning, just a question on the timeframe for the ramp in managed services bookings tend to lead to revenue growth as it is it a couple of quarters before you expect.
Paul Treiber: Revenue from these new bookings or just given the environment you know our customer signing but then there's a longer timeframe to actually deploy.
Paul Treiber: No I would say you know a couple of quarters.
Paul Treiber: <unk>.
Paul Treiber: It's it's always depending from one or the other but on average I would say that that's a good average.
Paul Treiber: And some of them in the past.
Paul Treiber: The finish in that.
Paul Treiber: I already know and we are seeing growth because again managed services, we are seeing the growth.
Paul Treiber: Year over year coming from managed services.
Paul Treiber: So and.
Paul Treiber: The example that to that.
Paul Treiber: I talked about about the large bank in the U S.
Paul Treiber: And even the one that because theres standpoint, that's a long term contract with the state of California.
Paul Treiber: You'll see that for example, the state of California, We have already started the work so.
Paul Treiber: So.
Paul Treiber: We'll see some growth coming from from these acquisitions are these.
Paul Treiber: Contract in the next couple of quarters.
Paul Treiber: And then could you speak to that.
Speaker Change: Relationship between ethane and managed services in terms of are they are they completely independent or do you see them.
Speaker Change: With the slowdown in S. I N C is that a leading indicator that maybe headwinds facing.
Speaker Change: Managed services at some point in the future like <unk> C and preparation it anyways for future men assurances or are they completely independent.
Speaker Change: Alright, not at all.
Speaker Change: For me they are completely independent because I can even I would say.
Speaker Change: In a time like today, where yes. So we have some headwinds coming from S IMC and especially on the consulting side.
Speaker Change: On country IV.
Speaker Change: On the managed services.
Speaker Change: It's very active.
Speaker Change: And.
Speaker Change: The client always and I did a tour of Europe, a couple of months ago.
Speaker Change: Every client wants to understand how we can help them to improve their bottom line and reduce costs.
Speaker Change: And that's always relevant.
Speaker Change: And so they will listen to our two <unk> offering that we have on that side.
Speaker Change: Okay. Thanks, Thanks for taking the questions.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Next question will be from the via <unk> at Scotiabank. Please go ahead.
Speaker Change: Good morning, everyone.
Hi, there.
Speaker Change: There have been some questions on restructuring asked already I just wanted to get the specific clarification. So are you seeing some of these restructuring costs.
Speaker Change: Cost predominantly onshore getting moved to offshore or G. C season are you seeing increased hiring in GCC.
Speaker Change: As you move those costs from onshore operations to offshore operations.
Speaker Change: Some of it yes, we're offshoring more and that's true, especially on the on the SG&A side. Because we are also doing some restructuring on the SG&A.
Speaker Change: And what I'm, saying, yes across the world and some of that exercise will be to move more of these of these SG&A.
Speaker Change: To India for example in Asia Pac.
Speaker Change: It is also related to some automation that we're doing more and that's done with our Indian teams, but some of it is also just to improve.
Speaker Change: The utilization for example in some of the countries.
Speaker Change: Where are they they theyre doing let's say more business consulting for example.
Speaker Change: With the slowdown that we saw.
Speaker Change: It's putting pressure on their utilization rates and we need to do some action there to.
Speaker Change: To improve.
Speaker Change: Sounds good.
Speaker Change: The U S on.
Speaker Change: The U S front and specifically the U S Federal front the company I E.
Speaker Change: It was a pretty interesting acquisition. How are you seeing that acquisition are the result of that acquisition trending currently given all that's going on with dose and broader U S federal and the tariff related concerns across the U S.
Speaker Change: Yeah.
Speaker Change: Thanks.
Speaker Change: E on is.
Speaker Change: Great acquisition.
Speaker Change: The defense sector in the U S federal and.
Speaker Change: That's a sector that we don't see.
Speaker Change: So the slowdown on that side and that's true for U S. Federal is true across across the world.
Speaker Change: We are seeing and governments across the world more investment that will be done.
Speaker Change: The defense sector and and so that's that's opportunities for us naturally we're not in the frontline, but say we are in the back office of a lot of these defense ministry across the world, including U S and that's why we did the acquisition of <unk> and we are saying that we.
Speaker Change: See that we'll have a good opportunities in the future.
Speaker Change: In the defense side.
Speaker Change: And thank you so much and my last question just on M&A, you briefly mentioned and I know you've said this isn't it in the past that you would continue to look at potential Council made an acquisition there.
Speaker Change: Geography, or a capability set that you have in mind, when you're looking at acquisitions.
Speaker Change: Is it strictly on the transfer made it it would have to be a pretty sizable acquisition. If you were to do that so what is the thought process on that front and that'll be it for me. Thank you yeah. Okay. Thanks <unk>.
Speaker Change: For sure on the transformational side and again or not.
Speaker Change: We will look at all the industry all of the other geographies.
Speaker Change: But for sure in the sweet spot would be in the U S, especially the U S commercial.
Speaker Change: That would be our sweet spot if we can find more.
Speaker Change: Transformational one in that side.
Speaker Change: Germany is another one.
Speaker Change: It would be a good sweet spot to find a.
Speaker Change: Transfer my usual one.
Speaker Change: But again.
Speaker Change: Not that we wouldn't look at all the assets.
Speaker Change: Actual assets across the world to see if we can bring.
Speaker Change: Bring a very good return on that transformation on one other geography naturally we will look at it also.
Speaker Change: Thanks Francois.
Speaker Change: Okay.
Speaker Change: Thank you next.
Speaker Change: Next question will be from Robert Young of Canaccord. Please go ahead.
Robert Young: Hi, good morning.
Speaker Change: I think I've heard you mentioned utilization.
Robert Young: More times in this call then.
Robert Young: Recently, and so just maybe some commentary around utilization, where you think the trend is there.
Robert Young: Is it possible or maybe you could talk about the difference in utilization across the maintenance services and consulting whether that utilization that can be portable can you.
Robert Young: Low down in consulting can move people to managed services.
Robert Young: And.
Robert Young: And then maybe if you could just broaden that out just on the other near term headwinds on margins. How we how we should think about that because it seems as though there may be higher pricing pressure and maybe some margin pressure from recent M&A. If you could just wrap that into our margin outlook for the near term that would be helpful.
Robert Young: Alright, Thanks, Robert for the question Yeah, Yeah.
Robert Young: First of all Youre right you know we are.
Robert Young: Looking every time to see how we can move people from from S. I N C to managed services when it's feasible nationally. So so when we're looking at utilization, yes, we have some soft spot in some area like I was saying in continental Europe.
Robert Young: But it's not stopping us that we are looking at it globally.
Robert Young: Seeing how we can.
Robert Young: Move some some some.
Robert Young: Some people from from.
Robert Young: From one place to the other to fulfill needs from clients asphalt margin for sure you know again on the short term we have some tailwind and headwinds like you are saying we are we did several M&A.
Robert Young: Acquisitions, so naturally we need to integrate them.
Robert Young: And our.
Robert Young: And CGI and sometimes it's taking sometimes to improve their EBIT margin to the level of.
Robert Young: Or the standard of CGI and that's that's taking it can take several quarters to come to that.
Robert Young: On the on the restructuring.
Robert Young: Again in some countries, it's taking a certain time.
Robert Young: To action. These are these.
Robert Young: Yeah to action. These are are these.
Robert Young: These restructuring so it will take us some places a couple of quarters. So so I would say that you can see an improvement on the EBIT margin, but not necessarily.
Robert Young: In a very short term, but I would continue to say that in the medium term.
Robert Young: We want to improve.
Robert Young: Some of these EBIT margin in Europe, and bring us back on their historical.
Robert Young: The margin that they had in the past.
Robert Young: But we need to go through these actions before.
Speaker Change: Okay. Thanks, and then for a second question. When you were talking about takeaways from customer discussions you highlighted more focus on outcome focused delivery and you also mentioned I think our I think it was related to U S. Federal I think you mentioned, maybe a subtle shift towards outcome based contracting and it was just it.
Speaker Change: Is there a change in the way our U S. Federal is looking at contracting based on pricing related to outcomes and how that might change CGI if that's.
Speaker Change: And in any way a large factor here and then I'll pass the line.
Speaker Change: Yeah, no. Thanks, I know, it's a good question.
Speaker Change: We have already discussed.
Speaker Change: Just perhaps over the 50% of our contract with the federal government that's all out.
Speaker Change: Outcome based contracting and again, our understanding is that they want to push more.
Speaker Change: On that level right. So as you know also one other contracting method that they have.
Speaker Change: As cost plus and what we're hearing at least an understanding where their discussion is that they would like to move.
Speaker Change: Out of these are cost plus contract how easy it is to it will happen and why I say it will happen I don't know.
Speaker Change: But that's really that's the focus of dose those wants to go more and more and more an outcome base.
Speaker Change: <unk>, we don't have any issue with that approach. So we like even that approach because it's a it's a share so share benefit approach, one who are doing that kind of in and thats really what they want to achieve so so so that's the kind of conversation we have with that.
Speaker Change: We will continue in the future and again, we're not afraid then and I think that's the right way of going anyway.
Speaker Change: Okay. Thanks, I'll pass the line.
Speaker Change: Sylvia we have time for one more question. Please certainly.
Speaker Change: Our next question will be from Jay homes Boy at this all day.
Speaker Change: Okay.
Speaker Change: They've all got them on the first question.
Speaker Change: <unk> is on the bookings there were there were strong in the context and I'm looking to find more about the average duration of contract as a whole you talked about it for the U S federal side.
Speaker Change: So maybe a similar line of thought as Paul had I'm looking for color on what bookings means for for your future revenue. So are the stronger bookings maybe in part due to longer duration enough.
Speaker Change: Contracts any color there would be helpful.
Speaker Change: But for sure you know.
Speaker Change: We have a couple of a multiyear contract.
Speaker Change: Like I was saying the large bank in the U S. The state of California.
Speaker Change: Multiyear contract.
Speaker Change: And like I was saying also on the federal side.
Speaker Change: The size, where they had multi years in the past and I'm not saying they won't come back to multi years, but in this in this environment.
Speaker Change: It's mostly bridge contract that we signed a lot of risk contract outside a couple of larger one but a lot of bridge contract. So as you know.
Speaker Change: J S.
Speaker Change: Managed services will have tendency to be multi year contract versus as I can see.
Speaker Change: Short term return.
Speaker Change: Contracting.
Speaker Change: Thank you a.
Speaker Change: Follow up for me.
Speaker Change: In terms of maybe I don't know if you want to call. It suffering a on IR just hosting more data in local countries out of the U S.
Speaker Change: I think infrastructure is not necessarily your favorite business to invest in I Wonder. If this is different this time as governments are local corporations are trying to diversify their source of data or is this a potential area of attractive business for you.
Speaker Change: Yeah very good question.
Speaker Change: We had always had some some some in <unk>.
Speaker Change: First sector business, we're still you know, yes, it shrink a lot in the last several years, but we're still at 10 ish percent of.
Speaker Change: And infrastructure business, we're offering our IP.
Speaker Change: On the SaaS model on our premises.
Speaker Change: And and public cloud and we're still having some some full managed services, where we are going to win the infrastructure business.
Speaker Change: Business also for our for our clients for sure you're right. That's a lot of more discussion about the data sovereignty and digital sovereignty and for sure. We'll stay close to this and if it's asking us because again, we will always be.
Speaker Change: Most of our clients and therefore, our clients ask more on Prem.
Speaker Change: Prem services.
Speaker Change: We'll be there to support them.
Speaker Change: Thank you and maybe one last for me if you had a guidance that was for a part of it is for the year would you have changed it today.
Speaker Change: Wow.
Speaker Change: That's a good way of Chinese if that's what you want right.
Speaker Change: [laughter] Oh.
Speaker Change: It's al.
Speaker Change: Like.
Speaker Change: I won't give guidance that's for sure.
Speaker Change: The if I would say from Q1 to Q2.
Speaker Change: A lot of things happen right.
Speaker Change: When we talked at the end of January versus some discussions happen or some macro trends while macro dynamic we're.
Speaker Change: We're not there necessarily or I was not looking at them like that at the end of January.
Speaker Change: It's it's moving it's a dynamic environment, so it's moving pretty very facts.
Speaker Change: And so it's that's why also we're not a we don't want to give guidance because again, it's very difficult.
Speaker Change: To do that but again at the end of the day you know we have a lot of opportunities.
Speaker Change: We're working on and a lot of.
Speaker Change: We have a lot of.
Speaker Change: Discussion of our clients and we can see a lot of opportunities on the market.
Speaker Change: I appreciate it.
Speaker Change: This does conclude our question period for today I would like to turn the call back over to Kevin Linda.
Kevin Linda: Thanks, everyone for participating and as a reminder, a replay of the call will be available either via our website or by dialing 18886606264 and using the pass code 90 5409.
Kevin Linda: As well a podcast on this call will be available for download within a few hours follow up questions can be directed to me at one 905 973 <unk> hundred six three thanks again, everyone and look forward to speaking soon.
Speaker Change: Thank you, Sir ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines.
Speaker Change: Okay.
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Speaker Change: [music].