Q3 2026 CGI Group Inc Earnings Call

July 29, 2026

Speaker #1: Good morning, ladies and gentlemen. Welcome to CGI's third quarter fiscal 2026 conference call. I would now like to turn the meeting over to Mr. Kevin Linder, SVP of Investor Relations.

Operator: Good morning, ladies and gentlemen. Welcome to CGI's Q3 fiscal 2026 conference call. I would now like to turn the meeting over to Mr. Kevin Linder, SVP of Investor Relations. Please go ahead, Mr. Linder.

Operator: Good morning, ladies and gentlemen. Welcome to CGI's Q3 Fiscal 2026 Conference Call. I would now like to turn the meeting over to Mr. Kevin Linder, SVP of Investor Relations. Please go ahead, Mr. Linder.

Speaker #1: Please go ahead, Mr. Linder.

Speaker #2: Thank you, Joelle, and good morning. With me to discuss CGI's third quarter fiscal 2026 results are Tim Hurlabis, our president and CEO, and Steve Perron, executive vice president and CFO.

Kevin Linder: Thank you, Joelle, and good morning. With me to discuss CGI's Q3 fiscal 2026 results are Tim Hurlebaus, our President and CEO, and Steve Perron, Executive Vice President and CFO. This call is being broadcast on cgi.com and recorded live at 9:00 AM Eastern Time on Wednesday, 29 July 2026. Supplemental slides, as well as a press release we issued early this morning, are available for download along with our 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, 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.

Kevin Linder: Thank you, Joelle, and good morning. With me to discuss CGI's Q3 Fiscal 2026 Results are Tim Hurlebaus, our President and CEO, and Steve Perron, Executive Vice President and CFO. This call is being broadcast on cgi.com and recorded live at 9:00 AM Eastern Time on Wednesday, 29 July 2026. Supplemental slides, as well as a press release we issued early this morning, are available for download along with our 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, 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 #2: This call is being broadcast on CGI.com and recorded live at 9:00 a.m. Eastern Time on Wednesday, July 29, 2026. Supplemental slides, as well as a press release reissued early this morning, are available for download along with our MD&A, financial statements, and accompanying notes, all of which have been filed with both SEDAR+ and EDGAR.

Speaker #2: Please note that some statements made on the call may be forward-looking. Actual events and 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 or future events or otherwise.

Speaker #2: 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.

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. Now I'll turn the call over to Steve to review our Q3 financials, and then Tim will comment on our business and market outlook. Steve.

Speaker #2: 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.

Speaker #2: The MD&A contains definitions of each one used in our reporting. All of the dollar figures expressed on this call are Canadian and, unless otherwise noted.

Speaker #2: Now, I'll turn the call over to Steve to review our Q3 financials and then Tim will comment on our business and market outlook. Steve.

Speaker #3: Thank you, Kevin. And good day, everyone. In our third quarter of fiscal 2026, we are pleased with our revenue growth, delivery of strong EPS accretion, and cash generation.

Steve Perron: Thank you, Kevin, and good day everyone. In our Q3 of fiscal 2026, we are pleased with our revenue growth, delivery of strong EPS accretion, and cash generation. In the quarter, we delivered CAD 4.2 billion of revenue, up 2.5% year-over-year, or up 1.3% when excluding the impact of foreign exchange. Growth was primarily driven by our recent business acquisitions, representing approximately 2.5%. Our clients, particularly those in financial services within North America, continue to utilize our global delivery centers, contributing to organic growth in our APAC segment of 9.7% in the quarter. In our Western and Southern Europe segment, with our acquisition of Umanis, growth was 8.6%. As expected, our US Federal segment improved sequentially, reporting year-over-year organic growth of 2.5% in Q3.

Speaker #3: In the quarter, we delivered 4.2 billion dollars of revenue up 2.5% year over year, or up 1.3% when excluding the impact of foreign exchange.

Speaker #3: Growth was primarily driven by our recent business acquisitions representing approximately 2.5%. Our clients, particularly those in financial services within North America, continue to utilize our global delivery centers, contributing to organic growth in our APAC segment of 9.7% in the quarter.

Speaker #3: In our Western and Southern Europe segment, with our acquisition of EPSID, growth was 8.6%. And as expected, our U.S. federal segment improved sequentially, reporting year over year organic growth of 2.5% in Q3.

Speaker #3: Bookings in the quarter were $4.2 billion, or a book-to-bill ratio of 100%, with U.S. federal at 115%, followed by Germany at 114%. On a trailing 12-month basis, bookings totaled $17.8 billion, or a book-to-bill ratio of 108%.

Steve Perron: Bookings in the quarter were CAD 4.2 billion, or a book to bill ratio of 100%, with US Federal at 115%, followed by Germany at 114%. On a trailing 12-month basis, bookings totaled CAD 17.8 billion for a book to bill ratio of 108%. Managed services had a book to bill ratio of 115%, and the SI&C book to bill ratio was 100%. Our contracted backlog stands at CAD 31.8 billion, or 1.9x revenue. Of the CAD 31.8 billion, we have just over CAD 12 billion in already contracted revenue to be realized over the next 12 months. This is a 5% increase compared to Q2. Turning to profitability, Adjusted EBIT in the quarter was CAD 682 million, up 2.3% year-over-year, for a margin of 16.3%, consistent with the prior year. Earnings before income taxes were CAD 634 million for a margin of 15.1%.

Speaker #3: Managed services add a book-to-bill ratio of 115%, and the SINC book-to-bill ratio was 100%. Our contracted backlog stands at 31.8 billion dollars, or 1.9 times revenue.

Speaker #3: Of the 31.8 billion dollars, we have just over 12 billion dollars in already contracted revenue, to be realized over the next 12 months. This is a 5% increase compared to Q2.

Speaker #3: Turning to profitability, adjusted EBIT in the quarter was $682 million, up 2.3% year-over-year, for a margin of 16.3%, consistent with the prior year.

Speaker #3: Earnings before income taxes were $634 million, for a margin of 15.1%. Our effective tax rate in the quarter was 26.5%, an increase from the 26% in the prior year, when excluding the tax impacts from acquisition and related integration costs.

Steve Perron: Our effective tax rate in the quarter was 26.5%, an increase from the 26% in the prior year when excluding the tax impacts from acquisition and related integration costs. The increase is mainly explained by the new corporate tax surcharge in France, representing CAD 3 million. Based on enacted rates at the end of the quarter and our current profitability mix, we expect our tax rate for future quarters to be in the range of 26% to 27%. On a GAAP basis, net earnings were CAD 465 million, up CAD 57 million for a margin of 11.1%. Diluted EPS was CAD 2.23, an accretion of 22.5% when compared to Q3 last year. Adjusted net earnings were CAD 478 million, up CAD 8 million for a margin of 11.4%. On the same basis, diluted EPS was CAD 2.29, an accretion of 9% when compared to Q3 last year. Turning to cash.

Speaker #3: The increase is mainly explained by the new corporate tax surcharge in France, representing $3 million. Based on enacted rates at the end of the quarter and our current profitability mix, we expect our tax rate for future quarters to be in the range of 26% to 27%.

Speaker #3: On a GAAP basis, net earnings were 465 million dollars, up 57 million dollars, for a margin of 11.1%. Diluted EPS was 2 dollars and 23 cents, an increase of 22.5%, when compared to Q3 last year.

Speaker #3: Adjusted net earnings were 478 million dollars, up 8 million dollars, for a margin of 11.4%. On the same basis, diluted EPS was 2 dollars and 29 cents, an increase of 9%, when compared to Q3 last year.

Speaker #3: Turning to cash. In Q3, we generated 605 million dollars, representing 14.4% of total revenue. Our cash on a trading 12-month basis was 2.6 billion dollars, representing a very strong 15.8% of revenue.

Steve Perron: In Q3, we generated CAD 605 million, representing 14.4% of total revenue. Our cash on a trailing 12-month basis was CAD 2.6 billion, representing a very strong 15.8% of revenue. DSO was 43 days, unchanged when compared to the prior year. In Q3, we continued to deploy our capital and invested CAD 105 million back into our business, which includes strategic investments in advanced AI, CAD 50 million for business acquisitions, CAD 413 million to buy back our stock, and in addition, we returned CAD 36 million to our shareholders under our dividend program. Yesterday, our board of directors approved a quarterly cash dividend of CAD 0.17 per share. This dividend is payable on 18 September 2026, to shareholders of records as of the close of business on 14 August 2026. At quarter end, CGI had CAD 3.2 billion in capital resources readily available and a net debt leverage ratio of just over one.

Speaker #3: PSO was 43 days unchanged, when compared to the prior year. In Q3, we continued to deploy our capital and invested 105 million dollars back into our business, which includes strategic investments in advanced AI, acquisitions, 413 million dollars to buy back our stock, and in addition, we returned 36 million dollars to our shareholders under our dividend program.

Speaker #3: Yesterday, our board of directors approved a quarterly cash dividend of 17 cents per share. This dividend is payable on September 18, 2026, to shareholder of records as of the close of business on August 14, 2026.

Speaker #3: At quarter end, CGI at 3.2 billion dollars in capital resources readily available, and a net debt leverage ratio of just over 1. Our capital allocation priorities have remained consistent, and focused on our value creation stream for our shareholders.

Steve Perron: Our capital allocation priorities have remained consistent and focused on our value creation stream for our shareholders. Investing back in the business to drive revenue growth through managed services, SI and C&IP, pursuing accretive acquisitions, share buybacks, where we continue to be active in our share repurchase program, and quarterly cash dividend distributions. I will turn the call over to Tim to further discuss insights on our performance and the outlook for our business. Tim?

Speaker #3: Investing back in the business to drive revenue growth through managed services, SINC and IP, pursuing accretive acquisitions, share buybacks where we continue to be active in our share repurchase program, and quarterly cash dividend distributions.

Speaker #3: Now, I will turn the call over to Tim to further discuss insights on our performance and the outlook for our business. Tim?

Speaker #2: Thank you, Steve, and good morning, everyone. CGI's results in the quarter continue to reflect our positioning to meet client demand as well as our operational excellence, both of which contributed to revenue growth, EPS accretion, strong cash generation, and a rising opportunity pipeline.

Tim Hurlebaus: Thank you, Steve, and good morning, everyone. CGI's results in the quarter continue to reflect our positioning to meet client demand as well as our operational excellence, both of which contributed to revenue growth, EPS accretion, strong cash generation, and a rising opportunity pipeline. These outcomes reinforce our confidence in CGI's strategy and team. Thank you to our consultants around the world for earning the trust of our clients every day. Your expertise, insights, and commitment made these results possible. I'd like to take a moment to give a special message to our colleagues and clients in Northwest Spain and Southwest France who have been dealing with the wildfires. We understand this morning that the government has given the okay to move back into the evacuated areas. Most importantly, as far as we're aware, there was no impact to human life, which is the thing that really matters.

Speaker #2: These outcomes reinforce our confidence in CGI's strategy and team. Thank you to our consultants around the world for earning the trust of our clients every day. Your expertise, insights, and commitment made these results possible.

Speaker #2: I'd like to take a moment to give a special message to our colleagues and clients in Northwest Spain, and Southwest France, who have been dealing with the wildfires we understand this morning that the government has given the OK to move back into the evacuated areas, and most importantly, as far as we're aware, there was no impact to human life, which is the thing that really matters.

Speaker #2: But know that we are with you as you get back up and operational after this devastating event. Today, I will focus on performance highlights before turning to the business environment and growth outlook.

Tim Hurlebaus: Know that we are with you as you get back up and operational after this devastating event. Today, I will focus on performance highlights before turning to the business environment and growth outlook. For the first three quarters of fiscal 2026, revenue was up 4.4%, or 2.1% on a constant currency basis, to CAD 12.4 billion. Adjusted EBIT was up 4% to CAD 2 billion. Adjusted EPS was up 8% to CAD 6.67. On a trailing 12-month basis, cash from operations was up 18%, totaling CAD 2.6 billion, strengthening our financial capacity to execute our profitable growth strategy. Clients are turning to CGI for enterprise scale initiatives with advanced AI embedded. This client trust drove bookings of CAD 17.8 billion over the past year, up by CAD 1.2 billion compared to the previous year. On this same trailing 12-month basis, book to bill was 112%.

Speaker #2: For the first three quarters of fiscal 2026, revenue was up 4.4%, or 2.1%, on a conflict currency basis to 12.4 billion dollars. Adjusted EBIT was up 4% to 2 billion dollars.

Speaker #2: Adjusted EPS was up 8% to 6 dollars and 67 cents, and on a trailing 12-month basis, cash from operations was up 18%, totaling 2.6 billion dollars, strengthening our financial capacity to execute our profitable growth strategy.

Speaker #2: Clients returning to CGI for enterprise-scale initiatives, with advanced AI embedded. This client trust drove bookings of 17.8 billion dollars over the past year, up by 1.2 billion dollars compared to the previous year.

Speaker #2: On this same trailing 12-month basis, book-to-bill was 112%. Backlog also remained strong, representing nearly two years of annual revenue, propelled by ongoing multi-year managed services and IP engagements.

Tim Hurlebaus: Backlog also remains strong, representing nearly two years of annual revenue, propelled by ongoing multi-year managed services and IP engagements. Client demand for managed services remains high. Given the nature of these larger and longer term engagements, we assess the health of managed services bookings on a trailing 12-month period, giving the typical step growth nature of this business. On this basis, managed services wins reached CAD 10.3 billion, up 5% over the previous period for a book-to-bill of 115%. Notably, the demand for our managed services, which integrate AI and IP, is also evident in proposals already submitted. Compared to this time last year, the number of proposals pending client decision has more than doubled, and the total contract value is more than 50% higher. Given the strength of our value proposition, our win rate on managed services engagements is high.

Speaker #2: Client demand for managed services remains high, given the nature of these larger and longer-term engagements, we assess the health of managed services bookings on a trailing 12-month period, giving the typical step growth nature of this business.

Speaker #2: On this basis, managed services wins reached 10.3 billion dollars, up 5% over the previous period, for a book-to-bill of 115%. Notably, the demand for our managed services, which integrate AI and IP, is also evident in proposals already submitted, compared to this time last year, the number of proposals pending client decision has more than doubled, and the total contract value is more than 50% higher.

Speaker #2: Given the strength of our value proposition, our win rate on managed services engagements is high, these are positive indicators, we expect to contribute to bookings and revenue momentum in the quarters ahead.

Tim Hurlebaus: These are positive indicators we expect to contribute to bookings and revenue momentum in the quarters ahead. In Q3, the renewed strength in Systems Integration and Consulting continued, with strong client awards across financial services, government, and manufacturing, each with book-to-bill ratios of 103% or higher. At the core of this improvement is demand for CGI's industry understanding and technical expertise, both of which are required to help clients operationalize AI. Specific to consulting services, client awards in the quarter were up 11% year-over-year. This uptick contributed to a rise in the trailing 12-month book-to-bill, now at 108%. This increase was driven by offerings for change management, CIO advisory, security and risk advisory, as well as our proven consulting approach to help clients align their business strategy, operating model, and transformation roadmap.

Speaker #2: In Q3, the renewed strength in systems integration and consulting continued, with strong client awards across financial services, government, and manufacturing, each with book-to-bill ratios of 103% or higher.

Speaker #2: At the core of this improvement is demand for CGI's industry understanding and technical expertise. Both of which are required to help clients operationalize AI.

Speaker #2: Specific to consulting services, client awards in the quarter were up 11% year over year, this uptick contributed to a rise in the trailing 12-month book-to-bill, now at 108%.

Speaker #2: This increase was driven by offerings for change management, CIO advisory, security and risk advisory, as well as our proven consulting approach to help clients align their business strategy, operating model, and transformation roadmap.

Speaker #2: In addition to driving shorter-term revenue, CGI's SINC services often set the stage for future managed services engagements as clients shift from design and development into implementation.

Tim Hurlebaus: In addition to driving shorter-term revenue, CGI's SI&C services often set the stage for future managed services engagements as clients shift from design and development into implementation. Representative Q3 bookings illustrate the breadth of CGI's full services portfolio. For example, the U.S. General Services Administration awarded CGI a US $251 million modernization contract, which combines CGI's Momentum platform in a secure AWS environment with AI-powered automation to improve efficiency, reduce costs, and advance the secure operations of their financial management environment. SSAB, a global steel manufacturer, expanded its strategic partnership with CGI to modernize business-critical IT operations in Finland and Sweden, strengthening business continuity, supply chain reliability, and AI-enabled manufacturing transformation. The UK Ministry of Defence expanded its relationship with CGI to modernize and operate mission-critical electronic warfare and intelligence capabilities, reinforcing our role as a trusted partner for supporting national security and defense readiness.

Speaker #2: Representative Q3 bookings, illustrate the breadth of CGI's full services portfolio. For example, the US General Services Administration awarded CGI a US $251 million modernization contract, which combined CGI's momentum platform and a secure AWS environment with AI-powered automation to improve efficiency, reduce costs, and advance the secure operations of their financial management environment.

Speaker #2: SSAB, a global steel manufacturer, expanded its strategic partnership with CGI to modernize business-critical IT operations in Finland and Sweden, strengthening business continuity, supply chain reliability, and AI-enabled manufacturing transformation.

Speaker #2: The UK Ministry of Defence expanded its relationship with CGI to modernize and operate mission-critical electronic warfare and intelligence capabilities, reinforcing our role as a trusted partner for supporting national security and defence readiness.

Speaker #2: ORAGE, a leading global telco, named CGI a strategic partner for the first wave of its IT transformation, with focus on application modernization, cloud adoption, and enabling data and AI capabilities across critical business and network operations.

Tim Hurlebaus: Orange, a leading global telco, named CGI a strategic partner for the first wave of its IT transformation, with focus on application modernization, cloud adoption, and enabling data and AI capabilities across critical business and network operations. The City of Munich selected CGI to advance digital government services, improve administrative efficiency, and strengthen technological sovereignty through services including digital transformation consulting, system development, and IT security. Posti, a leading Nordic transportation and logistics company, awarded CGI an expanded agreement spanning the full communications value chain, extending our role in delivering integrated omnichannel communications with greater reach, delivery reliability, and cost predictability. CGI is one of two companies selected by Poland's social insurance institution to support the continued development of one of the country's largest public sector IT systems, using AI-enabled capabilities to improve software development efficiency and accelerate delivery of secure, citizen-focused digital services.

Speaker #2: The City of Munich, selected CGI to advance digital government services, improve administrative efficiency, and strengthen technological sovereignty through services including digital transformation consulting, system development, and IT security.

Speaker #2: POSTE, a leading Nordic transportation and logistics company, awarded CGI an expanded agreement spanning the full communications value chain, extending our role in delivering integrated, omnichannel communications with greater reach, delivery reliability, and cost predictability.

Speaker #2: And CGI is one of two companies selected by Poland's Social Insurance Institution to support the continued development of one of the country's largest public sector IT systems, using AI-enabled capabilities to improve software development efficiency and accelerate delivery of secure, citizen-focused digital services.

Speaker #2: As these new awards demonstrate, and as I've heard consistently from client executives over the past few months, AI is not changing what organizations want to accomplish.

Tim Hurlebaus: As these new awards demonstrate, and as I've heard consistently from client executives over the past few months, AI is not changing what organizations want to accomplish. Clients want to grow their businesses, serve customers and citizens, improve productivity, and manage risk. What has changed is how quickly they expect technology to help them achieve those objectives. As was the case in previous technology cycles, AI is moving from experimentation into everyday operations, just at a faster pace and with a higher expectation for return on investment. Client conversations are increasingly centered on how to deploy AI securely, operate it responsibly and cost effectively, and embed flexibility to evolve as technology advances. With this shift in mind, we see several demand trends reshaping how clients procure, partner, and deliver IT services. Clients are increasingly seeking fewer strategic partners to help them navigate technology change over the long term.

Speaker #2: Clients want to grow their businesses, serve customers and citizens, improve productivity, and manage risk. What has changed is how quickly they expect technology to help them achieve those objectives.

Speaker #2: As was the case in previous technology cycles, AI is moving from experimentation into everyday operations, just at a faster pace and with a higher expectation for return on investment.

Speaker #2: Client conversations are increasingly centered on how to deploy AI securely, operate it responsibly and cost-effectively, and embed flexibility to evolve as technology advances. With this shift in mind, we see several demand trends reshaping how clients procure, partner, and deliver IT services.

Speaker #2: Clients are increasingly seeking fewer strategic partners to help them navigate technology change over the long term. Their capacity to evolve becomes as important as the technology itself.

Tim Hurlebaus: Their capacity to evolve becomes as important as the technology itself. This is where CGI has always had an advantage. We are not defined by a single platform, product, or service. Our teams help clients make the right decisions for their organization, implement those decisions successfully, and continue adapting in line with technology innovation. We believe that independence is becoming increasingly important as innovation accelerates. We are seeing this advantage for CGI reflected in procurement initiatives. During the quarter, we were selected as a strategic partner through multiple vendor consolidation initiatives in the US with clients in financial services, airline operations, and retail. As advanced AI matures, clients are starting to move beyond the technology itself to focus more on how to scale successfully. Modern data, cybersecurity, engineering, organizational readiness, and cost management have become central to this discussion.

Speaker #2: This is where CGI has always had an advantage. We are not defined by a single platform, product, or service. Our teams help clients make the right decisions for their organization, implement those decisions successfully, and continue adapting in line with technology innovation.

Speaker #2: We believe that independence is becoming increasingly important as innovation accelerates. We are seeing this advantage for CGI reflected in procurement initiatives. During the quarter, we were selected as a strategic partner through multiple vendor consolidation initiatives in the US, with clients in financial services, airline operations, and retail.

Speaker #2: As advanced AI matures, clients are starting to move beyond the technology itself to focus more on how to scale successfully. Modern data, cybersecurity, engineering, organizational readiness, and cost management have become central to this discussion.

Speaker #2: Increasingly, clients want to partner to help govern and manage AI effectively and economically in order to drive sustainable value. These demand patterns are also driving some client organizations to more deeply embed external technology expertise.

Tim Hurlebaus: Increasingly, clients want a partner to help govern and manage AI effectively and economically in order to drive sustainable value. These demand patterns are also driving some client organizations to more deeply embed external technology expertise. While this may now be described as being forward deployed, it is well-aligned with CGI's model. Our professionals work alongside clients as an extension of their teams, combining technical expertise with a deep understanding of how their organizations and industries operate. As AI becomes embedded in daily work, that proximity becomes even more valuable because successful adoption depends on continuous collaboration, not a one-time implementation. To deepen our client capabilities close to clients, we are expanding CGI's sovereign AI capabilities through new high-security platforms and sovereign cloud partnerships. These investments help clients adopt AI while maintaining control over sensitive data and addressing both regulatory compliance and national security requirements.

Speaker #2: While this may now be described as being forward deployed, it is well aligned with CGI's model. Our professionals work alongside clients as an extension of their teams, combining technical expertise with a deep understanding of how their organizations and industries operate.

Speaker #2: As AI becomes embedded in daily work, that proximity becomes even more valuable, because successful adoption depends on continuous collaboration not a one-time implementation. To deepen our client capabilities close to clients, we are expanding CGI's sovereign AI capabilities through new high-security platforms and sovereign cloud partnerships.

Speaker #2: These investments help clients adopt AI while maintaining control over sensitive data, and addressing both regulatory compliance and national security requirements. Taken together, these trends reinforce a key observation.

Tim Hurlebaus: Taken together, these trends reinforce a key observation. Enterprise AI success will increasingly be measured by what organizations can operationalize and sustain over time. That is how long-term business and mission value will be created. This evolution aligns well with CGI's strategy and with the IT services investment patterns we see across industries. Clients are investing in four categories, typically starting with improving their current operations. They modernize the technology foundation needed to scale advanced AI and other innovations. They build new AI-first products, services, and business capabilities that create competitive advantage or better serve their constituents. Across each of these categories, they also need strategic guidance to adapt their operating models as technology evolves. These four categories reflect where we continue to invest and where we see the greatest opportunities to drive future growth.

Speaker #2: Enterprise AI success will increasingly be measured by what organizations can operationalize and sustain over time. That is how long-term business and mission value will be created.

Speaker #2: This evolution aligns well with CGI's strategy and with the IT services investment patterns we see across industries. Clients are investing in four categories: typically starting with improving their current operations; then they modernize the technology foundation needed to scale advanced AI and other innovations. From there, they build new AI-first products, services, and business capabilities that create competitive advantage or better serve their constituents.

Speaker #2: Across each of these categories, they also need strategic guidance to adapt their operating models as technology evolves. These four categories reflect where we continue to invest and where we see the greatest opportunities to drive future growth.

Speaker #2: This is demonstrated in the rising pipeline of opportunities that are expected to close over the next year, specifically our managed services opportunity pipeline is up by 20% compared to this time last year, and SI and C opportunities are up by more than 30%.

Tim Hurlebaus: This is demonstrated in the rising pipeline of opportunities that are expected to close over the next year. Specifically, our managed services opportunity pipeline is up by 20% compared to this time last year, and SI&C opportunities are up by more than 30%. The total pipeline of IP opportunities, which are embedded across these major lines of business, is up more than 30%. Across all four categories, demand is rising for CGI talent. Hiring is up more than 10% on a sequential quarter basis and 50% compared to Q3 last year. This is led by our US segments, where strong year-to-date bookings are being staffed as projects ramp up. In addition, we see an increase in year-over-year hiring in open billable positions in Asia Pacific based on our value proposition, which combines industry domain and technology expertise, as well as proven global capability center models.

Speaker #2: The total pipeline of IP opportunities, which are embedded across these major lines of business, is up more than 30%. Across all four categories, demand for is rising for CGI talent.

Speaker #2: Hiring is up more than 10% on a sequential quarter basis, and 50% compared to Q3 last year. This is led by our U.S. segments, where strong year-to-date bookings are being staffed as projects ramp up.

Speaker #2: In addition, we see an increase in year-over-year hiring and open billable positions in Asia Pacific, based on our value proposition, which combines industry domain and technology expertise, as well as proven global capability center models.

Speaker #2: As advanced AI continues to be increasingly embedded as part of our deals and offerings, CGI's overall pipeline of opportunities over the next 12 months is up by more than 10% year-over-year, as is the proportion of opportunities where AI is embedded in our services.

Tim Hurlebaus: As advanced AI continues to be increasingly embedded as part of our deals and offerings, CGI's overall pipeline of opportunities over the next 12 months is up by more than 10% year over year, as is the proportion of opportunities where AI is embedded in our services. Specifically, the segment of the total pipeline with AI-based services is now nearly CAD 10 billion, double in size since last year. One of CGI's enduring strengths is our capacity to invest through every business cycle. Our financial strength provides flexibility to continue investing in our business, pursuing strategic acquisitions, and returning capital to shareholders while maintaining the discipline that has consistently differentiated CGI. Our buy strategy remains critical to how we build and grow for the future. Our focus remains on deepening our industry expertise, strengthening our capabilities, and expanding our metro market presence and client relationships.

Speaker #2: Specifically, the segment of the total pipeline with AI-based services is now nearly $10 billion, double in size since last year. One of CGI's enduring strengths is our capacity to invest through every business cycle.

Speaker #2: Our financial strength provides flexibility to continue investing in our business, pursuing strategic acquisitions, and returning capital to shareholders, while maintaining the discipline that has consistently differentiated CGI.

Speaker #2: Our buy strategy remains critical to how we build and grow for the future. Our focus remains on deepening our industry expertise strengthening our capabilities, and expanding our metro market presence and client relationships.

Speaker #2: CGI's M&A pipeline remains active across both metro markets and larger strategic opportunities. As always, we will remain disciplined in our approach. Every opportunity must strategically strengthen CGI, complement our culture, and create accretive value for all of our stakeholders.

Tim Hurlebaus: CGI's M&A pipeline remains active across both metro market and larger strategic opportunities. As always, we will remain disciplined in our approach. Every opportunity must strengthen CGI strategically, complement our culture, and create accretive value for all of our stakeholders. In closing, as AI and other emerging technologies continue to become part of how enterprises operate, client needs are naturally expanding. Through more than 50 years of technology innovation, we have learned that lasting value rarely comes from solely adopting new technology. It comes from evolving the organization as those technologies offer new ways to create business value. This is increasingly the role clients need their partners to play, and it is why CGI continues to be best positioned as a partner of choice. Thank you for your continued interest and support. Let's go to the questions now, Kevin.

Speaker #2: In closing, as AI and other emerging technologies continue to become part of our enterprises operate, client needs are naturally expanding. Through more than 50 years of technology innovation, we have learned that lasting value rarely comes from solely adopting new technology.

Speaker #2: It comes from evolving the organization as those technologies offer new ways to create business value. This is increasingly the role clients need their partners to play, and it is why CGI continues to be best positioned as a partner of choice.

Speaker #2: Thank you for your continued interest and support. Let's go to the questions now, Kevin.

Speaker #3: Thanks, Tim. Joelle, we can now pull for questions.

Kevin Linder: Thanks, Tim. Joelle, we can now poll for questions.

Speaker #1: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by one on your touchtone phone.

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your touch tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. Our first question comes from Jerome Dubreuil with Desjardins. Your line is now open

Speaker #1: You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two If you are using a speakerphone, please lift the handset before pressing any keys.

Speaker #1: In our first question comes from Jerome Dubreuil with Desjardins. Your line is now open.

Speaker #2: Thank you for bringing everyone together. Thanks for taking my question. First of all, Tim, congrats on the new role. I want to ask about these strategic tweaks that we should be expecting going forward.

Jerome Dubreuil: Hey, good morning, everyone. Thanks for taking my question. First of all, Tim, congrats on the new role. I want to ask about any strategic tweaks that we should be expecting going forward. In recent tasks, CGI has been perceived externally as being a relatively prudent organization. Any strategic tweaks we should be expecting going forward?

Jérome Dubreuil: Hey, good morning, everyone. Thanks for taking my question. First of all, Tim, congrats on the new role. I want to ask about any strategic tweaks that we should be expecting going forward. In recent tasks, CGI has been perceived externally as being a relatively prudent organization. Any strategic tweaks we should be expecting going forward?

Speaker #2: In recent tests, CGI has been perceived externally as being relatively prudent organization. Any strategic tweaks we should be expecting going forwards?

Speaker #3: Yeah, thanks for your question, Jerome, and thanks for the welcome. Much appreciated. Prudent is an interesting adjective. It's mostly positive, but it has an element of conservatism, I suppose.

Tim Hurlebaus: Yeah. Thanks for your question, Jerome. Thanks for the welcome. Much appreciated. Prudent is an interesting adjective. It's mostly positive, but it has an element of conservatism in it, I suppose. When I think of how we operate and how that adjective is a fair, perhaps, description of the way we've approached the market, I think it means that when I think of ready, aim, fire, we try to be thoughtful in the way we engage with clients. I give you maybe a really successful example of how we've engaged with a large telecom client, international telecom client, in the last two and a half years as they've entered the world of, and again, I call it advanced AI, meaning generative and agentic AI, because AI's been around for decades. I know the term of art is just AI, so there's my translation for you.

Speaker #3: And so, when I think of how we operate and how that adjective is a fair, perhaps, description of the way we've approached the market, I think it means that when I think of 'ready, aim, fire,' we try to be thoughtful in the way we engage with clients.

Speaker #3: And so I'll give you maybe a really successful example of how we've engaged with a large telecom client International Telecom client in the last two and a half years as they've entered the world of and again, I call it advanced AI, meaning generative and agentic AI, because AI has been around for decades.

Speaker #3: I know the term of art is just AI. So there's my translation for you. As they've engaged in these generative and agentic tools, they've set up a master services agreement that we're a part of, where we run a number of use cases with their chief data officer apply these tools to the use cases, and before we start, we define specific measures of return on investment.

Tim Hurlebaus: As they've engaged in these generative and agentic tools, they've set up a master services agreement that we're a part of, where we run a number of use cases with their chief data officer, apply these tools to the use cases, and before we start, we define specific measures of return on investment. We run these exercises. Sometimes they're a couple of months, sometimes they're 4 months, but they're of a specified duration with a specified expectation of return on investment. The expectation is that some won't return on investment, and some will. The ones that don't are stopped after 3 months, 4 months, the effort is redirected to those that are returning the return on investment. That's been a great model for channeling the use of these tools, versus just handing out thousands of licenses and letting everybody see what happens.

Speaker #3: And then we run these exercises, sometimes they're a couple of months, sometimes they're four months, but they're of a specified duration with a specified expectation of return on investment.

Speaker #3: And the investment and some will, but the ones that don't are stopped after three months, four months, and then the effort is redirected to those that are returning the return on investment.

Speaker #3: And that's been a great model for channeling the use of these tools versus just handing out thousands of licenses and letting everybody see what happens.

Speaker #3: And so if prudent means that we take a measured approach with our clients, focused on business value, then that description fits. In terms of strategic priorities, I strategy remains the same.

Tim Hurlebaus: If prudent means that we take a measured approach with our clients focused on business value, then that description fits. In terms of strategic priorities, I think our fundamental strategy remains the same. In terms of what we do next, what's the next most important thing, that's where we adapt, whether it's working in partnership with some of these frontier tools to deliver capabilities to our clients sooner, or whether it's working with hyperscalers to help somebody transform their environment. Those priorities obviously will continue to adapt as our client demands.

Speaker #3: In terms of what we do next, what's the next most important thing, that's where we adapt, whether it's working with in partnership with some of these frontier tools to deliver capabilities to our clients sooner, or whether it's working with a hyperscalers to help somebody transform their environment.

Speaker #3: Those priorities obviously will continue to adapt as our client demands.

Speaker #2: Great, thanks for this. A follow-up question for me is, you've been putting a lot of emphasis on the pipeline in your prepared remarks. That kind of contrasts somewhat with the bookings we're seeing in the quarter.

Jerome Dubreuil: Great. Thanks for this. A follow-up question from me is, you've been putting a lot of emphasis on the pipeline in your prepared remarks. Kind of contrast somewhat with the bookings we're seeing in the quarter. Are you seeing some sort of inflection in the conversations you're having with the clients?

Jérome Dubreuil: Great. Thanks for this. A follow-up question from me is, you've been putting a lot of emphasis on the pipeline in your prepared remarks. Kind of contrast somewhat with the bookings we're seeing in the quarter. Are you seeing some sort of inflection in the conversations you're having with the clients?

Speaker #2: Are you seeing some sort of inflection in the conversations you're having with the clients?

Tim Hurlebaus: Not particularly. I think we did have 100% bookings in the quarter, so they were there. We tend to look at bookings, especially on the managed services side, from a trailing 12 months perspective. By the nature, I think we called it in the remarks, the step growth nature of those products, where there's a transition period where everything's on the balance sheet and then there's a ramp-up after that. Oftentimes when you get those bookings, it takes a while for them to show up in revenue growth. We think trailing 12 months is a better barometer, and you heard us tout those numbers, which are pretty healthy. The emphasis on the pipeline really just means there's more to come. Pipeline is pipeline, and bookings are booking, and revenue is revenue, and that's the order they go in.

Speaker #3: Not particularly. I think we did have 100% bookings in the quarter, so they were there. We tend to look at bookings, especially on the managed services side, from a trailing 12 months perspective.

Speaker #3: But by the nature, I think we called it in the remarks the step-growth nature of those products, where there is a transition period where everything's on the balance sheet, and then there's a ramp-up after that.

Speaker #3: Oftentimes when you get those bookings, it takes a while for them to show up in revenue growth. And so we think trailing 12 months is a better barometer, and you heard us tout those numbers, which are pretty healthy.

Speaker #3: And then just means there's more to come. And pipeline is pipeline, and bookings are booking, and revenue is revenue, and that's the order they go in.

Speaker #3: And so I'm not telling you that everything in the pipeline will become a booking but it certainly is promising to have a bigger pipeline than we've ever had before.

Tim Hurlebaus: I'm not telling you that everything in the pipeline will become a booking, but it certainly is promising to have a bigger pipeline than we've ever had before. Given our traditional observed win rates, we think that's a very positive sign for future revenue growth.

Speaker #3: And given our traditional observed win rates, we think that's a very positive sign for future revenue growth.

Speaker #2: Thank you. Appreciate it.

Jerome Dubreuil: Thank you. Appreciate it.

Jérome Dubreuil: Thank you. Appreciate it.

Speaker #3: Sure. Thank you.

Tim Hurlebaus: Sure. Thank you.

Speaker #1: Your next question comes from Stephanie Price with CIBC. Your line is now open.

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

Speaker #4: Good morning. Tim, I'll echo my congratulations on the role. As you kind of step into the seat here, I'm wondering how you think about the opportunities you see for future growth at CGI, and what gets you the most excited. And maybe conversely, what are some of the risks that you're watching that maybe are a bit underappreciated by the market here?

Stephanie Price: Good morning, Tim. I'll echo my congratulations on the role. As you kind of step into the seat here, wondering how you think about the opportunities you see for future growth at CGI and what gets you the most excited? Maybe conversely, what are some of the risks that you're watching that maybe are a bit underappreciated by the market here?

Speaker #3: Yeah, good question, Stephanie. And thanks again. Thanks also for the welcome. I think what you heard a bit of in our remarks and what I'm most excited about, because it's what I have experienced over several decades here as part of CGI, is that it's becoming clear that the real power of these of these new technical tools, specifically generative and agentic AI, the power is real, but it relies on understanding details about a specific industry and even a specific domain within that industry.

Tim Hurlebaus: Yeah, good question, Stephanie. Thanks again. Thanks also for the welcome. I think what you heard a bit of in our remarks and what I'm most excited about, because it's what I have experienced over several decades here as part of CGI, is that it's becoming clear that the real power of these new technical tools, specifically generative and agentic AI, the power is real, but it relies on understanding details about a specific industry and even a specific domain within that industry. That's where we've lived for forever, is being close to our clients with our proximity model and then having industry expertise that is relevant to what they do, whether that's energy and utilities, or government satellite or financial payments.

Speaker #3: And so, that's where we've lived forever: being close to our clients with our proximity model, and then having industry expertise that is relevant to what they do—whether that's energy and utilities, or government satellite, or financial payments. Having that expertise allows us to understand what they're really trying to do, what their constraints are—whether they're regulatory or procedural or whatever they might be—and how we can best apply these tools to actually accelerate them in the right direction.

Tim Hurlebaus: Having that expertise allows us to understand what they're really trying to do, what their constraints are, whether they're regulatory or procedural or what they might be, and how we can best apply these tools to actually accelerate them in the right direction. Acceleration by itself just means you go faster. If you go faster in the wrong direction, then you just end up lost faster, to be colloquial about it. I think helping people accelerate in the right direction and helping them do more faster is what I'm most excited about. I'm seeing that acceleration happen. Our revenue trend is moving in the right direction because of that acceleration. To your question, I'm very optimistic about that looking forward. In terms of risks, it's an ongoing life risk. We just need to stay close to our clients. That sometimes takes effort.

Speaker #3: Acceleration by itself just means you go faster. If you go faster, in the wrong direction, then you just end up lost faster. To be colloquial about it.

Speaker #3: But I think helping people accelerate in the right direction and helping them do more, faster, is what I'm most excited about. And our revenue trend is moving in the right direction because of that acceleration.

Speaker #3: So to your question, I'm very optimistic about that, looking forward. In terms of risks, it's just an ongoing life risk. We just need to stay close to our clients.

Speaker #3: And so that sometimes takes effort. If you think about having an old friend, the old friends stay old friends because you make the effort to keep in contact.

Tim Hurlebaus: If you think about having an old friend, the old friends stay old friends because you make the effort to keep in contact. Same with our clients. We need to make a constant effort to be with them, to be listening to them, to understand where they're trying to go, and to bring them what we're learning from across the globe and across the industry that, lessons learned that are relevant to them, and provide insight that maybe our competitors aren't, That's how we keep our competitive advantage. It's really just incumbent upon all 94,000 of us to take that on every morning when we wake up and have that energy around and client focus.

Speaker #3: And the same with our clients. We need to make a constant effort to be with them, to be listening to them, to understand where they're trying to go.

Speaker #3: And to bring them what we're learning from across the globe and across the industry—the lessons learned that are relevant to them—and provide insight that maybe our competitors aren't.

Speaker #3: And that's how we keep our competitive advantage. So it's really just incumbent upon all 94,000 of us to take that on every morning when we wake up and have that energy and client focus.

Speaker #4: Thanks for the color. And maybe a follow-up from me, just on the demand environment. You mentioned strong hiring in the US. But I think last quarter, there was a bit of caution around delayed decision-making in Europe.

Stephanie Price: Thanks for the color. Maybe a follow-up from me just on the demand environment. You mentioned strong hiring in the US, but I think last quarter, there was a bit of caution around delayed decision-making in Europe. Just curious how we should think about the overall demand environment here and any changes from last quarter.

Speaker #4: Just curious how we should think about the overall demand environment here, and any changes from last quarter.

Speaker #3: Yeah, good question. In the US, really, we've like I mentioned in the script, we've had some strong bookings. And so we're really hiring to fill the needs, generated from those bookings, both in the federal market and in the private sector and state and local market.

Tim Hurlebaus: Yeah, good question. In the US, really, like I've mentioned in the script, we've had some strong bookings, and so we're really hiring to fill the needs generated from those bookings, both in the federal market and in the private sector and state and local market. There's a few places in our private sector clients in the US where we've been juniorizing our staff. They've been kind of remaking the services we're providing. That's created some kind of puffed-up hiring needs this quarter, in particular, that drove those stats a little bit. In Europe, there is demand in certain industries. It just depends on where. We did have a little bit of a delay in decision-making on a couple deals up in the Nordics this quarter, but we're optimistic that those will come in in the current quarter.

Speaker #3: There's a few places in the private sector clients in the US where we've been juniorizing our staff. They've been kind of remaking the services we're providing.

Speaker #3: And so that's created some kind of puffed-up hiring needs this quarter in particular that drove those stats a little bit. In Europe, there is demand in certain industries.

Speaker #3: It's just depends on where we did have a little bit of a delay in decision-making on a couple of deals up in the Nordics.

Speaker #3: This quarter, but we're optimistic that those will come in the current quarter. So, there's nothing in particular about that that worries me at the moment.

Tim Hurlebaus: There's nothing in particular about that that worries me at the moment. Other than just the normal course of business. Thanks for the question, Stephanie.

Speaker #3: Other than just the normal course of business. Thanks for the question, Stephanie.

Speaker #4: Thank you.

Stephanie Price: Thank you.

Speaker #1: Your next question comes from Doug Taylor with National Bank. Your line is now open.

Operator: Your next question comes from Doug Taylor with National Bank. Your line is now open.

Speaker #2: Yeah, thank you. Good morning. I'll start with a question about the overall organic growth. This quarter showed a better comp than what we've seen in the last couple of quarters, and better U.S. federal as expected.

Doug Taylor: Yeah, thank you. Good morning. Start with a question about the overall organic growth. A better comp this quarter than what we've seen in the last couple of quarters. Better US federal as expected. You had also identified a couple of other specific customer situations that had been putting pressure on your growth over the last couple of quarters heading into this one. Any update, generally on the status of some of these customer engagements as we think about further growth, organic growth, I should say, in re-acceleration into the H2 of calendar 2026, particularly with you lapping some easier comparisons and with the improving pipeline that you've spoken to?

Speaker #2: You had also identified a couple of other specific customer situations that had been putting pressure on your growth over the last couple of quarters heading into this one.

Speaker #2: Any update, generally, on the status of some of these customer engagements as we think about further growth—or data growth, I should say—and re-acceleration into the second half of calendar '26, particularly with you lapping some easier comparisons and with the improving pipeline that you've spoken to?

Speaker #3: Yeah, thanks for pointing all that out, Doug. Everything you said is right on. And so there were a few, I think what you're referring to in previous quarters, we did reference some of our larger clients who were a little bit slow going a little bit more deliberately, I shouldn't call them slow, deliberately and carefully in some of the transformation they were doing.

Tim Hurlebaus: Thanks for pointing all that out, Doug. Everything you said is right on. There were a few. I think what you're referring to in previous quarters, we did reference some of our larger clients who were a little bit slow, going a little bit more deliberately, shouldn't call them slow. Deliberately and carefully in some of the transformation they were doing. I mentioned, I think in the script, there are three clients in the US where we've been on the right side of vendor consolidation, we're just at the beginning of ramping that up. Maybe those are some that maybe were a little bit slower to evolve than we thought, but provide us with some opportunities, as you say, to provide some good year-over-year growth in the next few quarters. That's certainly a tailwind.

Speaker #3: Which and so I mentioned, I think in the script there are three clients in the US where we've been on the right side of vendor consolidation.

Speaker #3: And so we're just at the beginning of ramping that up. And so maybe those are some that maybe were a little bit slower to evolve than we thought, but provide us with some opportunities as you say to provide some good your growth in the next few quarters.

Speaker #3: So that's certainly a tailwind. And so I think those that's probably what we were referring to. And it still remains a good news over the nice for it to happen faster for sure.

Tim Hurlebaus: I think that's probably what we were referring to, and it still remains good news. It would've been nice for it to happen faster for sure. The fact that it's still there, and we're still selling into it and recruiting into it is a very positive sign for us.

Speaker #3: But the fact that it's still there, and we're still selling into it and recruiting into it, is a very positive sign for us.

Doug Taylor: One follow-up for me then. You referenced the trend in data sovereignty combined with your local presence orientation in theory being an ongoing good leverage point for CGI, particularly in places like Europe. Can you speak a little bit about your infrastructure set up there and the level of investment in that? I know infrastructure's not been something you've emphasized as much in recent years, but remains part of the business and how that's factoring into your customer conversations and the competitive landscape.

Speaker #2: One follow-up for me, then. You referenced the trend in data sovereignty combined with your local presence orientation. In theory, being an ongoing good leverage point for CGI, particularly in places like Europe.

Speaker #2: Can you speak a little bit about your infrastructure setup there and the level of investment in that? I know infrastructure has not been something you've emphasized as much in recent years, but remains part of the business and how that's factoring into your customer conversations and the competitive landscape.

Speaker #3: Yeah, that's a great question, Doug. Thanks for that. And sovereignty, we think is a real unique opportunity where we have some unique differentiation. As you say, because of our proximity and all of those countries, we do have some infrastructure capability.

Tim Hurlebaus: That's a great question, Doug. Thanks for that. Sovereignty, we think is a real unique opportunity where we have some unique differentiation, as you say, because of our proximity in all of those countries. We do have some infrastructure capability in the EU and in the UK in particular, and we've got some advanced AI tools already in place. We've got something called CGI AIOps Nova in the UK that's helping us be efficient in the infrastructure services we provide for our clients there. We've got CGI DigiOps, which is something that we're providing more broadly to many of our infrastructure and application managed services clients, quite a few capabilities. In terms of sovereignty, sorry, to your specific question, we are making the investments that are required to provide that capability, and we'll continue to do that.

Speaker #3: In the EU and in the UK in particular, and we've got some advanced AI tools already in place. We've got something called CGI AOPS Nova in the UK that's helping us be efficient in the infrastructure services we provide for our clients there.

Speaker #3: We've got DigiOps, which is something that we're providing more broadly to many of our infrastructure and application managed services clients, so quite a few capabilities.

Speaker #3: In terms of sovereignty, so sorry to your specific question. So we are making the investments that are required to provide that capability. And we'll continue to do that.

Tim Hurlebaus: If and it includes having more physical capability within the EU, we have the financial wherewithal to do that. We will absolutely make investments as are necessary to deliver into that need. One more thought about our unique situation relative to sovereignty. Sovereignty is really about specific sets of data and processes that need to be handled by people in country or with certain levels of clearance. It's not everything, but it is some things. Having good governance is really important to being able to deliver a sovereign solution, and we have always prided ourselves on diligent governance, and that's really the first part. The fact that we have people who are citizens of these countries and clearance holders, in the case of government in these countries, ready to do it is an advantage. We're very well-represented across the countries we work in.

Speaker #3: If an added includes having more physical capability within the EU, we have the financial wherewithal to do that. And so we will absolutely make investments as are necessary to deliver into that need.

Speaker #3: A little more—one more thought about our unique situation relative to sovereignty. Sovereignty is really about specific sets of data and processes that need to be handled by people in-country or with certain levels of clearance.

Speaker #3: It's not everything, but it is some things. And so having good governance is really important to being able to deliver a sovereign solution. And we have always prided ourselves on diligent governance.

Speaker #3: And that's really the first part—the fact that we have people who are citizens of these countries, and clearance holders, in the case of government, in these countries, ready to do it, is an advantage.

Speaker #3: We're very well represented across the countries. We work in. We're not 95% residents of one country and importing everybody from there. We're well positioned.

Tim Hurlebaus: We're not 95% residents of one country and importing everybody from there. We're well-positioned. However, for the processes and data that is flexible, and in almost every sovereign operation, there are some things that can be supported in other places. We provide that flexibility as well. We're well-equipped to, I think, answer the bell on the demand for sovereign operations.

Speaker #3: However, for the processes and data that are flexible, and almost every sovereign operation, there are some things that can be supported in other places.

Speaker #3: We provide that flexibility as well, so we're well equipped to, I think, answer the bell on the demand for sovereign operations.

Speaker #2: Thank you.

Doug Taylor: Thank you.

Speaker #1: Your next question comes from David Kwon with TD Cowan. Your line is now open.

Operator: Your next question comes from David Kwan with TD Cowen. Your line is now open.

Speaker #5: Good morning. Some of your peers have talked about being impacted by shifting IT priorities and a pullback in discretionary spending, particularly late in the quarter.

David Kwan: Morning. Some of your peers had talked about being impacted by a shifting IT priorities and a pullback in discretionary spending, particularly late in the quarter. Curious to see what you had seen as it relates to any changes in customer demand and activity throughout the quarter, and maybe into this month.

Speaker #5: Curious to see kind of what you had seen as it relates to any changes in customer demand and activity throughout the quarter and maybe into this month.

Speaker #3: Yeah, thanks, David, for the question. Just by happenstance in our portfolio, we did not see that this quarter. And I think it's reflected by our SINC book to bill.

Tim Hurlebaus: Yeah. Thanks, David, for the question. Just by happenstance in our portfolio, we did not see that this quarter, and I think it's reflected by our SI&C book-to-bill. We seem to have some pretty good velocity on that front. I'm familiar with that phenomenon, as we have seen it in prior quarters. I think maybe what others might be referring to is, with respect to advanced AI, as clients started understanding what the bills would be for token usage over the last three or four months, they've had to revisit their ROI calculations in terms of the investments they're making and the ROI it's providing. They invested in licenses for these new tools but didn't necessarily factor in or fully understand the cost of the compute as represented in tokens.

Speaker #3: We seem to have some pretty good velocity on that front. But I'm familiar with that phenomenon as we had seen it in prior quarters.

Speaker #3: I think maybe what others might be referring to is with respect to advanced AI, some of as clients started understanding what the bills would be for token usage, over the last three or four months, they've had to revisit their ROI calculations in terms of the investments they're making and the ROI it's providing.

Speaker #3: And then they invested in licenses for these new tools. But didn't necessarily factor in or fully understand the cost of the compute as represented in tokens.

Speaker #3: And so it's actually provided an opportunity for us. We've executed several engagements already with clients where we've helped them design their processes with the token usage in mind.

Tim Hurlebaus: It's actually provided opportunity for us, where we've executed several engagements already with clients where we've helped them design their processes with the token usage in mind. Optimizing the language models that they're executing. We have helped them create things that we call domain-specific language models, DSLMs, as opposed to just a general large language model, which focuses in on the specific function they're doing. Uses the data set or data sets that are necessary to support that function versus the whole broad data set, and thereby being measured and thoughtful about token usage. It's a new thing in this new world, but it's not a new phenomenon in technology. We've always had new innovations in technology and then gone through the process of tuning the use of those tools to be efficient.

Speaker #3: And so optimizing the language models that they're executing so we have helped them create things that we call domain-specific language models, DSLMs, as opposed to just a general large language model, which focuses in on the specific function they're doing.

Speaker #3: And then uses the data set or data sets that are necessary to support that function versus the whole broad data set. And thereby, being measured and thoughtful about token usage.

Speaker #3: It's not a new it's a new thing in this new world, but it's not a new phenomenon in technology. We've always had new innovations in technology and then gone through the process of tuning the use of those tools to be efficient and by the way, not only does using a domain-specific language model help you reduce the cost of tokens, reducing the compute you're using and therefore the number of tokens is also good for the environment.

Tim Hurlebaus: By the way, not only does using a domain-specific language model help you reduce the cost of tokens, reducing the compute you're using, and therefore the number of tokens, is also good for the environment. It uses less energy. It addresses a number of goals that our client organizations and we jointly have. That is maybe what you're hearing from some others, and it is a legitimate phenomenon now as people try to get their hands around this newer development. It's, in this quarter, provided opportunity for us on a consulting basis and an architecture basis to help our clients rethink the way they're implementing these tools.

Speaker #3: It uses less energy. And so it's really addresses a number of goals that our client organizations and we jointly have. And so that is probably maybe what you're hearing from some others.

Speaker #3: And it is a legitimate phenomenon now, as people try to get their hands around this newer development. But in this quarter, it provided an opportunity for us, kind of on a consulting basis and an architecture basis, to help our clients rethink the way they're implementing these tools.

Speaker #5: No, that makes sense. It’s similar to what we’ve been hearing. And then just on the SINC side—it was down slightly this quarter. I don’t know if that was related to maybe some more discretionary work getting pushed out.

David Kwan: No, that makes sense, and it's similar to what we've been hearing. Just on the SI&C side, it was down slightly this quarter. Don't know if that was related to maybe some more discretionary work getting pushed out. Can you comment on that? As it relates to bookings though, which were pretty solid, what's driving that performance? Is that primarily AI-driven, helping customers with their AI deployments and helping generate better returns, or was it something else?

Speaker #5: But can you kind of comment on that? And then as it relates to bookings, though, which were pretty solid, what's driving that performance? Is that primarily AI-driven helping customers with their AI deployments and helping generate better returns?

Speaker #5: Or was it something else?

Speaker #3: Well, I mean, it's a combination of many things. The bookings or SINC bookings tend to turn into revenue more quickly. I think we highlighted that in the script.

Tim Hurlebaus: Well, it's a combination of many things. The SI&C bookings tend to turn into revenue more quickly. I think we highlighted that in the script. We see that quicker, even in quarter. If you sign a contract at the end of April, you get two months of revenue on that booking, as opposed to, I described earlier, managed services, which can take sometimes months or even over a year to show up on the P&L as revenue. In the quarter, we had SI&C bookings of 105%, that was positive for us and I think gave us some of that growth in the quarter but also portends for a positive growth going forward.

Speaker #3: And so we see that quicker. Even in quarter, if you sign a contract at the end of April, you get two months of revenue on the on that bookings as opposed to I described earlier, managed services, which can take sometimes months or even over a year to show up on the P&L as revenue.

Speaker #3: So in the quarter, we had SINC bookings of 105%, and so that was positive for us. I think it gave us some of that growth in the quarter, but also portends positive growth going forward.

Speaker #5: That's great. Thank you.

David Kwan: That's great. Thank you.

Speaker #4: Yep.

Tim Hurlebaus: Yep. Thank you.

Speaker #1: Next question comes from Paul Triber with RBC Capital Markets. Your line is now open.

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

Speaker #6: Oh, thanks. And good morning. Good to be speaking to you, Tim. You mentioned a number of times that hiring is a key priority. There's a general view out there that IT services at some point would decouple from employee growth due to AI.

Paul Treiber: Well, thanks, and good morning. Good to be speaking to you, Tim. You mentioned a number of times, hiring is a key priority. There's a general view out there that IT services, at some point, would decouple from employee growth due to AI. In your perspective, is that comment a misconception of the role of employees in IT services?

Speaker #6: In your perspective, is that a common misconception about the role of employees in IT services?

Speaker #3: Yeah, thanks, Paul. That's a great question. And maybe to put a finer point on it, there's a perception that the IT services industry, in its most simplified form, was people times rates times hours drives revenue.

Tim Hurlebaus: Yeah. Thanks, Paul. That's a great question, and maybe to put a finer point on it, there's a perception that the IT services industry in its most simplified form was, people times rates times hours, drives revenue. In that simplified form, the notion that having an advanced AI tool that could reduce the amount of effort necessary to accomplish a certain task would reduce the number of people you need to generate revenue. In other words, decoupling people from revenue. Now, maybe you're charging for the agents you create to maintain your revenue, that's, I think, what that theory is based on. What we're seeing is a couple things. First of all, historically, we've had areas of our business where revenue was not directly coupled to headcount.

Speaker #3: And so in that simplified form, the notion that having an advanced AI tool that could reduce the amount of effort necessary to accomplish a certain task would reduce the number of people you need to generate revenue.

Speaker #3: In other words, decoupling people from revenue. Now, maybe you're charging for the agents you create to maintain your revenue. But that's, I think, what that theory is based on.

Speaker #3: What we're seeing is a couple of things. First of all, historically, we've been had areas of our business where revenue was not directly coupled to headcount.

Tim Hurlebaus: Our managed services program as an example, which is 56% of our revenue-ish, 55%, 56%, is about outcomes and delivering to service level. As you build it up based on needing a certain headcount to do all the functions necessary to deliver that service, but over time, as we become more efficient in delivering that service, as we implement tools to help us implement that service to include advanced AI tools among others, then it can reduce the headcount necessary. Historically, over decades, our model is to share those savings with our client and then hopefully use those savings to fund advanced scope. That's one example. Another example is intellectual property, where we've built these solutions over time, and we leverage them across clients and even industries. The revenue we derive from producing value with those solutions is not directly tied to headcount.

Speaker #3: A managed services program, as an example, which is 506% of our revenue-ish, 55, 56%. It was about outcomes and delivering to service level. So as you build it up based on needing a certain headcount to do all the functions necessary to deliver that service, but over time, as we become more efficient in delivering that service, as we implement tools to help us implement that service to include advanced AI tools, among others, then it can reduce the headcount necessary.

Speaker #3: And then historically, over decades, our model is to share those savings with our client and then hopefully use those savings to fund advanced scope. So that's one example.

Speaker #3: Another example is intellectual property where we've built these solutions over time and we leverage them across clients and even industries and so it's not the revenue we derive from producing value with those solutions is not directly tied to headcount.

Speaker #3: And so that's been a phenomenon that's been true for a while. But the other thing I'll say, even back to the more simple model, is people are needing help with these AI tools.

Tim Hurlebaus: That's been a phenomenon that's been true for a while. The other thing I'll say, even back to the more simple model, is people are needing help with these AI tools. The reason that I personally think that this technical evolution over the last two and a half, three years has been more profound is that it's been accessible to the average person, right? We can all turn on a phone or a machine and enter a prompt and interact with these tools. Previous generations of AI were more the domain of systems programmers or at least business process people who were doing robotic process automation or whatever. The average person wasn't using them, and now we all are. It's, I think, more profound and has made the idea of what could happen more real to everybody.

Speaker #3: The reason that I think I personally think that this technical evolution over the last two and a half, three years has been more profound is that it's been accessible to the average person, right?

Speaker #3: We can all turn on a phone or a machine and enter a prompt and interact with these tools. Previous generations of AI were more the domain of systems programmers, or at least business process people who were doing robotic process automation or whatever.

Speaker #3: The average person wasn't using them, and now we all are. So, I think it's more profound, and has made the idea of what could happen more real to everybody.

Speaker #3: And so but as people are using this, especially in the enterprise business environment, it's occurring to everybody that, okay, we still have to be thoughtful about how we accelerate.

Tim Hurlebaus: As people are using this, especially in the enterprise business environment, it's occurring to everybody that, okay, we still have to be thoughtful about how we accelerate. I think I said earlier, if you accelerate in the wrong direction, you just end up lost faster. I think we do need people, these people that we're hiring, that can understand industry, that can understand the nuances of the technology, even though perhaps anybody can enter the prompt. You're right, the barrier to entry to using these tools is certainly lower than it was. Still, knowing how to use the right prompts, how to focus your energy so that you're using the compute efficiently, how to anticipate complex industry requirements that maybe aren't obvious to somebody who hasn't done it before. Like for example, in payroll. Think about payroll.

Speaker #3: I think I said earlier, if you accelerate in the wrong direction, you just end up lost faster. And so I think we do need people—these people that we're hiring—that can understand industry, that can understand the nuances of the technology, even though perhaps anybody can enter the prompt.

Speaker #3: So you're right, the barrier to entry to using these tools is certainly lower than it was. But still, knowing how to use the right prompts, how to focus your energy so that you're using the compute efficiently, how to anticipate complex industry requirements that maybe aren't obvious to somebody who hasn't done it before, like for example, in payroll, think about payroll, the simple model for payroll is I have a salary and every two weeks, you compute my hours or my 124th of my salary and you cut a paycheck.

Tim Hurlebaus: The simple model for payroll is, I have a salary, and every two weeks you compute my hours or my 1/24th of my salary, and you cut a paycheck. Okay, you got to take taxes and other deductions out. What about retroactive? When you do a retroactive pay, are you taking into account the regulations that were in effect during that retroactive period that maybe have changed since then? It gets very, very complex very quickly. The novice user maybe could do the first part. As you get into those more complex environments, an audit trail, just think about the requirements of audit trails on banking payment systems or any of these things, and how to make sure you accurately maintain an audit trail. These are complex things.

Speaker #3: But then okay, but you got to take taxes and other deductions out. And what about retroactive? And when you do a retroactive pay, are you counting taking into account the regulations that were in effect during that retroactive period that maybe have changed since then?

Speaker #3: It gets very, very complex very quickly. And so the novice user maybe could do the first part, but as you get into those more complex environments—audit trail, just think about the requirements of audit trails on banking payment systems or any of these things.

Speaker #3: And how to make sure you accurately maintain an audit trail. These are complex things. This is why the systems this is why the IT system integrator market exists because over decades, we have helped clients understand how to best use technology to meet their needs.

Tim Hurlebaus: This is why the IT system integrator market exists, because over decades, we have helped clients understand how to best use technology to meet their needs. That's, again, still the case. Maybe it's faster now. Maybe we can do more with a certain level of effort than we could before. I think that's certainly true. This is all good for all of us, but certainly, we're going to need IT services professionals to continue to help be successful in this endeavor, for sure.

Speaker #3: And that's, again, still the case. Maybe it's faster now. Maybe we can do more with a certain level of effort than we could before.

Speaker #3: I think that's certainly true. So this is all good for all of us, but certainly we're going to need IT services professionals to continue to help us be successful in this endeavor, for sure.

Speaker #6: Thanks for that explanation. Just a second question, just on three years ago, CGI announced a plan to invest a billion dollars in AI over three years.

Paul Treiber: Thanks for that explanation. The second question, just on, three years ago, CGI announced a plan to invest CAD 1 billion in AI over three years. We're at the end of that. What's been the results of that investment, and then do you have plans to continue or expand that investment going forward?

Speaker #6: So we're at the end of that. What have been the results of that investment, and do you have plans to continue or expand that investment going forward?

Speaker #3: Yeah, great question. And the answer is yes, we always continue to invest in our capabilities. The first and biggest part of the investment of that investment is in our people and giving them access to the tools and giving them training on how to use those tools with clients.

Tim Hurlebaus: Yeah, great question. The answer is yes, we always continue to invest in our capabilities. The first and biggest part of that investment is in our people and giving them access to the tools and giving them training on how to use those tools with clients. That's an important part. I mentioned just a few of the capabilities and tools we've created. I mentioned the AIOps Nova in the UK, the DigiOps for managed services there. We've integrated advanced AI into all of our IP platforms to help us create agents to assist the users of our IP in all the industries in which we operate. Massive investments in solutions and in people will absolutely continue, and that's why we highlight our financial strength. We have the ability.

Speaker #3: So that's an important part. I mentioned just a few of our capabilities and tools we've created. I mentioned the AIOps Nova in the UK, the DigiOps for managed services there.

Speaker #3: We've integrated advanced AI into all of our IP platforms to help us create agents to assist the users of our IP in all the industries in which we operate.

Speaker #3: So massive investments in solutions and in people will absolutely continue. And that's why we highlight the our financial strength. We have the ability the first priority of use of our cash is investing back into our business.

Tim Hurlebaus: The first priority of use of our cash is investing back into our business, and that's back into developing solutions to propose into the market to our clients. That's back into training our people. That's back into making sure we're investing in our alliances with our global alliances, with tech partners, the hyperscalers, the frontier AI tool providers. Those all have been and will continue to be priorities for us. Great question.

Speaker #3: And that’s back into developing solutions to propose in the market to our clients. That’s back into training our people. That’s back into making sure we're investing in our alliances—with our global alliances, with tech partners, the hyperscalers, the frontier AI tool providers.

Speaker #3: Those are all have been and will continue to be priorities for us. Great question.

Speaker #6: Great. Thanks for taking the questions.

Paul Treiber: Okay. Thanks for taking the questions.

Tim Hurlebaus: Yeah. Paul?

Speaker #1: Your next question comes from Surinder Thind with Jeffries. Your line is now open.

Operator: Your next question comes from Surinder Thind with Jefferies. Your line is now open.

Speaker #7: Thank you. Tim, just taking a step back and maybe following up on the very first question that was asked, can you maybe discuss what you plan on doing differently from your predecessor?

Surinder Thind: Thank you. Tim, just taking a step back and maybe following up on the very first question that was asked. Can you maybe discuss what you plan on doing differently from your predecessor and maybe elaborate on why?

Speaker #7: And maybe elaborate on why?

Speaker #3: Yeah, thanks, Surinder, for the question. I get that question a lot. What's really going to do differently? And what I've figured out, Surinder, over the last two and a half months in this role I like to tell people I'm the new guy, but that they kind of smile at me and say, "Well, haven't you been here for like 38 years?" So but as the quote-unquote new guy, at least new in chair, guy, what I'm learning is that the fundamentals are strong.

Tim Hurlebaus: Yeah. Thanks, Surinder, for the question. I get that question a lot. What's Ricky going to do differently? What I've figured out, Surinder, over the last two and a half months in this role, I like to tell people I'm the new guy, but they smile at me and say, Well, haven't you been here for 38 years? As the quote-unquote new guy, at least new in chair guy, what I'm learning is that the fundamentals are strong, that the way we approach the market, the way we think about providing solutions to our clients is fine, but it's really how we prioritize what we do within that structure. I've been talking, Surinder, a lot about putting our energy into the fewest, most important things.

Speaker #3: The way we approach the market, the way we think about providing solutions to our clients is fine. But it's really how we prioritize what we do within that structure.

Speaker #3: So I've been talking, Surinder, a lot about putting our energy into the fewest, most important things. And so, making sure that we have the right capability to bid into requirements around—if somebody has chosen the platform on a certain hyperscaler, do we have the right people with the right certifications to deliver into that demand?

Tim Hurlebaus: Making sure that we have the right capability to bid into requirements around if somebody has chosen the platform on a certain hyperscaler. Do we have the right people with the right certifications to deliver into that demand? If we're seeing that demand across countries in a particular industry or otherwise, then are we making sure that we're coordinating and making that the priority for how we're having people spend their time? That's from a technology standpoint, from an industry standpoint, making sure that we, as ever, are current on regulations. Again, it's more of the same strategy. It's really just about priority within that strategy, what we do within the construct that we have. There's a huge amount of opportunity if you just think about your own day and what you choose to do next.

Speaker #3: And if we're seeing that demand across countries in a particular industry or otherwise, then are we making sure that we're coordinating and making that the priority for how we're having people spend their time?

Speaker #3: So that's kind of from a technology standpoint. From an industry standpoint, making sure that we as ever are current on regulations. Again, it's more of the same strategy.

Speaker #3: It's really just about priority within that strategy. What we do within the construct that we have and there's a huge amount of opportunity if you think just think about your own day and what you choose to do next.

Speaker #3: There's a huge opportunity if you pick the right things and more just as importantly, stop doing the wrong things. If you're doing if you have 10 priorities today, I would suggest to you that's too many.

Tim Hurlebaus: There's a huge opportunity if you pick the right things, and just as importantly, stop doing the wrong things. If you have 10 priorities today, I would suggest to you that's too many. I suggest to people one is the perfect, but maybe you've got three, and maybe that's doable. I mean priorities. If you've got more than a few, then you probably need to rethink and understand, what's my role in helping CGI grow in this market? What's my role in helping this client that I'm serving succeed? Surinder, it's really more of a focus of priorities, which are definitely changing. If I think back over the last couple of years, we have prioritized our global alliance program more.

Speaker #3: I suggest to people: one is the perfect number, but maybe you've got three, and maybe that's doable. But if— and I mean priorities— so if you've got more than a few, then you probably need to rethink and understand: what's my role in helping CGI grow in this market?

Speaker #3: What's my role in helping this client that I'm serving succeed? And so, Surinder, it's really more of a focus on priorities, which are definitely changing.

Speaker #3: If I think back over the last couple of years, we have prioritized our global alliance program more. They're a big part of what our clients are doing.

Tim Hurlebaus: They're a big part of what our clients are doing, making sure that we're coordinated globally and helping each other across regions and industries with our global alliance partners has been something that's been a different prioritization for CGI over the last couple of years. There are more things that are like that. I hope that answers.

Speaker #3: And so making sure that we're coordinating globally and helping each other across regions and industries with our global alliance partners has been something that's been a different prioritization for CGI over the last couple of years.

Speaker #3: And there are more things that are like that. I hope that answers.

Speaker #7: That's helpful. And then I guess as a related follow-up, I mean, what is your view of maybe how the competitor competitive environment, I guess, is evolving?

Surinder Thind: That's helpful. I guess as a related follow-up, what is your view of maybe how the competitive environment, I guess, is evolving, then maybe how you intend to position yourself? What I mean by that is it seems like there's two different mindsets of how the business is going to evolve. One is that you need to build a lot more IP, we're seeing a lot of investment in building platforms, platform solutions that you can go and take to the client. Think of it almost as a Palantir type of strategy. The other strategy is more about continuing down the current path, maybe doing a bit more custom work, maybe having a little bit more technology, but not materially different. How do you envision those two different views of the world, and how you think which one CGI fits in?

Speaker #7: And then maybe how you intend to position yourself? And what I mean by that is it seems like there's two different mindsets of how the business is going to evolve.

Speaker #7: One is that you need to build a lot more IP and so we're seeing a lot of investment in building platforms, platform solutions that you can go and take to the client.

Speaker #7: So think of it almost as a Palantir type of strategy. And then the other strategy is more about kind of continuing down the current path, maybe doing a bit more custom work, maybe having a little bit more technology, but not materially different.

Speaker #7: How do you envision those two different views of the world and how you think which one CGI fits in?

Speaker #3: Yeah, that's an interesting question, Surinder. And I'm not sure their total opposite. So to the first part of creating platforms or I think many people call them accelerators, right?

Tim Hurlebaus: Yeah, that's an interesting question, Surinder. I'm not sure they're total opposites. To the first part of creating platforms, or I think many people call them accelerators, right? That's something we're doing. For example, I think I mentioned the term Pulse earlier. Across, as you're aware, we've got IP in government and financial services and utilities. We've created a platform called Pulse that is not competing with the frontier products out there, but is sitting on top of them and providing a consistent way to integrate with all of our IP, and we've rolled that out to all of our clients. For sure, that's what you would call a platform or an accelerator. Just one example. DigiOps is another example of a platform or accelerator. If I was answering your question just straight up, I'd say we're certainly behaving more in the first way.

Speaker #3: That's something we're doing. So for example, I think I mentioned the term pulse earlier. So across as you're aware, we've got IP and government and financial services and utilities.

Speaker #3: We've created a platform called Pulse that is not competing with the frontier products out there, but is sitting on top of them and providing a consistent way to integrate with all of our IP.

Speaker #3: And we've rolled that out to all of our clients. So, for sure, that's what you would call a platform or an accelerator. That's just one example. DigiOps is another example of a platform or accelerator.

Speaker #3: So if I was answering your question, just kind of straight up, I'd say we're certainly behaving more in the first way. But I want to qualify that by saying that's the technology answer.

Tim Hurlebaus: I want to qualify that by saying, that's the technology answer. The business and client relationship answer is a little bit in the second, which is we still have to stay close to our clients and understand what really creates value for a bank in the payments process. What are the key places where they can create a competitive advantage, if any? What are the key places where they need to be compliant, where they get in big trouble? Understanding those things, and as we introduce new platforms, new technology, making sure that we focus on those things, that we don't break the stuff that has to work, and that we accelerate the stuff that is truly a competitive advantage. I think that mindset is less about the first category you described and more about the second. A little bit of both, if that makes sense.

Speaker #3: The business and client relationship answer is a little bit in the second, which is we still have to stay close to our clients and understand what really creates value for a bank in the payments process.

Speaker #3: What are the key places where they can create a competitive advantage? If any, what are the key places where they need to be compliant or they get in big trouble?

Speaker #3: Understanding those things, and as we introduce new platforms and new technology, making sure that we focus on those things—that we don't break the stuff that has to work, and that we accelerate the stuff that is truly a competitive advantage.

Speaker #3: And I think that that mindset is less about the first category you described and more about the second. So a little bit of both, if that's if that makes sense.

Speaker #7: Yeah, I think that's relatively fair. I guess what ends up happening in just at the high level is I would see a much more bigger disconnect of revenues from headcount in the what I would call the tech forward strategy or the platform strategy versus kind of going down a bit more the path in the accelerator strategy, which is a little closer to I would argue the status quo, at least that's how I see them.

Surinder Thind: Yeah. I think that's relatively fair. I guess what ends up happening just at the high level is I would see a much more bigger disconnect of revenues from headcounts in what I would call the tech forward strategy or the platform strategy, versus going down a bit more the path in the accelerator strategy, which is a little closer to, I would argue, the status quo. At least that's how I see them. I'm not sure how you would view the differences between the two.

Speaker #7: I'm not sure how you would view the two different the differences between the two.

Speaker #3: Yeah, maybe. I mean, like I said, our revenue mix is about 56% managed services, 44% SI and C managed services already tends to be less connected to headcount in terms of revenue.

Tim Hurlebaus: Yeah, maybe. Like I said, our revenue mix is about 56% managed services, 44% SI and fee. Managed services already tends to be less connected to headcount in terms of revenue. SI and fee would be typically more connected, but as you know, Suren, we've got a lot of SI and fee where we're doing IP implementation. A lot of our SI and fee is firm fixed price, which is more outcome-based than effort-based. I think for some in the industry who have a larger proportion of T&M, staff augish type contracts, I would think that that would be a bigger phenomenon and a bigger shift. For others like us who have always had a little bit of a separation between headcount and revenue, it might become less noticeable. I don't know.

Speaker #3: SI and C would be typically more connected, but as you know, Surinder, we've got a lot of SI and C where we're doing IP implementation, a lot of our SI and C is firm fixed price, which is more outcome-based than effort-based.

Speaker #3: And so I think for some in the industry who have a larger proportion of T&M staff August-type contracts, that would think that that would be a bigger phenomenon and a bigger shift.

Speaker #3: For others like us who have always had a little bit of a separation between headcount and revenue, it might become less noticeable. I don't know.

Speaker #7: Got it, and thank you for the response. Welcome aboard.

Surinder Thind: Got it. Thank you for the response and welcome aboard.

Speaker #3: Thanks, Surinder.

Tim Hurlebaus: Thanks, Suren.

Surinder Thind: Thanks, Suren.

Speaker #7: Surinder.

Speaker #1: Your next question comes from Thanos Moshopoulos with BMO Capital Markets. Your line is now open.

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

Speaker #8: Hey, Tim. Can you give us an update on M&A? Just given all the disruption with AI valuations in the market and so forth, any change you're seeing in recent months in terms of opportunity set, valuations, willingness to transact?

Thanos Moschopoulos: Hey, Tim. Can you give us an update on M&A, just given all the disruption with AI valuations in the market and so forth? Any changes seen in recent months in terms of opportunity sets, valuations, willingness to transact? Does your own stock's valuation maybe put a higher hurdle rate for you on M&A, just given the attractiveness of potentially buying back your stock as an alternative? Thanks.

Speaker #8: And does your own stock's valuation maybe put a higher hurdle rate for you on M&A, just given the attractiveness of potentially buying back your stock as an alternative?

Speaker #8: Thanks.

Speaker #3: Yeah, thanks for the question, Thanos. So we've had a nice run of M&A over the last two and a half, three years, given the valuations of some of our traditional targets, and we've been able to pick up some really nice complementary companies to merge in that have really helped us a great deal in a number of industries.

Tim Hurlebaus: Yeah. Thanks for the question, Thanos. We've had a nice run of M&A over the last two and a half, three years, given the valuations of some of our traditional targets, and that we've been able to pick up some really nice complementary companies to merge in that have really helped us a great deal in a number of industries and a number of regions. It's been good to us. We continue to be very active. We have as big of an M&A pipeline as we ever have. As always, it's a combination of large companies that span multiple regions and industries and smaller niche companies. We announced, for example, Stratfield recently in Atlanta, which helped us bump up the Atlanta metro and particularly helped us in the retail sector. That's been a terrific merger so far. It's early days, but terrific so far.

Speaker #3: And a number of regions. So it's been good to us. We continue to be very active. We have as big of an M&A pipeline as we ever have.

Speaker #3: And as always, it's a combination of large companies that span multiple regions and industries, and smaller, niche companies. We announced, for example, Stratfield recently in Atlanta.

Speaker #3: Which helped us bump up the Atlanta metro and particularly helped us in the retail sector. So that's been a terrific merger so far. It's early days, but terrific so far.

Speaker #3: But we've also got some much bigger ones, multi-billion dollar targets. And as ever, those come when they come. I can tell you we're working on some now.

Tim Hurlebaus: We've also got some much bigger ones, multi-billion dollar targets. As ever, those come when they come. I can tell you we're working on some now. In terms of cash, we are very well-positioned, and maybe I'll give it to Steve for a quick explanation on that. We're very well-positioned to be able to do the size of acquisition that comes along. Steve, maybe you could say a couple words about that.

Speaker #3: In terms of cash and we are very well positioned and maybe I'll give it to Steve for a quick explanation on that. But we're very well positioned to do to be able to do the size of acquisition that comes along.

Speaker #3: And Steve, maybe you could say a couple of words about that.

Speaker #4: Yeah, as you know, our leverage ratio is quite low, so our balance sheet is really, really ready for any large M&A. Over the last couple of quarters, any excess cash, we were obviously repurchasing shares, but we did not use our balance sheet to repurchase shares, and it's planned like this.

Steve Perron: Yeah. As you know, our leverage ratio is quite low, so our balance sheet is really ready for any large M&A. Over the last couple of quarters, any excess cash, we were obviously repurchasing share, but we did not use our balance sheet to repurchase share, and it's planned like this. We want to keep our balance sheet fully open for the growth coming from M&A and for the opportunities that we see in our pipeline. Obviously, we continue to be disciplined. We need to do the right M&A at the right price. As Tim mentioned, we have the capacity to execute on the M&A that we're having in the pipeline currently.

Speaker #4: We want to keep our balance sheet fully open for the growth coming from M&A, and for the opportunities that we see in our pipeline.

Speaker #4: So obviously, we continue to be disciplined. We need to do the right M&A. At the right price. But as Tim mentioned, we have the capacity to execute on the M&A that we're having in the pipeline currently.

Speaker #1: Surinder, we'll pass the line. Thank you.

Thanos Moschopoulos: Great. I'll pass the line. Thank you.

Speaker #8: Thanks, Thanos.

Tim Hurlebaus: Thanks, Thanos.

Speaker #3: Thank you.

Steve Perron: Thank you

Speaker #1: Ladies and gentlemen, as a reminder, should you have a question, please press star one. Your next question comes from Suthan Sukumar with Eiffle. Your line is now open.

Operator: Ladies and gentlemen, as a reminder, should you have a question, please press star one. Your next question comes from Suthan Sukumar with Stifel. Your line is now open.

Speaker #3: Good morning, gents. Thank you for taking my questions and Tim, congrats on taking the helm here. For my first question, I want to talk touch on IP.

Suthan Sukumar: Good morning, gents. Thank you for taking my questions. Tim, congrats on taking the helm here. For my first question, I want to touch on IP. You guys talked about the pipeline being up here, but you also talked about higher managed services proposals with higher contract values. Just wondering, how much has the attach rate of IP increased in these managed service engagements, I guess, on a year-over-year basis?

Speaker #3: You guys talked about the pipeline being up here, but you also talked about how your managed services proposals have higher contract values. Just wondering, how much has the attach rate of IP increased in these managed services engagements?

Speaker #3: I guess on a year-over-year basis. Yeah, thanks, Suthan, and thanks for the warm welcome. So I think, yes, we did talk about the fact that our IP pipeline is up and our managed services pipeline is up and that we have a high win rate off of our IP as part of our managed services solutions.

Tim Hurlebaus: Yeah. Thanks, Suthan, and thanks for the warm welcome. I think, yes, we did talk about the fact that our IP pipeline is up and our managed services pipeline is up, and that we have a high win rate off of our IP as part of our managed services solutions. I mentioned, for example, DigiOps as something that's involved in many of our managed services proposals that are out now. I guess, the answer to your, I think what your question was, is it's probably up. We probably have more IP in our managed services bids than we did a year or two ago. But as Surinder asked earlier, it's probably more in the form of accelerators and platforms, which is what I would call DigiOps versus maybe an industry solution, although our industry solution IP has a healthy pipeline as well.

Speaker #3: I mentioned, for example, DigiOps as something that's involved in many of our managed services proposals that are out now. And so I guess the answer to your, I think what your question was, was it's probably up.

Speaker #3: We probably have more IP in our managed services bids than we did a year or two ago. But it's more, as Surinder asked earlier, it's probably more in the form of accelerators and platforms that, which is what I would call DigiOps versus maybe an industry solution.

Speaker #3: Although our industry solution IP has a healthy pipeline as well. But in relation to managed services, it probably tends to be more of the platform accelerator type IP in those bids.

Tim Hurlebaus: In relation to managed services, it probably tends to be more of the platform accelerator type IP in those bids, if that helps.

Speaker #3: If that helps.

Speaker #7: Great. Thanks for the color. For my second question, I just wanted to touch on pricing. You guys talked about rising contract values. Is that more function of pricing power or growing scope?

Suthan Sukumar: Great. Thanks for the color. For my second question, I just wanted to touch on pricing. You guys talk about rising contract values. Is that more a function of pricing power or growing scope? Conversely, given rising AI utilization here, how has that been a factor on pricing overall?

Speaker #7: And conversely, given rising AI utilization here, how has that been a factor on pricing overall?

Speaker #3: Yeah, there are a couple of questions in there. The first thing I would say about total contract value is it's more a function of scope and duration.

Tim Hurlebaus: Yeah, there's a couple questions in there. The first thing I would say about total contract value, it's more a function of scope and duration. An old colleague of mine used to say, "The difference between CAD 100 million contract and a CAD 200 million contract is five or 10 years." It's really more scope and duration more than anything. In terms of AI and pricing pressure, it's a function just like any other. We always have to be compelling in our offers that we're offering a fair and efficient price, or else the client won't buy our solution. That's nothing new under the sun.

Speaker #3: Old colleague of mine used to say, the difference between 100 million dollar contract and a 200 million dollar contract is 5 or 10 years.

Speaker #3: And so, it's really more about scope and duration than anything else. In terms of AI and pricing pressure, it's a function just like any other.

Speaker #3: We always have to be compelling in our offers, ensuring that we're offering a fair and efficient price, or else the client won't buy our solution.

Speaker #3: So that's nothing new under the sun. So we are transparent in how we're using these AI tools in our solution and the benefit it's providing to our clients.

Tim Hurlebaus: We are transparent in how we're using these AI tools in our solution and the benefit it's providing to our clients, and we try to show why we'll be able to deliver something faster and more efficiently, perhaps for a better price, by integrating these tools in. Absolutely, it affects the price in that way.

Speaker #3: And we try to show why we'll be able to deliver something faster and more efficiently, perhaps for a better price. By integrating these tools in.

Speaker #3: So absolutely, it affects the price in that way.

Speaker #7: Okay. Okay, great. Thanks for taking my questions. I'll pass the line.

Suthan Sukumar: Okay, great. Thanks for taking my questions. I'll pass the line.

Speaker #3: Thank you.

Tim Hurlebaus: Thank you.

Speaker #1: There are no further questions at this time. I will now turn the call over to Kevin Linder for closing remarks.

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

Speaker #3: Thanks, Joelle. And thanks, everyone, for participating. As a reminder, replay of this call will be available either via our website or by dialing 1-888-660-6264 and using the passcode 69190.

Kevin Linder: Thanks, Joelle, and thanks everyone for participating. As a reminder, a replay of this call will be available either via our website or by dialing 1-888-660-6264 and using the passcode 69190. 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.

Speaker #3: 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 (905) 973-8363.

Speaker #3: Thanks again, everyone, and look forward to speaking soon.

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

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