Earnings call transcript: CGI Q3 2025 sees AI-driven growth, stock steady

CGI Inc. (GIB) reported robust Q3 2025 earnings, with revenue increasing 11.4% year-over-year to 4.1 billion CAD and diluted EPS rising 10% to 2.10 CAD, primarily driven by strategic acquisitions and significant AI integration, which now accounts for 40% of its IP base revenue. The company maintained a strong backlog of 30.6 billion CAD and a book-to-bill ratio of 101%, reflecting solid demand in financial services and government sectors, alongside successful go-to-market partnerships. Despite macroeconomic uncertainties and ongoing restructuring costs, CGI anticipates continued margin expansion from acquisition integrations and sustained AI investment, with management expressing optimism about future M&A and a shift in client spending towards modernization initiatives.

Analysis

CGI Inc. reported a robust Q3 2025, with revenue climbing 11.4% year-over-year to 4.1 billion CAD and diluted EPS increasing 10% to 2.10 CAD. This performance was primarily fueled by strategic acquisitions and significant AI integration, which now constitutes 40% of the company's IP base revenue. The company also maintained a strong global backlog of 30.6 billion CAD, representing two years of revenue, and achieved a Q3 book-to-bill ratio of 101%.

Growth was notably strong in the financial services sector, up 9.6% in constant currency, and the government sector, which posted a Q3 book-to-bill of 112%. CGI's go-to-market partnerships contributed over $2.6 billion in new bookings, a 120% year-over-year increase, underscoring its effective strategy in leveraging alliances. Management highlighted continued investment in AI and technology partnerships, positioning CGI as a key expert in AI implementation for clients seeking efficiency.

Despite macroeconomic uncertainties impacting large enterprise engagements and ongoing restructuring costs of 100 million CAD for 2025, CGI forecasts gradual client spending recovery and anticipates continued margin improvements from acquisition integrations. The company's capital allocation prioritizes investing in the business and accretive M&A, with management expressing a bullish view on the M&A environment due to more favorable valuations. Future EPS for FY2026 is projected between 1.57 USD and 1.63 USD per quarter.

Key Decisions for Investors

• Investors should monitor the successful integration of recent acquisitions and the sustained contribution of AI to IP revenue and overall profitability, as these are key drivers of current growth.
• Closely watch for signs of organic growth acceleration, particularly in European and US Federal segments, as macroeconomic uncertainties and specific contract impacts currently present headwinds despite strong overall performance.
• Evaluate the quality and accretion of future acquisitions, alongside the balance between M&A and share buybacks in CGI's capital allocation strategy, given management's bullish stance on M&A and active pipeline.