CGI(GIB) - 2024 Q3 - Quarterly Report

Introduction and Key Metrics This section outlines the company's key performance metrics, including GAAP and non-GAAP measures, and details its nine global operating segments Key Performance Measures The company utilizes a combination of IFRS-compliant (GAAP) and non-GAAP measures to assess performance, providing supplemental information on core operating performance, business volume, and financial leverage - Management uses non-GAAP measures like 'Revenue prior to foreign currency impact' and 'Adjusted EBIT' to facilitate period-to-period comparisons of business performance by excluding currency fluctuations and specific non-operational items[9][10][13] - Key growth indicators tracked are Bookings (new contracts), Backlog (contracted future revenue), and the Book-to-bill ratio, which management targets to keep above 100% over a trailing twelve-month period[10] - Profitability is assessed using standard metrics like Net Earnings and Diluted EPS, alongside non-GAAP measures such as 'Net earnings excluding specific items' to show performance from day-to-day operations[15][17] - Liquidity and capital structure are monitored through metrics like Days Sales Outstanding (DSO), Net Debt, Net Debt to Capitalization Ratio, and Return on Invested Capital (ROIC) to ensure financial flexibility and efficient capital allocation[20] Reporting Segments The company is managed through nine operating segments based on geography and service delivery, with a recent centralization of administrative activities impacting the Asia Pacific segment's comparative data - CGI is organized into nine key operating segments, primarily defined by geographic regions such as Western and Southern Europe, U.S. Commercial and State Government, and Canada[21] - Effective October 1, 2023, certain internal administrative activities previously reported under the Asia Pacific segment were centralized into a corporate function, and prior period data was restated to reflect this change[22] Corporate Overview Founded in 1976, CGI is a global IT and business consulting firm with approximately 90,000 professionals, providing end-to-end services across various industries under a robust governance model About CGI Founded in 1976, CGI is a global IT and business consulting firm with approximately 90,000 professionals, providing end-to-end services across various industries under a robust governance model - CGI is a leading IT and business consulting firm with approximately 90,000 professionals worldwide, helping clients with their digital transformation[27] - The company's service portfolio includes: - Business and strategic IT consulting & systems integration - Managed IT and business process services - Intellectual property (IP) solutions[29][31] - CGI targets key industries such as financial services, government, manufacturing, retail, communications, utilities, and health[30] - The company operates under a strict governance model called the CGI Management Foundation, which ensures consistent management practices and high-quality service delivery globally[35][36] Highlights and Key Performance Measures In Q3 2024, CGI reported revenue of $3.67 billion, a 1.3% year-over-year increase, with strong bookings of $4.28 billion and healthy liquidity, while reducing net debt to $1.85 billion Selected Quarterly Information & Key Performance Measures In Q3 2024, CGI reported revenue of $3.67 billion, a 1.3% year-over-year increase, with strong bookings of $4.28 billion and healthy liquidity, while reducing net debt to $1.85 billion Q3 2024 Key Performance Measures (vs. Q3 2023) | Metric | Q3 2024 | Q3 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Revenue | $3,672.0 M | $3,623.4 M | +1.3% | | Constant Currency Revenue Growth | 0.2% | 6.3% | -6.1 p.p. | | Bookings | $4,280 M | $4,388 M | -2.5% | | Book-to-bill ratio | 116.6% | 121.1% | -4.5 p.p. | | Adjusted EBIT | $602.8 M | $584.8 M | +3.1% | | Adjusted EBIT Margin | 16.4% | 16.1% | +0.3 p.p. | | Net Earnings | $440.1 M | $415.0 M | +6.1% | | Diluted EPS | $1.91 | $1.75 | +9.1% | | Cash from Operating Activities | $496.7 M | $409.1 M | +21.4% | Stock Performance The company's stock performance is detailed, along with significant capital return activities, including the repurchase of 3.5 million Class A shares for $488.9 million in Q3 2024 - During Q3 2024, the company repurchased 3,506,678 Class A Shares for $488.9 million at a weighted average price of $139.43 under its NCIB[48] - For the nine months ended June 30, 2024, a total of 6,190,108 Class A Shares were purchased for cancellation for $875.9 million[49] - As of July 26, 2024, there were 203,787,994 Class A subordinate voting shares and 24,122,758 Class B multiple voting shares outstanding[51] Investment in Subsidiaries CGI is actively pursuing its 'Buy' strategy through acquisitions, including Momentum Consulting Corp. for $53.3 million and an agreement to acquire Aeyon LLC, adding a total of 900 professionals - Acquired Momentum Consulting Corp. on October 10, 2023, for $53.3 million, adding 175 professionals[52] - Announced a definitive agreement to acquire Aeyon LLC on June 22, 2024, which is expected to add 725 professionals focused on the U.S. Federal Government sector[53] Subsequent Event After the quarter's end, CGI acquired the assets of Celero Solutions' credit union business in Canada for $13.0 million, adding over 150 professionals - On July 3, 2024, CGI acquired assets of Celero Solutions' credit union business for $13.0 million, adding more than 150 professionals in Canada[54] Announcement of Dividend Program CGI announced the approval of a new dividend program, signaling a new phase in its capital allocation strategy, with a planned quarterly cash dividend of $0.15 per share starting in fiscal 2025 - The Board of Directors has approved a new dividend program, with the intention to pay a quarterly cash dividend of $0.15 per share[55] - The first dividend payment is planned for the first quarter of fiscal 2025, subject to board declaration each quarter[55] Financial Review This section provides a detailed financial overview, including bookings, revenue by segment, earnings before income taxes, Adjusted EBIT, net earnings, and earnings per share Bookings and Book-to-Bill Ratio In Q3 2024, CGI achieved bookings of $4.3 billion, leading to a strong book-to-bill ratio of 116.6%, with the U.S. Federal segment showing exceptional performance Q3 2024 Bookings | Metric | Value | | :--- | :--- | | Total Bookings | $4.3 billion | | Book-to-Bill Ratio | 116.6% | | Trailing 12-Month Book-to-Bill | 111.7% | - New bookings were split with 48% from new business and 52% from renewals and extensions[58] - The U.S. Federal segment had the highest trailing twelve-month book-to-bill ratio at 136.9%, followed by Western and Southern Europe at 116.8%[59] Revenue by Segment For Q3 2024, total revenue was $3.67 billion, up 1.3% YoY (0.2% in constant currency), driven by government and MRD verticals, acquisitions, and an extra billing day, offset by lower demand in financial services and communications Revenue Performance (Three months ended June 30) | Metric | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $3,672.0 M | $3,623.4 M | +1.3% | | Constant Currency Growth | 0.2% | - | - | Revenue Performance (Nine months ended June 30) | Metric | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $11,015.8 M | $10,789.0 M | +2.1% | | Constant Currency Growth | 0.5% | - | - | Western and Southern Europe Q3 revenue for this segment decreased by 2.0% to $643.6 million (-2.8% in constant currency), primarily due to reduced demand in financial services and MRD vertical markets Western and Southern Europe Revenue (Q3) | Metric | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Revenue | $643.6 M | $656.8 M | -2.0% | | Constant Currency Change | - | - | -2.8% | U.S. Commercial and State Government This segment's Q3 revenue grew by 3.9% to $592.2 million (+2.0% in constant currency), driven by organic expansion in government, communications, and MRD verticals, and IP license sales U.S. Commercial and State Government Revenue (Q3) | Metric | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Revenue | $592.2 M | $569.8 M | +3.9% | | Constant Currency Change | - | - | +2.0% | Canada The Canada segment saw a Q3 revenue decrease of 2.3% to $506.8 million, attributed to lower demand from the communications & utilities and financial services sectors Canada Revenue (Q3) | Metric | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Revenue | $506.8 M | $518.8 M | -2.3% | | Constant Currency Change | - | - | -2.3% | U.S. Federal Q3 revenue in the U.S. Federal segment increased by 1.4% to $499.0 million, but decreased by 0.5% in constant currency due to a project cost reevaluation U.S. Federal Revenue (Q3) | Metric | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Revenue | $499.0 M | $492.4 M | +1.4% | | Constant Currency Change | - | - | -0.5% | Scandinavia and Central Europe This segment's Q3 revenue declined by 1.6% to $410.0 million (-2.2% in constant currency), driven by lower demand in communications & utilities and MRD Scandinavia and Central Europe Revenue (Q3) | Metric | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Revenue | $410.0 M | $416.7 M | -1.6% | | Constant Currency Change | - | - | -2.2% | U.K. and Australia Q3 revenue for U.K. and Australia grew 2.2% to $390.0 million, but declined 0.4% in constant currency due to lower demand in communications & utilities and financial services U.K. and Australia Revenue (Q3) | Metric | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Revenue | $390.0 M | $381.5 M | +2.2% | | Constant Currency Change | - | - | -0.4% | Finland, Poland and Baltics This segment reported strong Q3 revenue growth of 4.3% to $220.2 million (+3.2% in constant currency), driven by organic growth across most vertical markets Finland, Poland and Baltics Revenue (Q3) | Metric | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Revenue | $220.2 M | $211.2 M | +4.3% | | Constant Currency Change | - | - | +3.2% | Northwest and Central-East Europe This segment delivered excellent Q3 revenue growth of 9.9% to $212.8 million (+10.0% in constant currency), attributed to broad organic growth and higher IP-based revenue Northwest and Central-East Europe Revenue (Q3) | Metric | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Revenue | $212.8 M | $193.6 M | +9.9% | | Constant Currency Change | - | - | +10.0% | Asia Pacific The Asia Pacific segment's Q3 revenue increased by 5.7% to $241.6 million (+5.4% in constant currency), driven by continued high demand for offshore delivery services Asia Pacific Revenue (Q3) | Metric | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Revenue | $241.6 M | $228.6 M | +5.7% | | Constant Currency Change | - | - | +5.4% | Earnings Before Income Taxes Earnings before income taxes for Q3 2024 were $594.0 million, with the margin improving to 16.2%, and Adjusted EBIT reaching $602.8 million (16.4% margin), driven by operational efficiencies and lower net finance costs Earnings Reconciliation (Three months ended June 30) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Earnings before income taxes | $594.0 M | $559.0 M | | EBT Margin | 16.2% | 15.4% | | Adjusted EBIT | $602.8 M | $584.8 M | | Adjusted EBIT Margin | 16.4% | 16.1% | - Acquisition-related and integration costs were minimal at $0.1 million in Q3 2024, compared to $13.0 million in Q3 2023[112][113] - The Cost Optimization Program, completed by March 31, 2024, incurred no costs in Q3 2024, with a total program cost of $100.0 million[117] - Net finance costs decreased by $4.0 million in Q3 2024, mainly due to higher interest income and the repayment of a term loan in December 2023[118] Adjusted EBIT by Segment Total Adjusted EBIT for Q3 2024 was $602.8 million, an increase of 3.1% YoY, with the margin expanding to 16.4% due to cost savings and an extra billing day, despite some negative impacts Adjusted EBIT Margin by Segment (Q3 2024 vs Q3 2023) | Segment | Q3 2024 Margin | Q3 2023 Margin | | :--- | :--- | :--- | | Total CGI | 16.4% | 16.1% | | Western and Southern Europe | 12.1% | 12.3% | | U.S. Commercial and State Government | 15.9% | 17.3% | | Canada | 21.7% | 22.3% | | U.S. Federal | 16.7% | 17.7% | | Scandinavia and Central Europe | 6.9% | 7.0% | | U.K. and Australia | 16.0% | 14.6% | | Finland, Poland and Baltics | 16.9% | 10.8% | | Northwest and Central East-Europe | 15.7% | 12.0% | | Asia Pacific | 31.3% | 31.6% | Net Earnings and Earnings Per Share Net earnings for Q3 2024 increased by 6.1% to $440.1 million, with diluted EPS growing 9.1% to $1.91, benefiting from higher earnings and a 2.7% reduction in share count Net Earnings and EPS (Three months ended June 30) | Metric | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Net Earnings | $440.1 M | $415.0 M | +6.1% | | Net Earnings Margin | 12.0% | 11.5% | +0.5 p.p. | | Diluted EPS | $1.91 | $1.75 | +9.1% | | Diluted EPS (Excluding specific items) | $1.91 | $1.80 | +6.1% | - The effective tax rate for Q3 2024 was 25.9%, nearly unchanged from 25.8% in Q3 2023[141][142] - The weighted average number of diluted shares outstanding decreased by 2.7% YoY, contributing to higher EPS growth[141][145] Liquidity This section details the company's cash flow, capital resources, and key liquidity metrics, highlighting strong operational cash generation and improved net debt position Interim Condensed Consolidated Statements of Cash Flows In Q3 2024, cash provided by operating activities increased significantly to $496.7 million, driven by higher net earnings and better client collections, while financing activities primarily used cash for share repurchases Cash Flow Summary (Three months ended June 30) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Operating Activities | $496.7 M | $409.1 M | | Investing Activities | $26.8 M | ($178.8 M) | | Financing Activities | ($519.4 M) | ($113.6 M) | - The increase in cash from operations for the quarter was mainly due to the timing of client collections and increased net earnings[153][156] - The significant increase in cash used in financing activities was driven by a large increase in share repurchases, from $53.1 million in Q3 2023 to $499.3 million in Q3 2024[160] Capital Resources As of June 30, 2024, CGI had total available capital resources of $2.68 billion, including $1.16 billion in cash and $1.50 billion under its revolving credit facility, deemed sufficient for operations and growth Available Capital Resources (as of June 30, 2024) | Source | Amount (CAD) | | :--- | :--- | | Cash and cash equivalents | $1,155.4 M | | Unsecured committed revolving credit facility | $1,496.3 M | | Total | $2,678.8 M | - The company maintained a positive working capital of $627.4 million and was in compliance with all financial covenants as of June 30, 2024[165][166] Selected Measures of Capital Resources and Liquidity Key liquidity and capital metrics showed improvement, with net debt decreasing to $1.85 billion and the net debt to capitalization ratio improving to 17.2%, alongside increased ROIC and better DSO Key Capital and Liquidity Ratios (as of June 30) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Net Debt | $1,854.0 M | $2,279.6 M | | Net Debt to Capitalization Ratio | 17.2% | 21.7% | | Return on Invested Capital (ROIC) | 16.1% | 15.7% | | Days Sales Outstanding (DSO) | 42 days | 44 days | - The decrease in net debt and the net debt to capitalization ratio was primarily driven by strong cash generation, partially offset by share repurchases[172] Risk Environment This section outlines the company's exposure to external, industry-specific, and business-related risks, along with information on ongoing legal proceedings Risks and Uncertainties The company faces a range of risks categorized as external, industry-related, and business-specific, including economic volatility, intense competition, and challenges in managing global growth and cybersecurity threats External Risks CGI is exposed to external risks including volatile economic and political conditions, inflation, and pandemics, which can disrupt operations, increase costs, and reduce demand for services - Volatile economic and political conditions can negatively impact client business activity, leading to contract cancellations, reductions, or delays[221][222] - The company is exposed to risks from inflation, which could increase labor and operating costs, potentially harming profitability if not offset by price increases[225][227] - Pandemics can cause significant business disruptions, increase cybersecurity risks due to remote work, and negatively affect client financial viability[228][231] Risks Related to our Industry The IT services market is highly competitive, requiring continuous innovation and adaptation to new technology trends like AI, while also managing risks related to intellectual property infringement - The company operates in a highly competitive global market, facing pressure on pricing from competitors with greater resources or specialized efficiencies[237] - Failure to keep pace with emerging business demands and technology trends, such as artificial intelligence (AI), could adversely affect client retention and new business acquisition[240] - The company faces risks of infringing on others' intellectual property rights, which could lead to costly litigation, and challenges in protecting its own IP, especially in countries with limited legal protection[241][243] Risks Related to our Business Business-related risks are extensive, covering the successful execution of the 'Build and Buy' strategy, talent retention, cybersecurity, data privacy compliance, and managing financial risks like debt and currency volatility - Successful implementation of the 'Build and Buy' growth strategy depends on identifying suitable acquisition targets and integrating them effectively, which involves significant management attention and operational challenges[249][252] - The company faces significant risks from security incidents and cyberattacks, where a failure to protect company and client data could lead to legal liability, financial loss, and reputational damage[285][286] - Attracting and retaining qualified IT professionals is critical, as failure to do so could result in lost revenue or increased costs[272] - Compliance with a wide variety of international laws and regulations, including data privacy (GDPR), anti-corruption, and tax laws, is complex and poses a significant risk[278][283] Legal Proceedings The company is involved in various routine legal proceedings, audits, and claims, but management does not anticipate any material adverse effect on its financial position or operations from current matters - CGI is involved in routine legal proceedings and claims but does not expect any current matter to have a material adverse effect on its financial position or business activities[306]