CGI(GIB)2024-07-31 17:49Financial Data and Key Metrics - Revenue for Q3 2024 was $3.7 billion, up 1.3% YoY or 0.2% excluding foreign exchange impact [3] - Earnings before income taxes were $594 million, with a margin of 16.2%, up 80 basis points YoY [6] - Adjusted EBIT was $603 million, representing a margin of 16.4%, up 30 basis points YoY [6] - Net earnings were $440 million, with a margin of 12%, up 50 basis points YoY [7] - Diluted EPS was $1.91, an increase of 9% YoY [7] - Cash provided by operating activities was $497 million, representing 13.5% of total revenue [7] - Global backlog reached $27.6 billion, or 1.9 times revenue [5] Business Line Performance - Strongest segments were Northwest and Central East Europe with 10% constant currency growth, Asia Pacific at 5.4%, Finland, Poland, and Baltics at 3.2%, and US commercial and state government at 2% [3] - IP grew at 5.2% constant currency, representing 22.5% of total revenue, up 120 basis points YoY [5] - Bookings were strong at $4.3 billion, with a book-to-bill ratio of 117% [5] - Managed services and IP engagements drove bookings, with managed services book-to-bill at 139% and IP book-to-bill at 129% [12] Market Performance - Government sector showed the highest growth at 4.1% constant currency, followed by manufacturing, retail, and distribution at 2.2% [4] - US federal bookings were particularly strong with a book-to-bill ratio of 209%, followed by UK and Australia at 153%, and Western and Southern Europe at 123% [5] - Asia Pacific, Canada, and US Federal segments showed strong margins at 31%, 22%, and 17% respectively [7] Strategic Direction and Industry Competition - The company is focusing on managed services and IP engagements to drive growth, with a strong emphasis on government sector contracts [12][13] - CGI is investing in AI and generative AI technologies, with a 20% sequential increase in AI-related projects [22] - The company is pursuing accretive acquisitions, such as the recent purchase of Aeyon, which expands its US federal capabilities [24][68] Management Commentary on Business Environment and Outlook - Management noted signs of stabilization in the macro business environment, with clients beginning to solidify future plans [17] - The company expects continued delays in decision-making for stand-alone SI&C projects but remains optimistic about the demand for managed services and IP solutions [18] - CGI is enhancing its managed services delivery approach through the expansion of its CGI DigiOps platform, which leverages AI technologies [21] Other Important Information - CGI announced a dividend program, with a quarterly cash dividend of $0.15 per share starting in Q1 2025 [9] - The company completed two strategic acquisitions, adding 875 consultants and professionals to its workforce [8] - CGI's effective tax rate for the quarter was 25.9%, with future quarters expected to be in the range of 25% to 26.5% [7] Q&A Session Summary Question: Why initiate a dividend now? - The dividend was initiated as an additional mechanism to return value to shareholders while maintaining financial flexibility for investments and acquisitions [27] Question: What is the M&A environment like? - The M&A environment is active, with reasonable valuations and increased inbound calls, particularly from smaller companies [29] Question: How is the demand environment shaping up? - The demand environment is showing signs of stabilization, with managed services offsetting softness in SI&C projects [32] Question: What does the Aeyon acquisition bring? - Aeyon brings new avenues in the national security space and complementary government-wide contract vehicles, enhancing CGI's US federal capabilities [33][34] Question: What drives margin expansion? - Margin expansion is driven by the mix of managed services and IP, leveraging global delivery and cost optimization programs [35] Question: How is AI integrated into CGI's strategy? - AI is increasingly integrated into CGI's engagements, with a focus on proprietary solutions like CGI Pulse AI and partnerships with hyperscalers [38][39] Question: What is the outlook for consulting? - Consulting remains important, particularly in AI-related data and business transformation, though recovery will be slower [48] Question: How is pricing pressure affecting the market? - Pricing pressure is more about outcomes and efficiencies rather than unit price, with clients seeking quality and operational improvements [60][61] Question: What are the geographic growth variances? - Europe is performing better than North America, with smaller geographies like Finland and Poland showing more agility and growth [65][66] Question: What is the focus of M&A? - M&A focuses on building out metro markets across verticals, with an emphasis on new client relationships and capabilities [68]