CGI(GIB) - 2022 Q4 - Earnings Call Transcript

Financial Data and Key Metrics - Revenue in Q4 2022 was $3.25 billion, up 8% YoY or 13.9% excluding unfavorable foreign exchange and tax impacts [8] - Adjusted EBIT in Q4 was$ 522 million, up 5.7% YoY, with EBIT margins at 16.1%, up 10 basis points sequentially [15] - Net earnings were $362 million, with diluted EPS at$ 1.51, representing an 8.6% YoY expansion [16] - Cash provided by operating activities was $489 million, representing 15.1% of revenue, a decrease of$ 38 million YoY due to COVID-related tax refunds and higher DSO [17] - Global backlog reached an all-time high of $24.1 billion, representing 1.9 times revenue [13] Business Line Performance - All segments delivered positive constant currency growth, with double-digit growth in Western and Southern Europe (35%), Asia-Pacific (22.7%), Canada (13.2%), and U.S. commercial and state government (10.9%) [9] - Financial services grew 21%, manufacturing, retail, and distribution grew 14%, government grew 13%, and communication and utilities grew 10% [10] - IP services and solutions saw a significant increase in bookings, with an IP book-to-bill ratio of 146% in the quarter [13] Market Performance - Book-to-bill ratio was 112% in Q4, with new business accounting for 37% of bookings [11] - Strong book-to-bill ratios were observed in the U.K. and Australia (139%), U.S. commercial and state government (125%), U.S. Federal (121%), and Finland, Poland, and Baltics (117%) [11] - European operations had a book-to-bill ratio of 107% for the quarter and 114% for the full year, while North America was robust at 117% [12] Company Strategy and Industry Competition - The company's strategy focuses on a "build and buy" approach, with recent acquisitions contributing to growth and margin targets [16][19] - CGI is positioned to help clients drive digital transformations, with a focus on operational efficiencies and cost savings to fund digitization investments [35] - The company sees a positive M&A environment due to favorable valuations, currency strength, and a strong balance sheet [39] Management Commentary on Operating Environment and Future Outlook - Management highlighted the resilience of CGI's business model and the value provided to clients, with strong demand for digital transformation services [7][35] - The company expects continued demand for managed services and IP, with a strong pipeline of opportunities [37] - CGI remains confident in its ability to deliver double-digit EPS accretion and invest in growth opportunities [40] Other Important Information - The company invested$ 103 million back into the business and $133 million in share buybacks in Q4 [18] - CGI's effective tax rate in Q4 was 25.4%, with expectations for future quarters to be in the range of 24.5% to 26.5% [16] - The company's return on invested capital increased by 80 basis points to 15.7% [18] Q&A Session Summary Question: Digital Transformation Progress - Management compared the digital transformation journey to a baseball game, suggesting it is still in the early innings and may not have a definitive end [45] Question: Client Demand for Future Services - Clients are increasingly interested in data analytics, cloud technologies, and the integration of technology with business processes [46] Question: Hiring Plans - CGI has slowed some open positions due to reduced turnover but remains focused on hiring, particularly early-career talent [47][48] Question: Offshore and Nearshore Mix - The company is committed to its proximity model but is also expanding global delivery centers to manage wage inflation and provide cost-effective solutions [52][53] Question: Capital Allocation Strategy - The 2% tax on buybacks will not affect CGI's capital allocation strategy in 2023, but future plans will consider this factor [55] Question: European Market Outlook - Despite macroeconomic pressures, CGI's European operations remain resilient, with government contracts providing countercyclical support [70][71] Question: U.S. Political Landscape Impact - CGI's work is bipartisan, with IT modernization and cybersecurity remaining key priorities regardless of political changes [72][73] Question: M&A Activity and Margins - Recent M&A activity has temporarily impacted margins, but the company expects to achieve CGI margin targets over the coming quarters [64][65] Question: IP Booking Strength - The strength in IP bookings is driven by both demand and outbound efforts, with a focus on bundling IP with managed services and BPO [96][97] Question: Offshore Delivery and Virtual Work - Virtual work has provided a tailwind for offshore delivery, but nearshore centers are also seen as a key differentiator in balancing cost and regulatory considerations [120][121] Question: Vendor Consolidation - CGI is well-positioned to benefit from vendor consolidation, with a significant portion of 2022 bookings coming from new or expanded workshare [125]