CGI(GIB) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics - Revenue for Q4 2024 was $3.7 billion, up 4.4% YoY or 2% excluding foreign exchange impact [8] - Earnings before income taxes were$ 592 million, with a margin of 16.2%, up 30 basis points YoY [11] - Adjusted EBIT was $600 million, representing a margin of 16.4%, up 10 basis points YoY [12] - Net earnings were$ 436 million, with a margin of 11.9%, up 10 basis points YoY [15] - Diluted EPS was $1.91, an increase of 8.5% YoY [15] - Cash provided by operating activities was$ 629 million, representing 17.2% of total revenue [16] - Global backlog reached $28.7 billion, or 1.9 times revenue [11] Business Line Performance - IP revenue grew at 3.7% constant currency, representing 22.9% of total revenue, up 30 basis points YoY [10] - Book-to-bill ratio was 104% for Q4, with managed services at 120% and SI&C at 85% [10] - Managed services bookings were particularly strong in H2, reaching nearly$ 5.3 billion, up by more than $1 billion compared to H1 [35] Market Performance - Strongest growth segments: Northwest and Central East Europe (7.5% constant currency), UK and Australia (7.2%), Asia Pacific (6.2%), and US Federal (5%) [8] - Government sector showed the highest growth at 4.7% constant currency, followed by manufacturing, retail, and distribution at 3.3% [9] - Financial services in Europe and communications in North America remained challenged [9] Company Strategy and Industry Competition - The company continues to focus on a build-and-buy strategy, with recent acquisitions including Aeyon and CGI Federal to deepen digital and AI-based offerings [25] - Investments in AI and GenAI are ongoing, with a$ 1 billion AI investment announced previously [47] - The company is actively pursuing M&A opportunities, with a focus on accretive acquisitions that align with its growth strategy [52] Management Commentary on Operating Environment and Future Outlook - The company expects the tax rate for future quarters to be in the range of 25.5% to 26.5% [14] - The demand environment for managed services remains strong, while SI&C is expected to remain soft in the near term [78] - The company sees opportunities in AI, cybersecurity, and cloud services, with a growing pipeline of AI-related projects [48] Other Important Information - The company issued $750 million of public Canadian senior notes to repay existing debt and for general corporate purposes [17] - A cash dividend of$ 0.15 per share was approved, payable on December 20, 2024 [19] - Germany is now its own segment, and operations in Scandinavia are combined with the Northwest and Central East Europe segment [20] Q&A Session Summary Question: M&A Activity and AI Pipeline - The company has a full M&A pipeline and is in active discussions with multiple targets, but closing deals depends on agreement on price and strategic fit [57] - AI-related projects are increasing, with more proof-of-concepts and internal use of AI in managed services and IP [58] - The company is investing in training its workforce on AI tools, with both basic and technical training programs in place [60] Question: Bookings and US Federal Business - Bookings were slightly weak in Q4 due to lumpiness, with some contracts not closing by the end of the quarter [63] - The US Federal business is expected to pick up after the election, as new priorities will require IT services [66] Question: Microsoft Partnership and M&A Valuation - Microsoft is a key partner, and the company uses tools like CoPilot extensively, but it also works with other technologies like AWS and Google [72] - The company is disciplined in M&A, focusing on accretive deals that align with its strategy, even if it means paying more than one-time revenue [75] Question: Demand Environment and US Commercial Business - The demand environment remains stable, with managed services strong and SI&C soft, particularly in business consulting [78] - The US Commercial and State Government business is expected to bounce back, with large potential deals in the pipeline [79] Question: Discretionary Spending and Margins - Discretionary spending remains soft, particularly in the financial sector, but the company expects a bounce back as interest rates stabilize [81] - Margins are expected to improve, with opportunities in Europe and managed services driving profitability [94] Question: GenAI and Client Adoption - Clients are increasingly relying on the company for AI proof-of-concepts and data preparation, driving future growth opportunities [98] - The company is using AI internally for cost optimization and process automation, which is also benefiting clients [92] Question: M&A Strategy and Infrastructure - The company remains focused on its build-and-buy strategy, with a preference for acquisitions that align with its growth objectives and culture [102] - Pure infrastructure businesses are not a focus, but the company is open to acquisitions that include infrastructure as part of a broader offering [105] Question: Client Pipeline and New Business - The client pipeline is up 20% YoY, with strong growth in retail and financial services, driven by cost-saving initiatives and managed services [112] - The company is seeing growth in AI and cybersecurity consulting, with new opportunities in these areas [114]