CGI(GIB) - 2026 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q1 2026, the company reported revenue of CAD 4.1 billion, an increase of 7.7% year-over-year, or 3.4% when excluding foreign exchange impacts [4] - Adjusted EBIT was CAD 655 million, up 7.1% year-over-year, with a margin of 16.1%, down 10 basis points [7] - Adjusted net earnings were CAD 461 million, with a margin of 11.3%, and diluted EPS was CAD 2.12, an increase of 8% compared to Q1 last year [9] - Cash generated from operations was CAD 872 million, representing 21.4% of total revenue, with DSO improving to 37 days [9][10] Business Line Data and Key Metrics Changes - The APAC delivery center reported growth of 5.8%, primarily through managed services [4] - The UK and Australia segment experienced a 31% growth due to the acquisition of BJSS, enhancing CGI's service offerings [4] - Western and Southern Europe saw a 9% growth, driven by the acquisition of Apside [5] - Managed services had a book-to-bill ratio of 117%, while the overall book-to-bill ratio was 110% [5][6] Market Data and Key Metrics Changes - Bookings in the quarter reached CAD 4.5 billion, with a book-to-bill ratio of 110%, led by U.S. commercial and state government at 169% [5] - The government sector's pipeline of opportunities increased by 30% year-over-year, despite the impact of the U.S. federal shutdown [16] - The manufacturing, retail, and distribution sectors saw a significant increase in bookings, up more than CAD 530 million or 65% year-over-year [14] Company Strategy and Development Direction - The company is focused on a build and buy profitable growth strategy, emphasizing investments in AI and strategic acquisitions [12][19] - CGI's value creation strategy includes systems integration and consulting, managed services, accretive acquisitions, and share buybacks [21] - The company aims to leverage AI to enhance service delivery and operational efficiency, with 65% of CGI's IP solutions incorporating AI-enabled automation [18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term potential of the U.S. federal market despite short-term challenges from government shutdowns [32] - The company anticipates gradual improvement in various industries and geographies, driven by ongoing demand for IT modernization and AI integration [26] - Management noted that while there are uncertainties in the macro environment, the demand for AI solutions remains strong [26] Other Important Information - The company approved a quarterly cash dividend of CAD 0.17 per share, payable on March 20, 2026 [11] - CGI's capital allocation priorities include investing back into the business, pursuing acquisitions, and share buybacks, with CAD 2.4 billion in capital resources available [10][11] Q&A Session Summary Question: Impact of AI volatility on acquisitions - Management stated that AI remains an enabler for future growth and does not change their M&A evaluation process [30][31] Question: U.S. federal government business outlook - Management believes the federal government remains a strong client, despite recent shutdowns, and sees long-term opportunities [32] Question: Margins in U.S. federal business - Margins were impacted by the shutdown, but management expects improvement as operations normalize [39] Question: Vendor consolidation trends - Management noted an increase in vendor consolidation among clients, providing opportunities for CGI to win new business [43][44] Question: Enterprise AI adoption cycle - Management indicated that while many companies have deployed AI tools, realizing outcomes requires addressing data quality and infrastructure challenges [52][53] Question: Infrastructure and data platform modernization - Management acknowledged the complexity of modernizing data platforms and the need for companies to clean up data before fully leveraging AI [84][85]