CGI(US:GIB)2023-07-26 17:49Financial Data and Key Metrics Changes - In Q3 2023, the company reported revenue of CAD 3.62 billion, an increase of 11.2% year-over-year, or 6.3% when excluding foreign exchange impacts [6] - Earnings before income taxes were CAD 559 million, up 14.3% year-over-year, with a margin of 15.4% [9] - Adjusted EBIT was CAD 585 million, reflecting a 12.5% year-over-year increase and a margin of 16.1% [9] - Diluted EPS increased to CAD 1.80, a 16.9% improvement compared to CAD 1.54 in Q3 last year [10] - Net earnings improved to CAD 415 million, up 13.9% year-over-year, with a margin of 11.5% [18] Business Line Data and Key Metrics Changes - The company's IP revenue as a percentage of total revenue was 21%, up CAD 85 million year-over-year, with overall IP portfolio growth of 12.4% year-over-year [7] - Managed services accounted for 57% of total bookings, up from 48% in the prior year [16] - The number of consultants and professionals increased by 3,000 year-over-year, totaling 91,500 worldwide [15] Market Data and Key Metrics Changes - The UK and Australia segments grew by 15%, Asia Pacific by 13%, and Western and Southern Europe by 10% in constant currency [14] - The government sector, the largest vertical market, generated constant currency growth of 11% [14] - The global backlog reached a record CAD 25.6 billion, representing 1.8 times revenue [16] Company Strategy and Development Direction - The company continues to focus on delivering shareholder value through business investments, accretive acquisitions, and stock repurchases [21] - The company is committed to a disciplined approach to M&A, aiming for higher-quality mergers despite a slowdown in the IT services industry's M&A activity [22] - The strategy emphasizes ROI-led digital transformation, with a focus on managed services and IP offerings to drive margin expansion and improve EPS [42] Management's Comments on Operating Environment and Future Outlook - Management noted that the ongoing macroeconomic uncertainty is intensifying client efforts to prioritize ROI-led digitization [40] - The company anticipates that the demand for broader transformation programs will put pressure on client decision cycles [40] - Management expressed confidence in the company's ability to weather short-term challenges due to strong bookings and a shift towards managed services and IP [104] Other Important Information - The effective tax rate in Q3 was 25.8%, slightly up from 25.5% in the prior year [17] - Cash provided by operating activities was CAD 409 million, with a DSO of 44 days, in line with the target of 45 days [19] - The company plans to allocate CAD 1 billion over the next three years to expand its AI services and solutions [48] Q&A Session Summary Question: Can you expand on the level of engagement with leading players in the AI market? - Management indicated that discussions are broad and focused on preparing data for AI model training [55] Question: How do you see operating costs playing out in the next quarters? - Management expressed satisfaction with the current position, noting strong bookings and increased utilization [56] Question: Will investment in IP increase as a percentage of revenue? - Management stated that investments will be balanced and aligned with client demand [66] Question: What is the outlook for the Canadian business given recent deceleration? - Management believes the deceleration is temporary and expects a return to growth in the next quarter [70] Question: What is driving the strong growth in U.S. Federal bookings? - Management attributed growth to backloaded spending and the need for government digitization [75] Question: Can you elaborate on the valuation gap in the M&A market? - Management noted that sellers are holding onto 2021 valuations while buyers are looking at current market realities [77] Question: Are you seeing pricing pressure in the market? - Management acknowledged some pricing pressure but emphasized opportunities to gain market share through value propositions [85]