CGI, Inc. Q4 FY2023 earnings call

Key Managerial Messages

• Q4 Financials: Strong revenue growth with 8% Y/Y increase, constant currency growth in Europe and North America. Government and health sectors grew 7.2% in constant currency. IP revenue had 4.1% CC growth, with SaaS arrangements up 300 basis points.
• Full-Year Performance: Fiscal 2023 had 8% CC revenue growth, 15.3% adjusted EPS accretion, $2.1 billion cash from operating activities (+13.3% Y/Y), and $16.3 billion bookings (+16.4% Y/Y).
• Client Satisfaction: High client satisfaction ratings, particularly on service valuation and innovation.
• Cost Optimization: $9 million expensed in Q4 for cost optimization, with plan to incur ~$65 million in H1 2024 for real estate right-sizing and operational efficiencies.
• AI and M&A: Focus on AI investments, recent merger with Momentum Consulting, and AI initiatives with Google to enhance capabilities and develop industry-specific use cases.

In Q4 2023, CGI delivered $3.51 billion of revenue, up 8% year-over-year (2.2% excluding foreign exchange impact). Constant currency growth was 3.4% in Europe and 1.1% in North America. Government is CGI's largest vertical market, representing 37% of revenue (up 200 basis points year-over-year). IP revenue was 22.6% of total revenue, with 4.1% constant currency growth. Bookings in Q4 were $4 billion, up 10% year-over-year, with a book-to-bill ratio of 114%. Managed services represented 60% of total bookings, up from 52% the prior year. Global backlog reached a record $26.1 billion, 1.8 times revenue. Profitability: Earnings before income taxes were $558 million (up 14.8% year-over-year, margin 15.9%), Adjusted EBIT was $573 million (up 9.8% year-over-year, margin 16.3%), net earnings were $414 million (up 14.4% year-over-year, margin 11.8%).

Forward-Looking Statements

• Fiscal 2024 focus on double-digit EPS accretion, incremental margin expansion, and revenue growth. Managed services bookings strong, with focus on IP development in AI and continued M&A activity. Government investments expected to continue, providing tailwinds from managed services and IP.

Risks

• Macroeconomic uncertainty impacting client spending decisions.
• Slower decision-making and project start-up cycles due to client scrutiny.
• Geopolitical and economic conditions affecting IT spending levels.

Q: As you talk to clients, how does current macro uncertainty differ from prior periods?

A: Clients face a dilemma of needing IT spending to meet business goals but with cost scrutiny, and recovery expected to be tempered compared to prior cycles.

Q: Is the restructuring initiative broad-based across the business?

A: Yes, it's broad-based across SG&A, focusing on real estate, global delivery, and automation to improve operational efficiencies.

Q: What is the outlook for constant currency growth in the near-term?

A: Driven by managed services, government and health sectors, but SI&C is soft in Q1 with tailwinds expected later in the year.

Q: Can you provide color on the M&A pipeline and prioritization?

A: Active M&A pipeline with valuations moving to more reasonable levels, prioritizing M&A and AI investments to support growth.

Q: How confident are you in booking conversion and decision cycles?

A: Confident in bookings but noting slower decision cycles, with some SI&C deals slipping to Q1 due to current environment.