CGI, Inc. Q2 FY2024 earnings call

Financials: Revenue CAD3.7B, up 0.7% YOY; IP at 22% of total revenue. Bookings CAD3.8B, book-to-bill 100% Q2. Profitability: Earnings before income taxes CAD577M, margin 15.4% (up 20bps YOY); Adjusted EBIT CAD628M, margin 16.8% (up 60bps YOY). Operational: Discipline and agility prioritized for shareholder value. Margin improved with recurring revenue growth (IP up 6.5% CC, managed services up 2.1% CC). Cost optimization program completed. Utilization up, client satisfaction high. New client awards, including LocalTapiola, U.K. government, U.S. Department of State, and NYC. Managed services bookings up $1.6B TTM (21% increase). AI investments focused on talent and service offerings. M&A focus to deepen resilience.

In Q2, CGI delivered CAD3.7 billion of revenue, up 0.7% year-over-year or stable when excluding foreign exchange impact. Strong segments included UK and Australia at 5.1% constant currency growth, Asia Pacific at 5%, Northwest and Central East Europe at 4.2%, and US commercial and state government at 4.1%. Government had the highest growth at 5.7% constant currency. IP was 22% of total revenue. Overall bookings were CAD3.8 billion with a book-to-bill ratio of 100% in Q2 and 113% on a trailing 12-month basis. Global backlog reached CAD 26.8 billion or 1.9 times revenue.

Capital allocation: Priorities are investing in business, accretive acquisitions (leverage ratio 1.1x, net debt to capitalization 16.4%), and stock buyback/debt paydown. Pipeline is strong, but no uniform short-term pickup in SI&C; managed services and IP demand driving opportunities.

Macro environment impact on industries sensitive to interest rates (banking subsectors soft). Slow procurement decisions and cautionary spending in some sectors. Non-uniform green shoots in new project work across industries and geographies.

Q: Richard Tse asked about the extent of expectations for a second half pick up predicated on rates coming down.

A: George Schindler said green shoots are increasing but not uniform; short-term is managed services and IP demand, offset by cautionary spending in SI&C and slow procurement.

Q: Richard Tse asked about business change in service delivery mix.

A: George Schindler said ongoing trend to global delivery, including offshore and near-shore, with automation playing a role.

Q: Daniel Chan asked about US Federal bookings.

A: George Schindler said it was a light booking quarter cyclically, with many RFPs and awards likely in second half; trailing 12-month book-to-bill in US Federal at 136%.

Q: Daniel Chan asked about margin profile.

A: George Schindler said it's a combination of improved IP mix and cost optimization, with some investment in AI and SI&C to be considered.

Q: Paul Treiber asked about AI pause.

A: George Schindler said evaluation of AI is a catalyst for digital spending, viewed holistically as next wave of digitization.

Q: Robert Young asked about utilization and head count.

A: George Schindler said utilization is up, drop in head count due to cost optimization; attrition under control, new talent brought in.

Q: Jerome Dubreuil asked about CAD-USD impact.

A: Steve Perron said current exchange rate could be a tailwind in Q3.

Q: Thanos Moschopoulos asked about IP growth drivers.

A: George Schindler said highest growth in government, also some in banking, focused on operational systems.

Q: Divya Goyal asked about H2 optimization and margin run rate.

A: George Schindler said no clarity on H2 optimization; Steve Perron said margin uptick expected, but investment in AI and training to factor in.

Q: Stephanie Price asked about bookings converting to revenue.

A: George Schindler said focused on staying in front of clients with value propositions, no specific answer on conversion timeline.

Q: Suthan Sukumar asked about partner ecosystem and dividend.

A: George Schindler said partner ecosystem important, dividend not current priority as focus is on growth drivers like AI and M&A.

Q: Tyler DuPont asked about TPV and ACV growth.

A: George Schindler said dual-focused agenda of cost savings and growth will normalize, with stronger SI&C growth for point projects and larger managed services deals.