CGI Inc. Q3 FY2024 earnings call

• Delivered Q3 2024 financial results with revenue growth, strong bookings led by managed services and IP wins.
• Improved mix of business and cost optimization program contributed to margin improvement.
• Announced strategic acquisitions: in Canada, acquired Celero's business serving credit unions; in the US, entered into agreement to purchase Aeyon.
• Clients showed high satisfaction with innovation including AI technologies; provided examples of client engagements like Michelin, US Department of State, etc.
• Strong cash provided by operating activities, with $497 million in Q3, and $2.2 billion trailing 12-month.

In Q3 2024, CGI delivered $3.7 billion of revenue, up 1.3% year-over-year (0.2% excluding foreign exchange impact). Strongest segments included Northwest and Central East Europe at 10% constant currency growth, Asia Pacific at 5.4%, Finland, Poland and Baltics at 3.2%, and US commercial and state government at 2%. IP grew at 5.2% constant currency, representing 22.5% of total revenue. Bookings were $4.3 billion with a book-to-bill ratio of 117%. Global backlog reached $27.6 billion (1.9 times revenue). Profitability: Earnings before income taxes were $594 million (margin 16.2%), Adjusted EBIT was $603 million (margin 16.4%), net earnings were $440 million (margin 12%).

• Initiated a dividend program to pay a quarterly cash dividend of $0.15 per share starting Q1 fiscal 2025.
• Continue to prioritize capital allocation strategies for profitable growth, including investing in business, pursuing accretive acquisitions, repurchasing stock, and now distributing dividends.
• Expect tax rate for future quarters to be in the range of 25% to 26.5%.
• Pipeline growth in IP (up over 15% year-over-year in transport, logistics, manufacturing, energy), managed services (up over 40% year-over-year in government, insurance, banking, manufacturing, retail), and SI&C.

• Softness in certain verticals like financial services and communication in Western and Southern Europe and North America.
• Caution from clients in spending on stand-alone consulting and system integration projects.
• Slower conversion of managed services from pipeline to booking due to client caution in the current environment.

Q: Daniel Chan asks about the reason for initiating the dividend.

A: George Schindler and Steve Perron discuss that the Board determined initiating the dividend as an added mechanism to return value to shareholders while maintaining cash priorities for EPS growth.

Q: Daniel Chan asks about the M&A environment.

A: George Schindler talks about reasonable valuations, active M&A activity with discussions at all stages of the pipeline, and more inbound calls for M&A.

Q: Suthan Sukumar asks about demand recovery and managed services backlog.

A: George Schindler discusses a combination of discretionary spend recovery and managed services growth, noting managed services projects are coming online but slower to convert.

Q: Thanos Moschopoulos asks about margin drivers.

A: George Schindler mentions managed services, IP mix, and geographical improvements in SG&A and project execution contributing to margins.

Q: Thanos Moschopoulos asks about US Federal bookings and election dynamics.

A: George Schindler discusses bridge contracts related to election preparation and transition.

Q: Surinder Thind asks about AI strategy and managed services conversion.

A: George Schindler talks about AI integration in engagements and slower conversion due to client caution in the current environment.

Q: Jerome Dubreuil asks about margin improvement and technological investments.

A: George Schindler discusses shift in investments towards AI, with focus on training and IP leveraging AI, while maintaining margin improvements.

Q: Stephanie Price asks about consulting recovery and IP demand.

A: George Schindler talks about consulting slowdown and IP focus on operations-related solutions.

Q: Paul Treiber asks about client differentiation and France environment.

A: George Schindler discusses client differentiation based on needs and France's wait-and-see approach due to macro and election factors.

Q: Steven Li asks about Finland, Poland, Baltics margins and AI bookings.

A: George Schindler talks about sustainable margins in those regions and small AI engagements with increasing number of projects but small bookings.

Q: Richard Tse asks about price pressure and regulatory filings.

A: George Schindler discusses outcome-focused approach and revaluation of costs to complete specific projects in US Fed.

Q: Divya Goyal asks about geographic variances and M&A verticals.

A: George Schindler talks about geographic variances based on client agility and M&A focus on metro markets and client relationships.