CGI Q2 2025 Earnings Report

CGI EPS Results

• Actual EPS: $1.48
• Consensus EPS: $1.50
• Beat/Miss: Missed by -$0.02
• One Year Ago EPS: $1.97

CGI Revenue Results

• Actual Revenue: $2.80 billion
• Expected Revenue: $4.05 billion
• Beat/Miss: Missed by -$1.25 billion
• YoY Revenue Growth: +7.60%

CGI Announcement Details

• Quarter: Q2 2025
• Date: 4/30/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, April 30, 2025
• Conference Call Time: 9:00AM ET

CGI (NYSE:GIB), together with its subsidiaries, provides information technology (IT) and business process services. Its services include the business and strategic IT consulting, systems integration, and software solutions. The company also provides application development, modernization and maintenance, holistic enterprise digitization, automation, hybrid and cloud management, and business process services; intellectual property-based solutions; business consulting; managed IT services; and IT infrastructure services. It serves clients operating in government, banking and capital market, health, utility, communication and media, oil and gas, space, manufacturing, insurance, life sciences, retail and consumer service, and transportation and logistics sectors. The company operates in Canada, France, Spain, Portugal, the United States, Germany, Sweden, Norway, the United Kingdom, Australia, Finland, Poland, Baltics, the Netherlands, Denmark, Czech Republic, India, the Philippines, Asia Pacific, and internationally. Western and Southern Europe; Australia; Scandinavia; Finland, Poland, and Baltics; the United States; the United Kingdom; and the Asia Pacific. The company was formerly known as CGI Group Inc. and changed its name to CGI Inc. in January 2019. CGI Inc. was founded in 1976 and is headquartered in Montreal, Canada.

CGI Q2 2025 Earnings Call Transcript

Key Takeaways

• CGI reported Q2 revenue of CAD $4.0 billion, up 7.6% year-over-year (3.3% in constant currency), driven by recent acquisitions and strong growth in the UK, Australia and US client proximity segments, with government and financial services leading industry growth.
• Bookings reached CAD $4.5 billion for a book-to-bill ratio of 112% (North America 124%), with managed services at 122%, and a global backlog of CAD $31 billion, equivalent to two years of revenue.
• Adjusted EBIT was CAD $666 million (16.5% margin) and adjusted EPS rose 7.6% to CAD $2.12; CGI expanded its restructuring program in Continental Europe, incurring CAD $44 million in Q2 and expecting another CAD $137 million of charges, impacting 1.5% of employees.
• CGI generated CAD $438 million of operating cash, invested CAD $1.56 billion in acquisitions, repurchased CAD $345 million of shares and returned CAD $34 million in dividends; ROIC was 15.4% and a quarterly dividend of CAD $0.15 per share was approved.
• CGI completed three acquisitions (BJSS, NovaTech, Momentum) and signed an exclusivity agreement for AppSid, bolstering its metro-market presence and expanding offerings in AI, cloud, cybersecurity and managed services to support its build-and-buy growth strategy.

Presentation

[Operator]

Good morning, ladies and gentlemen. Welcome to CGI's Second Quarter Fiscal twenty twenty five Conference Call. And I would like to turn the meeting over to Mr. Kevin Linder, SVP of Investor Relations. Please go ahead, sir.

[Kevin Linder, SVP - IR at CGI]

Thank you, Sylvie, and good morning. With me to discuss CGI's second quarter fiscal twenty twenty five results are Francois Belanger, our President and CEO and Steve Perron, Executive Vice President and CFO. This call is being broadcast on cgi.com and reported live at nine a. M. Eastern Time on Wednesday, 04/30/2025.

[Kevin Linder, SVP - IR at CGI]

Supplemental slides as well as a press release we issued earlier this morning are available for download along with our Q2 MD and A, financial statements and accompanying notes, all of which have been filed with both Cedar Plus and EDGAR. Please note that some statements made on the call may be forward looking. Actual events or results may differ materially from those expressed or implied, and CGI disclaims any intent or obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise. The complete Safe Harbor statement is available in both our MD and A and press release as well as on cgi.com. We recommend our investors read it in its entirety.

[Kevin Linder, SVP - IR at CGI]

We are reporting our financial results in accordance with International Financial Reporting Standards or IFRS. As always, we will also discuss non GAAP performance measures, which should be viewed as supplemental. The MD and A contains definitions of each one used in our reporting. All of the dollar figures expressed on this call are Canadian, unless otherwise noted. Now I'll turn the call over to Steve to review our Q2 financial results.

[Kevin Linder, SVP - IR at CGI]

Steve?

[Steve Perron, Executive VP & CFO at CGI]

Thank you, Kevin, and good day, everyone. CGI continued to operate with discipline in our second quarter of fiscal twenty twenty five. In Q2, we delivered $4,000,000,000 of revenue, up 7.6% year over year or up 3.3% when excluding the impact of foreign exchange. Growth was mainly driven by recent business acquisitions, partially offset by one less available day to bill in most segments, equating to approximately 0.8%. In constant currency, the CGI client proximity segments with strongest growth were U.

[Steve Perron, Executive VP & CFO at CGI]

K. And Australia at 12.1%, which includes just over one month of BJSS revenue. And across our U. S. Segments, combined growth was 7.2%, primarily driven by our Aon and Dougherty merger investments.

[Steve Perron, Executive VP & CFO at CGI]

Geographically, our North American operation grew at 6.4%. In Europe, our operation grew at 0.7% given softer market conditions, particularly in the manufacturing sector. And demand remained strong for global delivery, specifically our Asia Pacific operation with revenue up 6.8%. From an industry perspective, constant currency revenue growth was led by government at 6.5% and financial services at 6.1%, partially offset by continued softness in Continental Europe, particularly in the MRD and telecommunications sectors. IP revenue grew in five of our eight proximity segments on the strength of continued client interest for our business solution.

[Steve Perron, Executive VP & CFO at CGI]

IP represented 21.5% of total revenue, down 90 basis points year over year due to the dilutive impact of recent business acquisitions. In Q2, bookings were $4,500,000,000 for a book to bill ratio of 112%. Book to bill was strong in North America at 124%. Europe was 101. When looking at service type, book to bill ratios were 122% for Managed Services and 98% for Business and Strategic IT Consulting and System Integration.

[Steve Perron, Executive VP & CFO at CGI]

On a trailing twelve month basis, book to bill ratios for North America and Europe were 111110%, respectively. On the same basis, Managed Services had a book to bill ratio of 122%, and the SI and C book to bill ratio was 97%. Our global backlog reached 31,000,000,000 or 2x revenue. Turning to profitability. Adjusted EBIT in the quarter was $666,000,000 up 5.9% year over year for a margin of 16.5%.

[Steve Perron, Executive VP & CFO at CGI]

Earnings before income taxes were $583,000,000 for a margin of 14.5, down 90 basis points year over year, mainly due to restructuring and acquisition related costs. Our effective tax rate in the quarter was 26.2%, stable compared to last year, and we expect our tax rate for future quarters to be in the range of 25.5% to 26.5%. Adjusted net earnings were $481,000,000 up $21,000,000 year over year for a margin of 11.9%. On the same basis, diluted EPS was $2.12 an accretion of 7.6% when compared to Q2 last year. Net earnings were $430,000,000 for a margin of 10.7%.

[Steve Perron, Executive VP & CFO at CGI]

Diluted EPS was $1.89 representing an increase of 3.3% year over year. We remain in constant dialogue with our clients regarding the evolving business dynamics they are facing. To remain strong, we regularly assess these dynamics and take proactive actions to expand shareholder value for the benefit of our stakeholders, namely our shareholders. As such, CGI increased the scope of our previously announced restructuring program, most of which continues to be targeted within our Continental Europe operations. In the quarter, we incurred $44,000,000 of costs, and we expect to incur an additional $137,000,000 to implement these actions over the next few quarters.

[Steve Perron, Executive VP & CFO at CGI]

These actions will impact approximately 1.5% of CGI employees. As always, we will treat those impacted fairly and with respect. Turning to cash. We generated $438,000,000 in our cash from operation, representing 11% of total revenue, unfavorably impacted by $101,000,000 in restructuring and business acquisition related payments. DSO was forty days in the quarter, identical to last year.

[Steve Perron, Executive VP & CFO at CGI]

In Q2, we invested $100,000,000,000 into our business, including in AI, dollars 1,560,000,000.00 for business acquisitions, dollars $345,000,000 to buy back our stock and returned $34,000,000 to our shareholders under our dividend program. We continue to deliver a strong return on invested capital at 15.4%, down 50 basis points year over year, mainly as a result of the capital allocated to recent business acquisitions, which are in the process of being integrated. Yesterday, our Board of Directors approved a quarterly cash dividend of $0.15 per share. This dividend is payable on 06/20/2025, to shareholders of record as of the close of business on 05/16/2025. As communicated in the past and consistent with our profitable growth strategy, CGI's capital allocation priorities remain focused on investing back in the business and pursuing accretive acquisitions.

[Steve Perron, Executive VP & CFO at CGI]

Now I will turn the call over to Francois to further discuss the insights on the quarter as well as the outlook for our business and markets. Francois?

[François Boulanger, President & CEO at CGI]

Thank you, Steve, and good morning, everyone. I am pleased with our team's disciplined execution of our profitable growth strategy during the second quarter and throughout the first half of the fiscal year. Our operational rigor again enabled us to deliver solid results in the quarter, underscoring CGI's resilience as many clients began to navigate a more unpredictable business environment compared to the first quarter. Today, I will focus our performance for the first half of the year, the current market environment and the outlook. Year over year for the first half of twenty twenty five, revenue was up 6.3% or 3% on a constant currency basis to more than $7,800,000,000 Adjusted EBIT was up 5.3% to $1,280,000,000 Adjusted EPS was up 7.4% to $4.8 And on a trailing twelve month basis, cash from operations totaled over $2,200,000,000 up nearly $100,000,000 compared to the previous year.

[François Boulanger, President & CEO at CGI]

Given the ongoing strength of our balance sheet and confidence in CGI's positioning as a trusted partner during all economic cycles, We invested $2,300,000,000 during the first half, including $183,000,000 invested back into the business to drive future growth. Dollars 1,600,000,000.0 toward business acquisitions, dollars $498,000,000 for share repurchase and $68,000,000 returned to shareholders through our dividend program. Our capital allocation priorities remain focused on progressing our build and buy profitable growth strategy. By continuing to reinvest in our business, we are expanding our portfolio of in demand offerings in areas such as AI and generative AI, cybersecurity, cloud and IT services. By furthering our M and A strategy, we are expanding and deepening CGI's local presence in key metro markets around the world.

[François Boulanger, President & CEO at CGI]

In the second quarter, we completed three acquisitions. BJSS to expand our UK wide presence in commercial industries such as financial services and to deepen our presence in government. NovaTech to expand our presence in Germany and Spain across commercial industries, including financial services. And Momentum Technologies to grow our public sector presence in Quebec City. I would like to warmly welcome the nearly 3,000 new consultants who joined CGI from these mergers.

[François Boulanger, President & CEO at CGI]

Additionally, at the end of the quarter, we announced an exclusivity agreement to acquire AppSid, a leading AI, cloud engineering and digital services firm headquartered in France. Upon successful closing, which is expected in June, more than 2,500 professionals would join CGI, deepening our local presence in France, Canada, Portugal, Belgium, Morocco and Switzerland. Following the successful closing of Accent, the five mergers we announced this fiscal year will increase the total number of metro markets where CGI is at scale. This is a critical element of CGI's growth strategy to ensure we are in proximity with existing and new clients to understand and adapt to their needs. To progress our profitable growth strategy, we will continue to prioritize investments aimed at building critical mass in key metro markets in all CGI geographies.

[François Boulanger, President & CEO at CGI]

We remain in dialogue with a number of firms, both metro market and transformational opportunities. As always, we will be disciplined to ensure that mergers will be accretive to each of our stakeholders. Turning now to the market environment, starting with bookings. CGI ended the first half with bookings of $8,600,000,000 up $700,000,000 year over year. This was driven by expanded modernization project, which helped clients realize operational efficiencies, notably through managed services and IP.

[François Boulanger, President & CEO at CGI]

For the first half, managed services bookings exceeded $5,000,000,000 up 21% year over year. Additionally, in Q2, IP solutions designed to help clients achieve business objectives drove 134% IP book to bill. From an industry perspective, we saw strength in financial services with 157% book to bill and government at 108%. Globally, we continue to see early signs in Q2 of renewed client spending in the banking sector. Banks remain focused on modernizing core systems and processes through managed services and IP.

[François Boulanger, President & CEO at CGI]

Government awards were notable in local government, particularly for our industry leading IP solutions, which embed AI, data privacy and cybersecurity. Representative client wins in the second quarter included the State of California awarded CGI U. S. A seven year US524 million dollars engagement to modernize and unify its payroll and HR systems through the implementation of the CGI Advantage platform. The European Space Agency selected CGI Germany to develop advanced AI solutions to automate and streamline satellite mission operations.

[François Boulanger, President & CEO at CGI]

CGI consultants will combine domain expertise with AI models to help the agency optimize mission planning and bring satellites to orbit faster and with greater precision. A leading U. S. Financial institution expanded their strategic partnership with CGI to establish a dedicated global capability center in India. The GCC will help accelerate the bank's capacity to launch innovative offerings, leverage AI solutions for business outcomes and improve scalability and access to talent.

[François Boulanger, President & CEO at CGI]

This agreement underscores CGI's deep expertise and value added solutions for consumer lending, trade finance and capital markets. And one of the largest retail banks in France selected CGI's Dynamic Process three sixty platform to serve as a core technology supporting their digital transformation. This CGI IP helps organizations digitize and streamline their end to end business processes so they can operate more efficiently. Over the past few months, there has been an uptick and uncertainty as clients globally consider the implications of macroeconomic and geopolitical dynamics, most notably related to tariffs. Across industries, our clients are navigating a fast changing and challenging business environment.

[François Boulanger, President & CEO at CGI]

Many clients are balancing strategic caution with operational urgency. This dual business agenda is not new, but the pace and intensity of change has accelerated and it's shaping the IT priorities and investments. Despite discretionary approach across some industries and client organizations, overall client interest remains strong for CGI's managed services, which help clients realize cost saving and drive business transformation. As a result, the pipeline of managed services opportunities is up by more than 15% compared to this time last year. Specific to our U.

[François Boulanger, President & CEO at CGI]

S. Federal operations. For more than forty years, CGI Federal has supported U. S. Government agencies in using technology and innovation to achieve efficiencies and deliver outcomes aligned to their missions.

[François Boulanger, President & CEO at CGI]

In line with recent administration initiatives, we are collaborating closely with our clients to provide all requested inputs on our current state portfolio of projects. More importantly, our team is proposing bold ideas to help the client and the administration achieve additional cost efficiencies, including through the use of commercial approaches, emerging technologies and outcome based contracting. For context, CGI Federal constituted 14% of our global revenue in fiscal twenty twenty four. The vast majority of this revenue is earned from IT and business process services, much of which uses CGI IP such as Momentum. And just 2% of our federal revenue is derived from discrete consulting services.

[François Boulanger, President & CEO at CGI]

We remain well positioned as a strategic partner for helping the U. S. Administration achieve their objectives. In fact, this month, the Federal Aviation Administration announced that CGI Federal was selected to develop, deliver and operate a modernized notice to airmen or NOTAM system. This critical system communicates more than 4,000,000 temporary changes annually to pilots and flight planners in areas such as run rate closures and airspace restrictions.

[François Boulanger, President & CEO at CGI]

CGI Federal also has extensive experience in building systems that foster transparency and prevent fraud. In line with the administration's priorities, we announced earlier this week the launch of a new government wide platform to help federal agencies detect and prevent potential improper payments before they happen. This new platform brings together real time risk identification, AI powered predictive analytics and robust core financial integration. We remain fully committed to helping our government clients in The U. S.

[François Boulanger, President & CEO at CGI]

And around the world deliver the right technology services to enable more efficient and effective delivery of government services to taxpayer. As we look to the second half of the year, client demand across geographies and industries is strong for digital transformation, even with the cautionary approaches clients are currently taking. Technology remains at the heart of achieving the objectives of companies and governments. In particular, demand for modernization, data, cybersecurity and AI are viewed as more important than ever to helping clients achieve their ambitions. These overarching findings are part of the early insights we identify from our discussion our leaders held during Q2 with more than 1,800 client executives as part of our annual planning.

[François Boulanger, President & CEO at CGI]

I would like to share three insights we see shaping client demand in the near term. First, the evolution of industry value chains continues to accelerate. Three quarters of executives see their industries being reshaped by digitization. And over half said that macro trends are highly impacted their business models, which is requiring new approaches to value creation. The second finding reveals that structural constraints are hindering tangible ROI from digitization.

[François Boulanger, President & CEO at CGI]

Globally, only 35% of executives stated their digital implementations are achieving the ROI they expected essentially flat compared to last year. Nearly half of executives noted that the complexity of legacy systems and processes are slowing the adoption of emerging technologies and limiting measurable outcomes. Lastly, executives are exploring how they will advance transformation. Many executives are rethinking how their organization will deliver transformation, moving more toward managed services and ecosystem partnerships. Naturally, AI continues to be viewed as a key lever for driving this innovation.

[François Boulanger, President & CEO at CGI]

Compared to last year, more organizations are implementing traditional and generative AI. Overall, however, the maturity of AI adoption remains in early stages. The clear takeaway from these findings is that the shift toward outcome focused delivery is a permanent one and represents significant opportunities for CGI. Again, backdrop of the challenging business environment, many clients are seeking fewer partners who can bring not just technical expertise, but industry context, business alignment and operational scale, including flexible managed services capabilities. CGI is this partner.

[François Boulanger, President & CEO at CGI]

Our combination of local relationships and global scale with deep industry expertise and end to end offerings enables clients to achieve tangible business outcomes. Our robust managed services and IP solutions, particularly in modernization and AI integrations are outcome focused and help clients to close the gap from the strategy to execution through tailored transformation strategies. CGI roles as a digital transformation partner to clients has never been more vital. Thank you to our now 94,000 CGI partners around the world for your continued commitment to the success of our clients. In closing, we have a resilient model with a diversified mix of geographies, economic sectors and end to end services and solutions to enable profitable growth now and the future.

[François Boulanger, President & CEO at CGI]

We have world class talent with deep understanding of our industry domains and expertise in technologies. We have proven value propositions and trusted relationships that are well aligned to evolving client demand. We have a proven track record for operational excellence and for tracking and for taking proactive actions to expand shareholder value. And we have a strong balance sheet to execute on our capital allocation priorities to advance our build and buy profitable growth strategy. Thank you for your interest and support.

[François Boulanger, President & CEO at CGI]

Let's go to the question now, Kevin.

[Kevin Linder, SVP - IR at CGI]

Sylvie, we can now poll for questions, please.

[Operator]

Thank you, sir. First question will be from Stephanie Price at CIBC. Please go ahead.

[Stephanie Price, Equity Research Analyst - Software & Services at CIBC World Markets]

Hi, good morning.

[Steve Perron, Executive VP & CFO at CGI]

Question Hi, Stephanie.

[Stephanie Price, Equity Research Analyst - Software & Services at CIBC World Markets]

Hi, just on The U. S. Federal. Just wondering how The U. S.

[Stephanie Price, Equity Research Analyst - Software & Services at CIBC World Markets]

Federal contract growth has trended since the change in administration. Are you seeing changes in consumer behavior there and maybe not spending to the ceiling on some of the contracts or task orders coming in more slowly? Just a little context on U. S. Federal here, please.

[François Boulanger, President & CEO at CGI]

Yes. So thanks, Stephanie, for the question. So what do we see on the bookings if we're talking bookings? For sure, you saw the booking, we're at 40% book to bill. What's happening is that instead of signing a renewal or five year renewal or three years renewal, what's happening is that they'll sign bridge contract to continue their work, right, but not necessarily doing big renewal until they'll have a better understanding on the new processes and the new way that they would procure in the future.

[François Boulanger, President & CEO at CGI]

So that's really what we see. But as I indicated, when it's time they don't have any choice to sign new projects, they will sign it like I was talking about the NOTAM system and the new platform for fraud detection. At this point in time, they need to move on and they and especially if it's bringing outcome based objective that they wanted to achieve, they will continue to buy.

[Stephanie Price, Equity Research Analyst - Software & Services at CIBC World Markets]

That makes sense. And then just maybe on the administrative side of The U. S. Federal business, are you seeing anything there? Are DSOs being pushed, invoice approvals taking longer, anything like that?

[François Boulanger, President & CEO at CGI]

No, no. Even year over year, my understanding, Steve, that DSO did drop.

[Steve Perron, Executive VP & CFO at CGI]

It dropped, yes. So we are quite diligent in looking at and it was our first thing that we checked, Stephanie, obviously. But on that front, no, there is no delay on payments and it's regular business.

[Stephanie Price, Equity Research Analyst - Software & Services at CIBC World Markets]

Great. Thank you very much.

[Operator]

Next question will be from Richard Tse at National Bank Financial. Please go ahead.

[Richard Tse, Managing Director & Technology Analyst at National Bank]

Yes. Thank you. So obviously, the environment is challenging, but when you talk to your customers broadly, what are the conditions they're saying that would make them return to their normal cadence of services spend? Is it just kind of some certainty on tariffs or is it something else beyond that?

[François Boulanger, President & CEO at CGI]

It's not just tariff, but the overall environment and where we're going. So because we saw in some places, example in Europe, even before the tariff discussion that and especially example in industry like manufacturing that they were seeing sign of slowdown in the market and all that. They had some cost pressure already to manage. So they had tendency to wait a bit where the environment or where the economy would go before, especially on the short term projects, right, the SI and C project, consulting. So consulting slowdown and some of the project implementation.

[François Boulanger, President & CEO at CGI]

But on the other side, right, on the managed services, it's it was always still relevant and understanding how we can help them in the cost savings side. So that's how we signed some large deal like I was saying last quarter with Volkswagen on the outsourcing side or the managed services side. So it's really when they'll see some sign of not recovery, but at least more certainty about the market, they will come back in the market. And we saw, as example, in the financial sector. We are seeing growth in the financial sector.

[François Boulanger, President & CEO at CGI]

It came back, especially in Canada with the rates that went down and we saw some good growth on that sector. And so other sectors will naturally wait to see if how, when the market will come back.

[Richard Tse, Managing Director & Technology Analyst at National Bank]

Okay. And then I know the sort of current environment in macro, does it sort of change your capital allocation ranking? Like do acquisitions move up that ranking or buybacks? Like sort of help me understand how you're thinking about that.

[François Boulanger, President & CEO at CGI]

Well, for sure, it's creating opportunities on the M and A side because, again, we naturally, as you know, we have a strong balance sheet, but it's not necessarily everybody who has a strong balance sheet. And some companies where we're seeing that they it's a little bit more difficult. So especially the ones that are pure SI and C companies, where they don't have managed services and they don't necessarily have the capability to invest in managed services. So it's they are at a point now they're thinking, okay, what's the next move? And these potential are coming good targets for us to look at.

[Richard Tse, Managing Director & Technology Analyst at National Bank]

And just the last one for me. Is there a certain target of capital you want to deploy on acquisitions here over the next twelve months?

[François Boulanger, President & CEO at CGI]

Like I'm saying, we are generating $2,000,000,000 of cash free cash flow of $1,600,000,000 1 point 7 billion dollars of free cash flow. And as you know, so we are also very low on the leverage side. So we have the capabilities of, again, continue to do more acquisition and even transformational one.

[Richard Tse, Managing Director & Technology Analyst at National Bank]

Okay, great. Thank you.

[Operator]

Next question will be from Stephen Lee at Raymond James. Please go ahead.

[Steven Li, Managing Director at Raymond James Financial]

Hey, thank you. I want to ask about the acquisition. So BJSS and Dougherty, can I say they are mostly SI and C versus managed service?

[François Boulanger, President & CEO at CGI]

Yes. Both of them are way more SI and C than managed services. And that when I was talking about the example on the M and A, that's clear example. I'll take BJSS, a great company with a great relationship in in the But they were stuck on just capable of delivering SI and C. And some of their clients were asking for managed services capabilities that they were not able to deliver.

[François Boulanger, President & CEO at CGI]

And now since they are from they are with us and CGI, now they can present managed services as one of their offering. And already, we see some momentum and good meetings with clients where we're showcasing these activities. A lot of these BJSS clients and same thing for Dougherty, where we're able to bring them to India and see capabilities there. And they were already very impressed with what we have. So again, nothing signed yet, but that's the kind of strategy that we have when we're buying these.

[François Boulanger, President & CEO at CGI]

I would say larger companies, 1,500, two thousand five hundred in the case of BJSS size company where they have good relationship and now we can sell a lot more in these companies.

[Steven Li, Managing Director at Raymond James Financial]

Okay. So yes, so I appreciate the upside there potentially. But going back to the core SI and C business, can I ask how they are doing in this market? Like for example, this quarter, their book to bill, can I assume they were at least one times for these two companies?

[François Boulanger, President & CEO at CGI]

I would need to look. We're not at that level of detail. But I would say to you that for sure, managed services overall, we had a book to bill and what Steve? One hundred and twenty two. One hundred and twenty two book to bill for managed services overall and just below one overall for

[Steven Li, Managing Director at Raymond James Financial]

Guess what I'm trying to get at is the like on an organic basis, the bookings from BJSS and Dougherty, would that have contributed to your overall bookings? Thank you.

[François Boulanger, President & CEO at CGI]

Yes, for sure. No, no, for sure they had bookings and it did contribute. But I'll take BJSS. BJSS is only one month, right? So we have only one month of booking on BJSS since but Dougherty, we have a full quarter of bookings coming from Dougherty.

[Steven Li, Managing Director at Raymond James Financial]

Okay, got it. And then last question for me, like the bigger restructuring that you alluded to in the MD and A, does that have any implications on margins year over year? How much of an improvement in margin should we expect year over year? Thank you.

[François Boulanger, President & CEO at CGI]

Yes. Most of the restructuring will be in the Continental Europe. For sure, it will improve the utilization of these countries. So naturally, it will help to improve also the EBIT margin, but I don't have necessarily a target or something. Don't know, Steve.

[Steve Perron, Executive VP & CFO at CGI]

No. Look, you can see in the MD and A the margin that we're making in Europe. Obviously, we want to grow that. And that's why we're taking the action. We want to make sure that we are a strong company, and we want to make sure that they come back with higher margin than right now what they can achieve.

[Steve Perron, Executive VP & CFO at CGI]

And take the Scandinavian

[Steve Perron, Executive VP & CFO at CGI]

We did some of the restructuring already in the last couple of quarters, and you see a good uplift on the EBIT margin.

[Steve Perron, Executive VP & CFO at CGI]

200 bps more in Scandinavia. So we're not saying that we're going to achieve that necessarily rapidly for the other country, but that's a goal, right? We know we can generate the 16% that you're used to. That's our target.

[Steven Li, Managing Director at Raymond James Financial]

Thank you.

[Operator]

Next question will be from Suri Dunstan at Jefferies. Please go ahead.

[Surinder Thind, Senior VP & Equity Analyst at Jefferies]

Thank you. Following up on the expansion of the restructuring initiatives, I assume is can you help me understand kind of what changed relative to where your thoughts were last quarter? And then is it primarily like within SI C and primarily onshore delivery within Continental Europe or just any other color would be helpful?

[François Boulanger, President & CEO at CGI]

Yes. No, it's you're touching it. It's really in the SI and C, in the business consulting side also, a bit it's continued to be soft on that side. And so we decided that we needed to do a bigger program to be sure that we are improving the utilization in these countries. So that's really why we're doing it.

[François Boulanger, President & CEO at CGI]

And at the same time also, it's not just to improve the utilization, but we are doing more and more and more with some of the automation on some of the SG and A. So we will have also some restructuring in the SG and A area because again, versus some of our investment that we did, for example, with the use of AI.

[Surinder Thind, Senior VP & Equity Analyst at Jefferies]

That's helpful. And then related to that, any color on just how we think about the demand for where delivery services are? One of the things that kind of came out of the pandemic was as companies maybe focus a bit more on cost. Obviously, you're seeing some benefits within the managed services. But for SI and C projects, are they then asking for more offshore delivery?

[Surinder Thind, Senior VP & Equity Analyst at Jefferies]

Or how should we think about that dynamic as on the cost conscious

[François Boulanger, President & CEO at CGI]

that's a good question. You saw the growth in India. We continue to grow rapidly in India faster than anywhere else. And for sure, it's not just for managed services, but it's also for SIMC. And it's not just because of cost.

[François Boulanger, President & CEO at CGI]

Yes, cost is a portion of it, but it's also for talent. And that's also a place where we have a lot of talent and we are using that talent to deliver across the world. So yes, it's cost, but it's also expertise that is that we still have a lot of expertise in India and we're using a lot of India for delivering all line of business.

[Surinder Thind, Senior VP & Equity Analyst at Jefferies]

And I think I'll leave it there.

[François Boulanger, President & CEO at CGI]

Okay. Thanks, Rodrigo.

[Operator]

Next question will be from Thanos Moschopoulos at BMO Capital Markets. Please go ahead.

[Thanos Moschopoulos, Managing Director - Equity Research at BMO Capital Markets]

Hi, good morning. Hi, Thanos. Francois, maybe just to clarify a point. As of right now, have there been any meaningful contract cancellations or non rules in U. S.

[Thanos Moschopoulos, Managing Director - Equity Research at BMO Capital Markets]

Federal or nothing of that nature to call out?

[François Boulanger, President & CEO at CGI]

Nothing meaningful that happened on that side, no.

[Thanos Moschopoulos, Managing Director - Equity Research at BMO Capital Markets]

Okay. And U. S. State, is that looking status quo or have you seen any change in demand in with the new administration at the federal level, anything happening on state side?

[François Boulanger, President & CEO at CGI]

On the state department level?

[Thanos Moschopoulos, Managing Director - Equity Research at BMO Capital Markets]

No, Sorry

[Thanos Moschopoulos, Managing Director - Equity Research at BMO Capital Markets]

about states per se, like just given that there's the U. S. Federal government obviously changing education Okay.

[François Boulanger, President & CEO at CGI]

The state and locals. No, we didn't see. And like I was indicating, we just signed a 500,000,000 deal with the State of California. And so no, it's still pretty good on that side for sure. They're looking at solutions to for cost savings like anything else.

[François Boulanger, President & CEO at CGI]

And so that's what we're talking with them. But for now, the states and locals are still continue to spend and we don't see a slowdown on that side. Okay.

[Thanos Moschopoulos, Managing Director - Equity Research at BMO Capital Markets]

Last one for me is just on the pricing environment. You mentioned using more AI for automation and your peers are doing the same obviously. And given that we're in a bit of a more challenging environment, what are you seeing as far as pricing on the large managed services deals you're pursuing?

[François Boulanger, President & CEO at CGI]

Like I'm saying in pricing, when it's time to price and especially in managed services, as you know, the clients are expecting savings, right? And they want savings from their side versus what they are delivering. So AI is an extra another tool to be used for delivering some of these savings. So I would say that we're using it. It's contributing to give cost saving to the client and actually also to help us to improve our bottom line.

[François Boulanger, President & CEO at CGI]

So it's for now, I would say it's a share benefit that we're sharing with our clients.

[Thanos Moschopoulos, Managing Director - Equity Research at BMO Capital Markets]

Great. That's all I Thanks, Francois.

[François Boulanger, President & CEO at CGI]

Thanks, Dennis.

[Operator]

Next question will be from Paul Treiber at RBC Capital Markets. Please go ahead.

[Paul Treiber, Director & Research Analyst at RBC Capital Markets]

Thanks very much and good morning.

[Paul Treiber, Director & Research Analyst at RBC Capital Markets]

Just a question on the time frame for the ramp in managed services bookings to lead to revenue growth. Is it a couple of quarters before you expect revenue from these new bookings or just given the environment, our customers signing, but then there's a longer time frame to actually deploy?

[François Boulanger, President & CEO at CGI]

No, I would say a couple of quarters is making sense. It's always depending from one to the other. But on average, I would say that's a good average. And some of them in the past did finish in already now and we are seeing growth because again, managed services, we are seeing the growth year over year coming from managed services. And example, the two that I talked about, about the large bank in The U.

[François Boulanger, President & CEO at CGI]

S. And even the one that because to a certain point, it's a long term contract with the State of California. You'll see that example, State of California, we already started the work. So we'll see some growth coming from these acquisitions or these contract in the next couple of quarters.

[Paul Treiber, Director & Research Analyst at RBC Capital Markets]

And then could you speak to the relationship between SI and C and managed services in terms of are completely independent or do you see the slowdown in SI and C, is that a leading indicator that maybe headwinds facing managed services at some point in the future? Like is the SIMC in preparation in any ways for future managed services? Or are they completely independent?

[François Boulanger, President & CEO at CGI]

Not at all. For me, they're completely independent because, again, even I would say in a time like today where, yes, we have some headwinds coming from SI and C and especially on the consulting side. On contrary, managed services, it's very active. And the client always and I did the tour of Europe A Couple Of Months ago. Every client wants to understand how we can help them to improve their bottom line and reduce costs.

[François Boulanger, President & CEO at CGI]

And that's always relevant. And so they will listen to our to the offering that we have on that side.

[Paul Treiber, Director & Research Analyst at RBC Capital Markets]

Thanks for taking the questions.

[Operator]

Next question will be from Devair Goyal at Scotiabank. Please go ahead.

[Divya Goyal, Director - Equity Research - Technology, Software & Services at Scotiabank]

Good morning, everyone.

[François Boulanger, President & CEO at CGI]

Hi, Devair.

[Divya Goyal, Director - Equity Research - Technology, Software & Services at Scotiabank]

There have been some questions on restructuring asked already. I just wanted to get the specific clarification. So are you seeing some of these restructured costs predominantly onshore getting moved to offshore or GCCs? And are you seeing increased hiring in GCCs as you move those costs from onshore operations to offshore operations?

[François Boulanger, President & CEO at CGI]

All right. Some of it, yes, we're offshoring more. And that's true, especially on the SG and A side because we are also doing some restructuring on the SG and A. And what I'm saying, yes, across the world. And some of that exercise will be to move more of SG and A to India, for example, and Asia Pac.

[François Boulanger, President & CEO at CGI]

Some is also related to some automation that we're doing more and that's done with our Indian teams. But some of it is also just to improve the utilization, for example, in some of the countries where they are doing, let's say, more business consulting, for example, and that with the slowdown that we saw, it's putting pressure on their utilization rates and we need to do some action there to improve.

[Divya Goyal, Director - Equity Research - Technology, Software & Services at Scotiabank]

Sounds good. On The U. S. Front and specifically The U. S.

[Divya Goyal, Director - Equity Research - Technology, Software & Services at Scotiabank]

Federal front, The company E. ON you acquired, it was a pretty interesting acquisition. How are you seeing that acquisition or the results of that acquisition trending currently given all that's going on with Doge and broader U. S. Federal and the tariff related concerns across U.

[Divya Goyal, Director - Equity Research - Technology, Software & Services at Scotiabank]

S?

[François Boulanger, President & CEO at CGI]

Yes. Thanks, Divya. Aon is a great acquisition in the defense sector in The U. S. Federal.

[François Boulanger, President & CEO at CGI]

And that's a sector that we don't see necessarily slowdown on that side. And that's true for U. S. Federal and it's true across the world. We are seeing in governments across the world more investment that will be done in the defense sector.

[François Boulanger, President & CEO at CGI]

And so that's opportunities for us. Naturally, we're not in the frontline, but we are in the back office of a lot of these defense ministry across the world, including U. S. And that's why we did the acquisition of Aon. And we're seeing we see that we'll have good opportunities in the future in the defense side.

[Divya Goyal, Director - Equity Research - Technology, Software & Services at Scotiabank]

And thank you so much. And my last question, just on M and A, you briefly mentioned, and I know you've said this in the past that you would continue to look at potential transformative acquisitions.

[Divya Goyal, Director - Equity Research - Technology, Software & Services at Scotiabank]

Is there a

[Divya Goyal, Director - Equity Research - Technology, Software & Services at Scotiabank]

certain geography or a capability set that you have in mind when you're looking at acquisitions, specifically on the transformative? It would have to be a pretty sizable acquisition if you were to do that. So what is the thought process on that front? And that will be it for me. Thank you.

[François Boulanger, President & CEO at CGI]

Yes. Okay. Thanks, Divya. For sure, on the transformational side, and again, we're not we will look at all the industries all the geographies. But for sure, the sweet spot would be in The U.

[François Boulanger, President & CEO at CGI]

S, especially U. S. Commercial. That would be a sweet spot if we can find a more transformational one in that side. Germany is another one that would be a good sweet spot to find a transformational one.

[François Boulanger, President & CEO at CGI]

But again, we're not we will look at all the assets and potential assets across the world to see if we can bring a very good return on a transformational one in other geography naturally we'll look at it also.

[Operator]

Thanks, Francois. Thank you. Next question will be from Robert Young at Canaccord. Please go ahead.

[Robert Young, Managing Director & Head of Research at Canaccord Genuity Inc]

Hi, good morning. I think I've heard you mention utilization more times in this call than recently. And so maybe some commentary around utilization where you think the trend is there. Is it possible or maybe we talked about the difference in utilization across managed services and consulting, whether that's utilization that could be portable? Can you slowdown in consulting, can you move people into managed services?

[Robert Young, Managing Director & Head of Research at Canaccord Genuity Inc]

And then maybe if you could just broaden that out, but just on the other near term headwinds on margins, how we should think about that? Because it seems as though there may be higher pricing pressure and maybe some margin pressure from recent M and A. If you could just wrap that into a margin outlook for the near term, that'd be helpful.

[François Boulanger, President & CEO at CGI]

Okay. Thanks, Robert, for the question. Yes. First of all, you're right. We are looking every time to see how we can move people from SI and C to managed services when it's feasible naturally.

[François Boulanger, President & CEO at CGI]

So when we're looking at utilization, yes, we have some soft spot in some areas, like I was saying, in Continental Europe. But it's not stopping us that we are looking at it globally and seeing how we can move some people from one place to the other to fulfill needs from clients. As for margin, for sure, again, on the short term, we have some tailwind and headwinds. Like you're saying, we are we did several M and A acquisitions. So naturally, we need to integrate them in CGI.

[François Boulanger, President & CEO at CGI]

And sometimes it's taking sometimes to improve their EBIT margin to the level of or the standard of CGI. And that's taking can take several quarters to come to that. On the restructuring, again, in some countries, it's taking a certain time to action these to yes, to action these restructuring. So it will take some places a couple of quarters. So I would say that you can see an improvement on the EBIT margin, but not necessarily in a very short term.

[François Boulanger, President & CEO at CGI]

But I would continue to say that in the medium term, we all we want to improve some of these EBIT margin in Europe and bring us back on their historical margin that they had in the past. But we need to go through these actions before.

[Robert Young, Managing Director & Head of Research at Canaccord Genuity Inc]

Okay. Thanks. And then for a second question, when you're talking about takeaways from customer discussions, you highlighted more focused on outcome focused delivery. And you also mentioned, I think it was related to U. S.

[Robert Young, Managing Director & Head of Research at Canaccord Genuity Inc]

Federal. I think you mentioned maybe a subtle shift towards outcome based contracting. I was just is there a change in the way U. S. Federal is looking at contracting based on pricing related to outcomes and how that might change CGI, if that's in any way a large factor here?

[Robert Young, Managing Director & Head of Research at Canaccord Genuity Inc]

And then I'll pass the line.

[François Boulanger, President & CEO at CGI]

Yes. No, thanks. No, it's a good question. We have already just perhaps over the 50% of our contract with the federal government that's outcome based contracting. And again, our understanding is that they want to push more on that level, right?

[François Boulanger, President & CEO at CGI]

So as you know, also one of the contracting method that they have is cost plus. And what we're hearing at least and understanding with their discussion is that they would like to move out of these cost plus contracts. How easy it will happen or how fast it will happen, I don't know. But that's really and that's the focus of those. Those wants to go more and more and more on outcome based contracting.

[François Boulanger, President & CEO at CGI]

We don't have any issue with that approach. We like even that approach because it's a share benefit approach when we're doing that kind. And that's really what they want to achieve. So that's the kind of conversation we have with them and that will continue in the future. And again, we're not afraid.

[François Boulanger, President & CEO at CGI]

And I think that's the right way of going anyway.

[Robert Young, Managing Director & Head of Research at Canaccord Genuity Inc]

Thanks.

[Robert Young, Managing Director & Head of Research at Canaccord Genuity Inc]

I'll pass the line.

[Kevin Linder, SVP - IR at CGI]

Sylvie, we have time for one more question, please.

[Operator]

Certainly. Our next question then will be from Jerome Desbrois at Desjardins.

[Jerome Dubreuil., VP & Research Analyst - Telecom, Media & Technology at Desjardins Group]

Hey, Jean Lucie. First question is on the bookings. They were strong in the context and I'm looking to find more about the average duration of contract as a whole. You talked about it for the U. S.

[Jerome Dubreuil., VP & Research Analyst - Telecom, Media & Technology at Desjardins Group]

Federal side. So maybe a similar line of thought as Paul had. I'm looking for color on what bookings means for your future revenue. So are the stronger bookings maybe part due to longer duration of contracts? Any color there would be helpful.

[François Boulanger, President & CEO at CGI]

Well, for sure, we have a couple of multiyear contract. Like I was saying, the large bank in The U. S, the State of California is multiyear contract. And like I was saying also on the federal side, federal side where they had multi years in the past, and I'm not saying they won't come back to multi years, but in this environment, it's mostly bridge contract that we signed a lot of bridge contract. I'll tell a couple of larger one, but a lot of bridge contract.

[François Boulanger, President & CEO at CGI]

So as know, as you all may know, managed services will have tendency to be multiyear contract versus SI and C will be shorter term contracting.

[Jerome Dubreuil., VP & Research Analyst - Telecom, Media & Technology at Desjardins Group]

Thank you. Follow-up for me. In terms of maybe, don't know if you want to call it sovereign AI or just hosting more data in local countries out of The U. S. I think infrastructure is not necessarily your your favorite business to invest in.

[Jerome Dubreuil., VP & Research Analyst - Telecom, Media & Technology at Desjardins Group]

I wonder if this is different this time if governments or local corporations are are are trying to diversify their their source of data. Is this potential area of attractive business for you?

[François Boulanger, President & CEO at CGI]

Very good question, Zellem. We had always had some infrastructure business. So we're still yes, it's shrink a lot in the last several years, but we're still at 10 ish percent of infrastructure business. We are offering our IP on a SaaS model on our premises and in public cloud. And we're still having some full managed services where we are doing the infrastructure business also for our clients.

[François Boulanger, President & CEO at CGI]

For sure, you're right. That's a lot of more discussion about the data sovereignty and digital sovereignty. And for sure, we'll stay close to this. And if it's asking us, because again, we'll always be close to our clients. And if our clients ask more on prem services, we will be there to support them.

[Jerome Dubreuil., VP & Research Analyst - Telecom, Media & Technology at Desjardins Group]

Thank you. And maybe one last for me. If you had a guidance that was for the year, would you have changed it today?

[François Boulanger, President & CEO at CGI]

Wow, Jerome, that's a good way of trying

[Jerome Dubreuil., VP & Research Analyst - Telecom, Media & Technology at Desjardins Group]

to that's a new one, right? Yes,

[François Boulanger, President & CEO at CGI]

Jerome, like I won't give guidance, that's for sure. The if I would say from Q1 to Q2, a lot of things happen, right? When we talk at the January versus some discussion didn't happen or some macro trend or macro dynamic were not there necessarily or I was not looking at them like that at the January. It's a moving it's a dynamic environment. So it's moving pretty, very fast.

[François Boulanger, President & CEO at CGI]

And so that's why also we're not we don't want to give guidance because, again, it's very difficult to do that. But again, at the end of the day, we have a lot of opportunities that we're working on and a lot of we have a lot of, yes, discussion with clients and we can see a lot of opportunities on the market.

[Jerome Dubreuil., VP & Research Analyst - Telecom, Media & Technology at Desjardins Group]

Appreciate it.

[Operator]

This does conclude our question period for today. I would like to turn the call back over to Kevin Linder.

[Kevin Linder, SVP - IR at CGI]

Thanks everyone for participating. And as a reminder, a replay of the call will be available either via our website or by dialing 88264 and using the passcode ninety five thousand four hundred nine. As well, a podcast on this call will be available for download within a few hours. Follow-up questions can be directed to me at +1 (905) 973-8363. Thanks again, everyone, and look forward to speaking soon.

[Operator]

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.

Participants

Executives

• Kevin Linder, SVP - IR
• Steve Perron, Executive VP & CFO
• François Boulanger, President & CEO

Analysts

• Stephanie Price, Equity Research Analyst - Software & Services at CIBC World Markets
• Richard Tse, Managing Director & Technology Analyst at National Bank
• Steven Li, Managing Director at Raymond James Financial
• Surinder Thind, Senior VP & Equity Analyst at Jefferies
• Thanos Moschopoulos, Managing Director - Equity Research at BMO Capital Markets
• Paul Treiber, Director & Research Analyst at RBC Capital Markets
• Divya Goyal, Director - Equity Research - Technology, Software & Services at Scotiabank
• Robert Young, Managing Director & Head of Research at Canaccord Genuity Inc
• Jerome Dubreuil., VP & Research Analyst - Telecom, Media & Technology at Desjardins Group