CGI Inc (GIB) 2025 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to CGI's first quarter fiscal 2025 conference call.

And I would like to turn the meeting over to Mr. Kevin Linder, SVP of Investor Relations.

Please go ahead, Mr. Linder.

Thank you, Sylvia, and good morning.

With me to discuss CGI's first quarter fiscal 2025 results are Francois Boulanger, our President and CEO; and Steve Perron, Executive Vice President and CFO.

This call is being broadcast on cgi.com, and recorded live at 09:00 AM Eastern Time, on Wednesday, January 29, 2025.

Supplemental slides as well as the press release we issued earlier this morning are available for download along with our Q1 MD&A, financial statements and accompanying notes, all of which have been filed with both SEDAR 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&A and press release as well as on cgi.com. We recommend our investors read it in its entirety.

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&A contains definitions of each one used in our reporting.

All of the dollar figures expressed on this call are Canadian, unless otherwise noted.

We are also hosting our Annual General Meeting this morning, so we hope you will join us live via the broadcast at 11:00 AM.

Now I'll turn the call over to Francois for some introductory remarks.

Francois?

Thank you, Kevin, and good morning, everyone.

Today, in line with the long-term succession plan of CGI, Julie Godin was appointed Executive Chair of CGI Board of Directors effective following today's Annual General Meeting of Shareholders.

CGI'S founder Serge Godin is now the Co-Chair of the board and will continue to focus on transformational acquisitions and on large-scale engagements with clients.

During our Annual General Meeting this morning, Serge and Julie will provide further remarks on this key milestone.

In addition, we announced this morning the signing of a new merger agreement.

I will discuss this in my remarks.

Now I'll turn the call over to Steve to review the Q1 financial results.

Steve?

Thank you, Francois, and good day, everyone.

CGI once again delivered strong results in our first quarter of fiscal 2025.

Before I begin, I would like to remind everyone about the adjustment we made to our reporting segments starting this quarter.

Germany is now its own segment, and our operation in Scandinavia are now combined with our Northwest and Central East Europe segments.

In Q1, we delivered $3.8 billion of revenue, up 5.1% year-over-year or up 2.7% when excluding the impact of foreign exchange.

In constant currency, the CGI segments with strongest growth were US federal at 14%; Canada at 59%; India Pacific at 5.2%; and UK and Australia at 3.2%.

In constant currency, our North American operations grew at 6.9% this quarter, while our European operations reported a change of minus 0.8% compared to last year, largely due to slower market, Germany and France.

From an industry perspective, constant currency revenue growth was led by at 7.9% and Financial Services at 5.5% driven by strong performance in North America and continued softness in the manufacturing sector, particularly in Europe.

IP revenue grew in seven of our eight proximity segments on the strength of continued client interest for our business solutions.

IP represented 21.6% of total revenue, down 40 basis points year-over-year due to recent business acquisitions.

In Q1, bookings were $4.2 billion for a book-to-sales ratio of 110%.

Our North American and Europe had identical book-to-bill ratio at 110%.

When looking at service type, book-to-bill ratios were 107% for managed services and 114% for business and strategic IT consulting and system integration.

On a trailing 12-month basis, our book-to-bill ratio was 108%.

On the same basis, Managed Services had a book-to-bill ratio of 113% and SI&C book-to-bill ratio was 101%.

Our global backlog reached $29.8 billion or 2 times revenue, providing good revenue visibility.

Turning to profitability.

Our results again demonstrated our ability to manage our operation with discipline.

Earnings before income taxes were $592 million for a margin of 15.6%, up 100 basis points year-over-year.

Adjusted EBIT in the quarter was $612 million, representing a margin of 62%.

The favorable impact generated from last year's cost optimization program and recent this acquisition and lower billable utilization with some regions of Continental Europe.

Margins were strongest in the following segments Asia Pacific at 32.5%; Canada at 24.1%; UK and Australia at 16.5%.

Our effective tax rate in the quarter was 29%, down from 26.1% last year, and we expect our tax rate for future quarters to be in the range of 25.5% to 26.5%

Net earnings were $439 million for a margin of 11.6%, up 80 basis points year-over-year.

Diluted EPS was $1.92, representing an increase of 15% year-over-year.

Adjusted net earnings were $449 million.

This represents a margin of 11.9%, stable year-over-year.

On the same basis, diluted EPS was $1.97, an accretion of 7.7% on when compared to Q1 last year.

This quarter, we initiated targeted actions in Europe, mainly in Germany, to realign our cost structure with current market conditions.

As such, we incurred $8 million of costs in Q1, and we expect to incur another $42 million to finalize these actions by Q3.

This was 38 days in the quarter, three days better than last year, contributing to the $646 million in our cash from operations, a strong 17.1% of total revenue.

Over the last 12 months, CGI has generated close to $2.3 billion, up nearly $200 million compared to the same period last year.

In Q1, we use our cash to invest $83 million into our business, invest $30 million for business acquisition, representing the initial payment for [Doherty] acquisition, invest $153 million to buy back our stock and returned $34 million to our shareholders under our recently initiated dividend program.

We continue to deliver a strong return on invested capital at 16.2%, up 30 basis points, demonstrating our proficiency and discipline on deployment of capital.

In line with our capital allocation strategy and priorities.

Earlier today, we announced that CGI entered into a new agreement for a merger in the UK.

Francois will provide more commentary on the merger in a few minutes.

Yesterday, our Board of Directors approved the extension of our NCIB program until February 2026 and authorizing us to repurchase for cancellation up to 20.2 million shares over the next 12 months.

And CGI's Board of Directors also approved a quarterly cash of $0.15 per share.

This dividend is payable on March 21, 2025, to shareholder of record as of the close of business on February 14, 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.

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.

Thank you, Steve.

I am pleased with our team's performance in the first quarter as we continue to successfully execute on our build and buy profitable growth strategy.

We began the fiscal year in a strong position with positive momentum on a year-over-year basis.

Revenue grew 5.1% or 2.7% on a constant currency basis.

EPS accretion was 15% or 7.7% on an adjusted basis, resulting from a higher recurring revenue mix as well as proactive operational excellence actions.

And cash from operations reached nearly $650 million or 17.1% of revenue for an improvement of 110 basis points as a result of sustained quality, delivery and business excellence.

In the quarter, we also continued to see rising levels of engagement with our stakeholders.

More than 87% of our 91,000 consultants and professionals are now CGI shareholders up from 86% this time last year.

And client satisfaction levels again rose now at 9.5 out of 10, with one of the highest scores being the intention of clients to engage with CGI again in the future.

The high satisfaction and deep confidence clients have in CGI's people and capabilities drove strong bookings in Q1, representing 110% book-to-bill ratio.

First quarter bookings continue to be led by wins within our two largest industry sectors of government and financial services.

In the quarter, we saw an uptick in financial services as clients reinitiated investments that were previously paused.

Booking in this sector was -- were 123% of revenue, an increase of more than 40% compared to the same quarter last year.

In the government sector, bookings increased more than 40% on a sequential basis, resulting in a Q1 book-to-bill of 124%.

This increase was a result of a stronger client focus on driving monetization and operational efficiency.

We expect this trend to continue as governments around the world adapt their IT priorities in line with evolving mission and policy priorities.

Representative client awards in the quarter included Skyline, a leading provider of military pilot and aircrew training in Canada, selected CGI as a strategic technology partner to design the next generation of very crew training for the Royal Canadian Air Force.

Under the 25-year agreement, CGI will deliver a comprehensive suite of innovative secure services, including cybersecurity, business consulting and cloud computing.

And Wells, the Highwall University Health Board, initiated a 10-year [GBP75 million] strategic partnership with CGI to drive the digital transformation of health care to improve patient outcomes.

CGI's consultants will partner with the Board to streamline operations, modernize systems and processes and deliver innovative solutions such as AI integration.

The Swedish Tax Agency extended its partnership with CGI to deliver advanced EID and electronic signature services.

The agreement reinforces CGI's role in providing secure innovative digital solutions that enhance citizen access to government services while ensuring efficiency in compliance in Sweden's national digital ecosystem.

And multiple North American banks extended their partnerships with for consulting and systems integration services to design, build and deploy projects across multiple lines of business.

We continue to see some clients exercising caution and their discretionary spending primarily in Europe and the MRD sector.

However, client interest remains strong across every industry to explore with CGI the opportunities for driving monetization and operational efficiency to managed services and IP.

CGI remains well positioned as the partner of choice to help clients achieve their tangible and trusted business outcomes they seek.

In fact, over the past six months, CGI has earned a record number of third-party analyst endorsements, which shrank our expertise and capabilities in worldwide leading and major player categories.

These reports and rankings cover our services related to AI, data monetization, cloud, cyber security and Business Consulting.

CGI also achieved new partnership levels in Q1 with several emerging alliances, including Snowflake and data breaks.

Since the start of the fiscal year, we also progressed our strategic priority to pursue accretive acquisitions.

In December, we expanded our positioning with Fortune 500 clients in the US by merging with Darty, a professor services firm specializing in AI, IT consulting and business adversary services.

Through the merger, our footprint increase in Metro Atlanta, Minneapolis and Chicago.

I would like to warmly welcome the 1,100 new consultants who joined CGI from Dorty.

And this morning, we announced a newly signed acquisition agreement, which will close in the coming weeks pending regulatory approvals.

JSS is one of the largest independent IT and software engineering consultancies in the UK.

This acquisition will accelerate our UK-wide expansion strategy to deepen our presence in key commercial industries such as retail, financial services and energy and utilities.

Up in completion, more than 2,400 highly skilled consultants will join CGI, bringing deep expertise in a range of services, such as technology strategy, customer experience design, software engineering and AI.

Through our buy strategy, we will continue to prioritize investment and aim at building critical mass in strategic metro markets in all CGI geographies.

Our goal is to gradually grow this presence to mirror the economic sector distribution in each metro market and to deploy our full range of services and solutions.

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.

Looking ahead, we continue to be well positioned to partner with clients as they evolve their strategies to address the ongoing macro trend within their geographies and industries.

Client interest remains high for the value proposition CGI can deliver to our end-to-end offerings.

This positioning is validated by CGI's pipeline of opportunities, which is up 20% compared to this time last year.

In terms of client buying patterns, we continue to see some verification by geographic region, which aligns well with CGI's greater strength, particularly our client relationship proximity model, our end-to-end portfolio of services and our global delivery network.

In combination, these assets enabled us to quickly adapt to evolving client needs.

With this in mind, I will provide commentary on the demand environment in our North American and European operations.

Starting in North America.

Across commercial industries, clients are sustaining their focus to drive operational resilience and innovation to capitalize on emerging growth opportunities.

Given these priorities, our pipeline remains strong overall, with a notable uptick for our managed services offerings.

Also, demand remains strong for our CGI credit Studio IP, which is a cloud-native platform that centralized services across the full credit life cycle from originations to collections.

Government sector clients in North America are balancing tight budgets with the need of our IT monetization and improving citizen services.

Cyber security and cloud migration also are critical areas of investment as agencies work to enhance operational efficiency and mitigate risk in an uncertain environment.

In the government sector, our pipeline for managed services opportunities remains high and continues to rise.

CGI government's ERP solutions continue to be in high demand with pipelines rising compared to this time last year.

Turning now to Europe.

The macroeconomic landscape continues to be defined by slower economic growth and geopolitical uncertainty.

Clients continue to turn to CGI to help navigate these pressures, particularly across commercial industries, where they are focused on driving operational efficiency and addressing regulatory requirements.

As a result, our managed services and IP pipelines across commercial industries remains strong.

For example, the pipeline for CGI's financial prime detection solution is up by more than 50% compared to this time last year.

In the government sector, our pipeline is high and rising as clients are focused on monetization as well as e-governance platforms and green IT solutions.

Macro level uncertainty is prompting government to adopt more efficiency-driven IT investments with cybersecurity remaining a critical priority given the increasing risk to critical infrastructure and citizen data.

These residential buying trends continue to favor CGI as a partner of choice given our focus on value propositions that deliver trusted tangible business outcomes that are designed to help clients generate operational efficiencies and accelerate transformation notably through our IP and management services.

Among managed services offerings, gaining momentum right now is that of global capability centers or GCCs.

CGI has 20 years of experience with GCC models, particularly for clients in banking, retail and communications.

Our global delivery centers of excellence enable full-scale application development and operations with a proven track record of success.

Our value proposition focuses on GCC's strategic extensions of the clients' organization to drive efficiency, resilience, scability and growth in a fast-changing business landscape.

Naturally industries, we remain deeply engaged with clients on their [AI] and Gen AI strategies and implementation.

Over the past quarter, we have continued to see clients moving from investigation to implementation to drive efficiency, process of automation and legacy monetization.

As previously shared, we are integrating AI and Gen AI technology strategies into our engagement and our pipeline of AI opportunities continues to grow, particularly for responsible AI adversary services data integration and platform monetization.

Booking in Q1, the integrated AI technologies included a global health care and insurance company selected CGI to support their enterprise intelligent automation platform and help build the foundation for their Agentic AI strategy.

The City of Interboro Counsel is collaborating with CGI to conduct comprehensive AI discovery sessions to identify a wide range of missions from social services care to emergency and crisis management, and one of the world's leading financial services providers selected CGI to further their digital transformation by extending process automation with AI features as well as through our alliances with Google and Blue Prism.

We continue to progress on our AI investments in line with our three year plan.

We are on track with this plan to strengthen our expertise, offerings, delivery and positioning.

Our investment plan includes continued initiatives such as advancing our training and tooling for developers and consultants.

Integrating AI and Gen AI into our portfolio of IP solutions, enhancing our managed services and consulting offerings and methodologies.

And with our clients, we are innovating to drive new business value through industry-specific use cases, the establishment of AI factories improvement of user experience efficiencies.

In closing, we are off on a strong start for the year and reiterate our confidence in our fiscal 2025 plan.

CGI remains well positioned as one of the few leading global firms scale reach inside and capabilities to help clients deliver further new business outcomes they require for their digital strategies.

And we remain committed to achieving our strategic aspiration of doubling CGI over the next five to seven years through the disciplined execution of our build and buy profitable growth strategy.

Thank you for your continued interest and support.

Let's go to the questions, Kevin.

Thank you, Francois.

Sylvie, we can now poll for questions.

(Operator Instructions) Your first question will be from Paul Treiber of RBC Capital Market.

Thanks very much, and good morning.

It's nice to see the acquisition announcement this morning.

I was hoping that you could speak to your M&A pipeline and capacity.

You deployed a fair amount of capital in the last couple of months.

Do you need to take a pause to integrate those acquisitions capacity to continue to make acquisitions here in the short term?

No, we don't need to do a pause.

These acquisitions like one that we announced this morning is in the UK, a long time, we didn't do one in the UK.

So -- the UK is ready for this integration.

The one that we did before was in the US.

So the fact and we have a solid operation in all these countries.

These each of these countries have any problem on that side.

And as you know, on the financial side, naturally, we have the solid balance sheet and the capabilities to deploy more capital.

So that's not stopping for the future.

And then looking at your business by the various regions, Germany, you called out softness there.

Was it softer than usual this quarter as Germany being a drag on growth over the last several quarters.

And is it the mix of revenue different in Germany?

Is it more short-term as I have seen in other regions?

Not necessarily the mix.

But for sure, there is a strong MRD side.

And so as you know, MRD, especially in Europe has more difficulty.

So that's why we see some short-term pressure on some of the discretionary spending there.

But I would say -- and you heard last quarter, we did sign a big managed services the initial contract with a large manufacturer in Germany.

So they are still very -- they are listening a lot for to see how we can bring some cost savings.

They are listening on that side.

But for sure, on the short term, I would say [SI&C], we see that they are reducing the spending or be cautious to see what will happen in the next quarters.

Okay.

Thanks for taking the questions.

Next question will be from Jerome Dubreuil at

[Desjardins].

Another one on M&A.

I just want everyone wants to know today is it's a new era of M&A.

Is there maybe better appreciation of the benefits that M&A is bringing?

Or I know you like to signal stability, but is it just the multiple that has changed or there's a bit of a tweak in terms of the strategy there?

.

Yeah.

No, it's not a new era.

It's not -- our strategy is to grow by, to build and buy.

So that didn't change.

I think the environment did change.

I think we have a certain alignment of stars where, the pressure on the market on the SI&C, for example, I think -- is putting pressure on some of these targets to think more about perhaps selling the business.

And we see less private equity competition that we were seeing in the past.

So even some of them are thinking about even selling their piece of the business.

So that's why I think it's really the environment that is more open for these acquisitions.

And that's why we want to be sure that we will capture these opportunities.

Thank you.

That's clear.

Another one, Francois, you've been in the role since October.

Are there maybe other tweaks in terms of strategy that you're adopting?

You're talking about new partnerships with some of the software providers.

Am I sensing that the company is maybe a bit of a faster follower for new tech or business as usual?

No, I think we were always fast on applying new technology.

I think what we're pushing a bit more, to be honest, is on the branding.

And so, you know, we want to be sure that people understand and companies and clients and future clients understand our capabilities.

And so that's why we want to be sure also that we're working closely with our large partners.

And so that's why you're seeing more news on that, but it's not a change of applying new technology or not, that we were always there to apply new technology.

Next question will be from Surinder Thind with Jefferies.

Can you perhaps talk a little bit about the lumpiness in the bookings that we're seeing, especially within SI&C.

It just seems to be a bit more lumpy than it has been historically and just what trends you're seeing underneath that?

Yes. actually, SI&C booking did increase versus last quarter.

So last quarter, we were below 100%, and we are higher than 100% this quarter on the SI&C side.

So to be honest, we are seeing an uptick.

But at the same time, like I was saying a bit, the pressure that we see in an example on the MRD side in Europe, we're seeing some pressure still in the -- especially in the consulting line.

So that's on lumpiness on that side.

But at least this quarter, we saw an uptick on the both bookings on the SI&C side.

So -- and the other thing also on the ferro side or the US federal Q1 and Q2 -- or Q1 and Q2 is always be are our lowest booking quarter with Q3 and Q4 on the higher side.

So that's a trend that you can see also on an annual basis.

Just to clarify the comment there, is the messaging that if we were to exclude Germany, there's an overall improvement in the demand environment for discretionary spend or not?

I would say, yeah.

Like I was saying, MRD is a bit of pressure, but I'll give you the other side on the financial sector.

On the banking, we are seeing an uptick on the SI&C side.

With the interest rate coming down the banks, for example, are coming back and doing some investment on the SI&C.

They don't have any choice -- they delay some of these investments in the past quarters when interest rates were going up, but now that they're going down, they have regulatory pressures and changes to do, and so they don't have any choice to implement new solutions.

So we are seeing an uptick on that side.

That's helpful.

And then on the commentary on the GCCs, the Global Capability Centers, it sounds like there's growing interest there.

Does that impact the global delivery model in the sense that, there's increased demand for offshore and we should begin to see more of a mix shift there?

Any color there would be helpful as well.

Yeah, but you see that we're still growing in India and that will continue.

And the model -- when I was saying managed services are still in demand, it's true, and it's continuing to be big in demand and people -- to see how we can help them reducing their costs.

And GCCs is one of the areas on how to resolve, to reduce the cost.

So we have a lot of clients asking us to help them in creating their own GCCs or creating, ourselves a GCC that can be transferred back to the clients or even a lot, of these captives already created by clients where they're asking help.

And so our Indian colleagues and operations will help clients directly in India to help them achieving their own objective on their India captives.

Thank you.

Thank you.

Next question will be from the Divya Goyal at Scotiabank.

Please go ahead.

Good morning, everyone.

So I wanted to get a little more color on the acquisition that's announced.

So as per the press release, there is -- CGI already has a significant footprint in UK.

Now with this acquisition, the footprint expands.

So I'm just trying to understand what is the company's broader growth plan across UK and European region given the German restructuring, the UK acquisition.

So if you could provide some color on the growth broadly across that region.

Thank you.

Yeah, thanks.

You know, BJSS is mostly a company in UK.

So they have very, very limited business outside the UK.

And they're strong on the commercial side.

And if you remember in the past, we always said -- we are -- we want to acquire in UK and we were targeting to target companies that would be more heavier on the commercial side.

And that was the idea with this one.

And for UK to a certain point, it is a game changer because first of all, it's increasing UK by, I would say, on the headcount, perhaps 30% to 35% more people in the UK.

And like I'm saying, in the commercial area.

And UK is -- We have some difficulties in Germany.

In UK, it's actually going well.

We see some growth.

We continue to see future growth in the UK.

And so it was a perfect timing.

But also like I'm always saying, it needs

(inaudible).

So we were able to convince BJSS to merge with us.

And I think that will be great for the UK organization.

That's great.

And are you also planning to grow across Europe?

Or right now you are okay, like the way the segments are structured across Europe?

Like I'm saying, the buy strategy is 50% of our strategy or growth strategy.

So for sure, we're still looking in countries like Germany.

Germany is the country that we want to continue to grow.

And these pressure or market pressure actually is putting some opportunities on potential acquisitions.

So we are there for the long term.

And so if we're seeing some good targets in Germany or in France or in Scandinavian countries, we will look at them and see if it's making sense to trigger them.

That's great.

I'll just ask one more question here.

So the US Federal as a segment grew pretty well this quarter.

And you did mention that it was partly driven by the growth in the transformational projects.

However, with obviously [DOGE] and the new administration, I know a lot is in the flux, but what is your take on some of these new bookings and some of these new opportunities that you are seeing evolving across that specific business segment?

And that's all for me.

Thank you.

Again, on the Federal side, with DOGE, for sure, if they want to achieve their targets and priorities, they will need IT to be capable of reducing costs.

And costs, most of the US Federal is people.

They will need to bring automation, AI, and new systems to be capable of reducing some of these costs.

So we're seeing still this as an opportunity to grow and helping them to achieve their objectives.

Thank you.

Thank you.

Next question will be from Robert Young at Canaccord Genuity.

Please go ahead.

Hi.

Good morning.

Maybe a double-pronged AI question.

First part would be around, you mentioned in your prepared remarks, agentic AI, which is a growing buzzword.

And you announced an award with UiPath.

So first part would be trying to get a better sense of what your efforts are around agentic AI and what the opportunities are.

And then the second part would be just, over the last couple of days, all this new information that suggests that it's going to get cheaper to run AI models.

Maybe just give us some initial thoughts on the impact on the IT services business in general and CGI more specifically.

Okay.

Thanks, Robert, for the question.

I'll start with the second part with the announcement.

For sure, I think some validation still needs to continue on that side.

We'll see what's happening.

But we are seeing that as a good news.

I think any new initiatives to reduce the cost of AI will always be a good news for the end clients.

And we are one of the end clients plus who also we're helping clients to implement AI.

So if the technology is cheaper and becoming cheaper, I think that's a good news for everybody, including on our side.

On agentic AI, for sure we continue our discussion with our alliance's partner like Salesforce and Google and UiPath.

But we already started to implement some of it even internally in some of our managed services solutions.

We are managing a large mandate for clients and we are realizing that some of agentic AI can help us on specific processes.

So that's something that we continue to investigate and starting even to do some implementation and we are seeing some benefits on that side.

Do you get the sense that the bottleneck for deployment is cost or is it finding the right solutions?

Does cost move like the revenue related to AI for CGI hire or is it more about finding the right applications and use cases?

Like I'm saying, we are always trying to have industry specific use cases and not just implementing AI for AI.

You saw some of the experience or contract that we signed in the past when we were saying example the federal Canadian when we implement AI to help them to reduce their bottleneck that they had with their payroll system.

So that's the kind of implementation we're talking about and when they're seeing benefits and cost saving, it's not necessarily a showstopper for clients.

So for sure it needs to be applied and it needs to be relevant applications for them and actually bringing some cost reduction and now that if the tool or if the tooling will reduce in cost in the future, that's just under other benefits for the end clients.

Okay and then a second question, I mean last quarter I asked you a little bit about your strategic putting as it relates to infrastructure and whether that would be an impact on M&A targets so I just want to maybe broaden that up a little bit.

Maybe you could talk about infrastructure, I think you said it was 10% of the business thereabouts, is that something that CGI is still working down, is that a headwind to growth or have you changed your thought process there or is that something that given the higher value placed on infrastructure, is that something you'd be willing even in some cases to see grow?

And then I'll pass the line.

Okay, thanks for the question.

So infrastructure, what we said in the past is that we wanted to go with asset light and we didn't want necessarily to sign infrastructure deals just for the infrastructure deals.

But we continue to have data centers and we will continue to have data centers because first of all we have our IP and we are running our IPs also in our own data centers, so that's the first thing.

And second, in these managed services contracts that we're signing we are signing sometimes full managed services, so not just the applications but also the infrastructure and that we will continue to do in the future and so that's not something we want to stop.

We're really an end-to-end services company and so our strategy is to continue to sell end-to-end including infrastructure business.

Okay, thanks, I'll pass the line.

Thank you.

Next questions will be from Thanos Moschopoulos at BMO Capital Markets.

Please go ahead.

Hi, regarding the UK acquisition are there some financial metrics you can share or should we best wait for next quarter's MD&A?

I think we'll be waiting for next quarter MD&A because again it's still not closed yet.

We will close it in the next couple of weeks hopefully if we have all the authorization.

I'm just surprised what I can say is that on the revenue side we are talking like I would say mostly GBP275 million and that's an annual business.

Great, and just to clarify is it very heavily weighted to SI&C or is there a good sized managed services component in there as well?

I would say it's perhaps a bit more SI&C than managed services and again the idea of one thing they have great client relationship and one of the fits that we're seeing with us is the fact that they don't have off-shoring and now that we have these client relationships we will be able to sell a lot more off-shoring to these clients and that's really the idea.

Yes there are more SI&C today but we think that we will be able to sell a lot more managed services now to these clients.

Great, and finally just how should we think about the margin trajectory just given some puts and takes obviously with the recent tuck-in acquisitions should we assume margins being flat year-over-year or maybe down a little because you're going to be integrating or what trajectory would you assume?

I think with the acquisition for sure as you know we need to integrate these companies so that will put some bit of pressure on the margin.

On the other side we are doing some actions to improve the margin in some places like Germany where we have some utilization pressure there.

So I would say that one cannot offset the other I don't think we'll see big changes in the EBIT margin.

Great, I'll pass the line.

Thank you.

Thank you.

Next question will be from Stephanie Price at CIBC.

Please go ahead.

Hi, good morning.

Just following on Santa's question there margins in the US federal business seemed a bit weaker than normal.

Was this the result of the margin profile at AON and how should we think about those US federal margins going forward?

Yeah, so you have it.

It's really because of AON acquisition.

You see a lot of growth but some pressure on the margin and it's because of that this acquisition that we need to integrate we signed at the end of September and integration in the federal government is taking a bit more time than other areas because of some authorization that we need to have from the client side but the expectation is that you'll see some improvement quarter-over-quarter on their EBIT margin.

Okay, perfect.

And then maybe more broadly can you talk a bit more about what you're seeing in Europe?

It sounds like the slowdown right now is just in a few regions.

What are clients saying in the rest of Europe and how do you think about the region going forward?

I think in Europe as you know I would say two things on the manufacturing we see some concern or at least they're questioning what's the future especially example with tariffs that the US are talking about.

Will that have a major impact or not on some of these clients so that's really what I'm hearing from clients.

And I would say also on the government side some example will have election in Germany in France some discussion on the government side so that can have an impact.

We didn't see it yet but that can have a certain impact so that's really what we're hearing in Europe.

But on the other side like I'm saying always a lot of discussion talking about how we can help them on the cost saving and so a lot of discussion on managed services still in Europe.

Great.

Thank you very much.

Thank you.

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

Please go ahead.

Yes.

Thank you.

So you've obviously I think picked up the pace of acquisitions.

Just wondering if you can maybe share with us whether you have it or not.

Do you have a target with respect to the amount of capital you want to deploy this year on acquisitions?

We don't have necessarily a target.

We are generating more than $2.3 billion of cash from operations investing back $400 million in the business.

So we have what $1.7 billion, $1.8 billion, $1.9 billion of cash from free cash flow and the dividend is very low at $34 million per month per quarter.

So we still have a lot of dry powder to do acquisition and again also we have the balance sheet and the leverage ratio is very low.

So we still have a lot of capacity for larger acquisitions.

So no we don't have necessarily a number and the only cap I would say to you is that when we're saying that we're at 3 times leverage that's really at the top and we're very far from that.

Steve want to?

From a net basis we're at 0.47 and from a gross debt to EBITDA basis we're about at 1.2.

So we have a lot of space for other ones including transformational acquisitions.

I appreciate your comments on elevating the brand.

Obviously you've probably sort of done a lot of work in terms of identifying opportunities so when it comes to elevating the brand or some of these other initiatives that you've put in place since taking over the CEO role, can you help us understand the kind of amount of incremental growth you're targeting to achieve from these new incremental initiatives that you've put in place since taking over that role?

Well I don't have necessarily a target.

When we're talking branding and all that, it has a long-term objective.

We didn't necessarily put a number related to these actions.

It's really to improve the branding especially in places where we're still perhaps best kept secret.

And still in the US I think we still need to do more on that.

And that's with the marketing group and with our leader there Susan Balding.

We will continue to do some good work.

And then just the last one for me, some of your competitors talking to price competition and the market, is that something that you may be seeing and if so is it sort of a temporary thing given the backdrop with respect to MRD or SI&C or is it something a bit more structural?

That's it for me, thanks.

I would think it's not structural.

Most of our -- especially in managed services, we don't see a pressure there.

Managed services if we can show to them the business case and the outcomes for them that's making sense and they'll pay for the value.

I think in some places where it's the discretionary spending that went down we'll have some pressure to reduce some of the rates to be capable of taking out some of the utilization pressure.

But I would say overall pricing is not necessarily an issue because clients are still ready to pay for value.

Sylvie, we have time for one more question please.

Certainly.

Our last question will be from Jason Kupferberg at Bank of America US.

Please go ahead.

Hi, good morning.

This is Tyler Dupont for Jason.

Thanks for taking the questions here.

I'll try to be fast knowing that's the last one.

I wanted to ask about initial demand trends and spending applications for 2025 but particularly from a bookings context on an LTM basis it looks like book-to-bill definitely appears healthy, 1.08 this quarter but this is the second quarter of year-on-year declines.

Obviously they're very modest but still the second quarter declines in the LTM metric.

How do you juxtapose the modestly softening bookings number with the solid top-line growth that you're putting up and how does that translate into 2025 client spend?

You're right.

Last month the booking went down but some of it is timing and again we had large we had some discussion with some clients that were not able to close for the quarter end and we won't close a deal just to close a deal to have bookings at the end of the quarter.

We have some still good discussion on some of these large contracts and you'll see some closing of them in the future.

We still see a lot of momentum on the managed services so I don't see necessarily a problem there and you're right that on the SI&C some lumpiness but this quarter we did see an uptick on the SI&C we finished with I think it's 114% book-to-bill on the SI&C side versus last quarter we were under one on the SI&C side so we are seeing still some momentum on that side and we'll see in the future but we're still comfortable with bookings for the future.

That's helpful.

It's great to see the SI&C going above one.

Also just as a follow-on I just want to ask about cash flow expectations as we look through the year.

During the quarter free cash flow was pretty strong it looked like on a revenue conversion basis around just shy of 15% which in my understanding is sort of the medium-term or long-term target for you guys.

Wondering if you could just touch on cash flow in the quarter.

How should we look at conversion through 2025?

Should we be thinking more than 15% on a full year basis or I know there's timing and everything there but just love to get your thoughts.

Thank you for the question.

I think if we say that on a long-term basis 15% makes sense obviously in the quarter the cash from Ops was 17% but it was with some improvement of the DSO so on a long-term basis at 15% it makes sense.

Great.

Thank you.

Please proceed sir.

Thank you everyone for participating.

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Thanks again everyone and look forward to speaking soon.

Thank you.

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