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Presentation

CGI Inc. reports earnings inline with expectations. Reported EPS is $1.41 EPS, expectations were $1.41.

Operator: 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.

Kevin 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 9 a.m. 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 a.m. ow, I will turn the call over to Francois for some introductory remarks. Francois?

Francois Boulanger: 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?

Steve Perron: 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 segment. In Q1, we delivered CAD3.8 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 where U.S. federal at 14%, Canada at 5.9%, Asia-Pacific at 5.2% and U.K. 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 conditions, mainly in Germany and France.

From an industry perspective, constant currency revenue growth was led by government at 7.9% and financial services at 5.5%, driven by strong performance in North America. We experienced 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 CAD4.2 billion for a book-to-bill ratio of 110%. Our North American and Europe operation each 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 CAD29.8 billion or 2 times revenue, providing good revenue visibility. Turning to profitability. Our results once again demonstrated our ability to manage our operation with discipline. Earnings before income taxes were CAD592 million for a margin of 15.6%, up 100 basis points year-over-year. Adjusted EBIT in the quarter was CAD612 million, representing a margin of 16.2%. The favorable impacts generated from last year cost optimization programs were offset by the temporary dilutive impact of recent business acquisition and lower billable utilization with some regions of Continental Europe.

Margin were strongest in the following segments. Asia-Pacific at 32.5%. Canada at 24.1% and U.K. and Australia at 16.5%. Our effective tax rate in the quarter was 25.9%, down for — 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 CAD439 million for a margin of 11.6%, up 80 basis points year-over-year. Diluted EPS was CAD1.92, representing an increase of 15% year-over-year. Adjusted net earnings were CAD449 million, this represents a margin of 11.9%, stable year-over-year. On the same basis, diluted EPS was CAD1.97, an accretion of 7.7% 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 CAD8 million of costs in Q1 and we expect to incur another CAD42 million to finalize these actions by Q3. DSO was 38 days in the quarter, three days better than last year, contributing to the CAD646 million in our cash from operations, a strong 17.1% of total revenue. Over the last 12-months, CGI has generated close to CAD2.3 billion, up nearly CAD200 million compared to the same period last year. In Q1, we used our cash to invest CAD83 million into our business, invest CAD30 million for business acquisition, representing the initial payment for the Daugherty acquisition, invest CAD153 million to buyback our stock and return CAD34 million to our shareholders under our recently initiated dividend program. We continued 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 merger in the U.K. 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, 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 dividend of CAD0.15 per share. This dividend is payable on, March 21, 2025 to shareholder of records 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. Francois?

Francois Boulanger: 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 CAD650 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 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 a 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 some clients reinitiated investments that were previously paused. Bookings 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 — our 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 SkyAlyne, a leading provider of military pilot and aircrew training in Canada selected CGI as its strategic technology partner to design the next-generation of aircrew 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.

In Wales, the Hywel Dda University Health Board initiated a 10-year GBP75 million strategic partnership with CGI to drive the digital transformation of healthcare to improve patient outcomes. CGI’s consultants will partner with their 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 roles in providing secure, innovative digital solutions that enhance citizen access to government services, while ensuring efficiency and compliance in Sweden’s national digital ecosystem. And multiple North American banks extended their partnerships with CGI 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 through managed services and IP. CGI remains well-positioned as a partner of choice to help clients achieve the 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 rank our expertise and capabilities in worldwide leading and major player categories. These reports and rankings cover our services related to AI, data modernization, cloud, cybersecurity and business consulting.

CGI also achieved new partnership levels in Q1 with several imaging alliances, including Snowflake and Databricks. Since the start of the fiscal year, we also progressed our strategic priority to pursue acquisitions. In December, we extended our positioning with Fortune 500 clients in the U.S. by merging with Daugherty, a professional services firm specializing in AI, IT consulting and business adversary services. Through the merger, our footprint increased in metros such as St. Louis, Atlanta, Minneapolis and Chicago. I would like to warmly welcome the 1,100 new consultants who joined CGI from Daugherty. And this morning, we announced a newly signed acquisition agreement, which will close in the coming weeks pending regulatory approvals. BJSS is one of the largest independent IT and software engineering consultancies in the U.K. This acquisition will accelerate our U.K. 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 and 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 dialog 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 through 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 diversification by geographic region, which aligns well with CGI’s greatest strengths, 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 another 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 lifecycle 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 remain strong. For example, the pipeline for CGI’s financial crime 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. Macrolevel 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 regional buying trends will 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 managed 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 operation with a proven track record of success. Our value proposition focuses on GCCs as strategic extensions of the clients’ organization to drive efficiency, resilience, scalability and growth in a fast changing business landscape.

Naturally, across all 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 automation and legacy monetization. As previously shared, we are integrating AI and GenAI technologies into our engagements and our pipeline of AI opportunities continues to grow. Particularly for responsible AI adversary services, data and integration and platform monetization. Booking in Q1, the integrated AI technologies including a global healthcare 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 Edinburgh Council is collaborating with CGI to conduct comprehensive AI discovery sessions to identify and evaluate AI use cases for 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 two-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 GenAI 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 and to generate operational 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 with the scale, reach, insights and capabilities to help clients deliver the 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 continuing interest and support. Let’s go to the question, Kevin.

Kevin Linder: Thank you, Francois. Sylvia, we can now poll for questions.

Operator: Thank you. [Operator Instructions] Your first question will be from Paul Treiber at RBC Capital Markets.

Paul Treiber: Thanks very much and good morning. It was nice to see the acquisition announced this morning. Just 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 or do you have the capacity to continue to make acquisitions here in the short-term?

Francois Boulanger: Thanks, Paul, for the question. No, we don’t need to do a pause. These acquisitions, like this one that we announced this morning, is in U.K. A long time, we didn’t do one in the U.K. So the U.K. team is ready for this integration. The one that we did before was in the U.S. So, the fact, and you know, we have a solid operation in all these countries. These — each of these countries have the capabilities of doing these integrations. So, we don’t see 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.

Paul Treiber: And then looking at your business by the various regions, Germany, you called out softness there. Was it softer than usual this quarter or is Germany being a drag on growth for the last several quarters? And is it the mix of revenue different in Germany? Is it more short-term SI&C than other regions?

Francois Boulanger: No, not necessarily a different mix, but for sure, they are strong in the MRD side. And so, as you know, MRD, especially in Europe, has more difficulties. 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 contract with a large manufacturer in the — in Germany. So they are still very — they are listening a lot for — to see how we can bring some cost saving. So 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.

Paul Treiber: Okay. Thanks for taking the questions.

Francois Boulanger: Thanks, Paul.

Operator: Thank you. Next question will be from Jerome Dubreuil at Desjardins. Please go ahead.

Jerome Dubreuil: [Foreign Language] Thanks for taking my question. Another one on M&A. I guess what everyone wants to know today is, is this a new era of M&A? Is there may be 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?

Francois Boulanger: Yes. No, it’s not a new era. It’s not — you know, our strategy is to grow by through 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 — is more open for these acquisition and that’s why we want to be sure that we will capture these opportunities.

Jerome Dubreuil: Thank you. That’s clear. Another one, Francois, you’ve been in the role since October. Are there may be 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?

Francois Boulanger: 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 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.

Jerome Dubreuil: [Foreign Language]

Operator: [Foreign Language] Thank you. Next question will be from Surinder Thind at Jefferies. Please go ahead.

Surinder Thind: Thank you. 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?

Francois Boulanger: 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, no, like I was saying a bit, the pressure that we see, example, on the MRD side in Europe, we — we’re seeing some pressure still in the — especially in the consulting side. So that’s why you still perhaps see some lumpiness on that side. But at least this quarter, we saw an uptick on the bookings on the SI&C side. So — and the other thing also on the federal side or the U.S. federal, Q1 and Q2 — our Q1 and Q2 is always be, historical, our lowest booking quarter, with Q3 and Q4 on the highest side. So, that’s a trend that you can see also on an annual basis.

Surinder Thind: So just to clarify the comment there, is the messaging that if we were to exclude Germany, there is an overall improvement in the demand environment for discretionary spend or not? I just want to…

Francois Boulanger: I would say — yes, like I was saying, MRD is a bit 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 investment in the past quarters when interest rate were going up, but now they are 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.

Surinder Thind: 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.

Francois Boulanger: Yes. But you see that we’re still growing in India and that will continue. And the model, when I was saying managed services is still in demand, that’s true and it’s continued to be big in demand and people and we see how we can help them reducing their costs. And GCCs is one of the area on how to resolve — to reduce our 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 captive already created by clients where they’re asking help. And so, we — our Indian colleagues and operations will help client directly in India to help them achieving their own objective on their India captives.

Surinder Thind: Thank you.

Operator: Thank you. Next question will be from Divya Goyal at Scotiabank. Please go ahead.

Divya Goyal: Good morning, everyone. Francois, 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 U.K. Now with this acquisition, the footprint expands. So, I’m just trying to understand what is the company’s broader growth plans across U.K. and European region given the German restructuring, the U.K. acquisition. So if you could provide some color on the growth broadly across that region? Thank you.

Francois Boulanger: Yes, thanks. The BJSS is mostly a company in U.K. So, they have very, very limited business outside the U.K. And they are strong on the commercial side. And if you remember in the past, we always said we are — we want to acquire in U.K. and we were targeting to target companies that we would be more heavier on the commercial side. And that was the idea with this one. And for U.K. to a certain point, it is a game changer because it’s — first of all, it’s increasing U.K. by, I would say, on the headcount perhaps 30% to 35% more people in the U.K. and like I’m saying in the commercial area. And U.K. is nowhere what I’m saying we have some difficulties in Germany. And U.K., it’s actually going well. We see some growth.

We continue to see future growth in the U.K. And so it was a perfect timing. But also like I’m always saying, it needs to dance. So, we were able to convince BJSS to merge with us. And I think that will be great for the U.K. organization.

Divya Goyal: 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?

Francois Boulanger: No, we’re — like I’m saying, our — the buy strategy is 50% of our strategy or growth strategy. So, for sure, we’re still looking in countries like Germany. Germany is a 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 Scandinavian countries, we will look at them and see if it’s making sense to trigger them.

Divya Goyal: That’s great. I’ll just ask one more question here. So the U.S. 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 Dodge 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.

Francois Boulanger: Yes. But again, on the federal side with Dodge, for sure, if they want to achieve their targets and priorities, they will need IT, to be to be capable of reducing costs, and costs most on the U.S. 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 opportunity to grow in helping them to achieve their objectives.

Divya Goyal: Thank you.

Operator: Thank you. Next question will be from Robert Young at Canaccord Genuity. Please go ahead.

Robert Young: Hi, good morning. Maybe a double pronged AI question. First part would be around, you mentioned in your prepared remarks, agentic AI, which is kind of a growing buzzword and you announced a part — an award with UiPath. And so just 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 you could just give us some initial thoughts on the impact on the IT services business in general and CGI more specifically.

Francois Boulanger: Yes. Okay. Thanks, Robert, for the question. And 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 we’re also — we are helping clients to implement AI. So, if the technology is cheaper and becoming cheaper, I think that’s — it’s a good news for everybody, including on our side. And on agentic AI, for sure, we continue our discussion with our alliances 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, right.

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 benefit on that side.

Robert Young: Do you get a sense that the bottleneck for deployment is cost or is it finding the right solutions? Does — like does cost move like the revenue related to AI for CGI higher or is it more about finding the right applications and use cases?

Francois Boulanger: But like I’m saying, we are always trying to have industry specific use cases and not just implementing AI for AI, you — 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 — it’s not a showstopper for clients. So, for sure, it needs to be applied in — it needs to be relevant application for them, but — 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 other benefits for the end clients.

Robert Young: Okay. And then a second question, last quarter, I asked you a little bit about your strategic footing as it relates to infrastructure and whether that would be an impact on M&A targets. And so I just want to maybe broaden that up a little bit. Maybe you just talk about your 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 maybe the higher value placed on infrastructure, is that something you’d be willing to even in some cases to see grow? And then I’ll pass the line.

Francois Boulanger: Yes, okay. Thanks for the question. So infrastructure, what we said in the past is that we wanted to go 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 contract 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 start. We’re really an end-to-end services company. And so our strategy is to continue to sell end-to-end, including infrastructure business.

Robert Young: Okay. Thanks. I’ll pass the line.

Operator: Thank you. Next questions will be from Thanos Moschopoulos at BMO Capital Markets. Please go ahead.

Thanos Moschopoulos: Hi, regarding the U.K. acquisition, are there some financial metrics you can share or should we best wait for next quarter’s MD&A?

Francois Boulanger: I think we’ll be waiting for next quarter MD&A because again we — it’s still not closed yet. We will close it in the next couple of weeks. Hopefully, if we have the — all the authorization. And just price, what I can say is that on the revenue side, we were talking like, I would say, Steve…

Steve Perron: GBP275 million.

Francois Boulanger: Yes. And that’s…

Thanos Moschopoulos: Okay. That’s very helpful.

Steve Perron: On the annual business.

Francois Boulanger: Annual business.

Steve Perron: Yes.

Thanos Moschopoulos: Yes. 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?

Francois Boulanger: I would say it’s perhaps a bit more SI&C than managed services.

Thanos Moschopoulos: Okay.

Francois Boulanger: And again, the idea of — and 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 offshoring. And now that we have these client relationships, we will be able to sell a lot more offshoring to these clients. And that’s really the idea. So 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.

Thanos Moschopoulos: Great. And then 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 kind of margins being kind of flat year-over-year, maybe down a little because you’re going to be integrating or what trajectory would you assume?

Francois Boulanger: Yes. I think with the margin — 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 utilization — we have some utilization pressure there. So, I would say that, one can offset the other. I don’t think we’ll see big changes in the EBIT margin.

Thanos Moschopoulos: Great. I’ll pass the line. Thank you.

Operator: Thank you. Next question will be from Stephanie Price at CIBC. Please go ahead.

Stephanie Price: Hi, good morning.

Francois Boulanger: Hi, Stephanie.

Stephanie Price: Just following on Thanos’ question there. Margins in the U.S. federal business seemed a bit weaker than normal. Was this a result of the margin profile of Aeyon? And how should we think about those U.S. federal margins going forward?

Francois Boulanger: Yes. So that’s — you have it. It’s really because of Aeyon 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 federal government is taking a bit more time than other area because of some authorization that we need to have from the client side. So — but the expectation is that you’ll see some improvement quarter-over-quarter on their EBIT margin.

Stephanie Price: 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. How do — what are clients saying in the rest of Europe and how do you think about the region going forward?

Francois Boulanger: Well, 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 where — what’s the future, especially example with tariffs and that U.S. 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 very — a lot of discussion on managed services still in Europe.

Stephanie Price: Great. Thank you very much.

Operator: Thank you. Next question will be from Richard Tse at National Bank Financial. Please go ahead.

Richard Tse: 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?

Francois Boulanger: We don’t — no we don’t have necessary a target. We are generating more than what, CAD2.3 billion of cash from operations, investing back CAD400 million in the business. So we have what CAD1.7 billion, CAD1.8 billion, CAD1.9 billion of cash from free cash flow. And so — and the dividend is right, it’s very low CAD30 — what CAD34 million per month, per quarter.

Steve Perron: Per quarter.

Francois Boulanger: Per quarter. So we still have a lot of dry powder to do — to do acquisition. And again, also we have the balance sheet and their 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 we — when we’re saying that we’re at 3.3 times leverage, that’s really at the top. And we’re very far from that, Kevin — Steve, we’re what…

Steve Perron: Look, from the net basis, we are at 0.47 and from a gross debt-to-EBITDA basis, we’re about at 1.2%.

Francois Boulanger: So, we have a lot of space for other ones, including that transformational acquisition.

Richard Tse: Okay. And then I appreciate your comments on elevating the brand. Obviously, you probably have 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 all new incremental initiatives that you’ve put in place since taking over that role?

Francois Boulanger: Well, no, I didn’t — I don’t have necessarily a target. And these kind of when we’re talking branding and all that, it has a long-term objective. So it’s really — we didn’t necessarily put a number related to these actions. And so, it’s really to improve the branding, especially in places where we’re still perhaps the best kept secret. So — and still in U.S., 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 on that.

Richard Tse: Okay. And then just the last one for me. Some of your competitors have been talking to price competition in the market. Is that something that you may be seeing? And if so, is this 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 from me. Thanks.

Francois Boulanger: I would think it’s not structural. We — most of our — especially in the managed services, we don’t — we don’t see a pressure there. Managed services, if we can show to them the business case and the outcomes for them and they’ll — that’s making sense and they’ll pay for the value. I think on the — in some places where it’s the discretionary spending that went down, for sure 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 with people — clients are still ready to pay for value.

Kevin Linder: Sylvia, we have time for one more question, please.

Operator: Certainly. Our last question will be from Jason Kupferberg at Bank of America, U.S. Please go ahead.

Tyler DuPont: Hi, good morning, Francois, Steve. This is Tyler DuPont on for Jason. Thanks for taking the questions here. Trying to be fast knowing that’s the last one. I wanted to ask about initial demand trends and spending implications 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. Just 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?

Francois Boulanger: Yes. You’re right, the last one month, the booking went down, but some of it is timing. And again, we had large — we had some discussion with some clients that didn’t — we’re not able to close for the quarter end. And we won’t close a deal just to close a deal to have a bookings at the end of the quarter. So we have some still good discussion on some of these large contract and you’ll see some closing of them in the future. And so 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% of book-to-bill on the SI&C side. So 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 — we’re still comfortable with bookings and from the future.

Tyler DuPont: That’s helpful. It’s great to see the SI&C going above one. And also just as a follow-on, 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.

Francois Boulanger: Thank you for the question. I think to — if we say that on a long-term basis, 15% makes sense. Obviously, in the quarter, the cash from ups was 17%, but it was with some improvement of the DSO. So on a long-term basis at 15%, it makes sense.

Tyler DuPont: Great. Appreciate it.

Francois Boulanger: Thank you.

Operator: Please proceed, sir.

Kevin Linder: Okay. Thank you. Thank you, everyone for participating. As a reminder, a replay of the call will be available either via our website or by dialing 1888-660-6264 and using the passcode 28413 as well, a podcast of this call will be available for download within a few hours. Follow-up questions can be directed to me at 1905-973-8363. Thanks again, everyone, and look forward to speaking soon.

Francois Boulanger: Thank you.

Operator: Thank you, sir.

Steve Perron: Thank you.

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