CGI Inc.

Good morning, ladies and gentlemen. Welcome to CGI's third quarter fiscal 2024 conference call. I would now like to turn the meeting over to Mr. Kevin Linder, SVP of Investor Relations. Please go ahead, Mr. Linder.

Thank you, Julie, and good morning. With me to discuss CGI's third quarter fiscal 2024 results are George Schindler, 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, July 31st, 2024. Supplemental slides, as well as a press release we issued earlier this morning, are available for download along with our Q3 MD&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&A and press release, as well as on CGI.com. We recommend our investors read it in its entirety. We're 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. I'll now turn it over to Steve to review our Q3 financials, and then George will comment on our business and market outlook. Steve. Thank you, Kevin. and good morning, everyone.

I'm pleased to share with you the results of our third quarter of fiscal 2024. In Q3, we delivered three

billion of revenue, up 1.3% year over year, or up 0.2% when excluding the impact of foreign exchange.

The strongest CGI segments were Northwest and Central East Europe at 10% constant currency growth, Asia Pacific at 5.4%,

Finland, Poland, and Baltics at 3.2%, and U.S. commercial and state governments at 2%.

From an industry perspective, we continue to have the highest growth in government, representing 4.1% constant currency growth this quarter.

This was followed by manufacturing, retail, and distribution at 2.2% driven primarily from North America. We continue to experience softness in certain verticals within regions such as financial services and communication in both Western and Southern Europe and North America. Our IT grew at a faster pace with 5.2% constant currency growth in the quarter. As a percentage of total revenue, IP represents 22.5%, up 120 basis points year over year. Bookings in the quarter were strong at $4.3 billion, led by managed services and IP wins. Our book-to-bill ratio in the quarter was 117% and were strongest in U.S. federal at 209%, UK and Australia at 153%, and Western and Southern Europe at 123%. On a 12-month basis, book-to-bill was 112%, with 118% in managed services and 104%

percent in SINC.

Global backlog reached $27.6 billion, or 1.9 times revenue, reflecting our overall business resilience. Turning to profitability, our performance this quarter once again demonstrated our operating discipline in navigating the ongoing

dynamic microenvironment.

Earnings before income taxes were $594 million, for a margin of 16.2%, up 80 basis points year-over-year. Adjusted EBIT in the quarter was $603 million, representing a margin of 16.4, up 30 basis points year-over-year. This is mainly a result of our improved mix of business and the benefits realized from our cost optimization program completed last quarter. We had strong margin in the following segments. Asia Pacific at 31%, Canada at 22%, U.S. Federal, and Finland, Poland, and Baltics both at 17%, and UK and Australia at 16%. Our effective tax rate in the quarter was 25.9%, and we expect our tax rate for future quarters to be in the range of 25 to 26.5%. Net earnings were $440 million for a margin of 12%, up 50 basis points year over year.

Diluted APS was $1.91, representing an increase of 9% year over year.

When excluding specific items, net earnings were $440 billion. This represents a margin of 12%, up 30 basis points year over year. On the same basis, diluted EPS was $1.91, an accretion of 6% when compared to Q3 last year. In the quarter, cash provided by operating activities was $497 million, representing 13.5% of total revenue. On a trading 12-month basis, Cash provided by operating activities was $2.2 billion, up 12% year-over-year, representing 15.2% of total revenue. The SO was 42 days in the quarter, two days better than last year. In Q3, we used our cash to invest $91 million into our business. and invest $499 million to buy back our stock. Subsequent to the quarter, we announced two strategic acquisitions. In Canada, we acquired Sailor Rose Business Serving Credit Unions, which consists of managed services, core and digital banking, and related IT services. In the U.S., we announced yesterday that we entered into a definitive agreement to purchase Aon, a leader in digital transformation for the U.S. federal government. Post-mergers, these two acquisitions would add 875 consultants and professionals to CGI. In the quarter, we continued to deliver a strong return on invested capital at 16.1%, up 40 basis points year by year, demonstrating our proficiency and discipline on deployment of capital. At the end of the quarter, CGI has $2.7 billion of cash readily available and access to more if needed. As part of our profitable growth strategy, CGI capital allocation priorities are primarily focused on investing back in the business and pursuing accretive acquisitions. Additionally, the company has the flexibility to use a portion of its free cash for the repurchase of its stock. As announced this morning, CGI Board of Directors has approved a dividend program under which the company intends to pay a quarterly cash dividend of 15 cents per share starting in the first quarter of fiscal 2025. The initiation of this program represents an additional mechanism to return value to our shareholders while continuing to maintain our financial flexibility to invest in our build and buy profitable growth strategy. Now, I will turn the call over to George to further discuss the insights on the quarter and outlook for our business and markets. George? Thank you, Steve, and good morning, everyone.

Our team delivered third quarter results that again reflect the disciplined execution of our plan to be a partner and expert of choice for our clients, an employer of choice for our consultants and professionals, an investment of choice to deliver shareholder value. In the quarter, we continued to proactively manage the fundamentals of our business. We delivered sustained margin expansion and EPS accretion, driven by the continued diversification of our business mix through growth of recurring revenue. Importantly, our operational excellence actions continue to contribute to our strong earnings. Our cash from operations increased up 21% year-over-year on the strength of quality client delivery.

And, as anticipated, our revenue growth and overall bookings in the quarter continue to be largely comprised of managed services and IP engagement.

which helped clients accelerate cost savings and progress business transformation. As such, constant currency revenue growth in IP-based services was up 5.2% year-over-year, and managed services revenue was up 1.5%, offset by continued softness in systems integration and consulting. And bookings were $4.3 billion, with the managed services book-to-bill of 139%, and an IP book to bill of 129%, both of which were largely driven by government sector awards. In fact, government sector wins comprised just over half of total Q3 bookings, with a book to bill of 164%. More clients prioritize the services and solutions necessary to implement current mission objectives and embed flexibility to support evolving policies, all in line for the natural cycle of government. CJAS IP solutions were at the core of driving the strong government bookings as clients increasingly turned to CJAS proven industry specific IP solutions to raise their operational efficiency while also gaining benefits from embedded security and innovation, including AI. In the quarter, we continue to see clients exercising caution in their spending on standalone consulting and system integration projects. As an end-to-end services provider with strong managed services relationships and market leading intellectual property, our bookings in the quarter are reflective of our positioning for continued strong client interest in managed services and software as a service. For example, Michelin selected CGI to deliver an open and green IT ecosystem to enable business innovation and support enterprise-wide digital transformation. CGI will deliver a range of IT modernization services, including use of AI technologies through a mix of proximity teams in France and the US, as well as global delivery teams in India and Morocco. The US Department of State's Bureau of Consular Affairs extended its relationship with CGI through a U.S. $378 million award. Under this award, we will deliver end-to-end passport application processing services in support of the issuance of more than 21 million passports and travel documents annually. Several local governments in Finland named CGI as their partner for transforming healthcare service delivery through CGI's Omni360 patient information platform. This will also create a foundation for broader use of AI in Finland's healthcare system. Harley-Davidson Financial Services selected CGI for a new engagement to modernize the company's loan origination system, replacing disparate IT platforms with a unified CGI credit studio solution. Under this agreement, CGI will deliver an AI-enabled platform that introduces greater flexibility for dealers and an intuitive buyer experience. The French Ministry of Justice extended its partnership with CGI to drive the modernization of its HR system. Our consultants will leverage their industry knowledge as well as their expertise in SAP to implement a new platform and transform key processes. And a major North American bank selected CGI to modernize its wire room. leveraging the CGI All Payments solution, a modular and cloud-based platform. The solution will enable the bank to retire legacy systems, reduce operational costs, and more easily adapt to new industry standards and regulatory requirements.

Each of these examples are the types of recurring revenue engagements that serve as a base to enhance our resilience,

and stability for the future. TGI's third quarter results underscore the ongoing value that our talented consultants and professionals deliver for clients every day. In the quarter, we again saw rising levels of client satisfaction, notably for the innovation we bring to our engagements, including through the use of AI technologies. I would like to recognize CGI's 90,000 consultants and professionals for earning the trust of our clients. Through their expertise, insights, and commitment, we are helping clients around the world achieve tangible business and mission outcomes. This is particularly important given today's dynamic market conditions. Looking ahead now to the demand environment, we are starting to see some underlying signs of stability in the macro business environment. This is making it possible for our clients to begin solidifying their future plans. For the past few months, we increasingly see differentiation in terms of pace and focus of key digitization investments by our clients. In short, each client is forging a unique path forward and is incumbent on partners to meet them where they are and devise the right combination of services and solutions to help them progress their individual business objectives. This evolution towards differentiated client needs matches well with CGI's greatest strengths, particularly our client relationship proximity model, our end-to-end portfolio services, and our global network and scale. While we do expect to see continuation delays in the timing of decisions, particularly for standalone SINC projects, Client interest remains strong for the value proposition CJ can deliver through our end-to-end offerings. This positioning is validated by CJ's pipeline of opportunities over the next year. The IT pipeline is up by more than 15% year-over-year, with significant increases in transport and logistics, manufacturing, and energy. The managed services pipeline is up by more than 40% year-over-year, with sharp increases in government, insurance, banking, manufacturing, and retail. And the pipeline of SINC opportunities across several commercial industry sectors is rising compared to this time last year. Importantly, we saw some green shoots in our third quarter results, further pointing to stabilization of the business environment. For example, the number of total open billable positions ticked up on a sequential quarter basis. CGI's utilization is also up on a sequential quarter basis as we continue to align talent to those areas where we see growth, largely in the government and utility sectors. And hires to support growth in Asia Pacific were up on a sequential quarter basis as more commercial industry clients, notably in banking, retail, and manufacturing, are leveraging CGI's offshore centers of excellence. CGI continues to make targeted investments in our talent and our end-to-end services to best partner with clients as they solidify and begin re-accelerating their digital initiatives. For example, we are enhancing our managed services delivery approach through the expansion of our CGI DigiOps platform, an integrated digital-first delivery suite. This platform delivers higher-quality insights for faster client decision-making, better performance and system availability, and cost savings for clients through the use of AI technologies. For our SINC services, we continue to invest in our emblematic offerings, methodologies, and talent in areas such as business model transformation, change management, responsible use of AI, and enterprise architecture. And we are accelerating the integration of generative AI into our IP solutions portfolio through our signature CGI Pulse AI platform, which also enables clients to more easily integrate these new technologies into their existing and new engagement.

In line with the investment we announced last year and rising client interest, AI and GenAI technologies are increasingly integrated into our engagements.

Thank you, three. The number of projects incorporating AI rose 20% on a sequential quarter basis. Third quarter bookings that integrated AI technologies remain strong, including wins for the top 50 auto parts supplier to establish a GenAI center of expertise and help evaluate and optimize ROI-led use cases. A European logistics company to conduct an AI maturity assessment to evaluate organizational readiness and capabilities. And a space industry client to assess the creation of new digital marketplace that integrates space and AI technologies to enable rapid response to natural disaster. As Steve mentioned earlier, we are updating our use of cash strategy to incorporate a dividend program as an additional mechanism to deliver value to our shareholders and to broaden our investor base, while maintaining financial flexibility to continuously invest in growth opportunities. Strong balance sheet and liquidity. CGI will continue to prioritize capital allocation strategies that drive profitable growth and enhance value for shareholders. for investing in our business, pursuing accretive acquisitions ranging from metro market to large transformational opportunities, repurchasing our stock and or paying down our debt, and now distributing a dividend. Regarding our strategic priority to pursue accretive acquisitions, I'd like to expand on the two acquisitions announced subsequent to the close of the quarter. In Canada, the acquisition of Solera's credit union business complements and expands CJ's core banking service offerings to an additional 90 Canadian credit unions nationwide. Our services to credit unions are now coast-to-coast, covering more than two-thirds of the credit unions across Canada. I would like to warmly welcome the 150 new consultants and professionals to join CGR. Our U.S. federal operations announced a definitive agreement to purchase Aon, a leader in digital transformation for the U.S. federal government. This acquisition, pending regulatory approvals, will further complement and expand our U.S. federal capabilities and relationships, including with NASA. the FAA, the Office of the Secretary of Defense, and multiple branches of the U.S. military services. Upon final closing of the acquisition, 725 AON employees will join CGI, bringing deep expertise in a range of services such as data management and analytics, logistics and supply chain, and AI technologies. We are in active dialogue with additional merger targets at all stages of our pipeline, and are committed to merging with like-minded companies that are complementary to our geographic footprint, client base, and end-to-end portfolio of capabilities. Our operational strength, stability, and financial capacity will continue to enable us to move quickly with discipline on the right opportunities of all sizes. In closing, we will continue to manage the fundamentals of our business and invest in our build-and-buy profitable growth strategy. to further deepen our client relationship proximity model, our end-to-end portfolio of services, and our global network and scale. As each client forges their unique path forward, we will continue to devise the right combination of services and solutions to deliver tangible, trusted business and mission outcomes for our clients. Thank you for your interest and support.

Let's go to the questions now, Kevin. Thank you, George. Julie, can you please share the logistics for the Q&A?

Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star 1 on your telephone keypad. If you'd like to withdraw a question, press star 2. One moment, please, for your first question. Your first question comes from Daniel Chen from TD Cohen. Please go ahead.

Hi, good morning. George, the dividend's been something that's been talked about for a while. Can you shed some color on why now is the right time to initiate the dividends?

Yeah, you're absolutely right.

We've been discussing the dividend over the years.

As I mentioned before, we review our use of cash priorities with the board of directors on a regular basis, including the dividends. And it was determined by the board that we could include the dividend as an added mechanism of returning value to our shareholders. while maintaining our overall cash priorities to drive EPS growth. And so it's really just a matter of the maturity. Steve, I mean, maybe you can talk a little bit about the cash.

Look, thank you for the question. We have strong cash, as you said, and it's pretty much stable quarter over quarter, year over year. But it will not change our strategy at all. What we want first, the priority is really the investment in our business. And also we want to continue to deploy and allocate the cash to a creative acquisition. So that's why, you know, the first thing is really internal investment and also M&A. But in addition to that, as George mentioned, we believe that by introducing this dividend program, we're going to attract other investors, and that's pretty much the reason why we have done it now.

Thank you. That makes sense. Maybe a related question, maybe just any color on what you're seeing in the M&A environment. It sounds like you're still pretty active, but uh, any color around, um, uh, pricing, uh, and the willingness of, uh, of other companies to sell. Thank you.

Yeah, no, thanks for the, for the question, Dan. Yeah, the more, um, the more reasonable valuations are holding, um, even with, uh, PE being slightly more active, uh, the valuations are holding the, I think there's a lot of sellers believe this is a, uh, the right time to, uh, to, to combine, uh, combine entities. And so we're having, as I mentioned, discussions at all stages of our pipeline, including the later stages, bringing these two we just announced over the line, but there's more behind that. So we believe it's becoming a more active environment. We're getting more inbound calls as well. Now, they tend to be smaller companies on the inbound side, but we're even getting more inbound calls. So it's still a pretty active environment.

Thanks, George. I don't know if you'll be on the next earnings call, but if not, best of luck. It's been a pleasure working with you. Thanks a lot. I appreciate it.

Your next question comes from Sutan Sukumar from Sneafo. Please go ahead.

Good morning, gents. Good morning, guys. Can you hear me?

Hi. Yeah, we can hear you now, Sutan. Yep.

Okay, great. Just wanted to kind of touch on, you know, your comments about, you know, seeing incremental signs of stability ahead. And, you know, when you guys are thinking about the sort of the recovery and the demand environment, as you look at in the course ahead, or, and really also on the growth side of things, is that, you know, is that largely dependent on a recovery in more discretionary IT spend? Or Or do you guys see a potential in pickup and, you know, more on the managed services side and the conversion of that large backlog that you have there?

Yeah, I think, Suzanne, I think it's a combination. Obviously, as the discretionary picks up, that augments some of the growth that we're seeing or said differently. A lot of these managed services projects, as they come online, are offsetting the fact that we do see a slower demand environment on the SINC. But as I've said before, I do believe that clients are making decisions, future plans on their digitization. We play on both sides. We play on the cost-saving side, but we also play on their growth side. But I do believe that some of the green shoots that we're seeing um will take hold but it's going to be uh you know it's still not consistent still not uniform as i mentioned on the uh in the opening uh you know every client's looking at this a little bit differently and i i'd still say that caution reigns um even on the bigger deals gotcha thank you um my next question i i want to touch on the aeon acquisition because i you know because

it looked like a pretty compelling deal in the U.S. Fed space that obviously expands your exposure in that segment.

Does Aon come with any IP?

And with respect to the, you know,

what you acquire here, is this an opportunity to go deeper within existing relationships that you have within the Fed, or does this open you up into newer relationships across the segment? It does. There is some overlap.

but it does for sure open up some new avenues for us, particularly in that all-important national security space.

That's where a lot of the spending right now is going in the U.S. federal government just given the everything that's going on in the world and so that's they specialize though in the data analytics and the business operations, including finance and logistics and supply chain. So new avenues, but very similar and like-minded skills in those areas. The other thing I would add, and I think this is important,

them to add is they have some complementary government wide contract vehicles. They provide for maybe a more limited competition expedited procurement pathway for certain services and those services are those back office automation services that we're very strong in. So I think it's not only are they going to bring some new clients in that all-important national security space, but they're going to give us some avenue to expand on our existing services with other clients. So that's a real positive. No IP, no intellectual property to speak of, so it's straight SINC. But again, in the area – that governments around the world and certainly the U.S. government is standing on in national security.

Perfect. Thank you. I'll pass the mic. Thank you.

Your next question.

Didn't come from Thanos from BMO. Please go ahead.

Hi, good morning.

Starting off on margins, I won't ask if there's room for margin expansion, because I know the answer is always yes.

But if we think about potential drivers of margins, If you think about the potential drivers, I mean, is it really about maybe the IP mix and the managed services mix increasing? Is that what you'd expect to be the margin driver over the next while? Yeah, well, you know, You didn't ask me, but I'm going to say it anyway. We talked last time about kind of the improvement that was coming both from the cost optimization but also kind of that mix of business, and that's exactly what you saw this time in the adjusted – margin accretion of the 30 basis points. And that should continue, right? Because as we add more of that managed services growth, including global delivery, right? You see the margins from global delivery. So that's a piece of that mix. So it's both managed services, but also leveraging the global delivery. IP as a percentage of revenue, which did pick up again this quarter.

But we'll still have some tailwind from the cost optimization program. And then, as I always say, Thanos, there's still an opportunity for us

continuous improvement in some of the geographies in not just the revenue mix, but also the SG&A mix and the project execution. So it's a combination of those factors. always, but yes, driven by the main services in the equity. And in U.S. federal, the strength you saw in bookings, is there some election dynamic that's contributing to that, or would you do not attribute to that. Yeah, it would. That's definitely a piece of that.

And if you recall, we did discuss this on last quarter's call that we expected that there was a lot of RFPs last quarter, actually later bookings, But I mentioned that we would expect those to be adjudicated in the second half. The other, though, is exactly as you said, there's some large government bridge contracts in the quarter as they prepare for an election and transition. So what the bureaucracy does is says, OK, we don't know who's going to get elected. Of course, they'll come in with new policies, but we got to keep things running in the interim. And so you see a lot of these bridge contracts. And as I mentioned, they're a little bit longer than they've been in the past just because of some of the differences, let's just say, in the policies that could come out. And so they're looking at making that a little bit longer because they think it'll be maybe a little bit longer transition.

So that's what's going on there. Exactly as we would have anticipated, and the team is doing a great job to win those contracts through their efforts and their outstanding delivery for the US government. Thanks, George. I'll echo the congrats on your upcoming retirement and your successful tenure here at CTI. I'll pass the line. Thanks a lot, Thomas. Really appreciate it.

Your next question comes from Surrender E. And from Jeffries, please go ahead.

Go ahead. Thank you. George. Very good to have you on the call. Hey, thank you George. Appreciate that. At least I get in one call with you before your retirement.

There you go.

Big picture question here on the AI strategy.

If you look to build solutions for clients, is there a lot of third-party integration of solutions, meaning the chat GPTs of the world, the Gemini, into those solutions?

Or are there more proprietary builds of smaller models that ultimately you'll have the IP over?

How should we think about that? The evolution of that. Yeah, well, it's a It's a combination. It's a combination. So we have our signature intellectual property is called Pulse AI, and it's a multimodal approach that allows you to

leverage those large language models, but also develop some of those closed-loop models that most of our clients are really looking at. And that's why I mentioned in the last several calls that our AI work is largely helping clients their data and their architectures to actually leverage the AI in a bigger way.

I don't think anybody is looking at just using the large language models that are available to chat GPTs all over the world.

They're going to leverage pieces of them, but not exclusively. They want to build closed loop elements. So yes, there already is some CGI intellectual property to make that easier to integrate. There will be other CGI intellectual property built on top of those models that is industry specific. And we're already announced and working with some of the hyperscalers on exactly that. So more to come on that. But it is still early days for Surrender.

Thank you. And then more of a near-term question here, just on the managed services backlog, obviously continues to see good growth. Can you help us understand why maybe it's not converting fast, but given ultimately these are highly beneficial projects from a client perspective?

Yeah, well, I kind of alluded to that a little bit. You can

You can see the bookings and the growth profile in the SINC.

Some of the managed services is coming online. It's just being masked by the softness on the other side. And that's good. That's the goodness of the resilience model of CGI, right?

Having that balanced portfolio allows us to continue to move forward even in the current environment.

But they are coming on board. Having said that, they are slower. It's slower to convert from pipeline to booking.

It's slower to convert from booking to actually start the project.

It's slower to go from the start of the project to the actual engagement of revenue because, you know, there's always a transition. Clients are being cautious on all of the abortions. book so they're being extra cautious on you know on a lot of these managed services deals take on people from our clients are being very cautious and how they do that in the current environment so it's just a It's just slower all the way around.

But be that as may, yes, we are converting some of those on. It's just offset by some of the other softness.

Thank you. Yep.

Your next question comes from Jerome Sebrey from Desjardins, please go ahead.

Hi, good morning. Thanks for taking my question. Congrats. That's George for me as well and Francois. First question for me is, Looking at the margin improvement, and this is very healthy, obviously, but I'm wondering if we're nonetheless in the phase of higher or accelerated technological investment that maybe kind of offset your margin improvement. from the cost improvement program.

So is there work being made, done right now to future improve the organization that is having an impact or it's kind of normal investment that we're seeing right now?

Yeah, it's a good question. As you know, we announced a pretty big investment to make sure that we are positioned for how to leverage AI. A lot of that right now is going into our IP and into our talent. But it's really just a shift of the investments. We're always investing in training. Now it's focused on AI. We're always investing in our IP. Now it's focused less on maybe some of the generic feature functions, and now it's more focused on leveraging AI into the IP.

So, yeah, there's an uptick, but it's – and we're taking some of that from the cost optimization, which is why I said that you wouldn't see. all of the cost optimization to go into that, but I don't think it prevents us from having the incremental improvements that you've become accustomed to seeing on the margins. And we've got a number of different levers as as I mentioned earlier. Pretty clear. A second question for me is more on a geographical standpoint. I mean, we're looking at expected GDP growth everywhere in the world, and it's not necessarily the same as it used to be or as it was when you took your decision in terms of capital allocation. Where do you think your best marginal dollar is invested right now? Has there been a change in terms of where you want to be operating globally going forward?

Yeah, no, it's a great question. It's something we look at. We're doing our planning for fiscal year 2025 right now.

Of course, it's a rolling three-year plan that we're always updating on an annual basis. And, of course, we use some of that input that we get from the voice of the client.

I mentioned some of the early findings there.

And it's kind of that dual track agenda of both cost savings and optimization, but also some of the growth. But look, I don't see any big changes. We've been pretty deliberate. in the markets and the clients. Remember, 85% of our work is for enterprise-level clients.

They're global by their very nature.

We're very deliberate in where we're We focus our business efforts in the geographies. You see how we're organized.

So I don't see any big changes in that, regardless of this. I agree with you.

We see an elongated U.

standpoint, so it's not necessarily going to be the same growth. But I think there's going to be some catalysts as companies continue to look for how they can do more with less resources, less people. I think we do see some of the demographics changing, particularly in Europe, where not just from an IT perspective, but just from an overall resource perspective, I think you're going to see some pressures on just finding available talent That's all going to drive a catalyst, we believe, for continued investment in digitization. And, of course, tools like AI, it's not just AI, discrete AI, but tools like AI are going to allow us to make that happen.

So we still see opportunities in all those areas. It doesn't really matter. really change our capital allocation priorities. Great, thank you. Thank you.

Your next question comes from Stephanie Price from CIBC.

Please go ahead. Hi, good morning.

I was hoping to circle back on the consulting side of the business and just curious how you think about that part of the business specifically heading into 25 and what you're thinking about in terms of recovery as

in that consulting side of the business.

Yeah, it's very interesting, Stephanie, and I mentioned this before, you know, in prior slowdowns, there's almost no activity on the consulting side.

Clearly, there's been an impact and a down on consulting, but it hasn't gone to nothing. And the reason is that, and you even heard, a lot of our AI efforts right now, they're actually driven by consulting. Consulting on the data side, consulting on the business transformation side, consulting on the change management side as clients really think through what models they want to have for the future. So, you know, I think that it will be a slower ramp up in recovery. And as I also mentioned, consulting is maybe embedded in a lot of our other activities, even in some of those managed services deals as they look at those.

And also RIP, some consulting is embedded in our IP sales.

So, you know, it's still going to be an important element. It's small by its very nature, but it still is that tip of the spear. And we will continue to invest responsibly, and as I said in the opening meeting clients where they are. But it's so important to us and to our clients.

That makes sense.

And then...

In terms of IP as a percentage of revenue and bookings, it was quite solid in the quarter. Can you talk a bit about what you're seeing in terms of just demand between geographies, verticals, commercial, anything that you want to call out there?

Yeah, you know, IP continues to be increasingly strong in Europe, which has not been our historical, and that's good information. still really focused on operations. And a lot of our IP is there. So HR, payroll, secure document handling, the patient information system that I mentioned. It's all more on operations focused. Still a lot of growth in government and its governments around the world, North America and Europe, and utilities and health.

So

It's pretty widespread, but, again, very operational focus, which is where a lot of our IP plays. So it's nice to see.

That makes sense. And, George, I'll echo everybody's congrats on the retirement. It's been a pleasure working with you.

Thanks a lot, Stephanie.

I appreciate it. Likewise.

Our next question comes from Paul Treiber from RBC. Please go ahead.

Oh, thanks very much. Good morning. Thank you.

Can you elaborate more on your comments about clients having differentiation and differentiated needs here?

And then specifically, it seems some of your competitors' results have been all over the place this quarter. Do you think some of that, some of your competitors have been negatively impacted by that evolution in that CGI environment? is relatively better positioned for that change.

Yeah, you know, it's a tough one for me to mention there, but I think where you see some of that, some of those variations, exactly what I'm saying, you know, every client is kind of doing this at a different pace.

And so if, you know, but you got to meet your client where they are and you got to work with them. So if they're needing a little more consulting and that's not as much revenue, that's what they need. That's what you're going to give them. If they're ready for that, big managed services deal, you've got to be there with that value proposition so they understand that. You've got to be providing them that software as a service so they can spend less capital, even if they ultimately want to build some surround systems around that, but they're not ready to do that yet.

And so flexibility is a key attribute, and that's kind of the hallmark of CGI and working with our clients because we're so client-focused given our process.

model and our understanding so I don't know if that's you know I'm not going to comment on others but I can tell you that's where we're finding yeah the biggest opportunity it's also why I think you also see our pipeline going up because of that fact approach.

Secondly, could you could you speak to the environment in France? You know, some others have called out a slowdown through through June, that's really to the election or whatnot. Have you seen any changes to the quarter and how you how do you think about France in the near term? Yeah, so I was I was just talking to our, our leader, in France. You know, the current situation is, you know, it's not just causing a delay in government, as you'd expect, right, as the government forms it, independent of the wonderful Olympics that are going on, but the commercial markets are also taking a bit of a wait-and-see approach.

What's, you know, how's this going to shake out?

And so, If caution was already raining from macro perspective, I think we're seeing the same thing that you're mentioning that France is definitely taking a wait and see approach or at least our clients

And France are taking a little more of that wait-and-see approach, which does have a short-term impact. Having said that, no change in the longer-term outlook. You saw the bookings are strong in Western and Southern Europe, and a lot of that, of course, is dominated by France.

And our pipeline continues to grow there.

I think it's more just a here and now point in time. But, yes, we are feeling it and seeing it, and you see that in our results. Thanks for taking the questions, and, George, enjoy the chairman.

Thank you. I appreciate it.

Your next question comes from Stephen Lee from Raymond James. Please go ahead.

Thank you. Just a couple of questions for me.

Finland, Poland, Baltics, big jungles, margins, is that 16%, 17%? Is that sustainable or any one-time practice there? Thanks. Finland, Poland, Finland. Thank you.

Yeah, it was just, it was breaking up a little bit in the beginning. Yeah, so Finland Poland Baltics.

So as you know, we have a lot of strong intellectual property there. And so I mentioned, called out, the fact that we had some good IP sales there. So, you know, is that sustainable? Exactly at that level. You know, they run a very good deal. business days you know we have a pretty good position in the marketplace which is allowing us to play into this social health reform with this IP so you know that exactly level I don't know but you know that's that's what we want to be so So that's doing a great job.

Got it. And then on the AI-related bookings, I just want to check. I think I heard you say up 20% sequentially.

What is that in dollars? Is it like $300 million in AI bookings? Yeah. Yeah, I'm glad you asked that question.

And because what we had was an increase of 20% in the number of engagements. But those engagements are not large. So you don't see anywhere near a 20% increase in bookings. In fact, although we're up obviously on a trailing 12-month basis, the bookings were flattish. to even down a little bit in the quarter on AI. But the number of opportunities keep increasing because it's a bit of tip of the spear. Everybody's kind of in a different place on AI. They all recognize they want to use it, but they want to use it for business impact. And so they're really taking a very responsible approach, and we're helping them with that. So a lot more engagement, but they're all still pretty small.

Thank you.

Yep, that's great.

Thanks a lot, guys.

Yep. Your next question comes from Richard Say from National Bank. Please go ahead.

Yes, thank you. A number of your competitors have flagged recently that they're seeing

price pressure becoming increasingly common occurrence in the market like what would CGI be seeing and then is that kind of something that's temporary given the backdrop in short term or is it something more structural here Yeah, so here's what, you know, I think it's two answers to this.

There's some short-term pricing anytime you have an macro environment like we have right now.

But I think the more structural is what I've been talking about, we've been talking about on this call. for a while. The ROI-led, you know, we see clients looking for innovations to improve outcomes, which does save them money, with improved efficiencies, which does save them money, without sacrificing

quality. That's what they're looking for.

So it's outcomes, both short and long term, more than inputs.

It's overall solution, more than just price or point price. And that's why I mentioned our investments in in CGI DigiOps, our investments in putting IP with our AI, our investments in the global delivery approach. These are the ways that you're going to get that price competitiveness without that unit price input rate discussion that you might be thinking when somebody calls out pricing. And I'm not saying some of that doesn't happen at any point in time.

But structurally, I think, you know, we actually see clients being far more sophisticated in what they're looking for and how they're looking for it and, you know, I would say that more often than not, the discussion ends up with, are you going to be able to give me the quality with those operational efficiencies? Not the other way around. Okay. Helpful. And then just sort of with respect to the regulatory filings in the MD&A, under the EBIT sort of margin section within sort of U.S.

federal, you sort of cited the revaluation of cost to complete specific projects. Just kind of wondering if you'd be able to elaborate on those costs. Yeah, well, it's just, you know, it's a fixed price project that, uh, is taking longer. Um, that's a, that's a, that's about as direct as I can get there when I, you know, we don't call out clients or project names and it was really one project, but it was a big project. And, uh, and we, uh, we called it out cause it did have an impact, but it's, uh, it's largely behind us and, uh, we move forward. Okay. Fair enough. And, uh, you know, it's been great working with you all the best, uh, in your retirement. Thank you so much, Richard. Julie, we have time for one more question, please.

Your next question comes from Divya from Scotiabank. Please go ahead. Good morning, everyone. Thanks for taking my question.

So going ahead on this geographic discussion, I actually wanted get some more color on the variance in the growth that you're seeing across geographies. So when we look at the global technology services, we see a lot of them benefiting from the growth across international segments. And North America seems to be picking up up but looks like in your case Europe was fed better than North America.

So if you could provide some color on these variances and if you could provide some color in terms of international growth potentially as some of those geographies continue to grow?

Yeah, so on the geographies in Europe, we saw the same thing. And if you really look at it, it's the largest geographies, I should say, in Europe are kind of more impact.

We saw more impact. to the current macro environment.

And part of that is just they tend to be larger enterprise clients that are more impacted by the global economy.

So it's not just that we're working with a company in France that company in France has global operations. Same thing in Germany. Same thing

in the UK on the commercial side. Some of them are smaller geographies like Finland, Poland, and the Baltics.

We have some clients there that are more specific to the region. They are a little bit more nimble. They're moving a little bit faster. You see our ability to drive some more growth there.

But I think, again, and that gets back to my differentiation comment from the opening, that every client is operating a little bit differently.

As you know,

As you know, we don't play into some of those international geographies that are going a little faster.

But I would suggest maybe a similar situation. They're just going to be a little more agile and more nimble.

and a little more faster to realize some of those green shoots. That's what I would say.

That's helpful, George. And just second question here on M&A. So over the last few quarters, you've closed some acquisitions, announced Aon yesterday. I wanted to get some color in terms of what are the verticals that you as a company are targeting and some of the technologies and skill sets that you're looking at going forward? Because In the past discussion, we assumed IP was an important element of this M&A strategy, but it looks like Aon did not come with an IP here. So trying to understand what are we focused at going forward?

Yeah, so now it's a great question, Divya. It gives me an opportunity to maybe restate what we're looking for primarily when we're doing M&A are new client relationships. relationship with either existing geographies where maybe we can continue to grow our scale or new metros.

So when we did the momentum, it was a new metro market in the southern U.S. in Miami. When we do Solero, when we do an Aon, it's about getting new client relationships. In the Aon's case, it's national security. In Solero's case, it's credit unions coast-to-coast we didn't have before. So it's always now we get plenty, plenty of, um, strong capabilities, whether it's core banking, Solero, whether, uh, or payments or, um, data and AI, um, with, uh,

With Aon, you get a lot of intelligent automation. You get a lot of capabilities there.

But it's actually not about a specific vertical.

It's about building out a metro market across verticals with all those capabilities.

That's what we believe. is the right way to continue to build the business for the longer term. And so that's what we're looking for. And all those acquisitions fit the bill.

That's very helpful. If I may ask one small question, and I think I know the answer,

to it already but could you provide some sort of you and one of your comments mentioned that the guidance the valuations outside are reasonable is there reasonable valuation multiple that the companies you know Yeah, it's, sorry, you broke up there at the end. Do you have another? No, no, that's all. I was just trying to understand what the reasonable valuation multiple. Yeah, well, I mean, Maybe I can answer it this way. I can tell you what an unreasonable valuation is. And that's where we were. We're sellers. We're looking at multiples that didn't make any sense and would have taken

um, 50 years for us to, uh, to get a return on that investment. That makes no sense. And, uh, and, uh, that's where a lot of these sellers were. They were, um, uh, what you saw is some of these digital transformation companies just had outsides multiples. It didn't make a whole lot of sense. Um, at least in the context of a, of a CGI in our discipline. And that is, is not where it is. Our historic Steve, um, is somewhere between one time, one time, maybe a little under one time, a little over one time revenue, depending on the margin of the asset.

But that's where we see more leaseable in the next year.

That's all for me. Thank you so much, and congratulations on this. It was great working with you.

Thanks a lot, Danielle.

And I'm going to call back over to Kevin Lender for closing remarks.

Thank you, Julie, and thanks, everyone. for participating.

As a reminder, a replay of the call will be available either via our website or by dialing 1-877-674-7070 and using the passcode 875394. 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 1-905-973-8363. Thanks again everyone and look forward to speaking soon.

This concludes today's conference call. You may disconnect. Thank you.