CGI Inc.

Good morning, ladies and gentlemen. Welcome to the CGI's fourth 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, Joelle, and good morning. With me to discuss CGI's fourth quarter and fiscal 2024 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, November 6, 2024. Supplemental slides, as well as a press release we issued earlier this morning, are available for download along with our fiscal 2024 MD&A, audited 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 Harbour 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. I'll now turn it over to Steve to review our Q4 financials, and then Francois will comment on our full-year performance and business and market outlook.

Steve. Thank you, Kevin, and good morning, everyone. CGI once again delivered strong results in our fourth quarter of fiscal 2024 in what continued to be a dynamic and challenging macro environment. In Q4, we delivered $3.7 billion of revenue, up 4.4% year over year, or up 2% when excluding the impact of foreign exchange. The strongest CGI segments were Northwest and Central East Europe at 7.5% constant currency growth, UK and Australia at 7.2%, Asia Pacific at 6.2%, and U.S. Federal at 5%. From an industry perspective, we continue to have the highest growth in government representing 4.7% constant currency growth this quarter. This was followed by manufacturing, retail and distribution at 3.3% driven from North America. Financial services in Europe and communications in North America remained challenged in line with the current market conditions. Our IP continued to grow at a faster pace with 3.7% constant currency growth in the quarter. As a percentage of total revenue, IP represented 22.9%, up 30 basis points year over year. In Q4, Bookings were $3.8 billion for a book-to-bill ratio of 104%. Book-to-bill ratios were 85% for business and strategic IT consulting and system integration, given the continued softness in discretionary spending, and 120% for managed services that will drive net new recurring revenue. On a trailing 12-month basis, our book-to-bill ratio was 109%. On the same basis, managed services had a book-to-bill ratio of 117% and SINC book-to-bill ratio was 100%. Our global backlog reached $28.7 billion or 1.9 times revenue, reflecting our overall business resilience. Turning to profitability, our performance this quarter once again demonstrated our operating discipline. Earnings before income taxes were $592 million for a margin of 16.2%, up 30 basis points year over year. Adjusted EBIT in the quarter was $600 million, representing a margin of 16.4%, up 10 basis points year over year. The increase is mainly due to one more available day to bill and savings generated from our cost optimization program. These were in part upset by prior year's adjustments for R&D tax credits in France and the impact of lower utilization within the financial services largely in Europe and communication and utilities in North America. Margin were strongest in the following segments. Asia Pacific at 28%, Canada at 22%, Finland, Poland, and Baltics at 19%, U.S. Federal at 18%, and U.S. Commercial and State Government at 16%. Our effective tax rate in the quarter was 26.4%, up from 25.7% last year, impacted by the tax credit adjustments and the increase in the UK statutory rate. We expect our tax rate for future quarters to be in the range of 25.5% to 26.5%. Net earnings were $436 million for a margin of 11.9% up 10 basis points year-over-year. Diluted EPS was $1.91, representing an increase of 8.5% year-over-year. When excluding specific items, net earnings were $439 million. This represents a margin of 12% stable year-over-year. On the same basis, Diluted EPS was $1.92, an accretion of 7.3% when compared to Q4 last year. In the quarter, cash provided by operating activities was $629 million, representing a strong 17.2% of total revenue. DSO was 41 days in the quarter, three days better than last year. In Q4, we used our cash to invest $82 million into our business, invest $492 million for business acquisition upon completion of the acquisition of Aon and repayment of his debt, and invest $49 million to buy back our stock. Before the end of the quarter, we issued $750 million of public Canadian senior notes. The proceeds were used to repay existing debt as planned and for general corporate purposes. We continue to deliver a strong return on invested capital at 16%, consistent with the prior year, demonstrating our proficiency and discipline on deployment of capital. At the end of the quarter, CGI had $3 billion of cash readily available and access to more if needed. As part of our profitable growth strategy, CGI capital allocation priorities remain focused on investing back in the business and pursuing accretive acquisitions. The company also has the flexibility to use a portion of its free cash flow for the repurchase of its stock and for the distribution of dividends to further enhance value for shareholders. Yesterday, CGI's Board of Directors approved a cash dividend of 15 cents per share. This dividend is payable on December 20, 2024 to shareholders of record as of the close of business on November 20, 2024. Before turning the call over to François, I would like to highlight a few adjustments that were made effective October 1st. Germany is now its own segment and our operations in Scandinavia are now combined with our Northwest and Central East Europe segment. Starting next quarter, we will begin reporting on this new structure and we will provide restated historical data at that time. Now, I will turn the call over to François to discuss the insight on the quarter and the year, as well as the outlook for our business and markets. François?

Thank you, Steve, and good morning, everyone. I am pleased to be here today to review the fiscal 2024 results achieved by our outstanding team around the world. I also want to recognize George Schindler, who retired as of October 1st, following a nearly 40-year career at CGI. Thank you, George, for your leadership in guiding our company over the past eight years as CEO, including the delivery of these strong results for fiscal 2024. CGI's performance for the year demonstrated our ability to execute on our plan in a dynamic market environment. Earnings expanded through a higher recurring revenue mix, as well as proactive operational excellence actions. Cash from operations remained robust as a result of sustained quality delivery for clients. And bookings represented 109% book-to-bill ratio for the last 12 months, with every reporting segment at or above 100% ratio. With regards to revenue, growth progressively increased in the back half of the year, ending Q4 with 4.4% year-over-year growth, or 2% on a constant currency basis. We also further our buy strategy by closing chill mergers, a meaningful acceleration over fiscal 2023. We began the year by merging with Miami-based Momentum Consulting to expand our digital and data offerings in the manufacturing, retail, and distribution sectors. In Canada, we acquired the credit union business of Celero, expanding our services to more than two-thirds of credit unions nationwide. And we acquired Aon in CGI Federal, deepening our digital and AI-based offerings for national security and civilian agency clients. I would like to warmly welcome all new consultants who join CGI from these mergers. Each year, our plans are designed to create value for all three of CGI's stakeholders. This focus on seeking the best equilibrium among our clients, our consultants, and our shareholders is fundamental to our strategy and planning. With this principle in mind, I will review the annual performance highlights by stakeholder, starting with clients. CGI's deep and trusted client relationships remain critical to our growth agenda. Again this year, client satisfaction was up on every dimension we measure. In fact, two of the highest-rated scores were related to the quality of our relationships. This includes CGI's commitment to clients as well as their intent to engage us again in the future. Both of these scores, which come from signed client assessments, were at record high levels of over 9.6 out of 10. The expertise, insights, and commitment of our consultants and professionals make this high degree of client satisfaction possible. Thank you to all team members worldwide for partnering with clients to help them achieve tangible business and mission outcomes. Now turning to our consultants and professionals. CGI's culture of ownership is unique in the market and enabled us to retain and attract the best talent. This was demonstrated this year as we saw more of our consultants and professionals become CGI shareholders, increasing from 85 to 87% year over year. This engagement as owners is why we call our employees CGI partners. Next. The overall satisfaction of our people increased again this year, now at 8.9 out of 10. This result demonstrates the deep engagement of our CGI partners. Clients continue to cite this engagement as a key factor for why our people show up differently, as an extension of their own teams. This makes a significant difference, especially as clients navigate change and prioritize their business and mission goals. Lastly, the input of our people factored into multiple third-party recognitions for CGI, such as rankings for best places to work in numerous countries and our inclusion on the Time Magazine World's Best Company list. And for our shareholders in fiscal 2024, we continue to proactively manage the fundamentals of our business to deepen our resilience and our capacity to create added value for shareholders. On a full-year basis, constant currency growth included 7.5% growth in our Northwest and Central East Europe segment, 6.1% in Asia Pacific, 4.4% in UK and Australia. And from a services perspective, 5.2% in our IP-based revenue portfolio and 3.4% in managed services. On the profitability side, we also continue to improve on a year-over-year basis with our results continuing to place us in the top quarter of our IT services peer group. Justed EBIT was up 4.5% for a margin of 16.5% up 30 basis points. Justed net earnings were up 5.1% for a 12% margin. Justed EPS was up 7.8% at $7.62. and cash generated from operations was over $2.2 billion, representing 15% of revenue. Sustained client demand for managed services and IP contributed to these strong results and also drove our total bookings. Again this year, bookings surpassed $16 billion as clients continued to turn to CGI for help in progressing their digital innovation agendas while reducing their cost base. Second half managed services bookings were particularly strong at nearly $5.3 billion, up by more than $1 billion compared to the first half of the year. This uptick was led by wins in manufacturing and government, both with second half bookings up 16% compared to H1. These larger, longer-term engagements continue to require a tailored combination of our end-to-end offerings, notably for CGI's IP solutions as well as global delivery. For examples, in Q4, the U.S. Pattern and Trademark Office awarded CGI two modernization contracts covering a range of security, efficiency, and mission-oriented services. The projects have a total potential value of 119 million U.S. dollars and expand CGI's momentum IP services to help the agency foster innovation and enable economic growth. One of the world's largest manufacturers entered into an agreement with CGI to jointly launch an international development unit based in Germany to support group-wide digital projects and support their developers in line with the company's increasing demand for software performance. Through this initiative, the client aims to develop new IT systems faster and more efficiently. CGI's architects, developers, and consultants will deliver services and solutions grounded in technology expertise and manufacturing knowledge to help the client accelerate business outcomes in line with their digitalization vision and strategy. The Department of Justice, Northern Ireland Courts, and Tribunals Service awarded CGI a 20-year agreement to serve as business transformation delivery partner. Our consultants will help modernize the justice system, enhance efficiency, and improve service access. And we entered into a new long-term agreement to transform the transaction processing function of McKinsey and Vencements. This is the latest in a series of operational enhancements McKinsey is making to further modernize and digitize its platforms and processes. As part of the new expanded relationship, McKinsey will transition the majority of its transaction processing services for account and plan administration to CGI. This will allow McKinsey to leverage CGI's innovative capabilities in redefining processes and integrating advanced levels of intelligent automation into workflows. As a result, McKinsey will be able to accelerate the speed, quality, and efficiency of its client servicing capabilities, including faster transaction times. Looking ahead, our business plan for fiscal year 2025 includes ongoing and new investments in our end-to-end services to enable our consultants to tailor the most relevant solutions for clients. These investments are aligned to the client demand we see in our pipeline, which is up 20% on a year-over-year basis across all of our services. In managed services, we will continue to evolve our partnership models backed by CGI's financial strength to create compelling offerings. This includes embedding more AI to unlock new ways to help drive efficiency and innovation for clients. CGI's managed services remain in high demand because it enables our clients to generate cost savings, deepen agility to navigate the dynamic environment, and advance their digital initiatives. For CGI, managed services deliver long-term recurring revenue, which improves our resilience through all economic cycles. For IP, we will continue to invest in our solutions portfolio to meet increasing client expectations for innovation and embedded AI functionality. In collaboration with teams around the world, we are progressing multiple generative AI proofs of concept to address common use cases across multiple IPs, including for in-demand functionality, such as recommendations on next best actions. Our IP value proposition provides clients with digital accelerators with lower capital costs. For CGI, IP provides recurring revenue with a higher margin profile. And in business and strategic IT consulting and systems integration, we will focus where discretionary spending will continue, such as advisory services in cloud, cybersecurity, and responsible use of AI. Our SINC value proposition provides clients with the actionable advice and implementation capabilities they need to realize business value. For CGI, SINC provides a client entry point which creates future opportunities to deliver CGI's full range of services. Across our portfolio of services, our business plan also incorporates investments to further our innovation agenda particularly in AI and GenAI, in line with our previously announced $1 billion AI investment. CGI remains well positioned globally as a leading trusted partner to help clients on an end-to-end basis, from defining their strategies to implementing AI-powered platforms and solutions. Our pipeline of AI opportunities continues to grow, particularly for data consulting, cloud migration, proof of concepts, and targeted use case implementation that drive business outcomes. Examples of recent awards leveraging AI include the Government of Canada selected CGI to develop and deploy a virtual assistant tool to help clear a backlog of over 200,000 payroll cases thereby reducing processing time and improving user experience. UK's network REL expanded their proof of concept for CGI's machine vision IP to enhance their operational efficiency and continuous asset monitoring. And a clean energy technology company in the US selected CGI to build a data-driven analytics platform using AI and machine learning for proactive plant monitoring and optimization. Our experts remain engaged in government initiatives around the world to reinforce CGI's commitment to responsible and ethical AI practices. In fact, during Q4, CGI signed the European Commission's AI Act Pledge to help shape the digital future of Europe. Finally, our fiscal 2024 business plan includes continued investment in M&A, to accelerate our death and breath in geographic segments. The M&A environment remains more favorable as macroeconomic and geopolitical dynamics continue to reshape the consolidation activities within the IT services industry. We are in active dialogue with a larger number of merger targets at all stages of our pipeline, and as always, we will be disciplined to make sure that all CGI mergers will be accretive to each of our stakeholders. In closing, clients across industries continue to invest in the monetization and optimization of technology in order to transform their business value chains as well as their operating models. CGI remains well positioned as one of the few leading global firms with the scale, reach, insights, and capabilities to help clients deliver the tangible business outcomes they require from their digital strategy investments. Our strong performance in fiscal 2024, combined with our resilience as a company and our proven build and buy growth strategy, underpin our plan for delivering profitable growth in the year ahead. Thank you for your continuing interest and support. Let's go to the question, Kevin.

Thank you, Francois. Joël, we can now poll for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star, followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star, followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Richard C. with National Bank Financial. Your line is now open.

Yes, thank you. With respect to your press release, you had a statement in there that seems to kind of emphasize acquisitions a bit more. That's sort of my read. Is it fair to say that you'll be more active in the next 12 months than the last 12 months when it comes to deploying capital on acquisitions here?

Like I said, the pipeline is pretty full on the M&A side. We are talking with a larger number of prospects. So it's going well on that side. But again, you know, closing them, it's a different story. You know, we need to agree on the price and it needs to make some sense for us. So, you know, like I'm saying, we have a great pipeline. We are working with several different targets. But, you know, will we come to an agreement with them? That's still in the making. But we're pretty positive on that side.

And then with respect to AI, when it comes to your pipeline, what's the mix of business that has anything sort of Gen AI tied to it? And how would that compare to, like, the prior year here?

You know, you heard about the proof of concept that we did and some of the mandates that we received, like example with the government of the federal government with the payroll cases. We have more and more of these proof of concept. And also we are using more and more AI internally also for our managed services. So that's also something we're working on. And on the IP side, we are using more and more Gen AI on our IP services. So it's increasing naturally year versus last year and the expectation that will continue in the future.

Okay. And the last one for me, as J&I does scale, what do you do in terms of kind of retraining the workforce or in your hiring practices, just trying to understand how that sort of labor market will shift and how you'll sort of get ready ahead of that transition? Yeah.

If you remember last year, I know George announced, you know, and it's already now a year in the making, you know, our billion dollars of investment in AI. And that billion of investment was, you know, also to train our people on these tools. So that's going pretty well. You know, we had some basic training for all the members, all the CGI partners in CGI, but we had also more in-depth training. training for more technical training for our developers and programmers in the company. So that's going well and that will continue in the future. And naturally on the hiring side, naturally we are hiring people with the right skills on the AI side. So no problem on this side. Okay. Thank you.

Your next question comes from Divya Goyal with Scotiabank. Your line is now open.

Good morning, everyone. Francois, or maybe Steve, either or, if you could provide a little bit more color on the bookings for this specific quarter. I noted there was slight weakness in the bookings reported this quarter. So just trying to understand what is the broader sentiment that you're seeing across the global enterprises and if there's something to call out for there.

I can start, and Steve, you can give some color also on your side. But as you know, bookings is always lumpy, and we had some contract that didn't hit the end of the quarter, but we feel that we'll have some good news again in the next couple of weeks. But, you know, I'll take the example of CGI Federal. You know, they didn't finish before. They finished below 100%. And again, you know, this year was a year of election in the U.S. Federal. So naturally, We see a tendency these years of election that, you know, the administration will slow down some of the procurement to wait to see if their priorities will change. So that's one of the impact that we saw in the quarter. I don't know, Steve, if you have other examples, but, you know, you always see some lumpiness in the election.

Yeah, and in the quarter managed services, the bookings were strong at 120%. The projects, so the SINC side was 85%, but when you look at it from a last 12-month point of view, it was 100%. So I think it's better to look at it really from a last 12-month point of view.

That's helpful. On this specific discussion on the CGI federal, that is actually an interesting topic that I'm sure you'll probably get a lot more questions on. But how do you see that part of the business generally evolve? I know in the past when George has commented on this discussion, I understand that the spending picks up early on, slows down closer to election, and then slowly picks up again. However, with this new potential government coming in, how do you see things shifting and changing? And could the tariffs potentially impact CGI negatively, if at all?

No, I don't see that. First of all, as you know, we're dealing with the federal government for 40 years, so we know the client. And I would say that every time that a change of government is happening, priorities are changing. And when priorities are changing, guess what? They need IT to achieve their business goals. So the expectation we have is that, no, we don't see any negative, even contrary. When the new administration will come in, priority will change, and we'll have a lot of discussion on how IT can help them because as you know, IT is a driver for all of this and they'll need some IT services to help them to achieve their priorities.

That's very helpful. Just one last question. The company obviously continues to generate pretty significant revenues from the government sector. Do you see that shifting at all in the near term? And if you could provide just some color on the banking and financial services sector globally, how are you seeing that? And I'll pass the line with that. Thank you.

No, government, I think, was strong in 2024, and we're seeing it continue to be strong in 2025. A lot of governments across the world are continuing to do some investments, and they need to continue. So we see that as positive. On the financial sector, it was, you know, Q4 was mostly flat. and we had some reduction at the start of the year, mostly flat now in Q4. With the rates coming down and the interest rates coming down, and with the banks that slowed down some of the discretionary expenses in the past, we feel that perhaps we can see a bounce back on that side, because again, you cannot retain these investments for a long time, so they need to invest back in their business. And so we are seeing some lights at the end of the tunnel on the financial sector side.

Thank you so much. Your next question comes from Jérôme Dubreuil with Desjardins. Your line is now open.

Thanks for taking my questions. First one is on your Microsoft practice. I might be wrong, and don't hesitate to push back on this, but we don't see you as much in Microsoft partner rankings relative to peers maybe. And this practice looks like it might be quite important in an AI world, especially AI enterprise, If you can maybe start by qualifying the relative strength of your Microsoft practice and if you think this should be a bigger focus going forward.

First of all, Microsoft is a real big partner of ours. And actually, I would say that it's the number one partner for CGI. So we have a lot of consultants having this discussion on Microsoft. And we are using their tools like Copilot that we deployed and using it on a daily basis. So that's not a problem. For sure, we need to be, as you know, our value, we have an independent value. So we are working with all of them and we're not just a Microsoft shop, but we are also using other technology. like AWS and Google. So we are capable of offering all these technologies to our clients.

That's great. Thanks. Second question on M&A. Different angle, but remember last quarter you commented on your target multiple for acquisitions of around one-turn revenue. Maybe if you can clarify this comment. It seems like it contrasts maybe a little bit with the comments you've been making on M&A today.

In terms of the comment on the pricing you mean, the one-time revenue?

Yes, correct, on the target multiples for M&A.

So look, if you look just at the recent one we did with CGI Federal Aon, You will see, and you can see it in the financial statement, you will see that we paid more than one-time revenue. So it's all relative to what you're purchasing, obviously. We have paid more than one-time revenue because we believe we can generate a good return on it. So it's all part of the return we can generate on the transaction. But no, there's not a fixed limit of one times revenue at all. In fact, Aon proves it differently because we paid more than that.

Yeah, and again, example Aon is in the federal US sector, especially in the defense side. And, you know, we thought that it was a great acquisition, and we see a lot of growth on that side and a lot of capabilities. So we were ready to pay more, and we're still thinking it will be accretive to all the stakeholders of the company.

Yeah, makes sense. Merci beaucoup.

Thanks. Thank you.

Your next question comes from Stephanie Price with CIBC. Your line is now open.

Good morning. Looking ahead to fiscal 25, hi, peers have been guiding to kind of continuation of the current demand environment. Is this reasonable based on what you're hearing from clients? It sounds like maybe you're seeing a few green shoots here. How should we think about the demand environment evolving over 2025?

Well, you know, we don't see necessarily material changes yet on the environment versus what we saw in the last quarter. I think, you know, managed services is still very strong. You know, we have and I had a lot of discussion with CEOs across the world that they are interested about, you know, finding ways to have some cost savings. So that still continues to be pretty strong on that side. But on the, as you know, on the business consulting, a bit like Steve alluded, you know, a little bit still soft on the SINC, especially in the business consulting. So that's where, you know, we still see that, you know, for now, the environment or the demand environment, it can still be a bit soft on the business consulting. So we'll be naturally close to it. But on demand services, that continue to be pretty strong.

That makes sense. And then maybe you could talk a little bit about the U.S. commercial and state government. It looks like the booked bill was sub 100% of both the quarter and the year. How should we think about what's going on in that vertical?

A lot of discussion, and we have large potential deals, especially on the state and local side. Again, it's a question of timing. So we have a lot of discussion. We have a lot of bids happening. But the timing of when closing them can be lumpy. And so I'm not nervous necessarily about that. And I think you'll see in the future some bounce back on that side. Same thing a bit on the financial sector. We have a big financial sector in the U.S. commercial. And, again, like I was saying, it was soft a bit on the discretionary expenses side. So now, you know, like I was saying, with the rates, interest rates going down, we think that the financial sector will start again to buy IT services in the future.

Perfect. Thank you very much.

Your next question comes from Surinder Thind with Jefferies. Your line is now open.

Thank you. I'd like to touch base on just the continued softness in the discretionary spend. Just any incremental color that you can provide there. I know that you mentioned that, you know, within the SINC that bookings can be quite lumpy, but when I actually look at the absolute dollar value, it's below anything that you guys booked even during the pandemic. So just trying to understand what's exactly going on in that line item.

I think it's two things. Like I was saying, in the financial sector where we're pretty strong in business consulting side, they slowed down in the last two years with the interest rate going up. So that had an impact to us, especially example in Europe. were pretty strong or stronger in business consulting, you know, we saw that some slowdown on the financial sector on the business consulting. So that's really where it's coming from. And, you know, we think that we're at the end of it, especially in the financial sector, but, you know, we need to see in the next couple of quarters. But it's really I would say it's the environment. And we're not the only one. You see that elsewhere, that the business consulting side can be soft. So I don't think we are different than the rest of the industry. And we'll see if it's coming back pretty soon.

And then as a follow-up here, When we think about the business model and kind of what's happened in this cycle, there has been a lot more, I would say, client focus on managing costs. Obviously, that's helped the managed services side. I guess it's been a bit more challenging for the SINC side of the equation. Given your more onshore type delivery model, if we remain in this current soft environment, is there a risk that we see below industry growth in that line item, given that your competitors arguably have a broader global delivery or lower cost footprints.

No, not at all. First of all, we have a pretty large footprint in APAC in Asia-Pacific. So we have no problem at all to take new managed services and delivering from Asia-Pac and we had some several ones assigned in the last year. So that continue to be in our offshore and global delivery model. is pretty resilient, and so we don't have any problem with that. But we still think that having, you know, our proximity model is helping to be close to our clients and having the right relationship with our clients. So I don't think and I don't see any issue with our models.

Okay, that's helpful. And then in the final question here, perhaps, following up on some of the earlier commentary around the acquisitions, at what point do you perhaps evaluate the target return on investment that you need in the sense that is it a fixed number here from an absolute perspective or when you kind of think about others in the space that have been a lot more active Is that something you need to be cognizant of as you try to perhaps build more capabilities or even if it's acquire more capabilities, whether it be in the AI space or anything like that?

but you know i'll start and stay perhaps you can uh you can put some more color but but for sure you know we always have been disciplined in in our acquisition and it needs to be accretive like i said uh for all of our stakeholders so so that's that's why you know we you know we won't buy to buy something uh but we need to believe that it will bring a return uh to the stakeholders, like I said. And so, you know, financially, but also, you know, for the clients, existing clients and new clients. So I don't know, Steve, on the financial side.

Yeah, just, you know, when we look at acquisition, yes, there is the return, but there is also the culture. We want to make sure that when we do a deal, and we like to say that one plus one equals three. We want the merger to make sense and to generate more than the standalone entities. So that's the goal. And it's not only a financial element of UCI. We're looking a lot at the culture of the company to make sure that it would match with CGI and it would be well integrated. Because, you know, when you're paying for something, you want to make sure that you're going to get ultimately the one plus one equals three. So it's... It's not only financial, it's a mix of elements, and we're, as Francois mentioned, really, really diligent. We want to make sure that the acquisition will benefit all stakeholders. Thank you.

Thank you. Next question comes from Stephen Lee with Raymond James. Your line is now open.

Thank you. Hey, François. Hey, Steve. Hi. First question is on Canadian margins. It was down quite a bit year over year. Anything changing there and can we rebound this year?

Yeah, I think we needed to do some adjustment in Q4. So, you know, we had some a bit of utilization challenges that we tackle. And so I would say that you can expect some bounce back in the future.

Okay, perfect. And, François, under the Trump administration, what are the puts and takes on some of your larger contract vehicles, like the EPA? Is it too early to tell, or can you see some offsets?

Who are they to tell? And again, I'll go back, Stephen, to the first comment I had. When you have change in the politics side, it will change, naturally, some of the priorities that they have. But we are mostly in all the agencies at the federal government, civilian side and on the defense side. So depending on the priorities, we will adjust properly. But we see that, like I was saying, change of priorities and more work for us. So I see that as an opportunity.

Got it. And then on the dividend, is there a formal dividend policy set at this point, like growing it with free cash flow every year?

No, look, you know, as you well know, the dividend, it's the responsibility ultimately of the board. Obviously, we started issuing a dividend because the board understands the value for some shareholders. And what we can say is that we will review diligently each quarter the dividend. First of all, the declaration and also the amount. And that would be done diligently. But let's remember that our priorities are in terms of cash allocation is really on growth and growth investment in the business and also in accretive M&A. And we also want to continue to be active on our share repurchase program. But we can confirm that the board obviously value and understand well the value of the dividend for the shareholders.

Got it. And then a quick one. Did you say how much AI bookings was during the quarter? I think I missed that.

no we didn't put ai and bookings again it's it's uh you know it's it's uh difficult to to uh you know understand how much booking we have we're using ai for you know for uh more and more of our projects. I think the number of projects that we're using AI went up by another 10% this quarter. And we're using it in managed services and in the SINC. So, you know, we don't have necessarily a number of bookings that we can give. Got it.

Perfect. Thank you.

Thanks.

Your next question comes from Thanos Moshopoulos with BMO Capital Markets. Your line is now open.

Hi, good morning.

Hi.

First of all, maybe expanding on the last point, can you comment just in terms of maybe some of the specific ways that you're using AI internally and the runway in terms of what that could mean for efficiency and margins? I mean, has it been mostly around cogeneration, around automating client support, or what are some of the other ways you've been using it?

We're using it naturally in our managed services with machine learning and to optimize some of our processes, IT processes. So that's bringing naturally some cost savings that we're sharing with the clients. So that's one aspect. In our IP, we are also using more and more of our AI to do some development, like you were saying, to do some testing also. So that's another way we're using AI. And I am saying we have more and more proof of concept or like I was giving the example in the speech with clients specifically where we're putting in place some AI to help them in their own automation or monitoring of asset, for example. So it's all area, and we're also using, Steve is looking at it, example on the financial, on his finance department, and the HR and the internal processes to see how we can reduce the cost.

Great. And as we think about margins heading into 2025, What are some of the puts and takes you might call out? So, on the one hand, your managed services mix is increasing, which should be helpful, I would think, for margins. On the other hand, SINC is being impacted by letter utilization. So, let's say if the spending environment remains status quo, barring an uptick, I mean, how would you think about your opportunities on the margin front?

I think when you're looking at it, you saw that in Q4, we're in some region in Europe, the margin is a bit weaker than the average of the company. So we still think there we can have some improvement year over year. So we're working with the teams to see how we can improve the margin there. So I'm positive on the margin for next year. But naturally, it depends also where the SINC will go. But, you know, I think we are capable of improving the margin if everything is going well. Great. I'll pass the line.

Thank you. Thanks. Thank you.

Your next question comes from Paul Treiber with RBC Capital Markets. Your line is now open.

Thanks very much and good morning. Just wanted to touch on M&A and the M&A environment. You mentioned it's more favorable. I was hoping if you can elaborate on that. Does that reflect the soft discretionary environment opening up potential opportunities, or is there something else that's helping the environment here?

For sure, like we know, with the SINC that is a bit softer, it's putting pressure to some of these companies. And so, some of them needs to do something and that's why we have perhaps more discussion than we had in the past. So, with this environment that we still think it can be continued for the next couple of quarters, we see that as an opportunity to have this discussion. And some of this discussion was discussion we had in the past. and actually we were not agreeing on the example on the on the price and you know now we have new discussion with the the same the same targets and the prices are are more reasonable if i can say so so so that's the kind of uh market environment that we're seeing in the m a side and we think that this will continue for for for uh for some future quarters and

Secondly, just regarding Gen AI, just hoping that you could provide an update on what you're hearing from customers in terms of the impact of Gen AI on purchasing decisions. It seems like companies are doing a lot of testing and evaluation of Gen AI. Has it changed their willingness to purchase from vendors, from IT services, or are you seeing a shift to more willingness to try to build homegrown or internal solutions? And also, where are they from a testing point of view? Are they moving past testing and starting to make deployments?

No, it's not at all. They need us to do these proof of concept, these testing. They need us to prepare their data to be capable of using the right way of AI. And they need our capabilities and our knowledge about these two. So it's really more a driver of future growth for us because, again, they need people with the right technology and the right expertise. And we have that. So that's for me more an opportunity to grow in the future than anything else. And that's what we're seeing at least now in the pipeline and all that.

Your next question comes from Robert Young with Canaccord Genuity. Your line is now open.

Good morning. Thanks for taking the question. Another M&A question. I also noted maybe a slightly higher priority on M&A and the materials and the monologue. And so maybe just, Francois, under your tenure as CEO, do you expect to put more emphasis on M&A? Do you expect to have more intensity under your tenure? Or I understand the pipeline is still very strong and active. I understand that you're going to have similar disciplines. And I understand that the valuations are likely a little more positive, but do you expect to put more emphasis there?

You know, our strategy was always the build and buy strategy, you know, and grow 50% by organic and 50% by acquisition. So it's always have been in the far front in our strategy. So, yes, I'll put a lot of focus on this. And yes, we think that the environment is pretty good for M&A. So we will be as active as possible on that side. But at the same time, we will stay disciplined and we won't buy just for buying. We need to buy the right one. But again, like Steve was saying, you know, Aon, we were ready to buy, you know, at a certain price because we thought it was the right acquisition and we'll never, you know, be shy to pay a higher price if it's making sense for us. Okay.

And then in the past, I think my sense has been that you've avoided large acquisitions where there's a large infrastructure component. I think that was because of sensitivity around the impact to your valuation. It feels like that corner of the market has a much better valuation, you know, given AI. And so is that something that you would continue to avoid, or is that something you'd be more willing to look at?

Sorry, I missed the start. You're saying on the AI side, you're saying?

No, I didn't say AI. In the past, my understanding is that you've avoided some larger acquisitions because of a large infrastructure component like data centers, et cetera. And now that that's a more highly valuable part of the market, I'm just curious if that's something that you would consider, or is that still something that you would avoid? Or am I just wrong in that assumption?

But, you know, pure infra, we would not necessarily be interested about it. We have some infrastructure business. We still have some. I would say, you know, 10% of our business is infrastructure. But buying infrastructure business only, that's not our interest. If we have a company where they have some infra, we won't be shy to look at it, but we would not buy infrastructure pure business. No interest on that side.

Okay. And then last one, just a quick one. Looking back to the last time the Trump administration came in, I remember there was a lot of pressure on H-1B. And your onshore and modeling benefited from that. Like, do you think of that as something that might repeat itself? Or are you thinking about, you know, your relative onshore-offshore mix and how that might change? And then I'll pass the line.

You know, on federal side, if I'm talking the federal business, you know, it's onshore. It's onshore. It's 100% delivered onshore. And we are also using some nearshore activities or a region like Lafayette, like southwest Virginia. So that's our model since decades to deliver, especially on the federal government side, onshore or nearshore, but in the U.S. So we didn't use offshore for that aspect of the business.

So then that would be a positive for you, right? Yeah, for sure.

Okay, thank you. Yeah, our metro market model, as you mentioned, and the delivery model we have at CJI, Obviously, as you said, if it becomes more difficult to use offshore from the U.S., obviously for us, our members are citizens of the U.S., and our partners are citizens in the U.S., and obviously it's going to be, for us, it won't create any issues.

No.

Okay, thanks. The next question comes from Sutan Sukumar with CIFL. Your line is now open.

Good morning, gents. Sutan? Yep. Good morning, gents. One question for me is on your client pipeline. I think you noted earlier in the remarks that it is up over 20% for next year across all sectors, and it seems like you're makes a net new business seems to be ticking up as well year over year. Can you speak a little bit about what's underscoring that? What verticals and capabilities are you seeing success on the new business side and who are you displacing?

You know, we're displacing. I think we're competing against, you know, all the major players. So, you know, as you know, so, you know, sometimes it can be one or the other. So we don't have necessarily one in particular that we're displacing. As for new business, you're right, you know, pretty good in the new business. And I think, you know, it's a focus that we're trying to do more and more is to win in new clients. And we think that example, you know, as you know, we won a big contract last year with Circle K on the retail side. And we continue to see retail as one area where we can win more new business because, again, they need some cost savings. and ways of reducing their cost structure. And that's what we did there. And we can showcase that to other clients. So that's our area. I think financial sector will still be pretty active on the managed services side. And so we are talking with existing but also new clients on the financial sector side to see how we can showcase our managed services and our offshore capabilities.

Okay, great. And one quick one for me. On SINC, you know, it's obviously still soft, but on a four-year basis, I think it looks relatively more resilient than some of your peers. Can you speak a little bit about what changes are you seeing in the discretionary demand picture now versus maybe a year ago? You know, any new pockets or strengths or weaknesses that you're seeing?

I would say on the strength side, for sure, AI is a place where we have a lot of consulting and ask from clients. to help them on the AI side. So that's a place where we are seeing some growth, and we think that we will continue to see some growth on that side. Other places, like I was alluding in my speech, when we talk about cybersecurity, for example, is another place where still a lot of demand on the business consulting side, how to help them with all the threats that we're seeing. in the world.

Okay. Agreed. Thank you for taking my questions. Last slide.

I don't know for the questions at this time. I will now turn the call over to Kevin for closing remarks.

Thank you, Joelle, and thanks, everyone, for participating. As a reminder, a replay of this call will be available either via our webcast or by dialing 1-888. six six zero six two six four and using the passcode two five nine eight one 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 one nine oh five nine seven three eight three six three thanks again everyone and look forward to speaking soon thank you ladies and gentlemen this concludes your conference call for today we thank you for participating and ask that you please disconnect your lines