CGI Inc.

Good morning, ladies and gentlemen. Welcome to CGI's second quarter fiscal 2025 conference call. And I would like to turn the meeting over to Mr. Kevin Linder, SVP of Investor Relations. Please go ahead, sir.

Thank you, Sylvie, and good morning. With me to discuss CGI's second quarter fiscal 2025 results are Francois Boulanger, our president and CEO, and Steve Perron, executive vice president and CFO. This call is being broadcast on cgi.com and recorded live at 9 a.m eastern time on Wednesday, April 30th, 2025. Supplemental slides as well as a press release we issued earlier this morning are available for download along with our Q2 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. Now I'll turn the call over to Steve to review our Q2 financial results. Steve.

Thank you, Kevin, and good day, everyone. CGI continued to operate with discipline in our second quarter of fiscal 2025. In Q2, we delivered $4 billion of revenue, up 7.6% year over year, or up 3.3% when excluding the impact of foreign exchange. Growth was mainly driven by recent business acquisitions, partially offset by one less available day to bill in most segments, equating to approximately 0.8%. In constant currency, the CGI client proximity segments with strongest growth were UK and Australia at 12.1%, which includes just over one month of BJSS revenue. And across our US segments, combined growth was 7.2%, primarily driven by our Aon and Doherty merger investments. Geographically, our North American operation grew at 6.4%. In Europe, our operation grew at 0.7% given softer market conditions, particularly in the manufacturing sector. And demand remains strong for global delivery, specifically our Asia-Pacific operation with revenue up 6.8%. From an industry perspective, Constant currency revenue growth was led by government at 6.5% and financial services at 6.1%, partially offset by continued softness in continental Europe, particularly in the MRD and telecommunications sectors. IP revenue grew in five of our eight proximity segments on the strength of continued client interest for our business solution. IP represented 21.5% of total revenue, down 90 basis points year-over-year due to the dilutive impact of recent business acquisitions. In Q2, bookings were $4.5 billion for a book-to-bill ratio of 112%. Book-to-bill was strong in North America at 124%. Europe was 101%. When looking at service type, book-to-bill ratios were 122% for managed services and 98% for business and strategic IT consulting and system integration. On a trading 12-month basis, book-to-bill ratios for North America and Europe were 111% and 110% respectively. On the same basis, Managed services had a book-to-bill ratio of 122% and the SINC book-to-bill ratio was 97%. Our global backlog reached $31 billion, or two times revenue. Turning to profitability. Adjusted EBIT in the quarter was $666 million, up 5.9% year over year, for a margin of 16.5%. Earnings before income taxes were $583 million, for a margin of 14.5%, down 90 basis points year over year, mainly due to restructuring and acquisition-related costs. Our effective tax rate in the quarter was 26.2%, stable compared to last year, and we expect our tax rate for future quarters to be in the range of 25.5% to 26.5%. Adjusted net earnings were $481 million, up $21 million year over year, for a margin of 11.9%. On the same basis, diluted EPS was $2.12, an accretion of 7.6% when compared to Q2 last year. Net earnings were $430 million for a margin of 10.7%. Diluted EPS was $1.89, representing an increase of 3.3% year over year. We remain in constant dialogue with our clients regarding the evolving business dynamics they are facing. To remain strong, we regularly assess these dynamics and take proactive actions to expand shareholder value for the benefit of our stakeholders, namely our shareholders. As such, CGI increased the scope of our previously announced restructuring program, most of which continues to be targeted within our continental Europe operations. In the quarter, we incurred $44 million of costs and we expect to incur an additional $137 million to implement these actions over the next few quarters. These actions will impact approximately 1.5% of CGI employees. As always, we will treat those impacted fairly and with respect. Turning to cash, we generated $438 million in our cash from operation representing 11% of total revenue unfavorably impacted by $101 million in restructuring and business acquisition-related payments. DSO was 40 days in the quarter, identical to last year. In Q2, we invested $100 billion into our business, including in AI, $1.56 billion for business acquisitions, $345 million to buy back our stock and return $34 million to our shareholders under our dividend program. We continue to deliver a strong return on invested capital at 15.4%, down 50 basis points year over year, mainly as a result of the capital allocated to recent business acquisitions, which are in the process of being integrated. Yesterday, our Board of Directors approved a quarterly cash dividend of 15 cents per share. This dividend is payable on June 20, 2025 to shareholders of records as of the close of business on May 16, 2025. As communicated in the past and consistent with our profitable growth strategy, CGI's capital allocation priorities remain focused on investing back in the business and pursuing accretive acquisitions. Now, I will turn the call over to Francois to further discuss the insights on the quarter, as well as the outlook for our business and markets. Francois?

Thank you, Steve, and good morning, everyone. I am pleased with our team's disciplined execution of our profitable growth strategy during the second quarter and throughout the first half of the fiscal year. Our operational rigor again enabled us to deliver solid results in the quarter, underscoring CGI's resilience as many clients began to navigate a more unpredictable business environment compared to the first quarter. Today, I will focus our performance for the first half of the year, the current market environment, and the outlook. Year over year, for the first half of 2025, Revenue was up 6.3% or 3% on a constant currency basis to more than $7.8 billion. Adjusted EBIT was up 5.3% to $1.28 billion. Adjusted EPS was up 7.4% to $4.08. And on a trailing 12-month basis, cash from operations totaled over $2.2 billion, up nearly $100 million compared to the previous year. Given the ongoing strength of our balance sheet and confidence in CGI's positioning as a trusted partner during all economic cycles, we invested $2.3 billion during the first half, including $183 million invested back into the business to drive future growth. $1.6 billion toward business acquisitions, $498 million for share repurchase, and $68 million returned to shareholders through our dividend program. Our capital allocation priorities remain focused on progressing our build and buy profitable growth strategy. By continuing to reinvest in our business, We are expanding our portfolio of in-demand offerings in areas such as AI and generative AI, cybersecurity, cloud, and IT services. By furthering our M&A strategy, we are expanding and deepening CGI's local presence in key metro markets around the world. In the second quarter, we completed three acquisitions. BJSS to expand our UK-wide presence in commercial industries, such as financial services, and to deepen our presence in government. Novatec to expand our presence in Germany and Spain across commercial industries, including financial services. And Momentum Technologies to grow our public sector presence in Quebec City. I would like to warmly welcome their nearly 3,000 new consultants who joined CGI from these mergers. Additionally, at the end of the quarter, we announced an exclusivity agreement to acquire APSID, a leading AI, cloud engineering, and digital services firm headquartered in France. Upon successful closing, which is expected in June, more than 2,500 professionals would join CGI, deepening our local presence in France, Canada, Portugal, Belgium, Morocco, and Switzerland. Following the successful closing of Ex-Ed, the five mergers we announced this fiscal year will increase the total number of metro markets where CGI is at scale. This is a critical element of CGI's growth strategy to ensure we are in proximity with existing and new clients to understand and adapt to their needs. To progress our profitable growth strategy, we will continue to prioritize investments aimed at building critical mass in key metro markets in all CGI geographies. We remain in dialogue with a number of firms, both metro market and transformational opportunities. As always, we will be disciplined to ensure that mergers will be accretive to each of our stakeholders. Turning now to the market environment, starting with bookings. CGI ended the first half with bookings of $8.6 billion, up $700 million year-over-year. This was driven by expanded modernization projects, which help clients realize operational efficiencies, notably through managed services and IP. For the first half, managed services bookings exceeded $5 billion, up 21% year-over-year. Additionally, in Q2, IP solutions designed to help clients achieve business objectives drove 134% IP book to bill. From an industry perspective, we saw strength in financial services with 157% book to bill and government at 108%. Globally, we continue to see early signs in Q2 of renewed client spending in the banking sector. banks remain focused on modernizing core systems and processes through managed services in IP. Government awards were notable in local government, particularly for our industry-leading IP solutions, which embed AI, data privacy, and cybersecurity. Representative client wins in the second quarter included The State of California awarded CGIUS a seven-year, $524 million engagement to modernize and unify its payroll and HR systems through the implementation of the CGI Advantage platform. The European Space Agency selected CGI Germany to develop advanced AI solutions to automate and streamline satellite mission operations. CGI consultants will combine domain expertise with AI models to help the agency optimize mission planning and bring satellites to orbit faster and with greater precision. A leading US financial institution expanded their strategic partnership with CGI to establish a dedicated global capability center in India. The GCC will help accelerate the bank's capacity to launch innovative offerings leverage AI solutions for business outcomes, and improve scalability and access to talent. This agreement underscores CGI's deep expertise and value-added solutions for consumer lending, trade finance, and capital markets. And one of the largest retail banks in France selected CGI's dynamic process 360 platform to serve as a core technology supporting their digital transformation. This CGI IP helps organizations data size and streamline their end-to-end business processes so they can operate more efficiently. Over the past few months, there has been an uptick in uncertainty as clients globally consider the implications of macroeconomic and geopolitical dynamics, most notably related to tariffs. Across industries, our clients are navigating a fast-changing and challenging business environment. Many clients are balancing strategic caution with operational urgency. This dual business agenda is not new, but the pace and intensity of change has accelerated, and it's shaping the IT priorities and investments. Despite this cautionary approach across some industries and client organizations, overall client interest remains strong for CGI's managed services, which help clients realize cost saving and drive business transformation. As a result, the pipeline of managed services opportunities is up by more than 15% compared to this time last year. Specific to our U.S. federal operations, For more than 40 years, CGI Federal has supported U.S. government agencies in using technology and innovation to achieve efficiencies and deliver outcomes aligned to their missions. In line with recent administration initiatives, we are collaborating closely with our clients to provide all requested inputs on our current state portfolio of projects. More importantly, our team is proposing bold ideas to help the client and the administration achieve additional cost efficiencies, including through the use of commercial approaches, emerging technologies, and outcome-based contracting. For context, CGI Federal constituted 14% of our global revenue in fiscal 2024. The vast majority of this revenue is earned from IT and business process services much of which uses CGI IP, such as Momentum. And just 2% of our federal revenue is derived from discrete consulting services. We remain well positioned as a strategic partner for helping the U.S. administration achieve their objectives. In fact, this month, the Federal Aviation Administration announced that CGI Federal was selected to develop deliver and operate a modernized notice to airmen or NOTAM system. This critical system communicates more than 4 million temporary changes annually to pilots and flight planners in areas such as runway closures and airspace restrictions. CGI Federal also has extensive experience in building systems that foster transparency and prevent fraud. In line with the administration's priorities, we announced earlier this week the launch of a new government-wide platform to help federal agencies detect and prevent potential improper payments before they happen. This new platform brings together real-time risk identification, AI-powered predictive analytics, and robust core financial integration. We remain fully committed to helping our government clients in the US and around the world deliver the right technology services to enable more efficient and effective delivery of government services to taxpayers. As we look to the second half of the year, client demand across geographies and industries is strong for digital transformation, even with the cautionary approaches clients are currently taking. Technology remains at the heart of achieving the objectives of companies and governments. In particular, demand for modernization, data, cybersecurity, and AI are viewed as more important than ever to helping clients achieve their ambitions. These overarching findings are part of the early insights we identify from our discussion our leaders held during Q2 with more than 1,800 client executives as part of our annual planning. I would like to share three insights we see shaping client demand in the near term. First, the evolution of industry value chains continues to accelerate. Three quarters of executives see their industries being reshaped by digitization. And over half said that macro trends are highly impacted their business models, which is requiring new approaches to value creation. The second finding reveals that structural constraints are hindering tangible ROI from digitization. Globally, only 35% of executives stated their digital implementations are achieving the ROI they expected, essentially flat compared to last year. Nearly half of executives noted that the complexity of legacy systems and processes are slowing the adoption of emerging technologies and limiting measurable outcomes. Lastly, executives are exploring how they will advance transformation. Many executives are rethinking how their organization will deliver transformation, moving more toward managed services and ecosystem partnerships. Naturally, AI continues to be viewed as a key lever for driving this innovation. Compared to last year, more organizations are implementing traditional and generative AI. Overall, however, the maturity of AI adoption remains in early stages. The clear takeaway from these findings is that the shift toward outcome-focused delivery is a permanent one and represents significant opportunities for CGI. Again, the backdrop of the challenging business environment, many clients are seeking fewer partners who can bring not just technical expertise, but industry context, business alignment, and operational scale, including flexible managed services capabilities. CGI is this partner. Our combination of local relationships and global scale with deep industry expertise and end-to-end offerings enables clients to achieve tangible business outcomes. Our robust managed services and IP solutions, particularly in modernization and AI integrations, are outcome focused and help clients to close the gap from the strategy to execution through tailored transformation strategies. CGI roles as a digital transformation partner to clients has never been more vital. Thank you to our now 94,000 CGI partners around the world for your continued commitment to the success of our clients. In closing, we have a resilient model with a diversified mix of geographies, economic sectors, and end-to-end services and solutions to enable profitable growth now and in the future. We have world-class talent with deep understanding of our industry domains and expertise in technologies. We have proven value propositions and trusted relationships that are well aligned to evolving client demand. We have a proven track record for operational excellence and for tracking and for taking proactive actions to expand shareholder value. And we have a strong balance sheet to execute on our capital allocation priorities to advance our build and buy profitable growth strategy. Thank you for your interest and support. Let's go to the question now, Kevin.

Sylvie, we can now poll for questions, please.

Thank you, sir. Ladies and gentlemen, if you do have any questions, please press star followed by one on your touchtone phone. You will hear a prompt that your hand has been raised. But should you decide to decline from the polling process, please press star followed by two. And if you're using a speakerphone, you will need to lift the handset first before pressing any keys. Please go ahead and press star one now if you have any questions. First question will be from Stephanie Price at CIBC. Please go ahead. Hi, good morning.

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

Yeah, so thanks, Stephanie, for the question. So what do we see on the bookings, if we're talking bookings? For sure, you saw the booking. We're at 40% book-to-bill. What's happening is that instead of signing a renewal, a five-year renewal or three years renewal, what's happening is that they'll sign bridge contracts to continue their work, right, but not necessarily doing big, renewal until they'll have a better understanding on the new processes and the new way that they would procure in the future. So that's really what we see. But as I indicated, when it's time, you know, they don't have any a choice to sign new projects, they will sign it, like I was talking about the NOTAM system and the new platform for fraud detection. At some point in time, they need to move on, and especially if it's bringing outcome-based objectives that they wanted to achieve, they will continue to buy.

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

No, even year-over-year, my understanding, Steve, the ESO did drop.

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

Great. Thank you very much.

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

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

It's not just tariff, but it's the overall environment and where we're going. Because we saw in some places, for example in Europe, even before the tariff discussion, especially in industry like manufacturing, They were seeing sign of slowdown in the market and all that. They had some cost pressure already to manage. So they had tendency to wait a bit where the environment or where the economy would go before, especially on the short term. projects, right, the ASINC project, consulting, so consulting slowdown and some of the project implementation. But on the other side, right, on the managed services, it was always still relevant and understanding how we can help them in the cost-saving side. So that's how we sign some large deal like I was saying last quarter with Volkswagen on the outsourcing side or the managed services side. So it's really when they'll see some sign of not recovery, but at least more certainty about the market, they will come back in the market. And we saw an example in the financial sector. We are seeing growth in the financial sector. It came back, especially in Canada with the rates that went down, and we saw some good growth on that sector. And so other sectors will naturally wait to see how, when the market will come back.

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

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

And just the last one for me, is there a certain target of capital you want to deploy on acquisitions here over the next 12 months?

Like I'm saying, you know, we are generating, you know, $2 billion of cash. We're, you know, free cash flow of $1.6, $1.7 billion of free cash flow. And as you know, so we are also very low on the leverage side. So we have the capabilities of, again, continue to do more acquisition and even transformational one.

Okay, great. Thank you.

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

Hey, thank you. I want to ask about the acquisition, so BJSS and Doherty. Can I say they are mostly SIMC versus managed service?

Yes. Both of them are way more SINC than managed services. And that, you know, when I was talking about the example on the M&A, that's clear example. I'll take BJSS, great company with great relationship in the in the UK, but, you know, they were stuck on just capable of delivering SINC, and some of their clients were asking for managed services capabilities that they were not able to deliver. And now, since they are with us at NCGI, now they can present. managed services as one of their offering and already we see some momentum and good meetings with clients where we're showcasing these activities. A lot of these BJSS clients and same thing for Doherty, we were able to bring them to India and see our capabilities there. And they were already very impressed with what we have. So again, nothing signed yet, but that's the kind of strategy that we have when we're buying these, I would say, you know, larger companies, you know, 1,500, 2,500 in the case of BJSS, you know, size company where they have good relationship and now we can sell a lot more in these companies.

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

Harvey, I would need you to look. We're not at that level of detail, but I would say to you that, you know, for sure, managed services overall, we had a book to bill in what, Steve? 122. 122 book to bill for managed services overall, and just below one overall for SINC. Okay.

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

Yeah, for sure. For sure they had bookings and it did contribute, but I'll take BJSS. BJSS is only one month, right? So we have only one month of booking on BJSS. But Doherty, we have a full quarter of bookings coming from Doherty. Okay, got it.

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

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

You can see in the MD&A the margin that we're making in the in in europe uh obviously uh we want to grow that and and that's why we're taking the the action uh we want to make sure that you know we we are a strong company and and we want to make sure that they they come back with uh with a higher margin than right now what they can achieve.

And take the Scandinavian one. We did some of the restructuring already in the last couple of quarters and you see a good uplift. on the EBIT margin?

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

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

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

Yeah, no, you're touching it. It's really in the SINC and the business consulting side also. It's continued to be soft on that side. And so we decided that we needed to do a bigger program to be sure that we are improving the utilization in these countries. So that's really why we're doing it. And at the same time, also, it's not just to improve the utilization, but we are doing more and more and more with some of the automation on some of the SG&A. So we will have also some restructuring in the SG&A area because, again, versus some of our investment that we did, for example, with the use of AI.

that's helpful and then related to that any color on just how we think about the demand for where delivery services are one of the things that kind of came out of the pandemic was is companies maybe focus a bit more on cost obviously you're seeing some benefits within the managed services but for SIP projects, are they then asking for more offshore delivery? Or how should we think about that dynamic is on the cost conscious?

Yeah, that's a good question. You saw the growth in India, we continue to grow rapidly in India faster than anywhere else. And for sure, it's not just It's not just for managed services, but it's also for SIMC. And it's not just because of cost. Yes, cost is a portion of it, but it's also for talent. And that's also a place where we have a lot of talent, and we are using that talent to deliver across the world. So, yes, it's cost, but it's also expertise that we still have a lot of expertise in India, and we're using a lot of India for delivering all line of business.

And I think I'll leave it there. Okay, thanks very much.

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

Hi, good morning. Francois, maybe just to clarify a point. As of right now, have there been any meaningful contract cancellations or non-rules in US federal or nothing of that nature to go out?

Nothing meaningful that happened on that side, no.

Okay. And U.S. state, is that looking status quo, or have you seen any change in demand with the new administration at the federal level, anything happening on the state side? On the State Department level? No, sorry, that's states per se. Like just given that there's, you know, the U.S. federal government's obviously, you know, changing education.

Okay, the state and locals. No, we didn't see, no. And like I was indicating, we just signed a 500 million U.S. deal with the state of California. And so, no, it's still pretty good on that side, for sure. They're looking at solutions for cost savings like anything else. And so, you know, that's what we're talking with them. But for now, the states and locals are still continue to spend, and we don't see a slowdown on that side.

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

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

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

Oh, thanks very much and good morning. Just a question on the... Good morning. Just a question on the timeframe for the ramp in managed services bookings to lead to revenue growth. Is it a couple of quarters before you expect revenue from these new bookings or just given the environment, you know, our customers signing, but then there's a longer timeframe to actually deploy?

No, I would say a couple of quarters is making sense. It's always depending from one to the other, but on average, I would say that's a good average. And some of them in the past did finish already now, and we are seeing growth because, again, managed services, we are seeing the growth. year over year, coming from managed services. So, and, you know, example, the two that I talked about, about the large bank in the US, And even the one that, because to a certain point, it's a long-term contract with the state of California. You know, you'll see that example state of California, we already started the work. So, we'll see some growth coming from these acquisitions or these contracts in the next couple of quarters.

Could you speak to the relationship between SIMC and managed services in terms of, you know, are they completely independent or do you see, you know, with the slowdown in SIMC, is that a leading indicator that there may be headwinds facing managed services at some point in the future? Like is the SIMC in preparation in any way for future managed services or are they completely independent?

Not at all. For me, they're completely independent because, again, even I would say in a time like today where, yes, we have some headwinds coming from SINC and especially on the consulting side, on the contrary, on the managed services, it's very active. And, you know, the client always, and, you know, I did the tour of Europe a couple of months ago. Every client wants to understand how we can help them to improve their bottom line and reduce costs. And that's always relevant. And so they will listen to the offering that we have on that site. Thanks for taking the questions.

Next question will be from Divya Goyal at Scotiabank. Please go ahead. Good morning, everyone.

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

Some of it, yes, we're offshoring more. And that's true, especially on the SG&A side, because we are also doing some restructuring on the SG&A. And what I'm saying, yeah, across the world. And some of that exercise will be to move more of of these SG&E to India, for example, and Asia-Pac. Some is also related to some automation that we're doing more, and that's done with our Indian teams. But some of it is also just to improve the utilization, for example, in some of the countries where they're doing, let's say, more business consulting, for example, and with the slowdown that we saw, you know, it's putting pressure on their utilization rates, and we need to do some action there to improve.

Sounds good. On the U.S. front, and specifically the U.S. federal front, the company Aon acquired, it was a pretty interesting acquisition. How are you seeing that acquisition or the results of the acquisition trending currently, given all that's going on with Doge and broader U.S. federal and the tariff-related concerns across U.S.? ?

Yeah, thanks, Delia. Aon is a great acquisition in the defense sector in the U.S. federal, and that's a sector that we don't see necessarily slow down on that side. And that's true for U.S. federal, and it's true across the world. We are seeing in governments across the world more investment that will be done in the defense sector. And so, you know, that's opportunities for us. Naturally, we're not in the front line, but we are in the back office of a lot of these defense ministries across the world, including U.S. And that's why we did the acquisition of Aon. And we're seeing that we'll have good opportunities in the future in the defense side.

Thank you so much. And my last question, just on M&A, you briefly mentioned, and I know you've said this in the past, that you would continue to look at potential transformative acquisitions. Is there a certain geography or a capability set that you have in mind when you're looking at acquisitions? specifically on the transformative, it would have to be a pretty sizable acquisition if you were to do that. So what is the thought process on that front? And that'll be it for me. Thank you.

Yeah, okay, thanks, David. For sure, on the transformational side, you know, and again, we're not, you know, we will look at all the industries, all the geographies, but for sure, you know, the sweet spot would be in the U.S., especially U.S. commercial. That would be a sweet spot if we can find a more transformational one and that side. Germany is another one that would be a good sweet spot to find a transformational one. But again, we will look at all the assets and potential assets across the world to see if we can bring a very good return on a transformational one and other geography naturally we'll look at it also.

Thanks, Francois.

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

Hi, good morning. I think I've heard you mention utilization more times in this call than recently. And so maybe some commentary around utilization where you think the trend is there. Is it possible, or maybe we talked about the difference in utilization across managed services and consulting, whether that's utilization that could be portable, can you, in a slowdown in consulting, can you move people into managed services? um and um and then maybe if you could just broaden that out just on the other near-term headwinds on margins how we how we should think about that because it seems as though there may be higher pricing pressure and maybe some margin pressure from reason m a if you just you know wrap that into a margin outlook for the near term that'd be helpful

Okay, thanks, Robert, for the question. Yeah, first of all, you're right. We are looking every time to see how we can move people from SINC to managed services when it's feasible, naturally. So, when we're looking at utilization, yes, we have some soft spot in some area, like I was saying in continental Europe, but it's not stopping us that we are looking at it globally. and seeing how we can move some people from one place to the other to fulfill needs from clients. As for margin, for sure, again, on the short term, we have some tailwind and headwinds. Like you're saying, we did several M&A acquisitions, so naturally we need to integrate them in CGI, and sometimes it's taking some time to improve their EBIT margin to the level or the standard of CGI, and that can take several quarters to come to that. On the restructuring, again, in some countries, it's taking a certain time to action these restructurings. So it will take some places a couple of quarters. So I would say that you can't see an improvement on on the ebit margin but not necessarily in a very short term but i would continue to say that in the medium term you know we all we want to improve some of these ebit margins in europe and bring it back on their historical uh margin that they had in the past but we need to go through these actions before okay thanks and then for a second question uh when you're talking about takeaways from customer

discussions, you highlighted more focus on outcome focused delivery. And you also mentioned, I think it was related to US Federal. I think you mentioned maybe a subtle shift towards outcome based contracting. And is there a change in the way US Federal is looking at contracting based on pricing related to outcomes and how that might change CGI if that's in any way a large factor here? And then I'll pass the line.

Yeah. No, thanks. No, it's a good question. You know, we have already just perhaps over the 50% of our contract with the federal government that's outcome-based contracting. And again, our understanding is that they want to push more on that level, right? So as you know, also one of the contracting methods that they have is cost plus. And what we're hearing at least and understanding with their discussion is that they would like to move out of these Cost Plus contracts. How easy it will happen or how fast it will happen, I don't know. But that's really, and that's the focus of DOGE. DOGE wants to go more and more and more on outcome-based contracting. We don't have any issue with that approach. We like even that approach because it's a share benefit approach when we're doing that kind. And that's really what they want to achieve. So that's the kind of conversation we have with them. and that will continue in the future. And again, we're not afraid, and I think that's the right way of going anyway. Okay, thanks. I'll pass the line.

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

Certainly. Our next question then will be from Jérôme Dubreuil at Desjardins.

First question is on the bookings. They were strong in the context. And I'm looking to find more about the average duration of contracts as a whole. You talked about it for the U.S. federal side. So maybe a similar line of thought as Paul had. I'm looking for a color on what bookings means for your future revenue plans. So are the stronger bookings maybe in part due to longer duration of contracts, any color that would be helpful?

For sure. We have a multiyear contract. Like I was saying, the large bank in the U.S., the state of California, is a multiyear contract. And like I was saying also on the federal side, the federal side where they had multiyears in the past, and I'm not saying they won't come back to multiyears, but in this environment, It's mostly bridge contract that we sign, a lot of bridge contract. I'll sign a couple of larger ones, but a lot of bridge contract. So as you know, Jerome, managed services will have tendency to be multi-year contract versus SINC will be shorter term contracting.

Thank you. Follow up for me. In terms of maybe, I don't know if you want to call it sovereign AI or just hosting more data in local countries out of the U.S., I think infrastructure is not necessarily your favorite business to invest in. I wonder if this is different this time, if governments or local corporations are trying to diversify their source of data. Is this a potential area of attractive business for you?

Very good question, Jérôme. We had always had some infrastructure business. Yes, it shrank a lot in the last several years, but we're still at 10-ish percent of infrastructure business. We're offering our IP on a SaaS model on our premises and in public cloud. And we're still having some full managed services where we are doing the infrastructure business also for our clients. For sure, you're right. That's a lot more discussion about data sovereignty and digital sovereignty. And for sure, we'll stay close to this. And if it's asking us, because again, we'll always be close to our clients. And if our clients ask more on-prem services, we will be there to support them.

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

wow that's that's a good way of trying that's a new one right like i won't give guidance that's for sure uh you know the the if i would say from q1 to q2 You know, a lot of things happen, right? You know, when we talk at the end of January versus some discussion didn't happen or some macro trend or macro dynamic were not there necessarily or I was not looking at them like that at the end of January. It's a dynamic environment, so it's moving pretty very fast. And so that's why also we don't want to give guidance because, again, it's very difficult to do that. But, again, at the end of the day, you know, we have a lot of opportunities that we're working on. And a lot of, you know, we have a lot of, yeah, discussion with clients, and we can see a lot of opportunities on the market. Appreciate it. Merci beaucoup.

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

Thanks, everyone, for participating. And as a reminder, a replay of the call will be available either via our website or by dialing 1-888-660-6264 and using the passcode 95409. As well, a podcast on this call will be available for download within a few hours. Follow-up questions can be directed to me at 1905.

973-8363 thanks again everyone and look forward to speaking soon thank you sir ladies and gentlemen this does indeed conclude your conference call for today once again thank you for attending and at this time we do ask that you please disconnect your lines