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01/11 04:45
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call reveals strong financial performance, strategic growth through acquisitions, and a positive outlook on AI investments and partnerships. Despite challenges in separating organic from acquisition growth and some regional headwinds, CGI's focus on modernization and client-centric approach is promising. The Q&A session highlights optimism in partnerships and AI as competitive advantages, with ongoing share buybacks adding further investor confidence. Overall, the sentiment leans positive, with expectations of continued growth and strategic investments driving stock price upwards.
Revenue $4.1 billion, up 11.4% year-over-year or up 7% excluding the impact of foreign exchange. Growth was mainly driven by recent business acquisitions and continued momentum in the financial services sector.
Adjusted EBIT $666 million, up 10.5% year-over-year for a margin of 16.3%, down 10 basis points due to the impact of recent mergers, which are in the process of being integrated.
Adjusted Net Earnings $470 million, up $30 million year-over-year for a margin of 11.5%.
Diluted EPS $2.10, an accretion of 10% compared to Q3 last year.
Net Earnings $409 million for a margin of 10%, impacted by restructuring and acquisition-related costs in the quarter.
Cash from Operations $487 million, representing 11.9% of total revenue, impacted by $97 million in restructuring, acquisition, and related integration payments.
DSO (Days Sales Outstanding) 43 days in the quarter, 2 days better than the target, compared to 42 days in the prior year.
Year-to-Date Revenue $11.9 billion, up 8% or 4.4% on a constant currency basis.
Year-to-Date Adjusted EBIT $1.9 billion, up 7%.
Year-to-Date Adjusted EPS $6.18, up 8.4%.
Trailing 12-Month Cash from Operations $2.2 billion.
CGI SpeedOps: A new platform launched globally to digitize and optimize business processes for commercial clients and governments. It can deliver sustainable double-digit efficiency improvements when combined with CGI's managed services and broader process automation initiatives.
Geographic Revenue Growth: Revenue growth was balanced with North American operations at 7.4% and European segments at 6.6%. Strong growth in the U.K. and Australia at 37% due to the BJSS acquisition. U.S. segments grew by 9% driven by Aeyon and Daugherty mergers.
Sector-Specific Growth: Financial services led with 9.6% growth, followed by government at 8.7%. Demand remained strong in Asia Pacific offshore delivery with revenue up 6.4%.
AI Integration: Invested in integrating AI and generative AI into offerings and delivery. AI now drives 40% of CGI's overall IP base revenue. Examples include AI-powered solutions for insurance firms, energy grids, and health regions.
Managed Services Pipeline: Pipeline is up by more than 20% year-over-year, with increases across all major industry sectors.
Build and Buy Strategy: Continued focus on accretive mergers and acquisitions, including the integration of recent mergers like BJSS, Aeyon, and Daugherty. Actively pursuing additional merger targets.
AI Governance: Leading in responsible AI governance through initiatives like the European AI Act pledge and collaborations with government and industry programs in the U.S., Canada, and the U.K.
Macroeconomic Uncertainty: The timing of client decisions, particularly for larger enterprise engagements, is being impacted by macroeconomic uncertainty, which could delay revenue realization.
Softness in Continental Europe: Continued softness in the Continental Europe market, particularly in the MRD sector, is negatively affecting revenue growth in the region.
U.S. Federal Operations: Overall procurement volumes and contract values in U.S. federal operations are down compared to historical levels, though there are early signs of stabilization.
Restructuring and Acquisition Costs: The company incurred $84 million in restructuring and acquisition-related costs in the quarter, with an additional $100 million expected for the remainder of 2025, impacting profitability.
Integration of Recent Mergers: The integration of recent mergers is ongoing and has contributed to a 10 basis point decline in adjusted EBIT margin.
Dilutive Effect of Recent Acquisitions: Recent business acquisitions have had a dilutive effect on IP revenue, which could impact overall revenue growth.
Regulatory and Compliance Processes: The company is still working through regulatory and compliance processes to close the merger with Apside, which could delay strategic objectives.
Client Spending in Financial Services: While there are signs of renewed client spending in the financial services sector, the overall pace of spending remains uncertain.
Supply Chain and Resource Allocation: The company is making targeted investments in talent and offerings, including AI, which could strain resources if not managed effectively.
Future tax rate expectations: The company expects its tax rate for future quarters to be in the range of 25.5% to 26.5%.
Restructuring program costs: The company expects to incur approximately $100 million to complete its restructuring program over the remainder of calendar 2025.
Capital allocation priorities: CGI has $2.7 billion in capital resources readily available and plans to focus on investing back in the business and pursuing accretive acquisitions.
Client spending trends: The company observes signs of renewed client spending in banking and the broader financial services sector, with year-over-year bookings up by more than $400 million. Government sector demand remains strong, with a Q3 book-to-bill of 112%.
U.S. federal operations outlook: While overall procurement volumes and contract values are down compared to historical levels, there are early signs of stabilization in this segment.
Managed services pipeline: The managed services pipeline is up by more than 20% year-over-year, with increases across all major industry sectors.
SI&C opportunities pipeline: The pipeline of SI&C opportunities is up by more than 20% across government, the space sector, and several commercial industries compared to this time last year.
IP pipeline growth: The IP pipeline is up more than 10% year-over-year, with significant increases in solutions that accelerate AI-based automation, application monetization, and cloud migration.
AI integration and offerings: CGI continues to integrate AI and generative AI into its offerings and delivery, with AI now driving 40% of its overall IP base revenue. The company also launched CGI SpeedOps, a new platform to digitize and optimize business processes.
Merger and acquisition strategy: The company is finalizing recent integrations and working through regulatory processes for the merger with Apside in France. The pipeline of additional merger targets remains robust.
Dividend Program: In Q3, CGI returned $34 million to shareholders under its dividend program. On a year-to-date basis, $102 million was returned to shareholders under the dividend program. The Board of Directors approved a quarterly cash dividend of $0.15 per share, payable on September 19, 2025, to shareholders of record as of August 15, 2025.
Share Buyback Program: In Q3, CGI invested $286 million to buy back its stock. On a year-to-date basis, $784 million was spent on share buybacks.
The earnings call reflects a positive sentiment with strong financial performance, including a 29% increase in net income and growth across all segments. The Q&A highlights optimism about synergies from the RF Capital acquisition and confidence in achieving accretion sooner than expected. Although there are concerns about investment income reduction and unclear management responses, the overall outlook remains positive with favorable acquisition strategies, strong core earnings, and a robust dividend payout ratio.
The earnings call summary and Q&A indicate strong demand in AI services, growing pipelines in managed services and SI&C, and strategic M&A activities. Positive trends in revenue per employee and client spending, combined with a focus on AI and automation, suggest a favorable outlook. Concerns about the federal sector and management's vague responses on growth specifics are noted but outweighed by overall positive developments. No drastic negative factors were present, supporting a positive sentiment.
The earnings call reveals strong financial performance, strategic growth through acquisitions, and a positive outlook on AI investments and partnerships. Despite challenges in separating organic from acquisition growth and some regional headwinds, CGI's focus on modernization and client-centric approach is promising. The Q&A session highlights optimism in partnerships and AI as competitive advantages, with ongoing share buybacks adding further investor confidence. Overall, the sentiment leans positive, with expectations of continued growth and strategic investments driving stock price upwards.
The earnings call shows a mixed picture: strong financial metrics with record bookings and revenue growth, but concerns over restructuring costs and lack of guidance. The Q&A reveals uncertainties in U.S. Federal contracts and capital allocation. While acquisitions are performing well, the lack of detailed guidance and restructuring impacts create uncertainty. The positive aspects like share repurchases and dividend returns are offset by these concerns, leading to a neutral sentiment.
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