CGI Inc. (NYSE:GIB) Q2 2025 Earnings Call Transcript

CGI Inc. (NYSE:GIB) Q2 2025 Earnings Call Transcript April 30, 2025

CGI Inc. beats earnings expectations. Reported EPS is $1.53, expectations were $1.5.

Operator: 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.

Kevin Linder: 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 30, 2025. Supplemental slides as well as the 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 SEDAR+ and EDGAR. Please note that some statements made on the call may be forward-looking. Actual events or results may differ materially from those expressed or implied, and CGI disclaims any intent or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The complete safe harbor statement is available in both our MD&A and press release as well as on cgi.com. We recommend our investors read it in its entirety. We are reporting our financial results in accordance with International Financial Reporting Standards, or IFRS. As always, we will also discuss non-GAAP performance measures, which should be viewed as supplemental. The MD&A contains definitions of each one used in our reporting. All of the dollar figures expressed on this call are Canadian, unless otherwise noted. Now I’ll turn the call over to Steve to review our Q2 financial results. Steve?

Steve Perron: 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 1 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 U.K. and Australia at 12.1%, which includes just over 1 month of BJSS revenue. And across our U.S. segments, combined growth was 7.2%, primarily driven by our Aeyon and Daugherty merger investments. Geographically, our North American operation grew at 6.4%.

In Europe, our operation grew at 0.7%, given softer market condition, 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 5 of our 8 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 trailing 12-month base, 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 SI&C book-to-bill ratio was 97%. Our global backlog reached $31 billion or 2x 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 cost, 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 million into our business, including in AI; $1.56 billion for business acquisitions; $345 million to buy back our stock; and returned $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 $0.15 per share. This dividend is payable on June 20, 2025, to shareholders of record 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?

François Boulanger: 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 3 acquisitions: BJSS to expand our U.K.-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 the 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 Apside, 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 Apside, the 5 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 and 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 project, 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 and 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 CGI U.S. a 7-year USD 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 U.S. 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 in value-added solutions for consumer lending, trade finance and capital markets. And one of the largest retail banks in France selected CGI’s DynamicProcess360 platform to serve as the core technology supporting their digital transformation. This CGI IP helps organization’s digitize and streamline their end-to-end business processes, so they can operate more efficiently. Over the past few months, there has been an uptick and uncertainty as clients globally consider their 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 uncertainty 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 savings 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 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 and modernize 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 run rate closures and aerospace 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 U.S. and around the world deliver the right technology services to enable more efficient and effective delivery of government services to taxpayer. 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 client 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 3 insights we see shaping client demand in the near term. First, the evolution of industry value chains continues to accelerate. 3/4 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 openings are hindering tangible ROI from digitization. Globally, only 35% of executives stated their digital implementations are achieving the ROI they are 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 majority 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. Against 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 integration, are outcome-focused and help clients to close the gap from the strategy to execution through tailored transformation strategies. CGI’s role 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 and 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.

Kevin Linder: Sylvie, we can now poll for questions, please.

Q&A Session

Operator: [Operator Instructions] First question will be from Stephanie Price at CIBC.

Stephanie Price: First question 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 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.

François Boulanger: Yes. 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 5-year renewal or a 3-years renewal, what’s happening is that they’ll sign bridge contract to continue the 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, they don’t have any 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 they — and especially if it’s bringing outcome-based objective that they wanted to achieve, they will continue to buy.

Stephanie Price: 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?

François Boulanger: No, no. Even year-over-year, my understanding, Steve, the DSO did drop and…

Steve Perron: It did drop, yes. So we are quite diligent and looking at — and it was our first thing that we checked, Stephanie, obviously. But on that front, no, there is no delayed on payments. And it’s regular business.

Operator: The next question will be from Richard Tse at National Bank Financial.

Richard Tse: So obviously, the environment is challenging. But 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 spend? Is it just kind of some certainty on tariffs? Or is it something else beyond that?

François Boulanger: It’s not just tariff, but it’s the overall environment and where we’re going. So — because we saw in some places, example in Europe, even before the tariff discussion that — and especially, example in industry manufacturing, that 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 SI&C project, consulting. So consulting slowed down and some of the project implementation. But on the other side, right, on the managed services, it’s always still relevant and understanding how we can help them in the cost-savings side.

So that’s how we signed 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 if — how — when the market will come back.

Richard Tse: 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.

François Boulanger: For sure, it’s creating opportunities on the M&A side because, again, we — 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 they — it’s a little bit more difficult, so — especially the ones that are pure SI&C companies, where they — and they don’t have managed services and they don’t necessarily have the capability to invest in managed services. So it’s — they are at a point now they’re thinking, “Okay, what’s the next move?” And these are — these potential are coming good targets for us to look at.

Richard Tse: 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?

François Boulanger: Like I’m saying, we are generating $2 million — $2 billion of cash, where free cash flow, $1.6 billion, $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.

Operator: Next question will be from Steven Li at Raymond James.

Steven Li: I want to ask about the acquisitions, so BJSS and Daugherty. Can I think they are mostly SI&C versus managed service?

François Boulanger: Yes. Both of them are way more SI&C than managed services. And that — when I was talking about the example on the M&A, that’s clear example. I’ll take BJSS, a great company with a great relationship in the — in U.K. But where — they were stuck on just capable of delivering SI&C. And some of their clients were asking for managed services capabilities that they were not able to deliver. And now, since they are from — they are with us in CGI, 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 Daugherty, where we’re 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, larger companies, 1,500, 2,500, in the case of BJSS’ size company where they have good relationship, and now we can sell a lot more in these companies.

Steven Li: Okay. So I appreciate the upside there potentially. But going back to the core SI&C 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 1x for these two companies?

François Boulanger: I would need to look. We’re not at that level of detail. But I would say to you that, for sure, managed services overall, we had a book-to-bill in what, that, Steve?

Steve Perron: 122.

François Boulanger: 122 book-to-bill for managed services overall and just below 1 overall for SI&C.

Steven Li: Okay. I guess, what I’m trying to get at is the — like on an organic basis, the bookings from BJSS and Daugherty, would that have contributed to the — to your overall bookings?

François Boulanger: Yes, for sure. For sure, they had bookings, and it did contribute. But I’ll take BJSS. BJSS is only 1 month, right? So we have only 1 month of booking on BJSS since — but Daugherty, we have a full quarter of bookings coming from Daugherty.

Steven Li: Okay. Got it. And then last question for me. Like the bigger restructuring that you alluded to the MD&A, does that have any implications on margins year-over-year? How much of an improvement in margin should we expect year-over-year?

François Boulanger: Yes. Most of the restructuring will be in the Continental Europe. For sure, it will improve the utilization of these countries, so naturally will help to improve also the EBIT margin. But I don’t have necessarily a target or something. I don’t know, Steve…

Steve Perron: Look, you can see in the MD&A that the margin that we’re making in Europe, obviously, we want to grow that. And that’s why we’re taking the action. We want to make sure that we are a strong company. And we want to make sure that they come back with a higher margin than right now what they can achieve.

François Boulanger: 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.

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

Operator: Next question will be from Surinder Thind at Jefferies.

Surinder Thind: Following up on the expansion of the restructuring initiative, I assume — is — can you help me understand kind of what changed relative to where your thoughts for last quarter? And then is it primarily like within SI&C and primarily onshore delivery within Continental Europe? Or just any other color would be helpful.

François Boulanger: Yes. No, it’s — you’re touching it. It’s really in the SI&C. In the business consulting side also a bit, 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 investments that we did, for example, with the use of AI.

Surinder Thind: 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 may be focused a bit more on cost. Obviously, you’re seeing some benefits within the managed services. But for SI&C projects, have they been asking for more offshore delivery? Or how should we think about that dynamic on the cost conscious client base?

François Boulanger: Yes. 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 for managed services, but it’s also for SI&C. 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 is — that we still have a lot of expertise in India, and we’re using a lot of India for delivering all line of business.

Operator: Next question will be from Thanos Moschopoulos at BMO Capital Markets.

Thanos Moschopoulos: Francois, maybe just to clarify a point. As of right now, have there been any meaningful contract cancellations or non-renewals in U.S. Federal? Or nothing of that nature to call out?

François Boulanger: Nothing meaningful that happened on that side, no.

Thanos Moschopoulos: Okay. And U.S. state, is that looking status quo? Or have you seen any change in demand in — with the new administration at the federal level? Anything happening on the state side?

François Boulanger: On the state department level?

Steve Perron: Yes, on the state side.

Thanos Moschopoulos: Sorry, not the states per se. Like just given that there’s — the U.S. federal government is obviously changing…

François Boulanger: Okay, the state and locals. No, we didn’t see, no. And like I was indicating, we just signed a USD 500 million deal with the state of California. And so, no, it’s still pretty good on that side. For sure, they’re looking at solutions to — for cost savings like anything else. And so 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.

Thanos Moschopoulos: Okay. 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?

François Boulanger: Well, 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 an extra — another tool to be used for delivering some of these savings. So 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 it’s — for now, I would say it’s a share benefit that we’re sharing with our clients.

Operator: Next question will be from Paul Treiber at RBC Capital Markets.

Paul Treiber: Just a question on the time frame 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, are customers signing, but then there’s a longer time frame to actually deploy?

François Boulanger: 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 in — 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 an example, the two that I talked about, about the large bank in the U.S. and even the one that — because to a certain point, it’s a long-term contract with the state of California. You’ll see that — example, state of California, we already started the work. So we’ll see some growth coming from these acquisitions — or this contract in the next couple of quarters.

Paul Treiber: And then can you speak to the relationship between SI&C and managed services in terms of, are they completely independent or do you see the slowdown in SI&C, is that a leading indicator that there may be headwinds facing managed services at some point in the future? Like is the SI&C, in preparation in any way for future managed services, are they completely independent?

François Boulanger: No, no. 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 SI&C and especially on the consulting side, contrary on the managed services, it’s very active. And the client always — 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 our — to the offering that we have on that side.

Operator: Next question will be from Divya Goyal at Scotiabank.

Divya Goyal: 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?

François Boulanger: All right. 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, yes, across the world, and some of that exercise will be to move more of these SG&A to India, for example, in 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 are doing, let’s say, more business consulting, for example. And that — with the slowdown that we saw, it — putting pressure on their utilization rates, and we need to do some action there to improve.

Divya Goyal: Sounds good. On the U.S. front, and specifically the U.S. Federal front, the company, Aeyon, you acquired, it was a pretty interesting acquisition. How are you seeing that acquisition — or the results of that acquisition trending currently, given all that’s going on with DOGE and broader U.S. Federal and the tariff-related concerns across U.S.?

François Boulanger: Yes. Thanks, Divya. Aeyon 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 that’s opportunities for us. And actually, we’re not in the front line, but we are in the back office of a lot of these defense ministry across the world, including U.S. And that’s why we did the acquisition of Aeyon. And we are seeing that — we see that we’ll have good opportunities in the future in the defense side.

Divya Goyal: 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. Or 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 will be it for me.

François Boulanger: Yes. Okay. Thanks, Divya. For sure, on the transformational side — and again, we’re not — we will look at all the industry — all the geographies. But for sure, 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 in that side. Germany is another one that would be a good sweet spot to find a transformational one. But again, we’re not — 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 in other geography. Naturally, we’ll look at it also.

Operator: Next question will be from Robert Young at Canaccord.

Robert Young: I think I’ve heard you mention utilization more times on this call than recently. And so I just — maybe some commentary around utilization where you think the trend is there. Is it possible? Or maybe we talk 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 to managed services? And then maybe if you could just broaden that out just on the other near-term headwinds on margins, how we should think about that because it seems as though there may be higher pricing pressure and maybe some margin pressure from recent M&A. If you could just wrap that into a margin outlook for the near term, that would be helpful.

François Boulanger: Okay. Thanks, Robert, for the question. Yes, first of all, you’re right. We are looking every time to see how we can move people from SI&C 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 are — we did several M&A acquisitions. So naturally, we need to integrate them in our — in CGI. And sometimes, it’s taking some times to improve their EBIT margin to the level of — or the standard of CGI.

And that’s taking — can take several quarters to come to that. On the restructuring, again, in some countries, it’s taking a certain time to action these — or to — yes, to action these restructuring. So it will take some places a couple of quarters. So I would say that you can see an improvement on the EBIT margin, but not necessarily in a very short term. But I would — I continue to say that in the medium term, we are — we want to improve some of this EBIT margin in Europe and bring it back on their historical margin that they had in the past. But we need to go through these actions before.

Robert Young: Okay. And then for second question, when you’re talking about takeaways from customer discussions, you highlighted more focused on outcome-focused delivery. And you also mentioned, I think it was related to U.S. Federal. I think you mentioned maybe a subtle shift towards outcome-based contracting. And I was just — is there a change in the way U.S. 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.

François Boulanger: Yes. No, thanks. No, it’s a good question. 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 method that they have is cost-plus. And what we’re hearing at least and understanding what 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 those. Those who 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.

Operator: Our next question then will be from Jerome Dubreuil at Desjardins.

Jerome Dubreuil: The first question is on the bookings. They were strong in the context. And I’m looking to find more about the average duration of contract 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 color on what bookings means for your future revenue. So are the stronger bookings maybe in part due to longer duration of contracts? Any color there would be helpful.

François Boulanger: Well, 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, in 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 signed, a lot of bridge contracts outside a couple of larger ones, but a lot of bridge contract. So as you know, Jerome, managed services will have tendency to be multiyear contract versus SI&C will be shorter-term contracting.

Jerome Dubreuil: 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. And 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?

François Boulanger: Very good questions, Jerome. We had always had some infrastructure business. So we’re still — yes, it shrink a lot in the last several years, but we’re still at 10-ish percent of infrastructure business. We are 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 a lot of 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 will always be close to our clients. And if our clients ask more on-prem services, we will be there to support that.

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

François Boulanger: Wow, Jerome, that’s a good way of trying to — that’s a new one, right? Jerome, like — I won’t give guidance, that’s for sure. The — if I would say from Q1 to Q2, a lot of things happened, right? When we talked at the end of January versus some discussion that happened 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 moving — it’s a dynamic environment, so it’s moving pretty very fast. And so it’s — that’s why also we’re not — we don’t want to give guidance because, again, it’s very difficult to do that. But again, at the end of the day, we have a lot of opportunities that we’re working on and a lot of — it’s — we have a lot of, yes, discussion with clients, and we can see a lot of opportunities on the market.

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

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 1 905-973-8363. Thanks, again, everyone, and look forward to speaking soon.

Operator: 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.