On September 8, CGI Inc. (NYSE:GIB) closed its acquisition of Callibrity, a Cincinnati-based consulting firm that adds 120 consultants and deeper production-ready AI and platform engineering expertise. The deal lands about six weeks after CGI’s fiscal third-quarter results, where diluted earnings per share jumped 22.5% even though revenue grew just 2.5%. That gap between the earnings number investors see and the growth underneath it is the tension running through the whole story.
Building Capacity While Buying Back
Callibrity brings CGI 120 consultants with deep experience in financial services, insurance and manufacturing, folded into a business already positioned for the demand it is meant to serve. Chief Executive Officer Tim Hurlebaus said clients are increasingly focused on operating AI securely at enterprise scale, and that modern data, cybersecurity and organizational readiness now matter as much as the AI itself, exactly the kind of production-ready delivery work Callibrity specializes in. That demand already shows up in the numbers: bookings reached $4.20 billion in the third quarter for a 108.1% book-to-bill ratio over the trailing twelve months, and backlog stood at $31.79 billion, 1.9 times annual revenue, up from $30.58 billion a year earlier.
The earnings growth investors actually see is being amplified by the balance sheet as much as by the business. CGI spent $412.9 million during the quarter buying back and canceling 4,427,600 Class A shares, cutting weighted average diluted shares outstanding to 208.9 million from 224.4 million a year earlier, a nearly 7% reduction. That shrinking share count is a big part of why diluted EPS rose 22.5% to $2.23 while net earnings rose only 13.8% and revenue rose just 2.5%, or 1.3% in constant currency. The bull case holds as long as CGI keeps funding that buyback pace and tuck-in deals like Callibrity from its own cash generation; if it can, a growing backlog and a shrinking share count reinforce each other, and EPS keeps outrunning revenue.
The Debt Behind The Buybacks
The financing behind that buyback is where the story gets more complicated. Net debt rose to $3.68 billion from $3.12 billion a year earlier, pushing the net debt-to-capitalization ratio to 26.6% from 23.4%, while cash and cash equivalents fell to $625.6 million from $1.13 billion. Return on invested capital slipped to 13.4% from 14.6% over the same period. That combination suggests that the buyback and the Callibrity purchase are being funded increasingly by debt rather than by cash the business is generating on its own.
Strip out the effect of the smaller share count and the underlying growth looks thin. Adjusted net earnings rose just 1.7% year over year, adjusted EPS margin slipped 10 basis points, and revenue growth was only 1.3% once currency is stripped out. The bear case assumes that pace of organic growth continues while leverage keeps climbing at the rate it did this quarter; if backlog conversion does not accelerate past that 1.3% constant-currency rate, debt taken on to fund buybacks and acquisitions keeps outrunning the earnings needed to service it, and returns on invested capital keep sliding instead of stabilizing.
A Cheap Multiple, Fewer Funds
Hedge fund ownership of CGI fell from 21 funds to 14 in the most recent quarter, a real pullback rather than a trim. The stock trades at a forward price-to-earnings ratio of 10.16, as of September 17, a multiple that looks cheap for a company posting double-digit EPS growth. That combination, fewer funds holding the name against a discounted multiple, suggests the market is pricing the revenue growth investors can see rather than the earnings-per-share growth the buyback is producing.
Conclusion
CGI heads into its fiscal fourth quarter with a fresh AI-focused acquisition, a record backlog and a shrinking share count. None of that changes the fact that constant-currency revenue grew just 1.3% last quarter while net debt climbed over the same period. Callibrity adds delivery capacity in exactly the kind of enterprise AI work management says clients want, but that capacity only pays off if bookings convert into revenue faster than debt piles up to fund it. Until adjusted earnings, not just diluted EPS, start accelerating, the growth story and the balance sheet are pulling in different directions.
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