CGI Inc. (GIBA) Earnings Call Transcript

Welcome to CGI's Fourth Quarter Fiscal 2026 Conference Call. I would now like to turn the meeting over to Mr. Jason Dee, SVP of Investor Relations. Please go ahead, Mr. Dee.

Appreciate that, Julie. Thank you, and thanks to everyone joining us today on our fourth quarter and full year 2026 earnings call. As Julie noted, I am Jason Dee, Senior Vice President, Investor Relations and you're also on this call going to hear from Steve Perron, Executive Vice President and Chief Financial Officer; and then of course, Tim Hurlebaus, our President and Chief Executive Officer. This call is being broadcast on cgi.com and for obvious reasons being recorded live at this present time 9 a.m. Eastern Time on Wednesday, November 11, 2026. I hope everyone has had the opportunity to review the supplemental slides as well as the press release we issued earlier this morning, all of which are available for download, along with our MD&A, audited financial statements and accompanying notes, all of which have been filed with both SEDAR+ and EDGAR. Please note that some statements made on this call may be forward looking. Actual events or results may differ materially from those expressed [indiscernible] 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. I'd 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 that's otherwise noted. Let me give you guys some insights on the agenda today. Steve will talk you through our quarter 4 financials. Tim will then comment on our full year performance as well as our business and market outlook. We'll then open up the line for questions before we conclude the call this morning. And Steve, I'll hand it over to you.

Thank you, Jason, and good day, everyone. In our fourth quarter of fiscal 2026 we are pleased with the sequential improvement in our revenue growth and continued strength of our business. In the quarter, we delivered $4.15 billion of revenue up 3.3% year-over-year are up 2.5% when excluding the impact of foreign exchange, an improvement of 120 basis points sequentially. Growth was primarily driven by our recent business acquisitions, representing approximately 2.4%. Our growth in segments continued to be led by Asia Pacific with 15% constant currency growth, followed by Finland, Poland and the Baltics at 14.7%. Our U.S. Federal segment once again improved sequentially, reporting year-over-year growth of 4.4% in Q4. Bookings in the quarter were $4.5 billion for a book-to-bill ratio of 109%, led by U.S. federal at 185%. Overall, managed services at a book-to-bill ratio of 122% and SINC ended the quarter at 94%. For the year, bookings totaled $17.5 billion, representing a book-to-bill ratio of 106%. Managed services had a book-to-bill ratio of 110% and the SINC book-to-bill ratio was 101%. As a result, our contracted backlog stands at $32.1 billion or 1.9x revenue with just over $12 billion in already contracted revenue to be realized over the next 12 months. This backlog is largely comprised of long-term managed services engagements, which further supports CGI's business resilience. Turning to profitability. Adjusted EBIT in the quarter was $678 million, up 1.6% year-over-year for a margin of 16.4%. Earnings before income taxes were $628 million, up 21.7% or a margin 15.2%. Our effective tax rate in the quarter was 26.6%, an increase from the 26% in the prior year when excluding the tax impacts from acquisition and related integration costs. The increase is mainly explained by the new corporate tax surcharge in France, representing $3 million. Based on enacted rates at the end of the quarter and our current profitability mix, we expect our tax rate for future quarters to be in the range of 26% to 27%. On a GAAP basis, net earnings were $461 million, up $79 million for a margin of 11.1%. Diluted EPS was $2.24, an accretion of 30.2% when compared to Q4 last year. Adjusted net earnings were $475 million, up $4 million for a margin of 11.5%. On the same basis, adjusted diluted EPS was $2.31, an accretion of 8.5% when compared to Q4 last year. Turning to cash. In Q4, we generated $552 million, representing 13.3% of revenue. Our cash generated for fiscal year was $2.5 billion, an increase of 11% year-over-year for a very strong 15% of revenue. DSO was 43 days, 2 days less when compared to the prior year. In Q4, we continued to deploy our capital and invested $89 million back into our business, which includes strategic investments in advanced AI, $35 million for business acquisitions, $336 million in net debt repayment, $167 million to buy back our stock. And in addition, we distributed $35 million to our shareholders under our dividend program. Yesterday, our Board of Directors approved a quarterly cash dividend of $0.185 per share, representing an 8.8% increase. This dividend is payable on December 18, 2026 to shareholders of records as of the close of business on November 27, 2026. At quarter end, CGI had a net debt leverage ratio of $1 and $3 billion in capital resources readily available. In addition, we have the capacity to access more if needed, to deliver on our profitable growth strategy. Our capital allocation priorities remain consistent with a focus on our value creation stream for our shareholders. Specifically, investing back in the business to drive revenue growth through managed services, [indiscernible] and IP, pursuing accretive acquisitions, share buybacks and quarterly cash dividend distribution. Now I will turn the call over to Tim to further discuss insights on our performance for the last fiscal year and the outlook for our business and markets. Tim?

Thank you, Steve, and good morning, everyone. I'd like to begin by recognizing our CGI colleagues and clients serving in the military around the world on this day of service recognition. Thank you all. Now I'll turn to CGI's full year performance and the outlook for the year ahead. Our team's Q4 results continued the second half momentum we signaled last quarter, contributing to a strong fiscal 2026. This performance demonstrates CGI's position as a partner of choice for our clients as well as our ability to execute with discipline on what matters most to create value for our shareholders, CGI partners and clients. Starting with shareholders, including the 85% of CGI partners who are owners. On a year-over-year basis, Revenue increased 2.2% on a constant currency basis with an increasing portion of sequential quarter growth delivered through our build strategy. EPS expanded 8.2% on an adjusted basis through continued discipline in our cash allocation strategy. Bookings were $17.5 billion with annual book-to-bill ratios above 100% for both managed services and systems integration at [indiscernible], SI&C up 8% or $530 million. And cash from operations was $2.5 billion, up 11%, demonstrating our strong cash discipline as well as higher managed services revenue and continued quality delivery for our clients. These strong results would not be possible without the commitment of our 94,000 CGI partners around the world. Thank you, team, for bringing your advice, expertise and partnership to every client and project. Throughout fiscal 2026, we continue to invest in our team, notably in the development of industry knowledge and technical expertise, both of which are critical for helping clients achieve outcomes. Expert certifications and the technologies of our alliance partners also increased 12% across all major hyperscaler platforms and frontier AI models. Trusted client relationships remain the cornerstone of CGI's performance and positioning in the market. Once again, we ended the year with signed client satisfaction ratings that were higher on every dimension we measure. Importantly, the highest increases in satisfaction were for the level of technology expertise and innovation we integrate into our engagements and for the degree to which clients value our services. This confidence in CGI is fundamental to our success now and in the future as clients increasingly seek fewer strategic partners to help them navigate technology change and deliver business value. Clients continue to prioritize both efficiency initiatives and business transformation with CGI's full offering portfolio of services and solutions resonating around the world. On a year-over-year basis, growth across our services was up 3.2% in constant currency for SI&C based on recent mergers and a strong previous quarter bookings converted to revenue and services, such as data strategy and architecture, AI advisory, engineering and change management. Managed Services reached an annual high of nearly $9.1 billion at engagements won earlier in the year, transitioning from ramp-up into delivery. For the year, revenue increased across every industry sector on a dollar basis. In constant currency, growth was driven by manufacturing, up 4.5% and government, which increased 3%. As anticipated, government sector bookings gained momentum in the second half of the year, up by nearly $1.2 billion compared to the first half. In fact, we ended the quarter with government wins representing just over 50% of total bookings, up from 40% in the prior Q4. This mix improvement was largely driven by our U.S. segments, where CGI's government sector IP continues to be in high demand. In line with CGI's compelling outcome-based value propositions for clients, Q4 wins were largely comprised of AI-enabled managed services, IP engagements and AI-led IT development. Representative Q4 bookings include: the U.S. General Services Administration awarded CGI a 5-year USD 250 million contract to deliver application development, modernization and site reliability services for more than 40 Michigan critical acquisition system. [ Dassault ] Aviation, a leading French aerospace manufacturer selected CGI to deploy our [indiscernible] platform to accelerate remote aircraft diagnostics, reduce downtime and strengthen operational readiness. The European Space Agency selected CGI to partner with OVH Cloud to architect and build a strategic sovereign European platform for Earth observation data, unlocking new scientific, public and commercial applications. Multiple hospitals in Finland selected CGI's Omni 360 patient information platform to streamline the delivery of specialized care, improve access to patient information and support future AI-enabled capabilities. A German defense organization selected CGI's AI Ops Director platform to strengthen its IT operations and improve efficiency and reliability within air gapped high-security environments. Rick Bakken, Sweden Central Bank renewed and expanded its relationship with CGI through a 10-year agreement to strengthen IT operations and support the continuity of its critical technology services. And in the U.S., the County of San Diego and the states of Michigan and Alabama selected our CGI Advantage platform for 10 year and longer agreements that expand or extend current relationships. For example, in San Diego, the nation's fifth most populous county, we were awarded a USD 100 million expansion agreement to help the county modernize core business operations and improve decision-making across 20,000 users and 54 departments. Demand remains strong for new business-oriented SI&C projects focused on modernizing legacy applications, addressing data quality, strengthening cyber defenses and regulatory compliance and helping clients launch new services. Overall, our results for the quarter and year reflect long-standing client relationships as well as engagements that are becoming more integrated across all our services, solutions and alliances. In fiscal 2026, our investments in the Buy strategy remain pivotal to our growth as we closed 5 acquisitions, which deepened our presence in client relationships in Poland, Finland, Canada and the U.S. We extended our industry coverage across banking, insurance, manufacturing, retail and government. We've also expanded our expertise in key areas such as cybersecurity and digital product engineering and public sector solutions. We expect these mergers to drive future growth as we bring our full offering value proposition to new clients. I'd like to warmly welcome all new consultants who joined CGI through these mergers. Our pipeline of new merger opportunities, market, regional and transformational is strong. Given the ongoing strength of CGI's balance sheet, we will continue to pursue accretive acquisitions at pace as part of our fiscal 2027 business plan, and we will remain disciplined in terms of fit, timing, price and returns on behalf of all 3 of CGI's stakeholders. Turning now to the outlook for the year ahead. The client demand patterns we highlighted last quarter remain unchanged and continue to represent increasing opportunities for CGI to drive growth. Our total pipeline of opportunities reflects this demand as each of our core services is up compared to last year. This is also the case for those opportunities where we partner with global alliances, this segment of the pipeline doubled year-over-year. To summarize the ongoing demand trends across industries, clients want to do more by using technology, including deliver better outcomes for customers and citizens operate more efficiently manage risk and sovereignty requirements to strengthen resilience and innovate to bring new capabilities to market. Client demand priorities take different forms in each industry where CGI operates. I'll highlight where demand is strongest across several of our largest industry sectors and how our knowledge, expertise and offerings to help clients drive tangible business and mission outcomes. In banking, [indiscernible] reducing operating costs, modernizing core platforms and strengthening fraud risk and regulatory controls as they build more connected, autonomous ecosystems. CGI provides the real-time data, cloud and security foundations for this shift, supported by banking IP such as payments, trade and wealth. These IP solutions are industry leading. The CGI Trade360 platform, which recently earned 3 recognitions for excellence in operations across 98 countries. More importantly, our clients using Trade360 collectively earned 9 additional awards, including AM Ved, Barclays, Bladex, Comerica, NatWest, RBC and TD Bank. Manufacturers are addressing supply chain disruption and pressure on cost, quality and productivity while bringing products to market faster. CGI combined supply chain and engineering expertise with AI-enabled software development, data and analytics and IT, OT cybersecurity to modernize plants and improve production, quality and predictive maintenance. Retailers protecting tight margins and managing inventory while meeting customer demand for seamless service. CGI combines with retail expertise and IP such as retail suite data, customer operations, forecasting, replenishment and managed services to improve product availability and customer interactions while addressing inventory management and loss prevention. In Energy & Utilities, data center growth, electrification, our straining aging infrastructure as utilities work to maintain reliable, secure operations. CGI helps modernize [indiscernible] and assets, connect operational and enterprise data and apply AI to forecasting, planning and asset performance, all of which are supported by cloud and IT, OT cybersecurity. And in our largest industry sector of government, clients are working to improve public services with finite resources, modernize legacy systems, strengthen cyber resilience and use AI responsibly. CGI's deep experience across civilian and defense missions combined with advisory, managed services and government-specific IP helps agencies transform service delivery for systems and operations. Across industries, CGI is also helping clients build what's next. Quantum computing is one area where we're already investing in expertise, offerings and alliances to turn emerging technology into practical value. For more than a year, we've worked with D-Wave on solutions for rail operators including train scheduling and yard operations and our solutions for retailers, such as delivery routing and workforce scheduling. In CGI Federal, we recently launched a research initiative with the U.S. Defense Logistics Agency and the University of Tennessee to assess how Quantum and AI can make warehouse operations and supply chains more resilient. As AI and Quantum technologies continue to converge, we intend to help clients apply them to real operating challenges for business value. In closing, CGI is built to grow and last. We remain at the heart of continuous technology innovation and business transformation, binding human ingenuity with the power of technology to help our clients build what's next. As we begin fiscal year 2027, we remain well positioned strategically, operationally and financially through the value creation model focused on complementary strategies. First, organic growth, the build strategy through systems development, integration and consulting, managed services and IP platforms emphases. Second, accretive acquisitions, the Buy strategy; and third, programs for share buyback and dividends. Thank you for your continued interest and support. Let's go to the questions now, Jason.

Thanks, Tim. Thanks, Steve. Julie, if we can, I'd like to poll for questions now, please.

[Operator Instructions] Your first question comes from Jerome Dubreuil from Desjardins Canada.

I have 2. The first one is, is the IT services market reopening up? We had a few signals from peers in yourself. So we're wondering if there's more urgency from the clients or maybe more concrete engagements. And the second one, there's an expectation in the market that AI will bring a lot of changes for the IT services industry. I mean you're still the trusted supplier agnostic partner. But maybe if we take a step back, what are the main changes you anticipate in your operating model down the road in this new era?

Thanks, Jerome, for your questions, and we'll take them one at a time. Our results, as you just heard, are consistent with what we've been predicting over the last couple of quarters which, to us, is an indication. I don't know if the IT services market was closed to be reopening, but it certainly is continuing to provide us opportunity to grow. And so if that means it's reopened, that's a good thing. But it's certainly our results show that, that's the case. In terms of AI, it's the latest tool that is indeed changing the way that companies like us to deliver IT services to our clients and the way our clients are able to produce value for their enterprise and that shows up as a value for their consumers and constituents. And so it's certainly here to stay. It's integrated now in every [indiscernible] whether it's developing software or doing design and tracking requirements or running managed services and backing [indiscernible] some service calls we have it, whether it's writing agents for process help for users or online health, but all those things are now integrated into solutions that we deliver. So certainly we are here to stay and is part of everything we do now.

Your next question comes from Stephanie Price from CIBC Canada.

Congratulations on the U.S. federal revenue growth in the quarter. I was hoping you can maybe give a little bit more color on the U.S. federal EBIT margin. It sounds like there were some puts and takes in the quarter. Just curious if you could walk through that impact and how we should think about federal margins going forward.

Yes, Stephanie, thanks for the question. And the answer to it is there were a couple of wind things around some tax credits and some other things in Q4 in federal. And so that -- we expect that to improve going forward into 2027, that being the EBIT margin in federal. Overall, thanks for pointing out the growth in federal, we're really pleased with the rebound that, that team has delivered, and we see more of that coming in 2027. So an optimistic view forward for the Federal group.

Maybe I could sneak one follow-up just around the partnerships. You've announced a number of recent partnerships with AWS and Databricks. And you mentioned Global Alliances pipeline has doubled year-over-year. Maybe if you could give us a little bit of an update on the partner ecosystem here and how it's evolving.

Yes, sure. Thanks, Stephanie. Look, we continue to mature in the way that we're working with all of our global alliance partners and the frontier AI partners that we have. I think I mentioned in the prepared remarks, we're seeing an increase in expert certifications, about 12 across our [indiscernible]. That's great and evidence that we're doing more and more of that kind of work. Look, our store is always being approximate with our clients and understanding their business being expert in the industries in which they operate than the subprocess easy within those industries. And I think I mentioned [indiscernible] cover that a lot in the remarks as well and then bringing the right technology to deliver solutions. And that technology certainly more and more includes technology from our Global Alliance partners. That's why you see the increase in and business and pipeline and certification, and that's an important part of everything that we do going forward.

Your next question comes from Doug Taylor from National Bank.

Tim, I'll ask another couple of questions about the U.S. federal business. Obviously, good bookings and growth and should see easier comps here in the December quarter. There was some noise in around the end of the quarter around U.S. federal buying from foreign players. It doesn't appear to have had much impact. But I guess I'll ask you to make any comps there on what you've seen in behavior there?

Yes. Sure, Doug. Thanks for the question. Thanks for joining us this morning. So I think what you're referring to is, I forget when it was, and there was a bit about Canadian products, I think. But yes, it has not impacted us at all nor does it impact our outlook. Our U.S. federal business is delivered in the U.S. by federal citizens. CGI Federal is a wholly owned subsidiary that operates under a special security agreement. And so -- and we're delivering primarily services and any products that software solutions that we deliver for our clients are built in the U.S. by U.S. citizens. So that's -- there's been no impact or no headwind there at all.

Okay. I appreciate you clarifying that and confirming it. Last quarter, you spoke to a big hiring push particularly in the U.S. market. I think we can see why now -- how effective has that been? And can you speak to how you feel about your labor pool as it stands now against the opportunity set in front of you? And as you weigh more AI in your implementations?

Yes. We are indeed on hiring. I think you can now look on the public available information and see lots of open positions. We're always looking at them for great people, Doug. If you have anybody to refer, you send them our way. But it is great that the demand is there. The types of people we're hiring, the skills we're looking for are continuing to evolve. As we do more work with AI, we're looking in addition to technical skills, we're looking for people who can multitask because you're maybe orchestrating across a number of AI agents. We're looking for people who are good problem solvers. As the kind of the nature of what makes somebody to get at their job continues to evolve. So what's interesting about those open positions is in addition to technical requirements or maybe industry expertise, we're looking for some of those other capabilities as well.

Your next question comes from David Kwan from TD Cowan Canada.

Maybe following up on the U.S. Federal and I'm not sure it's necessarily a fair question, just given how the U.S. election was only just last week. But are you seeing any changes in behavior of your U.S. federal customers? Like are they having any sense of urgency maybe to get things done ahead of a possible shutdown with the Democrats taking over?

Yes, David, thanks for your question. So yes, it is it's been a week, right, a week yesterday. And so as you know, the cycle in the U.S. is we have last week and then the new Congress gets seated at the beginning of January. So there's this almost 2-month period where the existing Congress drives to finish business. What we're hearing from our sources on the hill and the rest of industries gearing the same is that the existing Congress is going to try and get at least 3 of the 4 open appropriations passed before they leave, which would fund the government for the rest of the year. And then whenever they can't get passed, they'll put in a continued resolution, which basically funds that keeps the funds at whatever the current level is until there's an appropriation, which is term used for releasing the budget to be spent. And so they would -- anything in a continuing resolution would basically be kicked over or handed to the new Congress to resolve when they're seated in January and February. So at the moment, at the current -- the current funding for the things that aren't appropriate and last until December 11, at the moment, the general consensus is that will get handled and at least there might be a part of it that needs to be handled by the new Congress and the new calendar year. So that's what we're seeing now. The current administration is the reputation for not as being the most predictable. So who knows what will actually happen, but that's, I think, the intent of the current Congress is to deal with that. So therefore, as it relates to your question, we would expect to see no interruption. I suppose in terms of spending. Our programs are mostly well funded. They're long-term programs. as you know, in government, there's a change in the U.S., the Congress changes parties from election to election, the administration, the President's administration also changes from election to election. Most of the programs that we're involved in, continue across administrations. So there's not -- the real issue is just keeping the funding flowing. And so it looks like that's going to happen.

No, that's great color. And then second question, just looking at the bookings data coming the ones coming from existing customers, extensions, renewal add-ons. It's been quite solid double-digit gains throughout here. But on the new business bookings side, that's been particularly [ Waco ] is down over, I think, 30% this quarter and for the year. I know last year was kind of a bit of a tough comp there, but what else do you attribute to the weaker performance this year? And how do you look at that going forward?

Yes, that's a great question. I mean, obviously, in any year -- in any booking scenario, existing clients at add-on is always going to be higher than new clients. I think that you're right about the comp. I mean, from year-to-year, we're bidding on various new projects. And what I would say about bookings as I always look at backlog at the same time I look at bookings and we have a record backlog right now of $32 billion or thereabouts. Is that the right number, Steve, of $32 billion, which is 1.9 years of backlog. So when I look at that, I'm confident in where we are, and I'm sure that the bookings will continue forward to keep that number high.

Your next question comes from Paul Treiber from RBC Capital Markets Canada.

I just want to speak about AI in terms of the impact to your internal business and productivity. Specifically, -- do you see -- going forward, do you see revenue decoupling potentially from head count growth and then secondly, and related to that, can you quantify the productivity gains that you're seeing from AI either to like software development or just operations in general?

Yes. Thanks, Paul. There's a couple of questions in there. So let me make sure I hit on both of them. The first -- well, I'll start maybe with the revenue head count coupling. We, over several years, seen a bit of a decoupling of head count from revenue. As you know, the majority of our revenue and its services and a managed services often were paid to produce a certain level of service and a set of outcomes. It's not about the number of people, it's about finding efficiencies and delivering that service. And so often, revenue becomes a bit decoupled with headcount. Same is true with implementing intellectual property solutions yes, you need the people to do the implementations and configure the systems, but especially as you get scale on those platforms, just because you add a client doesn't mean you need to add a full team to support some of the operations for that client. And so we've seen a decoupling of revenue and head count over the years. And I -- these AI tools are yet another way to continue that. So it will never be -- we're in a professional services business we -- the value we deliver is through the people that we have and the tools that they use. So there'll always be a bit of a correlation between head count and revenue, but it's already not been a tight complaint, and I think that will continue. So revenues and interesting -- I'm sorry, head count is an interesting number, but it's not a direct corollary to revenue growth. In terms of AI and how we're using it internally to make ourselves more productive, maybe the best example is with our IP. So we're using AI to develop new releases of IP, and so we're able to see productivity gains, and I'll get to some numbers in a minute. We see productivity gains there, which means we're able to put more functionality into each release and/or deliver new releases to our customer base faster equally, maybe even more importantly than what we're able to deliver at a faster pace is making it easier for our customer base to take those new releases and put them into production. So we've got AI tooling that makes that smoother and more efficient anytime you know from maybe your personal use of, say, personal productivity tool when you do an upgrade there and sometimes so much investments. When you get to an enterprise system, it's always been far more complicated than that. You've got to do with a lot of data and make sure that you retest and all that kind of thing, drives efficiency in all those things. And so we're seeing that. In terms of productivity, the systems all in the life cycle, you see different levels of productivity, coding can be up to 40% to 50%, design and requirements tracking can be 15% to 20%. And so from solution to solution and client to client, we see variation, but it's -- let's put it this way, a significant and more importantly than just a productivity gain. It's what it means to our clients in terms of value in terms of being able to get regulatory changes, operational faster in terms of being able to take advantage of new technology capabilities sooner for the benefit of their own employees and of their customers and constituents. That's the real value. And so our internal use is helping. We're really focused on how it's helping our clients in those ways.