CGI Group, Inc. (GIB)

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CGI Group (GIB)

Q1 2013 Earnings Call

January 30, 2013 9:00 am ET

Executives

Lorne Gorber - Senior Vice-President of Global Communications & Investor Relations

David R. Anderson - Chief Financial Officer and Executive Vice President

Michael E. Roach - Chief Executive Officer, President and Director

Analysts

Thanos Moschopoulos - BMO Capital Markets Canada

Tom Liston - Cantor Fitzgerald Canada Corporation, Research Division

Maher Yaghi - Desjardins Securities Inc., Research Division

Julio C. Quinteros - Goldman Sachs Group Inc., Research Division

Doug Taylor - TD Securities Equity Research

Michael Urlocker - GMP Securities L.P., Research Division

Stephanie Price - CIBC World Markets Inc., Research Division

Bryan Keane - Deutsche Bank AG, Research Division

Presentation

Operator

Good morning, ladies and gentlemen. Welcome to the CGI First Quarter 2013 Results Conference Call.

I would now like to turn the meeting over to Mr. Lorne Gorber, Senior Vice President, Global Communications and Investor Relations. Please go ahead, Mr. Gorber.

Lorne Gorber

Thank you, Melanie, and good morning, everyone.

With me to discuss CGI's first quarter fiscal 2013 results are Michael Roach, our President and CEO; and David Anderson, Executive Vice President and CFO.

This call is being broadcast on cgi.com and recorded live at 9 a.m. on Wednesday, January 30, 2013.

Supplemental slides, as well as the press release we issued earlier this morning are available for download along with our Q1 MD&A, financial statements and accompanying notes, all of which are being 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 statement, whether as a result of new information, future events or otherwise. The complete Safe Harbor statement is available in both our MD&A, as well as our press release, and on cgi.com. We encourage our investors to read it in its entirety.

We are reporting our financial results in accordance with International Financial Reporting Standards or IFRS. As before, 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.

As many of you know, we're hosting our AGM this morning, so we will keep our scripted comments brief in order to take as many questions as we can within the hour. I'll turn it over to David first to review our Q1 results and then Mike will comment on our strategic highlights, including an update of the Logica integration. So with that, David?

David R. Anderson

Thank you, Lorne, and good morning. I'm pleased to share the financial details of another good quarter, which is the first full quarter of results on a consolidated basis. Q1 revenue was $2.53 billion, representing a year-over-year increase of $1.5 billion or 148% on constant currency basis. Foreign exchange fluctuations negatively impacted our revenue by $22.0 million. Adjusted EBIT was $209.5 million, up 50% versus last year, while our EBIT margin was 8.3%. Our net earnings before the impact of integration costs was $137.8 million or $0.44 per diluted share compared with $106.5 million or $0.40 in the year-ago period. This represents an increase of $31.3 million or 29.4% when compared to Q1 of 2012.

In the quarter, we recorded $153.4 million of integration costs. These are the costs related to the transformation of Logica's operation to the CGI operating model. Since the acquisition of Logica, we have incurred integration costs totaling $263.1 million against our estimated cost of $400 million over 3 years. Our effective tax rate for the quarter was 26.5%, relatively unchanged from the 26.4% when compared with the rate for the previous year. As we have highlighted in the past, the tax rate varies depending on the mix of the profit in each of the various countries and our ability to utilize past tax losses. We expect that our tax rate for the subsequent periods will be in the range of 24% to 27%. Net earnings, including this quarter's integration cost of $153.4 million, were $22.4 million or $0.07 in diluted earnings per share. I would like to remind you that in addition to taking on an incremental $2.5 billion of debt to finance the acquisition of Logica, we issued from treasury nearly 47 million shares of CGI. Accordingly, this quarter's earnings per share were based on the weighted average diluted share count of 315 million shares where Q1 2012 earnings per share were based on 269 million shares. Looking at the balance sheet, our DSO was 49 days compared to 51 days we posted for the year-ago quarter. The sequential improvement of 28 days from the 77 days we posted at the end of September is primarily the result of the 2 items. The first is that we had a full quarter of revenue from the x Logica operations. The second is that our cash collections benefited from the end-of-year effect where some former Logica clients made a special effort to clean up overdue accounts.

As we move into the upcoming quarters, we will see a tendency for the DSO to creep up. But with the cash management practices that we have been implementing, we are optimistic that we will be able to mitigate a deterioration in our collections over time. We have maintained our longer-term DSO target of 45 days. We generated $224.5 million of cash from our operating activities compared with $148.7 million in the same period last year. Over the last 12 months, we have generated $689.1 million or $2.42 in cash per diluted share.

Read the rest of this transcript for free on seekingalpha.com