CGI Group, Inc. (GIB)

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CGI Group, Inc. (GIB)

Q2 2010 Earnings Call

April 28, 2010 9:00 am ET

Executives

Lorne Gorber – Vice President Global Communications and Investor Relations

David Anderson – Executive Vice President, Chief Financial Officer

Michael Roach – President, Chief Executive Officer

Analysts

Scott Penner – TD Newcrest

Tom Liston – Versant Partners

Richard Tse – National Bank Financial

Eric Boyer – Wells Fargo

Jason Kupferberg – UBS

Paul Lechem – CIBC

Ralph Garcea – Sandfire Securities

Eyal Ofir – Cannacord

Presentation

Operator

Welcome to the CGI second quarter 2010 results conference call. I would now like to turn the meeting over to Mr. Lorne Gorber, Global Communications and Investor Relations.

Lorne Gorber

Good morning. With me to discuss CGI’s second quarter fiscal 2010 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 9:00 am on Wednesday, April 28, 2010. 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 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 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 encourage our investors to read it in its entirety.

We report our financial results in accordance with Canadian GAAP, but we do discuss non-GAAP performance measures, which should be viewed as supplemental. The MD&A contains definitions of each of these non-GAAP performance indicators used in our reporting. All of the figures expressed on this call are from continuing operations and Canadian dollars unless otherwise noted.

I’ll turn the call over to David first to review the financial results for the second quarter, and then he’ll pass it over to Mike who will discuss a few strategic highlights.

David Anderson

Good morning. I’m pleased to share the financial details of another good quarter. Revenue was $910.4 million. Foreign exchange fluctuations negatively impacted revenue by $70.9 million or 7.5% compared with the same period last year. When adjusted for this, year over year growth on a constant currency basis was 3.5%.

Our EBIT margin strength in Q2 to 13.6% from 11.3% in the second quarter of 2009. Earnings from continuing operations in Q2 2010 were $81.6 million or 6.5% better than the $76.6 million reported in Q2 of 2009.

On a comparable basis, the year over year improvement in earnings from continuing operations were $12.3 million or 17.8% when excluding the benefit of a $7.3 million positive tax adjustment in the second quarter of 2009.

Our earnings margin from continuing operations was 9% up from 8.1% in Q2 of fiscal 2009. As there were no activities related to discontinued operations in the quarter, our net earnings of $81.6 million in Q2 were the same as our earnings from continuing operations.

Diluted earnings per share in the second quarter were $0.28. This compares with $0.25 in the same period last year, or an increase of 12%. Here again, when we exclude last year’s positive tax benefit, the improvement was $0.05 or 21.7%.

We generated $125 million in cash from operations in the second quarter or $0.42 a share. Against a target of 45 days or less, our DSO at the end of Q2 was 35 days, an improvement of seven days versus last year. We have remained focused on improving our DSO and our efforts over the last year continue to be seen in our cash management performance.

In the quarter, we acquired nine million shares of CGI for $131.1 million at an average price of $14.56 per share. Under the normal course issuer bid renewed in February, three million shares were repurchased. This leaves us with 22 million shares, which can be purchased over the remainder of the program, which expires in February 2011.

At the end of March, we were in a net cash position of $35.3 million and still have a $1.5 billion credit facility in place until August 2012. And for the last 12 months, our return on invested capital was 16% and a return on equity was 15.5%.

Now I’ll turn the call over to Mike.

Michael Roach

Thank you David and good morning everyone. I am very pleased with our strong and improving performance in quarter two as well as the positive trends and momentum achieved throughout the first half of our fiscal year.

In addition, our ability this quarter to grow our revenue by 3.5% on a constant currency basis is another significant milestone. We continue to see a gradual return of our systems integration and consulting business, coupled with strong bookings, which have started to translate into revenue.

This growth has been realized from our North American operations, which grew, by 5.7% at a constant currency basis. In the U.S., at constant currency, we grew by 12.3%, demonstrating the ongoing strength of the government and health care vertical as well as our ability to create and seize growth opportunities while increasing our recurring revenue and backlog in this key market.

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