CGI (GIB) Q4 2026 Earnings Call Transcript

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DATE

Wednesday, Nov. 11, 2026

CALL PARTICIPANTS

• SVP of Investor Relations - Jason Dee
• Steve Perron
• Timothy Hurlebaus

TAKEAWAYS

• Revenue -- $4.15 billion in the fourth quarter, up 3.3% year over year or 2.5% in constant currency, driven primarily by recent business acquisitions.
• Adjusted EBIT -- $678 million, representing a 16.4% margin and a 1.6% increase compared to the prior year.
• Bookings -- $4.5 billion for the quarter, resulting in a book-to-bill ratio of 109%, led by high demand in the U.S. Federal segment.
• Contracted Backlog -- $32.1 billion at the end of the fiscal year, representing 1.9 times annual revenue and providing business resilience.
• Net Earnings -- $461 million on a GAAP basis, representing an increase of $79 million compared to the prior year for a net margin of 11.1%.
• Adjusted Diluted EPS -- $2.31 in Q4, an 8.5% increase from the prior year, reflecting disciplined cash allocation.
• Cash from Operations -- $2.5 billion for the full fiscal year, up 11% and representing 15% of revenue.
• Managed Services Revenue -- Reached an annual high of nearly $9.1 billion as engagements won earlier in the year transitioned into delivery.
• Asia Pacific Growth -- 15% constant currency revenue growth in Q4, driven by industry expertise and demand for Global Capability Center services.
• Dividend Increase -- Board of Directors approved an 8.8% increase to the quarterly cash dividend, raising it to $0.185 per share.
• Share Buybacks -- $167 million used to repurchase stock during the fourth quarter as part of capital allocation priorities.
• U.S. GSA Contract -- Secured a 5-year USD 250 million agreement for application development and modernization across more than 40 mission-critical systems.
• San Diego County Agreement -- Expanded relationship with a 10-year USD 100 million agreement to modernize core business operations for 20,000 users.
• SI&C Book-to-Bill -- 94% for the fourth quarter, compared to a full-year ratio of 101%, reflecting timing of project transitions.
• Capital Resources -- $3 billion readily available at year-end, supported by a net debt leverage ratio of 1x.
• AI Investment -- $35 million invested specifically in advanced AI during the fourth quarter to support AI-led IT development.
• Expert Certifications -- Increased 12% across major hyperscaler platforms and AI models during the year.
• Acquisition Contribution -- Recent business mergers accounted for approximately 2.4% of total revenue growth in the fourth quarter.
• Days Sales Outstanding -- 43 days at quarter-end, representing a 2-day improvement versus the previous year.
• Tax Rate -- 26.6% in the fourth quarter, which included a $3 million impact from a new corporate tax surcharge in France.

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RISKS

• Hurlebaus stated, "who knows what will actually happen," regarding the predictability of the current U.S. administration and its potential impact on the timing of government funding and appropriations cycles.

SUMMARY

CGI Inc. (NYSE:GIB) reported a return to organic growth in the fourth quarter, driven by strong bookings in managed services and government sectors. Management highlighted a record backlog and sequential revenue improvement while emphasizing the integration of AI across all service offerings to drive client productivity. The company maintained a disciplined capital allocation strategy, increasing its dividend and continuing share buybacks.

• Timothy Hurlebaus noted that AI tools are being used to develop intellectual property, with coding productivity gains reaching 40% to 50% and design tracking at 15% to 20%.
• The company is seeing a decoupling of revenue from headcount as managed services and IP implementations focus on outcome-based delivery rather than staff counts.
• The opportunity pipeline for global alliance partnerships, including AWS and Databricks, doubled year over year.
• Management stated that the U.S. Federal business is insulated from potential headwinds regarding foreign-owned entities because it operates under a special security agreement and uses U.S. citizens.
• A client insolvency in the U.K. is being managed through an administration process, and management indicated a path forward to continue providing services to the entity.
• Managed services engagements signed in the quarter included a 10-year agreement with Riksbank, Sweden's Central Bank, to expand IT operations.

INDUSTRY GLOSSARY

• Managed Services: Multiyear contracts for the ongoing management of IT systems or business processes.
• SI&C (Systems Integration and Consulting): Services focused on business transformation, software integration, and consulting.
• IP (Intellectual Property): Proprietary software solutions and platforms developed and owned by the company.
• Book-to-bill: A ratio comparing total bookings to revenue, indicating future growth potential when above 100%.
• DSO (Days Sales Outstanding): A measure of the average number of days it takes to collect payment after a sale.
• GCC (Global Capability Centers): Centralized locations providing IT and business services to global operations.
• MD&A (Management's Discussion and Analysis): A report section where management explains financial performance and trends.
• SEDAR+: The electronic document system for public company disclosures in Canada.
• EDGAR: The U.S. Securities and Exchange Commission's electronic data filing system.
• IFRS (International Financial Reporting Standards): A global set of accounting standards for financial reporting.
• Adjusted EBIT: Earnings before interest and taxes, adjusted for specific items such as integration costs.
• AIOps Director: A CGI proprietary platform used to automate and enhance IT operations.
• CGI Advantage: An integrated suite of software solutions designed for public sector government resource planning.
• OMNI360: A patient information platform designed for healthcare providers to manage data and care.
• Sovereign platform: An IT platform ensuring data is managed and stored within specific geographic or legal boundaries.
• MaEVA: A CGI platform used for remote aircraft diagnostics and strengthening operational readiness.

Full Conference Call Transcript

Operator: 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.

Jason Dee: Appreciate that, Julie. Thank you, and thanks to everyone joining us today, 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 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. 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 the dollar figures expressed on this call are Canadian, unless that's otherwise noted. Let me give you guys some insights on the agenda for 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 lines for questions before we conclude the call this morning. And Steve, I'll hand it over to you.

Steve Perron: 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 or 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 had a book-to-bill ratio of 122%, and SI&C 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 SI&C 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 of 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 record as of the close of business on November 27, 2026. At quarter end, CGI had a net debt leverage ratio of 1x 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, SI&C and IP, pursuing accretive acquisitions, share buybacks and quarterly cash dividend distributions. 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?

Timothy Hurlebaus: Thank you, Steve, and good morning, everyone. I'd like to begin by recognizing our CGI colleagues and clients serving 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 proportion 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 and consulting, 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 to helping clients achieve outcomes. Expert certifications in 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 as 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 with 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 mission-critical acquisition systems.

Dassault Aviation, a leading French aerospace manufacturer, selected CGI to deploy our MaEVA platform to accelerate remote aircraft diagnostics, reduce downtime and strengthen operational readiness. The European Space Agency selected CGI to partner with OVHcloud 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 OMNI360 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 AIOps Director platform to strengthen its IT operations and improve efficiency and reliability within air-gapped high-security environments.

Riksbank, Sweden's 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 and client relationships in Poland, Finland, Canada and the U.S. We extended our industry coverage across banking, insurance, manufacturing, retail and government.

We also expanded our expertise in key areas such as cybersecurity and AI, digital and 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, metro 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 help clients drive tangible business and mission outcomes. In banking, clients are 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 such as 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 ANZ, 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 combines 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 are protecting tight margins and managing inventory while meeting customer demand for seamless service. CGI combines retail expertise and IP, such as Retail Suite with data, customer operations, forecasting, replenishment and managed services to improve product availability and customer interactions while addressing inventory management and loss prevention.

In energy and utilities, data center growth and electrification are straining aging infrastructure as utilities work to maintain reliable, secure operations. CGI helps modernize grid 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, combining 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 a value creation model focused on complementary strategies. First, organic growth, the build strategy through systems development, integration and consulting, managed services and IP platforms and services. 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.

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

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

Jerome Dubreuil: 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?

Timothy Hurlebaus: 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, then that's a good thing. But 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 deliver IT services to our clients and the way our clients are able to produce value for their enterprise and that shows up as value for their consumers and constituents. And so it's certainly here to stay. It's integrated now in everything we do, whether it's developing software or doing design and tracking requirements or running managed services and tracking incidents and service calls. We have it -- whether it's providing agents for process to help for users or online help, all those things are now integrated into the solutions that we deliver.

So yes, it's certainly here to stay and is part of everything we do now.

Operator: Your next question comes from Stephanie Price from CIBC Canada.

Stephanie Price: Congratulations on the U.S. Federal revenue growth in the quarter. I was hoping you could 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 U.S. Federal margins going forward.

Timothy Hurlebaus: Yes, Stephanie, thanks for the question. And the answer to it is there were a couple of onetime 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.

Stephanie Price: 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 you could give us a little bit of an update on the partner ecosystem here and how it's evolving.

Timothy Hurlebaus: 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 of about 12% across our staff. And so that's great and evidence that we're doing more and more of that kind of work. Look, our sort is always being proximate with our clients and understanding their business being expert in the industries in which they operate and then the subprocesses within those industries. And I think I mentioned some of -- covered 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 business and pipeline and certification, and that's an important part of everything that we do going forward.

Operator: Your next question comes from Doug Taylor from National Bank.

Analyst Doug Taylor: 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 and 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 comments there on what you've seen in behavior there.

Timothy Hurlebaus: 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 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 -- or software solutions that we deliver for our clients are built in the U.S. by U.S. citizens. So that's there has been no impact or no headwind there at all.

Analyst Doug Taylor: 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?

Timothy Hurlebaus: Yes. We are indeed hiring. I think you can go look on the publicly available information and see lots of open positions. We're always looking for great people, Doug. If you have anybody to refer, we 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 good 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.

Operator: Your next question comes from David Kwan from TD Cowen, Canada.

David Kwan: 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?

Timothy Hurlebaus: Yes, David, thanks for your question. So yes, it's been a week, right, a week yesterday. And so as you know, the cycle in the U.S. is we had the election last week and then the new Congress gets seeded at the beginning of January. So, there's this almost 2-month period where the existing Congress tries to finish business. What we're hearing from our sources on the Hill and the rest of the industry is hearing 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 whatever they can't get passed, they'll put in a continuing resolution, which basically funds -- keeps the funds at whatever the current level is until there's an appropriation, which is the term used for releasing the budget to be spent. And so they would -- but 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, the current funding for the things that aren't appropriated 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 in the new calendar year. So that's what we're seeing. Now, the current administration is a reputation for not necessarily 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 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 administration. So, there's not -- the real issue is just keeping the funding flowing. And so it looks like that's what has to happen.

David Kwan: No, that's great color. And then just a second question, just looking at the bookings data, coming -- the ones coming from existing customers, extensions, renewals add-ons, it's been quite solid, solid double-digit gains throughout this year. But on the new business bookings side, that's been particularly weak. It was 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?

Timothy Hurlebaus: Yes, that's a great question. I mean, obviously, in any year, in any booking scenario, existing clients that 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 is 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.

And so, when I look at that, I'm confident in where we are, and I'm sure the bookings will continue forward to keep that number high.

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

Paul Treiber: 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 headcount growth? And then secondly, and related to that, can you quantify the productivity gains that you're seeing from AI, either it's like software development or just operations in general?

Timothy Hurlebaus: 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 headcount coupling. We, over several years, have seen a bit of a decoupling of headcount from revenue. As you know, the majority of our revenue is Managed Services and in Managed Services often we're paid to produce a certain level of service and a set of outcomes, and 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 headcount over the years. And AI -- these AI tools are yet another way to continue that. So, it will never be -- we're in a professional services business. 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 headcount and revenue, but it's already not been a tight coupling, and I think that will continue. So, revenue is an interesting -- sorry, headcount 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 our IP. And so, we're able to see productivity gains, and I'll get into 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 own personal use of, say, a personal productivity tool when you do an upgrade, there's sometimes some adjustments. When you get to an enterprise system, it's always been far more complicated than that.

You've got to deal with a lot of data and make sure that you retest and all that kind of thing. AI drives efficiency in all those things. And so -- so we're seeing that. In terms of productivity, the systems, 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, it's 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.

Paul Treiber: If I could just squeeze in one more. The MD&A called out a client insolvency, I think, in the U.K. Then operationally, how do you typically manage through events like that? Like will you effectively shut down the contract? Or do you expect to receive some of the funds through the insolvency process and continue operations until that process is completely wound down?

Timothy Hurlebaus: We expect the second option. So, I don't want to get too far into it. But basically, that client is in administration, and so they are being run, and we're continuing to provide our services to keep that operation running. And we have a view after their -- the future of that company runs its course, we have a view to continuing to provide those services to that entity, whatever it may be. So, we see a path forward there. That's pretty positive. And in terms of collecting anything, we're in the process of working through that, but we expect to be able to do that.

Operator: Your next question comes from Surinder Thind from Jefferies USA.

Surinder Thind: Tim, just a big picture question here on the focus on organic growth. And more specifically, if we break it into the segments of SI&C versus managed services, can you comment on what you're seeing in SI&C and what it will, kind of, take to get that back to positive organic growth at this point? It just seems like as long as the productivity benefits continue that while they're beneficial on the internal portion of the organization, they're also negatively impacting the SI&C component. Just your thoughts on how that evolves over the next couple of years and maybe the volume makes up for what we're seeing from a deflationary perspective? Or how do we actually think about that segment?

Timothy Hurlebaus: Surinder, thanks for your question. Good to hear from you. Maybe, kind of, breaking that down and then I'll hit your question head on. We're concerned mainly with growth of all kinds. We are pleased to have returned to organic growth overall this quarter for sure, and we see that continuing. Whether that comes from managed services or SI&C, we're pushing on all levers. But in terms of the idea that when we use these tools to deliver productivity to our clients, and that's somehow cannibalizes our business, our revenue or our margin.

You've heard me, Surinder, say over the last -- certainly last call and in some of the meetings that what we're seeing our clients ask for is more faster. And so I've said that quite a bit. I was trying to think about how to be clear about that. And there's, kind of, a simple example. So if you'll bear with me, I'll walk through it because I think it's worth explaining the thought and it really is what we're seeing.

And so, if you take an example of a person that -- the bill rate for this person is $100 an hour, and they can deliver X lines of code in an hour or X function points or process Y test cases or however you want to measure it, put a measure on that. And let me flip to maybe a BPO example just for ease of clarity. Let's say I've got somebody who can stuff 200 envelopes in an hour and I charge 100 -- the client $100. Now they have an AI tool or some sort of aid that allows them to do that in half the time. So, now they can stuff 200 envelopes in 30 minutes.

And so the thinking behind, hey, you're cannibalizing your business is that aha, you're going to lose that half hour. And -- but in reality, from a margin perspective, I'm going to build a client for 30 minutes, and so I'll charge them $50 because I only spent 30 minutes producing that outcome. My margin for that 30 minutes is hold, right? Now, the client is not going to say, stop there because the client -- and again, bear with me on this example, has millions of envelopes to stuff. So they're going to say, great, stuff 400 envelopes in an hour. And that's what my person is going to do.

And I'm going to charge $100, but they're going to get twice as many envelopes stuff. So, their procurement shop is going to go back and say, we've gotten 50% cost efficiencies out of CGI. Isn't this great? But that's not hitting -- I'm still paying my envelope stuff for the same salary. And so I'm still maintaining my margin. I'm using this tool to deliver more efficiency for the client. So, they're happy and I'm whole. Now here's where the more faster happens. They might say, give me more envelope stuffers because you're really good at this. And now I increase.

But what's really interesting about this is they're going to say, hey, in the next warehouse over, I'm assembling cardboard boxes. And the way you can do envelopes, can you do that with boxes? Because if you can, I'd like to give you that project, too. And now we're going to work that is adjacent to what we were doing. And we've used the example of our IP where we put our -- we create agents for our processes and our user manuals and such, and our clients do exactly that. They say, hey, we've got systems adjacent to what you're doing. Could you use your platform and your agentic tool to do this for our systems.

And so the cardboard boxes in my simple example are analogous of that. And so, when I say more faster, Surinder, that's what I'm -- that's what we're seeing with our clients. And some of the challenges we had in the last year weren't because they were doing less with us and more with AI tools. It was for other reasons where they were, kind of, rethinking and reshifting. And I mentioned some of those last quarter, pausing to do vendor consolidation, which we were the beneficiary of and will be a tailwind in 2027. So again, what we're seeing in the market is more faster and not cannibalization, if that's helpful.

Surinder Thind: That is, Tim, and I 1,000% agree with the scenario that you laid out here. I guess, ultimately, the question I have here is, when does the revenue associated with the adjacency, which in this example would be the box stuffing, come into play? Because it seems like there's a broader industry challenge. It's just not your SI&C component that's challenged to see growth. It seems like the client wants to spend $100 and whatever productivity benefits they get, they continue to spend $100, but the $100 isn't going to $110.

When we look across the industry, right, everybody that is SI&C type of work or consulting type work is basically a flattish growth, negative growth in some cases, slightly positive in others. And that's really the question here is why are clients not asking you to stuff the boxes when they can see the productivity benefits in the envelopes?

Timothy Hurlebaus: Yes, Surinder. When I look at my anatomy, the clients are asking us to stuff the boxes, and that's compensated for some of the other slowdowns I mentioned, which results in lower flattish growth. I would say watch the trend. If you look at our trend, we're moving in the direction we said we would, and we expect that to continue into 2027. And I can't speak for others in the industry, but it seems as I do look across that there's a similar trend. So, your question is a fair one. And I would say let's talk next quarter.

Operator: Your next question comes from Kevin Krishnaratne from Scotiabank Canada.

Kevin Krishnaratne: Just one for me. I'd just like your thoughts on M&A and the types of acquisitions you might be looking at. I mean, outside of the regular, call it, tuck-ins in metro markets, you completed one in September. Just any -- what are your thoughts on adding either more tech or IP or software? I'm just asking because some of your peers have been doing so in order to build up their offering. So, just wondering what your approach is in order to maintain that IP and tech differentiation.

Timothy Hurlebaus: Yes, Kevin, thanks. And in our M&A targets, we always are looking not only for client relationships and regional coverage, but also industry expertise and also technical capabilities. And some of that -- I think I mentioned in the prepared remarks, some of the technical expertise we got even from the -- what we would call tuck-ins or what we would call maybe metro mergers, the smaller ones. But we do have larger M&A targets in our sights. I know I said that last quarter, but as you heard in the remarks, we do -- we're very careful to make sure we're getting the right return for our investors, but our pipeline is active.

And if things stay on track, we're looking forward to some announcements here in the first half of calendar 2027 that I think will be good examples of us doing what you just said. So again, if it doesn't happen, you can call me out on the next call. But I can promise you they're in there, and we're moving forward to bring them in.

Kevin Krishnaratne: Okay. Fair enough. Maybe I will ask a second question. Just the organic growth improvements quarter-over-quarter, I know you don't give guidance, but maybe if you just want to step back broadly over the next few quarters, what are your views on sort of the cadence of trends? Any -- how do we think about any opportunities for growth pockets or verticals that could drive outperformance? And then on the flip side, any areas we should be mindful of where there still be some challenges for the upcoming year?

Timothy Hurlebaus: Yes, Kevin, you're right. We don't give guidance, but I will say we expect continued improvement on that front. That's what we're seeing. In terms -- there's strength all over in our operations. The government industry, you've heard about all those bookings. So, there's a lot of future strength there, both in Europe and in North America. You mentioned some of the earlier question or mentioned CGI Federal as a strength. Part of that is an easier comp a year ago, but it's also due to some really strong bookings and growth there. We're seeing -- I think, increasing strength in the banking and the financial services market across our practices.

You saw some good results, for example, in Finland, Poland and Baltics. Some of that is inorganic, but some of it's organic, and we see some great opportunities there. So we're pretty feeling good about where we are now, and it's a slog. And it might not be a straight line, but we see -- we have high expectations of 2027. We're pushing ourselves, and we think we'll see continued improvement.

Operator: Your next question comes from Thanos Moschopoulos from BMO Capital Markets, Canada.

Thanos Moschopoulos: Tim, can you comment on the strong growth in APAC, quite an acceleration there. Is that driven by a specific couple of large engagements? Or is there a broader trend, perhaps more GCC work or the dynamic that's driving that? And how sustainable would that growth be?

Timothy Hurlebaus: Thanos, thanks, that's a great question. So it's driven by multiple things. Yes, there's more GCC work that we're seeing, but just more work in general. But I think the reason that, that's happening is because we speak a lot about industry expertise. In Asia Pac, we're organized by industry and some of the best experts in our company are in Asia Pac. And so when our client -- we take our clients there and offer solutions and walk them through what we have there, it's very attractive. And I think that's what's driving those growth numbers is that industry expertise, combined with obviously the technology expertise to make it turn it into value. So, that's what's really driving that.

I think it is a nice rebuttal to people saying that the Asia Pac model might be declining because of AI. That's clearly not what we're seeing. Again, we've embraced AI in Asia Pac, just like we have in the rest of our organization. We build much of our intellectual property solutions in India and Asia Pac, and those teams are using those tools. And so I think it really is really key -- all those things are key to driving that growth, and we see that continuing.

Thanos Moschopoulos: Great. And then just as far as all the other tuck-ins you've done over the last couple of years or quite a number of them. Any comment on how that integration has progressed, anything to call out there? And does integrating assets look any different in an AI world than did pre-AI?

Timothy Hurlebaus: Yes. That's second half of that question is interesting. I'll noodle that while I'm answering the first part. So, the integrations have gone well. Having done 120 of these, we've got a pretty good process down, which focuses on the people. We're buying IT services company, we're buying the people that have client relationships and skills and knowledge. And so we try to treat them very in a straightforward way and fairly, and I think they appreciate that. Some -- one of the philosophies behind those so-called tuck-ins or niche acquisitions is that they bring great clients.

And then we're able to create -- bring everything that CGI has to offer that those smaller companies didn't to create new opportunities and do some rapid expansion with those clients. So, we've got a big financial services company in the U.S. where we're seeing those big opportunities, a retail company where we're really able to bring more services. And that -- a lot of the pipeline growth and return to growth that you're seeing in our results are driven by that opportunity and phenomenon.

In terms of AI impacting the way we integrate, I mean, other than them bringing people with additional certifications and maybe ideas of how to use things and maybe a few solutions that are useful to us or to our clients, which certainly happens. I don't think it's significantly different than it used to be other than those capabilities are now there.

Operator: Your next question comes from Suthan Sukumar from Stifel.

Suthan Sukumar: For my first question, I wanted to touch on Managed Services bookings, some pretty notable strength this quarter. It sounds like cost optimization is still very much a priority for your clients. Are you seeing clients approaching managed services with more of a defensive posture with respect to cutting costs? Or is there more of an -- or are you seeing more of an offensive play in terms of freeing up capital for reinvestment in other areas like AI or AI-related transformation?

Timothy Hurlebaus: Yes, Suthan, good question. And it's always -- the expectation has always been both of those things from our -- that we've seen from our clients. One interesting thing is the terms of some of the big contracts we signed recently are as long as they've ever been, 10 years, 12 years, some 5 years, but we are seeing continued long term. And I think what it is, is they're saying, hey, we want to sign up with you because we expect and demand that you will deliver continued efficiency.

We see how new technologies can at the least change the way we're doing things, at the worst, disrupt -- and we want a partner who's going to be able to get ahead of that and figure out which technologies to use when and how. An example would be rather than just throwing a Frontier AI tool at my operation, do some domain-specific training and language modeling so that I'm using my energy resources sources efficiently, my compute, my tokens and as opposed to throwing the tools in and 6 months later, having my business case shot out of the water because I get a big compute bill.

And so that's one small example, but signing up with a partner who's going to be thinking about those things in advance and as Quantum comes in and then the next thing after Quantum comes in, how are you going to help me use this thoughtfully and intelligently in a way that creates value for me and my enterprise, not just efficiency, but value that matters to me that drives -- if I'm a public company drives my share price up, if I'm a government that helps me use my funds more efficiently to deliver better outcomes for my constituents. That's really what these contracts are, and I think why we're seeing an increase.

Suthan Sukumar: Got it. Makes sense. For my second question, I just wanted to get a sense of how you're thinking about the broader data sovereignty opportunity for CGI in Europe and in Canada. And I was just wondering how this is showing up in your -- from a demand signal perspective and bookings growth perspective.

Timothy Hurlebaus: Yes. And it's showing up in a pretty big way. A couple of the examples I read in my prepared remarks included sovereign solutions in Europe. Half of our 94,000 people are in Europe. We're not flying people in from somewhere else. So, we have citizens of the EU, citizens of these countries. Obviously, Canada, we have a big footprint. And so -- and then we have facilities and capabilities in each of those locations. And so, sovereignty is about the data, the data and what types of data. It's about the people who's touching the data and all that.

And it's about where is it stored and where is the compute -- where is it being in the compute that's processing it, where is that located? And so, we're in a position where we can offer solutions that put those 3 things wherever the client needs them. And the reality is for certain types of data, you want it to be sovereign for other types or other types of business processes, you might want it somewhere else because you can do it at a better price point. And so, with our global footprint, we're able to offer solutions that give the clients what they need.

And I think that's why you're seeing some of the uptick in our bookings in that area. And yes, maybe we didn't highlight it enough, but we see that as a big tailwind and opportunity to grow going forward.

Operator: And there are no further questions at this time. I will turn the call back over to Jason Dee for closing remarks.

Jason Dee: Julie, thanks for your support over the last hour, and I want to thank everyone on the call for engaging in a healthy discussion today. As a reminder, a replay of this call will be available. It will be either on our website or we can use the following information to dial in, which is (888) 660-6264, and don't forget the passcode of 20994. There's also a podcast of this call that will be available for download most likely within a few hours. And follow-up questions can certainly be directed to me. My number is available on the press release or you can reach me at (202) 570-5890. Thanks again, and looking forward to speaking to everyone soon.

Thank you, Julie.

Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you.

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