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CGI Inc. (GIB)

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CGI Group, Inc. (GIB)

Q2 2017 Earnings Call

May 03, 2017 9:00 am ET

Executives

Lorne Gorber - CGI Group, Inc.

François Boulanger - CGI Group, Inc.

George D. Schindler - CGI Group, Inc.

Analysts

Richard Tse - National Bank Financial, Inc.

Steven Li - Raymond James Ltd.

Phillip Huang - Barclays Capital Canada, Inc.

Thanos Moschopoulos - BMO Capital Markets (Canada)

Maher Yaghi - Desjardins Securities, Inc.

Daniel Chan - TD Securities, Inc.

Paul Steep - Scotia Capital, Inc.

Stephanie Price - CIBC World Markets, Inc.

Robert Young - Canaccord Genuity Corp.

Paul Treiber - RBC Dominion Securities, Inc.

Edward S. Caso - Wells Fargo Securities LLC

Eyal Ofir - Eight Capital

Presentation

Operator

Good morning, ladies and gentlemen [Foreign Language] (00:15) 2017 Conference Call.

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

Lorne Gorber - CGI Group, Inc.

Thank you, Alanna, and good morning. With me to discuss CGI's second quarter fiscal 2017 results are George Schindler, our President and CEO; and François Boulanger, Executive Vice President and CFO.

This call is being broadcast on cgi.com and recorded live at 9:00 AM Eastern Time on Wednesday, May 3, 2017. 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 are reporting our financial results in accordance with International Financial Reporting Standards or IFRS. As before, we'll 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 the call are in Canadian dollars unless otherwise noted.

I'll turn it over to François first to review our Q2 financials and then George will comment on our strategic and operational highlights.

So, with that, François?

François Boulanger - CGI Group, Inc.

Thank you, Lorne, and good morning, everyone. I am pleased to share the results for the second quarter. Revenue was CAD 2.7 billion, representing constant currency growth of 5.6% year-over-year or 4.4% when excluding acquisitions we completed in the last 12 months. On a GAAP basis, including a currency headwind of CAD 179 million coming from all of our major currencies, Q2 revenue was essentially flat when compared with last year. IP-based services and solutions drove 22% of revenue, up from 21% last quarter.

Bookings during the second quarter were CAD 2.7 billion for a book-to-bill of just over one. Of these awards, 29% were IP-related. Over the last 12 months, global bookings have amounted to CAD 11.5 billion for a book-to-bill of 108%. Adjusted EBIT increased to CAD 395 million despite the negative impact of currency. Our margin was protected due to our natural hedge, since most expenses and revenues are in the same currency.

EBIT margin expanded by 30 basis points to 14.5% in Q2. Our effective tax rate in Q2 was 27%, within the 27% to 29% range expected for the full fiscal year. Important to note, any future policy measures to lower the U.S. corporate rate would represent a significant benefit to CGI since the U.S. is among our highest effective tax rate in addition to being our largest segment.

On a GAAP basis, net earnings were CAD 274 million and EPS was CAD 0.90. In Q2, we successfully completed the integration of Collaborative Consulting incurring the remaining cost of CAD 1.3 million. Excluding these costs, net earnings for the quarter were CAD 275 million, up 2.6% from last year and net margin increased by 30 basis points to 10.1%.

Earnings per share, excluding integration costs, were CAD 0.91 per diluted share, up 5.8% from CAD 0.86 last year. We continue to generate strong cash from operations, CAD 366 million in the second quarter or 13.4% of revenue. Over the last 12 months, we have generated CAD 1.5 billion or CAD 4.77 per share. We ended the quarter with a DSO of 42 days, better than our 45-day target. As a reminder, giving the annual cycle of IP subscription fees, Q2 tends to be the seasonal low period for DSO.

We continue to use our cash in the most accretive way. In addition to investing back into our business through the continuous development of our experts and our IP, we also returned value to shareholders through an investment of CAD 286 million to repurchase 4.6 million shares and repaid CAD 40.5 million in long-term debt to finish Q2 with net debt of CAD 1.5 billion or CAD 433 million lower than last year.

As a result, net debt-to-capitalization improved by 560 basis points to 18.2% from 23.8% in Q2 last year. With our revolving credit facility that remains fully accessible and CAD 282 million in cash, we have nearly CAD 1.8 billion in readily available liquidity and access to more as needed to pursue profitable growth.

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