Welcome to CGI's fourth quarter fiscal 2026 conference call. I would now like to turn the meeting over to Mr. Jason Dee, Senior Vice-President 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, 9:00 A.M. Eastern Time on Wednesday, November 11th, 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 CAD, unless that's otherwise noted. Let me give you guys some insights on the agenda for today.
Steve will talk you through our quarter four 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. 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, 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 support 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%, for 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%-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, two 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 shareholder of records as of the close of business on November 27, 2026. At quarter end, CGI had a net debt leverage ratio of one 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 market. Tim?
Thank you, Steve, and good morning, everyone. I would 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 will 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 SI&C. 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 continued 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 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, 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 US General Services Administration awarded CGI a five-year, $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.
Riksbanken, 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. 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 $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 our strategy remain pivotal to our growth as we closed five 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 would 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 three 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 customer 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 will 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 three recognitions for excellence in operations across 98 countries. More importantly, our clients using Trade360 collectively earned nine 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 grids 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.
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, core 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 on solutions for retailers, such as delivery routing and workforce scheduling. In CGI Federal, we recently launched a research initiative with the US 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. 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.
Of course. Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one. To withdraw your question, press star two. Please limit yourself to one question and one follow-up. One moment, please, for your first question. Your first question comes from Jérôme Dubreuil from Desjardins Canada. Please go ahead.
[Non-English content ] Good morning. Thanks for taking my questions. I have two. The first one is the IT services market reopening up? We had a few signals from peers and yourself, so we're wondering if there's more urgency from the clients or maybe more concrete engagements. 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.
Thanks, Jérôme, 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. 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. 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. Whether it's providing agents for process help for users or online help, all those things are now integrated into the solutions that we deliver. So yeah, it's certainly here to stay and is part of everything we do now.
Thank you.
Your next question comes from Stephanie Price from CIBC Canada. Please go ahead.
Good morning. Thanks for taking the question, and 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. Just curious if you could walk through that impact and how we should think about U.S. federal margins going forward.
Yeah, Stephanie, thanks for the question. The answer to it is there were a couple one-time things around some tax credits and some other things in Q4 in federal, so we expect that to improve going forward into 2027, that being the EBIT margin in federal. Overall, and thanks for pointing out the growth in federal, we are 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.
Thank you. Maybe I could sneak one follow-up in just around the partnerships. You have 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 is evolving.
Yeah, sure. Thanks, Stephanie. Look, we continue to mature in the way that we are 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 are seeing an increase in expert certifications of about 12% across our staff, and so that is great and evidence that we are doing more and more of that kind of work. Look, our strategy is always being proximate with our clients and understanding their business, being expert in the industries in which they operate, and then the sub-processes within those industries. And I think I mentioned some of those, 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 is why you see the increase in business and pipeline and certification, and that is an important part of everything that we do going forward.
Thank you.
Your next question comes from Doug Taylor from National Bank. Please go ahead.
Yeah, thank you. Good morning. Tim, I will ask another couple 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 does not appear to have had much impact, but I guess I will ask you to make any comments there on what you have seen in behavior there.
Yeah, sure, Doug. Thanks for the question. Thanks for joining us this morning. I think what you are 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 U.S. citizens. CGI Federal is a wholly owned subsidiary that operates under a special security agreement, and we are delivering primarily services. Any products or software solutions that we deliver for our clients are built in the U.S. by U.S. citizens. There has been no impact or no headwind there at all.
Okay. 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?
Yeah. We are indeed hiring. I think you can go look on the public available information and see lots of open positions. We are always looking for great people, Doug. If you have anybody to refer, please send them our way. But it is great that the demand is there. The types of people we are hiring, the skills we are looking for, are continuing to evolve. As we do more work with AI, in addition to technical skills, we are looking for people who can multitask because you are maybe orchestrating across a number of AI agents. We are looking for people who are good problem solvers, as the nature of what makes somebody good at their job continues to evolve. So, what is interesting about those open positions is in addition to technical requirements or maybe industry expertise, we are looking for some of those other capabilities as well.
Thank you.
Yep.
Your next question comes from David Kwan from TD Cowen Canada. Please go ahead.
Good morning. Maybe following up on the U.S. federal, and I am not sure if it is 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? Are they having any sense of urgency maybe to get things done ahead of a possible shutdown with the Democrats taking over?
Yeah, David, thanks for your question. Yes, it is. It has been a week, right? A week yesterday. As you know, or if you do not, the cycle in the U.S. is we have the election last week, and then the new Congress gets seated at the beginning of January. There is this almost two-month period where the existing Congress tries to finish business. What we are hearing from our sources on the Hill, and the rest of industry is hearing the same, is that the existing Congress is going to try and get at least three of the four open appropriations passed before they leave, which would fund the government for the rest of the year.
Whatever they cannot get passed, they will put in a continuing resolution, which basically keeps the funds at whatever the current level is until there is an appropriation, which is the term used for releasing the budget to be spent. Anything in a continuing resolution would basically be kicked over or handed to the new Congress to resolve when they are seated in January and February. At the moment, the current funding for the things that are not appropriated lasts 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. That is what we are seeing. The current administration has a reputation for not necessarily being the most predictable, so who knows what will actually happen.
That is, I think, the intent of the current Congress is to deal with that. 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 are long-term programs. As you know, in government, there is 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 are involved in continue across administrations. The real issue is just keeping the funding flowing. It looks like that is going to happen.
No, that is great color. Thanks, Tim. There is a second question. Just looking at the bookings data, the ones coming from existing customers, extensions, renewals, add-ons, it has been quite solid double-digit gains throughout this year. On the new business booking side, that has 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 that weaker performance this year, and how do you look at that going forward?
Yeah, that's a great question. I mean, obviously, in any year, in any booking scenario, existing clients and 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. What I would say about bookings is I always look at backlog at the same time I look at bookings. 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. 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.
Thank you.
Yep.
Your next question comes from Paul Treiber from RBC Capital Markets Canada. Please go ahead.
Oh, thanks very much, and good morning. I just want to speak about AI in terms of the impact to your internal business and in productivity. Specifically, going forward, do you see revenue decoupling potentially from headcount growth? Secondly, and related to that, can you quantify the productivity gains that you're seeing from AI, either to software development or just operations in general?
Yeah. Thanks, Paul. There's a couple of questions in there, so I'll make sure I hit on both of them. 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. 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 these AI tools are yet another way to continue that. So it'll 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, headcount's 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 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 own personal use of, say, a personal productivity tool, when you do an upgrade, there are 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, we're seeing that. In terms of productivity, the systems development life cycle, you see different levels of productivity. Coding can be up to 40%-50%. Design and requirements tracking can be 15%-20%. And so, from solution to solution and client to client, we see variation. But 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.
Our internal use is helping. We are really focused on how it is helping our clients in those ways.
Thanks for that. If I could just squeeze in one more. The MD&A called out a client insolvency, I think, in the U.K. Operationally, how do you typically manage through events like that? 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?
We expect the second option. I do not want to get too far into it, but basically, that client is in administration, and so they are being run, and we are continuing to provide our services to keep that operation running. We have a view, after 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 is pretty positive. In terms of collecting anything owed, we are in the process of working through that, but we expect to be able to do that.
Okay. Thanks for taking the questions.
Yep.
Your next question comes from Surinder Thind from Jefferies USA. Please go ahead.
Thank you. Tim, just a big-picture question here on the focus on organic growth. 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?
Hey, Surinder. Thanks for your question. Good to hear from you. Maybe kind of breaking that down, 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 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. I've said that quite a bit. I was trying to think about how to be clearer about that, and there's kind of a simple example.
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. 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. 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 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." But in reality, from a margin perspective, I'm going to bill the 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 whole, right? The client's 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's going to do. I'm going to charge $100, but they're going to get twice as many envelopes stuffed. 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 my I'm still paying my envelope stuffer 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. 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. The way you can do envelopes, could you do that with boxes? Because if you can, I'd like to give you that project too." And now we're getting work that is adjacent to what we were doing.
We've used the example of our IP where 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 tools to do this for our systems?" So the cardboard boxes in my simple example are analogous of that. So when I say more faster, Surinder, that's what we're seeing with our clients. 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 at a tail end in 2027.
So again, what we're seeing in the market is more faster and not cannibalization, if that's helpful.
That is, Tim, and I 1,000% agree with the scenario that you have 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 is a broader industry challenge. It is just not your SI&C component that is 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 is not going to $110. When we look across the industry, everybody that does SI&C type of work, consulting type work, is basically at flat-ish growth. Negative growth in some cases, slightly positive in others.
And that is 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?
Yeah, Surinder. When I look at my anatomy, the clients are asking us to stuff the boxes, and that is compensating for some of the other slowdowns I mentioned, which results in lower flat-ish growth. I would say watch the trend. If you look at our trend, we are moving in the direction we said we would, and we expect that to continue into 2027. I cannot speak for others in the industry, but it seems as I do look across that there is a similar trend. So your question is a fair one, and I would say let us talk next quarter.
Absolutely. I appreciate that. Thank you.
Your next question comes from Kevin Krishnaratne from Scotiabank Canada. Please go ahead.
Hey there. Good morning. Just one from me. I would just like your thoughts on M&A, and the type 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. What are your thoughts on adding either more tech or IP or software? I am just asking because some of your peers have been doing so in order to build up their offerings. So just wondering your approach is in order to maintain that IP and tech differentiation. Thanks.
Yeah, Kevin. Thanks. 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. Some of that, I think I mentioned it in the prepared remarks, some of the technical expertise we got even from what we would call tuck-ins, or what we would call maybe metro mergers, the smaller ones. We do have larger M&A targets in our sights. I know I said that last quarter, but you heard in the remarks, we are very careful to make sure we are getting the right return for our investors, but our pipeline is active. If things stay on track, we are 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 does not happen, you can call me out on it next call, but I can promise you they are in there and we are moving forward to bring them in.
Fair enough. Maybe I will ask a second question. Just the organic growth and 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? How do we think about any opportunities for growth, pockets or verticals that could drive outperformance? On the flip side, any areas we should be mindful of, where there could still be some challenges for the upcoming year? Thanks.
Yeah, 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 term, there's strengths 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. Some of the earlier questioner 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, Baltic. 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.
It might not be a straight line, but we have high expectations of 2027. We're pushing ourselves, and we think we'll see continued improvement.
Thanks very much.
Yep.
Your next question comes from Thanos Moschopoulos from BMO Capital Markets Canada. Please go ahead.
Good morning. 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 just the dynamic that's driving that, and how sustainable would that growth be? Thank you.
Yeah. Hi, Thanos, and thanks. That's a great question. It's driven by multiple things. Yes, there's more GCC work that we're seeing, but just more work in general. 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. When 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 turn it into value. 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. I think it really is really key. All those things are key to driving that growth, and we see that continuing.
Great. Then just as far as all the tuck-ins you've done over the last couple of years, there are quite a number of them. Any comment on how that integration's progressed? Anything to call out there? Does integrating assets look any different in an AI world than it did pre-AI? Thanks.
Yeah. The second half of that question is interesting. I'll noodle that while I'm answering the first part. 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 an IT services company. We're buying the people that have client relationships and skills and knowledge, so we try to treat them in a straightforward way and fairly, and I think they appreciate that. 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.
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. 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, 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.
I'll pass it along. Thanks, Tim.
Thanks, Thanos.
Your next question comes from Suthan Sukumar from Stifel. Please go ahead.
Good morning, gents. 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 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?
Suthan, good question, and the expectation has always been both of those things 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 five years. But we are seeing it's not continued long term. I think what it 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 efficiently, my compute, my tokens, as opposed to throwing the tools in and six months later, having my business case shot out of the water because I get a big compute bill. 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 computing comes in, and then the next thing after quantum computing 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.
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. Just wondering how this is showing up from a demand signal perspective and bookings growth perspective.
Yeah, 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 then we have facilities and capabilities in each of those locations. So sovereignty is about the data, where's 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, the compute that's processing it, where is that located? So we're in a position where we can offer solutions that put those three things wherever the client needs them.
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. With our global footprint, we are able to offer solutions that give the clients what they need, and I think that is why you are seeing some of the uptick in our bookings in that area. Yes, maybe we did not highlight it enough, but we see that as a big tailwind and opportunity to grow going forward.
Great. Thank you, Tim. I will pass the line.
There are no further questions at this time. I will turn the call back over to Jason Dee for closing remarks.
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 you can use the following information to dial in, which is 888-660-6264, and don't forget the passcode of 20994. There is also a podcast of this call that will be available for download, most likely within a few hours. 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. I am looking forward to speaking to everyone soon. Thank you, Julie.
Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you.