Earnings Call
Cgi Inc (GIB)
Earnings Call Transcript - GIB Q4 2024
Operator, Operator
Good morning, ladies and gentlemen. Welcome to the CGI's Fourth Quarter Fiscal 2024 Conference Call. I would now like to turn the meeting over to Mr. Kevin Linder, SVP of Investor Relations. Please go ahead, Mr. Linder.
Kevin Linder, SVP of Investor Relations
Thank you, Joelle, and good morning. With me to discuss CGI's fourth quarter and fiscal 2024 results are Francois Boulanger, our President and CEO; and Steve Perron, Executive Vice President and CFO. This call is being broadcast on cgi.com and recorded live at 9:00 A.M. Eastern Time on Wednesday, November 6, 2024. Supplemental slides as well as the press release we issued earlier this morning are available for download along with our fiscal 2024 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 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 recommend our investors read it in its entirety. We are 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 of the dollar figures expressed on this call are Canadian, unless otherwise noted. I'll now turn it over to Steve to review our Q4 financials and then Francois will comment on our full year performance and business and market outlook. Steve?
Steve Perron, Executive Vice President and CFO
Thank you, Kevin, and good morning, everyone. CGI once again delivered strong results in our fourth quarter of fiscal 2024 in what continued to be a dynamic and challenging macro environment. In Q4, we delivered $3.7 billion of revenue, up 4.4% year-over-year or up 2% when excluding the impact of foreign exchange. The strongest CGI segments were Northwest and Central East Europe at 7.5% constant currency growth. UK and Australia at 7.2%. Asia Pacific at 6.2% and US Federal at 5%. From an industry perspective, we continue to have the highest growth in government, representing 4.7% constant currency growth this quarter. This was followed by manufacturing, retail and distribution at 3.3%, driven from North America. Financial services in Europe and communications in North America remained challenged in line with the current market conditions. Our IP continued to grow at a faster pace with 3.7% constant currency growth in the quarter. As a percentage of total revenue, IP represented 22.9%, up 30 basis points year-over-year. In Q4, bookings were $3.8 billion for a book-to-bill ratio of 104%. Book-to-bill ratios were 85% for business and strategic IT consulting and system integration, given the continued softness in discretionary spending and 120% for managed services that will drive net new recurring revenue. On a trailing 12-month basis, our book-to-bill ratio was 109%. On the same basis, managed services had a book-to-bill ratio of 117% and SI&C book-to-bill ratio was 100%. Our global backlog reached $28.7 billion or 1.9 times revenue, reflecting our overall business resilience. Turning to profitability. Our performance this quarter once again demonstrated our operating discipline. Earnings before income taxes were $592 million for a margin of 16.2%, up 30 basis points year-over-year. Adjusted EBIT in the quarter was $600 million, representing a margin of 16.4%, up 10 basis points year-over-year. The increase is mainly due to one more available day to bill and savings generated from our cost optimization program. These were in part offset by prior year's adjustments for R&D tax credits in France and the impact of lower utilization within the financial services largely in Europe and communication and utilities in North America. Margins were strongest in the following segments. Asia Pacific at 28%, Canada at 22%, Finland, Poland and Baltics at 19%, US Federal at 18% and US Commercial and State Government at 16%. Our effective tax rate in the quarter was 26.4%, up from 25.7% last year, impacted by the tax credit adjustments and the increase in the UK statutory rate. We expect our tax rate for future quarters to be in the range of 25.5% to 26.5%. Net earnings were $436 million for a margin of 11.9%, up 10 basis points year-over-year. Diluted EPS was $1.91, representing an increase of 8.5% year-over-year. When excluding specific items, net earnings were $439 million. This represents a margin of 12%, stable year-over-year. On the same basis, diluted EPS was $1.92, an accretion of 7.3% when compared to Q4 last year. In the quarter, cash provided by operating activities was $629 million, representing a strong 17.2% of total revenue. DSO was 41 days in the quarter, three days better than last year. In Q4, we used our cash to invest $82 million into our business, invest $492 million for business acquisition upon the completion of the acquisition of Aeyon and repayment of this debt and invest $49 million to buy back our stock. Before the end of the quarter, we issued $750 million of public Canadian senior notes. The proceeds were used to repay existing debt as planned and for general corporate purposes. We continue to deliver a strong return on invested capital at 16%, consistent with the prior year, demonstrating our proficiency and discipline on deployment of capital. At the end of the quarter, CGI had $3 billion of cash readily available and access to more if needed. As part of our profitable growth strategy, CGI capital allocation priorities remain focused on investing back in the business and pursuing accretive acquisitions. The company also has the flexibility to use a portion of its free cash flow for the repurchase of its stock and for the distribution of dividends to further enhance value for shareholders. Yesterday, CGI's Board of Directors approved a cash dividend of $0.15 per share. This dividend is payable on December 20, 2024, to shareholders of record as of the close of business on November 20, 2024. Before turning the call over to Francois, I would like to highlight a few adjustments that were made effective October 1st. Germany is now its own segment and our operations in Scandinavia are now combined with our Northwest and Central East Europe segment. Starting next quarter, we will begin reporting on this new structure and we will provide restated historical data at that time. Now I will turn the call over to Francois to discuss the insight on the quarter and the year as well as the outlook for our business and markets. Francois?
Francois Boulanger, President and CEO
Thank you, Steve, and good morning, everyone. I am pleased to be here today to review the fiscal 2024 results achieved by our outstanding team around the world. I also want to recognize George Schindler, who retired as of October 1st, following a nearly 40-year career at CGI. Thank you, George, for your leadership and guiding our company over the past eight years as CEO, including the delivery of the strong results for fiscal 2024. CGI's performance for the year demonstrated our ability to execute on our plan in a dynamic market environment. Earnings expanded through a higher recurring revenue mix as well as proactive operational excellence actions. Cash from operations remain robust as a result of sustained quality delivery for clients and bookings represented a 109% book-to-bill ratio for the last 12 months with every reporting segment at or above 100% ratio. With regards to revenue, growth progressively increased in the back half of the year, ending Q4 with 4.4% year-over-year growth or 2% on a constant currency basis. We also further our buy strategy by closing chill mergers, a meaningful acceleration over fiscal 2023. We began the year by merging with Miami-based Momentum Consulting to expand our digital and data offerings in our manufacturing, retail and distribution sectors. In Canada, we acquired the credit union business of Celero expanding our services to more than two-thirds of credit unions nationwide. And we acquired Aeyon and CGI Federal, deepening our digital and AI-based offerings, for national security and civilian agency clients. I would like to warmly welcome all new consultants who joined CGI from these mergers. Each year, our plans are designed to create value for all three of CGI's stakeholders. This focus on seeking the best equilibrium among our clients, our consultants and our shareholders is fundamental to our strategy and planning. With this principle in mind, I will review the annual performance highlights by stakeholder starting with clients. CGI's deep and trusted client relationships remain critical to our growth agenda. Again, this year, client satisfaction was up on every dimension we measure. In fact, two of the highest rated score were related to the quality of our relationships. This includes CGI's commitment to clients as well as their intent to engage us again in the future. Both of these scores, which come from signed client assessments, were at record high levels of over 9.6 out of 10. The expertise, insights and commitment of our consultants and professionals make this high degree of client satisfaction possible. Thank you to all team members worldwide for partnering with clients to help them achieve tangible business and mission outcomes. Now turning to our consultants and professionals. CGI's culture of ownership is unique in the market and enabled us to retain and attract the best talent. This was demonstrated this year as we saw more of our consultants and professionals become CGI shareholders, increasing from 85% to 87% year-over-year. This engagement as owners is why we call our employees CGI partners. Next, the overall satisfaction of our people increased again this year now at 8.9 out of 10. This result demonstrates the deep engagement of our CGI partners. Clients continue to cite this engagement as a key factor for why our people show up differently as an extension of their own teams. This makes a significant difference, especially as clients navigate change and prioritize their business and mission goals. Lastly, the input of our people factored into multiple third-party recognitions for CGI such as rankings for best places to work in numerous countries and our inclusion on the Time Magazine World's Best Company List. And for our shareholders in fiscal 2024, we continue to proactively manage the fundamentals of our business to deepen our resilience and our capacity to create added value for shareholders. On a full year basis, constant currency growth included 7.5% growth in our Northwest and Central East Europe segment, 6.1% in Asia Pacific, 4.4% in the UK and Australia. And from a services perspective, 5.2% in our IP-based revenue portfolio and 3.4% in managed services. On the profitability side, we also continued to improve on a year-over-year basis with our results continuing to place us in the top quartile of our IT services peer group. Adjusted EBIT was up 4.5% for a margin of 16.5%, up 30 basis points. Adjusted net earnings were up 5.1% for a 12% margin. Adjusted EPS was up 7.8% at $7.62. And cash generated from operations was over $2.2 billion, representing 15% of revenue. Sustained client demand for managed services and IP contributed to these strong results and also drove our total bookings. Again this year, bookings surpassed $16 billion as clients continue to turn to CGI for health and progressing their digital and innovation agendas while reducing their cost base. Second half managed services bookings were particularly strong at nearly $5.3 billion, up by more than $1 billion compared to the first half of the year. This uptick was led by wins in manufacturing and government, both with second half bookings up 16% compared to H1. These larger longer-term engagements continue to require a tailored combination of our end-to-end offerings, notably for CGI's IP solutions as well as global delivery. For example, in Q4, the US Patent and Trademark Office awarded CGI 2 monetization contracts, covering a range of security, efficiency and mission-oriented services. The projects have a total potential value of US$119 million and expand CGI's momentum IP services to help the agency foster innovation and enable economic growth. One of the world's largest manufacturers entered into an agreement with CGI to jointly launch an international development unit based in Germany to support group-wide digital projects and support their developers in line with the company's increasing demand for software performance. Through this initiative, the client aims to develop new IT systems faster and more efficiently. CGI's architects, developers and consultants will deliver services and solutions grounded in technology expertise and manufacturing knowledge to help the client accelerate business outcomes in line with their digitalization vision and strategy. The Department of Justice, Northern Ireland Courts and Tribunal Service awarded CGI a 20-year agreement to serve as business transformation delivery partner. Our consultants will help modernize the justice system and enhance efficiency and improve service access. And we entered into a new long-term agreement to transform the transaction processing function of Mackenzie Investments. This is the latest in a series of operational enhancements Mackenzie is making to further modernize and digitize its platforms and processes. As part of the new expanded relationship, Mackenzie will transition the majority of its transaction processing services for account and plan administration to CGI. This will allow Mackenzie to leverage CGI's innovative capabilities and redefine processes and integrating advanced levels of intelligent automation into workflows. As a result, Mackenzie will be able to accelerate the speed, quality and efficiency of its client servicing capabilities, including faster transaction times. Looking ahead, our business plan for fiscal year 2025 includes ongoing and new investments in our end-to-end services to enable our consultants to tailor the most relevant solutions for clients. These investments are aligned with the client demand we see in our pipeline, which is up 20% on a year-over-year basis across all of our services. In managed services, we will continue to evolve our partnership models backed by CGI's financial strength to create compelling offerings. This includes embedding more AI to unlock new ways to help drive efficiency and innovation for clients. CGI's managed services remain in high demand because it enables our clients to generate cost savings, deepen agility to navigate the dynamic environment and advance the digital initiatives. For CGI, managed services deliver long-term recurring revenue, which improves our resilience through all economic cycles. For IP, we will continue to invest in our solutions portfolio to meet increasing client expectations for innovation and embedded AI functionality. In collaboration with teams around the world, we are progressing multiple generative AI proof-of-concept to address common use cases across multiple IPs, including for in-demand functionality, such as recommendations on next best actions. Our IP value proposition provides clients with digital accelerators with lower capital costs. For CGI, IP provides recurring revenue with a higher margin profile. And in business and strategic IT consulting and systems integration, we will focus where discretionary spending will continue, such as advisory services and cloud, cybersecurity and responsible use of AI. Our SI&C value proposition provides clients with the actionable advice and implementation capabilities they need to realize business value. For CGI, SI&C provides a client entry point, which creates future opportunities to deliver CGI's full range of services. Across our portfolio of services, our business plan also incorporates investments to further our innovation agenda, particularly in AI and GenAI, in line with our previously announced $1 billion AI investment. CGI remains well positioned globally as a leading trusted partner to help clients on an end-to-end basis from defining their strategies to implementing AI-powered platforms and solutions. Our pipeline of AI opportunities continues to grow, particularly for data consulting, cloud migration, proof-of-concepts and targeted use case implementation that drive business outcomes. Examples of recent awards leveraging AI include the Government of Canada selecting CGI to develop and deploy a virtual assistant tool to help clear a backlog of over 200,000 payroll cases thereby reducing processing time and improving user experience. UK's network rail expanded their proof-of-concept for CGI's machine vision IP to enhance their operational efficiency and continuous asset monitoring. And a clean energy technology company in the US selected CGI to build a data-driven analytics platform using AI and machine learning for proactive plant monitoring and optimization. Our experts remain engaged in government initiatives around the world to reinforce CGI's commitment to responsible and ethical AI practices. In fact, during Q4, CGI signed the European Commission's AI Act Pledge to help shape the digital future of Europe. Finally, our fiscal 2024 business plan includes continued investment in M&A to accelerate our depth and breadth and geographic segments. The M&A environment remains more favorable as macroeconomic and geopolitical dynamics continue to reshape the consolidation activities within the IT services industry. We are in active dialogue with a larger number of merger targets at all stages of our pipeline. And as always, we will be disciplined to make sure that all CGI mergers will be accretive to each of our stakeholders. In closing, clients across industries continue to invest in the monetization and optimization of the technology in order to transform their business value chains as well as their operating volumes. CGI remains well positioned as one of the few leading global firms with the scale, reach, insights and capabilities to help clients deliver the tangible business outcomes they require from their digital strategy investments. Our strong performance in fiscal 2024, combined with our resilience as a company and our proven build and buy growth strategy underpinned our plan for delivering profitable growth in the year ahead. Thank you for your continued interest and support. Let's go to the question, Kevin.
Kevin Linder, SVP of Investor Relations
Thank you, Francois. Joelle, we can now poll for questions.
Operator, Operator
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Your first question comes from Richard Tse with National Bank Financial. Your line is now open.
Richard Tse, Analyst
Yes, thank you. With respect to your press release, you had a statement in there that seems to kind of emphasize acquisitions a bit more. That's sort of my read. Is it fair to say that you'll be more active in the next 12 months than the last 12 months when it comes to deploying capital on acquisitions here.
Francois Boulanger, President and CEO
We have a full pipeline on the M&A side and are engaging with a larger number of prospects. It’s going well, but closing deals is another matter. We need to agree on pricing, and it has to be beneficial for us. We have a strong pipeline and are considering several targets, but reaching an agreement is still in progress. However, we remain optimistic about that aspect.
Richard Tse, Analyst
Okay. And then with respect to AI, when it comes to your pipeline, what's the mix of business that has AI or GenAI tied to it? And how would that compare to like the prior year here?
Francois Boulanger, President and CEO
You heard about the proof-of-concept that we did and some of the mandates that we received, like example, with the federal government with the payroll cases. We have more and more of these proof-of-concept. And also, we are using more and more AI internally also for our managed services. So that's also something we're working on. And on the IP side, we are using more and more GenAI on our IP services. So it's increasing naturally year-over-year compared to last year and the expectation is that it will continue in the future.
Richard Tse, Analyst
Okay. And then last one for me. As GenAI does scale, what do you do in terms of kind of retraining the workforce or in your hiring practices? Just trying to understand how that sort of labor market will shift and how you'll sort of get ready ahead of that wave here.
Francois Boulanger, President and CEO
Yes. If you remember last year, I know George announced, and it's already now a year in the making in our $1 billion of investment in AI. And that $1 billion of investment was also to train our people on these tools. So that's going pretty well. We had some basic training for all the members, all the CGI partners in CGI, but we had also more in-depth training for more technical training for our developers and programmers in the company. So that's going well and that will continue in the future. And naturally, on the hiring side, we are hiring people with the right skills on the AI side. So no problem on this side.
Operator, Operator
Your next question comes from Divya Goyal with Scotiabank. Your line is now open.
Divya Goyal, Analyst
Good morning, everyone.
Francois Boulanger, President and CEO
Hi, Divya.
Divya Goyal, Analyst
Francois or maybe Steve either or if you could provide a little bit more color on the bookings for this specific quarter. I noted there was a slight weakness in the bookings reported this quarter. So just trying to understand what is the broader sentiment that you're seeing across the global enterprises and if there's something to call out for there?
Francois Boulanger, President and CEO
I can begin, and Steve can add his thoughts as well. As you know, bookings tend to fluctuate. We had some contracts that didn't finalize by the end of the quarter, but we expect to have positive news in the coming weeks. For example, CGI Federal didn't complete their targets, finishing below 100%. Additionally, this year coincided with an election year in the US federal landscape. Historically, during election years, administrations often slow down procurement processes to assess whether their priorities might shift. This was one impact we noted in the quarter. Steve, if you have any additional examples, please share, but it's common to see some fluctuation throughout the year.
Steve Perron, Executive Vice President and CFO
In the quarter, managed services bookings were strong at 120%. The projects on the SI&C side were at 85%, but if you consider the last 12 months, the total was $100 million. Therefore, it's more insightful to evaluate it from a 12-month perspective.
Divya Goyal, Analyst
That's helpful. On this specific discussion on the CGI Federal, that is actually an interesting topic that I'm sure you'll probably get a lot more questions on. But how do you see that part of the business generally evolve? I know in the past when George has commented on this discussion, I understand that the spending picks up early on, slows down closer to election and then slowly picks up again. However, with this new potential government coming in, how do you see things shifting and changing and could the tariffs potentially impact CGI negatively if at all?
Francois Boulanger, President and CEO
No, I don't see that. First of all, as you know, we are dealing with the Federal Government for 40 years. So we know the client. And I would say that every time that a change of government is happening, priorities are changing. And when priorities are changing, guess what, they need IT to achieve their business goals. So the expectation we have is that, no, we don't see any negative even contrary when the new administration will come in, priorities will change, and we'll have a lot of discussion on how IT can help them because, as you know, IT is a driver for all of this and they'll need some IT services to help them to achieve their priorities.
Divya Goyal, Analyst
That's very helpful. Just one last question. The company obviously continues to generate pretty significant revenues from the government sector. Do you see that shifting at all in the near-term? And if you could provide just some color on the banking and financial services sector globally, how are you seeing that? And I'll pass the line with that. Thank you.
Francois Boulanger, President and CEO
Yes. No, government, I think was strong in 2024 and we're seeing it continue to be strong in 2025. A lot of governments across the world are continuing to do some investments and they need to continue. So we see that as positive. On the financial sector, it was, Q4 was mostly flat, and we had some reduction at the start of the year, mostly flat now in Q4. With the rates coming down and the interest rates coming down and with the banks that slowed down some of the discretionary expenses in the past, we feel that perhaps we can see a bounce back on that side. Because, again, you cannot retain these investments for a long time. So they need to invest back in their business. And so we are seeing some lights at the end of the tunnel on the financial sector side.
Operator, Operator
Your next question comes from Jerome Dubreuil with Desjardins. Your line is now open.
Jerome Dubreuil, Analyst
Thanks for taking my questions. First one is on your Microsoft practice. I might be wrong, but and don't hesitate to push back on this, but we don't see you as much in Microsoft partner rankings, relative to peers maybe and this practice looks like it might be quite important in an AI world, especially AI enterprise. If you can maybe start by qualifying the relative strength of your Microsoft practice and if you think this should be a bigger focus going forward?
Francois Boulanger, President and CEO
First of all, Microsoft is a major partner for us and I would say it’s our top partner. We have many consultants engaged in discussions about Microsoft. We utilize their tools, such as CoPilot, on a daily basis without any issues. However, it's important to note that we maintain our independent value and collaborate with various technology providers. We are not exclusively focused on Microsoft, as we also work with other technologies like AWS and Google. This enables us to offer a range of solutions to our clients.
Jerome Dubreuil, Analyst
That's great. Thanks. Second question on M&A, different angle, but remember last quarter, you commented on your target multiple for acquisitions of around one time revenue. Maybe if you can clarify this comment. It seems like it contrasts maybe a little bit with the comments you've been making on M&A today.
Steve Perron, Executive Vice President and CFO
In terms of the comment on the pricing, you mean, the one-time revenue?
Jerome Dubreuil, Analyst
Yes, correct. On the target multiples for M&A.
Steve Perron, Executive Vice President and CFO
So, look, if you look just at the recent one we did with CGI Federal, Aeyon, you will see, and you can see it in the financial statement, you will see that we paid more than one-time revenue. So it's all relative to what you're purchasing, obviously. We have paid more than one-time revenue because we believe we can generate a good return on it. So it's all part of the return we can generate on the transaction. But there's not a fixed limit of one-time revenue at all. In fact, Aeyon proves it differently because we paid more than that.
Francois Boulanger, President and CEO
Yes. And again, an example of Aeyon is in the Federal US Federal sector, especially in the defense side. And we thought that it was a great acquisition and we see a lot of growth on that side and a lot of capabilities. So we were ready to pay more. And we're still thinking it will be accretive to all stakeholders of the company.
Operator, Operator
Your next question comes from Stephanie Price with CIBC. Your line is now open.
Stephanie Price, Analyst
Good morning.
Francois Boulanger, President and CEO
Hi, Stephanie.
Stephanie Price, Analyst
Looking ahead to fiscal '25. Hi. Peers have been guiding to kind of a continuation of the current demand environment. Is this reasonable based on what you're hearing from clients? It sounds like maybe you're seeing a few green shoots here. How should we think about the demand environment evolving over 2025?
Francois Boulanger, President and CEO
We don't see necessarily material changes yet on the environment versus what we saw in the last quarter. I think managed services is still very strong. We have and I had a lot of discussion with CEOs across the world that they are interested about finding ways to have some cost savings. So that still continues to be pretty strong on that side. But on the, as you know, on the business consulting, a bit like Steve alluded, a little bit still soft on the SI&C especially in the business consulting. So that's where we still see that for now, the environment or the demand environment, it can still be a bit soft on the business consulting. So we'll be naturally close to it, but on the managed services, that continued to be pretty strong.
Stephanie Price, Analyst
That makes sense. And then maybe you could talk a little bit about the US Commercial and State Government. It looks like the book-to-bill was 100% of both the quarter and the year. How should we think about what's going on in that vertical?
Francois Boulanger, President and CEO
We are engaged in extensive discussions and have significant potential deals, particularly at the state and local level, which depend on timing. While we have many offers in progress, the timing for finalizing these deals can be inconsistent. I'm not particularly worried about this situation, and I believe we will see a recovery in this area going forward. The same applies to the financial sector. In the US commercial space, there's a substantial financial sector, which has seen some softness in discretionary spending. However, with interest rates decreasing, we anticipate that the financial sector will begin investing in IT services again in the future.
Operator, Operator
Your next question comes from Surinder Thind with Jefferies. Your line is now open.
Surinder Thind, Analyst
Thank you. I'd like to touch base on just the continued softness in the discretionary spend. Just any incremental color that you can provide there? I know that you mentioned that within the SI&C that bookings can be quite lumpy. But when I actually look at the absolute dollar value, it's below anything that you guys booked even during the pandemic. So just trying to understand what's exactly going on in that line item.
Francois Boulanger, President and CEO
I believe there are two main factors. As I mentioned earlier, we are quite strong in business consulting, particularly in the financial sector, which has experienced a slowdown over the past two years due to rising interest rates. This has particularly affected us in Europe. While we are generally robust in business consulting, we've noticed a slowdown in the financial sector's consulting services. We think we're nearing the end of this trend, especially within the financial sector, but we need to monitor the situation over the next few quarters. Overall, it's really a reflection of the current environment. We are not unique in this; similar trends can be observed in other firms as well, indicating softness in business consulting. We will see if conditions improve in the near future.
Surinder Thind, Analyst
And then as a follow-up here, when we think about the business model and kind of what's happened in this cycle, there has been a lot more, I would say, client focus on managing costs. Obviously, that's helped the managed services side. I guess it's been a bit more challenging for the SI&C side of the equation. Given your more onshore type delivery model, if we remain in this current soft environment, is there a risk that we see below industry growth in that line item given that your competitors arguably have a broader global delivery or a lower cost footprint.
Francois Boulanger, President and CEO
No, I don't, not at all. First of all, we have a pretty large footprint in APAC and Asia Pacific. So we have no problem at all to take new managed services and delivering from Asia Pac, and we have several signed in the last year. So that continues to be in our offshore and global delivery model is pretty resilient. And so we don't have any problem with that. But we still think that having our proximity model is helping to be close to our clients and having the right relationship with our clients. So I don't think and I don't see any issue with our model.
Surinder Thind, Analyst
Okay, that's helpful. And then the final question here, perhaps, following up on some of the earlier commentary around the acquisitions. At what point do you evaluate the target return on investment that you need? Is it a fixed number from an absolute perspective, or do you consider others in the space that have been more active? Is that something you need to be aware of as you try to build or acquire more capabilities, whether in the AI space or elsewhere?
Francois Boulanger, President and CEO
I'll start and Steve perhaps you can put some more color. But for sure, we have always been disciplined in our acquisition and it needs to be accretive, like I said, for all of our stakeholders. So that's why we won't buy to buy something, but we need to believe that it will bring a return to the stakeholders. Like I said. And so financially, but also for the client, existing clients and new clients. So I don't know, Steve, on the financial side.
Steve Perron, Executive Vice President and CFO
Yeah. Just when we look at acquisition, yes, there is a return, but there is also the culture. We want to make sure that when we do a deal, and we like to say that one plus one equals three. We want the merger to make sense and to generate more than the standalone entities. So that's the goal. And it's not only a financial element, obviously, we're looking a lot at the culture of the company to make sure that it would match with CGI and it would be well integrated because when you're paying for something, you want to make sure that you're going to get ultimately, the one plus one equals three. So it's not only financial, it's a mix of elements. And we're, as Francois mentioned, really, really diligent. We want to make sure that the acquisition will benefit all stakeholders.
Operator, Operator
Your next question comes from Steven Li with Raymond James. Your line is now open.
Steven Li, Analyst
Thank you. Hey, Francois. Hey, Steve. Hi. First question is on Canadian margins. It was down quite a bit year-over-year. Anything changing there? And can we rebound this year?
Francois Boulanger, President and CEO
Yes, I think we needed to do some adjustment in Q4. So we had some a bit of utilization challenges that we tackle. And so I would say that you can expect some bounce back in the future.
Steven Li, Analyst
Okay. Perfect. And, Francois, under the Trump administration, what is the puts and takes on some of your larger contract vehicles like the EPA? Is it too early to tell or where can you see some offsets?
Francois Boulanger, President and CEO
It's too early to determine the impact. As I mentioned earlier, any changes in the political landscape will naturally shift priorities. We are involved with all federal agencies, both in civilian and defense sectors. Therefore, we will adjust accordingly based on these changing priorities. I view this shift as mostly a change in focus and more work for us, which I see as an opportunity.
Steven Li, Analyst
Got it. And then on the dividend, is there any formal dividend policy set at this point like growing it with free cash flow every year?
Steve Perron, Executive Vice President and CFO
No. As you know, the dividend is ultimately the responsibility of the Board. We began issuing a dividend because the Board recognizes its value to some shareholders. We will review the dividend each quarter, including both its declaration and the amount. However, our primary focus for cash allocation is on growth and investment in the business, as well as accretive acquisitions, and we also intend to remain active in our share repurchase program. We can confirm that the Board values the dividend and understands its importance to shareholders.
Steven Li, Analyst
Got it. And then a quick one. Did you say how much AI bookings was during the quarter? I think I missed that.
Francois Boulanger, President and CEO
No. We didn't specify AI bookings. It's challenging to quantify our bookings. We are increasingly using AI for many of our projects, and I believe the number of projects utilizing AI increased by another 10% this quarter. We're applying it in managed services and in the SI&C. Thus, we can't provide an exact number of bookings.
Operator, Operator
Got it. Perfect. Thank you.
Francois Boulanger, President and CEO
Thanks.
Operator, Operator
Your next question comes from Thanos Moschopoulos with BMO Capital Markets. Your line is now open.
Thanos Moschopoulos, Analyst
Hi. Good morning.
Francois Boulanger, President and CEO
Hi, Thanos.
Thanos Moschopoulos, Analyst
First of all, maybe expanding on the last point. Can you comment just in terms of maybe some of the specific ways that you're using AI internally and the runway in terms of what that could mean for efficiency and margins. I mean has it been mostly around cogeneration, around automating client support or what are some of the early ways you've been using it?
Francois Boulanger, President and CEO
Yes, we are naturally integrating AI into our managed services with machine learning to optimize various IT processes. This integration is generating cost savings that we are passing on to our clients. Additionally, within our intellectual property, we are increasingly using AI for development and testing purposes. We have several proof-of-concepts in place with clients, where we implement AI to assist them in automating and monitoring their assets. Our applications of AI are broad, and we are also exploring its use in our finance and HR departments, examining how we can reduce costs through these internal processes.
Thanos Moschopoulos, Analyst
Great. And as we think about margins heading into 2025. What are some of the puts and takes you may call out? So on the one hand, your managed services mix is increasing, which should be helpful, I would think, for margins. On the other hand, SI&C is being impacted by lighter utilization. So let's say if the spending environment remains status quo, barring an uptick. I mean how would you think about your opportunities on the margin front?
Francois Boulanger, President and CEO
I think when you're looking at it, you saw that in Q4, we're in some regions in Europe, the margin is a bit weaker than the average of the company. So we still think there we can have some improvement year-over-year. So we're working with the teams to see how we can improve the margin there. So I'm positive on the margin for next year. But naturally, it depends also where the SI&C will go. But I think we are capable of improving the margin if everything is going well.
Thanos Moschopoulos, Analyst
Great. I'll pass the line. Thank you.
Francois Boulanger, President and CEO
Thanks.
Operator, Operator
Your next question comes from Paul Treiber with RBC Capital Markets. Your line is now open.
Paul Treiber, Analyst
Thanks very much and good morning. Just wanted to touch on M&A and the M&A environment. You mentioned it's more favorable. I was hoping if you can elaborate on that. Does that reflect the soft discretionary environment opening up potential opportunities, or is there something else that's helping the environment here?
Francois Boulanger, President and CEO
For sure like we know with the SI&C that is a bit softer. It's putting pressure on some of these companies. And so some of them need to do something and that's why we have perhaps more discussion than we had in the past. So with this environment that we still think it can continue for the next couple of quarters. We see that as an opportunity to have this discussion. And some of this discussion was discussion we had in the past. And actually, we were not agreeing on example on the price. And now we have new discussions with the same targets and the prices are more reasonable, if I can say. So that's the kind of market environment that we're seeing in the M&A side. And we think that this will continue for some future quarters.
Paul Treiber, Analyst
Secondly, just regarding GenAI, just hoping if you can provide an update on what you're hearing from customers in terms of the impact of GenAI on purchasing decisions. It seems like companies are doing a lot of testing and evaluation of GenAI. Has it changed their willingness to purchase from vendors from IT services? Are you seeing a shift to more willingness to try to build homegrown or internal solutions and also just where are they from a testing point of view? Are they moving past testing and starting to make deployments?
Francois Boulanger, President and CEO
No, it's not at all. They need us to do these proof-of-concept, this testing. They need us to prepare their data to be capable of using it the right way. And they need our capabilities and our knowledge about these two. So it's really more a driver of future growth for us because, again, they need people with the right technology and the right expertise and we have that. So that's for me more an opportunity to grow in the future than anything else.
Paul Treiber, Analyst
Okay. Thanks for taking the question.
Francois Boulanger, President and CEO
And that's what we're seeing at least now in the pipeline and all that.
Operator, Operator
Your next question comes from Robert Young with Canaccord Genuity. Your line is now open.
Robert Young, Analyst
Good morning. Thank you for the question. I noticed a potentially increased focus on mergers and acquisitions in the materials and the discussion. Francois, during your time as CEO, do you anticipate placing more importance on M&A? Will there be a greater intensity in this area? I recognize that the pipeline remains strong and vibrant. I also realize you will maintain similar discipline, and that valuations seem to be somewhat more favorable, but do you expect to prioritize M&A more?
Francois Boulanger, President and CEO
Our strategy was always the build-and-buy strategy and grow 50% by organic and 50% by acquisition. So it's always have been in the forefront in our strategy. So, yes, I'll put a lot of focus on this. And, yes, we think that the environment is pretty good for M&A. So we will be as active as possible on that side. But at the same time, we will stay disciplined, and we won't buy just for buying. We need to buy the right one. But again, like Steve was saying, Aeyon, we were ready to buy at a higher price because we thought it was the right acquisition and we'll never be shy to pay a higher price if it makes sense for us.
Robert Young, Analyst
Okay. And then in the past, I think my sense has been that you've avoided large acquisitions where there is a large infrastructure component. I think that was because of sensitivity around the impact on your valuation. It feels like that corner of the market has a much better valuation given AI. And so is that something that you would continue to avoid? Or is that something you'd be more willing to look at?
Francois Boulanger, President and CEO
Sorry, I missed the start, you're saying on the AI side, you're saying?
Robert Young, Analyst
In the past, my understanding is that you've avoided some larger acquisitions because of a large infrastructure component like data centers, et cetera. And now that that's a more highly valuable part of the market. I'm just curious if that's something that you would consider or is that still something that you would avoid? Or am I just wrong in that assumption?
Francois Boulanger, President and CEO
Bob, pure infra, we would not necessarily be interested about it. We have some infrastructure business. We still have some, I would say, 10% of our business is infrastructure. But buying infrastructure business only, that's not our interest. If we have a company where they have some infra, we won't be shy to look at it, but we would not buy infrastructure pure business, no interest on that side.
Robert Young, Analyst
Okay. And then last one, just a quick one. Looking back to the last time the Trump administration came in. I remember there was a lot of pressure on H1B, and your onshore and modeling benefited from that? Like do you think of that as something that might repeat itself? Or are you thinking about your relative onshore-offshore mix how that might change and then I'll pass the line.
Francois Boulanger, President and CEO
On the Federal side, if I'm discussing the federal business, it's important to consider...
Steve Perron, Executive Vice President and CFO
It's onshore.
Francois Boulanger, President and CEO
It's onshore. It's 100% delivered onshore. And we are also using some near-shore activities or a region like Lafayette like Southwest Virginia. So that's our model since decades to deliver especially on the Federal Government side, onshore or nearshore, but in the US. So we didn't use offshore for that aspect of the business.
Robert Young, Analyst
So then that would be a positive for you, right?
Francois Boulanger, President and CEO
Yes, for sure.
Steve Perron, Executive Vice President and CFO
Yes, our metro market model, as you mentioned, and the delivery model we have at CGI, obviously, as you said, if it becomes more difficult to use offshore from the US, obviously, for us, our members are citizens of the US. And our partners are citizens in the US. And obviously, it's going to be, for us, it won't create any issues.
Robert Young, Analyst
Okay, thanks.
Francois Boulanger, President and CEO
Thank you.
Operator, Operator
Next question comes from Suthan Sukumar with Stifel. Your line is now open.
Suthan Sukumar, Analyst
Good morning, gents.
Francois Boulanger, President and CEO
Suthan?
Suthan Sukumar, Analyst
One question. Yes. Good morning, gents. One question for me is on your client pipeline. I think you noted earlier in the remarks that it is up over 20% for next year across all sectors. And it seems like your mix of net new business seems to be picking up as well year-over-year. Can you speak a little bit about what's underscoring that? What verticals and capabilities are you seeing success on the new business side? And who are you displacing?
Francois Boulanger, President and CEO
We are competing against all the major players, and we don't have a specific competitor that we are displacing. You're correct that we are performing well in acquiring new business, and we are focusing on winning over more clients. For example, we secured a significant contract with Circle K last year in the retail sector. We see retail as a promising area for gaining more business, as they are looking for cost savings and ways to optimize their cost structures. We can highlight our successes there to attract other clients. Additionally, the financial sector remains active in managed services, and we are engaging with both existing and potential new clients to demonstrate our managed services and offshore capabilities.
Suthan Sukumar, Analyst
Okay. Great. And one quick one for me. On SI&C, it's obviously still soft, but on a full year basis, I think it looks relatively more resilient than some of your peers. Can you speak a little bit about what changes are you seeing in the discretionary demand picture now versus maybe a year ago? Any new pockets of strength or weaknesses that you're saying?
Francois Boulanger, President and CEO
Well, I would say on the strength side, for sure, AI is a place where we have a lot of consulting and ask from clients to help them on the AI side. So that's a place where we are seeing some growth. And we think that we will continue to see some growth on that side. Other places like I was alluding in my speech, when we talk about cybersecurity, for example, is another place where still a lot of demand on the business consulting side how to help them with all the threats that we're seeing in the world.
Operator, Operator
There are no further questions at this time. I will now turn the call over to Kevin for closing remarks.
Kevin Linder, SVP of Investor Relations
Thank you, Joelle, and thanks everyone for participating. As a reminder, a replay of this call will be available either via our webcast or by dialing 1-888-660-6264 and using the passcode 25981. As well, a podcast of this call will be available for download within a few hours. Follow-up questions can be directed to me at 1-905-973-8363. Thanks again, everyone, and look forward to speaking soon.
Francois Boulanger, President and CEO
Thank you.
Operator, Operator
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.