Earnings Call Transcript
Cgi Inc (GIB)
Earnings Call Transcript - GIB Q1 2026
Operator, Operator
Good morning, ladies and gentlemen. Welcome to CGI's First Quarter Fiscal 2026 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, Julie, and good morning. With me to discuss CGI's first quarter fiscal 2026 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, January 28, 2026. Supplemental slides as well as the press release we issued earlier this morning are available for download, along with our MD&A, 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 that are 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. We are also hosting our Annual General Meeting this morning, so we hope you will join us live via the broadcast at 11 a.m. Now I'll turn the call over to Steve to review our Q1 financials, and then Francois will comment on our business and market outlook. Steve?
Steve Perron, Executive Vice President and CFO
Thank you, Kevin, and good day, everyone. In our first quarter of fiscal 2026, we demonstrated discipline in the management of our operations while continuing to make the necessary investments guided by our AI strategy. In the quarter, we delivered $4.1 billion in revenue, up 7.7% year-over-year or up 3.4% when excluding the impact of foreign exchange. Growth was driven by our recent business acquisitions and continued demand for our APAC delivery center, with this segment reporting growth of 5.8%, mainly through delivery of managed services. In our U.K. and Australia segment with our acquisition of BJSS, growth was 31%. This acquisition is transformative for our U.K. operation, adding significant scale, and we can now showcase the breadth of CGI's end-to-end services to our new clients. In our Western and Southern Europe segment, growth was 9%, led by our acquisition of Apside, which includes engineering services. As we indicated last quarter, our U.S. operations were impacted by the federal shutdown in the quarter. The timing and related impacts were in line with what we communicated last quarter. While a sequential improvement is expected in the next quarter, our U.S. Federal segment is still operating in a very dynamic environment. Bookings in the quarter were $4.5 billion for a book-to-bill ratio of 110%, led by U.S. commercial and state government at 169%; Finland, Poland, and Baltics at 124%, and Scandinavia, Northwest, and Central East Europe at 113%. Bookings continue to be led by our managed services with a 117% book-to-bill. SI&C book-to-bill was 100%, last reached in our first quarter of fiscal 2025. With the U.S. federal shutdown, we had previously indicated that our bookings would be impacted in the quarter. This was indeed the case, and excluding U.S. Federal, our teams delivered a combined book-to-bill of 118%. On a trailing 12-month basis, book-to-bill was 110%, with North America at 122% and Europe at 101%. On the same basis, Managed Services had a book-to-bill ratio of 122%, and the SI&C book-to-bill ratio was 96%. Our contracted backlog reached $31.3 billion or 1.9 times revenue. Turning to profitability. Adjusted EBIT in the quarter was $655 million, up 7.1% year-over-year for a margin of 16.1%, down 10 basis points. In the quarter, our results were impacted by the U.S. federal shutdown and an $8 million one-time impact of past service costs related to statutory employee benefits in India due to a change of regulation. Including acquisition and related integration costs of $26 million, earnings before income taxes were $600 million for a margin of 14.7%. Our effective tax rate in the quarter was 26.3%, 40 basis points higher than last year, mainly explained by the statutory tax increase in France. We expect our tax rate for future quarters to be in the range of 26% to 27%. Adjusted net earnings were $461 million for a margin of 11.3%. On the same basis, diluted EPS was $2.12, an accretion of 8% when compared to Q1 last year. Net earnings were $442 million for a margin of 10.8% and diluted EPS was $2.03, an accretion of 6% when compared to Q1 last year. Turning to cash. We generated a strong $872 million in our cash from operations, representing 21.4% of total revenue due to the strength of our collection efforts. DSO was 37 days in the quarter, an 8-day improvement sequentially and a 1-day improvement when compared to the prior year. As a reminder, in general, our first quarter has the lowest DSO due mainly to higher levels of client prepayments or annual IT maintenance fees. In Q1, we continued to deploy our capital and invested $87 million back into the business, including strategic investment in advanced AI, $106 million on business acquisitions, $577 million to buy back our stock, and in addition, we returned $37 million to our shareholders under our dividend program. Yesterday, our Board of Directors approved the renewal of our NCIB program until February 2027, authorizing us to repurchase for cancellation up to 19 million shares over the next 12 months. At current share price levels, we expect to remain very active in our repurchase program. In addition, our Board of Directors approved a quarterly cash dividend of $0.17 per share. This dividend is payable on March 20, 2026, to shareholders of record as of the close of business on February 18, 2026. With $2.4 billion in capital resources readily available and a net debt leverage ratio of 1, CGI has a balance sheet strength and capacity to deliver on our profitable growth strategy. CGI's capital allocation priorities have remained consistent, focused on investing back in the business, pursuing accretive acquisitions, and share buybacks. Now I will turn the call over to Francois to further discuss insights on the quarter, the progress on our AI strategy, and the outlook for our business and markets. Francois?
François Boulanger, President and CEO
Thank you, Steve, and good morning, everyone. We started the year with positive momentum that deepened our position as one of the few firms with a local presence, global scale, capabilities, and commitment to being a partner of choice for our clients, an employer of choice for our people, and an investment of choice for you, our shareholders. In Q1, we delivered year-over-year revenue growth, strong profitability, and record high cash of $872 million. This further expands our capacity to fuel our Build and Buy profitable growth strategy, in line with our capital allocation priorities. The trust clients have in CGI as a partner for delivering on their priorities, including for advanced AI, is evident in our results. This extends to bookings, which reached nearly $4.5 billion in the quarter, up by more than $300 million year-over-year. Plus, over half of bookings were comprised of new awards and add-ons, which typically expand our delivery scope with clients. In addition, our win rate on renewals was over 95%, demonstrating the confidence clients have in CGI's ability to continuously innovate. On a trailing 12-month basis, total bookings were up 12%, reaching a high of nearly $18 billion. This was led by managed services, up 16% compared to the previous year. Systems integration and consulting bookings were also up on a sequential quarter year-over-year and on a trailing 12-month basis. Compared to this time last year, the Q1 SI&C wins were up by more than $360 million. From an industry perspective, all commercial segments closed the quarter with a book-to-bill above 100%, led by manufacturing, retail, and distribution, which was up more than $530 million or 65% year-over-year. Representative awards in the quarter included a European-based global manufacturer, initiating a new strategic partnership with CGI to modernize critical IT services, including the integration of advanced AI solutions into their operations. A leading global luxury group in France renewed its relationship with CGI to deliver SAP services in support of their retail and manufacturing operations. CGI will also expand the integration of AI into our IT to optimize service quality and productivity in IT management. The Swedish Board of Agriculture expanded its relationship with CGI through a multi-year framework agreement, supporting the agency's digital transformation and expansion of trusted AI capabilities across systems development and operations. Highmark, a U.S. health insurer, renewed and expanded its partnership with CGI to accelerate innovation in claims payment accuracy and integrity. Through the engagement, CGI will deliver a range of AI-enabled services through our ProperPay IP, which helps identify potential risks earlier, improves efficiency, and reduces billing errors at scale. As shared last quarter, government sector bookings were impacted by the Q1 U.S. government shutdown. On a trailing 12-month basis, our government wins were 104% or 113% when excluding our U.S. Federal segment. Globally, the pipeline of government sector opportunities continues to increase, up 30% compared to this time last year, as agencies continue to prioritize modernization, cybersecurity, and cost efficiency. Now I will summarize our progress against the CGI AI strategy. Starting with embedding AI into our end-to-end services. In Q1, the rollout of our AI-enabled software delivery life cycle is improving engineering speed and quality, with strong adoption of AI development assistance and advanced tooling. We are reinforcing trust and compliance through CGI's responsible use of technology framework, embedding AI risk governance directly into our cells and delivery life cycles. In terms of client adoption, we continue to see an evolution from experimentation to enterprise integration. The transition is not fast or direct; our success depends on a strong foundation for data quality, platform modernization, and governance, all of which are strengths for our team. Recent examples of AI projects include launching an Agentic AI strategy for our Canadian financial institution to guide their outcome-oriented AI adoption, delivering AI-driven application reverse engineering for a U.S. federal agency to support faster monetization decisions, applying deep learning AI for a U.K. healthcare provider to improve IVF embryo selection and patient outcomes, implementing AI Ops at a Canadian retailer to help improve IT reliability, efficiency, and cost optimization, and deploying an AI-enabled developer assistant for our U.S. utility to simplify system integrations and accelerate customer billing implementations. Recognition of CGI as an AI to ROI client partner continues to be recognized by leading industry analyst firms. For example, in Q1, CGI was positioned as a leader in the IDC MarketScape for worldwide AI services for state and local government. Moving to how we are leading with AI integrated platforms and alliances, 65% of CGI's IT solutions incorporate AI-enabled intelligent automation. Our industry-leading solutions are relied on to enable mission-critical business operations, delivering direct value to clients every day. Our technology alliance partner program also continues to expand, introducing new channels to market and growing our relationships with hyperscalers and AI-native firms. We recently announced a multi-year agreement with Google Cloud to help clients accelerate Agentic AI outcomes with Gemini enterprise and a global go-to-market alliance with OpenAI to help clients deploy advanced AI capabilities securely, responsibly, and at enterprise scale. Turning to how we are uniting talent and AI technologies. While our CGI partners are naturally using AI as part of their everyday work, approximately 40% of our consultants have expertise in advanced AI and data, more than double the number from this time last year. Given this, AI-related training continues to dominate the learning and development courses our experts are completing through our CGI academia platform. Our learning and hiring investments also contributed to CGI earning new alliance certifications and partner tier status. Over the past quarter, this included progress with AWS, Snowflake, ServiceNow, and UiPath, all of which expand our capabilities and create new business development opportunities in advanced AI, cloud, and data. Lastly, we also progressed CGI's internal AI adoption. Through the new engagements with Google Cloud and OpenAI, we are expanding our current use of these platforms by equipping an additional tens of thousands of consultants and experts. We also launched our internal AI exchange platform with widespread engagement as our teams contribute and reuse proven code assets, best practices, delivery processes, and playbooks. CGI's AI exchange is designed to help us scale and industrialize AI delivery globally while maintaining quality, speed, and cost-effectiveness. As we reflect on the past 50 years in business and, more importantly, our future, I will now outline CGI's value creation strategy for our three stakeholders and namely you, our shareholders. Our value creation strategy is built on four streams: systems integration and consulting, including services related to IP, managed services, including our IP solutions, accretive acquisitions, and share buyback and dividend programs. By design, these streams are complementary and countercyclical to external market dynamics in order to foster continuous revenue growth and EPS accretion for the benefit of our shareholders. This positions CGI to deliver results even as the global business environment remains complex and uneven. Starting with our first value stream, SI&C. In stronger economic markets, client priorities tend to expand to innovation, experimentation, and growth. As clients spend on more discretionary initiatives, our SI&C capabilities support them in business evolution, integrating core systems, and creating and scaling new platforms and applications, regularly including consulting on our IP solutions. Today, we are seeing early indications of an uptick in demand in the market as the pipeline of new opportunities is strong, including for AI advisory and AI integration services related to CGI IP and alliance platforms. In fact, our pipeline of SI&C opportunities in advanced stages is up by more than 40% year-over-year. Additionally, in Q1, SI&C revenue grew 9.8% year-over-year in constant currency. As Steve mentioned, the SI&C bookings in the quarter reached 100% of revenue. Turning now to our second stream, CGI's managed services, which fully embed advanced AI as a standard practice, making them especially attractive for clients. When there are market uncertainties, clients typically want to reduce spending to increase their financial flexibility with the goal of reinvesting in digitization. This is why we see demand rise for CGI's managed services, which allow clients to benefit from longer-term, outcome-based partnerships with clear cost structures and commitments for productivity improvements and innovation. CGI's global delivery capabilities also play a critical role in our managed services, including our global capability center expertise, which was recently recognized by Everest Group. Through our managed services, including those delivered with our IP solutions, we become a core extension of the client teams. This drives longer-term recurring revenue with higher margins for CGI. From a revenue perspective, over the past 12 months, our Managed Services business increased more than $600 million or 8% compared to the previous year. In Q1, Managed Services bookings were up on both a year-over-year and trailing 12-month basis. Notably, since Q1 last year, 40% of our managed services wins were new business. The pipeline of new opportunities reflects this uptick, increasing by more than 20% over this quarter last year. Regarding our third stream, CGI's buy strategy. Given the ongoing strength of CGI's balance sheet and current market conditions, we continue to pursue accretive acquisitions at pace. In the quarter, we closed two mergers. In Europe, we completed the merger with a division of Comarch, which expands our presence in Poland and the Baltic states and deepens our public sector expertise and IP portfolio across social security, health, agriculture, and other mission areas. In North America, we expanded our Canadian footprint through the merger with Online Business Systems, an established IT consulting firm based in Winnipeg. Through this agreement, we enhanced our capabilities in AI, digital transformation, and cybersecurity with enterprise clients in Canada and the U.S. I would like to warmly welcome the more than 800 new consultants who have joined CGI from these mergers. Our pipeline of additional merger targets remains robust. We are committed to making sure that we acquire the right companies at the right time and at the right price, all three without exception. And the final stream, share buybacks and dividends, provide additional value creation to our shareholders, especially now given that we believe CGI stock is undervalued. So we plan to remain very active in our share repurchase program while these conditions persist. As we look ahead across the markets we serve, economic conditions and client priorities continue to vary by region and industry. These priorities are influenced by geopolitical uncertainty, shifting regulatory requirements, and the growing importance of IT systems to national resilience, sovereignty, competitiveness, and everyday operations. At the same time, interest in AI remains high, making it even more important for organizations to separate the hype from practical impact. In this environment, trust, deep industry knowledge, and proximity to the client matter more than ever. To address their priorities successfully, clients need partners like CGI who have the end-to-end capabilities and industry expertise necessary to modernize core systems, strengthen cybersecurity, and sustainably integrate AI-led digital capabilities into their operations. In closing, while the environment is still uncertain, we are observing gradual improvement in some industries and geographies. As such, we anticipate continuing improvement for the rest of the year. CGI has been built to grow and last. For 50 years, we've been at the heart of continuous technology innovation and business transformation, combining human ingenuity with the power of technology to help our clients achieve meaningful outcomes. As the pace of change accelerates, we remain focused on what matters most: helping our stakeholders succeed. Thank you for your continued interest and support. Let's go to the questions now, Kevin.
Kevin Linder, SVP of Investor Relations
Thanks, Francois. Julie, we can now poll for questions.
Operator, Operator
Your first question comes from Richard Tse from National Bank Canada.
Richard Tse, Analyst
Yes. Thank you. With respect to acquisitions, does the volatility and uncertainty around AI, has that sort of changed the way you evaluate these transactions kind of given that sort of uncertain future?
François Boulanger, President and CEO
No, not at all. Thanks, Richard, for the question. We continue to see AI as an enabler for the future. So when it's time to look at acquisition and merger, we're still looking at how we can improve our footprint in several metro markets, where we're lacking presence. And naturally looking also at the larger ones and the transformational ones that can help CGI in the future. So it's not changing anything in our policy or politics or view of merger and acquisition. We are looking at relationships. We are looking at places where we can continue to grow. And so AI is actually an enabler and not something that is pushing us to change our philosophy on M&A.
Richard Tse, Analyst
Okay. And just my second question has to do with the U.S. Federal government. Obviously, last quarter, we had that sort of a government shutdown. But as you step back, do you think that there's some things that are maybe happening in the background that structurally reset that business? And I guess related to that, at what point and how quickly could you sort of restructure if needed if that was the case?
François Boulanger, President and CEO
We still believe that the Federal government is a strong client for us. We have been working with them for over 30 years, and they rely on IT to support their operations. It's still a very promising market. However, we are currently in a dynamic geopolitical environment. We recently experienced a government shutdown, and there is potential for another one at the end of this week, which presents some short-term challenges. Nevertheless, we remain confident that, in the long run, it is still a favorable market for us.
Operator, Operator
Your next question comes from Stephanie Price from CIBC.
Stephanie Price, Analyst
Maybe just following up on the U.S. Federal question. Just curious around margins. Obviously, you had messaged the margins were going to be a little bit weaker in the U.S. Federal, just given the shutdown. How should we think about margins in U.S. Federal going forward, just given, as you noted, it's a pretty dynamic environment here? Are you seeing any pricing pressure? What are you seeing out of the government in terms of pricing here?
François Boulanger, President and CEO
Yes. For sure, the fact that the revenue and profit was down this quarter was also because our utilization rate went down with this shutdown; some people were not able to bill. And so we had the cost and not the revenue. So when the U.S. government reopened, we were able to redeploy our people in the contract. And so that improved the utilization rate and thus improved our margins. So it's not necessarily cost pressure or rate pressure in the federal; it was really related to the shutdown, and it's temporary. We wanted to keep our workforce. And so that's why it put pressure on the utilization rate.
Stephanie Price, Analyst
Okay. So going forward, we should expect more in line with historical. And then in terms of SI&C, it was great to see that bookings were solid in the quarter, and you mentioned the pipeline for advanced stages was up. Can you talk a little bit about the regions and industries where you're seeing the improvement in SI&C?
François Boulanger, President and CEO
Yes. Thanks for the question. For sure, we're seeing SI&C improvement a bit across every industry, and I'll start with an example in the financial sector; they need some advice, such as AI. So we are helping them to deploy some of these AI tools, like I gave some examples in my script. Same thing in manufacturing, they need consulting again to deploy these tools. So a lot of consulting. Business consulting is still soft, but everything related to CIO consulting and especially with these tools, we're seeing a lot of new demand, and I would say mostly in all industries.
Operator, Operator
Your next question comes from Suthan Sukumar from Stifel Canada.
Suthan Sukumar, Analyst
For my first question, I wanted to touch on the sort of the industry theme around vendor consolidation. Can you speak a little bit about what your clients are doing today with their IT partners and roughly what percentage of some of your new business and existing business expansion today is a function of continued vendor consolidation?
François Boulanger, President and CEO
Yes, that's a great question. For sure, we're seeing a lot of that trend across the world. Clients realize that they need to reduce the number of partners, especially those using a lot of freelancers in the market. So they'll deal with very small companies and because of relationships sometimes with the buyers. So we won several vendor consolidations. We won a big one with a large bank in Europe that was actually a vendor consolidation. They went from hundreds of suppliers to four or five suppliers, and we were one of the suppliers. We're seeing that, especially in very large companies and clients. The same thing happened in Germany with an automobile company where they had thousands of suppliers, and they wanted to reduce, and we were one that gained some activities with this vendor consolidation. So we see that trend and it will continue to happen in the future. The fact that we're very close to our clients provides us an advantage and helps us win new business in our existing clients.
Suthan Sukumar, Analyst
That's helpful. For my second question, I wanted to discuss the overall theme of enterprise AI adoption. You recently announced new partnerships with OpenAI and Google Gemini, similar to what some of your global peers have done. From your perspective, where do we currently stand in the enterprise AI adoption cycle? Is AI spending currently additive or does it still displace existing IT budgets? How resilient is AI-related spending in the current macroeconomic environment?
François Boulanger, President and CEO
What I would say to you, first of all, is regarding the tools. A lot of companies are already deploying these tools. So for large companies, they have started to deploy them. Now what they need to do is realize the outcomes with these tools. And that's where they need companies like us to help them produce these outcomes. That's really where we are today. And that's why we have a lot of consulting with these clients because they don't know what to do with these tools to a certain extent. Another good example is that a lot of clients will have old solutions or applications that they haven't touched for the last 15, 20, or even 25 years because it's too complicated, and they don't want to touch it for fear of breaking something. Now with tools like AI, they can see it in a different light and have these tools help them to do the conversion or refresh these applications. So that's brand new demand and services that didn't exist in the past. People were saying, let's not touch those systems. Now they're saying, well, perhaps we can reduce our run costs by changing these applications. I think that we will see that trend continue. Finally, again, in managed services, that's still very relevant; people want to have savings on their run applications and AI is a tool to help achieve those savings. We still believe that AI will open new doors for demand in the managed services side.
Operator, Operator
Your next question comes from Thanos Moschopoulos from BMO Capital Markets Canada.
Thanos Moschopoulos, Analyst
First of all, just given the strong ROI that I presume clients can get from AI, if we just look at the most recent quarter, your trailing numbers, and what's been holding back growth. Is it that the CIO understands the value of AI, but the CFO is constraining the budget? Is it that just more education is needed about what AI can do for them, and now you're starting to see more implementation? Just what's been the holdback in terms of clients advancing their AI initiatives?
François Boulanger, President and CEO
I don't think it's necessarily our holdback. I think, like I'm saying, people realize that it's a lot more complicated than they thought. And that's one thing. The other thing is also data quality. It's nice to say that you have AI and you deployed AI, but AI will be as good as your data is. I think that's also one of the challenges that many companies have. So they're seeing the costs coming in of these tools but don't necessarily see the outcome. That's where, again, the CIO wants to showcase that. But to do that, they need to clean up the quality of the data. That will take some time. Overall, the macro environment is still a factor in the market. There are still concerns such as tariffs, and some clients in Europe express worry about that.
Thanos Moschopoulos, Analyst
Great. And then just in terms of your own internal use of AI, when we look at your margins for this quarter, I mean, would you say that you start to capture some material margin improvement from AI? Is it just early days on that front? How should we think about the benefits you're already capturing?
François Boulanger, President and CEO
I'll start, and I'll ask Steve to continue. For sure, we are seeing some savings with AI. Some of it, we are reinvesting in the business. But in the quarter, it was somewhat hidden due to a one-time cost in India, but you will see the margin picking up in the future. Perhaps, Steve, you can talk a little bit about some of our samples.
Steve Perron, Executive Vice President and CFO
Yes. Look, we are using it, obviously, internally, and the team is using it well. It's bringing efficiency, obviously, but we are continuing to invest in it. We want further efficiency and further improvement. In terms of the global margin that we had in the quarter, we are proud of achieving some good improvements in many SBUs. Obviously, there was a one-time expense in India and also what we called out in the last quarter in federal operations. But if you look at Scandinavia, Northwest, and Central East Europe, we see clear improvement in terms of margin. We also see benefits coming in terms of margin from the integration of BJSS. Additionally, France has shown improvement. So Western and Southern Europe also provides good improvements year-over-year. Overall, we're quite pleased with the activities that have strengthened our margin, which is promising for the future quarters.
Operator, Operator
Your next question comes from Robert Young from Canaccord Canada.
Robert Young, Analyst
The comments on the government pipeline up 30%. I was hoping you could parse that out between U.S. Federal. You noted that bookings were impacted and the higher volatility. And then, I guess, on the other side of that, it looks as though governments around the world are looking for more sovereignty, more control over local technology perhaps. Maybe just talk about where that bookings growth, or the pipeline growth, is coming from?
François Boulanger, President and CEO
Yes. Thanks, Robert. We are seeing good momentum across the world in government opportunities. I'll start with Canada, where the government is planning substantial investments in the defense sector, for example. They need IT to support them, and the focus is on reducing costs while delivering services to citizens. At the same time, we're seeing opportunities for new systems to be built. Similarly, in the U.K. and Germany, discussions are ongoing with defense ministries as clients. We are seeing promising discussions there. In the U.S., state and local government is showing momentum, taking over some of the Federal government’s investments. We've also seen improvement in the U.S. Federal pipeline, particularly in light of last year’s shutdown. Assuming we don’t encounter another shutdown soon, we anticipate seeing these RFPs go out and be awarded in the next couple of months.
Robert Young, Analyst
So it sounds as though you're pretty confident that that type of pipeline growth is indicative of sustainable top-line growth in the future, both in the U.S., U.S. federal, but all around the globe, I guess?
François Boulanger, President and CEO
I would say all around the globe, for sure. As for U.S. Federal, we just need to be cautious as things can be lumpy with everything that's happening there. But at the same time, the state and local sectors in the U.S. are performing well.
Robert Young, Analyst
The headcount number remained flat compared to last quarter but showed an increase year-over-year. However, revenue growth continues to surpass headcount growth. This is noteworthy, especially considering the utilization challenges in the U.S. Could you discuss the growth in revenue per employee and clarify if Comarch and OBSS are included in the headcount figures? Should we expect growth in the next quarter?
François Boulanger, President and CEO
Yes. So Comarch and OBSS are included in the headcount numbers since they were closed before the end of the quarter. Regarding revenue per headcount, it did grow again, and you can expect this trend to continue. Most of our managed services are outcome-based, and with the increasing deployment of AI in our delivery of managed services, we do not need necessarily the same head count or number of people to deliver the services. Therefore, you can expect this headcount versus revenue, or at least the revenue by headcount, to continue growing due to the new technologies we are deploying.
Robert Young, Analyst
Okay. Last quick question. Last quarter, you talked about outcome-based pricing, and you’re talking a lot about outcome-based programs this quarter. One of your competitors was highlighting significant growth in fixed-price contracts related to their proprietary platforms. And so I'm just curious if you're seeing that and how that might affect the model and margins going forward? And then I'll pass the line.
François Boulanger, President and CEO
Yes. Outcome-based can be fixed price also, especially when it's shorter duration. If we're talking about managed services of two to three years, many times, we can fix it for the full two or three-year duration, for example. For longer commitments, we need to consider the volume, and it's advantageous for both sides as it aligns interests. We'll also have more fixed-price projects. I think the input-based model is really what's being phased out, and fixed-price and outcome-based approaches will continue to replace it. And in fact, I would expect that even fixed price will lead to improved margins in the long term because, once a price is fixed, any reductions in costs will go directly to margin improvements.
Operator, Operator
Your next question comes from Kevin Krishnaratne from Scotiabank Canada.
Kevin Krishnaratne, Analyst
Nice to see the SI&C bookings strength there. You talked about the early indications of an uptick in demand, and you did talk about more on CIO consulting, less business consulting. I still think the trends look pretty good, a little bit maybe different than what some of your peers are talking about recently. So I'm just wondering if you can comment on unpacking that a little bit further into that, like what’s maybe unique about CGI in this segment relative to some of your peers that is leading to some of those earlier signs that you're seeing relative to the broader industry?
François Boulanger, President and CEO
Yes. I cannot speak for the other companies, but I can say that for us, our model and our proximity to clients is a differentiator. We are close to our clients, building strong relationships. We know their business and industry, which helps us be top of mind when they need the right expertise and people to assist them in deploying new technologies.
Kevin Krishnaratne, Analyst
Got it. Second question, just more on the theme of enterprise adoption of AI. Can you maybe talk about any differences you're seeing in this technology and the deployment of enterprise AI versus enterprise software and what that means from a CGI and other IT providers? For example, some of these AI use cases seem to emerge from the bottom-up, where individual workers or teams might operate differently than how an ERP deployment starts from the top. So just any thoughts there now maybe talk about the entry point of AI into the enterprise versus prior cycles and how you see that impacting your business?
François Boulanger, President and CEO
Yes, for sure. AI is a tool that is deployed to everyone, so when it's deployed, everyone is playing for the tool. The business side will be the first adopters, using it creatively to drive innovation. Sometimes that approach is effective, while at other times, it may not yield the desired results. I think a balance is required. I would liken it to the cloud's introduction: it was initially perceived as a cost-effective, easy solution, but as time went on, organizations realized that it wasn't inherently cheaper, especially as unmanaged costs began to pile up. So I think companies need to tread carefully in how they implement AI; if they simply leave it to individual teams, it may generate costs without providing much value. Therefore, putting in proper processes and governance is essential, and that’s where we assist clients by helping them manage their AI deployment properly.
Operator, Operator
Your next question comes from Surinder Thind from Jefferies USA.
Surinder Thind, Analyst
Francois, when we think about just the interest in understanding of how important AI is out there, why isn't there a bigger rush to improve the infrastructure and the data platform modernization efforts at this point in the cycle? Given that if you can get the back end fixed, then you can start to realize the benefits. It just seems like everybody is slow walking this, and it's hard to figure out why.
François Boulanger, President and CEO
I think because you're saying yes, the back end can be easily improved. The challenge lies in managing the data itself; organizations have vast amounts of data, but not all of it is relevant. That creates a complexity, and businesses need to ensure they are cleaning up the data to use the relevant information to achieve desired outcomes. Furthermore, many large companies have thousands of applications that need to be updated or integrated within AI systems. Implementing AI in these established environments becomes difficult. Additionally, clients are understandably cautious with everything related to cybersecurity, wanting to ensure that they understand the ramifications of incorporating AI into their managed services. It's a new technology and not easy to implement in automated environments. Therefore, it's a journey that requires time and support from companies like ours.
Surinder Thind, Analyst
So I guess, as a point of clarification, I think the idea here is that we still need to do a lot of the core work before we even tackle the AI problems. And I guess that's really where my question is: why isn't there maybe more core work being done? We need to build these data platforms and so forth before we can even get to AI. And I think that's where it is. Is it that companies got burned after maybe the pandemic where there was a lot of investment, and they didn't realize the return on that investment? So they've adopted a mindset of, you know what, I'm going to slow walk this. I want my ROI calculations to be an in-year appreciation versus making big investments because we can see other parts of the infrastructure where there is an incredible amount of investment being made. And there is this big rush to be the first to go out there and get that done, but it just doesn't seem to be happening at the corporate level.
François Boulanger, President and CEO
I think that investment is happening, primarily from the hyperscalers, as you mentioned. A lot of clients have invested in tools and technologies, but not all have seen the expected returns. They're transitioning from previous strategies that weren't productive, and that caution has led to slower progress in adopting AI in conjunction with existing systems. Companies want tangible returns on their investments; for example, financial institutions are undertaking more significant use cases to achieve that realization, but they understand it won't happen overnight. Gradual changes occur within these areas, but many enterprises are taking a more calculated approach toward implementation.
Surinder Thind, Analyst
Understood. And then could you elaborate on the earlier comment in your prepared remarks around just expecting continued improvement over the rest of the year? Is the idea that things should get sequentially better? And is that on an organic constant currency basis, how should we think about that part of the journey as you kind of talked about this idea of things getting better?
François Boulanger, President and CEO
Yes. That's actually what I was saying. Yes, we expect to see some improvement quarter over quarter, especially in places like Europe. So we are expecting that for sure. The caveat I have now is the shutdown. I thought it was behind us. We'll see Friday if we have another shutdown in the U.S. federal government and what potential impact that may have. If I'm taking that out of the equation, yes, we are seeing some improvement, and we would see improvement on a sequential basis.
Surinder Thind, Analyst
Got it. And is the expectation then to get back to positive organic constant currency growth by the end of the fiscal year? Or how are you thinking about that?
François Boulanger, President and CEO
The idea is to improve the growth, overall growth on a constant currency basis, including the organic side of the equation. That's the goal. That's what the team is working on, and we're seeing some positive movement on that side.
Kevin Linder, SVP of Investor Relations
Thanks, everyone, for participating. As a reminder, a replay of the call will be available either via our website or by dialing 1 (888) 660-6264 and using the passcode 35024. As well, a podcast of this call will be available for download within a few hours. All questions can be directed to me at 1905-9738363. Thanks again, everyone, and look forward to speaking soon.
Operator, Operator
This concludes today's conference call. You may now disconnect. Thank you. Have a great day, everyone.