Earnings Call Transcript - GIB Q4 2025

Operator, Operator

Good morning, ladies and gentlemen. Welcome to CGI's Fourth Quarter Fiscal 2025 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 2025 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 5, 2025. Supplemental slides as well as the press release we issued earlier this morning are available for download along with our fiscal 2025 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. A 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. Now I'll turn the call over to Steve to review our Q4 financials, and then Francois will comment on our full year performance and business and market outlook.

Steve Perron, CFO

Thank you, Kevin, and good day, everyone. In our fourth quarter of fiscal 2025, we continue to demonstrate discipline in the management of our operations while effectively executing on our strategy of deploying capital to generate superior long-term return on investment for our shareholders. This starts with our profitable SI&C offering that we grow organically and/or with M&A. Second, to bring our managed services and IP offering to existing or new clients to help them be more efficient. This offering resonates strongly during this more challenging economic period. Finally, our strategy is focused on investing in CGI with our share buyback program to increase our EPS while returning cash to our shareholders. In the quarter, we delivered $4 billion of revenue, up 9.7% year-over-year or up 5.5% when excluding the impact of foreign exchange. Growth was driven by our recent business acquisition and continued demand for our APAC delivery centers, with this segment reporting growth of 6.4%. There was also some planned runoff of lower margin work from recent acquisitions. In our U.K. and Australia segment, with our acquisition of BJSS, growth was 28%. This acquisition adds further scale to our U.K. operations, and we can now showcase the breadth of CGI's end-to-end services to new clients. Across our U.S. segments, combined growth was 5.7%, primarily driven by our Aeyon and Daugherty merger investments, and our pipeline of opportunities continues to increase as we bring our managed services, IP, and offshore delivery capabilities to our new client relationships. IP remained steady sequentially at 20.5% of our total revenue, even as we add a larger proportion of non-IP revenue from recent business acquisitions. The vast majority of our IP continues to be delivered through recurring revenue streams. Bookings in the quarter were close to $4.8 billion for a book-to-bill ratio of 119%, led by U.S. Federal at 185%. U.S. commercial and state government at 136% and Western and Southern Europe at 117%. Of the total bookings in the period, 45% were for new business. On a trailing 12-month basis, book-to-bill was 110%, with North America at 120% and Europe at 102%. On the same basis, managed services had a book-to-bill ratio of 120% and the SI&C book-to-bill ratio was 99%. IP book-to-bill was 107%. Our contracted backlog reached $31.5 billion, or 2x revenue. Turning to profitability, adjusted EBIT in the quarter was $667 million, up 11.2% year-over-year for an industry-leading margin of 16.6%, up 20 basis points. Including restructuring acquisition-related costs of $122 million, earnings before income taxes were $516 million for a margin of 12.2%. Our effective tax rate in the quarter was 26.1%, 30 basis points less than last year, and we expect our tax rate for future quarters to be in the range of 26% to 27%. Adjusted net earnings were $472 million, up $33 million year-over-year for a margin of 11.8%. On the same basis, diluted EPS was $2.13, an accretion of 11% when compared to Q4 last year. Net earnings were $381 million for a margin of 9.5%, and diluted EPS was $1.72, impacted by restructuring and acquisition-related costs in the quarter. We finalized our restructuring program and related expenses in the quarter. Turning to cash, we generated $663 million in cash from operations, representing 16.5% of total revenue, even when incorporating $43 million in restructuring, acquisition, and related integration payments. DSO was 45 days in the quarter compared to 41 days in the prior year, impacted by recent business acquisitions. In Q4, we continued to allocate our capital and invested $81 million back into our business, which includes strategic investments in Agentic and Gen AI, $250 million on business acquisitions, $491 million to buy back our stock. Additionally, we returned $33 million to our shareholders under our dividend program. Yesterday, our Board of Directors approved a quarterly cash dividend of $0.17 per share, representing a 13% increase. This dividend is payable on December 19, 2025, to shareholders of record as of the close of business on November 21, 2025. With $2.4 billion in capital resources readily available and a net debt leverage ratio of 1, CGI has the 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 and pursuing accretive acquisitions. Additionally, we expect to remain very active in our repurchase program. Now I will turn the call over to Francois to further discuss insights on the year and the outlook for our business and markets.

François Boulanger, President and CEO

Thank you, Steve, and good morning, everyone. CGI's strong performance in the quarter and in the year demonstrated our team's ability to execute with discipline in an environment that remained largely unchanged given the market dynamics. On a year-over-year basis, fiscal 2025 performance highlights where revenue increased 4.6% on a constant currency basis, with managed services up 6% in constant currency, in line with client demand given the challenging macroeconomic environment. EPS expanded 8.9% on an adjusted basis to a higher recurring revenue mix as well as proactive operational excellence actions. EPS accretion and share price growth are typically highly correlated. So we believe CGI stock is currently undervalued. Bookings were $17.6 billion, up $1.5 billion with full year book-to-bill ratios above 100% in both North America and in Europe on the strength of managed services, which were up 12% compared to last year. Cash from operations remained robust at $2.2 billion as a result of sustained quality delivery for clients. In fiscal 2025, we deployed over $3.7 billion, and we plan to continue our aggressive use of capital in 2026. Specifically, in fiscal 2025, we invested $368 million back into our business, which includes strategic investments in Agentic and Gen AI, $1.8 billion on business acquisitions, $1.3 billion to buy back our stock, and we returned $135 million to shareholders through dividend payments. As Steve indicated, our Board of Directors approved a 13% dividend increase for Q1 2026. Our investments in the buy strategy remain pivotal to our revenue growth as we closed 5 acquisitions in fiscal 2025, all accretive within the first year. We expect these mergers to drive future growth as we bring our full offering value proposition to new clients. These mergers expanded our geographic footprint and our end-to-end offerings, including in key areas such as AI, data, cloud, and engineering. Subsequent to the end of the fiscal year, we announced an agreement to acquire Comarch, a leading IT company in Poland. Upon successful completion of the merger, which more than doubles our presence in Poland, we will incorporate new ERP IP solutions and digital transformation services. I would like to warmly welcome all new consultants who have or will join CGI from these mergers. Today, I will highlight how CGI is positioned to lead in the next phase of digital transformation, particularly for the majority of our clients who are large enterprise, commercial, and government organizations. We are partnering with them to simplify and orchestrate digital complexity in order to advance towards AI-driven business transformation. For CGI, AI-driven transformation amplifies what we do best, delivering trusted client outcomes faster at scale. In short, we refer to our positioning as being the AI to ROI partner for clients. To bring this positioning to life every day, our 94,000 CGI partners are using AI tooling to develop and manage systems jointly with clients. These client partnerships are based on our operational experience and perspectives on the digital complexity that is a reality for clients. Every organization, every government, and every industry runs on an invisible digital infrastructure underpinned by billions of lines of code. This digital ecosystem powers everyday life, and it continues to grow in complexity with each business process, regulation, and cybersecurity threat. With this context in mind, CGI's AI strategy is structured around 4 key pillars: First, embedding AI into our end-to-end services of consulting, systems integration, and managed services to drive continuous innovation that achieves industry-tailored business results; second, leading with AI integrated platforms across CGI IP and alliance partner technologies to accelerate industrialization and transformation at enterprise scale. Third, uniting talent and AI technologies to amplify and augment human creativity, productivity, and potential for both clients and CGI partners. Finally, accelerating CGI's internal AI adoption to evolve our processes, systems, and delivery to be an organization that is designed by and for humans powered by AI. These four-pillar strategy creates new opportunities to drive revenue growth and margin improvement on existing and future engagements. I will now talk through each of these pillars, starting with embedding AI into our end-to-end services. In consulting, our AI advisory framework applies CGI's expertise in change management and process engineering to simplify and rethink how work happens in the future. Offerings like AI LaunchPad and AI Maturity Assessments help clients identify, prioritize, and validate use cases with clear ROI. Then our behavioral science-based methodologies for AI adoption and workforce readiness help clients implement their strategies and build future-ready organizations. From a software development and systems integration perspective, CGI is accelerating delivery by incorporating AI across every phase of system development, from requirements to deployment. We continue to train CGI partners on our integrated methodology and on tools such as Google Gemini Code Assist, Microsoft GitHub Copilot, and OpenAI ChatGPT Enterprise. We are applying these capabilities along with CGI's AI native platforms of PulseAI, Digishore, and NAVI to accelerate solution delivery and support legacy systems modernization. These tools, when applied with our AI-driven software development methodologies, are now major productivity drivers. For example, just in cogeneration, which typically represents 25% of the system development life cycle, we see efficiency gains of 30%. Through CGI's managed services, we operate within our clients' most complex mission-critical environments, giving us a unique opportunity to embed AI responsibly, practically, and profitably. CGI's managed services engagements have, for decades, included commitments to deliver ongoing productivity improvements. We have always evolved in line with innovation cycles and delivery models and technology from offshore to cloud. Our default managed services pricing models are outcome-based, meaning we commit to cost predictability and delivering results, not just inputs. This is an approach we are very experienced with and has contributed to improving profit and reinvesting in capability building. Now advanced AI, which we consider to be generative and Agentic AI, provides us additional levers to do this while continuing to create compelling client offers. For example, CGI's DigiOps suite helps clients industrialize AI within their managed services to drive efficiency and innovation at scale without disrupting core operations. Our modular approach works with any technology stack, including CGI's IP solutions as well as any technology platform our clients use. Today, DigiOps is in production for many clients with over 165 AI agents and over 2,000 automation workflows across industries such as retail, banking, communications, and energy and utilities. DigiOps is becoming a growth driver and margin lever for our managed services engagements. As an example, for the run of applications, depending on the maturity of the business processes, we saw results such as up to 30% productivity gains and up to 40% faster resolution of operational IT requests. Across each of our end-to-end services, we are integrating AI by design into enterprise workflows and processes instead of using it as an accessory. With this holistic value chain approach, AI is tightly aligned and tailored to an industry which helps drive continuous innovation for clients. The second pillar focuses on leading with AI integrated platforms across both CGI IP solutions and alliance partner technologies. CGI's IP business solutions remain one of our competitive differentiators. In line with our multiyear strategy, we continue to invest in embedding advanced AI into our IP solutions with 65% of the strategic IP portfolio incorporating intelligent automation. We currently have a robust ecosystem of operational agentic solutions with over 200 AI agents across a wide range of CGI IP solutions, digital enablers, and delivery accelerators. A key component of this ecosystem is PulseAI, which is CGI's enterprise platform for building and scaling AI and applied intelligence. PulseAI currently has over 20 industry-specific agents that combine complex business reasoning with tools, data, and multi-agent orchestration to take action, not just generate text. Turning to CGI's alliance strategy, our approach is intentionally to be highly inclusive with over 150 relationships with technology companies. This breadth of partnerships ensures CGI remains agile in selecting the best solutions to meet each client's unique needs in terms of technology stack and other business requirements such as addressing digital sovereignty. We collaborate through joint go-to-market relationships with all major hyperscalers, Google, AWS, and Microsoft, as well as leading software platform providers such as SAP, Salesforce, and ServiceNow. We are also expanding our partnerships and client delivery with AI native firms such as OpenAI, Snowflake, NVIDIA, Databricks, and Mistral AI. Our global alliance partnerships continue to drive new wins and client relationships, with our fiscal 2025 alliance-related bookings up more than 120%. Well over half of these wins were new business. CGI's strength in AI delivery is also earning recognition from industry analysts who influence procurement decisions across industries. Earlier this week, we announced that IDC named CGI a leader in worldwide AI services for state and local governments. As a professional services firm, our third strategy pillar of uniting talent and AI technologies is among our most important investments. Through the use of Gen AI platforms, our teams have created more than 8,000 personal productivity agents to learn faster, unlock creativity, and drive better results for clients and CGI. Naturally, our delivery of advanced AI services to clients relies on our culture of continuous learning, and it requires different skills and new ways of working. We continue to invest in the development of our consultants and experts for both today's needs and as technology innovation evolves. Our approach marries deep industry expertise with tool adoption, structured learning, project rotation, and real-world experimentation. This hands-on access, coupled with our AI-infused offering, is driving tangible productivity gains and accelerating our ability to embed AI within complex client systems. For CGI, it's also driving higher revenue per CGI partner as we saw this increase by 5% year-over-year. This is a trend we expect to continue. Our award-winning AI learning and certification programs provide multi-tiered role-based learning paths from AI literacy to advanced vendor-certified technical expertise. Currently, approximately 20% of our consultants have expertise in advanced AI and data, bringing this expertise to their work every day with clients. Continuing to develop and hire talent with these skills remains a top priority for fiscal 2026. Through our holistic talent strategy, CGI has continued to build an organization where advanced AI proficiency is not a specialty but a core capability. The final pillar of our strategy is accelerating CGI's internal AI adoption to evolve our processes, systems, and delivery. Each of our enterprise teams is embedding AI to drive process efficiencies, enable faster decision-making, and increase productivity. We are currently implementing or improving more than 50 AI solutions. Our most recent internal solutions launch is underway now. The CGI AI exchange enables our experts around the world to find, share, and leverage reusable assets, innovation, and best practices. This new hub will enable increased productivity, more predictable cost, and lower risk through proven and repeatable solutions and promote entrepreneurship, one of our core values. For fiscal 2026, we are progressing the use of Agentic AI within our business processes to drive operational efficiencies, decision intelligence, and service innovation. In summary, our positioning and what makes CGI unique for the AI wave is not rooted in hype, but instead in the confidence we have in our proven ability to anticipate trends, embrace change, and grow through nearly 50 years of technology innovation. In fact, our pipeline of opportunities that integrate AI in our offerings increased by nearly $5 billion compared to this time last year. Turning to the outlook, the high degree of market uncertainty continues to contribute to some caution among clients and their discretionary IT spending, notably for SI&C projects. However, the need for clients to simplify, modernize, and secure complex systems and business processes will continue to increase. This means we do not expect to see a long-term trend of IT budget declines. We see most clients rebalancing their spend as managed services and AI integrated services help them reduce operational costs. In most cases, clients are planning to reinvest those savings to fund their backlog of monetization initiatives, all of which require technology partners to realize ROI. Demand for managed services remains robust, given the challenging economic environment in many of the industries where our clients operate. We see this demand reflected in our pipeline where managed services opportunities are up by more than $11 billion compared to this time last year. Before I conclude, I would like to give an update on our U.S. operations. We continue to work with our clients to help achieve their outcomes. While we are pleased with the Q4 bookings across our U.S. operations, government procurement cycles remain challenging, given the length of the federal shutdown and its related impacts, including some indirect ones for our state and local government clients. Given this and our current assumption of a mid-November reopening, we expect a revenue impact across our U.S. operations in the next quarter of approximately $60 million to $75 million and $15 million to $22 million in margin impact. Lastly, specific to the U.S. administration's changes to the H-1B visa program, CGI does not have a material number of new applications. Therefore, any potential impact would be manageable. In closing, we remain confident in our profitable growth strategy, which is designed to optimize total return on investment for our shareholders through new and expanded engagements to deliver AI outcomes, sustained demand for managed services given economic dynamics, continued M&A given the favorable environment, and active deployment of capital through our share buyback and dividend programs. Thank you for your continued interest and support. Let's go to the question now, Kevin.

Kevin Linder, SVP of Investor Relations

Thanks, Francois. Joelle. We can now poll for questions.

Operator, Operator

Your first question comes from Thanos Moschopoulos with BMO Capital Markets.

Thanos Moschopoulos, Analyst

Maybe starting off on the federal side, I guess, putting aside the shutdown, based on the bookings you saw in the September quarter and based on revenue trends heading into the shutdown, does that change your level of optimism or pessimism with respect to how the federal business should do over the next year once the government reopens?

François Boulanger, President and CEO

I believe the bookings from the last quarter, which were at 185%, indicate strong performance, and I’m pleased with that outcome. At some point, the federal government has to invest in IT, and we have noticed significant activity in procurement. However, that momentum came to a halt in October due to the shutdown. Once operations resume, we expect to see growth because there is a clear need for spending, which we had observed during the summer.

Thanos Moschopoulos, Analyst

Great. And with respect to the AI discussion, is there any way for us to think about the potential margin uplift you may already be capturing or that you might be able to capture over the next year or two as you adopt AI and to what extent you'll be able to get that benefit internally versus having to pass it on to customers?

François Boulanger, President and CEO

Yes. We are currently utilizing a significant amount of AI in our managed services, which is benefiting our clients and helping us acquire new business while simultaneously enhancing our margins, as most of these engagements are outcome-based. Additionally, we are making internal investments, such as in Agentic AI, to streamline processes. We expect these automations to lead to improvements in our selling, general and administrative expenses in the future.

Operator, Operator

Your next question comes from Robert Young with Canaccord Canada.

Robert Young, Analyst

First question, you noted that the default for CGI is outcome-based pricing. If you could just narrow down in on that. Is that like as it relates to managed services? Or is it the consulting business? I noted some of your peers are highlighting pricing pressure. And so is this something that is a protection for CGI as it relates to pricing pressure? Can you just expand on that and how it compares to some of the peers in the IT services industry, that would be very helpful.

François Boulanger, President and CEO

Thank you for the question, Robert. On the consulting side, we primarily operate on a time and material basis, which will continue going forward. Our expertise, particularly in AI, is highly sought after. While we do face pricing pressure, having the right talent and value proposition allows us to prioritize value over price. In our Systems Integration and Consulting business, we have about 40% to 50% structured as fixed price. Utilizing AI tools enhances our profit margins on projects while ensuring competitive pricing for clients. Most managed services contracts we handle are outcome-based, which means we negotiate to find the right price for the client and establish the savings they expect. We then focus on achieving those savings while maintaining our necessary margin. Despite the ongoing pricing pressure, our outcome-based approach simplifies delivering value to clients and securing proper profitability for ourselves.

Robert Young, Analyst

Okay. My second question would be around the comment regarding higher revenue per employee. I think you said it was 5%, and that it would improve or that trend would continue. If you could expand on that, is that being driven by AI? Or is it maybe better the growth in APAC and the addition of Poland? Maybe you just talk about where that revenue per employee growth is expected to come from and how it flows down to the operating margins.

François Boulanger, President and CEO

For sure, with the use of AI, we would expect that this revenue per employee will continue to go up because, again, these tools are helping our clients to deliver more with their same time. So that will help us to deliver more opportunities to our clients. So that's how we were looking at it. For sure, the fact of using India as an example, Poland will also contribute to this. But I would say that AI will be a big factor in this as well.

Operator, Operator

Your next question comes from Jerome Dubreuil with Desjardins.

Jerome Dubreuil, Analyst

The first one is on the forecasting power that bookings bring. Historically, it has been a bit uneven, and obviously, 119% book-to-bill is very strong. So I'm wondering if M&A has an impact on the book-to-bill or if there's some sort of organic book-to-bill that you can share? I appreciate that your strongest booking deal is U.S. Federal, and no M&A there, but if you can comment, please?

François Boulanger, President and CEO

Yes. However, mergers and acquisitions alone will not affect bookings. When we acquire or merge with another company, we look at their backlog, which then gets added to our backlog rather than being factored into the book-to-bill ratio. We recognize the benefits of these acquisitions from the date the deal is closed. The previous figures are reflected in the backlog, not bookings. On the positive side, our acquisitions, such as BJSS, are helping to speed up discussions, particularly in managed services. We have successfully brought in many BJSS clients to India, similar to what we did with Daugherty, to showcase our managed services capabilities, which is generating bookings. However, these results come after the acquisition rather than before.

Jerome Dubreuil, Analyst

That's great information. I thought the prepared remarks were very good regarding your efforts in AI. Could you please share your perspective? It seems the market is concerned about the potential impact of AI automating the implementation processes you're involved with. What are you telling investors who are worried about this, or do you have data on whether AI can or cannot automate these implementation processes?

François Boulanger, President and CEO

Yes. Jerome, like I said in the text, we are seeing some savings. We are seeing some automation. Again, we are applying them in our day-to-day operations to help our clients to achieve the savings. At the same time, we are dealing with very complex clients, banks with thousands and thousands of applications and interfaces, and that needs to be managed, and that still needs to have people working on that. So AI will bring some savings, but you'll still need to have people to manage all that. We are living in a complex world, and you need people to manage that complexity. That said, it will bring some savings. By bringing these savings to clients, it will create new demand. More people will look at managed services and specialists and companies like us to help them manage their infrastructure and IT solutions. We're seeing that demand will go up for that reason. All the savings that they can have on the running of the application, we see that they will reinvest it back and into systems and new systems. We don't see IT budgets going down from clients. They will do more with the same amount of budget.

Operator, Operator

Your next question comes from Stephanie Price with CIBC.

Stephanie Price, Analyst

Thanks for the color on CGI's AI strategy. I was hoping you could maybe dig a little bit deeper into the partnership strategy and talk a little bit about who your largest and fastest-growing partners are and how you kind of see that partnership strategy evolving over time?

François Boulanger, President and CEO

Yes. Well, again, like I said, we have partnerships with all of them. The reason is that depending on the region, depending on the industry, some partners are better than others to work with. Sometimes it's a choice of a client. So that's why we are talking to all of them. You saw also the announcement that we did this week with Snowflake and ServiceNow and UiPath, where we move up in their evaluation. So we are working with all of them and will continue. So we don't have any preference for one or two of them. You mentioned the planned reduction of lower-margin work from recent acquisitions in the prepared remarks. Could you provide more details on that and share your expectations for its continuation in future quarters?

Steve Perron, CFO

Look, it's Steve here, Stephanie. Thank you for the question. In each M&A, as you know, CGI, we are working for profitable revenue. We want to make sure that when we are taking a risk in the revenue, we are getting rewards and we are getting the profit out of it. So obviously, when we are looking at M&A and integration of companies, we are looking at all the projects they have. Some projects are not to our expectation in terms of return in order to be rewarded for all the good work we're doing. Because of that, sometimes we reduce the activity that we do for some projects. In terms of the volume, it won't be a material one. Usually, you will see that in the first year after the acquisition.

François Boulanger, President and CEO

But that said, I just want to reiterate that we are seeing a lot of synergy by putting these acquisitions together. Like I was saying, a lot of visits to our Asia Pacific region from these clients. We will see some longer-term contracts signed with these clients. I'm convinced. We see a very good momentum on that.

Operator, Operator

Your next question comes from Surinder Thind with Jefferies.

Surinder Thind, Analyst

Francois, can you maybe talk about just the demand trends within SI&C? It seems that part of the business continues to struggle at this point.

François Boulanger, President and CEO

Yes. It depends on the area. For sure, on the AI side, there's a lot of demand and consulting on that side and more and more implementation. I think the pure business consulting is still some struggle, especially in places like France. But I would say that everything related to AI continues to be pretty in demand. So it's really depending on the demand, but I would agree that business consulting is still pretty flat, if I can say.

Surinder Thind, Analyst

Just a clarification, I guess, is the idea that we should expect the current growth rates organically to kind of continue? Do you see improvement here? It just seems like it's hard to get a picture of where exactly things are, I guess, and how they're trending on an organic basis.

François Boulanger, President and CEO

Yes. As you know, we are not distinguishing between organic and inorganic growth, and it's quite challenging to do so. When we integrate these companies, it's difficult to determine what results are originating from the acquisition versus what is from the legacy CGI. We are observing positive momentum in combining both and securing new contracts. For instance, I mentioned the federal sector. We are facing a temporary challenge this quarter and possibly the next due to this situation. The first quarter will likely be more difficult in the federal sector. However, if everything progresses positively and the shutdown comes to an end, we anticipate a recovery in the second quarter.

Surinder Thind, Analyst

That's helpful. And then just on the M&A side, just any color or commentary on just the pipeline of deals, whether you might be closer on more deals? Or how do we think about what you've done in the past 1.5 years versus how you're thinking about what's coming in the next 12, 18 months?

François Boulanger, President and CEO

Thanks. That's a good question. For sure, we're seeing a lot of momentum on that side. Like I said, we closed Comarch. We're still waiting for some approvals, but we're expecting really the formal close to happen in the next couple of weeks. We are talking to a lot of other potential acquisitions. The evaluation went down. We need to take advantage of this environment, and we will continue to be aggressive on that level. We had a good 2025. For sure, we need to dance. But like I'm saying, we have a lot of opportunities, and we think we'll be able to close some of them in 2026.

Surinder Thind, Analyst

Got it. To clarify the last comment, it sounds like with valuations down, you're willing to be a bit more aggressive on the M&A front?

François Boulanger, President and CEO

The demand has shifted significantly from when we previously discussed people wanting valuations of 2 to 2.5 times revenue. Now, we are looking at valuations between 1 and 1.5 times revenue, which aligns well with our strategy. This is why we believe we will be very proactive in pursuing acquisitions. The current environment is highly favorable for this type of activity. It’s also beneficial for our managed services as clients are seeking cost savings. With the decreased valuations for acquisitions, we see this as a prime opportunity for us.

Operator, Operator

Your next question comes from Paul Treiber with RBC Capital Markets.

Paul Treiber, Analyst

Just a follow-up question on the M&A environment. The question is, how are you evaluating AI readiness and risks with M&A targets? Is it something that you're proactively looking at in your due diligence? Or is it less at the forefront?

François Boulanger, President and CEO

Our approach to mergers and acquisitions continues to focus on building relationships with clients. This is particularly important in areas like the U.S., where we see significant opportunities for expansion, especially in metro markets that are currently underrepresented, such as Chicago and the West Coast. We're actively seeking potential acquisitions to establish new client connections. Additionally, expertise in artificial intelligence is crucial, and we are prioritizing it in our evaluations. For example, BJSS had substantial AI expertise, which is a critical factor we will consider when assessing potential mergers, as it is in high demand right now.

Paul Treiber, Analyst

And secondly, the Canadian federal budget came out last night, and the government is making or plans to make a number of large investments. Can you elaborate on CGI's footprint with the Canadian federal government and what you see as opportunities for CGI's growth with the federal government going forward?

François Boulanger, President and CEO

For sure. That's a great question, Paul. When you're reading the budget and the initiatives that they want to do, we see a lot of potential where we can help them. The first one is sovereign cloud. They want to create a sovereign cloud. That will involve a lot of work to bring activities and data from public cloud to their sovereign cloud. A lot of exercise and work that will need to be done there. They want to have a more efficient government, so they talked about implementing AI and automation. They will need partners like us to help them create these AI solutions and the automation to achieve their goal of reducing expenses. The other one is defense and the investments they plan to make on the digital and all the IT that needs to support these defense initiatives. That represents a big portion of our business in other countries like the U.S. and Germany. We are a NATO partner for IT. We see a lot of potential there and how we can help them bring what we have across the world.

Operator, Operator

Your next question comes from Richard Tse with National Bank.

Richard Tse, Analyst

Francois, about a year ago, I think you talked about elevating CGI's brand. My guess is it was sort of to help you grow the U.S. commercial footprint. Where are you in that? And what sort of metrics are you monitoring to assess whether those investments are working?

François Boulanger, President and CEO

Thank you for the question, Richard. Yes, this continues to be a priority for both me and the company. One of the key performance indicators we're monitoring is new business. In this quarter, 45% of our bookings came from new business, which includes not just new clients but also additional business from existing clients, many of whom are new to us as well. We're managing this by collaborating more closely with our alliances, which is enabling us to pursue different types of business. Additionally, we've been working with industry analysts like IDC, who recognized us for our AI services in the state and local sector. This is part of our effort with the marketing and operations teams to enhance our visibility with these analysts and partners. Our primary objective is to finalize new agreements with current clients and, importantly, attract new clients. By the way, our pipeline for these new businesses and clients has increased by 30%. As for our recent operations in the APAC delivery centers, we see that offshore demand is continuing to grow. A lot of companies are looking at opening their own GCC or captive in India. That's creating a lot of demand to help them create that for them. As for AI, we’re balancing the number of hires in India because many activities can now be done with AI. For example, the development of our IP is done mostly in India, but with AI tools, we can automate coding or development processes. This reduces the number of employees needed for tasks that required many more 2-3 years ago. Finally, our managed services teams have the expertise to implement these tools effectively. I see India as a key part of our revenue generation strategy moving forward.

Operator, Operator

Your next question comes from Suthan Sukumar with Stifel.

Suthan Sukumar, Analyst

For my first question, I wanted to touch on AI spending priorities here. What are you seeing with respect to how clients are thinking about their spending priorities when they start to realize some of the initial ROI from early AI projects? Just wondering, are you seeing savings being reinvested elsewhere with respect to other buckets of IT spend? Or are they doubling down on AI and more of the underlying modernization work needed?

François Boulanger, President and CEO

I think it's both. Some clients are investing in AI and if they see the ROI, they'll continue to invest on that side. However, they also have a backlog on the modernization side. For the last several years, they didn't do much on the modernization front. The fact that they can find savings by using AI is crucial, but they need to tackle that backlog. We are seeing that demand will continue on that front. Additionally, there is a lot of work to do on data quality, ensuring it makes sense and managing data security. Therefore, AI serves as a way for companies to address their backlog of transformation, and they'll need aid from companies like us to do so.

Suthan Sukumar, Analyst

Great. My second question, I just wanted to touch on recent M&A. Can you provide a brief update on how integration is going, and how that's tracking to your expectations? With respect to potential synergies, what sort of early traction or potential are you seeing that might be better than what you expected initially with these acquisitions?

François Boulanger, President and CEO

Yes, I can start on the opportunity side with clients and perhaps Steve can provide some color on the synergy side. Again, like I was saying with the Daugherty acquisition, we are partnering in regions where we didn’t have strong representation. We've created new relationships and signed new contracts after integrating Daugherty with our services. It’s working exceptionally well. The value of M&A is not just the revenue from the acquired business but the ability to provide clients more comprehensive solutions with CGI.

Steve Perron, CFO

The savings side, look, if you look at all the acquisitions we did, the ones that we did in the U.S. earlier in the year, obviously, that's now all integrated. That integration has improved our processes and systems resulting in quicker realization of synergies. The BJSS and Novatec acquisitions are also integrated, which improves margins significantly. Apside was done recently, so it's not fully integrated yet but will be soon, and margin improvements are expected. Nonetheless, we are proud of the Q4 margin of 16.6%, even during integration periods for several acquisitions.

Operator, Operator

There are no further questions at this time. I will now turn the call over to management for closing remarks.

Kevin Linder, SVP of Investor Relations

Thanks, Joelle, and 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 14123. 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.

François Boulanger, President and CEO

Thank you.

Operator, Operator

Ladies and gentlemen, this concludes the conference call for today. We thank you for participating and ask that you please disconnect your lines.