管理層發言
Good morning, ladies and gentlemen. Welcome to CGI's Second Quarter Fiscal 2025 Conference Call. And I would like to turn the meeting over to Mr. Kevin Linder, SVP of Investor Relations. Please go ahead, sir. Thank you, Sylvie, and good morning. With me to discuss CGI's second quarter 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 a.m. Eastern Time on Wednesday, April 30, 2025. Supplemental slides as well as the press release we issued earlier this morning are available for download, along with our Q2 MD&A, financial statements and accompanying notes, all of which 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. Now I'll turn the call over to Steve to review our Q2 financial results. Steve?
Thank you, Kevin, and good day, everyone. CGI continued to operate with discipline in our second quarter of fiscal 2025. In Q2, we delivered $4 billion of revenue, up 7.6% year-over-year or up 3.3% when excluding the impact of foreign exchange. Growth was mainly driven by recent business acquisitions, partially offset by 1 less available day to bill in most segments, equating to approximately 0.8%. In constant currency, the CGI client proximity segments with strongest growth were U.K. and Australia at 12.1%, which includes just over 1 month of BJSS revenue. And across our U.S. segments, combined growth was 7.2%, primarily driven by our Aeyon and Daugherty merger investments. Geographically, our North American operation grew at 6.4%. In Europe, our operation grew at 0.7%, given softer market conditions, particularly in the manufacturing sector. And demand remains strong for global delivery, specifically our Asia Pacific operation with revenue up 6.8%. From an industry perspective, constant currency revenue growth was led by government at 6.5% and financial services at 6.1%, partially offset by continued softness in Continental Europe, particularly in the MRD and telecommunications sectors. IP revenue grew in 5 of our 8 proximity segments on the strength of continued client interest for our business solution. IP represented 21.5% of total revenue, down 90 basis points year-over-year due to the dilutive impact of recent business acquisitions. In Q2, bookings were $4.5 billion for a book-to-bill ratio of 112%. Book-to-bill was strong in North America at 124%. Europe was 101%. When looking at service type, book-to-bill ratios were 122% for managed services and 98% for business and strategic IT consulting and system integration. On a trailing 12-month base, book-to-bill ratios for North America and Europe were 111% and 110%, respectively. On the same basis, managed services had a book-to-bill ratio of 122%, and the SI&C book-to-bill ratio was 97%. Our global backlog reached $31 billion or 2x revenue. Turning to profitability. Adjusted EBIT in the quarter was $666 million, up 5.9% year-over-year for a margin of 16.5%. Earnings before income taxes were $583 million for a margin of 14.5%, down 90 basis points year-over-year, mainly due to restructuring and acquisition-related costs. Our effective tax rate in the quarter was 26.2%, stable compared to last year, and we expect our tax rate for future quarters to be in the range of 25.5% to 26.5%. Adjusted net earnings were $481 million, up $21 million year-over-year for a margin of 11.9%. On the same basis, diluted EPS was $2.12, an accretion of 7.6% when compared to Q2 last year. Net earnings were $430 million for a margin of 10.7%. Diluted EPS was $1.89, representing an increase of 3.3% year-over-year. We remain in constant dialogue with our clients regarding the evolving business dynamics they are facing. To remain strong, we regularly assess these dynamics and take proactive actions to expand shareholder value for the benefit of our stakeholders, namely our shareholders. As such, CGI increased the scope of our previously announced restructuring program, most of which continues to be targeted within our Continental Europe operations. In the quarter, we incurred $44 million of cost, and we expect to incur an additional $137 million to implement these actions over the next few quarters. These actions will impact approximately 1.5% of CGI employees. As always, we will treat those impacted fairly and with respect. Turning to cash. We generated $438 million in cash from operations, representing 11% of total revenue, unfavorably impacted by $101 million in restructuring and business acquisition-related payments. DSO was 40 days in the quarter, identical to last year. In Q2, we invested $100 million into our business, including in AI; $1.56 billion for business acquisitions; $345 million to buy back our stock; and returned $34 million to our shareholders under our dividend program. We continue to deliver a strong return on invested capital at 15.4%, down 50 basis points year-over-year mainly as a result of the capital allocated to recent business acquisitions, which are in the process of being integrated. Yesterday, our Board of Directors approved a quarterly cash dividend of $0.15 per share. This dividend is payable on June 20, 2025, to shareholders of record as of the close of business on May 16, 2025. As communicated in the past and consistent with our profitable growth strategy, CGI's capital allocation priorities remain focused on investing back in the business and pursuing accretive acquisitions. Now I will turn the call over to Francois to further discuss the insights on the quarter as well as the outlook for our business and markets. Francois?
Thank you, Steve, and good morning, everyone. I am pleased with our team's disciplined execution of our profitable growth strategy during the second quarter and throughout the first half of the fiscal year. Our operational rigor again enabled us to deliver solid results in the quarter, underscoring CGI's resilience as many clients began to navigate a more unpredictable business environment compared to the first quarter. Today, I will focus our performance for the first half of the year, the current market environment and the outlook. Year-over-year, for the first half of 2025, revenue was up 6.3% or 3% on a constant currency basis to more than $7.8 billion. Adjusted EBIT was up 5.3% to $1.28 billion. Adjusted EPS was up 7.4% to $4.08. And on a trailing 12-month basis, cash from operations totaled over $2.2 billion, up nearly $100 million compared to the previous year. Given the ongoing strength of our balance sheet and confidence in CGI's positioning as a trusted partner during all economic cycles, we invested $2.3 billion during the first half, including $183 million invested back into the business to drive future growth; $1.6 billion toward business acquisitions; $498 million for share repurchase; and $68 million returned to shareholders through our dividend program. Our capital allocation priorities remain focused on progressing our Build and Buy profitable growth strategy. By continuing to reinvest in our business, we are expanding our portfolio of in-demand offerings in areas such as AI and generative AI, cybersecurity, cloud and IT services. By furthering our M&A strategy, we are expanding and deepening CGI's local presence in key metro markets around the world. In the second quarter, we completed 3 acquisitions: BJSS to expand our U.K.-wide presence in commercial industries such as financial services and to deepen our presence in government; Novatec to expand our presence in Germany and Spain across commercial industries, including financial services; and Momentum Technologies to grow our public sector presence in Quebec City. I would like to warmly welcome the nearly 3,000 new consultants who joined CGI from these mergers. Additionally, at the end of the quarter, we announced an exclusivity agreement to acquire Apside, a leading AI, cloud, engineering and digital services firm headquartered in France. Upon successful closing, which is expected in June, more than 2,500 professionals would join CGI, deepening our local presence in France, Canada, Portugal, Belgium, Morocco and Switzerland. Following the successful closing of Apside, the 5 mergers we announced this fiscal year will increase the total number of metro markets where CGI is at scale. This is a critical element of CGI's growth strategy to ensure we are in proximity with existing and new clients to understand and adapt to their needs. To progress our profitable growth strategy, we will continue to prioritize investments aimed at building critical mass in key metro markets and all CGI geographies. We remain in dialogue with a number of firms, both metro market and transformational opportunities. As always, we will be disciplined to ensure that mergers will be accretive to each of our stakeholders. Turning now to the market environment, starting with bookings. CGI ended the first half with bookings of $8.6 billion, up $700 million year-over-year. This was driven by expanded modernization projects, which help clients realize operational efficiencies, notably through managed services and IP. For the first half, managed services bookings exceeded $5 billion, up 21% year-over-year. Additionally, in Q2, IP solutions designed to help clients achieve business objectives drove 134% IP book-to-bill. From an industry perspective, we saw strength in financial services with 157% book-to-bill and government at 108%. Globally, we continue to see early signs in Q2 of renewed client spending in the banking sector. Banks remain focused on modernizing core systems and processes through managed services and IP. Government awards were notable in local government, particularly for our industry-leading IP solutions, which embed AI, data privacy and cybersecurity. Representative client wins in the second quarter included the state of California awarded CGI U.S. a 7-year USD 524 million engagement to modernize and unify its payroll and HR systems through the implementation of the CGI Advantage platform. The European Space Agency selected CGI Germany to develop advanced AI solutions to automate and streamline satellite mission operations. CGI consultants will combine domain expertise with AI models to help the agency optimize mission planning and bring satellites to orbit faster and with greater precision. A leading U.S. financial institution expanded their strategic partnership with CGI to establish a dedicated global capability center in India. The GCC will help accelerate the bank's capacity to launch innovative offerings, leverage AI solutions for business outcomes and improve scalability and access to talent. This agreement underscores CGI's deep expertise in value-added solutions for consumer lending, trade finance and capital markets. And one of the largest retail banks in France selected CGI's DynamicProcess360 platform to serve as the core technology supporting their digital transformation. This CGI IP helps organizations digitize and streamline their end-to-end business processes, so they can operate more efficiently. Over the past few months, there has been an uptick of uncertainty as clients globally consider their implications of macroeconomic and geopolitical dynamics, most notably related to tariffs. Across industries, our clients are navigating a fast-changing and challenging business environment. Many clients are balancing strategic caution with operational urgency. This dual business agenda is not new, but the pace and uncertainty of change has accelerated, and it is shaping the IT priorities and investments. Despite this cautionary approach across some industries and client organizations, overall client interest remains strong for CGI's managed services, which help clients realize cost savings and drive business transformation. As a result, the pipeline of managed services opportunities is up by more than 15% compared to this time last year. Specific to our U.S. Federal operations, for more than 40 years, CGI Federal has supported U.S. government agencies in using technology and innovation to achieve efficiencies and deliver outcomes aligned to their missions. In line with recent administration initiatives, we are collaborating closely with our clients to provide all requested inputs on our current state portfolio of projects. More importantly, our team is proposing bold ideas to help the administration achieve additional cost efficiencies, including through the use of commercial approaches, emerging technologies and outcome-based contracting. For context, CGI Federal constituted 14% of our global revenue in fiscal 2024. The vast majority of this revenue is earned from IT and business process services, much of which uses CGI IP such as Momentum. And just 2% of our Federal revenue is derived from discrete consulting services. We remain well-positioned as a strategic partner for helping the U.S. administration achieve their objectives. In fact, this month, the Federal Aviation Administration announced that CGI Federal was selected to develop, deliver and operate and modernize the Notice to Airmen, or NOTAM system. This critical system communicates more than 4 million temporary changes annually to pilots and flight planners in areas such as runway closures and aerospace restrictions. CGI Federal also has extensive experience in building systems that foster transparency and prevent fraud. In line with the administration's priorities, we announced earlier this week the launch of a new government-wide platform to help federal agencies detect and prevent potential improper payments before they happen. This new platform brings together real-time risk identification, AI-powered predictive analytics, and robust core financial integration. We remain fully committed to helping our government clients in the U.S. and around the world deliver the right technology services to enable more efficient and effective delivery of government services to taxpayers. As we look to the second half of the year, client demand across geographies and industries is strong for digital transformation, even with the cautionary approaches clients are currently taking. Technology remains at the heart of achieving the objectives of companies and governments. In particular, demand for modernization, data, cybersecurity, and AI are viewed as more important than ever to helping clients achieve their ambitions. These overarching findings are part of the early insights we identify from our discussions our leaders held during Q2, with more than 1,800 client executives as part of our annual planning. I would like to share 3 insights we see shaping client demand in the near term. First, the evolution of industry value chains continues to accelerate. Three-quarters of executives see their industries being reshaped by digitization. And over half said that macro trends are highly impacting their business models, which is requiring new approaches to value creation. The second finding reveals that structural openings are hindering tangible ROI from digitization. Globally, only 35% of executives stated their digital implementations are achieving the ROI they are expecting, essentially flat compared to last year. Nearly half of executives noted that the complexity of legacy systems and processes is slowing the adoption of emerging technologies and limiting measurable outcomes. Lastly, executives are exploring how they will advance transformation. Many executives are rethinking how their organization will deliver transformation, moving more toward managed services and ecosystem partnerships. Naturally, AI continues to be viewed as a key lever for driving this innovation. Compared to last year, more organizations are implementing traditional and generative AI. Overall, however, the majority of AI adoption remains in the early stages. The clear takeaway from these findings is that the shift toward outcome-focused delivery is a permanent one and represents significant opportunities for CGI. Against the backdrop of the challenging business environment, many clients are seeking fewer partners who can bring not just technical expertise, but industry context, business alignment, and operational scale, including flexible managed services capabilities. CGI is this partner. Our combination of local relationships and global scale with deep industry expertise and end-to-end offerings enables clients to achieve tangible business outcomes. Our robust managed services and IP solutions, particularly in modernization and AI integration, are outcome-focused and help clients to close the gap from strategy to execution through tailored transformation strategies. CGI's role as a digital transformation partner to clients has never been more vital. Thank you to our now 94,000 CGI partners around the world for your continued commitment to the success of our clients. In closing, we have a resilient model with a diversified mix of geographies, economic sectors, and end-to-end services and solutions to enable profitable growth now and in the future. We have world-class talent with deep understanding of our industry domains and expertise in technologies. We have proven value propositions and trusted relationships that are well-aligned to evolving client demand. We have a proven track record for operational excellence and for taking proactive actions to expand shareholder value. And we have a strong balance sheet to execute on our capital allocation priorities to advance our Build and Buy profitable growth strategy. Thank you for your interest and support. Let's go to the questions now, Kevin.
Sylvie, we can now poll for questions, please.
分析師問答
First question will be from Stephanie Price at CIBC.
First question just on the U.S. Federal. Just wondering how the U.S. Federal contract growth has trended since the change in administration. Are you seeing changes in consumer behavior there and maybe not spending to the ceiling on some of the contracts or task orders coming in more slowly? Just a little context on U.S. Federal here, please.
Yes. So thanks, Stephanie, for the question. So what do we see on the bookings if we're talking bookings, for sure, you saw the booking. We're at 40% book-to-bill. What's happening is that instead of signing a renewal, a 5-year renewal or a 3-year renewal, what's happening is that they'll sign bridge contracts to continue the work, right, but not necessarily doing big renewal until they'll have a better understanding on the new processes and the new way that they would procure in the future. So that's really what we see. But as I indicated, when it's time, they don't have any choice to sign new projects. They will sign it, like I was talking about the NOTAM system and the new platform for fraud detection. At some point in time, they need to move on and especially if it's bringing outcome-based objectives that they wanted to achieve, they will continue to buy.
That makes sense. And then just maybe on the administrative side of the U.S. Federal business. Are you seeing anything there? Are DSOs being pushed, invoice approvals taking longer, anything like that?
No, no. Even year-over-year, my understanding, Steve, the DSO did drop and...
It did drop, yes. We are being diligent and monitored this closely, and it was the first thing we checked, Stephanie. However, there is no delay on payments, and it's regular business.
The next question will be from Richard Tse at National Bank Financial.
So obviously, the environment is challenging. But when you talk to your customers broadly, what are the conditions they're saying that would make them return to their normal cadence of services spend? Is it just kind of some certainty on tariffs? Or is it something else beyond that?
It's not just about tariffs, but rather the overall environment and future direction. For instance, we observed signs of a market slowdown in Europe even before tariff discussions began, particularly in industrial manufacturing, which faced existing cost pressures. As a result, there was a tendency to hold off on short-term projects like SI&C and consulting services. While consulting has slowed and project implementation has been affected, managed services remain relevant, particularly in helping clients achieve cost savings. This approach contributed to securing significant deals, such as the outsourcing agreement with Volkswagen. Clients will return to the market when they sense greater certainty, rather than just recovery. In the financial sector, we've seen growth, particularly in Canada, following a reduction in rates, which has led to positive developments in that area. Other sectors will likely wait to see how and when the market stabilizes.
Okay. And then under the sort of current environment and macro, does it sort of change your capital allocation ranking? Like do acquisitions move up that ranking or buybacks? Like sort of help me understand how you're thinking about that.
It's certainly creating opportunities in mergers and acquisitions because, as you know, we have a robust balance sheet, but not everyone shares that strength. We are noticing that some companies are facing challenges, particularly those that are pure systems integration and consulting firms without managed services capabilities or the ability to invest in them. They are at a juncture where they are considering their next steps, making them appealing targets for us to explore.
And just the last one for me. Is there a certain target of capital you want to deploy on acquisitions here over the next 12 months?
We are generating $2 billion in cash, with free cash flow between $1.6 billion and $1.7 billion. Additionally, we have a low leverage position, which allows us to pursue more acquisitions, including transformational ones.
Next question will be from Steven Li at Raymond James.
I want to ask about the acquisitions, so BJSS and Daugherty. Can I think they are mostly SI&C versus managed service?
Yes. Both companies focus significantly more on systems integration and consulting than on managed services. I used BJSS as an example during the discussion about mergers and acquisitions. It's a great company with strong relationships in the UK, but they were limited to delivering only systems integration and consulting services. Some of their clients requested managed services that they couldn't provide. Now that they are part of CGI, they can offer managed services as part of their portfolio. We're already seeing positive momentum and productive meetings with clients where we’re demonstrating these new capabilities. Many clients from BJSS, as well as Daugherty, have visited our facilities in India and were very impressed with our offerings. While nothing is finalized yet, this is the approach we are taking when acquiring larger companies, like those with 1,500 or 2,500 employees, such as BJSS, which have established relationships. We now have the opportunity to expand our sales significantly within these organizations.
Okay. So I appreciate the upside there potentially. But going back to the core SI&C business, can I ask how they are doing in this market? Like for example, this quarter, their book-to-bill, can I assume they were at least 1x for these two companies?
I would need to look. We're not at that level of detail. But I would say to you that, for sure, managed services overall, we had a book-to-bill in what, that, Steve?
122.
122 book-to-bill for managed services overall and just below 1 overall for SI&C.
Okay. What I'm trying to ask is if the bookings from BJSS and Daugherty would have contributed to your overall bookings on an organic basis.
Yes, they had bookings, and it did contribute. However, BJSS only has one month of bookings, whereas Daugherty has a full quarter of bookings.
Okay. Got it. And then last question for me. Like the bigger restructuring that you alluded to in the MD&A, does that have any implications on margins year-over-year? How much of an improvement in margin should we expect year-over-year?
Yes. Most of the restructuring will be in Continental Europe. For sure, it will improve the utilization of these countries, so naturally will help to improve also the EBIT margin. But I don't have necessarily a target or something. I don't know, Steve...
Look, you can see in the MD&A that the margin that we're making in Europe, obviously, we want to grow that. And that's why we're taking the action. We want to make sure that we are a strong company. And we want to make sure that they come back with a higher margin than right now what they can achieve.
And take the Scandinavian one. We did some of the restructuring already in the last couple of quarters. And you see a good uplift on the EBIT margin.
200 bps more in Scandinavia. So we're not saying that we're going to achieve that necessarily rapidly for the other country, but that's the goal, right? We know we can generate the 16% that you're used to. That's our target.
Next question will be from Surinder Thind at Jefferies.
Following up on the expansion of the restructuring initiative, can you help me understand what has changed compared to your thoughts last quarter? Is it mainly within SI&C and primarily focused on onshore delivery in Continental Europe? Any additional insights would be appreciated.
Yes. No, you're touching it. It's really in the SI&C. In the business consulting side also a bit, it's continued to be soft on that side. And so we decided that we needed to do a bigger program to be sure that we are improving the utilization in these countries. So that's really why we're doing it. And at the same time, also, it's not just to improve the utilization, but we are doing more and more and more with some of the automation on some of the SG&A. So we will have also some restructuring in the SG&A area because, again, versus some of our investments that we did, for example, with the use of AI.
That's helpful. Can you provide any insights on the demand for delivery services? One outcome of the pandemic has been that companies may be placing greater emphasis on cost. While there are clear advantages within managed services, are clients requesting more offshore delivery for SI&C projects? How should we approach this dynamic considering the cost-sensitive client base?
Yes. That's a good question. You saw the growth in India. We continue to grow rapidly in India faster than anywhere else. And for sure, it's not just for managed services, but it's also for SI&C. And it's not just because of cost. Yes, cost is a portion of it, but it's also for talent, and that's also a place where we have a lot of talent. And we are using that talent to deliver across the world. So yes, it's cost, but it's also expertise that we still have a lot of expertise in India, and we're using a lot of India for delivering all lines of business.
Next question will be from Thanos Moschopoulos at BMO Capital Markets.
Francois, maybe just to clarify a point. As of right now, have there been any meaningful contract cancellations or non-renewals in U.S. Federal? Or nothing of that nature to call out?
Nothing meaningful that happened on that side, no.
Okay. And U.S. state, is that looking status quo? Or have you seen any change in demand with the new administration at the federal level? Anything happening on the state side?
On the state department level?
Yes, on the state side.
We haven't observed any changes at the state and local levels. As I mentioned, we just signed a $500 million deal with California, so things are still looking positive in that regard. They are certainly exploring cost-saving solutions like everyone else, and that’s what we’re discussing with them. However, for the moment, spending at the state and local levels continues, and we don’t see any slowdown in that area.
Okay. Last one for me is just on the pricing environment. You mentioned using more AI for automation. And your peers are doing the same, obviously. And given that and given that we're in a bit of a more challenging environment, what are you seeing as far as pricing on the large managed services deals you're pursuing?
In terms of pricing, particularly for managed services, clients are looking for savings. They expect to see benefits on their end compared to what they provide. AI is one tool that helps deliver these savings. We're currently utilizing it, and it's aiding in reducing costs for clients while also enhancing our profit margins. Overall, it seems to be a mutually beneficial arrangement for both us and our clients.
Next question will be from Paul Treiber at RBC Capital Markets.
Just a question on the time frame for the ramp in managed services bookings to lead to revenue growth. Is it a couple of quarters before you expect revenue from these new bookings? Or just given the environment, are customers signing, but then there's a longer time frame to actually deploy?
I think a couple of quarters makes sense. It really depends on the situation, but on average, that sounds reasonable. Some projects from the past have concluded, and we're witnessing growth, particularly in managed services, which has been increasing year-over-year. For instance, we have a long-term contract with a large bank in the U.S. and another with the state of California, where we have already begun work. We expect to see growth from these contracts over the next few quarters.
And then can you speak to the relationship between SI&C and managed services in terms of, are they completely independent or do you see the slowdown in SI&C, is that a leading indicator that there may be headwinds facing managed services at some point in the future? Like is the SI&C, in preparation in any way for future managed services, or are they completely independent?
No, I believe they are completely independent. Even in the current environment where we face some challenges in SI&C, particularly on the consulting side, managed services are very active. During my recent tour of Europe, I noticed that every client is eager to learn how we can assist them in enhancing their profitability and cutting costs, which is always important. They are receptive to the solutions we offer in that regard.
Next question will be from Divya Goyal at Scotiabank.
There have been some questions on restructuring asked already. I just wanted to get the specific clarification. So are you seeing some of these restructured costs predominantly onshore getting moved to offshore or GCCs? And are you seeing increased hiring in GCCs as you move those costs from onshore operations to offshore operations?
Yes, we are increasing our offshoring efforts, particularly in SG&A, as part of a restructuring initiative. This includes relocating some SG&A functions to places like India in the Asia Pacific region. Additionally, we're utilizing automation with our teams in India. Furthermore, we're aiming to enhance the utilization of resources in various countries, particularly where there is a slowdown affecting business consulting services. This has created pressure on utilization rates, and we need to take action to address that.
Sounds good. Regarding the U.S. and specifically the U.S. Federal sector, the acquisition of Aeyon has been quite interesting. How do you perceive the current trends related to that acquisition, considering the ongoing situation with DOGE and broader U.S. Federal issues and tariff-related concerns across the country?
Aeyon is a valuable acquisition in the U.S. Federal defense sector, and we believe this sector will continue to grow. Governments worldwide are increasing their investments in defense, creating opportunities for us. Although we aren't directly on the front lines, we're involved in the back office operations of various defense ministries globally, including in the U.S. This is the rationale behind acquiring Aeyon, and we anticipate good future opportunities in the defense sector.
And my last question, just on M&A. You briefly mentioned, and I know you've said this in the past, that you would continue to look at potential transformative acquisitions. Or is there a certain geography or a capability set that you have in mind when you're looking at acquisitions? Specifically on the transformative, it would have to be a pretty sizable acquisition if you were to do that. So what is the thought process on that front? And that will be it for me.
Thank you, Divya. Regarding our transformational efforts, we're open to exploring opportunities across all industries and geographies. However, the U.S. commercial sector appears to be a significant area of focus for potential transformational acquisitions. Germany also presents a promising opportunity. We will evaluate all available assets worldwide to identify those that could yield substantial returns, and we will consider various locations as we move forward.
Next question will be from Robert Young at Canaccord.
I noticed you mentioned utilization more often in this call compared to recent discussions. Could you provide some insights on the utilization trend? Is it feasible to transfer resources between managed services and consulting during a slowdown in the latter? Additionally, could you elaborate on the recent challenges to margins, such as the potential impact of pricing pressures and new mergers and acquisitions? A broad overview of your near-term margin outlook would be appreciated.
Thank you for the question, Robert. Yes, you're correct. We continuously explore how to transition personnel from SI&C to managed services whenever possible. While we face some challenges in utilization, particularly in Continental Europe, it doesn't hinder our overall efforts. We are assessing the situation globally and determining how to allocate our workforce to meet client needs. Regarding margins, we are experiencing both tailwinds and headwinds in the short term. As you mentioned, we've made several M&A acquisitions, which require integration into CGI. This process can take time before we can enhance their EBIT margin to align with CGI's standards, potentially spanning several quarters. Additionally, restructuring efforts in certain countries are also taking time to implement, which may take a few quarters. I expect to see improvements in EBIT margins, though not immediately. In the medium term, we aim to restore EBIT margins in Europe to their historical levels, but we must first complete these necessary actions.
For my second question, regarding the key points from customer discussions, you emphasized a greater focus on outcome-driven delivery. You also mentioned this was related to the U.S. Federal sector. Is there a noticeable shift towards outcome-based contracting in the way the U.S. Federal government approaches contracting, particularly concerning pricing based on outcomes? How might this impact CGI, especially if it plays a significant role? I'll turn it back to you.
Yes, that's a good question. We currently have over 50% of our contracts with the federal government structured as outcome-based contracts. It seems they want to increase that proportion. They also use cost-plus contracts, but we're hearing discussions indicating a desire to transition away from them. I'm not sure how quickly that change will occur, but there is a strong focus on expanding outcome-based contracting, which we fully support because it aligns our interests with theirs. That's the direction of our conversations with them, and we expect that to continue in the future. We're confident in this approach.
Our next question will be from Jerome Dubreuil at Desjardins.
The first question is on the bookings. They were strong in the context. And I'm looking to find more about the average duration of contracts as a whole. You talked about it for the U.S. Federal side. So maybe a similar line of thought as Paul had. I'm looking for color on what bookings mean for your future revenue. So are the stronger bookings maybe in part due to longer duration of contracts? Any color there would be helpful.
Well, for sure, we have multiyear contracts. Like I was saying, the large bank in the U.S., the state of California is a multiyear contract. And like I was saying also on the federal side, in federal side where they had multiyears in the past, and I'm not saying they won't come back to multiyears, but in this environment, it's mostly bridge contracts that we signed, a lot of bridge contracts outside a couple of larger ones, but a lot of bridge contracts. So as you know, Jerome, managed services will have a tendency to be multiyear contracts versus SI&C will be shorter-term contracting.
Could you follow up on whether you see potential in sovereign AI or the hosting of more data locally outside the U.S.? I understand that investing in infrastructure might not be your primary focus, but I’m curious if this time could be different. If governments or local businesses are looking to diversify their data sources, could this present a viable business opportunity for you?
Very good questions, Jerome. We have always had some infrastructure business. Although it has shrunk significantly in the last several years, it still constitutes about 10 percent of our operations. We are offering our intellectual property on a software-as-a-service model both on our premises and in the public cloud. We continue to provide fully managed services related to infrastructure for our clients. You are correct that there is much more discussion about data sovereignty and digital sovereignty. We plan to stay closely aligned with this trend. If our clients request more on-premises services, we will be ready to provide support.
And maybe one last for me. If you had a guidance that was for the year, would you have changed it today?
That's an interesting approach, Jerome. I won't provide guidance, that's certain. A lot has changed from Q1 to Q2. When we spoke at the end of January, some of the discussions and macro trends I wasn't considering then have now become apparent. It's a fast-moving and dynamic environment. This is why we are hesitant to give guidance; it's very challenging to do so. However, we do have many opportunities we are pursuing and are actively engaging with clients, which allows us to see several opportunities in the market.
Thanks, everyone, for participating. And 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 95409. As well, a podcast on 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.
Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.