CGI inc (NYSE:GIB)
Q3 2021 Earnings Call
Jul 28, 2021, 9:00 a.m. ET
- Prepared Remarks
- Questions and Answers
- Call Participants
Good morning, ladies and gentlemen, and welcome to CGI Third Quarter Fiscal 2021 Conference Call.
I would now like to turn the meeting over to Mr. Maher Yaghi, Vice President, Investor Relations. Please go ahead, Mr. Yaghi.
Maher Yaghi — Vice-President, Investor Relations
Thank you, Paul, and good morning, everyone. With me to discuss CGI’s third quarter fiscal 2021 results are George Schindler, our President and CEO; and Francois Boulanger, 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, July 28, 2021. Supplemental slides as well as the press release we issued earlier this morning are available for download, along with our Q3 MD&A, financial statements and accompanying notes, all 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 encourage our investors to read it in its entirety. We are reporting our financial results in accordance with International Financial Reporting Standards, or IFRS.
As always, we will also discuss non-GAAP performance measures, which should be viewed as supplemental. The MD&A contains definitions of each one used in our reporting. All of the dollar figures expressed on this call are Canadian, unless otherwise noted.
I will turn it over now to George to give a brief overview of Q3, Francois will then review our Q3 financials and then George will comment on our business and market outlook. George?
George D. Schindler — President and Chief Executive Officer
Thank you, Maher, and good morning, everyone. I am very pleased with our team’s Q3 performance, delivering results according to our previously announced plans, returning to year-over-year revenue growth on a constant currency basis, delivering double-digit GAAP and adjusted EPS accretion for the quarter and first nine months of the fiscal year, generating strong cash from operations, bringing the last 12-month total to over $2 billion, a 12.4% increase over the previous 12-month period, securing significant new and expanded work with clients, raising our last 12-month book-to-bill to 120% and surpassing the pre-pandemic hiring of consultants on both an overall and net basis in the quarter, resulting in a 2.6% increase in total headcount year-to-date.
These strong results reflect the continued trust our team has earned from clients as we partner with them to help shape and implement their digital transformation agendas. Again, in the quarter, demand accelerated as more clients, particularly in commercial industries, began to reinvigorate projects that have slowed during the earlier stages of the pandemic. We delivered constant currency revenue growth across every commercial sector this quarter. We saw particular strength as follows: 9.3% global growth within manufacturing, retail and consumer services, led by Western and Southern Europe with year-over-year growth of over 20%.
Growth globally at 5.4% in financial services led by Central and Eastern Europe at over 18%. And overall growth of 4.7% in the communications and utility sector, led by North America with 21% growth. In our global government business, bookings increased on a year-over-year and sequential basis, reaching a book-to-bill of 123% in the quarter. We are seeing government clients begin to reprioritize future IT investments to reflect the changing public health and economic environment. This reprioritization is in areas of strength for CGI, including core technology modernization, filed enablement, citizen services, space-related endeavors and cybersecurity.
As such, the government sector pipeline increased in the quarter, up 18% since the start of this fiscal year. From an overall services mix perspective, bookings were up significantly for managed services with over $1 billion in new bookings compared to the same quarter last year. And notably, the percentage of bookings that included IP were also up year-over-year and represented a book-to-bill of over 150%. Across every industry and geography, the pace of client demand continues to rise. CGI’s combination of industry and technology expertise is providing clients with the right services to drive their digital transformation initiatives.
For example, in the quarter, we were awarded numerous new modernization and digitization projects, including with Nexelis, an international life sciences firm, who recently selected us to lead the execution of their three-year technology transformation road map. As part of this transformation, CGI will modernize, secure and manage their end-to-end technology value chain, supporting their business agility, performance and growth. With a North American bank who extended its commitment to CGI in their commercial banking division, as part of this new five-year agreement, CGI will lead the ongoing evolution, upgrades and management of the bank’s digital commercial banking platform.
And for a European food and beverage manufacturer who selected us to lead the modernization of their production planning systems. CGI will provide strategic advisory services as well as implement a cloud-based industrial ERP platform. Consistent with the past few quarters, we not only sustained our incumbency with existing enterprise clients, we were also awarded net new work and/or expanded scope for both existing and new clients, growing our share of business. In the quarter, this combination of net new work and expanded scope comprised over half of total bookings.
Now I will turn it over to Francois to review our financial results, and we’ll return afterwards to discuss the opportunities we are seeing to expand our market share going forward. Francois?
Francois Boulanger — Executive Vice-President and Chief Financial Officer
Thank you, George, and good morning, everyone. I’m happy to share with you the results of our third quarter 2021. As George mentioned, we returned to positive revenue growth in Q3 on a constant currency basis fueled by another strong quarter of bookings coming mostly from long-term managed services agreements. In addition, we delivered strong double-digit EPS growth despite a strong Canadian dollar causing headwinds in our reporting currency. We delivered revenue of $3 billion, up 3.5% year-over-year on a constant currency basis.
This is a return to positive growth and an improvement over last quarter where we saw a 1.7% decrease year-over-year. IP revenues represented 22% of total revenues, up from 21% last year. Strong growth in constant currency was seen in the following geographies: Western and Southern Europe, up 12.8%; Central and Eastern Europe, up 12.1%; Asia Pacific, up 6.6% and Canada grew 6.1%. Given the continued increased demand for our services, as reflected by the strong bookings in the last few quarters, we expect continued positive momentum.
Total bookings of $3.6 billion were up 28% year-over-year, representing a book-to-bill of 120% for the quarter and lifting our trailing 12 months book-to-bill to 120% as well. I would like to call out a few strategic business units with strong bookings in the quarter, such as Canada with a book-to-bill of 170%, U.S. commercial and state government at 131%, Western and Southern Europe at 120% and U.K. and Australia at 119%.
Each of these seeing material improvement in new bookings. In fact, seven or eight proximity geographic segments now have a trailing 12-month book-to-bill well above 100%. New business was 31% of bookings, an increase from the previous year’s 27%. On a trailing 12-month basis, new business was 30% of booking versus 24% for the year ago. Our global backlog increased by $1 billion year-over-year and a strong at $23.3 billion. This backlog represents 1.9 times revenue, the vast majority of which is comprised of long-term managed services engagements.
Adjusted EBIT in Q3 was $477 million, while EBIT margins increased to 15.8%, up 110 basis points compared to Q3 last year. The year-over-year increase was mainly due to higher utilization rates, increased R&D tax credits and lower SG&A costs. We saw strong margin improvements in U.S. Federal and Scandinavia with margins up 540 and 460 basis points, respectively. This was partially offset by lower margins in U.S. commercial and state government due to temporary effects from recent acquisitions and then in the U.K. due to a nonrecurring contract provision. Our effective tax rate…