January 29, 2014 / 1:32 PM / 5 years ago

Obamacare contractor CGI profit misses, shares slide

TORONTO (Reuters) - Canadian computer services provider CGI Group Inc, the contractor behind the troubled Obamacare enrollment website, reported weaker-than-expected quarterly results on Wednesday, sending its shares to a four-month low.

The Montreal-based company said revenue and bookings - an indicator of future sales - were both strong in its first quarter despite losing the contract to manage the U.S. federal healthcare enrollment website it helped build.

But it also reported U.S. margin pressure and said cash from operations slipped to C$66 million ($59.19 million), down from C$224.5 million a year earlier. It blamed delays in collecting payments on some contracts as well as a hit from payments related to the integration of former British competitor Logica, which it bought more than a year ago to expand its European presence.

The company said it expects both of those problems to be temporary and predicted cash generation of around C$300 million per quarter in coming quarters. CGI said it generated more than C$800 million in cash from operations over the previous 12 months, excluding Logica integration costs.

It also said that revenue - which would have shrunk if not for advantageous currency rates - was pressured by a deliberate move away from low-margin business, and that costs in the United States rose as it pushed to hit year-end targets.

The stock was down 4 percent at C$33.81 on the Toronto Stock Exchange at midmorning on Wednesday after falling as low as C$32.71, its lowest point since early September.

“All things considered I see this is a buying opportunity and I’m still positive on the stock,” said Thanos Moschopoulos, an analyst at BMO Capital Markets.

“But I’d say the quarter was mixed because I liked the bookings, I liked the revenue performance, I liked management’s tone on the call, but it does seem that EPS (earnings per share) estimates for the Street are likely to come down a little.”

CGI has attracted the attention of short-seller Jim Chanos, who warned last month the company’s high-profile troubles could hurt its ability to win government contracts and said the Logica acquisition hid deteriorating fundamentals.


The U.S. healthcare.gov site was plagued by error messages and slow speeds for weeks after its launch, creating a political headache for the White House.

The U.S. government said earlier this month that Accenture had been chosen to replace CGI Federal as lead contractor for the Obamacare enrollment website.

“(We) have not seen any impact on our ability to conduct or grow our business” from the website’s problems, CGI CEO Michael Roach told investors and analysts on a conference call.

He said the company is still involved in managing six state-based health exchanges, with some performing better than others.

CGI still managed to increase its backlog of orders in the quarter and announced a plan that gives it the option to buy back up to 10 percent of its shares in the next year.

The company said it booked C$2.8 billion worth of contracts in the quarter, almost half of it new business, for a book-to-bill ratio of 107 percent.

Book-to-bill refers to the ratio of orders added to the company’s backlog versus finished work that can be billed to a client. Investors are keen to see the company get orders for more work than it finishes each quarter, as this points to growth.

CGI’s backlog of signed orders rose by C$972 million to stand at C$19.3 billion at the end of December.

One-third of the bookings were for government customers, with almost a quarter for manufacturers, retailers and distributors, the company said. More than a quarter came from the United States, but a broad range of geographies were represented.

The company had a net profit of C$189.8 million, or 60 Canadian cents a share. It said revenue rose 4.4 percent to C$2.64 billion.

Excluding Logica integration costs, CGI said it made C$207.9 million, or 65 Canadian cents a share, compared with C$137.8 million, or 44 cents a share, a year earlier.

Analysts had on average had expected CGI to earn 70 Canadian cents a share on revenue of C$2.64 billion, according to Thomson Reuters I/B/E/S.

($1=$1.11 Canadian)

Editing by Jeffrey Benkoe, Chizu Nomiyama, Jeffrey Hodgson and Peter Galloway

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