CGI chief executive expects to be vindicated for role in Obamacare roll out

MONTREAL - CGI's top official says the IT services company will eventually be vindicated for the criticism it received in developing the U.S. health-care insurance website that prompted the Obama administration not to renew its contract.

Initial technical problems with the October launch of the website delayed or prevented people from enrolling online, marring what was to be one of President Barack Obama's defining political achievements.

"We remain confident that in the fullness of time our role and responsibilities in these initiatives will become clearer," CEO Michael Roach said during a conference call after reporting strong first-quarter results.

He said many of the technical problems with the complex system has been fixed in the past months and the Montreal-based company is proud of its role.

"In short, the system we were contracted to build, specifically the federal facilitated marketplace, works," Roach said.

CGI’s contract was slated to expire in February, and reports earlier this month said the U.S. administration would not renew it but instead sign a 12-month contract, worth about US$90 million, with Accenture, one of the world’s largest consulting firms.

CGI was selected in September 2011 as the lead contractor on the project and was awarded a US$93.7-million contract over two years to design and build the government’s website where Americans could sign up for health coverage that took effect Jan. 1.

Roach said Wednesday that its efforts working through the challenges to fix the website will ensure the company continues to be selected for future government and other contracts .

"We appreciate the strong support we have received from our many clients around the world and have not seen any impact on our ability to conduct and grow our business," he told analysts.

CGI also continues to build health-care exchanges in six U.S. states.

The company's profit missed analyst expectations in the first quarter, even though the global IT service firm's revenue was up, profit surged to $189.8 million, and its bookings increased significantly.

The Montreal-based company earned 60 cents per share for the period ended Dec. 31, up from seven cents a year ago when net earnings were $22.4 million.

Excluding the costs of integrating a major U.K.-based acquisition, CGI's (TSX:GIB.A) adjusted net income was $207.9 million or 65 cents per share, up from $137.8 million or 44 cents per share a year earlier.

Revenues increased 4.4 per cent to $2.644 billion in the quarter, up from $2.532 billion a year earlier.

CGI was expected to earn 70 cents per share in adjusted profits on $2.64 billion of revenues, according to estimates compiled by Thomson Reuters.

Roach said the company delivered a "very solid performance" in the quarter and is expects growth as the market gradually improves and its efforts in Europe continue.

It booked $2.8 billion worth of orders in the quarter, 45 per cent of which was new business. That raised its bookings over the last 12 months to $10.3 billion.

CGI increased its normal course issuer bid by 10 per cent, allowing it to repurchase about 21.8 million shares over the next year, at a potential cost of $750 million. It purchased 2.5 million shares during the quarter for $100 million, and 3.2 million shares over the last 12 months.

The company's debt was decreased to $2.89 billion from $2.96 billion a year earlier.

Maher Yaghi of Desjardins Capital Markets said strong bookings in the quarter helped offset a "slight miss" compared to "aggressive" analyst expectations.

"Bookings in the quarter were up, which should allay some investor concerns given the recent negative publicity surrounding the company," he wrote in a report.

He said the financial impact from the shift of the U.S. health insurance contract to rival Accenture is small for a company with more than $10 billion of annual revenues. The greatest risk is to the company's reputation and its ability to win new business and prevent the non-renewal or termination of more government contracts, Yaghi added.

Founded in 1976, CGI Group Inc. is the fifth-largest independent information technology and business process services firm in the world with more than $10 billion of revenues and about 68,000 employees.

On the Toronto Stock Exchange, CGI's shares lost $2.07 or 5.9 per cent at $33.15 in Wednesday morning trading.