Q3 2020 CGI Inc Earnings Call

Thank you Sharon and good morning, with me to discuss <unk> third quarter fiscal 14 already results are George sugar, our president and CEO.

That's extraordinary executive Vice President and CEO.

This call being broadcast on C.G.I. Dot Com and recorded live at 90 am Eastern time on Wednesday July 29 Twentytwenty.

Supplemental slides as well as the press release, we issued earlier. This morning are available for download along with our Q3 of DNA financial statements and accompanying notes all of <unk> SEDAR and Edgar.

Please note that certain statements made on the call maybe forward looking.

Actual events or results may differ materially forgot was expressed or implied and C.G.I. disclaims any intent or obligation.

Update or revise.

Any forward looking statements, whether as a record new information future events or otherwise.

Complete safe Harbor statement is available at both our Mdna and press release as well as I'd see Jerry Doctrow.

We encourage our investors to read it in its entirety.

We are reporting our financial results in accordance with international financial reporting standards or our F. R. S. As always we will also discuss non-GAAP performance measures, which should be viewed as supplemental.

The Mdna contains definitions of each one used in our reporting.

Oh, the dollar figures expressed on this call or Canadian unless otherwise noted.

So with that I'll turn the minority crosswalk to discuss the corner.

Thank you learn and good morning, everyone I am pleased to show results for the third quarter.

When you came in at $3.1 billion down, 2.2% when compared to last year, and we're presenting a constant currency declined 3.5% year over year.

I'd be remained stable both sequentially and year over here at 21% of revenue.

We had a near term headwinds from transaction volumes from certain SaaS based IP engagements due to the pending big impact.

For example, trouble restriction reduce U.S. visa volumes and increased unemployment had a negative effect on payroll volumes.

However, you IP revenue was headed to the portfolio from the recent acquisitions of sunflower psychosis, and Mitzi, which offset these temporary transaction declines.

[noise], while the impact of dependent me was felt broadly across our operations in the quarter, we initiated the necessary actions to minimize the bottom line impact.

To position C.G.I. for future profitable growth.

As such we expect a gradual improvement in the month and quarters ahead.

Despite widespread economic pressures around the world during the quarter, we were able to close $2.8 billion a new contracts.

Our book to Bill of 92%.

Higher than last quarter, a proof point regarding the strength of our existing client relationships and our ability to win business draw the crisis.

As client executive and see John consultants continues to slowly and safely return to and that Adeptus workplace we.

We believe the or prevent people increased collaboration with current and prospective clients will accelerate our book to bill going forward.

Over the last 12 months, we booked $11.8 billion, a new contracts or 97% of revenue.

Our global backlog remains healthy at $22.3 billion, a 1.8 times revenue.

The vast majority of which are long term managed services engagements.

Adjusted EBITDA decrease in Q3 to $448 million for need EBIT margin of 14.7% down 50 basis points compared to the same period last year.

The decrease was largely due to nonrecurring expenses taking in Q3.

For example, we took a 10 million dollar impairment charge related to specific IP solutions for both oil and gas and infrastructure.

Offsetting this headwind, Canada, UK and Asia Pacific continue to post higher margins year over year.

Our effective tax rate in Q3 was 27% or 26.1% when excluding nondeductible restructuring expenses.

This compares with 25.9% last year and remains within our expected range for the full year.

Integration costs related mainly to recent acquisitions total $20 million in Q3.

And we also incurred restructuring expenses of $39.5 million in the quarter initiating the actions in response to the pandemic we outlined in Q2.

At that time, we announced an expected range of 2% to 5% of our professionals to be on temporary layoffs status until there was more clarity on the evolving crisis.

With an additional quarter behind us and more clarity on the business impacts and our recovery prospects.

We now expect to permanently restructuring approximately 2% of our consultants and professionals.

We initiated these action in Q3 and expect to complete the manager three of them in Q4 for a total cost now about $215 million.

This amount his iron on previously communicated due to the fact that the majority of permanent actions would be concentrated in European geographies with drives higher restructuring costs.

We do not expect additional restructuring related to that bent they make at this site.

Excluding these costs net earnings were solid at $308.4 million for margin of 10.1% and EPS a $1.19 cents.

Cash provided by operating activities was robust at $584.8 million or 19.2% of revenue.

We are presenting an increase of $209.6 million compared with Q3 last year.

This improvement was driven by lower DSO of 48 days compared to 52 days in the same period last year, indicating better collections government programs following for temporary tax payment deferrals and the positive impact, resulting from the adoption of I for us succeed.

Over the last 12 months $1.9 billion and cash has been generated by operating activities or 15.2% revenue.

In the quarter, we invested $79 million into our business largely in IP and managed services engagements.

As plan, we did not complete any share buybacks in Q3.

Looking ahead for now the priority will remain the same which is to focus on investments and growth for our business and including the acceleration of both metro market and transformational acquisition opportunities.

Net debt to capitalization decrease sequentially due to strong cash generation from 34.8% in Q2, 228% at the end of June and remains within our comfort zone.

With cash of $1.4 billion on hand, and a 1.5 billion dollar revolver remains fully accessible we now have more than $2.9 billion rhythm bubble to pursue profitable growth.

Including over 1000 potential merger targets in various stages of our pipeline with more than 20 discussions ongoing.

Now I'll turn the call over to George to provide more details on the operations our strategy and the on the outlook for our business end markets George.

Thank you francoise and good morning.

Lower pandemic has brought forward a unique set of conditions, requiring resolve and agility in order to take action now while continuing to prepare for the future I.

Im proud of our consultants and professionals, who remain dedicated to delivering mission critical technology and business process services for clients around the world.

During the quarter relationships with our clients and professional deepened, reaching new highs in terms of satisfaction and engagement.

These relationships continue to strengthen our positioning and remain key to see guys ability to exit this crisis, even stronger than we are today.

Our operational rigor and discipline again enabled us to deliver a solid quarter, which underscores the key elements of CJS resilience that I spoke about on the last call and is this combination of diversified industry portfolio end to end services mix and proximity based model that enabled us to mitigate the full impact.

The business and industry disruptions created by the pandemic.

As France, why just detailed we converted several of the temporary crisis response measures, we took last quarter and the permanent restructuring actions.

This drove a year over year decrease and non billable headcount and SGN a costs.

Although this restructuring unfortunately also affect some billable consultants, we accelerated virtual boot camps and online learning.

Realizing CDAI academia, our global learning and development platform.

This enabled us to reassign, a large number of our professionals across various project opportunities and minimize the extent other restructuring actions.

In addition, the executive compensation reductions that I mentioned last quarter remain in effect throughout Q3.

All these actions continue to enable margin improvement opportunities now and in the future and most importantly, the investments in our talent position us to continue to address the future growth opportunities as we execute on our build strategy.

Continuing a trend we have seen over the past few quarters, our mix of services is shifting towards longer term recurring revenue in Q3. The percentage of managed services revenue was up again over the last quarter to 54% on a year over year basis. It represented a 500 point basis point increase.

In fact managed services opportunities now make up over 60% of our pipeline and we continue to see strong interest for IP with demand up 8% over this time last year.

Many of our clients are currently reprioritizing their business and technology initiatives, given the crisis and also reassessing the partners they will turn to for health now and in the future.

Our bookings in the quarter demonstrate our positioning as a partner of choice with our clients in the quarter, we sustained and grew C.J. I share with existing enterprise clients with a 96% renewal rate.

Across all bookings, 65% of awards were for new projects. These included a large cyber security consulting agreement with the UK government.

Multiyear consulting engagement to help modernize Danish customs operations.

Instead payment consulting projects with one of Europe's largest banks.

And the modernization of utility asset management for one of the largest utilities in North America.

Leveraging CJR guys unique IP business solution.

As one of the few firms with the scale reach capabilities and commitment to be our clients global partner of choice. We are well positioned to continue delivering insights and solutions our clients can ask Don.

With this backdrop, let's turn to the Q3 regional performance highlights I'll start and North America, and the U.S., our revenue margin and bookings growth reflect the strength of our recurring revenue base and intellectual property across industry sectors as we expanded our share of ITC spending with existing clients.

We continue to see a strong pipeline of opportunities as the industry rebound in reinvention phases began to take shape.

And in Canada, our strong recurring revenue base enabled us to protect the bottom line.

Revenue decline and lower bookings were primarily due to the immediate effect of a pandemic, particularly in the oil and gas and manufacturing sectors, we see growing demand across North America for a more transformational approach to managed services to help clients gain immediate cost savings, while improving agility to support their evolving business.

Objectives.

Moving now to UK and Australia. The strong results. This quarter were again, driven by our leadership position in the public sector.

Where we renewed and expanded existing engagements, notably in the space and defense markets.

And now moving onto the rest of Europe.

Across the western and southern Europe, and central Eastern Europe segments.

Revenue margin experienced a high level disruption from the pandemic. This is due to our mix of commercial business in these geographies, which is largely in the manufacturing transportation and retail industries.

In the quarter, we initiated proactive actions to reduce M&A and are in discussions with the work councils on these plans. We expect these measures to drive margin improvements across the geographies over the next few quarters.

Across our northern Europe segments, our manufacturing transportation and financial services clients experienced high levels of disruption from the pandemic.

This resulted in significant softness in demand for higher and consulting and advisory services, which are larger share of our mix in this region.

In response, we continued our initiatives restructure our business consulting and infrastructure services businesses to reflect the current demand.

Our healthy bookings in this region were driven by our focus on managed services, including IP, particularly in the government and utilities industries.

While the pandemic has temporarily affected overall market conditions across Europe, we see emerging demand for our services as clients across industries reassess their operation for a post pandemic environment.

Finally in Asia Pacific revenue growth was strong as we continue to leverage global delivery centers of excellence and our new managed services engagements across this region, we continue to see high levels of productivity through automation.

The performance and each of our operating geographies reflects regional differences and client and industry impact, resulting from the pandemic.

Our collective focus however, as a commitment to meeting our clients' needs rigorous management of our indirect costs and investment in our consultants as we prepare for the future a future that is already prompting our clients increased the importance of technology and their own go forward plans.

Over the past few years, we sell technology transition from helping drive business transformation to now being core Dow clients create value for their customers and citizens.

Our span of just the past few months organizations urgent responses to the pandemic became a catalyst for advancing components of clients digital strategies.

Going forward clients when you help to transition. These quick response, digitization efforts and the meaningful and sustainable outcomes.

We see this happening in three ways that will be drivers of future growth procedure.

First partner with clients to enable their business agility through a range of business and digital initiatives focused on human capital and culture practices process automation and data analytics second, enabling the future workforce and workplace by helping clients quickly adapt how the organizations operate.

And collaborate with people and technology at the center of these changes.

And lastly in addition to physical supply change the pandemic disruptive technology supply chains, which is reinforcing clients ongoing efforts to have fewer IP partners.

This vendor consolidation is now being driven by a combination of factors, including the desire to mitigate risk across the globe operations gain efficiencies of scale and achieved greater elasticity in their IP solutions, including through the cloud.

These three represent longer term shifts that will require sustained trusted partnerships with enterprise firms like CGM.

We are well positioned with our end to end services and solutions to deliver immediate cost savings through our managed services accelerate digitization through our IP solutions and help clients drive revenue growth through our consulting and systems integration services.

We also remain committed to accelerating profitable growth through our by strategy.

Our financial capacity strategic inclination and operational readiness for both transformational as well as metro market mergers is very high.

With further industry consolidation expected post crisis, we continue to actively assess a growing pipeline of potential merger opportunities a pipeline that is growing in both number of targets and the size of those targets.

As always investments in our by strategy will follow our disciplined approach as we look for the right company.

At the right time and for the right price.

We're confident that we will emerge post crisis, and an even stronger position to continue to execute on our build and by strategy.

Our strategic aspiration remains to double the size of the company over the next five to seven years for the benefit of our members clients and you are shareholders. Thank you for your interest and support.

Let's go to the questions now Lorne.

Just a reminder, that there'll be a replay of the Carl available either via our website or by dialing 85859, 2056 and using the passcode 1.49577 to until August two two separate and as usual about cost will be available for download and any follow up questions can be direct.

To me if I have one for eight for 1.3355, Sharon if we could pull for questions.

If you'd like to ask a question at this time. Please press Star then the number one on your telephone keypad, if you'd like to withdraw your question Thats about Keith first question comes from panels. My second question. Please go ahead.

Hi, Thanks.

George can you comment on what return to work is looking like procedure.

Some of the economies that start to reopen have some of your employees and returning to wind sites and are you seeing productivity improvement as a result and to what extent that you've been able to leverage local presence competitively as things are reopening.

Yes, no. Thanks for the question Lorne or a data.

We do plan to return to the office, when it's safe and as it safe and that's important because proximity does drive client intimacy and our client intimacy as needed to have the trust for those larger managed services and IP engagements. So it's all its all tied together and we are seeing that so we're up to a boy.

About 15% of our global workforce and.

And in the offices, either our office or a client site and that ranges everything from 1% and our India Global operations.

Centers of excellence to France, which is nearing 50% almost half of our of our members in France or back either at the client sites or at at the office and we are prioritizing in two areas one work that needs to be done on site typically thats for various security and privacy reasons.

And prioritizing business development individuals because that collaboration that in person collaboration is critical not as much for the existing clients, but in order to gain prospective clients. So of course were practicing all the the safety precautions and it is very different it like I said it ranges.

Differences in different locations, and we see that actually being more granular as we move forward that that it's really the pockets.

Of hotspot will happen locally and and we'll react the same way we did during the global shutdowns.

Great.

And.

APAC is obviously quite strong is their revenue growth being trends Fortunately by customers in one or two specific regions or is the demand we're seeing more broad based across regions and also there are dynamic where you're seeing more managed services work and perhaps some of that lends itself more to each way back into the second to beat the growth as well.

Yes, So managed services is definitely the driver of.

Some of this uptick and work and Asia Pacific right now the demand is or what you're seeing is is driven mainly by North America lot and the U.S. and in the UK and that's not surprising because those are those are the units there that are leased impacted by the pandemic, but when.

You look at managed services, we have an active pipeline across every single region and and we've seen demand being quite strong. It's not so much demand varies by by geography demand for managed services is bearing a bit more by by industry. Those industries that are most impact.

Acted by the pandemic hospitality transportation services some of the retailers.

They're they're having a they're much more open to having the discussions about a broader managed service agreement because they need to savings now others. We see at various industries are looking more at.

At both savings and reinvesting those savings and those are some of the banks some of the leading banks are looking at yes, I need to have some savings I got to prepare for some potential loan losses I need to get my expense ratio down, but technology drives my business and so I'm going to reinvest so those savings on on a new opportunities. So there is.

Multiple flavors now of the managed services opportunity is not a one size fits all but we're seeing demand pretty broad across each of the geographies and quite frankly, each of the industries, but different flavors in those industries.

Great. Thanks starts off one.

Yes, thanks those.

Next question comes from Mary Abbey with days our day.

Thank you for taking my question I wanted to ask you.

The first thing I wanted to dig into your backlog performance.

When you look at the first quarter you pre has had a pretty good.

Good bookings given the circumstances with the pandemic et cetera, but when you look at the trailing 12 months book to Bill continues to be below one so George I wanted to ask you may be.

It's hard for us here on outside trying to figure out. If this is an overall industry dynamic or a competitive dynamic versus peers, that's affecting negative leader trailing 12 months book to Bill.

Would you be able maybe to share with us some of your win rates how those have performed over the last year or sold before and after dependent.

And second I wanted to ask you above the restructuring that you announced today.

It seems like you have more visibility on your operation to help finalize these plans versus what you have discussed last quarter.

Could you maybe talk about some of the efficiency improvements that you could see from those restructurings and what's driving them directly what's behind those restructuring what are you doing basically thank you yes.

Yeah, no that's a as two pretty pretty broad questions I'll take the first one on the.

On the bookings and the backlog and and you do point out that the bookings were relatively strong in this quarter I want to I want to start their.

Actually stronger than than even they look there.

Higher obviously than last quarter. Despite the full pandemic and that's why I highlighted the 96% renewal rate and thats across any business thats not not just managed services as managed services deals IP deals systems integration, even consulting deals pretty broad based win rate and and when you dive into the.

The data that's not on the strength of government.

Even though government has actually grown.

Solid growth across every single.

Geography that we operate in and as you know government actually grew to 38% or 36% of our of our business in revenue.

Government continues to be strong, but they're buying a bit differently, the buying more and systems integration consulting actually at a higher bookings and systems integration and consulting this quarter than previous quarters. Despite the fact that revenue is being driven more and more by managed services. So I think it's just a point in time.

Government had to do more quick responses is driving growth in our business, but is not driving growth and our bookings so bookings actually for.

For government was less than the 93% it was in the eighties. So the commercial is really driving that as government returns to more normal operations. There is a active procurements involved and governments around the world and and I would I would maybe point to the UK, which had a softer booking yes.

Had growth for overall for the quarter and projecting to continue that trend so.

So thats what thats whats in the in the bookings now when you look at the previous 12 months. So it's not really competitive dynamic if anything what we are talking about in our strategic plan for next year is really a blitz on bringing our value proposition to more of our clients across each of our geographies, we actually already.

Initiated that we're not waiting for the the new fiscal year to do that that's driving those pipeline increases I talked about and ultimately will return our book to bill to a healthy over 100%.

On a on a quarterly basis, and then of course on a on a trailing 12 month, the trailing 12 month will lag a little bit but.

We'll get there very quickly so thats whats going on in the and the bookings and backlog environment.

So hopefully that gives you a little more color commentary to where we're where we're headed.

On the restructuring, yes, we theres two to kind of big areas of the restructuring one is obviously.

Does impact our billable members, it's to make sure that our business is reflective of the demand.

We've talked about this on calls before but just to remind you with very rigorous we run the business.

Very very strict and rigorous metrics about what the the SG nay should be and so we pull the SG nay back in line with where the strength of the business is in different geographies and thats not widespread.

It goes across geographies, but obviously some geographies aren't doing much of any restructuring at this time in fact, our hiring and growing their business.

So it really it does vary but but when we talk about the SNA. We're always looking at this and so as we take the take the the changes on the billable members. We're also taking a harder look at our SGN a not from a ratio perspective that where that SG nay resides and so we're moving some of that ESG.

Okay as the business continues to evolve and and particularly based on the demand equation, we're moving some of that shannay to lower cost centers.

From the from the center, that's going to result in sustainable savings on the SG Nay.

Regardless of the growth curve and the recovery pace. So that may be gives you a little more color and to the in the situation of certainly thats, a tailwind that element of the SGN a restructuring as a tailwind to our margins going forward.

Thank you on how fast that should we expect those restructurings to pass through your PML.

Yes, I think you should see that.

As early as not all of it at a run rate basis, but you should start seeing that the beginning of the fiscal year 21.

Okay. Thank you very much huh.

Next question comes from Steven the with Raymond James.

Thank you George in your prepared remarks expecting gradually improved much food the rest of the yet.

We supply to your organic growth that's why the in the sense.

We have seen it bought them this quarter.

Yes, no thats a great question, although the pace of the recoveries is still somewhat uncertain as I'm sure you read the same news and see the same things IC, but but there are many positive signs that provide that optimism that that we put in the prepared remarks, the solid bookings above.

Last quarter, which already talked about but the growing pipeline this pretty broad across geographies, but also across our services for managed services intellectual property, but also for systems integration consulting we see that that going up continued strength in the public sector procurements as I mentioned.

The solid growth in the quarter across each of the geographies, we see that continuing so that'll be a tailwind and then a return to normalcy and the discussions around new it initiatives with our clients, particularly in advancing their digital strategies, particularly around the areas I talked about at the enabling business agility and digital.

Nation for their workplace and in the ecosystem. So.

These are these are all positive signs.

Although always these take some time, particularly for the managed services depending on the transition complexity to go from a booking indirectly NYSE revenue, but theres lots of positive signs for growth in the in the in the next year.

So what will happen at once but theres theres a positive Sunday.

Okay, that's great and I had a question on Scandinavia.

The non renewal.

Infrastructure of infrastructure in Sweden, what's the magnitude divide that would need weapons that half of the year over year decline then is it all I can do.

Well no on the infrastructure will not be a condo a condo as mainly business consulting which is soft temporarily point in time, but in fact is absolutely necessary for the rebound and the reinvention phases that we'll be moving into so so no but had no would not be driven from the.

That infrastructure is really our traditional business in Sweden as you know we've been taking a very rigorous look at that and it we're not looking at renewing projects that as a race to the bottom.

The margin is a is important to us and and so we're not we're not in that.

In that game and of course, we do that and respectful way, but we bid deals to.

To be good for all of our three stakeholders not just one or two of our stakeholders. So so thats really whats going on there I don't have quantified Im sure. We can get that for you I just don't have that in front of me right now.

Alright very helpful. Thank you.

Yes.

Next question comes from Ramsey El Assal with Barclays.

Hey, guys. How this is actually been on for Ramsey. Thanks, So much for taking my question.

I won't ask one for offers for George kind of along the common topic of organic growth. We're just talking about you made you mentioned in your prepared remarks that you're starting to see a return to longer term recurring revenue contracts and if it's a couple of quarters ago. It seemed like that was almost the reverse it seemed like.

Longer term.

Deals were being kind of broken up and this was court sort of signaling a step down in organic growth is this sort of a reversal of that.

Or more just to kind of near term step up maybe give some color on that would be helpful. Yes, yes. So what I mentioned at that time is that we saw the the uncertainty driving a temporary pause and in kind of those those larger deals.

If anything the the certainty of the uncertainty has driven a reversal. So yes. It is a reversal.

It was not it's not the reversal I expected.

I don't think anybody predicted exactly the extent of the global pandemic, but but the result is exactly what we thought would happen is once you got some certainty or in this case.

And knowledge that we're going to be in.

In a maybe slower growth market from a GDP perspective that drives those recurring revenue larger deals gives clients the impetus to do that and of course, that's a tailwind to see jives growth.

In the face of maybe a slowing overall growth environment.

Okay very helpful. If I could ask one more just kind of on the M&A strategy and regarding capital deployments.

In two parts maybe on the once had a few quarters ago, you talked about being at scale and maybe a quarter of your metro markets and so thinking about that strategy are you would you say you're more likely to kind of achieved greater scale within the markets you're in or being entering more geared for entering new geographies and on the other side of that you mentioned kind of that buybacks or not the priority right now, but maybe what would.

What would sort of change that thinking that would make you more interested in repurchasing your own shares.

Yes so.

First on the on the M&A strategy. It is about going deeper and broader in the markets. We're in so example, as if we're in the United States. That's a market that of course within the United States were more concentrated maybe in the northeast or the or the southeast but aren't as big as we could be.

In parts of the southwest the west and quite frankly, even the the Midwest. So these are opportunities for us to grow in new markets, New metro markets, but not new geography, So theres still comfortable were not entering a brand new regulatory regime. So that's that's an example, we're doing the same thing UK, Germany et cetera, so that.

That's the that's the overall strategy as far as capital deployment really the focus right now and it's really because the opportunity right now is for us too.

His us to play into the growth opportunities on the managed services, we want to deploy capital into the the transitions, maybe some asset purchases, where it's necessary and.

And other incentives to to do those longer term deals and and so thats the use of our capital intellectual property as I mentioned big opportunity. So we're doubling down on some of the investments and intellectual property and then the M&A opportunity we believe will.

We'll be very ripe for the future we want to be prepared for that so thats really the this the reason for the for the strategy I think for the foreseeable future as long as we see that opportunity we wouldn't change the strategy and I'll just remind you.

Maybe France why you can go through kind of the priorities and use of cash we're not really change in the priorities, we're just being more.

More focused on where the opportunity is right now so maybe France why you can do that.

Exactly so so.

George did eluded us.

Investing back in the business and the purchase MTN, we're seeing a lot of opportunity on the.

On the buy sign.

And again, we did took some debt.

They see it adjusts to be.

Ready to action on these are on these are potential.

But we will need to Relook also when do we do with our debt than in the near future.

And so thats one for now we are concentrating on the on the internal and on the inorganic side and.

If.

Thats really after we'll we'll look at see what do we do with long term debt and.

And when we'll be able to come back the and doing so I'm sure.

Yes, maybe I'd just add France, why that we do still have a tailwind from buybacks that we've done in previous quarters. So that is still we did half of the program already this year. So we did but.

Bye.

More than 10 million shares.

Wherever our maximum was 20 point something million shares in the year. So under the we did that we did hospital visits in six months, mostly in six months, so it's pretty pretty good until now.

All right that was great. Thank you so much for taking my questions. Thanks.

Next question comes from Richard Tse with National Bank financial.

Hi, this is out here, calling in for Richard.

Hi, there.

So just had one question on a follow up so wondering if you could talk about some some other trends you're seeing in July with the restrictions listing.

Sure.

Sorry, I didnt catch that it was.

As a little muffled with the.

In July.

Yes, if you could just talk about the trends in July.

I'd like with the restriction blistering somewhat globally. So wondering if you could talk about what you're seeing in July.

Okay. Just in July as a month, well I would say, we're exiting and I mentioned this maybe little bit earlier, but as we move through the quarter. We are seeing returned to more normalcy and the the discussions around the new initiatives. So what we saw as most of our clients and the immediate.

Aftermath of the pandemic once they did the the immediate response things the move remote and stabilized the business they went into a bit of a.

Reprioritization phase on on where they are initiatives, where theyre spends would be.

And as we move through the quarter.

I wouldn't say as normal, but more normalcy in those discussions about actual new initiatives their digital strategies their future.

There their future business plans and so we're having much more of those discussions I'm, having those discussions personally with the with cxos around the around the globe and as a common theme that I hear whereas maybe the discussions I was having on the in April and last time, we got together it was more all around the response now it's right.

Really all around what they're going to do too.

To further their business given the landscape that we're in so again I think thats a positive for investments in IP, albeit maybe a little bit different than than it would have been even six months ago.

Okay. Thank you for that and I'll just one more just.

I was wondering if you could talk about what solution services, you're seeing the most affected.

Services solutions most affected so the biggest impact from a initial positive was actually infrastructure because there was a need to to increase some of the infrastructure that was kind of a temporary up we also saw the most impacted on the on the downside.

Was the consulting activities again, we believe that's temporary that just as a quick response, let me just stop everything or delay everything pause everything until I make different decisions. So those are the most impacted on a two ends at the spectrum in the longer term period. The ones that we think are going to be most.

The impacted by this are going to be the desire and the need short term for more managed services and more intellectual property intellectual property to to accelerate the digitization efforts and even things and you think of IP even areas where.

Where the volumes are up significantly so a number of our intellectual properties in and the financial services space is around loans and collections and obviously thats an area. This can be impacted with higher volumes payment solutions with the no touch that's going to be a drive higher volumes. So they are definitely impacts, but it's almost.

Packs in every one of the services and like I said, even though temporary downside on business consulting we see intermediate term upticks, there as clients after reprioritize, where they're going and quite frankly, maybe even some reinventions of industries will go on and our clients will need to react to that so.

I know that's a that's a lot but thats.

It's a very dynamic market right now and I guess I'd end. This way dynamic markets are very good for our services every change you need to make in your strategy and how you approach things is good for professional services firm with end to end services like CGM.

Thanks, So much further color I'll hop yes.

Sure.

Next question comes from Jason Kupferberg with Bank of America.

Hi, guys. This is catsix on for Jason first question I, just wanted to clarify not sure you mentioned that specifically about what was the organic constant currency revenue growth rate that you guys. According for SBQ and when you kind of do your internal scenario analysis, you see the potential for that actually turned positive in 2020. That's my first question. Thanks.

Yep. So so thanks for the question Cassie No we don't.

As we started this pandemic, we havent been breaking out the difference I gave you the the overall growth rate in the reason for that is as we integrate new businesses. The run rate changes dramatically as I just talked about various services are impacted differently geographies are impacted differently industries are impacted differently and so it's not a straight run rate.

What you'd normally do around organic growth inorganic growth, we talked about that on the on the last call, having said that I mentioned that tailwinds that we see going in our favor it doesn't happen all overnight so I don't see.

I don't necessarily see that happening immediately but over time, yes, we see it gradually improving and returning to growth in 2021.

Got it. Thank you and my second question is just overall how have you been seeing the pricing environment involved like have you sort of seen an increasing price concessions or payment delays or has that actually been improving sequentially throughout the quarter. Thank you.

Yep.

It's a good question, we talked about that a bit on the on the last call and as far as a payment delays I think you see the the results.

Of the of the payment or of our cash generation and Theres multiple factors in there, but certainly one of the big factors is in fact increased and continued collections with our with our clients. So.

We're not we Didnt, we did get some requests, but we havent, we havent necessarily done anything about that and thats in cooperation with our clients.

Because of the services that were delivering in the importance for us to have the cash to continue invest and and providing those services. So payment hasn't been an issue on pricing Theres always some I would say behaviors the change in a crisis. It goes it goes in different ways, but we remain disciplined in and.

Profitable organic growth and Thats will continue to do and I think we're showing that we're able to do that and be very resilient.

Even in the face of some declining revenues like in Canada.

Actually the margin both in percentage and dollars increased.

Bye Bye good management and working in cooperation with our clients to bring them increase value. So thats not been an issue for us I don't know Francoise, you want to add anything on the on the cash side.

No you saw that.

Our idea so one down from 52 days to 48 days. So it's a it's a pretty good.

Results in the quarter, reflecting that.

Clients are happy with our services and know that criticality Omar services and so it's.

Pretty good performance on that.

Got it thank you.

Thanks, Cathy next question.

Concern Daniel Chan with TD Securities.

Hi, good morning.

And earlier that you're seeing a strong demand in managed services bookings were 55% were coming from consulting I know you mentioned that government was a large driver on the change in mix.

Is there anything else there to drive a higher mix of consulting bookings this quarter and do you expect that to reverse in the future.

Yes.

Thanks for the thanks for the question Dan the.

Yes, the big wins in the in the quarter, the driving that ESI and see growth were both government, but also health and some retail and again not surprising those that had to act very quickly in the face the pandemic and the good news is where we're playing into that demand, we're winning a number of those systems and.

Gration and consulting deals and as I've always said, we'll we'll play to the demand even as we we also ensure that.

For the future so those lot those larger deals.

Our in they are in the pipeline or in the works they do take longer because they're more complex to to close so.

It's a I think it's a win win it's a the consulting we think we'll continue to be strong and those industries I mentioned as a managed services starts to pick up in those other areas and of course, the managed services drives a much higher book to Bill.

When when they come in.

Makes sense. Thanks.

Then can you just remind us.

What a change in the U.S. government, how that would affect your business generally positive for you.

Yes, well.

Always start this way.

One.

We're apolitical when it comes to what administration does or Doesnt when the election, but we do do scenario planning on the on the election and and quite frankly, when a new administration comes in change is always good for us, but but let me maybe talk about this way.

There's kind of three three buckets. One is we typically see on a run up to the election increased activity as we get closer to the election and a and I don't think this this election will be any different despite the pandemic thats, what that's what our bookings in our pipeline submissions look like and you saw we had strong bookings.

In the us federal this quarter, but we see that increase activity going probably through or into September and then then you got a very pronounced slowdown in decision, making right before the election and then during the transition let me be clear there will be a transition regardless of which.

Party wins.

Typically what happens is a in a second term essentially there is a theres a turnover staff. There is a transition maybe not as pronounced as a as if it's a party change, but there will be a transition so the slower decision, making that's the that's why you see some of that the uptick so bookings will take a hit but not growth because.

Growth will have been been dealt with the in the earlier bookings and then increased activity is expected.

After the transition and what we see an almost every scenario is a is an increase in domestic programs and although they may differ.

In which domestic programs would would increase but we do see we do see an increase and that would be.

Good for us because.

The bulk of our work is in federal over 60% of our work is in the civilian space. So we're well positioned there.

But again I would end the way I started that change is good.

For the one scenario and we're planning for everything the one scenario that would that would hurt us depending on who wins the the Senate versus who wins the the presidency could put some gridlock into the system and that just slows everything down in that case incumbency rules.

And as you know we're on a number of.

Blanket purchase agreement, that's what you buy under when you're in a continuing resolution and more gridlock, we're prepared for that we've grown our business through those periods. So that's not a concern, but certainly a scenario we plan for.

Not the most likely scenario, but as when we plan for.

That's great. Thank you very much.

Thanks, Tim.

Next question comes from Paul Treiber, with RBC capital markets.

Oh, thanks, very much and good morning.

Hey.

Good morning.

Why do the travel restrictions and social distancing over this past quarter could you provide some indication of how your proximity model performed in the environment.

And also do you think that the your proximity model allows you to gain wallet share with customers this past quarter.

Yeah, I think the proximity model certainly played into that like I said.

Intimacy.

It is driven by being in proximate nature, we can react faster as as pockets reopened faster or or re close as the case may be where their lockstep. When a restaurant opens were there to have the the meals. The first meal in fact, I've had number stories around the globe.

Era, where our consultants had the first.

Neil with somebody in a restaurant that decline has had and that's that's certainly.

Creates more of that that intimacy and that relationship. So I think that that definitely played into it because you have to be having the conversations in order to understand what the priorities are in order to play into those so.

Very pleased with the 96% renewal rate and I want to highlight and it's not always crystal clear.

That renewal rate is not just renewals of large engagements. It's a it's renewals in a number of engagements with our clients everything from systems integration consulting IP and managed services and 60% of that was for net new business. So.

Is that that that word add ons in in the renewals theres that drives new business and and that will drive future growth as well. So we're committed to the proximity model. It's played its worked very well but of course always complemented with our global delivery centers of excellence because that intimacy drives the trust that allows you get.

The bigger deals and the bigger deals the managed services deals than Leverages, our entire global delivery network. So the to play hand in hand.

And then in regards to the disruption from co branded and generally speaking that that the global uplift in new digital initiatives going on E Commerce work from home et cetera.

How would you rate see Jive competitor advantage as a capability in digital compared to peers and do you expect the uptick of digital to be a catalyst for CTG.

Gain market share.

Yes, I think it's a it's a definite catalyst I would ray I would rank our.

Our consultants and experts very high end. This weve invested in this and in both our own learning and training our hiring but also in the metro market mergers that we brought on board some outstanding talent and all of the digital technologies. So I'd write us very high and in fact within the clients that we have.

We do very well, but as I mentioned back when we talked about the the overall book to Bill Theres, a blitz on bringing that value proposition to more clients that don't know us and that's where that's where the opportunity lies but it's not a market share opportunity within the existing clients in fact as the reversal were.

We are doing very well, there, we love vendor consolidation, because typically where the where the winner and a vendor consolidation scenario.

Thanks for taking my questions.

This fall.

Next question comes from Deepak Shah with Stifel.

Hi, Good morning, guys. Thanks for taking my questions I've, just got a couple of follow up so I'll try to be quick giving us a 10.

Well George you gave some good color on.

North America.

Returned to kind of normalcy U.S. government activity I was wondering if you could give us kind of some more insight into what you're seeing just over the last month given given some of the disruptions we've seen in certain states.

Whether its.

Second wave related or protests related.

This has any impact on your business or our customers.

Kind of reacted differently to the situation today than they were perhaps couple of months ago per year ago.

Yes, no. It's it's as interesting question as you know the United States is a big geography, and and there has been disruption both from the public health crisis as well as.

The racial justice a movement.

But most of the companies that were working for even though we're approximate and local with the local decision makers their global companies and and they're making decisions across the globe and so it's not it's not impacted just by anyone.

Anyone.

City or area and as you know the northeast is doing very well on the on the public health.

Crisis, and Thats, where were at tend to have a little more concentration so.

We haven't really seen that disruption of course, we're running out of the scenarios and we're preparing for all the different situations, but right now.

In the immediate term, we haven't seen much much different than the decision.

Okay. Thank you Thats something interesting.

And then just.

I guess I can try to dovetail this or segue into an M&A question you talked about.

Geographic expansion.

Metro market expansion Us for example.

What about industry expansion, you mentioned public health, when we think things like yesterday or supply chain you mentioned earlier.

Or even even defense as you mentioned doing all the APAC.

Are you looking at any specific vertical industries or or do you see opportunities.

Or boutiques focused on certain industries to help build out yes business on the M&A side.

Yes, what definitely we do and in fact, the to go kind of hand in hand.

If you look at most most countries and geographies around the world industries tend to concentrate in certain areas. So you might have light manufacturing in the us in the and the southeast you might have.

Pocket of insurance is in this golden triangle in the northeast and so forced and in fact, you mentioned you mentioned healthcare that's an area that we we increased our life sciences right in that that pocket of where.

Where a lot of pharmaceuticals are in the us with our acquisition merger a few years ago with with Paragon. So and that then became the catalyst for a broader.

Life Sciences initiative across the us and and other pockets of the world. So.

So definitely the to go hand in hand, so we're always looking to build.

Build that that industry expertise because that becomes a critical.

Point of the of the value proposition.

Got it and then my last one just.

Are you able to give us a sense through the pandemic.

Up to what extent are you seeing customers pull forward, some spending and get a pause that you've seen a certain industries are meaningful at all or.

Occur or we're not expecting to see a pause from points.

Yes, the as far as the pull forward I don't really we haven't really seen that yes. There was some spending and the initial aftermath like I said temporarily on some of the infrastructure. Some of that was probably overdue and it was just a cost of doing business, but I don't see any like pull forward and then theres going to be a big.

Delay in fact, like I said I think as the exact opposite I think there was an immediate kind of.

Delay of activities as each of these these various enterprises.

Decided on what their priorities are going to be that's at Reprioritization I talked about now we see it actually returning to more normal as we as we move through the quarters to come.

Okay, great. Thank you for taking my question just close before [laughter]. Thanks, Deepak sharing our time for one last question.

Next question comes Stephanie price with CDC.

Good morning.

Taking my call.

I just wanted to tough question around the transactional side of the business and you kind of highlighted that as one of the weaker areas. This quarter. Just wondering how we should kind of think of the recovery here and what you've seen in fiscal Q4.

Yes, well I do think it's a as you think it's temporary but I did highlight it because it did have a at did have an impact like I said and nobody's traveling your visa volumes are going to drop significantly on the payroll side, we use that example.

We do some of that payroll you know in Canada for small and medium sized enterprises as they.

Take advantage of government programs in Canada, and put people on a on the last status, there's not a need for the payroll. So we took a hit there actually that was actually more of a pause between the time that actually instituted the program because that actually brought some of the payrolls back I believe most of that like the rest of the recovery will be.

The fairly temporary those volumes will will return.

And again, we see that even in some of the trade related business, where the volumes are where people are looking at more.

Digital enablement of trade will drive some some actually more volume. So I think it's temporary will return to normal it could return actually and get a little bump.

At least in the immediate aftermath.

That would make up for some of it but that's that's what I see right now it's still a great business to be it. It's just that it does get impacted by situations like this.

Great. Thank you very much and just maybe one more just from the government pipelines more broadly you mentioned that.

Drivers, while I'm, just wondering what you're seeing in terms of looking environments and how you think that's going to change just kind of these governments rolet stimulus.

Yes, well I think it's a it's a big it's a big opportunity because as they roll out the economics side of the stimulus first it was just really to to make sure that people could survive, but as they as a move into the economic stimulus to move more towards a growth environment every one of those programs recur.

Wires.

Opportunities for a procedure and with the various governments.

To help them and healthy industries that are receiving that and just one example of that is in our intellectual property and the U.S. government. We have a disaster aid transparency solution that we pivoted towards the pandemic. This facilitates faster transfers between central and local governments with transparency.

Thats needed, but then on the other side, we received that with the state with our ERP module of advantage in grants management to make sure the financial management and accounting are taking care and those are just examples of the back office systems that are required every time you do one of those programs. So it it will be a driver for future growth procedure.

Great. Thanks, very much. Thank you Stephanie and thank you everyone for joining us. This morning, we'll see you in early November for Q4 and fiscal projects already results. Thank you are thinking, thereby okay.

This concludes today's conference call you may now disconnect.

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