Q4 2020 CGI Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the <unk> fourth quarter and fiscal Twentytwenty Conference call I would now like to say the meeting over to Mr. My here Nike Vice President Investor Relations. Please go ahead mr. yet.
Thank you Julie and good morning will.
With me to discuss <unk> fourth quarter fiscal 2020 results are George Schindler, our president and CEO.
Oh, Gee executive Vice President and CFO. This.
This call is being broadcast on T.I. Dot Com and recorded live at nine am Eastern time on Wednesday November 11 2020.
Moving onto slide as well as the press release, we issued earlier. This morning are available for download along with our 2020 Mdna financial statements and accompanying notes all of which have been filed with both feet are and outdoor.
Please note that some statements made on the call maybe maybe forward looking actual events or results may differ materially from those expressed or implied M.C.I. 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 Mdna and press release as well on C.G.I. Dotcom, we encourage our investors to read it in its entirety.
We are reporting our financial results in accordance with International Finance your financial reporting standards or I F. all right.
As always we will also discuss non-GAAP performance measures.
Shouldn't be viewed as supplemental the mdna contains definitions of each one used in our reporting.
All of the dollar figures expressed on this call are Canadian unless otherwise noted so with that I'll turn it over to Francois.
Thank you mayor and good morning, everyone let.
Let me start by knowledge and that todays Remembrance day in Canada and in many countries across Europe.
As well as veterans day in the U.S.
I want to recognize all those who have served or are serving and the defense of their nations. Thank you.
So let us now go to the Q4 results.
Despite the widespread disruptions the pandemic house cost world economies, our results in the quarter demonstrate the resiliency of sea Jives business model.
And the value that we provide to our clients, helping them emerge stronger from this very difficult period.
Overall, we are pleased with our fourth quarter results underpinned by strong bookings profitability and cash generation.
Revenue came in at $2.9 billion down, 1.1% when compared to last year, and representing a constant currency decline or 4.5% year over year.
Hi be as a percentage of revenue was 22% in the quarter up from 21% in Q3 right.
Revenue increased and transaction based IP portrayed collections and insurance, partially offset by lower volumes in our IP engagements related to Ari as affected by the pandemic, such as lower payroll volumes and travel restrictions.
We booked a healthy $3.5 billion, a new contracts in Q4 or 100, a 19% of revenue with particular strength in North America.
This demonstrates the value of our services despite the pressure on world economy.
Adjusted EBITDA in Q4 was stable from the year ago period at $458 million, while EBIT margin increased to 15.6% up 10 basis points compared to Q4 last year.
The year over year increase was mainly the result of lower SGN, a discretionary expenses synergies in our infrastructure business savings from our restructuring plan and they point $5 million related to arrive for 16.
Restructuring expenses were $84 million in the quarter as a result of actions taking their response to the pandemic as we outline in Q2.
We do not expect additional restructuring related to the pandemic at this time.
Our effective tax rate in Q4 was 25.44% or 25.5% when excluding non deductible restructuring expenses.
This compares with 25.1% last year and was within our expected range for the year.
Net earnings were $252 million for a margin of 8.6% and diluted earnings per share were 96 cents.
Excluding integration and restructuring costs earnings were $280 million for a margin of 10.9%.
And diluted earnings per share were one dollar and 22 cents compared to one dollar and 21 cents in the same quarter last year.
We are especially pleased where the continuing trend of strong cash generation.
In the quarter cash provided by operating activities was $492 million or 17% of revenue, representing an increase of $87 million compared with Q4 last year.
This improvement was driven by lower Dsos coming in at 47 days compared to 50 days in the same period last year as a result of better collections and the positive impact from the adoption of our fries 16.
Net debt to capitalization decreased sequentially due to strong cash generation from 28% in Q3 to 24% at the end of September offering us increased flexibility to execute our build and buy strategy.
Turning now to our fiscal 2020 full year results right.
Revenue was $12.2 billion on a constant currency basis revenue was stable year over year.
Bookings for the year totaled $11.8 billion or 97% of revenues, our global backlog remain healthy at 1.9 times revenue or $22.7 billion. The vast majority of which are comprised of long term managed services engagements.
Adjusted EBIT was $1.9 billion, representing a margin of 15.3% for the full fiscal year up 20 basis points from last year.
Net earnings were $1.1 billion for a margin of 9.2% and diluted earnings per share were $4.20.
When excluding acquisition integration and restructuring related expenses and earnings for the year totaled $1.3 billion and earnings per share were $4.89 19 cents higher than last year representing growth of 4%.
For the full year operating cash flows were $1.9 billion or 15.9% of revenues an improvement of $205 million versus $1.6 billion last year.
Throughout fiscal 2020, we made a number of accretive investments $215 million back into our business $267 million in acquisitions, and we invested $1 billion, a $1 billion repurchasing 10.6 million CJ shares.
Looking ahead, we plan to utilize our strong cash position to drive growth in the business and our disposal are $1.7 billion of cash on hand, and a $1.5 billion revolver, which we will use to drive investment in our internal IP M&A and share buybacks.
With 23 active discussions ongoing and others in the pipeline, we continue to engage with potential M&A targets in order to accelerate both our metro market strategy as well as potential transformational acquisition opportunities.
Now I will turn the call over to George to provide more details on the operations our strategy and on the outlook for our business and markets George Thank.
Thank you Francoise and good morning, everyone.
I'd also like to begin my remarks today by recognizing the men and women serving in the military around the world. Thank you for your service and sacrifice.
Now I'll turn to see guys performance for the fourth quarter.
Our agile operating model locally empowered leaders and global alignment on key priorities has enabled us to protect and preserve shareholder value.
Despite the continued disruptions created by the pandemic.
In the quarter, we delivered on key short term priorities for sustaining value, including expanding our margin generating superior cash maintaining incumbent work and growing share with enterprise clients.
We now see increased client demand materializing in most geographies. The actions we have taken over the last few quarters will enable us to rapidly meet this demand and achieve our plans to return to revenue growth by the second half of this fiscal year.
In the quarter margin expansion was delivered through a combination of operational excellence and business mix.
We further reduced discretionary SDMA costs and generate savings from the permanent restructuring actions taken over the last few quarters.
As France, while I mentioned these actions are now completed and behind US. Therefore, we expect net earnings to increase on a go forward basis.
The continued shift in the business mix towards longer term higher margin recurring revenue also contributed to the strong bottom line.
Managed services now accounts for 56% of total revenue expanding steadily throughout the year and in line with our projections of renewed client demand for these services.
Electoral property, including SaaS based solutions also increased year over year.
We generated strong cash from operations in large part due to lower DSL.
Lower Dsos as a result of the shift in mix to more managed services and also reflects the value of the services to our clients and the quality of our project delivery.
As we shared earlier this year this financial strength anchors CGS is resilient and.
We maintained our incumbency and grew our share with enterprise clients.
Representative wins in the quarter included a new project with the global retailer procedure wise team of proximity based onshore and global delivery consultants will help advance the clients use digital roadmap.
A large smart city Digitization program for the city of end Meraux that builds on our existing managed services agreement and expands on it to now include machine learning solutions advanced analytics and Internet of things services.
And the new engagement with one of the top five automotive manufacturers in the world to deliver robotic process automation solutions that will optimize hundreds of processes and reduce costs across their enterprise.
Now, let's review the Q4 regional performance highlights I'll start in North America.
In the US Q4 revenue grew year over year and bookings were up 40% compared to Q3.
Reflecting our ability to bring solutions to help clients navigate these dynamic times over.
Overall revenue and bookings were strong across all industry sectors. This quarter, particularly in government at the federal state and local levels.
In Canada revenue margin were impacted temporarily by the effects of the pandemic.
Merrily within the financial services sector and in the transaction based payroll services IP business client.
Clients, however, reiterated their competence in CGS through awards of key opportunities driven by new initiatives in the financial services sector, resulting in a book to bill of over 100% the highest level of Canadian bookings this year.
Increased technology intensity and all industry sectors across North America is driving client demand for end to end services autumn.
Automation and platform related services are in particular demand and our fueling increases in the north American pipeline of opportunities.
Moving now to the UK and Australia. The team again delivered strong bottom line results and a book to bill of 122%.
While revenue was down in the quarter, our pipeline of opportunities continues to be significant driven by the strength of our work for existing clients and government national critical infrastructure and the space sector.
Our public sector market leadership position was recently highlighted as the Scottish borders Council see giant Apple were honored for a public private partnership together.
Together, we are creating a world class digital learning environment for students to reduce inequality improve academic performance and boost students employability.
And now moving to the rest of Europe.
Across western and southern Europe, the follow on economic effects of the pandemic continued to impact our revenue and margin.
Yes, Jay reductions, we initiated last quarter enabled us to mitigate the full impact of this disruption to our business.
In central and Eastern Europe, our actions in the last few quarters as well as strengthening demand from clients enabled us to improve our margins year over year despite declines in revenue.
And in Northern Europe segments, we again experienced lower client spending for our higher end consulting and advisory services in the quarter.
Importantly, our restructuring actions initiated last quarter have enabled us to adjust to the changing client demand as.
As a result, we're seeing strong trends in our pipeline compared to this time last year.
Despite the renewed pandemic related shutdowns and some European geographies, we continue to have productive discussions with clients as they reassess their operation and consider ways to rebound post pandemic.
In fact, our pipeline continues to increase up 20% year over year in Europe based on the relevance of our end to end portfolio services.
And finally in Asia Pacific, we delivered double digit revenue growth with improved margin demonstrating the resiliency of our global delivery services model and the quality of our Asia Pacific delivery team.
Across all geographies, we continue to see increased levels of client demand for Cpis global delivery model, which balances offshore onshore and nearshore options for our clients.
Turning now to fiscal year 2021.
We informed our annual plan from over 1400 client conversations with an objective to build on our strong foundation and focused on those priorities that will generate new value for all stakeholders with growth through both build and buy.
And these planning discussions each of our stakeholders reiterated that technology is now core how organizations create value.
Their customers and shareholders.
Response to the pandemic has accelerated this by creating new consumers across every generation now having digital first expectation the clients must aim to me.
We continue to see tremendous opportunities to help clients transition a quick response digitization efforts into meaningful and sustainable enterprise outcomes.
Some of these initiatives will help drive revenue growth and for others will help them achieve immediate cost savings.
Like many clients to seek to achieve both of these objectives using a percentage of the cost savings to fund customer oriented digital initiatives.
We firmly believe that the three fundamental shifts in client demand and I outlined last quarter will drive siege as return to profitable growth is.
These opportunities include enabling our clients to achieve business agility to adapt to the future of work to reinvent their technology supply chains.
Three shifts will continue to generate client demand specifically for managed services and intellectual property.
We see this trend in our pipeline with over 50% comprised of managed services opportunities. In addition, our IP pipeline is up 25% compared to this time last year.
Well, the rebound timelines and business objectives will vary by industry sector and organization, our diverse presence across the government and commercial sectors in every region positions us well for these three opportunities.
Industries that face significant hardships like transportation manufacturing and oil and gas are now turning to us to help them manage cost and enable resiliency although.
Although the spend continues to be constrained we are helping them through our managed services business continuity and automation offers.
We now see conscious investments returning and other commercial sectors like communications and media firms utilities, and even some retailers as they look to accelerate digitization rebalance their IC supply chains and leverage cloud and automation increase their business agility.
We saw particularly strong trend in our Q4 bookings across financial services as more banks and insurers resumed some investments in digital channels and technology modernization.
And lastly, the government and health sectors and maintain high levels of demand over the last several quarters as both sectors have been at the heart of the needed support the citizens and societies, our government clients confidence and C.G.I. resulted in strong bookings and healthy revenue growth and these sectors year over year.
To summarize our fiscal year 2021 plans, we remain committed to executing our strategy through a balance of build and by growth on.
Maintaining our focus on creating incremental shareholder value.
We plan to accelerate our buy strategy, given the strength of our operational readiness and financial capacity France.
Francoise outlined we are actively assessing a growing pipeline of potential mergers and are well positioned to move quickly discipline on the right opportunities.
As always our capital allocation approach will be prioritized to drive profitable growth.
Specifically, we will continue to invest back into our business, including and people IP and managed it services contracts and.
And thereby strategy, both transformational and metro market mergers buyback our stock to increase returns to our shareholders.
In closing we remain optimistic as we begin our new fiscal year, our confidence is rooted in our strong positioning strategically operationally and financially.
Hi, guys, a legacy of resilience and our strategic aspiration remains to double the size of the company over the next five to seven years for the benefit of all our stakeholders.
Thank you for your continued interest and support that's because the questions now.
Just a reminder, that a replay of the call will be available either via our website or dialing one eight fivefive 8592, 056, and using the passcode 5631496 until December 11th as well a podcast of this call will be available for download.
Then a few hours follow.
Follow up questions can be directed to me.
514415 piece 651, and the operator, we're ready to take questions.
Thank you at this time I would like to ask a question.
Then the number one on your telephone keypad.
And your first question comes from the line of panel multiple the BMO capital markets. Please go ahead.
Hi, good morning.
With high with George George with that Europe, entering new Lockdowns, how should we think about the near term trajectory there.
Could that lead to some near term revenue pressure or have people adjusted to route working to the extent that you know.
Got shouldn't necessarily be a headwind to short term.
Yes, more the more the latter Santos clients.
Clients are reacting very differently now seven to eight months into the pandemic, they're more prepared they also recognize the need for technology and as a result.
Even with some of those rolling shutdowns that are occurring.
We are seeing very few delays, many new initiatives actually a continuing.
And specifically you know it's interesting in the European clients.
The domestic business does take a bit of a hit due to shutdowns, but our enterprise clients.
Many are seeing increasing demand in Asia, which they didn't see the first shutdown because Asia was still in lockdown.
So for example, the auto manufacturers in Sweden in Germany luxury.
Luxury retailers in France defense manufacturers across Europe are all seeing increasing earnings and that's good because that drives some investments. So we're seeing a very different reaction and same thing we're seeing in Canada manufacturing financial services I said in my opening remarks.
We're seeing those are actually new starts coming.
Coming up so despite the obvious health crisis.
We are seeing.
A different reaction this time around and I don't think it changes anything which is why you heard some of the confidence and in my remarks.
And then I think you very often gets his question heading into the new fiscal year. So call asking just given what you're seeing in the pipeline and some of the puts and takes would you see a path to double digit organic EPS growth this year or might there be some issues with that challenging.
Our plans are almost always to create to create shareholder value and so our plan is always to generate that double digit earnings per share growth.
And.
And the new fiscal year.
Okay, and then one for reference swap.
Would you be able to quantify the level of government stimulus or wake subsidy contribution in the quarter.
Hi, sorry, I missed the start of the question Panna, Yes would you be able to quantify the level of government subsidies or stimulus that contribution in the quarter.
Well not not more than than the month or quarter before not on the TNL at least.
Where where in some places we have some breaks on on some of the payments on some of the taxes.
Especially in Europe.
The payroll taxes, but I'll tie that into PNM will not nothing nothing out of the ordinary versus the other years.
Great Thanks up offline.
Please.
Okay.
And your next question comes from the line of Richard.
National Bank. Please go ahead.
Yes. Thank you so as we look out to next year trying to be an optimist here, if we see kind of a rapid.
Matt back in terms of activity, let's say, assuming the sexiness out earlier could you guys sort of handle that.
Increase in volume under the occurrence or operating structure or would you need to sort of bring on more people I'm just trying to figure out how much operating leverages in the model if that were to happen.
Yes, no I think I understand the question.
Right now we are planning and expect.
For continued.
Positive trends as we move through.
The the the quarters here next fiscal year, and we even saw that as we move through the last few months with positive trends and utilization and other key metrics, but it's been a more steady increase I think your question is what if there is a a more immediate snap back you.
We already are having some very a.
Very strong.
A strong pipeline of new hiring that's going on and I think that's a good positive I think we'd be able to accommodate because remember a lot of our larger managed services deals we actually bring people on board from from our clients and so that's a it's an automatic a where we can meet the demand.
And so I would see more of that occurring as well.
Okay. So we're prepared.
Okay and with respect to your comments on second half pickup next year I'm, assuming that's for organic growth and yes can you maybe give us some color in terms of the type of projects that are going.
That'd be scaling that back half are those the ones that you really don't need to be onsite as much or the nature of those type of deals.
Yes, well as a as you are aware the the whole world has a has kind of a.
Navigated.
This and and pivoted to to being able to work. Some remotely we've always done some of that through our global delivery model, where we have on site offshore and a and then of course the near shore in between.
So I would expect the projects actually to be a to run the gamut and we're seeing that now we're seeing a systems integration.
And consulting projects kick off with a that have cloud migration and enabling lent a ARPI automation as I mentioned, one of the new wins with the automotive manufacturer rationalization of monetization, even devops and agile methodologies. So.
We have about 12% of our people on site now it actually had reached 20% before some of the shutdown. So I don't I think it's all the above simplification of IP supply chain some of that those larger deals. Yes. Some of that's done more remotely through global delivery anyway, and then our IP.
That form the we kind of call them business platforms as a service those are those are driving some of that growth as well.
So again lot of a lot of positive signs, but it's really the end to end services I would say that as with what we're seeing right now Richard.
Okay and just one last quick one from me you seem to be a bit more focused on the acquisition side relative to previous quarters.
Is that because valuations and starting to come in there.
Maybe you can give us a bit of color on that thats. It for me. Thanks, Yes.
The initial response the pandemic a there were a lot of economic stimulus payments going out to some of the smaller and medium sized private companies. So they kind of they didnt want to move until they understood that landscape of course, we want to be cautious as well yeah. We see that now playing out a those companies now are actually are.
More motivated given what's happening in the marketplace and I would say that the those mid size.
Metro market private companies the valuations are starting to settle in the expectations are starting to settle of course in the in the public the.
The public companies, it's a it's still more volatile up and down and so we'll have to see there, but our financial capacity and I think the other the other element there which is our operational readiness. We we really focused on the fundamentals got the restructuring behind us. So we are well positioned both financially and operationally.
That's great. Thank you.
Yeah.
And your next question comes the line of Jason Kupferberg with Bank of America. Please go ahead.
Good morning, guys I just wanted to start with a question on the bookings in the quarter, obviously very strong looked like it was tilted a little bit more towards renewals visa the new work than what we've seen historically, but was hoping maybe you can unpack the bookings numbers for us a bit and highlights.
The particular areas of strength that you saw and I'd love to just hear your general thoughts about translating backlog to revenue feels like some of the trends there in the industry are a little choppy right now sorry, the bookings are a great leading indicator for sure but just wanted to get your take on a conversion to read.
And you know what I'm, what that's looking like in your portfolio yes.
Yeah, So you're right in your in your assessment that a lot of this is with our existing customers not.
Not all renewals, though right some of its add on work on top of those renewals and that actually to your last part of your question.
Bodes well because translating backlog to revenue on a book gain where you're already working with the existing clients just an add on some of that work can happen very quickly and we're already starting to see some of that and as somebody who are trending as I mentioned, our utilization has increased throughout the throughout the call.
Order and some of it's related to some of those bookings that occurred throughout the quarter nice to see that we are seeing some some.
Additional new starts on the financial services side, and specifically there some of that is being driven by our intellectual property again.
I just use financial services as an example, wealth IP coming in North America payments IP in Europe, our trade.
P and collections IP globally.
So.
Our retail 360, IP, particularly with our new met the act merger.
With with some of their IP is a is driving some nice a nice bookings and again a lot of that is with their existing.
Customers are existing clients and so that will translate I think a little bit faster than than the completely new starts, but our pipeline is full of new clients as well those tend to move a little slower, but again, we see positive traction in every geography around the world.
And then just a revenue question. So here in the quarter you were you were down 4.5% in constant currency.
I wanted to get a sense of just how that compared versus your expectations and do you think that this ends up being the trough quarter and we start to see some re acceleration in the first quarter of 21 and as you proceed towards the goal of getting to positive growth in the second half of our fiscal 21 yeah.
Yes, no. It's a it's it is a it is what we what we expected so because there's a there's a lag in getting some of those projects start back up as I mentioned.
We see some positive signs, particularly in some of the weaker areas like I mentioned in the manufacturing specifically as well as retail if you if you take out the the M. R D.
Just as an industry from those Q4 numbers, we're we're approaching flat flat.
Flat for the quarter over quarter. So that gives you some idea so thats why I highlighted some of those as manufacturers.
Do better and do some of those new starts some of the luxury retailers like I mentioned, given the strength now of the the Asian economy.
That that bodes well for us to continue to move through there, but the bookings and the and the translation as a as you asked and then those utilization and we're increasing our open position in our hiring in a lot of places. So all that is going to drive as we move through the.
Months and quarters. So that's a long way of saying, yes, I think we've we've reached the trough and we just I just wanted to give you. Some color on why we think that and what are some of those positive signs.
Okay very helpful. Thank you yep.
And your next question comes from line of feedback Chris Shaw with Stifel. Please go ahead.
Hi, Good morning, guys. Thanks for taking my question.
Just a couple of follow ups George.
Talked about strength in the Asian markets.
I'm just trying to understand I can understand how its translating into improved business for a European and North American companies that export into those markets. What are the activities for you guys in terms of local business, there and local delivery in that theater and whats the strategy for that for that area.
Yes, so no the way we're approaching those markets are not not domestically, we're approaching them through those enterprise clients that that you just mentioned so.
If if that market is stronger for like I said, a a a an auto manufacturer in Sweden in Germany, and they are selling more cars in that market, they're making more investments in their operations in Germany, and and in Sweden same thing for the luxury retailers et cetera. So we're applying to.
The domestic markets in Europe, and North America, and North America, but helping those enterprise clients drive growth in the in the Asian market. So that's why I mentioned that as an important defra difference from the first first wave of the pandemic.
Got it and so when we think of your your five year plan to double the business yes.
Is there a piece in there that involve increasing local.
Asia Pacific business, or even a return to local Latin American then.
Yeah, I was trying to understand what the global strategy outside of the capital markets. Yeah, well. If you look at the the global strategy and really the strategy of CGM.
As we built the company has always been to.
To to merge with like minded.
Companies that have a presence in understanding of the local market, it's hard to break into a market on your own and so it would be through that merger and an acquisition price.
Process, so and it would probably be in a more transformational we wouldn't we wouldn't look to necessarily by metro tuck in and one of those domestic markets because that would be that would be counter to to the strategy will be more of buying a transformational way into one of those markets and and there. It's always looking for the right company at the.
At the right time at the right price so.
But again a lot of the enterprise that clients will come with some of that work and that will then we will follow our clients and and their clients into those markets.
Got it and then last follow up just on that on that basis.
When France, while mentioned the 23 companies in the pipeline for M&A.
As this kind of global merger type of.
Included in that pipeline or the fee tied to that.
I mean it quickly.
That pipeline right now is mostly on the on the metro market tuck ins, but.
We.
So those active ones are mostly in the metro market tuck in that does not mean that were always having discussions and look at the transformational but thats not really included in the 23.
Okay got it well thank you for taking my questions a couple of okay.
Okay. Thank you.
And your next question comes from line of Tiffany price lets see I'd. Please go ahead.
Good morning, I Stephanie.
And just to try to bid on the safety outlook a few weeks ago. It company noted an accelerating shift to the cloud ERP clients. Just wondering in terms of C.G.. If you could comment on the cloud vendors, you're working with the most and how you kind of think about that cloud opportunity over the next couple of years.
Well, we as always we we like to stay.
Partner agnostic.
And really make sure that we're we're providing the best advice to our clients. So the reality is we're working with each of the major cloud providers.
Helping our clients.
And and their efforts and cloud enablement and cloud migration. So theres not any any one we do have a renewed interest in working with the platform providers.
Whether it's a sep salesforce or any of the others in helping our clients best use those platforms and then like I said using our own IP as kind of business platforms as a service so.
As a as a complementary element to that so.
We're very active in that market, but Stephanie true to our values and our client first approach.
Yes, we're working across all of those partners.
Okay that makes sense and just switching over to the U.S. government just in terms of the government transition that's going on can you talk a bit about what you usually see in the near term as these transition kind of go through.
Yes, yes, so as you might expect or U.S. team is is well prepared and.
And always is a is looking at the elections as an opportunity to help in the transition and that transition we're preparing for this regardless because.
Theres always the transition occurs even if it.
Even if the administration stays there is always a transition and I might also add it goes on at all levels of government. So it extends to the to the state and local government space. So what we typically see is there is there is a little slow down in the bookings why it was so important for us to.
Greece and bring a lot of those bookings into Q4 ahead of the elections, but but usually that transition happens fairly quickly and as you. As you are probably aware most most administrations have a you know here's our priorities for the first hundred days.
That always requires technology changes as we as we continue to to become more and more dependent on technology for implementing any of those programs. So we're very close to a very close to it and working that like I said at every level of government.
Great. Thanks, so much.
And your next question comes from the line of Steven Li with Raymond James. Please go ahead.
Thank you Hey, George.
Just wanted to revisit your remark about the revenue growth in the second half.
[laughter] positive organic growth you listening to or just overall revenue growth.
Well, it's both I am talking about organic revenue growth and a and a M&A growth. So it would be both.
Okay, and then what happens in the <unk> in the first half if we get the vaccine nobody can can you also see organic growth in the first half.
Yes, that's why I said, that's why I said by the second half we can't we can't predict the exact pace of this the vaccine from everything I read it's going to be a process. So I don't think it's going to be just turn it on and things happen quickly, but we can't always predict a sense.
Event, and if certainly if if our clients in that that growing pipeline that I mentioned materialize. This faster than than there is a there is certainly a growth will follow so we'll be well if we stay very close to that and and certainly a will accelerate if our clients accelerate.
Okay Thats helpful. Thank you.
And your next question comes from the line of friends and families with Barclays. Please go ahead.
Hi, Thank you for taking my questions morning, I wanted to ask you a question about about.
About the the impact of the pandemic and kind of the virtualization of the workforce and how that might and turn impact to this sort of metro market strategy, which if I understand correctly is sort of based around proximity is there any has there been any any rethinking of that strategy or have you seen any impact on the efficacy of that.
Brad if you just based on folks working from sort of wherever it relative to being embedded potentially like on site and those metro locations.
Yeah, no. It's it's a it's a good question and as you might imagine, we're we're focused and very close to that but.
The reality is that although we're very focused and it's one of the three fundamental shifts that I mentioned in the remarks is really the future work. What we're actually seeing is that as that future work goes to maybe a slightly more remote permanently remote workforce.
It also is providing opportunities for technology to automate more quite frankly and make it easier for that work for us to work remotely having said that what we see around the world that the key decision makers.
Our in fact pack at the office most of the Ceos that I speak to from my office are actually at their office. They recognize the importance of having people working together and so I think what you're going to see as a hybrid model and so there is opportunities for technology to help remote workforce, but the proximity.
Model being close to the decision makers were solid, especially given some of the the the importance and complexity of the work that we do for clients that technology enables we don't see a change in that.
This point in time.
Okay.
And then a follow up from me is could you give us an update on the recent acquisitions. Both in terms of the performance and also just any color around cross selling or cost synergies or anything that may be still benefiting the company as we head into fiscal 21.
Yeah, Yeah, no. It's a it's a it's a good question Jeff.
Definitely if you start with the most recent the terror think a merger in the U.S Federal business has been instrumental in some of their growth and as you saw there they're continuing to grow and had very strong bookings and that gives us a new channel. So we're seeing opportunities to expand on the work that they are.
Doing likewise were seeing that with the Missy.
Intellectual properties I mentioned that got folded into our retail 360, that's been very fundamental to some of the work and the rebound we see on the.
On the retail side of the of the house in France and across Europe.
Where we now can go full end to end from the front office to the to the inventory in the back a back office.
Especially with the remote work that's going on now that's been fundamental to some of the the strength as we go forward the media at work with with Cypress and quite frankly, all of the work we're doing in the space sector, which has been part of the driver for not just the revenue, but the margin growth that we are.
Seeing and across Europe, and the UK sites is going well sunflower has been fully been integrated into our government ERP momentum and we had I think I highlighted this a couple a quarter ago, we saw some wins that would.
And have happened they couldn't have done it on their own but being part of momentum we had the vehicle to allow that to happen. So.
That's a that's just a nutshell some of the more recent a recent mergers I think I have told you and we track this for our own board of directors or the performance has been.
Many pretty strong both topline and bottomline keeping clients, but then expanding on those oh those clients as we move forward probably the one that that's that's been a a little bit more difficult is the a condo.
Merger, just given the nature of the work they did coupled.
Coupled with the pandemic, given some of that consulting and and advisory services.
It was a lot of those projects were delayed having said that we've re pivoted those those individuals into.
Into some.
Some of the larger managed services opportunities given their deep industry knowledge and actually position us very well and then we did do one in a in Canada train more and Thats been thats been very a very successful as well and in helping us.
Navigate some of the the new project starts that we have and in Canada. So.
Pretty its been pretty impactful and that's why we're very interested now with the valuations maybe looking a little more attractive and given our operational readiness and financial capacity to continue to accelerate that.
All right terrific. Thanks, so much yep.
And your next question comes from the line of Daniel Chan of TD Securities. Please go ahead.
If we look at your mix of managed services like you mentioned the bookings and the revenue mix from that continues to improve just want to confirm that this is a result of a lot of deals that you had you said these can take a little bit longer just wanted to make sure that these are some deals that you saw over the last year or two and just start.
And to materialize.
And then as we expect that mix to improve should we expect margins for fiscal 21 to continue to improve from the current levels. Thanks.
Yes, yes, so a lot of that I think I mentioned before those larger deals don't happen overnight they.
A slightly longer period of time to close those deals and so.
The good news is we were working on these preparing for this this market 12, 18 months ago and some of those are those kind of deals, but they all work at different paces and so sometimes the deal comes to us and it moves through the process.
More quickly the good news is we have a.
We have a double digit op.
Opportunities of these types of larger managed services deals in every single geography.
Which we operate right now and so thats the thats the positive. So we continue to follow the the build the pipeline so that we have a consistent.
Opportunity set that we can close in any one quarter.
Okay.
Origin.
Oh.
Margin part of your question.
We're kind of at the margin for your question. So yes as Ive always mentioned the reason we have a 70% a managed services, 30% ESI and see and 30%, which you saw we also increased by 1% to our.
Intellectual property as a percentage of revenue that gives us the ultimate revenue mix as we approach that we should continue to see margins increase.
As we move through that that process.
Hi, Thank you thanks.
Your next question comes from the line of Robert Young with Canaccord Genuity. Please go ahead.
Hi, Good morning, maybe just a follow on question the last one there.
The the growth that you're expecting to see return in the second half seems to me that might be shorter term.
Consultative type of business and so could you find yourself in a situation where you've got strong shift toward managed services, but then the buoyancy return of the shorter term.
Yes, yes, the pipeline is up in both managed services, which which are very instrumental but it's also up and and systems integration and consulting and so that will that will help Billy boy. It because we're coming from a market where there is a lot more on the EPS and see.
I think we're going to see a now we're moving into that managed services side, but the goal is to have both firing and I think we're moving into that type of a market, which should be good for us from a growth perspective.
And one of the things I think that.
Democratic government, if that happens in the U.S. would be potentially an expansion of each on b visa and maybe some change and immigration rules and maybe is there any thoughts there on how that might change your view on the local delivery model.
No not really less than 10% of our workforce right now works Vsan were so we're close a given.
The various policies that are going around there I think in any case, our onshore delivery centers expect to be in demand across the us.
I don't think our proximity model changes much and of course, we always have that global delivery model, which which is in higher demand and Thats why you see the the double digit increases in our India operations on revenue, even as we're as we're going through the pandemic. So we.
We think we have a very strong offering in the U.S. regardless.
Last one from me, maybe a little higher level in the prepared remarks, you mentioned retail just.
As one of the areas, where you're seeing some strength and so just one.
One of the areas that seem to be very strong investment wise and technology as the shift towards E Commerce and so I'm just wondering if you could give us give some highlights on where C.G.I. plays there and.
Whether that is a driver for you.
Well.
The short answer is yes. It is a it is a driver and that's why I highlighted one of the new wins was absolutely to help a global retailer.
Yes, there there us.
Ecommerce platform right and extends beyond just the ordering it goes straight through to the delivering which is where the amenity software is helping us significantly. So we play across the entire spectrum from the front end straight through to the fulfillment.
Thanks Yep.
Yep.
I'd like to ask a question press star one on your telephone keypad and your next question comes the line of key homes. Despite the Jonathan Please go.
Hi.
Yes. Good morning, Thanks for taking my question, maybe maybe one for costs, while in terms of a working capital I don't think we should expect a similar boost in fiscal 21.
That may be more a more stable working cap and related to that.
Would the 1.9 billion cash generated from operating activities be a good run rate estimates for for next year.
Thanks for the question I asked what our working cap you're right that we had a boost on the working cap by 200 million if you're looking at the.
Financial statement and again that was helped by the fact that that we were pretty good this year to reduce the DSO from 50 days to 47 days. So that's that's was a great achievement by the team to be capable to continue to connect and even reduce idea so year over year.
That said.
We are still expecting next year to be.
In the high.
So you said at 1.71, 0.61, 0.7, and perhaps even more.
Cash from ops.
By before working cap and after that depending on the working cap can even be higher than that so so so we're still very bullish on the fact that we will be capable to kind of two to.
To generate a lot of cash for next year.
Okay, Thanks, and maybe it could that prompt you to resume in CRB activity.
We are yes, we are looking at it we.
If you saw we did some share buyback even in the October timeframe, and we will look to see how we can come back.
On the NCS it'd be pretty some you'll see that.
Thank you.
Thank you everyone for joining us this morning, we.
We will see you for our first quarter results of 2021 in the next year. Thank you all.
Thank you. Thank you.
This concludes today's conference you may now disconnect.
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