Q2 2021 CGI Inc Earnings Call
Good morning, ladies and gentlemen, welcome to the CGI second quarter fiscal.
2021 conference call.
I'd now like to turn the meeting over to Mr. Mayer Yaghi Vice President of Investor Relations. Please go ahead the triaging.
Thank you Jacqueline and good morning, everyone.
With me to discuss the T. G I, the second quarter conference call our fiscal quarter.
Quarter fiscal 'twenty, one 2021 of the results are George Schindler, our president and CEO and Francois Boulanger Executive Vice President and CFO.
The skull is being broadcast on CGI Com and recorded live at nine a M. Eastern time on Wednesday April 28 2021.
Supplemental slides as well as the press release, we issued earlier this morning are available for download of.
Along with our Q2 MD&A financial statements and accompanying notes all of which have been filed with both SEDAR and Edgar.
Please note that some statements made on the call may be Florida, looking actual events or results may differ materially from those expressed or implied and CGI disclaims any intent or obligation to update or revise any forward looking statement, whether as a result of the information.
The events or otherwise.
The complete Safe Harbor statement is available in both our MD&A and press release as well as on CGI Dot com.
Encourage our investors to read it in its entirety.
We are reporting our financial results in accordance with international financial reporting standards or <unk>.
As always we will also discuss non-GAAP performance measures, which should be viewed as supplemental.
The MD&A contains definitions of each one and all.
The reporting.
All of the dollar figures expressed on this call are Canadian unless otherwise noted.
I'll turn it over now to George to give a brief overview of Q2.
Once all of those done the review our Q2 financials and then George will comment on our operational highlights and strategic outlook.
George.
Thank you mayor and good morning, everyone.
We closed the first half of the fiscal year with strong second quarter results. Our teams performance combined with the accelerating client demand for our end to end services across every industry and geography positions us well for a return to year over year growth in the second half of this year beginning in Q3.
In the quarter, we continued to deliver on our near term plan to prioritize the preservation and expansion of shareholder value once again, sustaining EPS accretion and generating strong cash from operations.
We also made investments in our build and buy strategy to fuel our future profitable growth for the benefit of all three stakeholders, our clients members and shareholders.
The rising client demand, we noted last quarter increased considerably during Q2 as demonstrated in our bookings which were up over $1 billion compared to the same quarter last year <unk>.
Demand for new digital and modernization projects was robust across nearly every geography and industry sector, particularly in retail and consumer services financial services and government.
New business comprised nearly 40% of total awards in the quarter up both sequentially and year over year.
Included among the nearly $4 billion in contract awards during the quarter were numerous projects in the digital arena such as the data modernization program with the U S based global Communications and media company.
Through our consulting and systems integration services will help streamline and support the client's cloud based data management platforms and.
An expansion and extension of our trade $3 60, IP engagement with one of Canada's top multinational banks.
For this long standing client, we will continue to support the digital transformation of the trade finance operations through numerous and debt innovations, including blockchain enablement.
And the expanded partnership with O P Finland's largest financial services group.
On this managed services engagement, we will collaborate with their insurance business to deliver advanced analytics and automation to support and enhance customer and employee experience as well as generate cost savings.
Taking a longer view bookings over the past 12 months were up over the previous period by more than $1 7 billion.
This reflects the jazz position as a partner of choice to serve clients' needs across a wide range of business transformation and digitization initiatives.
In fact, our clients' trust and CGI consultants is reflected in record high client satisfaction scores and our pipeline is growing as a result.
Nearly 20% globally and strong across every geography and every service.
The diversified mix of CGI as end to end services again contributed to our strong margins in the quarter as new previously booked projects translated into positive sequential revenue trends across each service offering.
As anticipated our systems integration and consulting services revenue was up nearly 3% compared to Q1, driven by new digital projects our growth trend, we expect to continue.
For example, in our U S based human centered design practice, which has grown over 30% year over year, we bring together user insights and technologies to help clients create engaging customer experiences.
Demand remains strong for larger enterprise managed services engagements the integrate the full range of CGI services to our clients increase business agility enhanced customer experience and reduce costs.
From an IP perspective revenue grew 4% compared to Q1 on the strength of new projects. While volumes are now beginning to recover and our transaction based IP solutions, including those for payroll and travel related services.
Our solutions are industry, leading in areas, such as ERP for central and local governments banking business processes like trade wealth payments and collections and the end retail industry processes and future energy grid modernization solutions.
C. J its portfolio of IP are highly configurable business platforms as a service that integrate with our end to end offerings and utilize provider neutral cloud approaches embedded security data privacy practices.
For clients, our IP delivers business benefits, while enabling a higher degree of flexibility and customization for their unique modernization and digitization needs are.
Our shareholders our portfolio of IP solutions deliver sustained high profitability through longer term recurring revenue engagements with.
With this in mind and in line with rising client demand, we made additional investments in the quarter to accelerate progress towards our IP 30 initiative, which represents IP as a 30% target of total revenue.
Specifically, we have dedicated of senior executive to be responsible for global IP strategy sales and innovation through collaboration with leaders across our client proximity and global delivery units.
All with the aim to drive profitable growth.
Now I will turn it over to the Francois to review our financial results.
Thank you George and good morning, everyone I'm happy to share with you the results our second quarter 2021.
Overall, we are pleased with our results.
Bookings were once again strong and over the last few quarters, we continue to add to our sizable book of business.
Revenue was also continued to see improving growth trends, which coupled with higher year over year margins net.
The strong cash generation in the quarter.
We delivered revenue of $3 1 billion down one 7% year over year on the constant currency basis.
This is an improvement over last quarter, where we saw a three 6% decrease year over year.
Particular strength in revenue growth was seen in central and eastern Europe with growth of five 9% on the constant currency basis.
<unk> Pak delivered four 7% as well as Canada and U S. Federal both growing one 9% respectively.
Given the chairman of positive market dynamics and the strong bookings in the last few quarters, we would like to reiterate our expectation of returning to year over year revenue growth in the second half of fiscal 2021.
Total bookings of $3 $9 billion were up 40% year over year, representing a book to bill of 126% and lifting our trailing 12 months book to Bill to 113%.
It's also it is also important to highlight that all of our geographic segments now I'll have a trailing 12 months book to bill of more than 100%.
I would like to call out a few of Geography's with strong bookings in the quarter.
Such as the central and Eastern Europe, with a book to Bill of 172%.
At the 142% and western and southern Europe.
The 39%.
Each of the seeing material improvement in new bookings, even in the midst of continued shutdowns and their economies due to COVID-19.
New business was 38% of bookings an increase from the previous quarters, 28%.
Our global backlog remains healthy at $23 $1 billion or one nine times revenue.
The vast majority of which is comprised of long term managed services engagements.
Adjusted EBIT in Q2 was $486 million, while EBIT margins increased to 15, 8% up 40 basis points compared to Q2 last year.
The year over year increase was mainly due to a combination of more profitable business mix lower discretionary expenses.
And cost reductions.
We saw strong margin improvement in the UK and U S. Federal with margins up 250, and 220 basis points, respectively, partially offset by lower margins in western and southern Europe due to fewer billable days and Scandinavia due to a lower utilization.
Our head Count has also increased by 1000 professionals quarter over quarter as we invest in our business of response to the continued improvement in client demand.
Our effective tax rate in Q2 was 25, 7%.
This was the same when excluding integration and restructuring expenses and is within our expected range for the year.
Net earnings were $341 million and diluted earnings per share were $1 34.
Representing an increase of 13, 6% year over year.
Excluding integration and restructuring costs net earnings were $342 million for a margin of 11, 1% and diluted earnings per share were $1 35.
Compared to $1 26 in the same quarter last year on the accretion of seven 1%.
And of the quarter, we continued to generate strong cash flows cash cash provided by operating activities was $572 $6 million or 18, 6% of revenue representing an increase of $176 million compared with Q2 last year.
This improvement was driven by a DSO of 79 day days compared to 44 days last quarter.
The improved mix of services towards IP and managed services along with strong delivery on the science projects.
For the last 12 months cash provided by operating activities was $2 $2 billion or 18, 6% of revenue.
In Q2, we invested $84 million back into our business largely in IP and managed services engagements.
We also bought back $747 million all of our stock canceling in the process seven 7 million shares of CGI.
In addition, just this morning, we announced the acquisition of <unk> Corp, which is in line with our buy strategy.
We will remain disciplined in investing our cash and are ready to deploy our substantial capital capacity on the accretive acquisitions.
Net debt to capitalization slightly increased sequentially from 27% in Q1 to 31% at the end of March on the increased stock buybacks buying back the CGI stock has been on accretive and flexible way to return capital to shareholders and the.
The end of Q2, the company can purchase up to an additional 13 million shares under the current and CIB program.
Looking ahead, our cash of location priority remains the same.
Investing in our business of course, Shooing accretive acquisition and buying back our stock with cash of $1 $3 billion on hand and of one 5 billion dollar revolver debt remains fully accessible we had $2 $8 billion readily available to pursue our build and buy profitable growth strategy.
Now I will turn the call back to George to further discuss the operations and also for our business and markets.
Rich.
Thank you Francois.
I will review the operations and market outlook in the context of the voice of our clients program, which we initiated in the quarter as input to our annual strategic planning this.
This year, our leaders met with nearly 700 existing and new client executives and business and it positions across every industry sector and geography, where we operate.
The conversations were in depth discussions covering industry trends business priorities and.
Priorities the.
These interview findings are shared with our clients to bring insights. They can act on and for CGI, the inform our business plans and investments.
We completed discussions a few weeks ago and not surprisingly the early findings show progression towards more defined digital strategies that address the complexity of enterprise wide needs.
There are three preliminary findings, we heard from client executives optimizing operations is top of mind with culture and it supply chain modernization key areas to address <unk>.
Environmental sustainability is now viewed as core to future value creation.
And meeting customer expectations for better more innovative digital experiences remains of Paramount importance.
This is the executives globally ranked optimizing operations of their top priority.
They cited the need to break down silos and become more agile on order to better sense and respond to changing market dynamics.
A key component of optimizing operations and the manufacturing industry focuses on smart factories, starting with an automation of the shop floor to unlock and act on data from product production machines that in many cases are decades old for.
For example, as part of the top German automakers plan to address the impact of nationwide shutdowns. We are partnering on the ambitious enterprise wide robotic process automation initiatives.
Through our implementation of factory based automation solutions, our clients will benefit from efficiency improvements and substantive cost savings.
The best support manufacturers with the priority of optimizing operations, we continue to invest in offerings and expertise, including for data production logistics and consumption as well as supply chain sustainability.
On the banking industry. The pandemic has underscored the importance of rapid digitization for revenue growth and customer service. However, the pandemic has also highlighted the challenges that legacy systems present to achieving these benefits.
As a result operations optimization and banking institutions, often centers on reducing technical debt and seamlessly integrating the core systems with customer facing digital solutions. This.
The enables the banks to identify new product and service opportunities.
The build them quickly and cost effectively utilizing automation and low code no code development and.
And deliver them in a secure scalable way often through the cloud for.
For example, we recently started the project with the Federal Reserve Bank of Boston and Vantage Bank of Texas on the Fed now pilot program that will create a new U S wide service for safe efficient and real time payments.
In response to this growing demand in banking, we are hiring and continuously developing subject matter expertise and deepening our technology partnerships as.
As well we are investing in the creation and enhancement of our global banking IP solution suite to address end to end business processes.
Globally financial services demand as strong as.
As evidenced by sequential revenue growth of just over 4% and of 110% book to bill in the quarter.
Moving to the second key finding of our client interviews more than half of executives strongly believe that environmental sustainability is now core to their organization's ability to create stakeholder value.
This finding validates what we see with clients across industries, we're focused on sustainability in terms of their own organizations as well as our customer focused products services and partnerships.
The shift is most pronounced in the energy and utility sector, where organizations increasingly recognize the need to address climate risk by reengineering their businesses to implement green operating practices and demonstrating our sustainability commitment to their customers.
We're seeing digital technologies and data play an important role in addressing these priorities.
In Q2 for example, we announced the expansion of our work with UK network operators to enable the Decarbonize energy grid of the future.
Our consultants are collaborating with western power distribution to build the digital network model using data from core operational systems.
This approach use of CGI integrated network model, which is at the heart of our open grid 360 platform and uniquely positioned CGI to help clients manage the energy transition.
We also see this convergence of data and sustainability in some of our space industry work.
For instance, we kicked off of project in the quarter with the European Space Agency to develop a new service combining recent advances in Earth observation machine learning and cloud computing to help the agency better map and monitor the impact of wildfires on people and to the planet.
Our space based data becomes more integral to helping clients solve everyday challenges, we will continue to leverage our global community of practice for the space sector to help clients across industries address new challenges and opportunities associated with areas like <unk> technologies and cyber security.
Lastly, client executives reinforced again this year that improving customer experience remains of top trend as well as a priority for both business and it.
However for the first time this year the importance to deliver new innovative products and services emerge within the top five business priorities as clients focus on meeting the digital first customer and citizen expectations that deepened during the pandemic.
Nowhere is this digital mandate more urgent than for our retail and consumer services clients innovative.
Innovative initiatives launched during the early stages of the pandemic are now being assessed for further optimization of scalability and improvements to the customer experience.
As announced in the quarter were proud to kickoff of new partnership with France space fashion Q4 of 10 year managed services engagement to help unite and transform the technology capabilities of their six leading fashion brands in the European market.
With several new retail industry awards in the quarter, our bookings are up year over year, and we see growing confidence among retailers worldwide as vaccine Rollouts proceed.
Our largest industry segment government is also where we see clients accelerating digitization to enhance the citizen experience and optimize the supply chain.
We see this in our long term innovative smart cities and connected community of kind of immediate.
These partnerships for example, with the recently awarded project with the Bavarian State Ministry of Justice.
Under this long term managed services agreement, we will partner with the Ministry on a range of the team modernization initiatives in support of citizen services and upgrades to their digital employee workplace.
And our government work around the World. We also see increasing investments in a digital agenda to support various infrastructure spending initiatives and in modernizing supply chains to better support the government.
CGI has taken an active role in these digital agendas, including through our industry expertise in areas, such as environment Health education, and with technology skills, and cyber security secure cloud micro services architecture.
Consistent with our results over the past year, our government work continues to grow with the Q2 book to Bill of 116%.
More findings and insights from the voice of our clients discussions will be published in the coming weeks.
Now more than ever of clients will turn to partners, who can bring the full end to end range of services to help them envision and realize the future.
Our investments in relevant offerings, including IP will enable CGI to be of partner and expert of choice and will drive profitable growth on a faster pace.
Importantly, our investments are also focused on our people.
This includes accelerating project rotations to enable professional development and hiring at all levels, both in client proximity and in our global delivery centers of excellence onshore and offshore.
We also ramped up our virtual training with employees completing over half of million courses since our new online University launched this time last year.
In addition, thousands of consultants across the company participated in emerging technology boot camps to increase their proficiency in line with client demand.
Our investments in our people are making a difference the satisfaction engagement is on an all time high billable utilization is above our target turnover remains below our industry peers hiring referrals are up year over year, and 86% of our consultants and professionals are owners of CGI.
Yes.
During the quarter. We also published our corporate social responsibility report, which details our progress in line with the UN global compact and advancing our CSR initiatives across three key areas people communities and climate.
As we look ahead, we also continue to pursue the buy side of our profitable growth strategy with the growing number of active discussions in the pipeline and new candidates identified during the voice of our client discussions.
As Francois reference this morning, we announced the acquisition of <unk> Corp, which will deepen our work across the U S Midwest and Texas with clients and the public and commercial sectors.
I would like to warmly welcome the nearly 300, new consultants, who will be joining CGI.
We continue to have the operational strength and financial capacity to move quickly with discipline on the right buy side opportunities.
In closing, let me reiterate our positive outlook for the second half of this year.
We are proud to be one of the few firms with the scale reach capabilities and commitment to the our clients global partner of choice of <unk>.
Strategic aspiration remains to double the size of the company over the next five to seven years.
Thank you for your interest and support let's go to the questions on there.
Thank you George and Jackman, we're ready to take any questions that might be in the queue.
Certainly to ask a question you will meet the press star one on your telephone keypad to withdraw your question Christa <unk>, Inc.
Your first question comes from Jason Kupferberg from Bank of America. Your line is open.
Hey, George This is Cathy Chan on for Jason. Thanks for taking my question. So first I wanted to ask about bookings. Obviously, you guys had a very strong quarter of bookings could you just unpack that a little bit and.
Can we continue to kind of expect to see book.
<unk> number in the back half of the year as well.
Yeah. Thanks, Thanks Cathy.
Absolutely we are.
Had very strong bookings they are up in every service offering that we have and most pronounced as I mentioned on the on the opening remarks and in financial services.
Services government and our manufacturing retail and distribution.
Industry sectors, but every geography.
What has now book to Bill on a trailing 12 month basis over 100%.
And it really comes from two factors demand is up considerably and we do expect that to continue but it's also our ability to bring innovative ideas.
And offerings to our clients relevant by industry and we are doing that by industry and that makes for a very compelling value proposition and more importantly than ever before the fact that we back that up with a very strong delivery track record is.
Which gives our clients confidence, but also that the uncertainties that they can do that with speed, which are becoming more and more important. So its really a combination of the demand and our ability to to really bring those compelling offerings for our clients and again, it's happening across every one of our geographies.
All of our industries and each of our service offerings and we do expect debt Kathy too to continue as I mentioned, it's very clear that we're still in the early stages of of the digital transformation that many of our clients still have to go through.
Got it got it very helpful and then moving to ask the question on margin.
So.
How should we think about margins for the second half. Obviously, you guys are expecting topline sort of returned to positive growth, which obviously should translate to a positive for margins, but can you kind of block. The some of the other pieces that we should be thinking about just in terms of the cadence of of margins that we should expect in the.
The back half of the year.
Sure. So yes, we will get some.
Some efficiencies associated with the with the growth on the scale of that growth, but you also.
We will continue to see an improving revenue mix.
Of recurring revenue.
You heard me talk about some of the investments, we're making in our intellectual property that will bring more recurring revenue as well as bookings were up significantly and our managed services and that brings a.
On an improved margin mix of course systems integration and consulting we will continue to grow but the.
The other items will grow faster and that will that will improve our margins in a nice steady pace. You also we have opportunities for geographic improvements.
And so we'll make some of those.
Of those changes as we go out through the through the year and we should see some improving our models there.
On the on the other side of.
Obviously as we go back with the vaccine Rollouts as we look to return some of our people, we'll probably go to two there'll be a transition in a hybrid model, but as we start returning.
There will be some additional costs will offset some of the benefits, but overall, we see an improving the opportunity on margins.
Okay, perfect and just a quick last question, obviously you guys of non.
Core and that's going to bring about 300 employees is there anything you can share about.
How much revenue that generated the outback, it's growing I mean is it fair to assume that all of it.
Closer to the next couple of weeks in bringing about a half point of revenue. The end is that already baked into your expectation of the returning to positive growth in the back half of the year, Yes, that's already baked into our expectations. As you know these we work on these are these inorganic.
Growth opportunities for <unk>.
For some time.
Go through a pretty rapid due diligence, but it takes a little bit of time to.
Get them over the line because again, we're really focused on the culture aspects, we couldnt be happier with the cultural alignment with sense Corp, and I'll just remind you. We did one right at the end of last quarter closed at the announce it at the beginning of the this quarter.
<unk> in the Midwest as well and that's already driving some organic growth. In addition to the inorganic growth. So.
Got it.
We're very pleased with the opportunity here to merge the two companies. We think we've got some really good opportunities with new logos and areas, we weren't as big and the strong and so that's that's very good for us to deliver the CGI end to end services to those.
Clients, but we also get some very good capabilities digital capabilities cloud capabilities.
The from the sense Corp three.
300 members new members to CGI. So we're very we're very excited about this.
Okay perfect. Thanks, guys.
Thank you your next.
Question comes from Sandoz must shop list from BMO. Your line is open hi.
Good morning.
All of them.
Hey, George and I appreciate the color commentary on the industry dynamics. So when you hear of those comments to me a lot of those initiatives sounds like S. IMC work so.
Wanted to reconcile that with your comments about how I think you said you see the recurring mix growing.
Even though it sounds like <unk> quite active is that of function of just the bookings recently and the conversion of those or is it also that as you look at the pipeline. There still is a very very heavy weighting of managed services. Despite the strength youre seeing in science day.
Yes, well I mean, the managed services bookings were very strong I was highlighting some of the the digital opportunities, which I've often described as kind of of the tip of the sphere.
And it's what gives us the capabilities.
But the managed services are still very strong they were a significant part of our bookings we had six managed services deals this quarter over $100 million.
Highlight some of those op.
The Varian Justice fashion cube, others, so very very strong bookings on the managed services side and we see an increasing demand on the IP side, we had a we had a big booking with the.
With the state of Virginia, with our procurement solution there.
On a managed services deal again. These are long term deals so I'm very bullish on the on the recurring revenue, increasing but equally bullish on our ability to deliver the digital projects that debt more more importantly in and are accelerating into the managed services opportunities I've been.
Mentioned that for a while the managed services opportunities are not just about legacy anymore. It's about the digital transformation and so we're doing both.
Great and you said the speed is becoming more important so is that translating into shorter sales cycles and door.
Maybe a quicker.
Contract ramp when did you get the booking what's the dynamic there.
Yeah, I haven't seen that yet that us.
That would be nice, but what I see is once they make the decision it's very important for them to deliver some of the results and sometimes that's done in phases.
One quick wins, and then and then net debt considerably delivered through a period of time more on an agile.
And model the certainty and the speed of though.
Delivering those as where our delivery track record really comes in that's where the trust comes in.
Great. Thanks for the hotline.
Your next question comes from the Stephanie price from CIBC. Your line is open.
Good morning.
Thanks for the color on some of the Digitization initiatives.
So just curious wanted to take a little bit deeper into that around the percentage of revenue coming from IP in the quarter and how you kind of think of that timeline for IP 30.
And maybe even given the increasing demand do you think of it you can get the IP 30 of organically or do you see on factoring into the M&A strategy here.
Yes, so the dedication of an executive to IP.
It's really going to give us some more focus.
A couple of ways one on the Ips that are have the most compelling value propositions now.
And we'll do that by industry and then we will invest in bringing them to the broader market. What we're looking at doing Stephanie is replicating what has proven to be working in managed services, while the central team of experts.
And sales capability, but there'll be embedded in the proximity of units that way, we get the focus but we also get the benefit of the proximity and.
It's really been proven to be working well and yes by having that focus will be more focused on the inorganic growth opportunities and intellectual property and the whole reason to do this is to accelerate we've been stuck around 'twenty, one 'twenty, 2% for the last several quarters.
We think we're entering a market opportunity, where we can in fact accelerate debt and that's that's exactly what we're planning to do.
That's helpful and then the mix of new client bookings was strong in the quarter. Just wondering how we should think of the sales environment. These new customer share.
Yes, so the.
The new client bookings that is that is significant I think it does come back to that the value proposition of the compelling value proposition that our talented teams are able to put in front of our clients I mentioned, maybe a couple of quarters ago Interestingly enough.
Clients more than ever are opened to these new ideas and new partners and that's where some of that new work is coming from I would also caution you that.
Bookings are are lumpy and so.
You have to look at it on a trailing 12 month basis, but having said that.
It really is those compelling offerings that we're putting in front and then there's the demand side of it and the demand side is.
Is strengthening and it is also strengthening in the in the areas that are in our sweet spot as far as really bringing a broader more holistic it modernization theres fewer partners that can deliver that.
And very few.
That can that can do that with the certainty of the CGI can do.
That's helpful. And then just one final quick one from me you mentioned the utilization is above your internal target just curious how you see utilization trending and whether you could keep two maybe at the at the higher target just given the hybrid growth model you mentioned.
Yes, yes, we're certainly have experienced some some higher.
Utilization given the the.
The better efficiency quite frankly with people being able to work and not be on the on a plane or a car or a train going to clients and so certainly we have plans.
To capture and keep some of those opportunities. It allows us to bring subject matter experts to our clients faster. They are more open to allowing for that but we're not going to abandon the proximity model in fact, it strengthens our proximity model. So utilization I think will remain above some of our targets.
But maybe not quite as high as it is right now.
Thank you very much.
Your next question comes from Richard Tse National.
National Bank financial your line is open Hi, Richard.
Hi, how are you good.
Thanks for sharing the voice of the clients.
The data that was actually quite helpful. Can you maybe talk about how those.
Results compared to what they would have been sort of pre COVID-19.
I guess the question is more along the lines as how much is really.
The accelerated by COVID-19 in terms of order of magnitude here.
Yes, no. Thanks, well, obviously environmental sustainability is was not really on the on the list.
The pre COVID-19 and that's not just COVID-19, but I think many say that.
Breathing the clean air.
During COVID-19 is is given the given more impetus to the the realities of this but I think in general.
The the <unk> modernization has definitely risen and I think thats of recognition and of direct.
Output from the pandemic and the acceleration of Digitization.
Many of the of our of our clients are recognizing that maybe there is some technical debt. The has been built up that they thought that they could get around because they had a slightly longer runway to get there and I think that the compression in the acceleration has caused it modernization, which is why I mentioned, it's kind of in our sweet spot.
And so it's very good and is driving some of the some of our bookings the other new one and I think I highlighted this Richard and I think this comes up again from the from the fact of the pandemic is a business of priority around introducing new products and offerings.
Again.
When you're in a when you're in a more steady state that becomes less important the pandemic caused many to have to do that and what they realized is they were able to do that and now the the opportunity gets gets even bigger for them to do that and of course. It is the is the big driver of all of that.
Okay.
I guess, the probably you can be served his view that will kind of in this new cycle of digital transformation much like there was a cycle of one point for outsourcing.
And you've been sort of in this business.
For some time.
<unk> sort of been there through the outsourcing cycle do you think digital transformation is a bigger opportunity than outsourcing was.
Yes, I really do because.
Done correctly digital transformation does two things right.
It gives a better growth opportunity for new offerings, new clients, but it also drives some some cost savings and so it's a twofer, whereas outsourcing was really more around the the cost benefits of course, you could still reinvest those but this is now a tighter linkage.
Which makes it I think the business cases.
Water, which makes the opportunity bigger force.
Okay, and then just the last one for me.
We're obviously all sort of fortunate here yet to be kind of working in its riding so to speak but if you look at the market today in the market.
The.
Competition for talent I imagine is quite high.
And that's an essential part of your business. So what's your ability to attract the talent. These days are you, having the sort of pay up or what kind of incentives are sort of being.
Offered here to kind of bring that important talent on board yes.
It's interesting today's today's workforce is not just interested in.
And the and the dollars and cents of very interested in joining a socially minded company certainly our ownership model and our core values.
The into that and of big way of.
Of course, what we're doing in corporate social responsibility plays in the Big way, what we're doing with the environment and their pledges plays in the Big way, but also theyre looking for an opportunity to grow their careers and make a difference and so the we're focused a lot on career of training and advancement I mentioned, the the half of million courses and CGI academia of the emerge.
<unk> technology boot camps, etcetera that becomes a big a.
The big part of this is why I highlighted the high satisfaction scores that we have because it really starts with the retention and what I mean by that is then we move that into an opportunity to to have the employee referrals, we get our biggest influx of people through referrals and.
Right behind that is through <unk>.
Through hiring new new students from colleges and universities are student training hires have already surpassed last year's Mark and that's a really important element because of that then allows the backfill on others to continue to grow their careers. So it's not a one size fits all of course, our onshore centers of excellence.
The tend to have a lower turnover of the rate that helps us and all of that allowed us to add of net of 1000 people in the quarter, but there is one other element that I would add to that and I do think that we need to continue to get creative in order to continue to build of talent.
<unk> base and you know I've talked before about the seven campuses that we have in France, we call. The EU Dev school to attract non traditional individuals into it.
It's a combination of apprentice ship and and partnering with with different universities, we'd like to expand that to the right.
Right here in Canada, and then two to other locations because you've got to get creative on this and it's not.
I apologize for the for the long winded answer, but it's not a one size fits all you've got to really think about this holistically and that's exactly what we're doing.
That's great. Thanks, guys.
Uh huh.
Your next question comes from Paul Bieber from RBC capital markets. Your line is open.
Paul Thanks, and good morning.
You spent a lot of the comments being digital and then also IP. The CGI you gave IP revenue of the mixed there, but typically your peers give budd.
Sort of a broader metric.
<unk> revenue should we think about your digital CGI digital mix being higher than just IP and then why have you found it.
It difficult or is it ambiguous to give digital as a percentage of revenue.
Just to make comparisons easier versus peers.
Yeah. Thanks for the question pulse of that.
Your first the first part of your question No digital digital is not does not equate just to our IP revenue.
Our digital and that's why I highlighted this quarter some of those digital projects that are squarely in the <unk> space not in the IP space, but again. The reason we don't break that out is that digital is involved in our IP digital is involved in their ethane C and digital is involved in a lot of our outsourcing.
Contracts I mentioned, the the op engagement a big part of that is as digital modernization of their core platform, but it's wrapped in a longer term managed services agreement. This is the CGI value proposition.
So it'll be inexact debt at best.
But a large percentage of our Si and C business.
As in the digital arena and increasingly a large segment of our of our managed services includes digital and Thats why I was trying to to get across today.
And then when you look at like the competitive landscapes in digital how do you how do you see CGI.
So you guys competitive advantages in digital in particular like when when when you win deals in digital lighting of wide customer select CGI of our peers and then Conversely, if youre not selected you know why typically is not the case, yes, I would say on the on the.
The selection side its absolutely.
And parcel to what I was just describing it's when it's embedded in a broader relationship.
Our broader service offering through our end to end services and increasingly that's what our clients are looking for they're not looking for as many of those smaller point solutions.
This is why it modernization roes in the in the current voice of the client voice of our clients information that's why I highlighted it it's.
It's more of what's going on right now and there's fewer players that can do that it's also what's driving some of the some of the M&A opportunities.
And this is the answer for me the.
You mentioned inorganic opportunities in the IP I mean should we think about that at CGI increasingly looking at acquiring pure play software companies.
Or do you see it as sort of IP enabled it services companies and then.
How do you look at balance in your own IP versus being viewed as a trusted adviser to clients.
It's more of the its more of the ladder and it's exactly what we what we got we got some nice intellectual property with the sizes.
The merger, we got some nice.
IP from the met the merger and we'll look to continue and find more of those types of opportunities.
Going forward. So that's a that's an important dimension of our inorganic growth around the around IP.
Alright, thank you.
Your next question comes from Steve <unk> from Stifel GMP. Your line is open.
Oh, Hi, good morning, guys. Thanks for taking my questions.
George you gave some good color on the on the retail side of the financial services side of last quarter, you mentioned the health care industry I'm, just wondering how that is progressing.
And really the bigger picture here through the COVID-19 pandemic, what kind of organic growth of our new opportunities.
This of Florida do you guys in the health care industry in particular, yes.
Yeah, well health the health of actually was was a.
Our revenue growth engine this quarter I was talking more about some of the future stuff, but yes health continues to be a big driver and quite frankly, both on the on the government side and on the on the private sector side and even the linkage between the two and so where we're really.
Putting some investments on health is in the government side, because they're going to play a heavier and heavier role having said that we've had very strong growth in life Sciences space as they look at the continued automation and and then we also obviously telemedicine will be a big opportunity.
In the future I think that's just scratched the surface. During this unfortunate pandemic, but I think theres going to be plenty of new opportunities around the telemedicine and again.
It and technology and data play a big role there as does the data privacy privacy cyber security et cetera. So I think there'll be a lot of activity in the space.
I didn't.
Maybe I neglected to highlight that because I did that last quarter, but yes. The thanks for asking the question because it's a big opportunity for us.
No I appreciate that so it sounds like as the economies open up you've got these vertical markets like lighting up the financial services, obviously trying to deal with with blockchain and modernization.
Retail manufacturing you mentioned energy.
If you think of 12 to 18 months out of.
What other vertical market should we think about potentially lightening up or do you think about the proactive and today to drive momentum in bookings.
In the next year, yes, well one one that you didn't mention is space.
Highlights of that a little bit I think theres going to be a lot of activity in the space sector, not just where it is today in government, but I think it is going to explode even more.
In the future just some of the opportunities around data.
Leveraging and harnessing the data that's available there.
Think that edge.
Education is clearly going to be an area that will we will continue to blossom. It's certainly been hurt, but I think theres going to be a lot of spending that's going to go in there.
Some other.
Some other opportunities I think you mentioned you mentioned the energy.
But also.
Mentioned financial services focus more on the banks right now, but I think of insurance is also an opportunity.
It's ripe to maybe even leapfrog, where some of the some of the other industries have been so these are some of the areas. We're also looking at.
Okay. That's helpful. Thanks, how could I forget about space I guess, Rob one of the moving again anymore. So thanks again for taking my questions.
Stay safe all of the best sure. Thanks.
Kevin if he would like to ask a question. Please press star one on your telephone Keypad. Your next question comes from Kevin Christian on Anthony from Desjardins Securities. Your line is open.
Hey, there good morning.
Wondering if you could talk about your partner relationships, specifically within staffing vendors now I know you are I know your vendor agnostic, but just given some of the momentum based on the island.
The cloud providers, who seem to be pushing new programs and initiatives to help drive sales on their own products, but what are you seeing and how does that tie into the level of unique IP that you are building when you're leveraging other tech I'm just curious about your thoughts there.
Yeah no. Thanks for the question I did I did highlight that we're putting more and more emphasis on those on those technology partnerships.
But.
And in a way that is still appropriate for our clients because of different clients have different needs. They have different partnerships and as a systems integrator, we need to be bringing the partnerships in lockstep with them, having said that we've established partnerships with the with all of the major cloud.
Providers, we have different executives that run each of those partnerships. So that we can we can maintain the separation.
And we're investing in those partnerships and in many cases co creating with with some of those some of those providers and it doesn't just end with the with the.
With the cloud providers, obviously extends into a number of the of the <unk> platform providers. So it's very it's a very important opportunity for systems integrators, and then as it relates to our own intellectual property of course, we want to build our intellectual property to both the.
<unk>, but also architected in a way to leverage and build upon.
Those those platform providers and so we're doing just that so it's a nice it's a nice synergistic opportunity and again the driver is what's best for our clients.
That's really helpful and on that on the IP. There were some questions on mix of IP and mix of digital have you have you talked about maybe another way thinking about mix of Tech for example of fast when you talk about the level of SaaS.
SaaS, that's running through the business, whether that's your own or vendors on.
Yes.
On our own I can tell you that well over half of our intellectual property is sold in the SaaS basis.
I don't have the other number maybe we can maybe we can look into that obviously, it's a it's an important trend and yet we're seeing a mix of the reason, it's not 100% of our IP is sold net way is.
Is there still is the need for differentiation and.
And some clients some of our largest enterprise clients look at that a little bit differently, so, but I could certainly look at that as well.
Okay very good. Thank you just one last one for me then just on on the vertical thoughts on the vertical.
You see in the <unk>.
A few quarters of retail MRV of obviously contribute some of the revenue softness, but you did see a nice pick up in the in the retail on the book when do we start to see some of that translate to revenue do you see that in Q3 is that more of a Q4 dynamic.
Yeah, well in terms of revenue growth, yes, yes, we're we're as I mentioned in my remarks, we definitely are going to see revenue growth globally.
<unk> the company in Q3, which is right in line with the with our plan our expectations on what we what we talked about.
There are some some areas that are accelerating faster and than others and I'll remind you. Some of the some of the growth is going to come from bookings not just from this past quarter, but we've had strong bookings the last three quarters.
And a lot of these area. So it's going to come online at different levels, but <unk> is is recovering.
In certain areas.
I would also remind you if you look at the at the.
The.
The segment level revenue growth, we did have growth in central and eastern Europe in the in the quarter and they have heavy manufacturing retail and distribution, particularly on the manufacturing side. So.
We're seeing we're seeing opportunities for growth.
Great to hear thanks, a lot of the pipeline.
Okay.
Thank you Kevin.
Wherever on running.
Late here in the.
On the call. So I just wanted to remind everyone that the replay of the call will be available either via our website or by dialing one eight.
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If you have any questions you can direct them to me at the five one for flow.
15651, Thank you George and Francois.
Thank you everyone for participating on today's call.
Hope to see you again soon.
Thank you. Thank you.
This concludes today's conference call. Thank you for participating.
You may now disconnect.
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