Q1 2022 CGI Inc Earnings Call
[music].
Good morning, ladies and gentlemen, welcome to Cgi's first quarter fiscal 2022 conference call I would now like to turn your meeting over to Mr. Kevin Linda Senior Vice President Finance and Treasury and head of Investor Relations. Please go ahead Mr. Linda.
Thank you Julie and good morning, with me to discuss Cgi's first quarter fiscal 2022 results are George Schindler, our president and CEO .
And Francois Boulanger executive Vice President and CFO .
This call is being broadcast on CGI Com and recorded live at nine a M. Eastern time on Wednesday February .
2022.
Supplemental slides as well as the press release, we issued earlier. This morning are available for download along with our Q1 MD&A financial statements and accompanying notes all of which have been filed and sports SEDAR and Edgar Please.
Please note that some statements made on the call maybe forward 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 statements, whether as a result of new information future events or otherwise.
A complete safe Harbor statement is available in both our MD&A and press release as well as on CGI com.
We recommend our investors read it in its entirety.
We are reporting our financial results in accordance with international financial reporting standards or item for us.
As always we will also discuss non-GAAP performance measures, which should be viewed as supplemental M.
The MD&A contains definitions of each one used in our reporting.
All of the dollar figures expressed on this call are Canadian unless otherwise noted.
We're also hosting our annual general meeting this morning, So we hope you'll join us live broadcast.
Yeah.
I'll now turn it over to French want to review, our Q1 financials, and then George will comment on our business and market outlook.
Sure.
Thank you, Kevin and good morning, everyone.
I am pleased to share with you the results of our first quarter of fiscal 2022.
Our revenue growth continues to accelerate on a constant currency basis fueled by strong bookings from prior quarters, along with continued demand for our digital services and business solutions.
In addition, we delivered double digit EPS growth, despite a strong Canadian dollar, causing headwinds in our reporting currency.
We recorded revenue of $3 $1 billion up six 8% year over year on a constant currency basis.
Strong constant currency growth was seen in the following segments Asia Pacific up 19, 5%.
Western and southern Europe up 15, 2%.
U S commercial and state government up 14, 5%.
Central and Eastern Europe , 11, 9% and Canada up eight 3%.
Total bookings were $3 $6 billion, representing a book to Bill of 116, 5% for the quarter and lifting our trailing 12 months book to Bill to 115, 2% compared to 103% for the prior year.
I would like to call out a few segments with strong bookings in the quarter.
Scandinavia at 117%.
In Australia at 122% and Finland, Poland, and Baltics with a book to Bill of 253% driven by a new eight year managed services contract signed with the Finnish government, whereby CGI will serve as the largest provider of hybrid it services to dozens of public sector.
Our organizations.
In addition, yesterday, we announced an award by the U S Department of Justice for our 250 million U S. Dollar blanket purchase agreement with the first task order already granted for a value of 134 million U S dollars or approximately $170 million in Canadian dollars.
All of our eight proximity geographic segments.
<unk> now have a trailing 12 months book to bill well above 100%.
New business was 32% of bookings an increase from the previous year is 28% on.
On a trailing 12 month basis, New business was also 33% as compared to 26% for the year ago period.
Our global backlog increased by $808 million year over year and remained strong at $23 $6 billion.
This backlog represents one nine times revenue the vast majority of which is comprised of long term managed services and digital transformation engagements.
Given the continued increased demand for our services as reflected by the strong bookings in the last few quarters, we expect continued positive momentum.
On the profitability front adjusted EBIT in Q1 was $521 $5 million, while EBIT margin increased to 16, 9%.
50 basis points compared to Q1 last year.
The year over year increase.
Mainly due to revenue growth in IP services and solutions and improve utilization, primarily within the western and southern Europe , Central and Eastern Europe and U S. Federal segments. In addition, we continued to benefit from stronger margins due to operational excellence.
We delivered strong EBIT margins in the following segments Asia Pacific at 32, 1%.
Canada at 25, 6%, UK and Australia at 15, 8% and Western and Southern Europe at 15, 4%.
Due to the strength of our value proposition to clients and our embedded indexation clauses with.
Within our contracts, we have largely been able to absorb wage and other cost pressures in our pricing.
Our effective tax rate in Q1 was 25, 5% compared to 25, 9% in the prior year.
We continue to expect our tax rate for future quarters to be in the range of 24, 5% to 26, 5%.
Net earnings were $267 million and diluted earnings per share were $1 49.
Representing an increase of 12, 9% year over year.
This improvement was mainly due to revenue growth and EBIT margins improvements as outlined earlier.
Excluding integration cost than earning were at $369 million for a margin of 11, 9% and diluted earnings per share were $1 50.
And the accretion of 12, 8% when compared to $1 33 in the same quarter last year.
In the quarter cash provided by operating activities, where it was $484 million compared to $597 million in the prior year, which had reduced variable compensation payments related to the impact of the pandemic.
As a percentage of revenue our cash generation was strong at 15, 7%.
DSO was 45 days compared to 44 days last year aligned with our targets.
For the last 12 months cash provided by operating activities was $2 billion or 16, 4% of revenue.
This represents $8 <unk> in cash per share.
In the quarter, we invested $206 million and our build and buy profitable growth strategy, mainly in our IP and for the acquisition of Connie case management consulting and Aerie.
In addition, we used $267 million to buyback our stock.
Buying back CGI stock has been an accretive and flexible way to return capital to shareholders as such yesterday, our board of directors approved the extension of the NCI program until February 2023, allowing us to purchase up to $18 8 million shares over the next 12 months.
In addition, we reimbursed 250 million U S dollars of scheduled debt repayments in the quarter, leaving only $50 million of scheduled debt repayments for the remainder of fiscal 2022.
With the issuance of our senior notes in September 2021, CGI has weighted average maturity is now four nine years with a 100% fixed interest.
Interest rate at very favorable rates consistent with previous years, We review our capital allocation plan to formulate the most effective capital deployment strategy to maximize shareholder returns.
In Q1, we delivered a return on invested capital of 15, 3% a significant increase when compared to 12, 4% in the year ago period, returning to pre pandemic levels.
Looking ahead as <unk>.
And as indicated during our Investor day. This past November our cash allocation priority remains the same investing in our business pursuing accretive acquisitions and buying back our stock.
With a net debt to capitalization ratio of 27, 8% at the end of December as well as $2 $7 billion of cash readily available and access to more if needed.
<unk> strength and capital resources to support our build and buy profitable growth strategy now I will turn the call to George to further discuss the insights and outlook for our business and markets George Thanks.
You Francois and good morning, everyone.
I am pleased with our team's strong first quarter financial performance, we started fiscal year 2022 with positive momentum in all key metrics double digit EPS accretion accelerated revenue growth on a year over year and sequential quarter basis.
Robust bookings for the quarter in the last 12 months and cash from operations of 15, 7% for the quarter.
The continued strength of our financial performance is grounded in our consultants ability to earn clients' Trust every day.
This is evident in our modernization and digitization wins in the quarter for example.
Fannie Mae extended our long term partnership in the U S. We were awarded new work to support their migration to the cloud and implement intelligent automation and data analytics across all consumer and commercial lines of business.
May he lineup a recognized pioneer in health care and social services in Finland has expanded their relationship with CGI to assist and completing their Google cloud based transformation.
This engagement aims to help optimize costs and increase business agility.
The Quebec government selected CGI to help them establish and operate a new government cloud for the next three years on.
Upon completion this cloud environment, we'll be delivering services to multiple government agencies, serving over 8 million citizens.
Electro skandia, the Swedish electrical wholesaler, which is a company of stone par the world's largest electrical products systems and services firm named CGI as their digital transformation partner to support their modernization efforts, including the implementation of SAP <unk> Hana.
The French agency for ecological transition chose CGI to deliver application services agile at scale and Dev ops.
Enernoc is their take technology capabilities and services supporting over 3 million businesses.
And in the U K the University of Nottingham awarded CGI, a new consulting services agreement.
Through this partnership we will help modernize their digital value chain and supportive learning services for over 45000 students and 7000 employees.
Our robust bookings in the quarter were led by awards from government sector clients up 28% year over year for a book to bill of 151%.
We expect this uptick to continue given the governments around the world are re prioritizing their it initiatives in line with the evolving public health and economic environment.
On a sequential quarter basis, we also saw demand accelerate in the financial services sector, resulting in a nearly 40% increase in Q1 bookings and book to Bill of 114%.
This was driven by client demand for digital services across all geographic segments.
In addition to our strong performance clients continue to recognize the depth and breadth of our knowledge and expertise, resulting in all time high client satisfaction scores.
Notably our two highest client satisfaction scores measure how we partner with clients.
Pacifically, our level of commitment collaboration and communication.
These qualities are key elements of the world class delivery excellence, which CGI is known in fact client executives often raised these qualities as some of the most important priorities for their partner selection and cite them as differentiators for CGI.
As a people centered firm we also recognize that our success is founded on the strength of our consultants and professionals, 85% of whom are CGI shareholders.
Our employee satisfaction scores also continue to be at record high levels. This is primarily due to our ongoing investments in digital tooling health and wellbeing and employee development.
These are critical elements to provide rapid career growth for our talented employees and are therefore instrumental to our overall employee retention as such our voluntary attrition rates remains below the it services industry average.
Now as outlined during our recent investor and market Analyst day client demand for end to end Digitization remains the key driver for CGI as planned profitable growth in fiscal 2022 and beyond.
During that meeting we shared four areas of investment with annual and three year objectives.
First and foremost and industry knowledge to help clients in their quest to build there right future.
And technology expertise to support them and building it right.
And offering intellectual property assets to enable them to build with speed and.
And finally, the operational excellence to our clients operate and evolve their planned future states.
Today I will provide updates on each of these areas starting with the right industry knowledge.
We announced our plan to grow strategic business and it consulting services revenue by 15% to 20% on a compound annual growth rate basis over the next three years.
In the quarter, we saw an uptick in consulting and systems integration demand as bookings increased by over $100 million compared to this time last year.
This is due in part to the expansion of our local consulting practices and the related increased investment in hiring and developing industry expertise.
In fact, we are finalizing a new white paper, which consolidates input for our board of directors CGI industry experts and external alliance partners to explore the key trends that will impact and shape, our long term trajectories of most global industries.
Our consultants will be sharing this paper with our clients to help inform their strategic planning and we will then discuss with clients, how CGI and best support their business objectives.
Our next area of investment technology expertise helps clients balance the potential of technology with the reality of complex enterprise delivery.
Previously announced our fiscal 2022 plan to increase employee training and digital technologies by 33%.
A key mechanism for supporting this plan is CJS online University, where 35% of employees completed courses in Q1. This.
This training enables rapid reskilling and upskilling in areas of high demand such as scaled agile and cloud technologies.
Also in support of our technical expertise investment we plan to add over 15000 employee certifications of Global Alliance partner solutions over the next three years.
This year, we have already surpassed 2100 of the.
Patients.
This has contributed to a 15% increase in bookings with our global Alliance partners on a year over year basis.
Leveraging our investments in intellectual property, we also announced our plan to reach 30% of our revenue derived from IP by 2025.
In the first quarter IP services and solutions accounted for 22% of revenue up from 21% last quarter.
Our investments in IP globally are focused on deploying new value add capabilities across the existing IP portfolio as well as investing to co create with clients on new innovations to bring even greater value to clients digital transformation and add to Cgi's IP portfolio.
Most importantly, our plans for operational excellence, our critical element our clients are looking for now.
Not only for us to be a safe pair of hands, but also for us to deliver in a cost efficient manner.
To support delivery and operational excellence objectives. The three year plan may announce includes increasing head count by 15% on a three year compound annual growth rate basis across all of our global delivery centers, particularly in India.
In Q1, our current hiring pace in India is almost two five times more than before the pandemic is hiring contributed to the 20% year over year growth in our Asia Pacific operations.
Given CGI a strong value proposition, our attrition rate in India stands well below the India peer group average.
Quarter, our ability to deliver these results is ensuring we have the right talent in both our client proximity and global delivery operations.
Over the past few months, we've continued to evolve our hiring strategies to meet increasing client demand and.
In Q1, the number of new hires more than doubled compared to this time last year. We ended the quarter with 82000 employees a year over year net increase of 6000 consultants and professionals.
We continue to employ an effective and efficient talent attraction and onboarding approach with two thirds of candidates coming directly to CGI either through referrals from current employees or through direct applications for open positions on CGI Dot com.
In addition to support our proactive recruiting outreach, we have increased our recruiting capacity across all operating units.
Our operational leaders the same leaders who are responsible for client delivery are involved in candidate sourcing assessment and decision, making at every step of our hiring process. This ensures tight alignment between candidate skills and client needs and reduces overall time to fill open available.
Physicians.
Now moving to the growth outlook for the rest of the year, we expect client demand for end to end Digitization to continue accelerating across most of the key industries we serve.
And government as I stated earlier, we see positive client demand momentum, particularly in areas well aligned to cgi's positioning and offerings. This includes helping agencies address a range of domestic priorities spanning social and health services infrastructure space based data solutions.
Environment, and the climate and cyber security.
The manufacturing supply chain disruptions continue to require reshaping and reconfiguration.
This is driving demand for data driven enterprises to improve service quality and generate new revenue streams through use of digital services, including AI and advanced analytics.
And retail and consumer services, the permanent shift to more digital orders as requiring prioritization of Omnichannel investments are supply chain challenges are creating pressure on customer service and loyalty driving demand for AI and predictive analytics to improve forecasting inventory management.
And workforce planning.
And in financial services banks are aggressively implementing their digital transformation agenda.
Better understand their customers and improve organizational performance banking.
Banking client initiatives now often include if not hinge on faster modernization of legacy assets advanced data analytics, and a need for greater operational efficiency.
We see this more intensive focus on operational efficiency across all commercial sectors that we serve is one of the key levers to help clients counterbalanced increased competition against increasing operating costs due to pricing pressures from supply chain disruptions and inflation.
Our growth outlook is also positive on the buy side of our strategy as the fragmentation of the it services market remains high and we have a growing pipeline of opportunities.
As previously mentioned, we increased our M&A team by 25% this year to facilitate our stated plan of allocating $1 billion of capital to merge with Metro market services firms and or merge with firms focused on delivering proprietary intellectual property.
In the first quarter, we closed two new mergers array and CMC and announced an agreement to acquire Unica and Australia in consulting and systems integration firm.
This transaction remains subject to government approval and is expected to close in the second quarter of fiscal 2022, we.
We look forward to welcoming <unk> employees to CGI as they bring high end digital skills in key industries, including communications utilities and banking.
With these mergers we are on pace to meet our planned M&A capital allocation priorities for the year.
In closing CGI remains one of the few firms with the scale reach capabilities and commitment to be a client partner of choice and an employer of choice.
We remain committed to delivering accelerated revenue growth and double digit EPS accretion for fiscal 2022.
This ensures we continue to be an investment of choice.
Let's go to the questions now Kevin.
Thank you George Julien we are now ready to take our first question in the queue. Please.
Thank you at this time I would like to remind everyone in order to ask a question press star one on your telephone keypad and your first question comes from Donald Musk Coppola from BMO capital markets. Please go ahead.
Hi, good morning.
Joe just starting off on the margins.
Obviously, some good margin expansion this quarter, which is at the scene of rising wage environment.
Just help us understand whether theres some puts and takes we should be mindful of whether this would be a sustainable level you can build on in subsequent quarters.
And also to what extent have the recent tuck in has been weighing on margins is that a factor that should provide upside as you integrate those or what does that trajectory look like thanks.
Yes. Thanks, Thanks for the question and as a good way to shape. It of course, there are some some puts and takes Francois mentioned, what we're doing on the.
To deal with some of the wage inflation and build that into our contracts is actually already built into our contracts having.
Having said that as we come out of the Lockdowns.
For all the right reasons, we expect some of our expenses to go up as we continue to to drive.
Organic growth with our clients and.
<unk> be in proximity with them. So some of that will will will be a take but we have plenty of levers on the on the <unk> side.
You mentioned, one correctly as we as we tuck in.
Acquisitions, there is always a plan to get them accretive by the first year, but it doesn't happen in quarter, one and so there is a little bit of a of a put and take always when we when we do those those tuck ins, but but more importantly, there are other levers to improve through the business mix, including our increased investments in IP.
<unk>.
There are some underperforming geographies that we have plans to continue to bring that back to the to the CGI.
Metrics, and then forest global delivery and automation continue to give us an opportunity. So even though there will be a little bit of a take as we as we open back up we believe we'll be able to continue to build on these strong margins.
Great.
Turning to capital allocation I think this is a time of year that too.
Our dividend policy and.
It seems like once again decided not to have a dividend.
So maybe if you could provide some color on that.
A decision.
Is that maybe a function of just the M&A.
<unk> that you see as you think about capital allocation for the upcoming year.
Thanks, <unk> I'll take this one.
Youre right.
And Thats, what we indicated at the Investor day.
We feel that the acquisition and M&A activities.
We'll be a lot more active this year, we're talking about allocating 1 billion.
On this and that we're on the right path for announced or so and what we're seeing is that we think that we'll be able to achieve this objective. So that's why we thought that again to wait.
Again for the dividend.
As I indicated that we did we will renew our NCI. So.
If needed we will put some some investment in the <unk> and the share buyback, but we think that.
Versus this versus last year.
A lot more in the M&A side.
Okay. Thank you I'll pass the line.
Your next question comes from Paul steep from Scotia Capital. Please go ahead.
Good morning, George can you just talk a little bit you touched on it in the comments on the IP solutions, but maybe talk about where you've been in the.
The journey of sort of globalizing morals, the solutions I know about a year ago. At this time, you started down that path maybe.
Maybe give us an update on how you see things trending.
Yes.
It's a great question because youre right.
I call it our unified approach to growing IP and it really is first and foremost about having process and methodology to propagate the existing IP across the entire channel of CGI. So.
Is everything from improved value proposition through add ons to our existing IP broader target market across industries, geographies and functions and and having a more efficient and profitable.
Delivery model. So just to give you a quick update in the quarter.
We do have over 10% increase in the pipeline, we have an over 10% increase in the deal size of the bookings that we have so that gets to that.
Proved value proposition and that broader delivery mechanism and then we have an over 10% increase in the win rates. So those are some nice early proof points.
That say that what we're doing around that propagation is is working.
In fact, we have three of our SP use that are at that 30% and in the two fastest growing are the ones that are under 10%. So we have we have opportunity and and of course propagating that IP is the way to get there and we're also making increased investments and the sourcing of new.
IP. So this is everything from ideation with our industry experts. So that's that's showing some some signs of opportunity co creating with clients, sometimes we actually co create and acquire the IP from our clients, sometimes we actually just co create and jointly own it and everything in between that's where a lot of our <unk>.
First ip's actually came from and so we were doing that across.
The global CGI now and then as I mentioned in the opening remarks M&A.
As an area, where we're going to be looking at.
IP services and solutions firms not just software only but services and solutions firms, we're opening up the aperture to more of that in our M&A. So.
Early returns are coming in and we're bullish on the future.
Great and then just one final one for me just around maybe more quarterly matters here either your Francois could you talk about you mentioned client contract adjustments, mainly in the UK and Australia, you mentioned a little bit in Scandinavia.
Obviously this is always sort of the.
Puts and takes but where we are in the process of sort of running off.
Maybe those adjustments for those engagements ramping up their stuff.
Yes, yes.
Thanks, I'll take care, Paul So for UK clearly it was a.
No.
Nonrecurring adjustment that.
Had an impact on there.
On their growth and contribution so so that's behind us and so you can expect.
Two to have a margin and revenue picking up in the next few quarters and for UK and same thing for four.
In the Scandinavia.
We have some some.
Operational issue that we need to resolve in Scandinavia, but we had also nonrecurring.
A onetime adjustment.
Are behind Us and expecting that also there we will see some some growth in the contribution.
Perfect. Thank you.
And our next call.
Your next question comes from Richard Tse from National Bank Financial. Please go ahead.
Hello can you hear it.
Yes, we can hear you now.
Just wanted to get a bit of perspective in terms of the operating level business compared to pre pandemic like our utilization rates kind of back to where they've been like trying to get a bit of understanding on that.
Yes, actually our utilization rates are a little bit stronger than they were pre pandemic.
And part of that is that it is strong demand side that we see but also the opportunity we took.
Right at the beginning of the pandemic to take the actions that we felt necessary. So we measure the utilization on a weekly basis.
Obviously, not just with the reports, but in a call that I have with all of the operating leaders. So we're very focused on it.
He used to tell you that it's.
It's actually a little bit above where we were pre pandemic.
Okay, and then obviously you're in pretty constant contact with your accounts and clients what are they saying about it budgets going into 2022, particularly.
How much higher they are lower they are in the kind of areas of priorities, where they want to spend.
Yes, it's a good question, obviously everybody's got slightly different planning periods, but.
In general.
Areas like financial services, we see that.
Budgets continuing to go up and across the board that focuses on both growing their revenue, but in using technology to help do that and some client facing solutions in there.
And their it budgets, but also focused on that operational efficiency, we hear our clients talking about they have.
They're dealing with the current.
The economic.
Pricing pressures and looking to make sure that they stay competitive through operational efficiencies technology. As you know plays on both sides. It plays on the on the upside on the revenue side. The technology also plays on the operational efficiencies. So we see a pretty strong environment for for it.
And I have been talking for a while Richard this this.
Wasn't just pent up demand that we saw coming out of the pandemic. It's something we think is sustainable from a 90%.
Okay, and just one last quick one from me.
On the acquisition side, you talked about opening up the aperture for technology historically.
You guys have been more sort of a value conscious and so when you look at technology type deals no doubt.
The valuations are certainly a bit more robust.
And maybe the pull back here at the beginning of the year.
How do you look at sort of the relative valuation you are kind of willing to pay for these and maybe give us a bit of perspective on that.
Yes, maybe I'll start and then I'll ask Francois to continue just to remind you.
We are looking to make these acquisitions accretive and so we're very conscious of not overpaying, having said that if the value is there we are willing to pay higher multiples. So <unk>.
And where we are to some point conservative in our acquisition, where we know when we're building our return we're building a lot of times with with cost synergies now for <unk> and the IP, we need to be convinced that we will have revenue synergies and so meaning.
Expecting.
A lot more revenue increase coming from from these acquisitions and we have now that channel across the world to do with social are sure. What we're looking at is the IP that.
Can be sold across the world.
Without too much changes and so for sure it will be value there a bit more but we and naturally with the return that we think we can enable we don't have any problems to pay.
To be the right practice.
Okay, great. Thanks, a lot.
Your next question comes from Paul <unk> from RBC capital markets. Please go ahead.
Okay.
Got it thanks, very much and good morning.
Just to touch on.
<unk> growth relative to the market and peers and now maybe this isn't an apples to apples comparison.
But so many of your peers have reported quite strong growth recently I'm just wondering your thoughts on you know what's your view on Cgi's growth.
Relative to those peers and in the market and do you feel like you're matching or exceeding.
Or lagging the growth appears in the markets that you're in.
Yes. Thanks for the question Paul look, we like where we are and our profitable revenue growth.
The current landscape, but also where we are headed towards.
Very very proud of the fact that we've been able to take this growth that we are achieving both through the build and the buy end and drop that to earnings per share accretion double digits here in the first quarter. So we like where we are on where we're getting that growth and and what the outlook.
And you see that outlook based on the strong book to Bill again, this quarter and for the trailing 12 months. So we feel like we're in a very good.
Positioned to continue to accelerate our growth through both the build and the buy in.
And like I said, our clients are rewarding us for that with the new work and and also in the score satisfaction scores are giving us which translates to future new work. So we feel like we're in a very good good place there.
And just looking at the <unk>.
Growth in your employees offshore so India.
You mentioned that.
Reflective of the demand that youre seeing so.
Can you speak to like the that your clients are they increasingly prioritizing offshore versus what they did in the past and what's the underlying driver of that is it is it cost is or is there something else, that's driving and capabilities perhaps.
No I think I think for a lot.
A lot of reasons there is some in some companies that hadn't gone to leveraging offshore and when the pandemic have and everybody went remote both both onshore and offshore it gave them a view that maybe some of that some of that could work and so I think it's just some catch up.
Bye bye some of those players.
I would add at the same time.
Given the pandemic those that were heavily heavily in offshore look to rebalance some of that so but on average if you're if you're rebalancing some of it versus youre going from zero to something.
The move to offshore is outweighing. It. It's also that operational efficiency. There is there are operational efficiencies.
To be gained and leveraging offshore and of course, that's given kind of what the outlook is for costs, we see some of that but.
It's.
It's something that we'll continue to to leverage.
And just to remind you we're going to stay true to our proximity model, even as we leverage global delivery.
Okay. Thank you I'll pipeline, yes.
Yes.
Your next question comes from Stephanie price from CIBC. Please go ahead.
Good morning.
Hi, Stephanie.
I was hoping you could touch just on the percentage of bookings from new clients. It was very strong in the quarter I'm, just curious about what's driving that strength and if you've made any changes to the sales profile.
Yeah. Thanks, Thanks, Stephanie as I mentioned, we have made investments on on the talent side and in both the technology.
<unk> scaling upscaling and also the certifications as I mentioned on Alliance partners. So that gives us another channel.
Two to reach some of the newer clients also we're making investments on the industry expertise and the consulting skills. That's another new Avenue for us to generate those new clients. So those are kind of two of the investments that.
That we've been making and will continue to make that said thats driving some of those those new client logos.
Thanks, and then maybe one for Francois cash flow came in a little bit below street expectations in the quarter and a little bit below prior year as a percentage of revenue.
If you could talk about puts and takes here and how we should be thinking about modeling cash level.
Yeah. So thanks for your question, yes, as I indicated in our last year, we had a very strong cash flow close to $600 million just in the quarter and really was the fact that last year because of Covid and we had a lot less.
Bonuses yearend bonuses to pay last year in the first quarter, so versus 2021, where we had.
Way better year on bonuses and that had an impact on the quarter duration or the cash coming from from the first quarter. We're still I'm still convinced that there will be capable to generate.
At the right level of cash like last year uneven, perhaps a bit better than last year.
So.
It's just a timing on the cash side, but.
Still still pretty and you saw the DSO at 45 days and I think now it's the last five or six quarters.
We are at our target of DSO so pretty.
Pretty comfortable where we are with our cash generation.
That's helpful color. Thank you.
And your next question comes from Howard Leung from Baird. Please go ahead.
Okay. Thank you so much for taking the questions.
I will just like to start with but one of our IP.
George you mentioned that.
One of the ways you are developing IP and.
Then for a while is to work with clients and just wanted to get a sense of what how.
How thats structured and how you share the cost.
Before you get us a long time ago with the big banks in Canada now now as you are evolving and working with more clients outside of Canada Highway app structure evolving as well thanks.
Yeah no. Thanks for the question Howard It really does vary.
The most the most typical.
The opportunity, though that we see is that the client.
Actually provide some of the some of the industry.
Expertise obviously the use case, if you will.
<unk>.
And of course, then accelerates it through some of their quality assurance and and then piloting it what they get from that is first mover status and.
And then of course, we built some of those customization and prioritize it with CGI as investment and as a result, they they get the long term maintenance benefits. So a lot of times, it's really as simple as that and then they may pay us for some of the customization directly.
<unk> and keep them outside of the product and we're seeing that more and more so there might be some.
Some proprietary or specific elements that we decide upfront would not go into the product, but they still get the leverage kind of the platform nature of the product.
That's typically the most the most.
Used.
Opportunity that we that we see others are but we've done the other where we actually jointly put the money in and and then we have a royalty.
Scheme that goes back to the clients based on our new new wins.
And of course CGI in all cases owns the rights to the to the IP, but the but then the client gets the the rights to use it in perpetuity. So that's typically how we how we see those we also see some times its consortium if it's a cost.
Doing business, which is kind of the opposite of first mover or proprietary nature of the business it might be a cost of regulatory cost of doing business and everybody puts money in as equal partners, including CGI that CGI.
<unk> owns and operates the IP for the consortium, so we see kind of multiple models and thats pretty consistent across each.
Each of the geographies that we operate in.
So thats a great explanation, thanks for highlighting all the different structures.
On the.
On the acquisitions, just looking at the revenue contribution from array and CMC and I know, it's just one quarter, but.
The multiples.
They look they look pretty good I guess compared to that.
<unk> acquisition is there anything you'd like to call out there.
Yes.
Maybe it's just exiting specific or is there something about the valuations that youre seeing.
And the <unk> targets.
Yes, well evaluations.
As we know over the last couple of years have.
Gone up.
<unk>.
We still are interested in finding valuations that that we can make accretive to CGI in that first year and so yes. There you do see some of that I would say, though moving forward were seeing valuations starting to favor EBITDA over growth.
I don't know.
Exactly George I think.
We saw a stabilization of the of the evaluation in Georgia.
Georges rights are seeing a bit more.
Concentration.
How much margin or EBIT or EBITDA.
The company can bring in so so.
Yes, we are seeing a stabilization of it and so good opportunities for us.
Okay that makes sense, given I guess, what's been going on market past few weeks exactly.
And then just maybe just one last one for Francois just noticed in the quarter of PP&E spending ticking up.
Is that just kind of a return to normal.
Investing again in physical facilities or could you just put a little more color to that yes.
Yes, yes, I bet, a return to normal you're totally right.
With with people that.
Start to come back to the offices for sure we started to do some some investment in offices and all of that so that's a part of it and some of it is also as we.
No.
Now on the supply chain in some places it's a little bit tougher we can add some EBITDA swing from one quarter to the other with some of the delays. So so both of them. So yes. Some of it is just.
Coming back to a normal investment level and some of it you can have some seasonality just because of.
Some some supply chains.
Issues.
Okay, great. Thanks, Thanks for the color guys I'll turn it back.
Your next question comes from Kevin Kisner Edney from Deutsche Bank. Please go ahead.
Good morning, gentlemen, can you hear me yes.
Yes, Hi, Kevin Awesome perfect good morning.
Question for you is there any sort of way to think about your customer mix in terms of size sort of thinking about the split between enterprise mid market SMB I'm wondering maybe any recent changing focus any opportunities or our ability to take a greater share of spend from the smaller versus larger customers and just if.
If that's the case, how do you think about the structure of your sales and consultant mix and the and the metro market strategy.
Can be aligned with how youre seeing that area and in the customer end markets.
Yes, no. Thanks, Kevin.
Our focus is primarily on enterprise.
Clients.
We feel that the value proposition that we can bring to them the impact that we can have on them, particularly given our global footprint and our end to end services is in fact greatest and so that's really the primary focus in fact, if you look at.
Some of those recent.
M&A transactions, whether it's a re DMC and unica they all have.
That same makeup of <unk>.
Very large enterprise at least one very large enterprise client that generates a lot of their revenue.
It does not mean that we do not take some of our IP and solutions to the to the medium sized business not as much on the on the small side and.
But it really the primary focus is on is on enterprise and those are those accounts that we can really again drive the highest value and I want to make sure you recognize when we're talking about those metro markets.
Metro markets are where those enterprise companies are headquartered it's not it's not looking at.
At Metro markets, where it's only going after a small or medium sized company.
Very good. Thank you. Thank you for that explanation.
Maybe just one perhaps.
Francois I know you don't disclose gross gross margin can you talk about trends there actually I look year over year. The split of manager IP versus consulting at 50, 50, 50, a year ago as well, but what are you seeing on that on sort of a gross margin underlying trends.
And how is that contributing to the add to the EBIT outperformance.
Gross margin is very good.
And improving since.
Since the last last year.
Mike.
George alluded before utilization is very high.
So that contributing to the gross margin so.
<unk> continued to be a pretty pretty good on it in SG&A.
With with.
The concentrate the automation that we're pushing more and more.
And offshoring of some of the SDN activities is also improving year over year and Thats why you see the EBIT improvement.
Thanks, very much I'll pass the line.
Your next question comes from Daniel Chan from TD Securities. Please go ahead.
Hi, good morning.
Good to see that you guys are still able to grow your team and your employee attrition rates are lower than the industry average.
Any any color on why you're able to achieve this is that because you guys are paying or is it based on the locations, where you're operating out of any color would be helpful.
Sure well I think the biggest reason for kind of where we were able to do that is our employee value proposition.
It includes significant stock ownership the 85%.
The investments, we've been making and career development to 33% increase in training development around Reskilling et cetera.
Or really some of the.
The reasons that that.
That we have this including our community involvement.
It's really an attractor there, but it goes one step further we recognize that we're in a.
A unique environment and so we've really focused on a few areas that.
To keep that not just the attrition down but also the attraction up and in what we're doing on the attraction side is really focused on who we recruit where we recruit and how we recruit and I think that's some of where you were talking about who we recruit.
Our concentration on college hires and also trainees that are coming from non traditional it environment. So that's that's about 20% of our hires now we have boot camps that then build the digital skills that they need wherever we recruit proximity and in offshore but also those onshore delivery centers, that's a better place.
To recruit for us and and then a lower turnover rate and we have 39% of our hires came from global delivery and then it's how we recruit.
Mentioned before that a third of our people come through employee referrals.
There are stronger.
Traction to CGI, but the people that refer them have a higher retention rate as well.
So we're really.
We're really making sure that we invest to not just rest on the employee value proposition that we have that continue to build in this current environment.
Thanks for that George as a follow up to that given that 20% of your hires it from non traditional it.
From a relatively junior members College would you say that the ramp up time for these employees might take a little bit longer than typical.
So we do put them through we do put them through boot camps. So there is a little bit of a ramp up and yet. This is what we're doing today and you see that we're still able to deliver the utilization and margins that you see in our results in this quarter and yet.
It's probably another lever as they as they come on board to to increase.
The utilization and margin going forward.
Okay that makes sense first of all you mentioned that you model.
Revenue synergies into your IP acquisitions, whereas typically you typically look to leverage value from cost synergies how about on the market Metro market modeling side, when you're looking at Metro market acquisitions are you also starting to model in revenue synergies given your view to bringing in additional services.
As you make these acquisitions.
Our pressure, especially.
When we're investing in.
Mitchell markets, where we're not necessarily there.
Most of the time, it's because we want to buy relationships also with clients and new clients.
And so and that's why we did in the past in some places.
So.
Sometimes these are smaller firms will have good relationship with <unk>.
Large clients, but not having the full capabilities that CGI has and.
So by by coming in and doing this merger, we are bringing the capabilities.
Two.
To this metro market and with our relationship that we just bought.
We're capable to have some revenue synergies there.
Great. Thank you.
Julian I think we've got time for one more question. Please.
Alright. Thank you. Your next question comes from Jason Kupferberg from Bank of America. Please go ahead.
Okay.
Hey, guys. This is Cathy Chan on for Jason Good morning.
Just quickly slip into your question. So my first one I just wanted to ask you guys. Obviously had pretty strong bookings this quarter I think into the fourth quarter of leg LTM book to Bill greater than one dot. One can you just talk about very briefly like the core drivers of this and the potential sustainability. So like can we expect this trend to continue maybe at least for the next couple of quarters given the strong.
Demand environment that you guys are able.
To capitalize on.
Sure.
Cathy one of the areas I already talked about some of the investments that we're making to drive some of the new clients.
Particularly around the some of the the digital skills in the global alliances as well as the industry skills and some of the consulting growth. So that's that's one of the areas that's driving that is that.
Mix of new clients that are coming in certainly IP as we move to to IP.
<unk> will give us an opportunity as we increase those deal size I talk about some of the investments that we're making there too.
To drive that and then the last is really the operational excellence.
Drive too.
To efficiencies by our clients.
And a lot of that requires automation and offshore mix and what we're doing around our managed services offering is building modernization into the operational excellence platform that said thats driving again longer term larger deals. So we do believe that.
In this environment, we'll be able to sustain a strong book to bill.
Okay Awesome and then one final question from me I know you guys have talked a lot about the consulting investment that you guys are making and during the analyst day, you guys talked about that 15% to 20% <unk> CAGR over the medium term Youre Union call acquisition, obviously bolstered your capabilities there as well and why you don't really break apart bookings are.
Revenues like by consulting per Se can you share any metrics on perhaps a couple book to bill for consulting is trending or any other details there. Thanks guys.
Yes, so we don't break that out now so I don't have that number in front of me, but I can tell you just in general about 10% of our Si and C is now in the sea.
In the consulting side so.
We're looking at.
The basis of what we'd like to continue to grow.
Okay Awesome, thanks, guys take care.
Okay.
Okay. Thanks, everyone for participating as a reminder, a replay of the call will be available either via our website or by dialing one 870 702030 and using the pass code 704 to 500 436.
As well a podcast of this call will be available for download within a few hours follow up questions can be directed to me at one 905 973 <unk> hundred three.
Again, everyone and look forward to speaking soon.
This concludes today's conference call you may now disconnect. Thank you.
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