Q2 2022 CGI Inc Earnings Call

Good morning, ladies and gentlemen, welcome to the specie ice second quarter fiscal 2022 conference call.

I'd now like to turn the meeting over to Mr. Kevin Linda SVP Finance and Treasury and head of Investor Relations. Please go ahead Mr. Linda.

Thank you Julien good morning, with me to discuss <unk> second 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 Dot Com and recorded live at nine a M. Eastern time on Wednesday April 27, two.

22 supplemental.

Slides as well as the press release, we issued earlier. This morning are available for download along with our Q2 MD&A financial statements and accompanying notes all of which have been filed with 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.

The complete Safe Harbor statement is available in both our MD&A and press release as well as on CGI Dot Com, we recommend our investors 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 used in our reporting all of the dollar figures expressed on this call are Canadian unless otherwise noted I will now turn it over to Francois to review, our Q2 financials, and then George will comment on our business and market.

Francois.

Thank you, Kevin and good morning, everyone.

I am pleased to share with you the results of our second quarter of fiscal 2022.

In Q2, we delivered double digit constant currency revenue growth as demand for our services continues to accelerate and bookings remained strong.

We also generated 14% EPS accretion despite a strong Canadian dollar, causing headwinds in our reporting currency mainly by the euro.

We recorded revenue of <unk> $3 billion up 10% year over year on a constant currency basis, driven by strong growth in the following segments Asia Pacific up 20% U S commercial and state government up 17, 6% Western and southern Europe up $16 <unk>.

7%.

11.

11, 6% U S federal up nine 7% in central and Eastern Europe up eight 5% in fact eight of our nine segments delivered positive constant currency growth in the quarter.

Head count increase year over year by more than 7000 for a total of 84000 consultants and professionals across the globe.

Total bookings were $3 3 billion, representing a book to bill of 101% for the quarter and 109% on a trailing 12 month basis compared to 113% for the prior year.

On a trailing 12 months basis seven of our eight proximate. These segments have a book to bill above, 100% led by Finland, Poland and Baltics at 153%.

In UK and Australia at 125%.

IP bookings were very strong in the quarter up 89% year over year on a constant currency basis.

I would like to highlight certain segments, where significant IP bookings in the quarter.

U S federal with IP bookings of approximately $400 million, leveraging our momentum ERP and cats are global case management solution.

Canada with IP bookings over $130 million driven by solutions, primarily in the financial services sector.

In U S commercial and central government with IP bookings of about 120 $150 million driven by our advantage state and local government ERP solution.

Our global backlog remains strong at $23 $1 billion, representing one nine times revenue.

The vast majority of which is comprised of long term managed services and digital transformation engagements.

With respect to profitability adjusted EBIT in Q2 was $523 $6 million, while EBIT margins increased to 16% up 20 basis points compared to Q2 last year.

The year over year increase was largely due to a more profitable revenue mix, particularly within U S federal as well as additional tax credits in western and Southern Europe .

This was in part offset by reorganization will cost to improve our Scandinavian operations.

We delivered strong EBIT margins in the following segments Asia Pacific at 29, 7%, Canada at 21, 9% UK and Australia at 16, 7%.

U S federal at 16, 2% and western and Southern Europe at 15, 4%.

Our effective tax rate in Q2 was 25, 4% compared to 25, 7% 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 $272 million and diluted earnings per share were $1 53.

Representing an increase of 14, 2% year over year.

This improvement was mainly due to revenue growth and EBIT margin improvements as outlined earlier.

Excluding integration costs net earnings were $274 million, reflecting a margin of 11, 4%.

And diluted earnings per share were $1 53.

And the accretion of 13, 3% when compared to $1 35.

In the same quarter last year.

In the quarter cash provided by operating activities was $473 million compared to $573 million in the prior year, which benefited from reduced variable compensation payments related to the impact of the pandemic.

As a percentage of revenue our cash generation continued to be strong at 14, 5%.

DSO was 42 days compared to 39 days last year, well within our target.

For the last 12 months cash provided by operating activities was $1 $9 billion or 15, 4% of revenue.

This represented $7 70 in.

In cash per share.

In the quarter, we deployed $125 million and our build and buy profitable growth strategy, mainly in our IP and for the closing of the Unicorn acquisition at technology consultancy and systems integrator headquarter in Australia.

In Q2, we invested $400 million in buying back approximately 4 million shares at a weighted average price of $100 80.

As of the end of March we had the authorization to buyback up to an additional $14 8 million shares under our current and CIB program.

In addition on March 11, we announced entering into an agreement for the acquisition of all the shares of Humana's.

France based company specializing in data digital and business solutions.

This merger will further our presence and positioning across western and southern Europe .

We expect to acquire approximately 70% of shares through a block purchase by the end of Q3.

Following this we intend to launch a mandatory tender offer to acquire the remaining shares of humana's subs.

Subject to legal and regulatory conditions being met our plan is to implement a squeeze out transaction to acquire all remaining shares not already tendered as part of the offer by the end of Q4.

In Q2, we delivered a return on invested capital of 15, 7% compared to 12, 8% in a year ago period, representing a return to pre pandemic levels.

Looking ahead, our focus continues to be on delivering optimal returns to our shareholders through investing in our business pursuing accretive acquisitions and buying back our stock.

The cornerstone of CGI as build and buy profitable growth strategy is our strong balance sheet position.

At the end of March our net debt to capitalization ratio was 28, 7% and we have $2 6 billion of cash readily available with access to more if needed.

Before turning the call over to George I would like to highlight a few adjustments we made effective in Q3 to strengthen our operation and as a result created two new reporting segments.

Warmer Scandinavia in central and Eastern Europe segments are now Scandinavia in Central Europe comprised of Germany, Sweden and Norway.

And north West and Central East Europe comprise of the Netherlands, Belgium, Denmark, Czech Republic and Slovakia.

Starting next quarter, we will begin reporting on this new structure and we will provide restated historical data at that time.

Now I'll turn the call over to George George.

Thank you Francois and good morning, everyone.

I want to begin my remarks today by acknowledging the tragic events happening in Ukraine, and the resulting humanitarian crisis.

CGI does not have any client proximity offices in Ukraine, Russia, or Belarus, and there is no direct business impact to CGI. However, we do have employees, who are from Ukraine or have family there.

In partnership with the International Committee of the Red Cross CGI and our employees donated a total of $1 million to provide emergency shelter food and clean water to the region.

Additionally, we supported employee volunteers with grassroots activities to aid refugees.

And as a leading global employer, we are helping refugees find jobs with CGI through proactive recruitment initiatives in northern Western and southern Europe as well as the U S and here in Canada.

This unwavering commitment to always do our part to help those in need and build a better world reflects the CGI culture.

Turning now to <unk> performance I am pleased with our team's disciplined execution of our build and buy profitable growth strategy during the second quarter and throughout the first half of the fiscal year.

The halfway mark of the fiscal year, we continued to deliver on our profitable growth plan first half EPS accretion was 13, 2%. This is in line with our commitment to deliver double digit earnings accretion and with a higher proportion driven by revenue growth in the first half revenue was up $263 million over.

The same time last year, ending the second quarter with broad based double digit constant currency revenue growth.

From an end to end services perspective, Q2 constant currency revenue growth was up 13% and systems integration and consulting and 7% in managed services.

Globally the percentage of overall services revenue that was IP base remained steady at 21% in the quarter, even as we onboard revenue from new mergers without IP.

As Francois mentioned IP bookings were up significantly in the quarter, reaching a book to bill of nearly 125%.

From an industry perspective every sector grew on a year over year constant currency basis. This marks the third consecutive quarter of growth in all industries. In Q2, we delivered growth of 16, 1% in health care led by Western and Southern Europe with 56% growth.

10, 4% in manufacturing retail and consumer services, driven by Finland, Poland, and the Baltics with 20% growth.

95% in financial services, driven by Canada, with nearly 20% growth.

And nine 5% in government and eight 4% and communications energy and utilities, both led by double digit growth within U S commercial and state government.

As Francois outlined we recently made adjustments to some European operating segments and leadership.

This new construct will allow us to better support clients given the strong trade relationships and complementary industrial bases of the new <unk> CGI geographic segments.

Going forward. This change has plan to drive revenue growth and expanding profitability, particularly in the Scandinavian countries.

As predicted over the past year, we see a trend towards the longer term consulting and systems integration engagements as clients continue to shift their digital strategies from one of Accessorizing customer touch points to addressing holistic complex enterprise digitization.

Let me highlight a few examples of wins in the quarter that are reflective of this broader shift <unk>.

<unk>, Quebec selected CGI as one of their preferred business consulting providers over.

Over the course of this new seven year agreement CGI will offer strategic advisory change management and continuous process improvement services to help them deploy their strategy and energy transition plan in Eastern North America.

The Dutch Ministry of Economic Affairs, and climate policy or did CGI position on a new contract vehicle, which will enable our consultants to deliver strategic consulting application development and cloud services projects.

The four year vehicle has a total potential value of approximately 250 million euros.

And CAH Francis Hospital purchasing center chose CGI to help support the digital transformation of their services across hospitals central and local governments and health payers over the next four years.

We continue to see some of these longer term services systems integration engagements combined with managed services, where we take on legacy operations modernize the tools and applications and subsequently manage the clients transformed environment.

For example in the UK, our communications sector leader selected CGI for 15 year $287 million contract.

Our work will support end to end digital management of their it and platform as a service environments with the aim to help them optimize operations and accelerate their residential fiber to the premise business.

And in the U S. Southern company, a large southeast energy and utility company expanded their partnership with CGI through a seven year agreement, where CGI will help manage a subset of their mission critical enterprise systems our.

Our work will span application development data analytics and digital services to help the utility innovate and scale in support of their ongoing digital transformation.

CGI is broad mix of end to end services balanced geographic footprint and portfolio of clients across industries creates a resilient foundation for us to be a partner of choice to our clients, particularly as they adapt to evolving market dynamics.

Our investments in building by are made with this resilience in mind, so we continuously strengthen our positioning.

In the first half of the year as planned CGI has committed over $600 million.

To advance our buy strategy. These investments will deepen our presence expand our client relationships and augment our capabilities in the domestic markets of the United States, Spain, Australia, and pending regulatory approvals for <unk> in France.

We look forward to welcoming <unk> employees and clients to CGI later this year and.

And just this morning, we announced the acquisition of Harwell, a management consulting firm operating primarily in the French market and serving financial services clients.

This merger will increase CGI business consulting capabilities with 150 employees working across retail banking corporate and investment banking capital markets insurance and other specialized banking related services, such as energy trading and asset management.

As macroeconomic pressures continue to expand clients are responding by increasing their investments in digitization and part to reduce costs in other areas of their operations <unk>.

<unk> proprietary research quantify is this when we ask clients about their budget plans for the next year nearly 80% of respondents indicated they plan to sustain or increase their it budgets key factor driving these increases as clients plans to modernize their application portfolios over the next two years clients.

Plan to double the percentage of their applications that are modernized.

These findings are part of the preliminary insights we have identified based on more than 1600 discussions with new and existing clients more than half of whom are C level business and it executives.

These discussions were initiated during the second quarter as part of our strategic planning and were concluded just a few weeks ago.

The early insights underscore the tight alignment between <unk> investment priorities and those of our clients supporting our positive business outlook for the growth opportunities ahead.

In particular, three preliminary findings we heard from client executives will continue to drive end to end digital transformation.

First meeting customer and citizen expectations for better digital experiences remains of Paramount importance that continues to require greater investment and holistic digital transformation.

The investment CGI is making including an IP and managed services are strategically focused on partnering with clients to address full scale digital transformation.

In the second quarter, we won several new engagements in line with addressing more holistic transformation for clients across industries, notably in healthcare banking government and retail and consumer services.

Each of these wins leverage our IP as a managed service and are centered on helping clients optimize their operations increase their agility and customer centricity and reduce their costs.

The second preliminary finding we heard from client executives is it enabling collaboration emerge as a top priority as clients extend their digitization initiatives across their value chain.

Our investment in talent the industry and technical expertise clients need is at the heart of helping clients realize deeper and broader collaboration as part of their digital transformation.

In the quarter, we continued to prioritize employee training as part of our full year plan to increase our investment by 33%.

Reskilling and Upskilling acceleration programs have been launched across all operating segments with a focus on both consulting and technology skills.

Employee satisfaction with our training and development investment reached a record high in the second quarter. In fact employee satisfaction continues to rise on every dimension, we measure on both a quarter over quarter and year over year basis as.

As such our voluntary attrition rate continues to be below the it services industry average and we added 2000 net new employees on a sequential quarter basis.

This investment in talent allows us to help clients identify the cultural process and enabling technology changes required to remove silos improve alignment between business and <unk> and.

And in that business agility.

It also enables us to bring the expertise to help build and connect their desire digital environments. For example in the second quarter of <unk> 27, Nordics payments, a joint initiative by Danske Bank, Handelsbanken, Nordea or financial group, SCB and Swedbank selected CGI to deliver.

Highly secure and available office environment in support of their aimed to build the world's first real time cross border payment system in multiple currencies.

This sector requires the highest attention to compliance and security our physician relationships and reputation gave 27 the confidence to partner with CGI.

The third preliminary finding from our recent client executive conversations is that the use of newer technologies is maturing.

Reflecting the shift towards supporting more complex digitization goals.

For example relating to cloud technology clients indicates a plan to increase investment in areas such as secure cloud by design and multi cloud environment management.

This has resulted in increased demand not only for CGI as cloud migration services, but also for our services to deliver secure multi cloud optimization automation and risk mitigation.

Our investments to support this technology evolution extends to working closer with our external Global Alliance partners. This includes increasing employee certifications and partner platforms. We previously announced our plan to add over 15000 employee certifications over the next three years already this year, we have completed more than five.

One such certifications. This investment is resulting in a growing percentage of new bookings and incorporate platforms from global Alliance partners.

In closing, let me reemphasize, our strong positioning and outlook for the second half of the year. We are now a team of 84000 consultants and professionals worldwide with the capacity footprint and expertise to help clients drive forward and accelerate their digital transformations.

With client demand for more holistic digital transformation, we see increasing opportunities for our full range of end to end services. This includes generating larger recurring revenue engagements, often incorporating IP to drive growth higher utilization and expanding profitability for CGI shareholders.

And with the tailwind of two recently announced acquisitions, we are well positioned to continue executing on our plan and accelerating growth through our buy strategy. We remain on track to meet our planned $1 billion investment this year for mergers with Metro market services firms <unk> with firms focused on delivering.

Proprietary intellectual property.

Thank you for your continued interest and support let's go to the questions now Kevin.

Thank you George Julie if you could please share with the participants to logistics for the questions. Please.

Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.

And your first question comes from Stephanie price from CIBC. Please go ahead.

Okay.

Good morning.

Bookings were very strong in the quarter can you talk a little bit more into what you're seeing the strongest growth and what's driving the acceleration here.

Yes, so the.

We're pleased with the double digit constant currency growth of course, but.

It's broad based across all industries and geographies, but.

Still dominated from.

From a services perspective by cloud modernization data analytics cyber security increasing for sure.

Automation and then again strong bookings in the in the CGI IP. So it's really pretty broad based it's broad based not just in those services, but also across the various industries I mentioned, the the growth we had across industries, but.

But certainly our banking.

Is one of the areas that we see a lot of cloud modernization.

Going on.

But really all the industries are growing.

Okay, Great and then with the acquisition of Humana's Harwell announced this morning can you talk a little bit about the suites of the French markets that are attracted to CGI, both organically and from an M&A perspective here.

Yes, well.

Obviously, it's a very strong market there in the European Union, taking a leadership role in many different ways.

There is a nice cultural affiliation.

Affiliation with <unk>.

With Quebec, and which kind of gives us an opportunity maybe to drive closer relationships.

But again very strong brands very large enterprise customers and and a talent base, that's really focused on innovation and in broad based it's not just based in Paris, our business and actually with Humana.

Across 17 different regions across the country. So it's a very it's a.

Very impressive market.

Great and then just finally from me can you touch on contract pricing and your ability to push through those inflationary increases to clients.

Changed at all.

It really hasnt changes.

Talked about this on the call. The last couple of quarters as inflation has has reared its head we.

Do have indexation in lots of our longer term contracts.

Which is certainly.

Ah.

Enabler for us, but we're also able in a lot of that systems integration work. There is a faster turnover, obviously and some of that work and so we're finding opportunities to raise our rates.

And have that pricing power, but we also Stephanie can move move people within and across projects into different labor categories, and Thats certainly an opportunity for US and then we are growing our global delivery, we have an opportunity maybe a little bit differently than others, because we've always had.

A broad global delivery approach that we can grow our offshore a little bit faster and that enables us to to handle some of the inflationary pressures as well.

Great. Thank you very much.

Your next question comes from panels, Ms Coppola from BMO capital markets. Please go ahead.

Hi, good morning, a characteristic expanding on that last point how has.

The reopening dynamic shift.

Shifted client preference for local versus offshore. It has I mean this is just a question of okay.

Accessing talent wherever you can't at this point given the.

The war for talent or has there been any discernible change in terms of client preferences.

Yes.

<unk> seen a couple of changes and we talked about this thanos.

Couple of times in a couple of different ways, but I think those those clients that may be have been a little more narrow in their in their sourcing strategies, both internally and therefore externally I think are more open to looking at some broader global delivery.

Environments, and so we're actually working with several.

Clients in multiple.

The geographies that are looking to expand and maybe even.

Co locate with some of the CGI global delivery of networks, whether that haven't been.

Leveraging that as a as an asset Conversely, you've got others.

At both in both in Europe , as well as in North America that are looking at some of the geopolitical.

Risks, particularly associated with what's going on with Ukraine and looking at maybe.

De risking some of what they do from a global basis, and moving a little bit more closer to their headquarters operations and all of those cases.

<unk>.

Not necessarily just proximity theres some proximity associated with that but there's also some opportunity for again some of those global delivery centers of excellence and actually building some of those.

Just to put a finer point on that we are working with some enterprise clients that.

It actually had.

Business, either with partners or themselves.

And the region most impacted by what's going on and certainly we are helping move some of that work as well so.

It's a bit of a shifting environment. If you will not one size fits all but I.

I would say in general opportunities for CGI to growth.

Great.

On the topic of FERC in the growth.

You don't disclose organic growth, but by my math it.

It seems that committee has been in the high single digit range. So just wondering if you could.

Confirm whether that was the case and just given all the tailwind that you called out whether that's the kind of growth that might be sustainable near term.

Yes, Thanks, Thanos Youre right, we don't disclose that we're pleased with the double digit constant currency growth across the board of course.

Certainly that includes accelerating organic growth.

And in a tailwind of a future inorganic growth so.

Certainly.

Strong, we're pleased and have strong organic growth and see positive prospects for both organic growth and inorganic growth in the second half of the year.

Yes.

Great. Thanks, I'll pass the line.

Your next question comes from Paul <unk> from RBC capital markets. Please go ahead.

Thanks, very much and good morning, just in regards to the new training investments that you're making can you quantify the magnitude of those investments and then also you mentioned churn being lower.

Our turnover employee turnover being lower than industry averages and have you seen a.

On an absolute basis increase.

Even though it's still better than the industry and how has the it training investments helped.

Maybe slow the rate of that increase.

Yes.

For the questions. The investments are really around two areas for for the talent, it's really in the training.

Whether it's boot camps, bringing on.

Maybe an apprentice or and in turn and new college hires and immediately putting them through highly educated of course, but immediately putting them through some skills training particular to the digital transformations of our clients are going through and then immediately getting them below.

Billable and agile squads and so that's that's really where we're we've been doing a lot of focused a lot of that 33% increase in the training. We're also have increased our.

Our investments in enhanced tooling.

And that is also yielding results again, allowing higher utilization rotating our talent to the highest demand projects and then allowing for as I mentioned with Stephanie, allowing us to increase the rates appropriately so.

Closing, a virtuous cycle with those with those investments.

Yes.

If you compare it to previous quarters. The turnover has definitely ticked up now remember the turnover went too.

A five year low during the middle of the pandemic. So it's almost anything compared to that is going to go up so we're comparing mostly to 2019 and were.

We're right at the rates that we were.

Kicked up a little bit higher than that pre pandemic, but again it's.

Its allowing for the skills development.

Experiences that that our members are looking for and the growth that they're looking for that allows us to keep that down.

Okay. That's helpful.

You look.

Look at the longer term margin profile for CGI over the next several years I mean, theres a number of moving parts and in the past you talked about that there is a possibility for margins to expand with the mix of IP and managed services do you see any change to that in the medium term with this.

New.

The war for talent here.

Now I really I really don't I think there will be a.

Bit of a reset that's natural as we go back to traveling.

And I would call that out the last couple of quarters, you've seen a little bit of that now, but but overall I think both intermediate term and longer term, we continue to see opportunities to expand our margins on a on a quarter over quarter or year over year basis through exactly the elements you talked about as far as the.

The business mix and the growing base of our business. So we don't see any any.

Any concerns with that.

And then just lastly, still on the line of inflation and higher cost.

Have you seen any changes from your clients in terms of an increased willingness to deploy it services to help manage higher cost or Conversely are they do they see IP.

As any cost in and of itself and what they look to try to push out projects. How do you want to see that too.

Two factors trending there.

Yes.

I think it.

It's very clearly.

They see it as both a driver of their revenue growth and also as an opportunity to reduce their costs and a perfect example of the reducing costs is what we see in manufacturing where supply chain optimization is really the focus there turning to technology to find efficiencies.

<unk> and costs, where you go to something like healthcare and life Sciences, they're turning to technology for faster.

Bringing new products faster to market you look at look at banking, they're turning to technology, obviously too.

To modernize and.

And increase their environment for their customers. So it's.

It is as I mentioned Thats why I called out what we saw in the most recent voice of our clients that clients are planning to increase their budgets in the face of.

The rising costs themselves so.

It really is it's an opportunity to continue to grow.

Okay. Thank you I'll pass along.

Your next question comes from Brian Essex from Goldman Sachs. Please go ahead.

Hi, Good morning, and thank you for taking the question I was wondering if I could maybe I guess.

First start with a follow on with the macro question, we'd like to know like what.

What your conversations with customers.

<unk> like and maybe how they've changed is there any concern about potential macro weakness maybe towards the end of the year.

How customers think about engaging in projects, particularly those that may be more consulting Si focus, which made me more discretionary in nature or is there is there are no concerns at all at this point.

No. It's a great question the conversations is certainly.

Do include concerns about the macro environment and certainly that's a discussion I personally have with.

With a number of the Ceos, having said that.

Part of it is is how they get closer with the partners like like CGI for all the reasons, we just talked about technology playing an.

An important critical role I would say that more than anything they're concerned about making sure that they have the.

The talent.

In the time that they that they need it as part of the discussions that we're certainly having with them, which is which is a good discussion to be having rather than the other discussion.

And it's interesting I called out three areas that we saw in the voice of the client.

The holistic digitization driving the larger bigger.

Bigger projects the tech maturation again more complex deals deeper investments, but I also called out the collaboration and that requires both the industry and the technology skills I plead plays a role in that but I would say, it's a pretty strong environment right now for for Getty.

The consulting assistance that clients need I called out several of the new wins that we had and even the duration of those so it's not.

<unk> been talking about.

That it.

Is becoming less and less of a discretionary spend.

Seeing that in my hearing that in my conversations and I think youre seeing that some in the market.

That's great to hear and maybe just as a follow up just by vertical I wanted to dig into a couple it looks like particularly.

Impressive strength in telco, a little bit of weakness in health anything in those verticals. So many other ones I think make a lot of sense, but those in particular outsized moves.

Anything in particular to call out there that we should know.

No I think in health remember health includes some of the government health for us and that just moves at a slightly different pace, but certainly there is strength.

And a lot of ways a lot of activity going on in government health right now, but there.

They are struggling to kind of keep up if you will and so that's maybe why you see a see.

A little bit of a blip there because CGI does have a significant presence in the in the government health as well as the as.

As the provider payer and life Sciences health, So that's might be what you see there.

Silicon medications I think there is theres a lot going on there and I think it's more of a reflection of our deep relationships with some of the telcos.

Any anything in particular to call on cycles, I mean, it is kind of like a <unk>.

Consulting related spend or is this more on maybe the service provider side, how can we kind of contextualize the strengths there.

I think it's five <unk>, but I think its broader modernization across the landscape.

And allowing them to be to be more competitive and grow their grow their businesses. So it's more on that on that front.

Got it really helpful. Thank you very much.

And your next question comes from Richard <unk> from National Bank. Please go ahead.

Yes. Thank you.

Wondering if you could maybe elaborate on how you came about sort of creating these new reporting segments. Because I think you sort of talked about changing them just sort of.

Help accelerate growth going forward.

Yes, yes, well as you are.

As you're I'm sure aware since we report by segment certainly Scandinavia was was our weakest segment and when we looked at how best to <unk>.

Configure going forward, we wanted to to pair.

Some of our strength in both from an industry perspective from a from a talent perspective and from a leadership perspective.

Our that up to two to accelerate the growth side I should I should add that we we certainly have taken care of some of the <unk>.

<unk> that were causing some of the.

The margin issues and Francois called out we did expense some some restructuring in advance of this change because we wanted this change and really be focused on the future growth.

So we fixed some of the structural issues and now it's really about.

Surrounding them with with like minded.

Individuals.

Our business can be shared.

And therefore success can be can be achieved so that's really the the idea around that so it's partly.

Partly trade relationships partly.

<unk> business and partly leadership involved.

Okay. That's helpful. Thanks, Yes, when it comes to the acquisitions, and obviously youre doing well on all of your verticals and geographies. So as you look to new opportunities or are you thinking about just sort of fortifying the verticals and the solution sets that you are currently in or would you consider sort of opening up new lanes, whether it's <unk>.

Our geographic or solution sets.

Yes.

It's both.

Certainly we're pleased with the first half pace, if you will and and.

And if I look at kind of the next five most active in our pipeline there.

All of these larger sizes average number of employees is is probably right at or greater than <unk>.

So these larger kind of midsized deals are in the sweet spot.

But having said that yes, we would be willing to open our aperture to to look at some other adjacencies.

Of course, that's going to be with the <unk>.

Focus to fully integrate it as part of the culture of CGI, It's what makes us so successful in taking these M&A transactions and integrating them directly into the business and making a catalyst for organic growth.

So.

A little bit a little bit of both but I can say that the active most active pipeline as probably looks looks more of fortifying what we what we have today.

Okay, and just I guess the last one related to acquisitions is.

Your sort of view in terms of the financial metrics, whether it's our hurdle rates or payback has that changed at all.

I think the valuations obviously on the public markets have compressed meaningfully I'm not sure. What it is like in terms of the private markets, but would that sort of change.

Any way you look at these names from a financial basis, no. We really haven't had that.

We don't have I haven't had to change that you correctly point out the valuations, but maybe Francois you can you can jump on here.

Bye.

Richard you're right, we didn't change any hurdles.

But you are right that the evaluations did go down so.

So we are a lot more active in the pipeline at least and we're seeing a lot of them in.

Youre, saying evaluation are making a lot more sense. So that's why we're comfortable still too to think that we will do our target of $1 billion.

Of acquisition this year.

And.

It's going well.

Okay, great. Thank you.

And there are no further question at this time I will turn the call back over to the presenters for closing remarks.

Okay. Thank you Julian thanks, everyone for participating as a reminder, a replay of the call will be available either via our website or by dialing 18007702030 and using the pass code <unk> hundred 90, 86313, 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 <unk> III. Thanks, again, everyone and look forward to speaking soon thank you.

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

[music].

Yes.

Yes.

Okay.

[music].

The House has ended this call goodbye.

A question.