Q3 2022 CGI Inc Earnings Call
our clients navigate today's market environment. By creating value for our clients, we're able to drive revenue growth and margin expansion for the benefit of all CGI stakeholders.
A revenue growth in the quarter was 11.5% on a constant currency basis and broad base across all geographic and industry segments.
Consistent with our profitable growth strategy, we again deliver a double digit EPS accretion and expanded EVET Margin.
We have good visibility in the client's expected spending plans based on the client interviews we conducted earlier this year with over 1600 executives.
I would like to share some insights from these interviews into the ongoing IT services client demand, along with examples of representative Q3 bookings that illustrate the value of each of CGI's end-to-end services.
relating to managed services, nearly 60% of clients plan for flat to declining up expand over the next year, and part as a response to economic predictions.
Correspondingly, clients plan to increase their reliance on managed services by up to 13% over the next three years, a clear and accelerating opportunity for CGI in the coming quarters.
In Q3, we reward a new managed services engagements which point to a trend where clients are asking CGI to take on and modernize their legacy operations to generate cost savings and then subsequently manage their transformed operations for sustained cost efficiency and operational agility.
For example, the Society for Human Resource Management and CGI entered into a 10-year, $198 million full-manage services partnership. The Society for Human Resource Management and CGI entered into a 10-year, $198 million full-manage services partnership. For example, the Society for Human Resource Management and CGI entered into a 10-year,
CGI will deliver services and solutions to accelerate their digital transformation and enable them to deepen their impact on the future of work with their member base of more than 300,000 HR and business executives around the world. and business executives around the world.
Rio Tinto, a leading global mining and metals company, renewed and expanded their long-term partnership with CGI to help them modernize through the strategic use of cloud as part of their ongoing digital transformation.
CGI will also deploy our proprietary Site Reliability IP, or SR360, which automates the overall management of a hybrid cloud ecosystem.
and the UK Home Office selected CGI to serve as a strategic delivery partner for their Police and Public Protection Technology Portfolio.
Under the five-year engagement, which has an expected client spend of $145 million, CGI will deliver user-centric solutions to help the agency improve public safety through digitization.
Turning to voice of our clients findings related to consulting and systems integration, 86% of clients plan flat to increasing CapEx spend over the next year. In addition, a higher proportion of clients plan to invest in new IT digitization programs of over $200 million over the next three years.
Furthermore, 88% of our clients indicated they were having difficulty hiring IT talent, leading to more of our clients who plan to externalize the majority of their IT services work. The majority of their IT services work.
Given these findings, the man remains strong for CGI's consulting and systems integration services.
This was demonstrated by numerous wins in the quarter. For example, the European Commission chose our German team to support the development of the independent European satellite constellation.
CGI's work will include the creation of an automated concept for operating the satellite constellation and also embedding comprehensive cybersecurity.
Maersk awarded CGI in Denmark a new agreement to deliver a range of strategic IT consulting and agile application development services.
Our consultants will help Marist modernize their digital value chain, reduce costs, and improve time to market for the company's global logistics and transportation services.
and the Business Development Bank of Canada engaged CGI in our outcome-based model for agile development with delivery squads.
CGI's unique replicable model is helping increase capacity and velocity to accelerate the bank's digital-first transformation objectives while reducing their risk.
Now moving to our intellectual property.
Based on ongoing client discussion, we see rising demand for CGI's offerings to help clients optimize their operations, increase their agility, and counteract the impact of rising inflation.
As well as increased interest in engaging CGI on go-to-market partnerships for client-owned proprietary IP.
This includes an interest in monetizing their IP through a divestiture to CGI.
In the quarter, we completed two such partnerships where we will assume ownership for client's IP as part of broader project engagement. This is part of broader project engagement.
First, with IGM Financial in Canada, for mutual fund transfer agency platform. And second, with the Global Bank in France, for a solution to streamline retail banking and to end profit fees.
During Q3, science also awarded new engagements for CGIIP across multiple industries. For example, a fashion retailer based in France selected CGI's Google Cloud hosted point of sale solution within our retail suite IP. This solution will increase their omnichannel performance and experience for consumers.
One of the leading global auto manufacturers extended their relationship with CGI UK team for an expanded implementation of our asset finance solution or AFS 360.
for asset management processing in the UK, France, Italy, and Spain.
International search and rescue organization and the European Space Agency joined as partners in the design and development of CGI's new cloud-based data analytics and augmented reality platform in the 10th 360.
This solution provides a holistic situational overview that helps organizations more efficiently organize and accelerate rescue operations.
And in the U.S. government sector, we were awarded new contracts with three state and local clients in Kentucky, California, and New York, where Advantage are built for local government ERP platform.
And at the federal level, the Department of Justice extended their long-term partnership with CGI and supported their enterprise-wide financial and asset management systems. asset management systems.
based on our built for government momentum and Sunflower IPs.
Globally, the percentage of overall services revenue that is IP based was just over 20% for Q3 as a result of onboarding revenue from new mergers without IP.
Consistent with our recent messaging, we continue to expand our M&A pipeline to include more IP-based services and solutions firms.
Our current active IP based services targets increase by 150% compared to the same time last year.
Through the combination of our managed services, consulting, and system integration, and IP, we are well structured to deliver value for all three stakeholders. This is supported by our CGI Management Foundation, which enables teams around the world to act effectively, efficiently, and consistently as one company.
The Management Foundation incorporates 46 years of proven best practices and frameworks to ensure high quality and secure project delivery, allowing our consultants to maximize time spent on supporting and innovating for our clients.
Most importantly, codifies our values, policies, principles, and performance metrics to govern and facilitate operational excellence everywhere the GI operates.
including when we do M&A. The Management Foundation enables us to rapidly and profitably integrate new mergers. And profitably integrate new mergers.
Looking ahead.
We will continue to pursue our build and buy strategy to continuously strengthen our positioning.
First, we're preparing new university hires to rapidly join client engagements through investments in practical consulting courses and emerging technology boot camps.
In addition, we continue to invest in the ongoing career development of all existing talent as part of our full year plan to increase our training investment by 33%.
Our hiring of Newtown at all experience levels remains at a record high and in line with client needs. Notably, we had increases in trainee and new university graduate hires, 52% and 62% respectively, compared to the same quarter last year.
Secondly, we continue to invest in our managed services capabilities to support clients who increasingly seek cost savings.
In fact, we're adding capacity and our managed services deal solution center to provide additional support for local teams as I respond to an increasing demand for larger strategic client engagement. Your students are a question percentages of mentalism. The function of our tasks is a legal response for your boy and your colleague. Your statistics in law are slightly fancy and ??? obviously we are the first of the og f the driving facts for the district and Eric Mil Presentary Treaty requires to be Board of Maori ??????? iniel and legal information which can be racism in Bramquist area isiner in the may of the 1860s. America is now at the university you
Next, we continue to make investments in our IP-based services and solutions.
adding new solutions to our portfolio and enhancing existing solutions to meet emerging client needs.
Standing RIP for our relationships with external global alliance partners, integrating with their third party IP to bring added value for our clients. ________________________ 97. revolution ????? Gold ________________________________________..
and expanding our portfolio through M&A of client-based IP, as well as firm-spocused on delivering proprietary intellectual property.
Finally, our M&A pipeline is growing in quality and quantity and at a faster pace.
valuations and market activity are creating more favorable buying conditions for mergers with both metro market services firms and for transformational mergers.
In the third quarter, we closed two new mergers, Emanus, adding nearly 3,000 consultants and professionals specializing in data, digital, and business solutions. And Harwell, adding 150 business consultants, serving clients primarily in the financial services sector in France.
We remain well positioned to continue executing on our plan and accelerating growth for our by strategy. And we continue to be on a pace to meet our planned $1 billion investment in M&A this year. The plan is to meet our planned $1 billion investment in M&A this year.
In closing, client demand for all of our end-to-end services remains robust, given the critical role that IT plays in helping clients drive enterprise-level modernization and digitization programs.
We're now team of 88,500 consultants and professionals worldwide with the capacity, footprint, and expertise to help clients accelerate their digital transformation.
We are well structured to continue driving revenue growth and margin expansion for the benefit of all three of CGI's stakeholders.
Thank you for your continued interest and support. Thank you for the questions now. Have it.
Thanks George. Sylvie, let's queue up the questions from the participants. Please. Certainly. Ladies and gentlemen, if you do have any questions, please press star followed by one on your touch-tone phone. You will then hear a three-tone prompt acknowledging a U-request. And if you would like to remove yourself from the question queue, simply press star followed by two. And if you're using a speaker phone, we do ask that you please lift the hands up before pressing any keys.
Please go ahead and press star one now if you have any questions.
And your first question will be from Stan Osmoszak-Bulos at BMO Capital Markets. Please go ahead.
Hi, good morning and congratulations to Prince Juan Steve and the new roles. George, maybe expanding on the macro sides clearly sounds like you're seeing a strong demand environment, but just to be explicitly clear, if you look at the conversation you're having in recent weeks, have there been any changes you call out in terms of customer tone, in terms of sales cycles, decision making time frames, or would you say that across most geography industries, or very consistent with a demand backdrop?
Yeah, you know, thanks for the question, Thanos. The recent discussions I've had with CXOs, of course, there is more discussion about both inflation and where the economy might go, given the tightening of the money supply, but it's not changing their resolve in those discussions around where they wanna go with IT. It may change the way they write their business cases, but it doesn't change.
their overall demand and appetite for IT. And I think that's pretty consistent across all the discussions I've had. And this is true in both Europe and in the, and in the North America, where demand is holding up. Now in Europe right now, of course, we have the summer holidays, but seriously, it appears that IT demand remains strong. We can see that from our pipeline.
Right. And in terms of offshore and the growth you see in there, and I guess more broadly, the growth that was in the industry, would you say that the function of clients, favorite offshore, subriders, then to the past for cost reasons, or do they have more to do with just, that's where the labor available is right now in the site labor market.
You know, I think it's a combination of factors. Certainly cost increasingly plays a role. So I would say that's one of the key drivers, probably the key driver. I think there's also a recognition by a lot of clients that given the remote nature of work over the pandemic, they're more open to it. And so you know, you get the
That's a secondary. And then talent availability is something that everybody's looking for. But I'll tell you, they're also getting more creative around some of the onshore and near shore global delivery centers that CGI has. And so there's still interest in that, and it kind of gives you a combination of the above.
And finally kind of a related point. At the investor day, you talked about the right drop short head counts for the 15% kicker over the next three years. It would seem that you're tracking well for that given the revenue broker scene, but exactly right. Exactly right. Higher percentage in global delivery. Thanks for observation.
Thanks for that.
Thank you.
And your next question will be from Stephanie Price at CIBC. Please go ahead.
Good morning. I was hoping to talk a little bit about the puts and takes and cash flow in the quarter. As a percentage of revenue, it looks like it's lower than we've historically seen.
Yeah, thanks, Stéponie. You're right, and a lot of it is explained by the working cap. So with the growth, acceleration of the growth this year, for sure it's asking for a bit more working cap to be invested. So that's really where it's coming from. And last year we had a big...
or at least a reduction of the DSO one-time impact because the year 2020, we were at the high 40s and beginning of 50s, and we were capable to reduce it to 45, 46 days last year. So that gave us a one-time bump that we don't see it this year because we're maintaining it at the same level. But with the growth that we have, naturally, that's giving some pressure on the working class.
Okay, that's helpful. Thank you. And then George, you mentioned that some clients are looking to divest IP to CGI. I was hoping you could dig a little bit deeper into this comment and talk about how large this opportunity could be.
Yeah, well, it's interesting, Stephanie, we've been having this discussion every year with our clients and looking at the IP that they have locked within their own organizations. And it's pretty sizable. And of course, given the current economic conditions, they're looking at, can they unlock that? And I mentioned the two one with IGM here in Canada and then one in France, but we're building.
tip of the iceberg but more to come on that.
Thank you. And then just finally for me, if I'm telling about Thanos' question, obviously demand has been very strong. If we were to think about this changing in the macro environment, changing even more, if you walk through kind of CGI's business in which pieces could be more resilient, and what opportunities you think are out there in a week of market, there will be your economy.
Yeah, well, you know, it's something obviously that I mentioned in my opening remarks is we've got those end to end services that are structured to allow us to really thrive in multiple different economic conditions. It starts with that proximity go to market model, which enables us to really emphasize the services and solution and highest demand. In fact, solutions and highest demand at this point in time, we're more on the consult.
savings are more important, the IP and the managed services become far more resilient. And the nice thing about that is those tend to be larger deals. They tend to be longer term deals, recurring deals. And we can typically deliver those at higher profit margins because it's higher utilization and lower cost of sales once you get one. And so, as I'm sure you know, we've done very well.
in prior recessionary periods. Now, what I'll tell you, though, is I think it's a little bit different this time. IT is no longer discretionary. And we expect demand will actually respond differently. We're even seeing that in some of the strength in the systems integration and consulting. I don't think in prior periods where systems integration and consulting contract dramatically, I don't think that's what we're going to see. Certainly not what our pipeline shows. It's certainly not what some of the conversation.
I'm wondering if this could have a positive or negative impact on CGI, more talent available for you guys, but also for your clients. So maybe impact not a great read on the economy so if you can provide power on this next. So maybe impact not a great read on the economy so if you can provide power on this next.
Sure, you're right. It's not directly related. A lot of those big tech are really in the consumer space or closer to the consumer space. Then we are having said that, yeah, it gives us two opportunities. One is on the talent side, but the other is really on the partnerships side. Not unlike what we just discussed with...
but Stephanie around clients looking to unlock some of their proprietary IP. I think we'll have a richer environment for partnerships with some of those big tech, which are some of our bigger global lines partners. So I think there's opportunity in there, but certainly it's not directly related our businesses in IT services on the business business side is different.
Great. Thank you.
Thank you. Next question will be from Stephen Lee at the Raven James. Please go ahead.
Thank you. Hey George, you're looking to look fine, but anything you want to call out, I saw the US Fed was a bit lumpy or anything stood out in Europe . Thanks.
Yeah, yeah, no, thanks for that. Yeah, bookings were particularly strong in SNC as as Francois highlighted, and they obviously are the are not the multi year deals that some of those IP and managed services. So that's why you see what you see. So it's still, like you said, very, very strong. Some of those larger deals did push to the right bookings are always lumpy. So that's that's what you.
backlog of three times revenue. So, you know, and then the last thing is just the recent acquisitions and some of the restructuring skew some of the results point in time, but that will work itself out. So we feel pretty confident that the healthy pipeline will lead to bookings in the coming quarter. So nothing big, but that gives you some maybe some of the color commentary you were looking for.
And no quads in Europe , George?
In Europe ? Yeah, I mean, Europe , like I said earlier, we continue to see strength on the demand side in Europe . It's sustaining. You know, it is the holiday season, so you got some cyclical nature in there. But all the recent discussions I just, we're just in Europe for two weeks. And the demand appears to still be very strong there.
Oh, God it. Okay. And then François, congrats on the appointment. The pipeline comments are very helpful. Can you maybe make a similar comment on your IP pipeline? How much is up here over here? Or just give us an update on IP. Thanks.
Thanks. Thank you very much. Thank you. Yeah, so thanks, Steven. Yes, IP did go up on the pipeline side year over year. So it's going well. We have a lot of momentum on that side, with including in the North America and in European segments.
So momentum is there and we saw good in the next 12 months, we're seeing a lot of decision making that will happen on some of the larger deals in IP.
Got it. And then maybe a question for Steve also congrats Steve. The margin comments, the lower utilization in Canada and the US, we've onboarding on new hires. Typically, those utilization catch back up pretty quickly like next quarter.
First of all, thank you. Thank you for your congrats and thank you for the questions. Yeah, look, utilization, obviously, when you're hiring people and it's our strategy right now, we are doing some boot camps, we are training folks, and new hires, obviously, it has an impact on utilization. But as soon as the people are finalizing their training, obviously, they are billable.
Thank you. Next question will be from Brian Essex at Goldman Sachs. Please go ahead.
question. Hi. Good afternoon. Thank you for taking the question. Good morning, rather, Um, yeah, I was wondering if you could maybe circle back on the hiring comments. It looks like you're nice, nice increase in headcount ads. I think you mentioned about a little over 3000 came from acquisition. Could you maybe reconcile that with with some of the utilization commentary that you had? We're I would imagine that you would epidemic. And I PA
Big one layer deeper to help me understand what the mix is and how that how to kind of reconcile with the utilization kind of to help?
Yeah, yeah. Thanks for the question, Brian . As you're right, the interganic hires, they pretty much, in most cases, stay billable with their existing clients. Of course, we have, typically have a higher utilization target within CGI as part of our management foundation. So that's part of the integration process. But independent of that, yes, our hiring, as I mentioned, are up significantly, particularly in our training.
and the university grads, they do go through those onboarding training classes, et cetera, over a thousand of those hires joining us as part of the net new hires. And so those individuals are really driving some of that training as well as much higher hiring in our global glibrary centers, particularly in India.
They also go through about a nine to 12 week boot camp to make sure that they're best suited to hit the ground running on our clients. So it really is a situation where there's a little bit of a lag, but as we discuss with Stephen, it comes back pretty quickly.
Got it very, very helpful. And really interesting commentary that you had on integration and consulting, demand, particularly in a more challenging master environment. What are you seeing inside of that business, maybe if you can split out, integration versus consulting relative to perhaps the 0809 timeframe when we saw, across the industry, system integration work kind of fell off.
precipitously, are you seeing maybe just a newfound appreciation of the scalability of cloud and digital exposure within enterprise environments? Or is there a different mix of work than you've had historically in that business?
Yeah, well, you know, it's interesting. There's a couple things that maybe are different, you know, given the fact that supply is very tight. I mentioned 88% of our clients are having difficulty hiring the IT talent. A lot of the systems integration work we're doing right now are really filling work that our clients would have preferred to do to themselves in some instances.
which is adding to the work that they would normally externalize. And so I can see that absolutely continuing, especially in a downturn where IT talent continues to be high in demand. And to your point, yes, I think there is a shift. And this is the discussion I've been having. In fact, I had a discussion of one CXO in Europe recently where the discussion went like this. We're preparing.
or a recessionary environment, and yet we're also preparing to spend more in IT than we ever have before. That's, I think that's a shift. I don't think you heard that no eight or nine.
Yeah, I agree. I agree. Very helpful commentary. So really appreciate it. Yep.
Any further questions, Mr. Sacks?
That's it for me. Thank you. Thank you. Our next question will be from Daniel Chen at TD Securities. Please go ahead.
Hi, good morning. Just wondering if you can provide any color on the pricing environment, will there be able to also increase cost or seeing? We are able to also increase cost or seeing.
Yeah, yeah. We're definitely seeing some opportunities there. I mean, if you think of the each of our services, the IP is obviously less sensitive to the wage inflation, but there are opportunities for us to have some price elasticity given the value proposition that IP has. Managed services has the indexation built in, but our team is doing a very good job. But our team is doing a very good job.
of counteracting the impact of wage inflation on really getting that value-based pricing for new engagements. And in fact, we're pretty disciplined in that management foundation of if we're gonna raise the wages in lockstep, and of course we're doing some of that particularly for our top talent around the world.
then that has to come with a corresponding rate increase. We can do that through project rotations, we can do that through new project, new project starts, et cetera. But yeah, we're having pretty good experience there. And I think that you see that clearly in the our ability. Despite some of the other headlands that we talked about temporarily.
that we're able to still expand our margins.
Thanks, that's very helpful. I'm joining the call late, so I don't know if someone else asked this already, but just wondering if you can give us an update on whether you're still on track for that billion dollars of acquisitions. Thank you. Yeah. Yeah. I did mention that we're still on that. We're still on a base.
Thank you.
Yep. Thank you. Next question will be from Robert Young at Kenneco Ingenuity. Please go ahead.
I, uh, good morning. Um, the first question for me would be on, you know, whether there could be any kind of a pause in the demand, you describe maybe some clients are shifting the way that they might spend on IT budgets, even if IT budgets are consistent or growing. Is there potential and?
And you said in the prepare comments that the pipeline of man service deals had grown 32% on year of your basis. And so that's on these longation or a delay. Is there any pause happening there? Is people shift more toward managed services?
Yeah, it's a good question. I don't see it right now, but you know, there will be, we do believe there will be a shift and a bigger opportunity in the managed services. Why we've been investing there over the last 12 months, so we didn't have kind of that gap and you're seeing some of those nice winds in the quarter and we have that rich pipeline.
It'll be a matter of us converting those, but I don't see that right now, but you know, that's something we'll stay on top of.
And then just to better understand what you mean exactly by managed services, I know that a lot of
CGI's business is very, very long contract terms on outsourcing the human.
So when you think about what exactly is managed services in your context? Is it multi-year or is it 10-year? Maybe just sort of lay out the landscape of what the arc of managed services to outsourcing exactly is and where that 32% growth is occurring.
Yeah, so I mentioned this and I understand you had to join a little bit later, but I did mention some of this in my remarks that the managed services for us are typically five to 10 year deals. But they're a bit different where they're asking us to not just take on the legacy, but they're asking us to take on the legacy. Modernize it, so actually do the development of the modernization and then
continue to manage those modernized operations. And that's typically a longer term contract, which is why typically if you're gonna do all that, it's gonna be more of a tenure contract, which is what we did with the society of human resources and we're doing again with Rio Tinto. So those are examples of what's going on.
in that space. And that's what we mean by that. And the difference between just taking on a portion of the infrastructure and running that for a client, that's not what we're talking about here. We're really talking about an integrated both run and change and build in some cases.
Okay, that's great color. And then maybe for last question, just around...
the comments earlier around the hiring. I think I got the impression that you are continuing to hire aggressively, but maybe shifting a little more towards new grader or younger or less experienced hiring in a tighter market, is that correct? And then the comment around that utilization, lag correcting in the short term, I'm trying to understand why you think that that might not continue over a longer term in a tight wage inflation market with.
Yeah, well, you know, one of the, you're absolutely right. We are shifting some of that hiring to the entry level and the global delivery centers. And that's to ensure, you know, we have the question on raising the rates, but you also want to be price competitive and provide the savings to the clients. And so one of the ways we make sure that our labor structure is situated for that is to bring in those entry level and to bring that global delivery folks in.
That should continue, but when you go from nothing to something that has a bigger effect, once that's now in the system and that hiring is there, you'll see it moderate. Ultimately, when the hiring stops, it would be a bit of a tailwind, but I think it's just going to be more moderated over time. Great. Thank you very much.
Check.
Thank you. Next question will be from Paul Trevor at RBC Capital. Please go ahead.
Oh, thanks very much, you've been working. Just a follow up question on your comments in regards to pricing. You mentioned indexation from managed services contracts. Does that include CPI or their other indexes that you use? Because obviously CPI has been quite significantly increased this year. And how quickly does pricing adjust? Is it annual or is it quarterly?
Yeah, it's typically CPI or some derivative of that. And I don't know, Prince Wars, Steve, you have some. And really linked to IT increases, right? So it's not overall. How good? Yeah. It's not overall CPI, but really CPI in the IT industry. So that's really specific on that side. And as for the increases by, again, it depends. When we have time and material.
It's a lot faster sometimes than the outsourcing or managed services where most of the time managed services will be at the once a year at the annual anniversary of the contract. Where we'll have that discussion or that increase related to CPA.
And did pricing have a significant impact on revenue growth this quarter? Have you broken it out or done the analysis there? And then looking forward over the next year, do you anticipate a significant proportion of organic growth to be driven from pricing? You know, the majority is coming from quantity, if I can say, because again, and you see it in the headcount, right? We did increase our headcount by 10,500.
you know, the bulk of these, of this set count increase is available, available head counts. So naturally, quantity is the bulk of the increases versus versus if I can say the price increases. The increase is versus if I can say the price increases.
That's helpful. Just one last one. In regards to Germany, I know your business is quite small, but the German manufacturing vertical in particular, are you seeing any sort of change in their thinking around IT investments just given that the macro headwinds that they may be facing in terms of energy costs?
Yeah, I think, you know, specific to Germany, we are having some of those discussions is where our end to end services play in, where maybe they're looking at a little bit less on the systems integration and consulting side, but maybe a more a little bit more on the managed services side. So it's still very specific to that environment. I think that's the 1 area maybe.
We're seeing a little more of those, or having a little more of those discussions. Thank you.
a little more of those or having a little more of those discussions. Thank you.
Thank you. Next question will be from Sutham Sukhamur at Steveholt. Please go ahead.
and a congrats for the French West, the Evo and the appointments. The first question I had was on your vertical market. So, you know, this quarter we saw a strength across the board. I was wondering if there's anything specific here to call out to respect some of the trends you're seeing with some of the industry groups.
Yeah, thanks for the question. The strongest industries for us right now are absolutely financial services, strong double-dividing growth in the financial services. And then probably right behind that is actually health is small but very healthy, if I could say that, but it's a little smaller for us. But MRD was also very strong. So kind of the
The larger ones are the stronger ones for us, which is good news. And government areas of spending are right aligned with the strength of CGI, and so we're following that around the world. And like Francois pointed out, strong book to Bill on the government side, which should build well for continued growth there. And that's without big bookings in our EOS federal business, which we'll come back so.
We're feeling pretty good about the biggest industries we're in. Okay, great. Thank you. And on your margin, I'll look on it, obviously, your margin performance, you know, the testament to your cost management here. And it sounds like you're still looking for for their margin expansion ahead. You know, aside from leveraging your current pricing power, you want some of the other levers that you have available to drive margin expansion longer term.
Are there any other low-lying fruits that you can address? Well, yeah, I mean one area I would point out is opportunities to increase margins in those new geographic structure. One of the reasons we made the changes to Scandinavia and Central Europe and Northwest and Central East Europe was to bring those margins more in line and so we have a little bit more work to do.
there, but you're starting to see some of the improvements. I'm pleased with what the team's doing there. And then on the longer term, you know, in addition to the growth that we've been talking about is really the mixer revenues. As we move more to the IP, it's why I pointed out that we're building a pipeline of M&A on IP. And then also those managed services, because it comes at a lower cost of sales and a higher utilization, we can drive very, very healthy margins.
in those larger managed services deals. You know, the rates are different, but the net margin is higher than, you know, higher rates than SNC, but quicker turn, and so it's just a different business. Now, obviously, it all comes together and the end-to-end services, but that's why we're pretty bullish on continuing to expand the margins over time.
Good we could read then spea my questions at past lines.
Thank you. Next question will be from Jason Kufenberg at Bank of America. Please go ahead.
Hello and good morning. This is Tyler DuPont on for Jason. Thanks for taking the call. Two questions. One, when looking at book to bill by segment, it looks like it's a bit of a mixed bag with some regions significantly above others. When thinking about the next few quarters going ahead, would it be accurate to assume more of a normalized LTM number closer to one, or should we think there'll be more of a stratification in the short term or any insight there would be helpful?
Yeah, I think the bookings are always, thanks for the question, bookings are always lumpy. So I don't think there's any key reasons for stratification point in time. As I mentioned, we see a pretty strong demand environment continuing in both North America and in Europe across these segments. We do have some recent acquisitions that skew the numbers a bit, like I said.
geographies of verticals that you're trying to target?
Yeah, well, I mean, I think you're definitely the valuations are coming down and quite frankly, there's a bit less competition given that the cost of capital is increasing. And so, you know, importantly for us, the deal size is up about 16% versus the same time last year. So we are seeing bigger opportunities that are more in our.
sites and so you know stay tuned on that as we continue to grow that pipeline and have it material less. Does it change the actual way we look at those? No, not really, but naturally like Georgia saying prices are making more sense than perhaps a year ago. So that's why you know it's it's a time is starting to be pretty perfect for for in the environment for acquisitions and so.
George on the Manage Services side explanation that you gave. Could we assume looking at what the other peers are doing? Is some of the professional services revenue is lumped up with the Manage Services, the WCG and Codstone?
Yeah, we talked about this in one of the earlier quarters. Yes, it is in fact, we're seeing those larger managed services absorb some of what would have been systems integration. Of course, that's great for us because now your system integration is coming at that same utilization rate and lower cost of sales that you get in the bigger managed services. There was always some of that, but I think we're seeing more and more of it.
question. It's just more of an industry related question and given the scale, I think it bodes well here. With respect to the potential hiring, we obviously hear that across all the corporates that we look at and talk to. Everyone is seeing on the technology services side specifically an increase in hiring and staffing and whatnot. And obviously not a slow down in the bookings. But with the potential recession that obviously the industry in general is facing or the global economy.
Could there be a risk of excess hiring upfront?
Is all the hiring that you're doing truly project related, or is it building up bench strength? And could that potentially?
result in some trimming down in say a year's time? And it might be a harder question to answer given where we are right now, but just kind of from an industry standpoint, I wanted to ask that question. Oh, I think it's a relevant question. You may realize from my discussion on the management foundation, we're very rigorous in the way we manage the hiring. Part of that is in our proximity model. And we're pretty clear, in fact.
Francois, now Steve and I review the utilization on a weekly basis with my team. And so we're not hiring for bench. Now we have some of that in our global delivery centers, but again, we're pretty tight on that. So obviously, we want to be able to meet the client demand, but...
probably compared to some of our peers, we're pretty tighter on that. Oh, that's helpful and good color. So, that's all for me. Thank you so much and have a nice day, guys. Thank you.
peers were pretty tighter on that. Oh, that's helpful and good color. So no, that's all for me. Thank you so much and have a nice day guys. Thank you. Thank you.
And at this time, Mr. Linder, we have no further questions. Please proceed.
Okay, thank you. Thanks everyone for participating. As a reminder, a replay of this call will be available either via our website or by dialing 1-877-674-7070 and using the passcode 482-468. 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 1905-973-8363. Thanks again everyone and look forward to speaking soon.
Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Thank you.
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