Q3 2023 CGI Inc Earnings Call

Good morning, ladies and gentlemen, and welcome to Cgi's third quarter fiscal 2022 conference calls and I would like to turn the meeting over to Mr. Kevin Linda S. V. P of Investor Relations. Please go ahead Sir.

Kevin Linder: Thank you, Sylvie. Good morning. With me to discuss CGI's Q3 fiscal 2023 results are George Schindler, our President and CEO, and Steve Perron, Executive Vice President and CFO. This call is being broadcast on cgi.com and recorded live at 9:00 AM Eastern Time on Wednesday, 26 July 2023. Supplemental slides, as well as a press release we issued earlier this morning, are available for download along with our Q3 MD&A, financial statements, and accompanying notes, all of which have been filed with both SEDAR+ and EDGAR. Please note that some statements made on the call may be forward-looking. Actual events or results may differ materially from those expressed or implied. 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.

Thank you Sylvia and good morning, with me to discuss Cgi's third quarter fiscal 2023 results are George Schindler, our president and CEO and Steve <unk> Executive Vice President and CFO . This call is being broadcast on CGI Com and recorded live at 90 at Eastern time on wind.

Date July 26, 2023 supplemental slides as well as the press release, we issued earlier. This morning are available for download along with our Q3 MD&A financial statements and accompanying notes all of which have been filed with both SEDAR plus and Edgar.

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.

Kevin Linder: The 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 IFRS. 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'll now turn it over to Steve to review our Q3 financials, and then George will comment on our business and market outlook. Steve.

Arbor statement is available in both our MD&A and press release as well as on CGI Dotcom, we recommend our investors read it in its entirety.

We are reporting our financial results in accordance with international financial reporting standards or ire for us 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 Steve to review, our Q3 financials, and then George will comment on our business and market outlook Steve.

Steve Perron: Thank you, Kevin. Good morning, everyone. I'm pleased to share with you the results of our Q3 of fiscal 2023. In Q3, we delivered CAD 3.62 billion of revenue, up 11.2% year over year, or up 6.3% when excluding the impact of foreign exchange. The following segment generated double-digit constant currency growth. UK and Australia up 15%, Asia Pacific up 13%, and Western and Southern Europe up 10%. From an industry perspective, we had growth across all sectors, with particular strength in government, our largest vertical market, generating constant currency growth of 11%. IP as a percentage of total revenue was 21% in the quarter, up CAD 85 million year over year. We continue to see strong demand for our business solutions with overall IP portfolio growth of 12.4% year over year, or 7.7% in constant currency.

Thank you, Kevin and good morning, everyone.

I'm pleased to share with you the results of our third quarter of fiscal 2023.

In Q3, we delivered $3 $62 billion of revenue.

11, 2% year over year or up six 3% when excluding the impact of foreign exchange.

The following segment generated double digit constant currency growth.

UK and Australia up 15%.

Asia Pacific up, 13% and the western and southern Europe up 10%.

From an industry perspective, we had growth across all sectors with particular strength in government, our largest vertical market generating constant currency growth of 11%.

IP as a percentage of total revenue was 21% in the quarter up $85 million year over year.

We continue to see strong demand for our business solutions with overall IP portfolio growth of 12, 4% year over year or seven 7% in constant currency.

Steve Perron: Year over year, IP revenue growth in constant currency was strong within the following industries: government up 19%, communications and utilities up 14%, and health up 9%. The number of consultants and professionals increased year over year by 3,000, totaling now 91,500 worldwide. We booked CAD 4.4 billion of contract wins in the quarter, up nearly 30% year over year. As a result, our Q3 book-to-bill ratio was a robust 121%, led by US Federal with a book-to-bill ratio of 206%, Canada at 121%, Scandinavia and Central Europe at 117%, and Western and Southern Europe at 116%. Importantly, Managed Services made up 57% of total bookings, up significantly from 48% in the prior year. On a trailing 12 months basis, our book-to-bill ratio reached 113%, with all of our proximity geographic segments having a book-to-bill above 100% on the same basis.

Year over year IP revenue growth in constant currency was strong within the following industries.

Government up 19%.

Kevin vacations, and utilities up 14% and <unk> up 9%.

The number of consultants and professional was increased year over year by 3000 totaling now 91500 worldwide.

We booked $4 $4 billion up contract contract wins in the quarter up nearly 30% year over year.

As a result, our Q3 book to Bill ratio was a robust 121% led by U S. Federal with a book to bill ratio of 206%.

Canada at 121%, Scandinavia, and central Europe at 117% and Western and southern Europe at 116%.

Importantly, <unk>.

<unk> services made up 57% of total bookings up significantly from 48% in the prior year.

On a trailing 12 months basis, our book to Bill ratio reached 113% with all of our proximity geographic segments, adding a book to bill above 100% on the same basis.

Steve Perron: Overall, our global backlog reached a record of CAD 25.6 billion, representing 1.8 times revenue. Turning to profitability, earnings before income taxes were CAD 559 million, up 14.3% year over year for a margin of 15.4%. Adjusted EBIT in Q3 was CAD 585 million, up 12.5% year over year. This represents a margin of 16.1%, up 10 basis points year over year. This increase was driven by the combination of profitable revenue growth and operational discipline, despite less available days to build due to the timing of statutory holidays in Europe. We delivered strong margin in the following segments: Asia Pacific at 31.1%, Canada at 22.3%, US Federal at 17.7%, US Commercial and State Government at 17.3%. Our effective tax rate in Q3 was 25.8%, compared to 25.5% in the prior year. When excluding acquisition-related and integration costs, our effective tax rate was 25.6%, compared to 25.3% in the prior year.

Overall, our global backlog reached a record of $25 $6 billion, representing 1.8 times revenue.

Turning to profitability.

Earnings before income taxes were $559 million up 14, 3% year over year for a margin of 15, 4%.

Just did EBIT in Q3 was $585 million up 12, 5% year over year.

This represents a margin of 16, 1% up 10 basis points year over year.

This increase was driven by the combination of profitable revenue growth and operational discipline. Despite less available days to build due to the timing of statutory holiday easier route.

We delivered strong margin in the following segments.

Asia Pacific at 31.1% Okay.

Canada at 22, 3%.

U S federal at 17.7%.

U S commercial and state government at 17, 3%.

Our effective tax rate in Q3 was 25, 8% compared to 25, 5% in the prior year.

When excluding acquisition related and integration costs, our effective tax rate was 25, 6% compared to 25, 3% in the prior year.

Steve Perron: We continue to expect our tax rate for future quarters to be in the range of 24.5% to 26.5%. Net earnings improved to CAD 415 million, up 13.9% when compared to Q3 last year, for a margin of 11.5%. Diluted EPS was CAD 1.75, representing an increase of 15.9% year over year. When excluding acquisition-related and integration costs associated with prior year acquisitions, net earnings improved to CAD 426 million, up 14.7% when compared to Q3 last year, for a margin of 11.7%. On the same basis, diluted EPS was CAD 1.80, an accretion of 16.9% when compared to CAD 1.54 in Q3 last year. This improvement was mainly driven by the execution of our build and buy profitable growth strategy and, to a lesser extent, the impact of favorable foreign exchange rates. In the quarter, cash provided by operating activities was CAD 409 million, compared to CAD 419 million in the prior year.

We continue to expect our tax rate for future quarters to be in the range of $24 five to 26, 5%.

Net earnings improved to $415 million up 13, 9% when compared to Q3 last year for a margin of 11, 5%.

Diluted EPS was $1 75, representing.

Representing an increase of 15, 9% year over year.

When excluding acquisition related and integration costs associated with prior year acquisitions net.

Net earnings improved to $426 million up 14, 7% when compared to Q3 last year for a margin of 11, 7%.

On the same basis diluted EPS was $1 80, and that creation of 16, 9% when compared to $1.54 in Q3 last year.

This improvement was mainly driven by the execution of our build and buy profitable growth strategy and to a lesser extent the impact of favorable foreign exchange rates.

In the quarter.

Cash provided by operating activities was $409 million compared to $419 million in the prior year.

Steve Perron: DSO was 44 days in the quarter, in line with our target of 45 days. For the last 12 months, cash provided by operating activities improved to CAD 2 billion, representing 14.1% of revenue. In Q3, we invested CAD 102 million into our business and CAD 53 million to buy back our stock. As of the end of June, as per our approved NCIB program. We have the opportunity to buy back up to an additional 15 million shares. In the quarter, we continued to deliver a strong return on invested capital at 15.7%, demonstrating our efficient deployment of capital. Looking ahead, our focus continues to be on delivering value to our shareholders by investing in our business, pursuing accretive acquisitions, and repurchasing our stock and/or paying down our debt.

DSO was 44 days in the quarter in line with our target of 45 days.

For the last 12 months cash provided by operating activities improved to $2 billion, representing 14.1% of revenue.

In Q3.

We invested $102 million into our business and $53 million to buyback our stock.

As of the end of June Asper, our approved and CIB program, we have the opportunity to buy back up to an additional 15 million shares.

In the quarter, we continue to deliver a strong return on invested capital at 15, 7% demonstrating our efficient deployment of capital.

Looking ahead, our focus continues to be on delivering value to our shareholders by investing in our business.

Pursuing accretive acquisitions.

And repurchasing our stock and are paying down our debt.

Steve Perron: CGI has a strong balance sheet, with a net debt to capitalization ratio of 21.7% at the end of June, as well as CAD 3 billion of cash readily available and access to more if needed. While M&A activity in the IT services industry has slowed significantly due to a gap in valuation expectation versus current market realities, CGI believes that our disciplined approach will result in higher quality mergers for the benefit of our stakeholders. Moving forward, CGI has the strength and capital resources to continue to execute on both our build and buy profitable growth strategy. Now, I will turn the call to George to further discuss insights and outlook for our business and markets. George?

CGI has a strong balance sheet with a net debt to capitalization ratio of 21, 7% at the end of June .

As well as $3 billion of cash readily available and access to more if needed.

While M&A activity in the it services industry has slowed significantly due to a gap in valuation expectation versus current market realities.

Gee I believes that our disciplined approach will result in higher quality mergers for the benefit of our stakeholders.

Moving forward CGI is this strength and capital resources to continue to execute on both our build and buy profitable growth strategy now.

Now I will turn the call to George to further discuss insights and outlook for our business and markets.

George.

George Schindler: Thank you, Steve. Good morning, everyone. Our team again delivered quarterly results in line with our full-year plan. We achieved constant currency revenue growth of 6.3%, which is at or ahead of the markets in which we operate. Double-digit EPS accretion of 16.9% on an adjusted basis. Sustained EBIT margin expansion up 10 basis points year over year on an adjusted basis. Bookings of CAD 4.4 billion, up nearly CAD 1 billion compared to the same quarter last year. Continued high engagement of CGI consultants and professionals, resulting in lower employee attrition levels on both a quarter-over-quarter and year-over-year basis. Continued high client satisfaction levels, as rated and signed by client executives, demonstrating the deep confidence they have in our people and capabilities. The strong quarterly bookings were driven by client awards for Managed Services, with a book-to-bill ratio of 120%, and IP engagements, with a book-to-bill of 120%.

Thank you, Steve and good morning, everyone.

Our team again delivered quarterly results in line with our full year plan, we achieved constant currency revenue growth of six 3%, which is at or ahead of the markets in which we operate.

Double digit EPS accretion of 16, 9% on Ags adjusted basis sustained EBIT margin expansion up 10 basis points year over year on an adjusted basis bookings of $4 4 billion.

Up nearly a $1 billion compared to the same quarter last year.

Continued high engagement of CGI consultants and professionals, resulting in lower employee attrition levels on both a quarter over quarter and year over year basis.

And continued high client satisfaction levels as rated and signed by client executives demonstrating the deep confidence they have in our people and capabilities.

The strong quarterly bookings were driven by client awards or managed services with a book to bill ratio of 120% and IP engagements with a book to bill of 120%.

George Schindler: These larger engagements increasingly also incorporate consulting and systems integration services as part of their scope. This combination of CGI's end-to-end services reflects the ongoing rise in client demand for broader, more holistic partnerships to help clients realize cost savings and advance their digitization objectives. In both Managed Services and IP, the highest proportion of bookings were awarded within our two largest industry segments, government and financial services. For example, in Managed Services, the US Environmental Protection Agency awarded CGI Federal a multiyear Managed Services contract valued at CAD 522 million. We will partner to reimagine the agency's IT portfolio at the application, platform, and enterprise levels in support of their mission to protect human health and the environment. This award renewed CGI's incumbent work and included an increase of enterprise development scope of over 45%.

These larger engagements increasingly also incorporate consulting and systems integration services as part of their scope.

This combination of Cgi's end to end services reflects the ongoing rise in client demand for broader more holistic partnerships.

Clients realize cost savings and advance their digitization objectives.

In both managed services and IP the highest proportion of bookings were awarded within our two largest industry segments government and financial services.

For example in managed services the U S. Environmental Protection agency awarded CGI Federal multi year managed services contract valued at $522 million.

We will partner to re imagine the agency's portfolio at the application platform and enterprise levels in support of their mission.

To protect human health and the environment.

This award renewed CJS incumbent work and included an increase of enterprise development scope of over 45%.

George Schindler: Bankgirot, Sweden's payments clearinghouse, extended their long-term partnership with CGI through a CAD 62 million agreement to enhance system efficiency, uphold stringent security, and unlock opportunities to drive future innovation across the payments sector. Examples of IP bookings include, a government ministry in Germany extended its partnership with CGI on the implementation of CGI's eGov360 solution for electronic file and data management. This will enable the ministry to increase agility and drive seamless integration and interoperability. US Department of Veterans Affairs increased funding to support the implementation of CGI's Momentum IP in support of the agency's financial management business transformation program. In the financial services sector, we signed 28 agreements for our recently transformed cloud-native Credit Studio solution with clients in the US, Canada, UK, and Australia. Our solution incorporates AI and helps clients address the continued tightening of credit markets.

And thank you Euro sweeteners payments clearinghouse extended their long term partnership with CGI through $62 million agreement to enhance system efficiency uphold stringent security and unlock opportunities to drive future innovation across the payment sector.

And examples of IP bookings include a government Ministry in Germany extended its partnership with CGI on the implementation of Cgi's <unk> 360 solution for electronic file and data management.

This will enable the ministry to increase agility, and dry seamless integration and interoperability.

U S Department of veteran affairs increased funding to support the implementation of Cgi's momentum IP and support of the agency's financial management business transformation program.

And in the financial services sector, we signed 28 agreements for our recently transformed cloud native credit studio solution with clients in the U S, Canada, UK and Australia.

Our solution incorporates AI and helps clients address the continued tightening of credit markets.

George Schindler: Two-thirds of these awards were for net new business. A high proportion of Managed Services and IP in our overall bookings led to a greater size and duration of project awards this quarter. In fact, 40% of total bookings in Q3 were comprised of deals over CAD 50 million. This is compared to 13% in the same quarter last year. Over the past several quarters, we anticipated these client buying shifts, given our day-to-day engagement with clients and through our annual Voice of Our Clients proprietary research. This research serves as an important global antenna to help identify the top priorities for clients now and over the coming years. Last quarter, I shared some preliminary findings from our discussions with over 1,750 executives in 21 industry sectors around the world.

Two thirds of these awards were for net new business.

A high proportion of managed services and IP and our overall bookings led to a greater size and duration of project Awards. This quarter in fact, 40% of total bookings in Q3 were comprised of deals over $50 million. This is compared to 13% in the same quarter last year.

Over the past several quarters, we anticipated these client buying shifts given our day to day engagement with clients and through our annual voice of our clients proprietary research.

This research serves as an important global antenna to help identify the top priorities for clients now and over the coming years.

Last quarter I shared some preliminary findings from our discussions with over 1700 50 executives in 'twenty, one industry sectors around the world.

George Schindler: Our research indicates that clients are now heavily relying on managed services and IP to implement, optimize, and manage their transformation programs in order to achieve the expected ROI. In our research, two in five executives cited legacy systems among the key barriers to successful digitization. This demonstrates the need to ensure that solution strategies address the complexity of modernizing current systems and integrating with new systems and processes. Our managed services offerings focus on providing client savings, which are then coupled with reinvestment to drive modernization, industrialization, and organizational agility. Our IP, including IP-enabled business processes, provides clients a digital accelerator with lower capital costs. IP provides clients with the added benefit of having security, data protection, innovation, and interoperability with third-party platforms as part of the solution.

Our research indicates our clients are now heavily relying on managed services and IP to implement optimize and manage their transformation programs in order to achieve the expected return on investment.

And our research two and five executives cited legacy systems, among the key barriers to successful digitization.

Demonstrates the need to ensure that solution strategies address the complexity of modernizing current systems and integrating with new systems and processes.

Our managed services offerings focused on providing client savings, which are then coupled with reinvestment to drive modernization industrialization and organizational agility.

And our IP, including IP enabled business processes provides clients with digital accelerator with lower capital costs.

<unk> provides clients with the added benefit of having security data protection innovation and interoperability with third party platforms as part of the solution.

George Schindler: Our analysis also underscores that C-suite executives are applying a sharper focus in their decision-making to determine the highest return investments. This is shaping most of their key program priorities. At CGI, we call this ROI-led digital transformation and is at the core of our partnership approach with clients. Many of the executives we spoke with cited the challenging economic environment as the key driver for sharpening their focus, is requiring them to prioritize cost savings while simultaneously advancing digitization to improve competitiveness, resilience, and customer experience. This dual digital agenda continues to generate demand for all of CGI's end-to-end services, as clients now require consulting partners that can design connected strategies to bridge vision and real-world implementation to deliver expected results. We are proactively working with our clients to translate their business objectives into tangible engagements with clear and measurable business cases.

Our analysis also underscores that C suite executives are applying a sharper focus and their decision making to determine the highest return investments.

This is shaping most of their key program priorities.

We call this ROI lead digital transformation in it.

Is that the core of our partnership approach with clients.

Many of the executives we spoke last cited the challenging economic environment is the key driver for sharpening their focus is requiring them to prioritize cost savings, while simultaneously advancing digitization to improve competitiveness resilience and customer experience.

This dual digital agenda continues to generate demand for all of <unk> and then services as clients now require consulting partners that can design connected strategies.

<unk> vision and real world implementation to deliver expected results.

We are proactively working with our clients to translate their business objectives, and the tangible engagements with clear and measurable business cases, such as for a leading natural gas services company. We are deploying AI solutions that will unlock $150 million in value through predictive analytics and optimization.

George Schindler: Such as for a leading natural gas services company, we are deploying AI solutions that will unlock CAD 150 million in value through predictive analytics and optimization. We are implementing intelligent evidence-based solutions to help a healthcare provider better predict and lower the cost of care while reducing processing time by 90%. We're developing a business vision and subsequent roadmap for achieving the future state digital environment, including data monetization for a clinical services company. We are helping transform the small business loan processes for a multinational bank, reducing cycle time from 17 days to 2 days. Now turning to our buy strategy. In Q3, CGI successfully completed the integration of all prior year acquisitions according to plan. As Steve just mentioned, current M&A activity has slowed across the entire IT services industry. This, however, does not change the CGI strategy.

We are implementing intelligent evidenced based solutions to help the health care provider better predict and lower the cost of care, while reducing processing time by 90%.

We are developing a business vision and subsequent roadmap for achieving the future state digital environment, including data monetization for our clinical services company and.

And we are helping transform the small business loan processes for a multinational bank reducing cycle time from 17 days to two days.

Now turning to our buy strategy in Q3, CGI successfully completed the integration of all prior year acquisitions. According to plan.

As Steve just mentioned current M&A activity has slowed across the entire it services industry. This however does not change the CGI strategy, our appetite and capacity for M&A remains high and we continue to have a very active program in terms of sourcing interactive dialogues and due diligence assessments.

George Schindler: Our appetite and capacity for M&A remains high, and we continue to have a very active program in terms of sourcing, interactive dialogues, and due diligence assessments. Closing accretive M&A transaction takes rigor and discipline, and we remain committed to making sure that we acquire the right companies for the right price at the right time, all three without exception. Looking ahead to the coming quarters, we believe the ongoing macro uncertainty in the political and economic environments will intensify client efforts to prioritize ROI-led digitization. This, coupled with the demand for broader, more holistic transformation programs, will serve to put some pressure on client decision cycles as some executives trade off speed of action for ROI-based business cases. For CGI, these buying patterns continue to favor our Managed Services and IP offerings. We continue to be actively engaged in later-stage opportunity pursuits with multiple prospective clients in every geography.

<unk> accretive M&A transaction takes rigor and discipline.

And we remain committed to making sure that we acquire the right companies at the right price.

At the right time.

Three without exception.

Looking ahead to the coming quarters, we believe the ongoing macro uncertainty in the political and economic environment will intensify client efforts to prioritize.

Led digitization.

This coupled with the demand for broader more holistic transformation programs will start to put some pressure on client decision cycles as some executives tradeoff speed of action.

<unk> base business cases for <unk>.

These buying patterns continue to favor our managed services and IP offerings. We continue to be actively engaged in later stage opportunity pursuits with multiple prospective clients in every geography.

George Schindler: In each case, we work collaboratively with client executives to build solutions that combine and tailor the right mix of CGI services to address the organization's business objectives. The evolution of our business mix to include more Managed Services and IP will serve as an enabler to continue to drive CGI margin expansion and improve EPS, even as sales cycles and bookings-to-revenue conversion will naturally expand. As we incorporate higher proportions of global delivery into these services, our client value proposition increases, as does CGI's profitability. From an industry perspective, we see client demand in the near term as follows. In asset-intensive industries such as manufacturing, retail, and energy and utilities, client demand for efficiency and agility are paramount. We see organizations seeking to reduce the cost to operate in order to fund new investments.

In each case, we work collaboratively with client executives to build solutions that combine and tailor the right mix of CGI services to address the organization's business objectives.

The evolution of our business mix to include more managed services and IP will serve as an enabler to continue to drive CGI margin expansion and improved EPS, even as sales cycles and bookings to revenue conversion will naturally expand.

And as we incorporate higher proportions of global delivery into these services our client value proposition increases as does CGI is profitability.

From an industry perspective, we see client demand in the near term as follows.

In asset intensive industries, such as manufacturing retail and energy and utilities client demand for efficiency and agility are paramount.

We see organizations seeking to reduce the cost to operate in order to fund new investments.

George Schindler: As such, our Managed Services pipeline for these industry sectors over the next year is up by more than 33%, and the IP pipeline is up 30%. In banking, many clients are reassessing their priorities and the supporting IT investments, given economic conditions and continuing central bank interest rate hikes. This is resulting in stable but slower demand for SI&C and increasing demand for Managed Services. On a sequential quarter basis, pipeline in Managed Services is up nearly 20%. In government, healthcare, and insurance, clients are accelerating their digital transformation agendas. For these industries, CGI's pipeline remains well-balanced across consulting, system integration, and Managed Services, and is up 20% year over year.

As such our managed services pipeline for these industry sectors over the next year is up by more than 33%. The IP pipeline is up 30%.

And banking many clients are reassessing their priorities and the supporting 19 investments given economic conditions and continuing central bank interest rate hikes. This.

This is resulting in stable, but slower demand for <unk> and <unk>.

Increasing demand for managed services.

On a sequential quarter basis pipeline in managed services is up.

Nearly 20%.

And in government health care and insurance clients are accelerating their digital transformation agenda for these industries Cgi's pipeline remains well balanced across consulting system integration and managed services is up 20% year over year.

George Schindler: Naturally, across all industries, we are increasingly engaged in discussions about the future use of generative AI, how to prepare data strategies to be ready for AI implementations, and how it integrates into clients' digital transformation agendas. We have extensive experience in delivering intelligent automation and AI technologies as part of our services and solutions over the past several years, notably in our IP. Responsible use of AI is part of CGI's management foundation, ensuring the ethical and disciplined use of AI by all CGI professionals and in line with evolving AI regulations. This serves as our foundation to engage in broad-based AI discussions with our clients.

Naturally across all industries, we are increasingly engaged in discussions about the future use of generative AI how to prepare data strategy is to be ready for AI implementations and how it integrates into clients' digital transformation agenda.

We have extensive experience in delivering intelligent automation and AI technologies as part of our services and solutions over the past several years, notably in our IP and.

Possible use of AI as part of <unk> management Foundation, ensuring the ethical and disciplined use of AI by all CGI professionals and in line with evolving regulations.

This serves as our foundation to engage in broad based AI discussions with our clients.

George Schindler: In fact, CGI teams are actively working with clients to use AI in a wide range of projects, a few of which include improving effectiveness and efficiency of city services, detecting and preventing water pollution, predicting cracks in steel manufacturing, reviewing CT scans to detect brain hemorrhages, and using earth observation data to locate, quantify, and track seagrass meadows. As AI progresses in new ways, including generative AI, we will innovate with our clients while balancing the responsible use of this evolving technology. Earlier this week, we announced our plan to allocate CAD 1 billion of spend over the next three years to expand our AI services and solutions. We work in partnership with clients who are seeking to responsibly move from experimentation to full-scale implementation and accelerate time to value of their investments by leveraging new AI technologies.

In fact, CGI teams are actively working with clients to use AI in a wide range of projects a few of which include improving effectiveness and efficiency of city services.

<unk> and preventing water pollution, predicting cracks and steel manufacturing.

<unk> <unk> scans to detect brain hemorrhages, and using Earth observation data to locate quantify and track Seagrass meadows.

As <unk> progresses in new ways, including generative.

We will innovate with our clients while balancing the responsible use of this evolving technology.

Earlier this week, we announced our plan to allocate $1 billion of spend over the next three years to expand our AI services and solutions.

In partnership with clients, who are seeking to responsibly move from experimentation to full scale implementation and accelerate time to value of their investments by leveraging new AI technologies.

George Schindler: CGI's AI investments through both build and buy will be prioritized across four dimensions. End-to-end offerings expansion, including an AI business consulting methodology, IP platforms, and pre-built solutions. Talent, capacity, and capability, which will include the training of our existing consultants, hiring of new expertise, and formation of communities of interest across all of CGI to accelerate AI usage. Go-to-market strategies to increase awareness of CGI's AI offerings through the publication of thought leadership and establishing new partnership channels through global alliances. Operational and delivery excellence to drive efficiencies and benefits for clients and CGI through expanded AI use.

Did you guys add investments through both build and buy will be prioritized across four dimensions.

End to end offerings expansion, including an AI business consulting methodology, IP platforms and prebuilt solutions.

Talent capacity and capability, which will include the training of our existing consultants hiring of new expertise and formation of communities of interest across all CGI to accelerate AI usage.

Go to market strategies to increase awareness of <unk> AI offerings through the publication of thought leadership and establishing new partnership channels global alliances.

Operational and delivery excellence to drive efficiencies and benefits our clients and CGI through expanded AI use.

George Schindler: In closing, CGI's broad mix of end-to-end services, balanced geographic footprint, and portfolio of clients across industries creates a resilient foundation for us to sustain our positioning as a partner of choice for our clients, an employer of choice for our consultants and professionals, and an investment of choice for our shareholders. Our investments in build and buy are made with this resilience in mind and to continuously strengthen our competitive differentiation. Thank you for your interest and support. Let's go to the questions now, Kevin.

In closing <unk> broad mix of end to end services balanced geographic footprint and portfolio of clients across industries creates a resilient foundation for us to sustain our positioning as a partner of choice for our clients and employer of choice for our consultants and professionals and investment of choice.

For our shareholders.

Our investments and build and buy are made with this resilience in mind and to continuously strengthen our competitive differentiation.

Thank you for your interest and support let's go to.

The questions now Kevin.

Kevin Linder: Thanks, George. Sylvie, please share with the participants how to queue for questions.

Thanks, George Shelby please share with the participants how to queue for questions. Thank you, Sir ladies and gentlemen, if you would like to ask a question. Please press star followed by one on you touched on the phone you will then hear Sweden.

Operator: Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touch-tone phone. You will then hear a three-tone prompt acknowledging your request. If you would like to withdraw from the question queue, please press star followed by two. If using a speakerphone, we ask that you please lift the handset before pressing any keys. Please go ahead and press star one now if you have any questions. Your first question will be from Richard Tse at National Bank Financial. Please go ahead.

Prompt acknowledging your request and if you would like to withdraw from the question queue. Please press star followed by two and using a speaker phone. We ask that you. Please lift the handset before pressing any keys. Please go ahead and press Star. One now if you have any questions and your first question will be from Richard Tse National Bank Financial. Please go ahead.

Richard Tse: Thank you. This sort of AI team obviously is quite notable. Just in terms of the partnerships that you have with some of the leading players in the market today, can you maybe expand in terms of the level of engagement you're having with them? For example, I guess one of the leaders is Microsoft, and maybe give us a sense of your level of engagement on sort of what their plans are going forward.

Yes. Thank you.

This sort of the ICM. Obviously this is quite notable just in terms of the partnerships that you have with some of the leading players in the market. Today can you maybe expand in terms of the level of engagement you are having with them. So for example, you know I guess swallow heaters is Microsoft and maybe you can just give us a sense of like your level.

Engagement on sort of what their plans are going forward.

George Schindler: Yeah. No, thanks for the question, Richard. Yeah, we are engaged with all of our global alliance partners actively, looking to both leverage what they're doing with our intellectual property, which is a big element of our global alliance partnerships, but also then to further that together. I can't talk about anything specific yet, but we're actively engaged in forging some formal partnerships go-to-market with that, and that's part of what this investment announcement was about.

Yeah, Yeah no. Thanks for the question Richard Yes. We are we are engaged with all of our global Alliance partners actively looking.

Looking to both leverage what they're doing with our intellectual property, which is a big element of our global Alliance partnerships, but also then to further that together and so I can't talk about anything specific yet, but we're actively engaged in forging some some formal.

Partnerships go to market with that and Thats part of what this what this investment announcement was about.

Richard Tse: Okay. Then in terms of where you sit within that sort of ecosystem, what do you see in terms of the most common use cases that your clients are looking to address with AI here going forward in their enterprises?

Okay, and then in terms of where you sit.

Within that sort of ecosystem.

What do you see in terms of the most common use cases that your clients are looking to address with AI here going forward in their enterprises.

George Schindler: Yeah. Well, current point in time, the use cases are what you've heard about on some of the call center activities or very specific opportunities, like some of the examples I gave as far as looking at the brain scans that we're doing with the hospital in the Nordics, or looking at the environment like we're doing with partnering with some space agencies in governments in UK. They're very more point solutions, but I can tell you the conversations we're having are much broader. It's really about what is the art of the possible. Part of that first step is getting the data in the shape that it needs to be in order to train these models on trusted data that then can be leveraged. We're still, I would say, in the very early days.

Yes.

Current point in time.

The use cases are what you've heard about some of the call center activities are very specific.

Opportunities like some of the examples I gave as far as looking at the brain scans that were dealing with with the hospital and the nordics or looking at the environment like we're doing with them.

The partnering with some space age agencies in governments and U K. So theyre very more point solutions, but I can tell you. The conversations we're having are much broader and.

It's really about what is the art of the possible.

And part of that first step is getting the data in the shape that.

It needs to be in order to train. These models on trusted data that can be leveraged. So we're still I would say in the very early days I mentioned, we're still in the early innings of Digitization at large or even earlier days of AI, but.

George Schindler: I mentioned we're still in the early innings of digitization at large or in even earlier days of AI. What I see is clients are really looking at the broadest applications of where AI could make a difference.

What I see is clients are really looking at the at the broadest applications of where AI could make a difference.

Richard Tse: Okay, great. One last quick one here from me. There's certainly a lot of puts and takes in terms of the outlook going forward here, then some of your competitors have talked about perhaps paring off sort of staffing, given some price competition in the market. How do you sort of see the next few quarters playing out, just from a kind of like operating cost perspective? Are you kind of in the position you want to be? Is there potential to sort of take out some costs? Just maybe give us a sense of how that should play out here over the remainder of the calendar year?

Okay, Great and one last quick one here for me like there's certainly a lot of puts and takes in terms of the.

Outlook going forward here and then some of your competitors have talked about perhaps.

Turning off.

Staffing given some price competition in the marketplace have users see the next few quarters, playing out just from kind of like our operating cost perspective are you kind of in a position you want to be is there a potential to sort of take out some costs.

Maybe give us a sense of how that should play out here over the remainder of the calendar year.

George Schindler: Yeah. We're pretty pleased with the position we're in, those strong bookings driven by IP and larger Managed Services deals. We anticipated, and we've talked about, even on this call last quarter, that that takes a little bit longer. We anticipated some of the shift from SI&C to the IP and Managed Services. We do, along the way, anytime you're doing a shift in buying behaviors, we've been very active in training, retraining, rotating our people to the areas of strength. Of course, taking actions where need be, where those aren't completely aligned. That's all in the numbers already. We don't see anything big having to be done. Like I said, we see the continued strength in margin driven by the profitable growth, but also the global delivery, the business mix towards IP and Managed Services, which we talked about before.

Yeah, we're pretty pleased with the positioning and the strong bookings driven by IP and larger managed services deals.

We anticipated and we've talked about even on this call last quarter that that takes a little bit longer.

We anticipated some of the shift from ethane C to the IP and managed services, we do along the way any time youre doing a shift and buying behaviors.

Been very active in training re training rotating our people to the areas of strength and then of course, taking actions, where where need be where those arent aren't completely aligned but that's all in all in the numbers already and so we don't see anything big having it to be done.

Like I said.

We see the continued strength in margin driven by the profitable growth, but also the global delivery the business mix towards IP and managed services, which we've talked about before that's a tailwind for us.

George Schindler: That's a tailwind for us. Our turnover is down, as I mentioned, and utilization is actually up. We feel like we're in a pretty good position to move forward in this shift. Of course, the planned investment in data and AI is just to drive that future way of growth further down the line.

Turnover is down as I mentioned and utilization is actually up so we feel like we're in a pretty good position.

To to move forward in this shift and of course, the planned investment in data and AI is just to drive that future way.

Of growth further down the line.

Richard Tse: Okay, great. Thank you.

Okay, great. Thank you.

Operator: Thank you. Next question will be from Thanos Moschopoulos at BMO Capital Markets. Please go ahead.

Thank you next question will be from Synovus multiples at BMO capital markets. Please go ahead.

Thanos Moschopoulos: Hi, good morning. George, related to the AI investments, would it be reasonable to expect that your investment in IP might take a step up as a percentage of revenue in the coming quarters and years? Is that going to be more a function of case-by-case basis, evaluating projects with clients, taking them to your IP investment committee?

Hi, good morning.

Charge related to the AI investments would it be reasonable to expect that your investment in IP might take a step up as a percentage of revenue in the coming.

Quarters in years or is that going to be more a function of case by case basis evaluating projects with clients taking them to your IP doesn't today.

George Schindler: Yeah. It's going to be more balanced. What we do with the IP, as you're aware, we don't build it, and they will come. We always do that in concert with our clients. We've already been making some of the investments in our IP with AI, and we have the PulseAI framework that I talked about last quarter. That's been part of that. It's going to be more measured. It's why I announced it over a 3-year period. It'll be lockstep with our clients. Now over time, the investment could go up if the demand curve follows that. I will tell you that in general, as we continue to have stronger bookings and higher revenue growth in IP than the rest of our business, we have been, over the last several years, ramping up the investment we made in IP.

Yes, it's going to be more.

To be more balanced what we do with the IP as as Youre aware, we don't build it and they will come we always do that in concert with with our clients we've already been making some of the investments in our IP with AI and we have the pulse AI framework that I talked about last quarter. So that's.

That's been part of that.

Is going to be more measured it's why I announced it over a three year period, it'll be lockstep with the with our clients now over time it could the investment could go up if the if the demand curve.

How is that and I will tell you that in general as we as we continue to have stronger bookings and higher revenue growth in IP than the rest of our business. We have been over the last several years ramping up the investment we made in IP, but again always focused on making sure we have that solid.

George Schindler: Again, always focused on making sure we have that solid return on investment and doing that in concert with our clients. In many cases, when we make an investment in IP, we already have letters of intent or, in some cases, signed contracts with clients that support that investment. Of course, we're making the investment, but we already know the business is there, and we're working in concert with our clients. We're going to do the same thing with AI.

Return on investment and doing that in concert with our clients in many cases, when we make an investment in IP, we already have.

Letters of intent or in some cases signed contracts with clients that support that investment of course, we're making the investment, but we already know the businesses there and we're working in concert with our clients, we're going to do the same thing with <unk>.

Thanos Moschopoulos: Great. Just drilling into the Canadian business, there was some deceleration during the quarter. Organic was slightly negative, I think partly related to financial services. Can you speak to that? Do you see that as being transient or what are you hearing from customers? I saw that the Canadian government recently awarded a very large contract to SkyAlyne, who I think is a client of yours. Is that something that's meaningful for the Canadian business? If you could provide some color. Thanks.

Great.

And then just drilling into the Canadian business with some deceleration during the quarter organic was slightly negative I think partly led to financial services.

Can you speak to that you see that as being transient. So what are you hearing from customers and I saw that the Canadian government recently of Oregon's very large contract. He finally question because a client of yours.

Is that something that's meaningful for the Canadian business. If your question caller. Thanks.

George Schindler: Maybe I'll start with the SkyAlyne. You did see that the big announcement's really a down-select to one. We are part of that consortium. In fact, we are the IT provider as part of that large, 20-plus year deal. Even though it was down-selected to one, it is still an active solicitation, so that's all I can say there. It's not in the bookings, that's a tailwind for the future for the Canadian business and underscores, again, the strength of government spending around the world. As far as the quarter goes, we did have a bit of a tough comparable. We had a one-time last year, and you can see the spike in growth last year at this time, and so it was a tougher comparable.

Yes, yes so.

Well, maybe I'll start with the Skyline, you did see that the big announcements at really a down select to one we are part of that consortium. In fact, we are the the provider as part of that are that large.

20, plus year deal.

It is still even though was down selected to one it is still an active solicitations. So that's all I can say there. It is not in the bookings of course, that's at the tailwind for the future for the Canadian business and underscores again, the strength of government spending around the world as far as the quarter goes we do.

Did have.

A bit of a tough comparable we had a we had a one time.

Last year and you can see the spike in growth last year at this time and so it was a tougher comparable but in general yes, we think that it's it's pretty temporary as as the financial services.

George Schindler: In general, yeah, we think that it's pretty temporary as the financial services goes through some of this adjustment and shift in priorities. We had a strong 121% book-to-bill in the quarter. Look at the trailing 12 months is, I think 108% on a trailing 12-month basis. The bookings in the quarter were underscored by large Managed Services deals, including in financial services, kind of showing some of that shift. We believe we're going to return to growth next Q, and it was really more of a blip there in Canada this Q.

It goes through some of this adjustment and shift in.

And priorities.

We had a strong 121% book to bill in the quarter.

Look at the trailing 12 months is I think one to 108.

<unk> percent on a trailing 12 month basis.

Bookings in the quarter, where we are.

Underscored by large managed services deals, including in financial services, so kind of showing some of that shift. So we believe we're going to return to growth.

Next next quarter and it was really more of a blip there in Canada this quarter.

Thanos Moschopoulos: Great. Thanks, George. I'll pass the line.

Great. Thanks, George I'll pass the line.

George Schindler: Yep.

Operator: Thank you. Next question will be from Stephanie Price at CIBC. Please go ahead.

Right.

Next question will be from Stephanie price at CIBC. Please go ahead.

Stephanie Price [Executive Director, Equity Markets: Good morning.

Good morning, maybe just happening with the government with the government sector. The U S. Federal bookings were quite strong in the quarter. Just curious if you could talk a little bit about what's driving that growth and how you think about demand in the vertical and maybe more broadly for the remainder of the year.

George Schindler: Good morning.

Stephanie Price [Executive Director, Equity Markets: Maybe sticking with the government sector. The US federal bookings were quite strong in the quarter. Just curious if you could talk a little bit about what's driving that growth and how you think about demand in the vertical, maybe more broadly for the remainder of the year.

George Schindler: Well, I think government, as we've discussed for some time, is strong around the world because it is more of a countercyclical avenue of growth for us. Of course, it's our largest single sector. Yes, very strong in the US federal, which we anticipated because a lot of the spend has been back-loaded for the last couple of years in federal. You might remember we had a very strong book-to-bill in the Q4 of last year. It's tended to be back-loaded. Just to remind you, in the US federal government, the fiscal year ends at the end of September, same as the CGI fiscal year. We see that same phenomenon going on. The US federal government is kind of behind in their spending. Part of that has been because the procurement just can't keep up with the demand.

Yes, well I think government as we've discussed for some time.

Is strong around the world because it is more of a counter cyclical avenue of growth for us and of course, it's our largest sing.

Single sector.

Yes, very strong in the U S federal which we anticipated because a lot of the of the spend has been backloaded for the last couple of years and federal you might remember we had a very strong book to bill in the in the fourth quarter of last year, it's tended to be.

Back loaded and just to remind you on the U S. Federal government fiscal year ends at the end of September same as as the CGI fiscal year end and we see that same thing going that same phenomenon going on.

The U S. Federal government is kind of behind in their spending and part of that has been because the procurement just can't keep up.

With the with the demand.

George Schindler: Underscoring that is government needs to digitize, government needs to put new policies in place. They've been very active in the environment. You heard the EPA win that we had this quarter. I think it's a combination of those factors. The slowing economy, government tends to get more active, and we've seen that in Germany, we've seen that in the UK. You saw the strong bookings and performance in the UK, and you know that UK has an even higher percentage of government work where we're a strategic partner to the UK government. A lot of goodness there.

Underscoring that is government needs to digitize government needs to put new policies in place have been very active in the environment, we heard the EPA.

When that we've had this quarter. So I think it's a combination of those factors and then just the slowing economy Gov.

Government tends to get more active and we've seen that.

In Germany, we've seen that in the U K you saw the strong.

Bookings performance in the UK and you know that UK has even higher percentage of our government work, where we're a strategic partner to the to the UK government. So a lot of a lot of goodness. There. We also see space, becoming more of a.

George Schindler: We also see space becoming more of an area, and I'm talking about outer space now, becoming more of an area of opportunity to leverage really the space-based data and connect it with digitization and technologies like AI to really unlock some value and solve some real-world problems including in kind of government's form of ROI-led digitization, which is really furthering and bettering communities for citizens.

Of an area.

And I'm talking about outer space now, becoming more of an area of.

The opportunity to leverage really the space based data.

And connect it with with Digitization and technologies like AI too.

Really unlock some some value and saw some real world problems.

<unk> and <unk>.

Governments form of ROI led Digitization, which is really furthering and bettering communities for citizens.

Stephanie Price [Executive Director, Equity Markets: Great color. Thanks. Just one more from me. Just on the M&A market, you mentioned a few times in your prepared remarks that there was a valuation gap that you're seeing. Can you elaborate a little bit more on that and just on capital allocation? If M&A is lower, should we expect more of a focus on share buybacks here?

Great color. Thanks, and then just one more from me just on the M&A market you mentioned a few times in your prepared remarks that there was a valuation gap that youre seeing can you elaborate a little bit more on that and just on capital allocation of M&A as lower should we expect tomorrow thats focused on share buybacks here.

George Schindler: Yeah. The M&A market has been a bit uncertain along with the economy itself. The difference in the valuations is you've got sellers that are hanging on to 2021 valuations and buyers that are looking at 2023 and beyond valuations. Not unlike the housing market, there's a dearth of opportunities out there. We're going to be patient on that. We do have an active pipeline. There's no big late-stage opportunities, but I always say it's wait and hurry up, hurry up and wait in the M&A market. We have a very active pipeline. I'm personally engaged in some of the discussions. We're just going to keep at it and make sure that we do the right accretive acquisitions. As far as capital allocation goes, yes.

Yes.

The M&A market has been.

A bit uncertain, along with the economy itself.

The difference in the valuations as you've got sellers that are hanging onto 2021 valuations in and buyers that are looking at 'twenty, two 'twenty, three and beyond evaluations and.

Not unlike the housing market.

There is a dearth of opportunities out there.

But we're going to be patient on that we.

We will continue to we do have an active pipeline.

There is no big late stage opportunities, but I always say it is.

Wait in hurry up hurry up and wait in the M&A market. So we have a very active pipeline on personally engaged in some of the discussions. So we're just going to we're just going to keep keep at it and make sure that we do the right accretive acquisitions as far as capital allocation goes yes first is investing back in our business.

George Schindler: First is investing back in our business. You heard the investments we're making in AI and IP and those types of activities that will be accretive because that's how we're going to measure them. If we don't have the accretive acquisitions to include in that, yes, it does provide us the opportunity to do stock buybacks, and we see that as still a very accretive way to return cash to shareholders. We'll be active on that.

And you heard the investments, we're making in AI and IP and those types of activities that will be accretive because that's what we'll that's how we're going to measure them.

But.

But.

Behind the.

If we don't have the accretive acquisitions to included in that yes. It does provide us the opportunity to do stock buybacks and we see that as still a very accretive way to return cash to shareholders and so we'll be active on that.

Stephanie Price [Executive Director, Equity Markets: Great. Thank you very much.

Great. Thank you very much.

Operator: Thank you. Next question will be from Divya Goyal at Scotiabank. Please go ahead.

Thank you next question will be from David <unk>.

At Scotia Bank. Please go ahead.

Divya Goyal: Good morning, everyone. George, I might have missed it, but I wanted to confirm this AI investment that you've announced. Is it fair to assume that some of the discussions and early-stage projects that you're seeing here, are they going to add to the consulting side of revenue before they get into the execution side of things? Would any of such revenue be currently factored into the book-to-bill that you've mentioned here?

Good morning, everyone.

George I might've missed it but I wanted to confirm this AI investment that you've announced.

Is it do you.

That some of the discussions and early stage.

Projects that Youre seeing here are they going to add to the consulting side of revenue before they get into the execution side of things.

And would any of such revenue will be currently factored into the book to Bill that you have mentioned here.

George Schindler: Yeah, no, it's a very good insight that you derived there. Yes, the early days are a little bit more on the consulting, helping clients think this through, put their own frameworks for responsible use into place, do some of the experimentation. It will be not just the consulting, but consulting and Systems Integration as opposed to whole scale Managed Services type opportunities or broader engagements. Yes, some of that's actually in the bookings. Some of that's actually in, as I mentioned, we're actively doing some of this now, so some of that's actually in the revenue. I'll remind you, even though I highlighted the Managed Services and the IP, we still did have solid bookings in SI&C, decelerating but still strong, and as we shift to more of that Managed Services and those other opportunities.

Yes, no. It's a very good very good insight that you derive there yes. The early days are a little bit more on the consulting helping clients think this through put their own frameworks for a responsible use and to place do some of the experimentation. So it will be not just the <unk>.

Salting, but consulting and system integration as opposed to whole scale.

Managed services type opportunities or broader engagements and so yes. Some of that is actually in the bookings. So that's actually and as I mentioned, we are actively doing some of this now so some of that's actually in the in the revenue.

And I'll remind you, even though I highlighted the managed services and the.

And the IP, we still did have.

Solid bookings and Nsync.

Decelerating, but still strong and as we shift to more of that managed services and those other opportunities.

George Schindler: The other is, I mentioned this as well. Some of the managed services we do, when we're doing modernization, there is a small consulting and systems integration component that could have AI that's buried in that managed service. It's hard to kind of separate that out. Of course, as I mentioned, it's part of our IP as well. It really spans all of those end-to-end services. You're right, back to your first question, a little more on the front end than the back end for now.

And the other is and I mentioned this as well.

Some of the managed services, we do when we're doing modernization there is a small consulting and systems integration component that could have AI. That's buried in that managed service. So it's hard to kind of separate that out and of course as I mentioned as part of our IP as well so it really spans all.

Those end to end services, but you are right back to your first question a little more on the on the front end and the backend for now.

Divya Goyal: That's helpful. Just going to the regular business here, have you been seeing or noticing a lot of pricing pressure in the market? Is it more pronounced in certain geographies or certain sectors, if at all?

That's helpful. I'm, just going to the regular business here have you been seeing are noticing a lot of pricing pressure in the market and is it more pronounced in certain geographies or certain sectors. If at all.

George Schindler: Yeah, no, it's a good question. As clients look for cost savings, there are two ways for them to get that, right? There is the ROI-led digitization opportunities, where we are providing maybe some opportunities for them to grow their business and become more efficient with a point solution. There is another way to get that, is through that longer engagement of Managed Services through scale, and we can provide them some of those cost savings up front, and then drive those efficiencies through a longer engagement and modernization. Then there is pricing. When it is just straight pricing, we tend not to engage as much. Yes, we are seeing some, and you always see this on a slowdown like this, you see some, what I would call bad behaviors by some competitors that might, and these are usually more local providers that drive just rate decreases.

Yeah, no. It's a good question as clients look for cost savings, there's two ways for them to get that right. There's the there's the rois led digitization opportunities.

Where we're providing maybe.

Some some opportunities for them to grow their business and become more efficient with a with a point solution.

There is another way to get that is through that longer engagement managed services through scale and we can provide them. Some of those cost savings upfront and then drive those efficiencies through a longer engagement and monetization and then there is pricing.

And when it's just straight pricing, we tend not to engage as much and yes. We are seeing some and you always see that as a slowdown like this you see some what I would call.

Bad behaviors by some competitors that might.

And these are usually more local providers that drive.

Just right.

George Schindler: These are some of the same players that actually maybe went overboard on the salary wage increases. I think they're gonna get caught, and that's an opportunity for us to take market share. They stumble. We've already seen some of that in some of our European clients, where they stumble from delivery and just because you have a lower rate doesn't mean you're going to get the value. We come in with our more mature way of providing the savings, and I think that's an opportunity for us to take market share in the intermediate term. In the short term, yeah, you always see that during a slowdown.

Decreases and these are some of the same players that actually maybe went overboard on the on the salary wage increases and so I think theyre going to get caught and that's an opportunity for us to take market share. They stumble we've already seen some of that in.

And some of our European clients, where they stumble on.

On delivery and.

Just because you have a lower rate doesn't mean, you're.

Youre going to get the value and so we come in with our.

More mature way of providing the savings and I think that's an opportunity for us to take market share in the intermediate term.

But in the short term, yes, you always see that during the slowdown.

Divya Goyal: Yeah, no, that's very helpful. Just one last question on the cash flow from operations. Looking at how the CFO has historically trended, it looks like this quarter, working capital was a use of cash, and Steve mentioned the DSO was in line with expectation. It looks like your payables were a little bit more tightened up. Was there a rationale for that?

Yes.

Very helpful.

Question on the cash flow from operations. So looking at how the CFO has historically trended it looks like this quarter working capital was a use of cash and Steve mentioned, the DSO was in line with expectation, but it looks like your payables were a little bit more tightened up so was there a rationale for that.

Steve Perron: Yeah. Ultimately, we used less subcontractors in the quarter, obviously it's a timing element that we had in the accrual. Also, the accrued for performance-based compensation had an impact on the cash flow from operation. It's really a timing. When we look at it on a, let's say, on a year-to-date basis, you see the growth. We grew by more than CAD 100 million in the cash flow from operation. What we're really watching, as you mentioned, is DSO. In this economic time, we want to make sure that our clients are paying, and they are. We are really, really focused on the collection. In terms of the accrual, it's really timing.

Yes.

Intimately.

We use less subcontractors.

In the quarter. So obviously, if it's a timing a timing element.

That we had in the accrual.

And.

Also the accrual for performance based compensation had an impact on the cash flow from operation, but it's really.

Really.

It's really a timing so when we look at it on a let's say a year to date basis.

You see their growth, we grew by more than 100 million and their cash flow from operation.

And what we're really watching as you mentioned is DSO.

In this.

It kind of make time, we want to make sure that our clients are paying and they are.

So we are really really focused on on the collection in.

In terms of the accrual.

It's really timing.

Divya Goyal: That's helpful. Thanks, Steve. Thanks, George.

That's helpful. Thanks, Steve Thanks, Joan.

Operator: Thank you. Next question will be from Paul Treiber at RBC. Please go ahead.

Thank you next question will be from Paul Treiber at RBC. Please go ahead.

Paul Treiber: Oh, thanks so much, and good morning. George, just regarding AI, you've been through a number of industry shifts in the past, big ones being like mobile and the cloud. How do you compare the enthusiasm from your customers and the interest from your customers regarding AI versus previous tech cycles? Secondly, looking forward, how quickly do you think that enthusiasm will convert to bookings compared to past investment cycles?

Alright, thanks, very much good morning.

George just regarding AI I mean, you've been through a number of industry shifts in the past.

And a big ones being mobile and the cloud how do you compare the enthusiasm from your customers and the interest from your customers regarding AI versus previous tech cycles, and then secondly, just looking forward.

How do you think how quickly do you think that enthusiasm will convert to bookings compared to past investment cycles.

George Schindler: Yeah, no. Thanks for the question. Here's what I see this wave in disruptive technology being a bit of an evolution of mobile and cloud, with both of which enabled us, well, really drove a proliferation of data that's out there, and really AI is the ability to unlock some of the value attached to all that data. Now, having said that, I think that's what's driving some of the enthusiasm, because it's really building on some of the earlier technologies and waves that we've gone through. Having said that, I think it's not so much the willingness to have the adoption, but it's really having the data and the models ready to actually benefit from this is gonna be really important. We kind of see the AI in our discussions with clients, it's really revolving around three key principles.

Yes.

Thanks for the question yes.

Here's what I see I see this this wave and disruptive technology.

Being a bit of an evolution.

Mobile and cloud with both of which.

Enabled us to really drove a proliferation of data that's out there and and really AI has the ability to unlock some of that.

The value attached to all of that data so.

Now having said that so I think that's what's driving some of the enthusiasm.

And because it's really is building on the on some of the earlier technologies in ways that we've gone through.

Having said that I think it's.

It's not so much the willingness to be have the adoption, but it's really.

Having the data in the models ready to actually benefit from this is going to be really important we kind of see the.

The AI in our discussions with clients, it's really revolving around.

Three key principles one is the trust, having the closed datasets, where ownership and data Providence is really.

George Schindler: One is the trust, having the closed datasets where ownership and the data provenance is really verifiable, and that's going to be important for any of the regulation that goes out there. Transparency, for us, part of that is having a human within the AI loop, so you actually can verify again the bias that's there or not there, and align the AI activities with the company's direction and values. That's going to be an element of this. The reason I'm mentioning these, Paul, is these take some time, and I don't think it's a dampening on the enthusiasm, just these things take some time. Last, where you want to get to is you're going to make the individuals and experts more productive. It's not going to work the other way. You're not going to make lay people experts.

They are viable and that's going to be important for any of the regulation that goes out there transparency and for US part of that is having a human within the AI loops that you actually can can verify again.

The bias that they are not there and align the AI activities with the company's direction and values and and so that's going to be an element of this and the reason I'm mentioning these policies take some time and.

I don't think its a dampening on the enthusiasm of just these things take some time and then last where you want to get to as Youre going to make the individuals and.

And experts more productive it's not going to work the other way you're not going to make lay people experts and those that kind of skipped the first two and try to go to that level I think youre going to run into some issues and Thats why were doing some of the starting off with some of the consulting.

George Schindler: Those that kind of skip the first two and try to go to that level, I think are going to run into some issues. That's why we're doing some of the starting off with some of the consulting. Really, at the end of the day, we think it's going to be the business value that you add to the AI, not the value that you extract from the AI. That isn't dissimilar to mobile and cloud, quite frankly.

Because it really at the end of the day.

We think it's going to be the business value that you add to the AI not the value that you extract from the AI and that isn't dissimilar to mobile and cloud quite frankly.

Paul Treiber: Just on your last point about making experts more productive, one of the things that AI is being, or generative AI, is being touted as is streamlining programming. How do you see generative AI impacting the IT services, the core function of IT services in terms of product development and maintenance? Do you see IT services ultimately benefiting from that efficiency, or potentially is it a longer-term headwind in that customers maybe can be more productive themselves?

On your last point about making experts more productive you know one of the things that AI has been our generative AI is being touted as.

Is streamlining programming.

How do you see generative AI impacting the IP services are core.

<unk> of it services in terms of product development maintenance do you see it services ultimately benefiting from that efficiency or potentially is it a longer term headwind and that customers. Maybe you can be more productive themselves.

George Schindler: I think it's going to be a tailwind, but the reality is, it's going to shift the way that developers work, which is why we're investing to make sure we equip our experts to leverage and work side by side with the AI to be more productive. I think it's also probably going to shift the way pricing and buying occurs, shift it even more so towards output-driven activities, maybe even disassociate the pricing which right now is still, at least in SI&C, tightly associated with labor. I think it's going to disassociate that to more output-based pricing like you see with an intellectual property product. I think there are going to be some shifts that we're going to go through.

No I think it's I think it's going to be a.

Tailwind, but the.

The reality is it's going to shift the way that.

Net.

Developers work, which is why we're investing to make sure we can.

With our.

Experts to leverage and work side by side with the with the AI to be more productive I think it's also probably going to shift the way.

Pricing and buying occurs shifted even more so towards output driven.

Activities may be even disassociate.

The pricing, which right now is still at least NSA and see tightly associated with labor I think it's going to disassociate that to more output.

Output based pricing like you see with within intellectual property product.

So I think there are going to be some shifts that we're going to go through there is going to be some puts and takes but at the end of the day I think it's going to be a tailwind for the industry much like previous disruptive technologies a bit.

George Schindler: There's going to be some puts and takes, but at the end of the day, I think it's going to be a tailwind for the industry, much like previous disruptive technologies have been.

Paul Treiber: That's interesting. Glad you provided your perspective. Just one last question from me. Just, you called out a number of metrics regarding your pipeline. I might have missed it, but could you summarize that into the total pipeline? I think last quarter you called out, I think it was total pipeline up 15% quarter over quarter. Now, how does your total pipeline look here?

That's interesting.

Glad you provide your perspective, just one last question for me just you called out a number of metrics regarding your pipeline kidney I might have missed it but can you.

Summarize that.

Total pipeline I think last quarter, you called out I think there's tour pipeline up 15% quarter over quarter. How does your total pipeline look here.

George Schindler: No, I don't have that in front of me because I've been really focused on the shift to the Managed Services. Typically, that drives the overall pipeline even higher, because, as I mentioned, those are larger deals. Let me get that number to you, okay?

No I don't have that.

That in front of me because I've been really focused on the shift to the managed services typically that drives the overall pipeline even higher because as I mentioned those are larger deals, but let me get that but let.

Let me get that number to you okay.

Operator 2: All right. Thank you. I'll pass the line.

Alright, Thank you I'll pass along.

Operator: Thank you. Next question will be from Daniel Chan at TD Cowen. Please go ahead.

Thank you next question will be from Daniel Chan at TD Cowen. Please go ahead.

Daniel Chan: Hey, George. You guys continue to demonstrate some pretty resilient growth here, whereas some of your peers are exercising caution or even revising their guidance lower. What are you attributing your relative outperformance to? What are you guys doing differently or better than your peers that's allowing you to win market share here?

Hey, George you guys continuing to demonstrate some pretty resilient growth here, whereas some of your peers are exercising caution or even revising that guidance lower what.

What are you attributing your relative outperformance to what are you guys doing differently or better than your peers, it's allowing you to win market share here.

George Schindler: Yeah. Well, I think one is really that shift to both Managed Services, which we know takes a little bit longer, but also that IP. I mentioned that, for example, in banking, you see some of the slowing of the straight SI&C activities. We have a lot of banking IP, and so that's enabling us to counteract that in a lot of ways. The second is that, as I mentioned, we've been doing this shift to Managed Services, anticipating this for a while, getting a little bit ahead of it. We have had some bookings from six, nine months ago that are now coming online. That's the one caution, right, is that you win an SI&C deal and it's on a Friday, and it starts on Monday, and you're billing.

Yes, well I think one is is really.

That shift.

To both managed services, which we know it takes a little bit longer but also that IP.

<unk>.

I mentioned that.

For example in banking and you see some of the slowing.

The straight Si and C activities, but we have a lot of banking IP and so that's that's enabling us to counteract that and a lot of ways. The second is that as I mentioned, we've been doing this shift to managed services anticipating this for a while.

Im getting a little bit ahead of it and so we have had some bookings from <unk>.

Six to nine months ago that are now coming online and.

And that's the one that's the one caution right is that you.

<unk> see deal and it start on a Friday and it starts on Monday and you're billing.

George Schindler: You win a large Managed Services deal on a Friday, and it can take three, six, nine months before you're seeing the revenue on that. We did that early, and so we're weathering some of that with some of what we had done in prior quarters. The other is government. Unlike some of our competitors, it's a large element. We've always suggested we like that base because of the counter-cyclical nature, and that allows us to work in different markets and still be able to grow. You saw the 11% growth in government this quarter.

You win a large managed services deal on a Friday and it can take 369 months before youre seeing revenue on that.

But we did that early and so we're weathering some of that with them with some of what we had done.

In prior quarters and the other is government.

It's.

Unlike some of our competitors, it's a large element, we always suggest that wed like that base because of that.

The countercyclical nature and that allows us to.

Work.

And different markets and still.

Be able to grow and Thats and you saw the 11% growth in.

The government this this quarter.

Daniel Chan: That's helpful. Thanks for that. Then you mentioned the bookings conversion timeline taking three to nine months. The bookings, or the book-to-bill for your last few quarters has been really strong. Should we extrapolate that to suggest that we could see some accelerating growth in the H2 of the calendar year, especially as those bookings start converting to revenue?

That's helpful. Thanks for that and then you mentioned the bookings conversion timeline, taking three to nine months the bookings or the book to Bill for the last few quarters has been really strong should we extrapolate that to suggest that you could we could see some accelerating growth.

In the second half of the calendar year, especially as those bookings start converting to revenue.

George Schindler: Yeah, I think what I would say is we definitely see that all the indicators, those bookings and even the pipeline and what we see in the near term point to stronger growth in the intermediate term. Like I said, it does take a little longer, and we're counteracting, and you saw that this quarter, counteracting some of the shorter-term slowdown. I think in the intermediate term, that's when all the indicators point to a good growth path there.

Yes, I think what what I would say is we definitely.

We definitely see that.

All the indicators those bookings and even the pipeline and what we see in the near term.

Point to stronger growth in the intermediate term.

Like I said it does take it does take a little longer and we're we're counteracting that you saw that this quarter counteracting some of the shorter term.

Slowdown, but I think in the intermediate term, that's when all the indicators point to too.

Yeah.

Good growth path there.

Daniel Chan: Great. Thanks, George.

Great. Thanks George.

Operator: Thank you. Next question will be from Sutan Sukumar at Stifel. Please go ahead.

Thank you next question will be from <unk> <unk> of Stifel. Please go ahead.

Sutan Sukumar: Good morning. Just want to chat quickly on Managed Services. It's good to see you guys are well-positioned here to capture the strength that you're seeing in the demand backdrop. Can you talk a little bit about how your discussions with clients and how sales cycles have been trending here more recently, and are you seeing opportunity for pricing power given the strength in demand?

Good morning.

Ed just wanted to follow quickly on managed services.

See you guys here.

Well positioned to capture the strong point, you're seeing in the demand.

Demand backdrop.

Can you talk a little bit about.

How your discussions with clients and for Raphael cycles have been trending here more recently.

And are you seeing opportunity for pricing power given the strengthening in demand.

George Schindler: Yeah. No, it's a good question. The discussions that we're having right now, in many cases, are one-on-one discussions where we're more engaged with the client as a sole partner. It's really around getting the value proposition for them right. You're right in one way. I wouldn't call it pricing power, but what I'd say is, when you can get that value proposition right, they're less concerned about what your pricing is or isn't. Really, it's a matter of getting close to the client, going through. We have something we call proof of value process that really engages directly with the business and the IT individuals to kind of drive the right value proposition. In many cases, there's a big win-win in that situation.

Yeah, no it's a.

A good question.

When you the discussions that we're having right now.

In many cases are.

Our one on one discussions so theyre more.

Or more engaged with the client as a sole partner it.

It's really around getting the value proposition for them right and.

Youre right in one way I wouldn't call it pricing power, but what I'd say is when you can get that value proposition right.

They are less concerned about what your pricing is or isn't and so really it's a matter of getting close to the client going through we have something we call proof of value process that really engages directly with the with the business and the.

Individuals' to kind of drive the right value proposition.

And in many cases, there is a big win win.

That situation.

George Schindler: It does take longer, so it's pipeline to booking and booking to revenue takes a little longer, but the payoff is very good for both top and bottom line.

It does take longer so it's pipeline to booking and booking to revenue takes a little longer but the payoff is is very very good for both top and bottom line.

Okay got it thank you.

Sutan Sukumar: Got you. Thank you. The second question I had was more around just the context of your outlook for greater investments in AI. How are you thinking about headcount growth going forward as you start to invest in these AI capabilities and starting to become more efficient internally?

The second question I had was all with more complex.

Your outlook for investments in AI.

When you think about head count growth going forward as you start to invest in <unk>.

Our capabilities are starting to become more efficient internally.

George Schindler: Yeah. Well, I touched on this earlier. I think we will see some distance and disassociation of just in order to get a dollar of revenue, you need to add a dollar of labor. I think you're going to see some more disassociation, just like we have with our IP. You can see our labor grew this quarter less than our overall growth. Part of that is because IP is growing faster, and of course, we have assets that are driving some of that revenue. In this case, it's going to be the higher productivity. Again, if we can do that in a value-based pricing, it's going to change that equation.

Yes.

I touched on this earlier I think we will see some.

Distance and.

This association of just.

In order to get a dollar revenue you need to add a dollar of labor and.

I think youre going to see some some more this association just like we have with our IP and you can see our labor grew this this quarter less than our.

And our overall growth and part of that is because it is growing faster and of course, we have assets that are driving some of that revenue in this case, it's going to be the higher productivity.

Again, if we can we can do that in a value based pricing is going to is going to change that change that equation.

Sutan Sukumar: Great. Thank you for taking my questions. I'll pass along.

Great.

Thank you for taking my questions I'll pass along.

George Schindler: Yep.

Operator: Thank you. Next question will be from Jerome Dubreuil at Desjardins.

Thank you next question will be from Zelman <unk> at Deutsche Bank.

Jerome Dubreuil: Hey, good morning. Thanks for taking my question.

Hi, Good morning, Thanks for taking my question. So first question is on the head count we've seen that it's up a bit.

George Schindler: Bonjour, everyone.

Jerome Dubreuil: First question is on the headcount. We've seen that it's up a bit, but it's understandable given the bookings and the growth trends. I want to dive in really, what's the current mindset? Have you been more careful than usual given the comments your clients have been telling you about the macro, or are you preparing for market to turn around? Just want to know about the mindset regarding the headcount.

I mean, it's understandable given given the bookings and the growth trends.

But I want to dive in really what's what's the current mindset have you been more careful than usual given the comments or your clients have been telling you about the macro are you preparing.

For the market to turn around just wanted to know about the mindset regarding regarding the head count.

George Schindler: Yeah. Well, we've been very prudent as always in hiring more for the known projects and known demand. With turnover, again, trending down both sequentially and year over year, it gives us more of that opportunity. Some of that hiring ahead had to be done because of some of the turnover. We're seeing a shift in that. We have a strong attraction and retention value proposition. Starts with our ownership, but then of course our training and support and our proximity model, which kind of gives less wear and tear on our consultants having to travel. All that plays in, and so we're able to be a little more prudent in the hiring and still be positioned for that intermediate growth, but also make sure that we're not in a place where we're underutilized at any point in time from a cost perspective.

Yes, well we've been we've.

We've been very prudent as always in and hiring more for the known projects and known demand.

With turnover.

Again trending down both sequentially and year over year, it gives us more of that opportunity.

Some of that.

Some of that hiring ahead had to be done because of the some of the turnover. So we're seeing a shift in that.

We have a strong attraction and retention value proposition.

It starts with our ownership, but then of course, our training and support and our proximity model, which kind of gives.

Less wear and tear on our consultants having to travel all of that plays in and so we're able to be a little more prudent and the hiring and still be positioned for that that intermediate growth, but also make sure that we're not.

Not in a place where we are.

Under utilized at any point in time from a cost perspective, and I mentioned when youre doing that shift we've been taking any actions that need to be done.

George Schindler: I mentioned when you're doing that shift, we've been taking any actions that need to be done in order to drive that. We'll continue to hire and grow, and AI will be part of that, but it's not the only driver of that.

In order to drive that but we will continue.

To hire and grow and AI will be part of that but it's not the only driver of that.

Jerome Dubreuil: Okay, great. Second question is on AI, too. What are the type of clients that are willing to pay first for AI? You have a high exposure to government. I guess we can imagine that government might not be one of the first clients that are going to jump on that wagon. What type of clients are you seeing are willing to pay for that?

Okay, Great and then second question is on the <unk>.

What are the type of clients that are willing to pay first four core AI I mean, your you have a high exposure to government I guess, we can imagine that the government might not be one of the first clients sorry.

To jump on that on the wagon so what what type of clients are you seeing are willing to pay for that.

George Schindler: Well, the top innovators tend to be banking and healthcare right now, and that's pretty consistent with other waves of technology. You also have a lot of data that you can unlock the power of that with those two industries. I'll tell you what's interesting is we see government as a potential early adopter. We're having very good discussions with government, lots of interest here because they kind of fell behind, right? They may need this more than other industries, and probably are more capable of managing the regulatory environment and the trusted environment, just given their size and scale and scope. I think they have some drivers that could make them an actual early adopter. We'll see. That's kind of what we see right now.

Well.

The top innovators.

Tend to be banking and health care right now and.

That's pretty consistent with with other ways of technology.

So have a lot of data that you can unlock.

The power of that with those two industries, but I'll tell you. What's interesting is we see government as a potential for potential early adopter, we're having very good discussions with with government lots of interest here.

Because they kind of fell behind right and so they may need this more than than other industries.

And probably are more capable of managing.

Yes.

The regulatory environment and the trusted environment, just given their size and scale and scope. So.

I think they have some drivers that could make them an actual early adopter, we'll see but that's kind of what we see right now.

Jerome Dubreuil: Yeah, and their own involvement in regulatory too. Thanks for the color. Thanks.

Yes, and their own involvement in regulatory too. So thanks for the color. Thanks Yep Yep.

George Schindler: Yep.

Operator: Thank you.

Kevin Linder: Hi, Sylvie. Hi. Sylvie, we've got time for one more question, please.

Thanks, Hi, Sylvie.

Sylvie we've got time for one more question. Please certainly Sir last question will be from Rob Young with Canaccord Genuity. Please go ahead.

Operator: Certainly, sir. Last question will be from Rob Young at Canaccord Genuity. Please go ahead.

Rob Young [Managing Director, Research: Okay, thank you. The comments through the call that you've had some discussion around sales cycle lengthening, longer conversion, it's a bit of a trend, I think, in enterprise just in general. I think you've been emphasizing that it's driven, in CGI's case, around Managed Services and the longer sales cycle associated with that, maybe some pivot towards ROI-based programs.

Okay. Thank you.

The comments through the call that <unk> had some disk.

A discussion around sales cycle lengthening longer conversion, so a bit of a trend I think in enterprise just in general and so I think you've been.

<unk> then it's driven in Cgi's case around.

Managed services and the longer sale cycle.

Cycle associated with that maybe some pivot towards ROI based programs.

Rob Young [Managing Director, Research: I was just curious if you could give us maybe a summary of why you think that this shouldn't be viewed as a demand-driven, if I'm correct, that sales cycle is lengthening?

I was just curious if you could give us.

Maybe a summary of why you think that this shouldnt be viewed as a demand driven if I'm correct. It sales cycle is lengthening.

George Schindler: Yeah. I think you're correct in the overall summary, I think when I look at that, demand is still strong. It's just the timing of that demand. As you make any kind of shift, and we anticipated this, I talked about this the last few quarters, as you have that shift, there's just some disruption there. The overall demand environment we see is very strong. In fact, the overall demand we see may be moving more in the favor of a global provider like CGI with the end-to-end services, with the intellectual property, with some of the investments that we continue to make to be on the front end of that to maybe be even a consolidator of some of that demand, absorbing that maybe even faster than some of the others in the marketplace.

Yes.

You're correct in the overall.

Summary, but.

I think when.

When I look at that demand is still strong. It's just the timing of that demand and so as you make any kind of shift and we anticipated. This we.

I talked about this.

Last few quarters.

As you have that shift.

There's just some disruption there, but the overall demand environment. We see is very strong and in fact, the overall demand we see may be moving more in the favor of <unk>.

Our global provider like CGI with the end to end services with.

The intellectual property with some of the investments that we continue to make.

To be on the front end of that to maybe be even a.

Consolidator of some of that.

Some of that demand absorbing that may be even faster than some of some of the others in the marketplace. So that's why.

George Schindler: That's why you hear the optimism, despite the fact that you've got some short-term bumps that are inevitable when you do a shift like this. You see it in the bookings, right? That's where the confidence comes from.

You hear the optimism despite the fact that you've got some short term.

Short term bumps that.

That are inevitable when you do a shift like this so.

And you see it in the bookings right.

Where the confidence comes from.

Rob Young [Managing Director, Research: Okay. That's great. If I squeeze one last one.

Okay, that's great and if I squeeze one last one.

George Schindler: Yep.

Rob Young [Managing Director, Research: I think one of the themes here that you're trying to get across is that you see a net positive impact or maybe net expansion of margins as you look forward. You highlight a whole lot of positive drivers like the mix of Managed Services, IP, global delivery, and then utilization improving with maybe slightly slower hiring. On the other side of it, where do you see some of the negatives? Price pressure came up, maybe longer sales cycle, maybe the AI investment. Despite if you view it as a net positive, what might be some of the headwinds you have to deal with?

I think.

One of the themes here.

You're trying to get across is that youll see a net positive impact or maybe net expansion of margins. As you look forward you highlight a whole lot of positive drivers like the mix of managed services IP global delivery, and then utilization improving with you maybe slightly slower hiring but on the other side of it like where do you see some of the negatives.

Price pressure came up maybe longer sales cycle, maybe investment.

Despite as you view it as a net positive like what might be some of the headwinds you have to deal with.

George Schindler: Yeah. Well, you mentioned some of them well. There's the short-term, helping your clients through some of this short-term period is maybe a short-term headwind, but a long-term stronger partnership. I've talked a lot about the importance of partnership, particularly when clients are going through what they're going through right now. That's why I'm net positive, but I think you highlighted the right areas.

Yes, well.

You mentioned, you mentioned some of them well.

There's the short term.

Helping your clients through some of this short term period.

As.

Maybe a short term headwind, but long term stronger partnership and I've talked a lot about the importance of partnership, particularly when when clients are going through.

What they're going through right now so.

That's why I'm net positive, but I think you highlighted the right areas.

Rob Young [Managing Director, Research: Okay. Thanks. That's the end of the questions.

Okay. Thanks for taking the questions.

Operator: Thank you. Please proceed with your closing remarks.

Thank you. Please proceed with your closing remarks.

Kevin Linder: Thank you, Sylvie, and thanks everyone for participating. As a reminder, a replay of the call will be available either via our website or by dialing 1-877-674-7070 and using the passcode 098618. 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 1-905-973-8363. Thanks again everyone, and look forward to speaking soon.

Thank you Sylvia and thanks, everyone for participating as a reminder, a replay of the call will be available either via our website or by dialing 18776, 704, 7070, and using the pass code zero or 98, 618 as well a podcast of this call will be available for download.

In a few hours follow up questions can be directed to me at $1 905, 973, <unk> hundred six three.

Again, everyone and look forward to speaking soon.

Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we do ask that you please disconnect your lines.

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.

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