Q1 2024 CGI Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to Cgi's first quarter fiscal 2024 conference call and I would like to turn the meeting over to Mr. Kevin Linda S.
Kevin Linda: V P of Investor Relations. Please go ahead Mr. Linda.
Kevin Linda: Thank you Sylvia and good morning, with me to discuss <unk> first quarter fiscal 'twenty 'twenty four 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 nine a M eastern time.
Kevin Linda: On Wednesday January 31st 2024.
Kevin Linda: Well mental slides as well as the press release, we issued earlier. This morning are available for download along with our Q1 MD&A financial statements and accompanying notes all of which have been filed with both cedar plus and Edgar.
Kevin Linda: Please note that some statements made on the call maybe forward looking actual events or results may differ materially from those expressed or implied.
Kevin Linda: 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.
Kevin Linda: A complete safe Harbor 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.
Kevin Linda: 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.
Kevin Linda: The MD&A contains definitions of each one used in our reporting.
Kevin Linda: All of the all of the dollar figures expressed on this call are Canadian unless otherwise noted we're also hosting our annual general meeting. This morning. So we hope you will join US live by the broadcast at 11, a M. I'll now turn it over to Steve to review, our Q1 financials.
Steve: And then George will comment on our business and market outlook, Steve. Thank you, Kevin and good morning, everyone.
I'm pleased to share with you the results of our first quarter fiscal 'twenty 'twenty four in.
In Q1, we delivered $3.6 billion of revenue up four 4% year over year or up one 5% when excluding the impact of foreign exchange.
George D. Schindler: The growth was balanced between Europe, and North America.
George D. Schindler: From an industry perspective, we had parts of killer strength in government with 7.5% constant currency growth and then communication and utilities with 6.7% constant currency growth.
George D. Schindler: As anticipated we experienced softness in the banking sub sector.
George D. Schindler: Government continues to be C. G is largest vertical market, representing 36% of Q1 revenue up 100 basis point when compared to the prior year.
George D. Schindler: As a reminder, C G I deliver recurring services in business solutions to support our government clients with their mission critical functions, such as citizen services Cyber security logistics and financial management.
[noise] idea as a percentage of total revenue was 22% in the quarter.
George D. Schindler: 30 basis points, when compared to the prior year with the vast majority contracted as longer term recurring engagements increasingly as software as a service.
George D. Schindler: Overall I E revenue growth was four 2% in constant currency.
George D. Schindler: We had the once again.
George D. Schindler: Strong quarter of contract wins across all service offerings looking for $2 billion in the quarter for a robust book to bill ratio of 116% led by.
U S commercial and state government.
George D. Schindler: At 152% Findlaw.
George D. Schindler: Finland, Poland, and the Baltics, that's 137% and western and southern Europe, that's 127%.
George D. Schindler: Importantly, managed services, which is longer term recurring revenue for CGI represented 57% of total bookings for a book to bill ratio of 122%.
George D. Schindler: With respect to IP, we continue to see ongoing demand for our business solutions with a Q1 book to Bill ratio of 126% led by our U S segments with a combined IP book to Bill ratio of 164%.
George D. Schindler: Finland, Poland and Baltics with the Nike book to Bill ratio of 116%.
George D. Schindler: In Canada with a Nike book to Bill ratio of 110%.
George D. Schindler: Global backlog remained strong reaching 26 $6 billion, representing 1.8 times revenue.
George D. Schindler: Turning to profitability.
Earnings before income taxes were $527 million for a margin of 14, 6% down 40 basis points year over year, primarily as a result of expenses associated with our previously announced cost optimization program.
George D. Schindler: This program, which is focused on SG&A has been expanded by $26 million for a total of $100 million and is expected to complete as planned in the second quarter.
George D. Schindler: The cost optimization program, along with our ongoing it management discipline will provide incremental margin improvement in the second half of the year.
George D. Schindler: Adjusted EBIT in the quarter was $584 million up five 4% year over year.
George D. Schindler: This represents a margin of 16, 2% up 10 basis points year over year.
George D. Schindler: We delivered strong margins in the following segments.
George D. Schindler: Asia Pacific at 33%.
George D. Schindler: Canada up, 24%, UK, and Australia at 17% and North West and Central East Europe also at 17%.
George D. Schindler: Our effective tax rate in the quarter was 26.1%.
George D. Schindler: We expect our tax rate for future quarters to be in the range of 25% to 26.5%.
George D. Schindler: Net earnings were $390 million up $7.4 million for a margin of 10, 8% down 30 basis points year over year.
George D. Schindler: Mainly impacted by the investments and the cost optimization program.
George D. Schindler: Diluted EPS was $1 67, representing an increase of 4.4% year over year, when compared to $1.60 in Q1 last year.
George D. Schindler: When excluding specific items net earnings improved to $427 million up seven 3% when compared to Q1 last year for a margin of 11, 9% up 40 basis points.
George D. Schindler: Specific items for the quarter included integration and acquisition costs, along with expenses associated with the cost optimization program.
George D. Schindler: On the same basis diluted EPS was $1.83 in that accretion then 0.2% when compared to Q1 last year.
George D. Schindler: In the quarter cash provided by operating activities was $577 million, representing 16% of total revenue.
On a trailing 12 month basis cash provided by operating activities was $2 $1 billion, representing 14.4% of total revenue.
George D. Schindler: DSO was 41 days in the quarter below our target of 45 days, mainly due to improved collections and the variation in foreign exchange ending rates.
George D. Schindler: In Q1, we used our cash to invest $85 million into our business, including an AI.
George D. Schindler: Invested $49 million in business acquisition.
George D. Schindler: And that's $126 million to buyback our stock.
George D. Schindler: And the repaid $673 million of long term debt.
George D. Schindler: In the quarter, we continued to deliver a strong return on invested capital at 15.9% up 40 basis points year over year, demonstrating our proficiency and discipline on deployment of capital.
George D. Schindler: Looking ahead, our focus continues to be on delivering value to our shareholders with the following cash allocation priorities.
George D. Schindler: First investing in our business.
George D. Schindler: Second pursuing and closing a creative acquisitions.
George D. Schindler: Third repurchasing our stock and finally paying down our debt.
George D. Schindler: In line with this capital allocation strategy yeah.
George D. Schindler: Yesterday, our board of directors approved the extension of the NCI B program until February 2025 go to rising us to repurchase for cancellation up to 25 million shares over the next 12 months.
George D. Schindler: C. G I balance sheet is strong with a net debt to capitalization ratio of 17, 6% at the end of December as well as $2 $7 billion of cash readily available and access to more if needed.
George D. Schindler: Moving forward, we have the strength and capital resources to continue to execute on both our build and buy profitable growth strategy.
George D. Schindler: Now I will turn the call over to George to further discuss the insights on the quarter and outlook for our business and markets George.
George D. Schindler: Thank you, Steve and good morning, everyone.
George D. Schindler: We started fiscal year 2024 in a strong position by harnessing the inherent value of our resilient business model and by employing disciplined operating practices and the execution of our plan.
George D. Schindler: In the quarter, our team delivered financial results in line with our full year plan for revenue growth consistent with the current services demand environment double digit EPS accretion on an adjusted basis and incremental margin improvement year over year on an adjusted basis.
George D. Schindler: With cash from operations at 16% of revenue in first quarter bookings at 116% of revenue C. J is well positioned to deliver on our build and buy profitable growth strategy.
George D. Schindler: The continued strength of our financial performance is anchored by the ability of our consultants to earns clients trust everyday on every engagement.
George D. Schindler: Again this quarter our team earned higher client satisfaction ratings on every dimension, we measure the overall rating of nine five out of 10 a record high.
George D. Schindler: The continuous improvement in client satisfaction reflects clients' ongoing confidence in selecting CGI to innovate and support their most critical digital priorities.
George D. Schindler: As anticipated at all levels of government demand continued to rise in Q1 as clients focused on progressing their key policy initiatives through the transformation of mission critical applications and systems.
George D. Schindler: In the quarter Government awards represented 39% of total Q1 bookings up from 37% in the prior year.
C J, it's IP solutions, where a main contributor to the strong government bookings, particularly in the United States segments governments are increasingly interested in solutions to improve their operational efficiency leveraging the built in security and innovation, so with AI cgi's intellectual property.
George D. Schindler: Across all industries <unk> end to end services and solutions position us well to deliver the right mix of offerings as clients continue to prioritize initiatives that will deliver the highest financial returns and drive tangible organizational benefits.
George D. Schindler: So you guys outcome based value propositions for managed services and IP are specifically designed to help clients generate cost savings and accelerate transformation.
George D. Schindler: Lower capital costs.
George D. Schindler: In line with CJS compelling value proposition for clients Q1 bookings were mostly comprised of managed services and IP engagements, which generate long term recurring revenue.
George D. Schindler: Managed services bookings were driven by strength in government communications and utilities and health.
Recent managed services and IP wins include the Virginia Department of Social services selected CGI to modernize their statewide child support system through a platform based solution, which incorporates AI and expands our global alliance with Salesforce.
George D. Schindler: Under the agreement, we will partner with government executives to simplify and innovate the end to end processes for delivering citizen services.
George D. Schindler: Policy group, the leading postal and logistics services provider in Finland, Sweden, and the Baltics expanded their long term collaboration with CGI through new 10 year engagement to develop modernize and deliver secure digital messaging services across multiple channels and countries.
George D. Schindler: A global multi energy company renewed and extended his partnership with CGI to modernize the delivery of the company's business applications, primarily for their downstream operations.
George D. Schindler: Our engagement takes an end to end approach to help the client drive their energy transformation strategy.
George D. Schindler: And in 12 state and local governments across the U S, including the county of Los Angeles, The most populous county nationwide CGI was selected to upgrade their core business platforms.
George D. Schindler: <unk> leverage CJS advantage IP, a modern cloud based solution for permitting procurement HR finance collections and performance data management.
George D. Schindler: In the quarter consulting and system integration bookings were 110% of revenue on a sequential quarter basis with strength and build and run projects in the government and national critical infrastructure sectors and platform modernization projects, particularly in the insurance industry.
George D. Schindler: <unk> see jazz insurance IP portfolio, and our partnership with Guidewire.
George D. Schindler: Notably in the first quarter CGI was recognized by Guidewire for outstanding market growth in both the Americas, and Europe and for our delivery excellence.
George D. Schindler: Looking ahead, our overall pipeline for managed services.
George D. Schindler: Year over year, and sequentially, which we expect will contribute to ongoing bookings strengths and future revenue growth.
George D. Schindler: Client demand within the government sector continues to drive strength in our overall pipeline a sequential quarter basis. The managed services pipeline for government is up by more than 40%.
George D. Schindler: Pipeline for government S. I N C projects is up 20%.
George D. Schindler: We continue to see strong demand related to government priorities for cyber security data analytics and modernization to drive efficiencies and enhance citizen services.
Well they are beginning to see improving client pipeline for systems integration and consulting across commercial industries clients continue to exercise caution and their discretionary <unk> spending decisions given ongoing market uncertainty.
George D. Schindler: These market dynamics continue to favor <unk> managed services and IP to help these commercial clients generate cost savings and operational efficiencies.
George D. Schindler: For example, within the manufacturing retail and just distribution sector interest in platform based solutions to drive operational efficiencies continues to rise and interest in generative AI is also on the rise in this sector with clients focused on data preparedness and exploring pilots related to knowledge management research and development forecasts.
George D. Schindler: Testing and replenishment and production automation.
George D. Schindler: And health and life Sciences, we recently assigned industry partnerships in the U K, Germany, and Denmark to accelerate pipeline growth through joint go to market offerings. In addition, we announced last week, a global partnership with Korver focused on improving the production processes of pharma and life science clients around the world.
George D. Schindler: This partnership will leverage <unk> business consulting and system integration services and core versus unique portfolio of integrated pharmacy solutions.
George D. Schindler: And in financial services. The overall pipeline is up 12% sequentially with clients primary focus on driving cost savings specifically through new managed services engagements and are increasingly focused on both technology and business operations.
George D. Schindler: Interest remains high for CGI IP solution business solutions to modernize the managed payments enable trade finance globally, and detect and combat financial crime.
George D. Schindler: Our ability to meet the demand associated with our increasing pipeline and to deliver incremental margin improvement is underpinned by our quality delivery and operational excellence as guided by the best practices and frameworks and CGI is management Foundation.
George D. Schindler: We continue to make investments to drive our building profitable growth strategy. For example in line with client demand, we've been driving broader diversification of our footprint growing our global delivery network at an even faster pace than our proximity operations.
Operator: Good morning, ladies and gentlemen, and welcome to CGI's first quarter fiscal 2024 conference. I would like to turn the meeting over to Mr. Kevin Linder, SVP of Investor Relations. Please go ahead, Mr. Linder.
George D. Schindler: This strategy has enabled us to continually build deep relationships and proximity with clients and expand the optionality CGI offers clients the balance of cost risk and quality objectives.
Kevin Linder: Thank you, Sylvie, and good morning. With me to discuss CGI's first quarter fiscal 2024 results are George Schindler, our President and CEO, and Steve Perrin, Executive Vice President and CFO. This call is being broadcast on CGI.com and recorded live at 9 a.m. Eastern Time on Wednesday, January 31st, 2024. Some supplemental slides, as well as a press release we issued earlier this morning, are available for download along with our Q1 MD&A, financial statements, and accompanying notes, all of which have been filed with both Cedar Plus 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, and CGI disclaims any intent or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. The complete Safe Harbor statement is available in both our MD&A and press release, as well as on CGI.com.
George D. Schindler: Over the past three years <unk> global delivery capacity expanded from 31% of total consultants worldwide.
George D. Schindler: 38% in Q1. This includes in our onshore nearshore and offshore delivery locations and is contributing to incremental margin improvements.
George D. Schindler: In the first quarter, we progressed several of the AI investments, we previously communicated investments, which are already strengthening our end to end service offerings.
George D. Schindler: These initiatives included the launch of training for all consultants globally.
George D. Schindler: Industry initiatives utilizing available AI tools, including Microsoft's co pilot offerings.
George D. Schindler: Consulting offerings to assist clients in their AI strategy.
George D. Schindler: And our new IP solutions, CGI machine vision, which enables clients in multiple industries to use AI for improved asset and physical infrastructure monitoring.
Kevin Linder: 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.
George D. Schindler: Overall adoption remains in the early stages, <unk> bookings, which incorporated these technologies total more than $200 million in Q1.
George D. Schindler: Double digits on a sequential quarter basis.
George D. Schindler: The initial focus of these deals is aligned around three areas setting an AI vision and roadmap to drive business value.
Kevin Linder: All of the dollar figures expressed on this call are Canadian, unless otherwise noted. We are also hosting our annual general meeting this morning, so we hope you will join us live via the broadcast at 11 a.m. I'll now turn it over to Steve to review our Q1 financials, and then George will comment on our business and market outlook.
George D. Schindler: Preparing the data strategy to build a future fit and adaptive foundation is there.
George D. Schindler: Responsible use of data at the core.
George D. Schindler: And piloting a variety of use cases, primarily focused on operational efficiency.
George D. Schindler: And we are investing in M&A as part of our build and buy profitable growth strategy. The strategy deepens, our resilience and serves as a catalyst for future organic growth.
Steve Perrin: Thank you, Kevin. And good morning, everyone. I'm pleased to share with you the results of our first quarter of fiscal 2024. In Q1, we delivered $3.6 billion of revenue, up 4.4% year over year, or up 1.5% when excluding the impact of foreign exchange. The growth was balanced between Europe and North America.
George D. Schindler: We continue to focus on building critical mass in strategic Metro markets within all CGI geographies.
Our goal is to gradually grow this presence to mirror the economic sector distribution in each metro market and to deploy our full range of services and solutions we.
George D. Schindler: We remain in dialogue with a number of merger targets, both metro market and transformational opportunities as.
Steve Perrin: From an industry perspective, we have particular strength in government with 7.5% constant currency growth and in communication and utilities with 6.7% constant currency growth, although it has been anticipated that we will experience softness in the banking subsector. Government continues to be CGI's largest vertical market, representing 36% of Q1 revenue, up 100 basis points when compared to the prior year. As a reminder, CGI delivers recurring services and business solutions to support our government clients with their mission-critical functions such as citizen services, cybersecurity, logistics, and financial management. IP as a percentage of total revenue was 22% in the quarter, up 30 basis points when compared to the prior year, with the vast majority contracted as longer-term recurring engagements, increasingly as software as a service. Overall IP revenue growth was 4.2% in constant currency. We had, once again, a strong quarter of contract wins across all service offerings, booking $4.2 billion in the quarter, for a robust book-to-bill ratio of 116%, led by U.S. Commercial and State Government at 152%. Finland, Poland, and the Baltics accounted for 137%, and Western and Southern Europe at 127%.
George D. Schindler: As always we will be disciplined to make sure that all CGI mergers will be accretive to each of our stakeholders.
In closing we are off to a strong start for the year and reiterate our confidence in our fiscal 2024 plan.
George D. Schindler: We are a resilient model with a diversified mix of geographies economic sectors and end to end services to enable profitable growth now.
And in the future.
George D. Schindler: Rusty client relationships and value propositions that are well aligned to meeting current demand for cost savings digital acceleration.
George D. Schindler: Roy led innovation.
We have a strong balance sheet and the improving M&A conditions enable us to act rapidly an accretive merger opportunities.
George D. Schindler: And we have a proven track record for operational excellence for taking proactive actions to deliver continuous incremental margin expansion.
Speaker Change: For your continued interest and support.
Speaker Change: <unk> now Kevin. Thank you George Sylvia please share with participants to logistics for the Q&A. Thank you, ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your Touchtone phone you will then hear a sweetheart prompt acknowledging your request and if you would like to withdraw from the question queue simply press star followed by.
Sylvia: <unk> and.
Sylvia: If you are using a speaker phone we ask that you. Please lift the handset before pressing Andy Keys. Please go ahead and press Star one now if you do have a question.
Sylvia: And your first question will be from Stephanie price at CIBC. Please go ahead.
Stephanie Price: Good morning congratulations.
Stephanie Price: On the strong bookings that number this morning.
Steve Perrin: Importantly, managed services, which is longer-term recurring revenue for CGI, represented 57% of total bookings for a book-to-bill ratio of 122%. With respect to IP, we continue to see ongoing demand for our business solutions with a Q1 book-to-bill ratio of 126%, led by our U.S. segments with a combined IP book-to-bill ratio of 164%. Finland, Poland, and the Baltics with an IP book-to-bill ratio of 116%, and Canada with an IP book-to-bill ratio of 110%.
Stephanie Price: It seems like it's been skewed towards managed services and we're lapping Q1, 'twenty through and that was the case as well just tell me to understand the time to convert them to.
Stephanie Price: Revenue and has it played out as expected over the last year and how should we think about the pacing of that backlog conversion going forward.
Speaker Change: Yeah no. Thanks for the question Yeah. The managed services continues to drive the strength in the overall bookings and even as we lap some of those those are tougher comparisons and I think that's just the nature of where the market is right now.
Speaker Change: Having said that yes it does.
Has taken.
Speaker Change: A little bit longer to translate that from bookings to revenue just given the nature of those of those deals. They are larger they have more global delivery.
Steve Perrin: Global backlog remains strong, reaching $26.6 billion, representing 1.8 times revenue. Turning to profitability, earnings before income taxes were $527 million for a margin of 14.6%, down 40 basis points year over year, primarily as a result of expenses associated with our previously announced cost optimization program.
Speaker Change: Involved in them and so that transition takes a little bit longer and it takes a little bit longer therefore to convert into revenue. The other thing that you are seeing so, but we are converting that into revenue, but its counteract it.
Speaker Change: Some of the softness that you've seen in the <unk> side, particularly in the banking sector. We.
Speaker Change: We believe that's beginning to stabilize and so I think youll see more of that revenue coming coming online in the in the quarters.
Speaker Change: Okay.
Speaker Change: Thanks for the color and just one more for me just on the cost optimization program. It sounds like it was extended a bit in the quarter. Just curious how that's progressing and what areas of business Youre looking at and how we should think about it rolling out in fiscal 'twenty four.
Steve Perrin: This program, which is focused on SG&A, has been expended by $26 million for a total of $100 million and is expected to complete as planned in the second quarter. The Cost Optimization Program, along with our ongoing management discipline, will provide incremental margin improvement in the second half of the year. Adjusted EBIT in the quarter was $584 million, up 5.4% year-over-year.
Speaker Change: Yes.
Speaker Change: Cost optimization was primarily focused on the SG&A both.
Speaker Change: Some of the individuals as we move more of that to global delivery and automation, but also the real estate and so we accelerate some of the real estate. So.
That's that's really the focus it's over two thirds of that is focused on the SG&A is progressing very well.
Steve Perrin: This represents a margin of 16.2%, 10 basis points year over year. We delivered strong margins in the following segments: Asia-Pacific at 33%, Canada at 24%, UK and Australia at 17%, and Northwest and Central East Europe also at 17%.
Speaker Change: We believe you'll start to see some of that in the margin improvements.
In the quarters to come it also frees up the ability for us to continue making the investments that we're making and training and hiring talent and AI and our IP offering. So it's a it's a twofer for us some of that Youll see a margin improvement some of it frees up the ability to make those.
Steve Perrin: Our effective tax rate in the quarter was 26.1%. We expect our tax rate for future quarters to be in the range of 25 to 26.5%. Net earnings were $390 million, up $7.4 million for a margin of 10.8%, down 30 basis points year-over-year, mainly impacted by the investments in the cost optimization program. Diluted EPS was $1.67, representing an increase of 4.4% year-over-year when compared to $1.60 in Q1 last year.
Speaker Change: Investments for the future.
Speaker Change: Great. Thanks, so much.
Speaker Change: Yep.
Speaker Change: Thank you.
Speaker Change: Next question will be from <unk> at <unk> Bank.
Speaker Change: Please go ahead.
unknown: Hey, good morning, Thanks for taking my questions. The first one is on the read through for them from micro scalar. So we've seen the results from from last night, you know previously when when growth was slowing on the cloud side from them.
You still had optimization and cloud leveraging work to do now good news last night, we've seen some stabilization and even improvement at Google is does that mean, there could be additional work for.
Steve Perrin: When excluding specific items, net earnings improved to $427 million, up 7.3% when compared to Q1 last year, for a margin of 11.9%, up 40 basis points. Specific items for the quarter included integration and acquisition costs, along with expenses associated with the cost optimization program. On the same basis, diluted EPS was $1.83, an accretion of 10.2% when compared to Q1 last year.
unknown: For a company like like CGI, that's related to dislike of growth.
unknown: Yeah.
unknown: Clearly, we're working with the with all the hyperscale or as in partnerships, particularly on the on the opportunities associated with AI, We announced we announced one last quarter with Google.
unknown: Mentioned this quarter, we're working closely with Microsoft.
unknown: Microsoft on the copilot, so yeah, I mean it certainly.
unknown: I think it's a sign that we're starting to stabilize and some of those areas and we will continue to work with those.
unknown: Those.
unknown: Partners as channels for future growth for CGI in tandem.
Steve Perrin: Cash provided by operating activities was $577 million, representing 16% of total revenue. On a trading 12-month basis, cash provided by operating activities was $2.1 billion, representing 14.4% of total revenue. The SO was 41 days in the quarter, below our target of 45 days, mainly due to improved collections and the variation in foreign exchange ending rates. In Q1, we used our cash to invest $85 million in our business, including in AI. We invest $49 million in business acquisitions, invest $126 million to buy back our stock, and repay $673 million of long-term debt. In the quarter, we continue to deliver a strong return on invested capital at 15.9%, up 40 basis points year over year, demonstrating our proficiency and discipline on the deployment of capital.
Speaker Change: Okay, Great and then.
Speaker Change: Another one that you you had a lower head count are sequentially in the quarter.
Speaker Change: Obviously related to your cost optimization program.
Speaker Change: But a lower head count despite very good bookings in the last 12 months are you are you happy now with where utilization is or are you still looking for for more improvement.
Speaker Change: No where our utilization is is where we'd like it to be.
Speaker Change: Pretty high we did have a.
Speaker Change: Small increase in employees year over year, but a small decrease quarter over quarter, but again the majority of those decreases were in SG&A I'll just remind you that the growth is not cgi's growth is not linear to people because of the intellectual property.
Speaker Change: And you see the intellectual property continuing to grow in some of those bookings, but also those ROI led engagements. So it's a little bit different for us, but yeah, we're pretty happy where we are on the on the utilization.
Speaker Change: And of course, we're in a.
Speaker Change: And in an environment, where turnover is down pretty sharply.
Speaker Change: Which means we have less replacement hires to make so but we're being very careful not to hire in advance of demand, but we're in a pretty good place to be able to to grow.
Steve Perrin: Looking ahead, our focus continues to be on delivering value to our shareholders with the following cash allocation priorities: first, investing in our business; second, pursuing and closing accretive acquisitions. Third, repurchasing our stock and finally paying down our debt, in line with this capital allocation strategy. Yesterday, our Board of Directors approved the extension of the NCIB program until February 2025, authorizing us to repurchase for cancellation up to 20.5 million shares over the next 12 months. CGI's balance sheet is strong, with a net debt to capitalization ratio of 17.6% at the end of December, as well as $2.7 billion of cash readily available and access to more if needed.
Speaker Change: As the market.
Speaker Change: Demands.
Speaker Change: Bring themselves out to be.
Speaker Change: Great color. Thanks.
Speaker Change: Yes. Thank you.
Speaker Change: Next question will be from Thanos Metropolis at BMO capital markets. Please go ahead.
Thanos Moschopoulos: Hi, good morning.
Thanos Moschopoulos: George could you expand on.
Thanos Moschopoulos: What youre seeing from your commercial clients from a demand perspective, and so I presume a number of them have just copy of the annual budgeting process I think for 2024.
Thanos Moschopoulos: And so as you speak to them about their plan spend.
Thanos Moschopoulos: Good areas like AI be drivers of incremental spend versus last year or is it still very much the case, where perhaps trying to extend flash and <unk> savings from outsourcing.
Thanos Moschopoulos: Hi.
George D. Schindler: Moving forward, we have the strength and capital resources to continue to execute on both our build and buy profitable growth strategies. Now, I will turn the call over to George to further discuss the insights on the quarter and outlook for our business and markets.
Yeah. It's a good question, it's a bit all over the map I think in general.
Speaker Change: The discussions that we've had is that are.
They'd like to.
Speaker Change: Old their budgets, if not increase their budgets, but that's all it's still in discussion. So the interest is rising our pipeline is rising with the commercial clients, but theyre still buying the cost optimization projects.
George D. Schindler: Thank you, Steve, and good morning, everyone. We started fiscal year 2024 in a strong position by harnessing the inherent value of a resilient business model and by employing disciplined operating practices in the execution of our plan. In the quarter, our team delivered financial results in line with our full-year plan for revenue growth consistent with the current IT services demand environment, double-digit EPS accretion on an adjusted basis, and incremental margin improvement year over year on an adjusted basis. With cash from operations at 16% of revenue and first quarter bookings at 116% of revenue, CGI is well positioned to deliver on our build and buy profitable growth strategy. The continued strength of our financial performance is anchored by the ability of our consultants to earn clients' trust every day on every engagement. Again this quarter, our team earned higher client satisfaction ratings on every dimension we measure. An overall rating of 9.5 out of 10, a record high.
Theres still by and in smaller doses as they wait to see kind of where some of this uncertainty goes so.
Speaker Change: We did see again the interest is rising.
And into that interest because we want to be positioned for that but we're selling the cost optimization projects and you see that in our bookings. So that's kind of our approach is to engage them in the discussions.
Speaker Change: To prepare for when the spending decisions com, we don't see them coming yet I mentioned that in my remarks, but we certainly see the pipeline growing the interest is there.
Speaker Change: But theyre not pulling the trigger quite yet.
Speaker Change: But they are pulling the trigger on the cost optimization, which will only help them to.
Speaker Change: To spend more in the <unk>.
Speaker Change: In the back half of the year.
Speaker Change: Great.
Speaker Change: Can you expand on how youre hearing with respect to the war on talent.
Speaker Change: Capabilities.
Speaker Change: How much of that will be new hires versus training.
George D. Schindler: The continuous improvement in client satisfaction reflects clients' ongoing confidence in selecting CGI to innovate and support their most critical digital priorities. As anticipated, at all levels of government, demand continued to rise in Q1, as clients focused on progressing their key policy initiatives through the transformation of mission-critical applications and systems. In the quarter, government awards represented 39% of total Q1 bookings, up from 37% in the prior year.
Speaker Change: Will that be mostly within the business unit level regionally or will be some stabilization of capability.
Speaker Change: Yes.
Speaker Change: All of the all of the above.
Speaker Change: As I mentioned, we're rolling out training for everybody in the company of course, focusing different training for developers different training for the business analyst and different training again, we're the leaders in the business developers so.
Speaker Change: Because everybody needs to be literate and AI and of course, we're a company where people run towards that and so that's been.
George D. Schindler: CGI's IP solutions were a main contributor to the strong government bookings, particularly in the United States segment. Governments are increasingly interested in solutions to improve their operational efficiency, leveraging the built-in security and innovation, including AI, of CGI's intellectual property. Across all industries, CGI's end-to-end services and solutions position us well to deliver the right mix of offerings. As clients, we continue to prioritize initiatives that will deliver the highest financial returns and drive tangible organizational benefits. CGI's outcome-based value propositions for managed services and IP are specifically designed to help clients generate cost savings and accelerate transformation, and lower capital costs. In line with CGI's compelling value proposition for clients, Q1 bookings were mostly comprised of managed services and IP engagements, which generate long-term, recurring revenue. Managed Services bookings were driven by strength in government, communications, and utilities, and health.
Speaker Change: Very positive for US, having said that of course, we need to bring in.
Speaker Change: Expertise, we actually developed established a global AI, enabling enablement center of expertise and we do have in there.
Speaker Change: Phds and alike and steeped in AI I can make sure that we have that and then and again I can say, it's all the above that centralized but then we have a network of AI experts are spread throughout the business units, but then.
Speaker Change: Sure.
Speaker Change: Driven.
Speaker Change: From a vision standpoint from that global enablement center of expertise.
Speaker Change: Likewise in each of our intellectual property business solutions, we're introducing AI and again, that's our built in R&D.
Speaker Change: <unk> have if you will because again with 22% of our revenue.
Speaker Change: In IP and over 150 different solutions, we're able to really test out use cases and work collaboratively.
George D. Schindler: Recent managed services and IP wins include the Virginia Department of Social Services selecting CGI to modernize their statewide child support system through a platform-based solution that incorporates AI and expands our global alliance with sales. Under the agreement, we will partner with government executives to simplify and innovate the end-to-end processes for delivering citizen service. Postigroup, the leading postal and logistics services provider in Finland, Sweden, and the Baltics, expanded their long-term collaboration with CGI through a new 10-year engagement to develop, modernize, and deliver secure digital messaging services across multiple channels and countries.
Speaker Change: Collaboratively with our clients as part of our investment so it's really all of the above which is why.
Speaker Change: I answered initially that way.
Speaker Change: Great. Thanks, I'll pass along thanks.
Speaker Change: Thanks.
Speaker Change: Next question will be from Paul Treiber RBC. Please go ahead.
Paul Treiber: Oh, thanks, very much and good morning, just a question on the U S federal space, you've seen good bookings momentum overall.
Paul Treiber: Over the last year or so, but this year coming.
Paul Treiber: Coming up to an election in the U S. How should we think about bookings.
Paul Treiber: Through this year.
Paul Treiber: And then I'll see D C. How do you see revenue growth progressing through this year, just given the upcoming auction.
George D. Schindler: A global multi-energy company renewed and extended its partnership with CGI to modernize the delivery of the company's business applications, primarily for their downstream operations. Our engagement takes an end-to-end approach to help the client drive their energy transformation strategy, and in 12 state and local governments across the U.S., including the County of Los Angeles, the most populous county nationwide, CGI was selected to upgrade their core business platform. The engagements leverage CGI's Advantage IP, a modern cloud-based solution for permitting, procurement, HR, finance, collection, and performance, Data Man. In the quarter, consulting and system integration bookings were 110% of revenue, up on a sequential quarter basis, with strength in build and run projects in the government and national critical infrastructure sector and platform modernization projects, particularly in the insurance industry, leveraging CGI's insurance IP portfolio and our partnership with Guidewire. Notably, in the first quarter, CGI was recognized by Guidewire for outstanding market growth in both the Americas and Europe, and for delivery excellence.
Speaker Change: Yeah. So it's.
It's more than just the election right because we get that continuing resolution.
Speaker Change: The battles and.
Speaker Change: Congress both in the Senate and the house, so lots going on in federal having said that here's what I would say and it's true not just in the U S federal but it's true in a bit in the U K and Canada as well, we see deals accelerating and advance of upcoming elections.
Speaker Change: So what what happens is the bureaucracy. If you will want to keep things going during that election period, and so the deals tend to get a little bit accelerated tend.
Speaker Change: <unk> tend to be a little bit larger.
Speaker Change: And tend to engage a little bit longer just to get some of that stability. So I think youll see a bit of a run up here in the next couple of quarters on the bookings and then that will drop off.
Speaker Change: During the election period, and then and then we have the change introduced in the aftermath of the election. So.
Speaker Change: Regardless, even if it's even if the incumbent gets reelected theres typically new initiatives that are that occur.
George D. Schindler: Looking ahead, our overall pipeline for managed services is up year over year and sequential, which we expect will contribute to ongoing booking strength and future revenue growth. Client demand within the government sector continues to drive strength in our overall pipeline. On a sequential quarter basis, the managed services pipeline for government is up by more than 40 percent. The pipeline for government SINC projects is up 20 percent.
Speaker Change: After the election, so a little bit of a run up on the bookings than we will eat into some of that backlog for for growth. During a short period of time, and then new opportunities arise. So that's kind of the general cycle.
Speaker Change: Like I said, we're seeing that not just in the U S. But also a bit in the UK and in Canada.
George D. Schindler: We continue to see strong demand related to government priorities for cyber security, data analytics, and modernization to drive efficiencies and enhance citizen services. While we are beginning to see an improving client pipeline for systems integration and consulting across commercial industries, clients continue to exercise caution in their discretionary SINC spending decisions due to ongoing market uncertainty. These market dynamics continue to favor CGI's managed services and IP to help these commercial clients generate cost savings and operational efficiency. For example, within the manufacturing, retail, and distribution sectors, interest in platform-based solutions to drive operational efficiencies continues to rise. An interest in generative AI is also on the rise in this sector, with clients focused on data preparedness and exploring pilots related to knowledge management, research and development, forecasting, and replenishment, production automation, and Health and Life Sciences.
Speaker Change: And then looking at your Asia Pacific business, and then more broadly to surround the trend towards Offshoring Asia Pacific.
Speaker Change: A slow the growth there has slowed in the single digit range, where it has been in double digits for a number of quarters are you seeing that the trend towards offshoring and your business begin to slow down or is it. Some other factors that were mixed in there and you expect Asia Pacific growth to ramp back up.
Speaker Change: Yeah actually.
Believe it or not there are Asia Pacific was also impacted by some of the slowdown in Si and C, including and particularly in banking so but the continued strength in demand on these managed services deals. They are facing the same thing some of those deals take a little more time to transition to.
Speaker Change: Global delivery, but global delivery was part a big part of those deals. So I think youre going to see over time as S. I N C stabilizes.
Speaker Change: And I think youre going to see some of that growth coming back to Asia Pacific like I said, it's a it has been a push it gives our clients optionality and gives them some of those cost optimization theyre looking for so we're actually seeing.
George D. Schindler: We recently signed industry partnerships in the UK, Germany, and Denmark to accelerate pipeline growth through joint go-to-market offerings. In addition, we announced last week a global partnership with Korver focused on improving the production processes of pharma and life science clients around the world. This partnership will leverage CGI's business consulting and system integration services and Korber's unique portfolio of integrated pharma solutions.
Speaker Change: That grow including in parts of Europe.
Speaker Change: Even in a even in France, we're seeing more take up on our global delivery offshore specifically, whereas they've been more nearshore focused we're seeing more of that go offshore.
George D. Schindler: And in financial services, the overall pipeline is up 12% sequentially, with clients' primary focus on driving cost savings, specifically through new managed services engagements that are increasingly focused on both technology and business operations. Interest remains high for CGI's IP business solutions to modernize and manage payments, enable trade finance globally, and detect and combat financial crime. Our ability to meet the demand associated with our increasing pipeline and to deliver incremental margin improvement is underpinned by our quality delivery and operational excellence, guided by best practices and frameworks and CGI's management foundation. We continue to make investments to drive our build and buy profitable growth strategy. For example, in line with client demand, we've been driving broader diversification of our footprint, growing our global delivery network at an even faster pace than our proximity operation. This strategy has enabled us to continually build deep relationships and proximity with clients and expand the optionality CGI offers clients to balance their cost, risk, and quality objectives. Over the past three years, CGI's global delivery capacity expanded from 31% of total consultants worldwide to 38% in Q1.
Speaker Change: France.
Speaker Change: Hey, thanks for taking the questions.
Speaker Change: Yes. Thank you next question will be from Richard Tse of National Bank Financial. Please go ahead.
Richard Tse: Oh, Thank you yeah.
Given you have such great strengths and government.
Richard Tse: Certainly over the years.
Richard Tse: Would it be kind of unreasonable to say looking forward to lean harder into that market with acquisitions or are you kind of looking to diversify the business a little bit away from that.
Speaker Change: Yeah, It's a great. It's a great question.
Speaker Change: We are looking at M&A and both government and commercial.
Speaker Change: I wouldn't say, we're favoring government because we like having a good mix.
Speaker Change: <unk>.
Speaker Change: Industries out there, but but at.
Speaker Change: At this point, Yeah government, we're going to play into that and so where we do have a set of government.
Speaker Change: Opportunities and are active.
Speaker Change: Funnel right now.
Speaker Change: Okay.
Speaker Change: And then with respect to the rise of AI, just kind of curious to see what proportion of bid engagements are asking you to address that and how it eventually kind of impact.
George D. Schindler: This includes in our onshore, nearshore, and offshore delivery locations and is contributing to incremental margin improvement. In the first quarter, we progressed several of the AI investments we previously communicated. Investments, which are already strengthening our end-to-end service offer. These initiatives include the launch of training for all consultants globally on AI, industry initiatives utilizing available AI tools, including Microsoft's co-pilot, consulting offerings to assist clients in their AI strategy, and a new IP solution, CGI Machine Vision, which enables clients in multiple industries to use AI for improved asset and physical infrastructure monitoring. While overall adoption of AI remains in the early stages, CGI's bookings, which incorporated these technologies, totaled more than $200 million in Q1, up double digits on a sequential order basis. The initial focus of these deals is aligned around three areas.
Speaker Change: You know the margin profile does it have kind of incremental margin upside in those type of engagements I'm just trying to understand like where we are with your enterprise customers.
Speaker Change: Yeah. So there's kind of two aspects of AI right, introducing AI into the solutions and like I said I think everybody's interested in.
Speaker Change: And seeing how they can leverage that particularly in the in the.
Speaker Change: <unk>.
Speaker Change: Type solutions and so that's a lot of our IP right, we'll do a lot of our IP is in the in the operational efficiencies for our clients and so we're introducing a lot of AI. That's very welcome by them in those types of solutions because.
Speaker Change: They're interested in kind of proving out some of these some of these cases and.
Speaker Change: And our business cases, and so that's something that we're at.
Speaker Change: <unk> is an element of those and of course given that it's in high demand, yes, there's a there's.
Speaker Change: An element where accelerating those comes at a slightly higher margin profile.
George D. Schindler: Setting an AI vision and roadmap to drive business value. Preparing the Data Strategy to Build a Future-Fit and Adaptive Foundation. Responsible Use of Data at the Core, and piloting a variety of use cases primarily focused on operational efficiency. And we are investing in M&A as part of our build and buy profitable growth strategy. The strategy deepens our resilience and serves as a catalyst for future organic growth.
Speaker Change: So that's the good the good news there, but there's also the opportunity for us to use AI in our own delivery and the delivery of.
Speaker Change: Everything that we do.
Speaker Change: So we're looking at that from Bidden proposal support to co design and testing documentation cogeneration code migration.
Speaker Change: So that's the opportunity for I think margin improvements, especially as you do that on an outcome based.
Speaker Change: This solution sale. So that's that's really the opportunity I think for US it's twofold right. It's it's introducing that for our clients and the end of the profile now what I would say is we're still seeing.
George D. Schindler: We continue to focus on building critical mass and strategic metro markets within all CGI geography. Our goal is to gradually grow this presence to mirror the economic sector distribution in each metro market and to deploy our full range of services and solutions. We remain in dialogue with a number of merger targets, both metro market and transformational opportunities. As always, we will be disciplined to make sure that all CGI mergers will be accretive to each of our stakeholders. In closing, we are off to a strong start for the year and reiterate our confidence in our fiscal 2024 plan.
Speaker Change: Pilots.
Speaker Change: Some of the enterprise clients are maybe doing that at a little more of the scale larger implementations. We are seeing some of the larger implementation, but theres still tend to be smaller point projects and absolutely still experimentation when you're talking about customer facing AI.
Speaker Change: So this is our clients to their customers.
Speaker Change: Oh.
Speaker Change: It's still that's why I mentioned the early days, but.
Operator: We have a resilient model with a diversified mix of geographies, economic sectors, and end-to-end services to enable profitable growth now and in the future. We have trusted client relationships and value propositions that are well aligned to meeting current demand for cost savings, digital acceleration, and ROI-led innovation. We have a strong balance sheet, and the improving M&A conditions enable us to act rapidly on accretive merger opportunities, and we have a proven track record for operations for taking proactive actions to deliver a continuous, incremental margin expansion. Thank you for your continued interest and support. Let's go to the questions now. Thank you, George.
Speaker Change: Certainly there are opportunities here.
Speaker Change: For sure.
Speaker Change: Okay, great. Thank you for the insight.
Speaker Change: Yes.
Speaker Change: Thank you, ladies and gentlemen, as a reminder, if you have a question you will need to press star one on your telephone keypad.
Speaker Change: And your next question will be from Jason Kupferberg with bank.
Jason Kupferberg: Bank of America. Please go ahead.
Jason Kupferberg: Hi, good good morning, George and Steve This is Tyler on for Jason Thanks for taking the question.
Tyler: I wanted to start by asking about visibility into calendar 'twenty four client budgeting decisions.
Tyler: It seems like based on your comments that backlog is rising quite steadily and nicely, but some clients are more cautious on pulling the trigger on converting some of those budgets into actual spend I'd be curious sort of how this current environment compares to previous time periods and when you believe the visibility to firm up more substantially as we look through the year.
Operator: Sylvia, please share with the participants the logistics for the Q&A. Thank you. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touchtone. You will then hear a three-tone prompt acknowledging your..., would like to withdraw. Simply press star followed by...
Speaker Change: Yeah, well you know Ive said this for for several actually years I think is that a I think that just given the nature of how important it is to the business.
Speaker Change: It's in general not seen as discretionary of course within the spend of course, there's there's a there's discretion, but in general it's not seen that way. So I think youre going to see a more rapid you didn't see as deep of a of a of a slowdown despite some of the.
Operator: If you are using a speakerphone, we ask that you please leave a message after the tone for Press 1 to go ahead and press star 1. If you do have a... Our first question will be from Stephanie Price, CIBC. Please go ahead.
Operator: Morning. Congratulations on the strong bookings number this morning. You know, it seems like it's been skewed towards managed services, and we're lapping Q1 2023 when that was the case as well. Just helping to understand the time to convert to revenue, and has it played out as expected over the last year? And how should we think about the pacing of that backlog conversion going? Yeah, no. Thanks for the question.
Uncertainty and I think you'll see a faster.
Speaker Change: Ramp back up.
Speaker Change: When that happens I can't call.
Speaker Change: I think youre going to see some of that in the back half of the year, but that's the discussion we're having so youre right were building that pipeline not pulling the trigger yet, but I really believe it's going to be.
Speaker Change: Little bit faster I think everything happens faster in today's world, but I think youre going to see that.
Operator: And yeah, managed services continues to drive strength and overall bookings. And even as we face some of those tougher comparisons, and I think that's just the nature of where the market is right now. Having said that, yes, it has taken a little bit longer to translate that from bookings to revenue, just given the nature of those deals; they're larger, they have more global delivery involved in them. And so the transition takes a little bit longer, and it takes a little bit longer, therefore, to convert that into revenue.
Speaker Change: And a little quicker.
Speaker Change: And then some of the the prior.
Speaker Change: Prior cycles, even they're buying is different right.
Speaker Change: Way, we execute projects the way they buy projects is different than it was in previous economic slowdown. So that's that's kind of what what I see of course, I can't I can't call that but that's what that's what I would anticipate.
Speaker Change: Sure sure that's Super helpful. Thanks, and I guess as a follow up I'd be curious to.
Speaker Change: To hear more about the pricing dynamics, you're seeing given the current demand environment I know based on again comments. It seems like S. AMC projects, a little bit softer with clients favoring more matter of services at the moment understandably.
Operator: The other thing that you are seeing, so we are converting that into revenue, but it's counteracted by some of the softness that you've seen on the SINC side, particularly in the banking sector. We believe that it is beginning to stabilize. And so I think you'll see more of that revenue coming online in the quarters for color. And just one more for me on the cost optimization program. Sounds like it was expanded a bit in the quarter.
Speaker Change: I'm wondering if there's any pricing concessions being made nsync to secure the deals that do exist.
Speaker Change: And maybe if you can sort of juxtapose, what youre seeing there versus the strength in the managed services deals.
Speaker Change: Yeah, we're not we're not really seeing that I mean, I guess there'd be two things right. There's there's the SaaS deals that are more focused on cost optimizations, we're selling those as Roy led and so we're pretty good at doing that and so it's still although it's not a managed service it still.
Operator: Just curious how it's progressing and what areas of business you're looking at and how we should think about it rolling out. Yeah, the cost optimization was primarily focused on SG&A, both some of the individuals as we move more of that to global delivery and automation, but also real estate. And so we accelerate some of the real estate. So that's really the focus.
Speaker Change: Driven kind of outcome based and so so you can.
Speaker Change: The pricing is different in those situations and then the other.
Speaker Change: See that's going on is pretty important and quality becomes very important.
Speaker Change: Time to deliver becomes important and so we're not really seeing big concessions on those those projects wholesale of course Theres always.
Speaker Change: Bad behaviors, I would say by and any in any given did but in general we're not seeing that you see are our actual bill rate efficiency is it's holding pretty steady we're not seeing a rising rate environment like we saw a year ago, but but we're not seeing degradation.
Operator: It's over two-thirds of that is focused on SG&A. It's progressing very well, and we believe you'll start to see some of that in the margin improvements in the quarters to come. It also frees up the ability for us to continue making the investments that we're making in training and hiring talent for AI and our IP offerings. So it's a twofer for us.
Speaker Change: Great. Thank you I appreciate the color Yeah sure. Thank you next question will be from the via <unk>.
Operator: Some of that you'll see in margin improvements, and some of it frees up the ability to make those investments for the future. Great. Thanks so much.
Scotiabank: Scotiabank. Please go ahead.
Speaker Change: Good morning, everyone George.
Scotiabank: I wanted to get some color on this variance between Europe versus the North American growth that we've been seeing and I know the peers have been commenting on it we have an outlook on it but it's it's I'm I'm. Just curious is it is the way it is because.
Operator: Yeah. The next question will be from Jerome Dubreuil at Desjardins. Please go ahead. Hey, good morning. Thanks for taking my questions. The first one is on the read-through form from hyperscalers.
Operator: We've seen the results from last night. And you know, previously, when growth was slowing on the cloud side from them, you still had optimization and cloud leveraging work to do. Now, good news. Last night, we saw some stabilization and even improvement at Google. Does that mean there could be additional work for a company like CGI that's related to this type of growth? Yeah, clearly, we're working with all the hyperscalers in partnerships, particularly on the opportunities associated with AI. We announced one last quarter with Google.
Scotiabank: Europe is doing better than North America or is it because north America undertook those business transformation sooner than Europe did and it is because of that macro economic conditions that is driving this variance at this time.
Speaker Change: Yeah, you know I I got to tell you I mean, we we mentioned our growth is pretty balanced between the between the two and.
Speaker Change: In general I see it less being about the the geographies and far more being about the same.
Speaker Change: About the industries and the services that you're offering and.
Operator: I mentioned this quarter that we're working closely with Microsoft on the co-pilot. So yeah, I mean, it's certainly a sign that we're starting to stabilize in some of those areas. And we'll continue to work with those partners as channels for future growth for CGI in Tanzania. Okay, great.
Speaker Change: Of course, we talked about S. I N C versus managed services and <unk>.
Speaker Change: And even in IP it depends on what solutions, you're offering in your business solutions right and and then from a from an industry perspective, clearly banking has been hit by this interest.
Speaker Change: Interest rise.
Speaker Change: And so that's a that's certainly a pretty dominant factor, particularly in North America. So I think that's where you might see some of that with some of the.
Operator: And then another one, you had a lower headcount sequentially in the quarter, you know, obviously related to your cost optimization program. But a lower headcount despite very good bookings in the last 12 months. Are you happy now with where utilization is? Or are you still looking for more improvement? No, our utilization is where we'd like it to be. It's pretty high.
Speaker Change: The comparisons but of course, given our strength in government and a national critical infrastructure industries, including utilities are strong in all geographies, both North America, and Europe, and so I think thats why we have a little more of a balance to your specific question.
Speaker Change: No I don't I don't think it's that are necessarily one is ahead of the other I think and especially when you look at some of the newer technologies and the new opportunities I think.
Operator: We did have a small increase in employees year over year, but a small decrease quarter over quarter. But again, the majority of those decreases were in SG&A. I'll just remind you that CGI's growth is not linear for people because of the intellectual property. And you see the intellectual property continuing to grow in some of those bookings, but also those ROI-led engagements. So it's a little bit different for us, but yeah, we're pretty happy where we are on utilization. And, of course, we're in an environment where turnover is down pretty sharply, which means we have fewer replacement hires to make. So, but we're being very careful not to hire in advance of demand, but we're in a pretty good place to be able to grow as the market demands and brings itself out to be. Great, thanks. Yep. Thank you. The next question will be from Thanos Moschopoulos at BMO Capital Markets. Please go ahead. Hi, good morning.
Speaker Change: Youre going to see a little more similarities than you'll see differences.
Speaker Change: Okay.
That's helpful. Just from your M&A pipeline standpoint, you did mention that some of the governments that businesses.
Speaker Change: Or in the pipeline do you see any alleviation to certain geographies as well again going back to the Europe versus North America growth trajectory that have been that we have been noticing over the recent quarters.
Speaker Change: Yeah, Yeah, well, what I would say is that we're always looking in all locations as I meant to as I mentioned already to gradually grow in each of those metro markets, but certainly the U S.
Speaker Change: France, Germany, and the UK are are areas that if you look at our active funnel there probably are more opportunities in those areas and like I said, both government and commercial in each of those geographies.
Speaker Change: That's helpful and then I'll ask one last question here on the cash flow from operations. So over the past two quarters. The CFO has been trending higher than the historical norms here.
Operator: George, could you expand on what you're seeing from your commercial clients from a demand perspective? And I presume a number of those have just gone through the annual budgeting process heading to 2024. And so as you speak to them about their planned spend, you know, could areas like AI be drivers of incremental spend versus last year? Or is it still very much the case that perhaps you're trying to keep spend flat and, you know, use savings from outsourcing to reinvest in areas like AI? Yeah, it's a good question. It's a bit all over the map.
Speaker Change: And obviously, you're undertaking now these cash optimization initiatives as well could you help us understand the go forward trajectory for the CFO.
Speaker Change: Steve do you want.
Steve: Look the Castro are I would say the best thing is to look at it from a last 12 month point of view, that's really yeah.
Steve: How are we look at it also internally, but obviously when the margins are improving the cash flow will improve we are investing in the business right now and with the objective to improve right.
Operator: I think, in general, the discussions that we've had are that they'd like to hold their budgets, if not increase their budgets, but that's all still in discussion. So the interest is rising, our pipeline is rising with the commercial clients, but they're still buying cost optimization projects. They're still buying in smaller doses, as they wait to see kind of where some of this uncertainty goes.
Steve: The the future earnings and also future cash flows.
Speaker Change: That's helpful. Thanks, George Thanks, Steve.
Speaker Change: Yes. Thank you thanks, David.
Speaker Change: Next question will be from Robert Young of Canaccord Genuity. Please go ahead.
Robert Young: Hi, Good morning, I wanted to put that 200 million and incremental.
Bookings related to AI into context, it seems like a good numbers. Thanks for sharing that but if I think of that as a relative percentage of the <unk> bookings that's over 10%, but I just think of it as a percentage of the new bookings for new business.
Operator: So we see, you know, again, interest is rising. We're playing into that interest because we want to be positioned for that. But we're selling cost optimization projects, and you see that in our bookings. So that's kind of our approach is to engage them in the discussions to prepare for when the spending decisions come, but we don't see them coming yet.
Robert Young: A larger percent in.
Robert Young: I'm trying to put that into context.
Robert Young: The comment you gave on an earlier question around how some of that is embedded into IP delivery like I'm trying to get a sense of how much of this is new businesses completely driven by AI and how much of it is embedded into other parts of exists.
Operator: I mentioned that in my remarks, but we certainly see the pipeline growing. The interest is there, but they're not pulling the trigger quite yet. But they are putting the trigger on the cost optimization, which will only help them to spend more in the back half of the year. Great.
Existing delivery.
Speaker Change: Yeah, and thanks for the question and you're right and you heard correctly, it's not all brand new business.
Speaker Change: Some of that is embedded of course it helps us continue to grow our relationship with our clients and be part of where the business is heading and that's why I highlighted that but its some.
Operator: And can you expand on what you're hearing with respect to the war on talent to build up your AI capabilities? Um, you know, how much of that will be new hires versus training? Um, will that be, you know, mostly within the business unit level regionally, or will there be some centralization of AI capability? Yeah, all of the above. As I mentioned, we're rolling out training for everybody in the company, of course, focusing different training for developers, different training for business analysts, and then different training, again, for leaders and business developers. Because everybody needs to be literate in AI, and of course, we're a company where people run towards that.
Speaker Change: Some of that is part of existing deals or would be part of existing deals I don't know if you.
Speaker Change: I'd say roughly.
Speaker Change: Maybe 60% within deals 40% new.
Speaker Change: That's just a rough estimate we could we can go back and give you some of that but.
Speaker Change: Again, given what we see lots of deals with AI, but not necessarily big large scale implementations, yet we're starting to see that again focused on the operations.
Speaker Change: Efficiencies were starting to see that in some of the larger.
Operator: And so, that's been very positive for us. Having said that, of course, we need to bring in expertise. We actually developed and established a global AI enablement center of expertise. And we do have PhDs and the like, steeped in AI to make sure that we have that. And then, and again, I guess that's all the above, that's centralized, but then we have a network of AI experts spread throughout the business units, but driven from a vision standpoint from that global enablement center of expertise.
Speaker Change: Engagements that we have with the with the largest of customers, but most are still.
Speaker Change: Smaller point solutions.
Speaker Change: Moving this out most of our clients are being very cautious I think.
Speaker Change: We would we would agree with them be very cautious in how they use this how they keep humans in the loop and in doing this in a in a modified way that's why I say, it's Earl silly early days of this.
Speaker Change: Yes, thanks, a lot of color, but still a great number.
Operator: Likewise, in each of our intellectual property business solutions, we're introducing AI. And again, that's our built-in R&D lab, if you will, because again, with the 22% of our revenue in IP and over 150 different solutions, we're able to really test out use cases and work collaboratively with our clients as part of our investment. So, it's really all of the above, which is why I initially answered that way. Great George, I'll pass the line.
Speaker Change: I'm curious.
Speaker Change: If you could help me maybe summarize all of the different drivers of margins that you're looking at right now.
Speaker Change: Just on the comments on the call it sounds like the cost optimization, and maybe some utilization benefits given theres lower attrition and maybe slight lower hiring.
Speaker Change: The IC growth global delivery still growing as a percentage if I heard that right like are there any other pieces that you would highlight that would be supportive of margin expansion here in the near term.
Operator: Thanks. Thanks. The next question will be from Paul Treiber at RBC; please go ahead. Oh, thanks so much. And good morning.
Speaker Change: That's pretty good pretty good Robert you know as I think about it I would say.
Operator: Just a question on US federal space. You know, you've seen good bookings momentum over the last year or so. But this year, you know, it's coming up to an election in the US.
Speaker Change: For me it would be managed services growth, particularly with the global delivery because you see the margins that drive IP as a percentage of revenue.
Speaker Change: Certainly the cost optimization program for SG&A, including that.
Operator: How should we think about bookings, you know, through this year? And then also, how do you see revenue growth progressing through this year, just given the upcoming election? Yeah, so it's more than just the election, right, because we get that continuing resolution, the battles in Congress, both in the Senate and the House, so lots going on in the federal government. Having said that, here's what I would say, and it's true not just in the U.S. federal government, but it's true a bit in the U.K. and Canada as well.
Speaker Change: Real estate.
Speaker Change: One of the areas that maybe we didn't talk about is continuous improvement.
Speaker Change: And geographies you saw Scandinavia improvement, we can see continued improvement there and that's through a combination of SG&A revenue mix, but also growth and then I did mentioned productivity from our agenda. Today I think that's a that will be a tailwind in the in the quarters to come as we leverage AI for our own.
Speaker Change: On operational efficiencies, including in and leveraging it for some of our own IP development.
Speaker Change: Got CGI has over half a billion lines of code.
Operator: We see deals accelerating in advance of upcoming elections. So what happens is the bureaucracy, if you will, wants to keep things going during that election period, and so the deals tend to get a little bit accelerated, tend to be a little bit larger, and tend to last a little bit longer just to get some of that stability. So I think you'll see a bit of a run-up here in the next couple quarters on the bookings, and that will drop off right during the election period, and then we have the change introduced in the aftermath of the election. So regardless, even if the incumbent gets re-elected, there are typically new initiatives that occur after the election. So a little bit of a run-up in bookings, then we'll eat into some of that backlog for growth over a short period of time, and then new opportunities arise.
Speaker Change: Our own ownership and to the extent that we can turn AI loose on our own intellectual.
Speaker Change: Intellectual property.
Speaker Change: Our own software.
Speaker Change: Not open to anybody else, we can maybe see some benefits there so.
Speaker Change: We're looking at that as well so all of those all of those are opportunities for us to continue to to.
Speaker Change: Provide the incremental margin improvement as we continue to grow the business.
Alright, Thanks, a lot for taking the questions.
Speaker Change: Sure.
Speaker Change: Thank you next question will be from Daniel Chan at TD Cowen. Please go ahead.
Daniel Chan: Hey, Good morning, George you mentioned interest rates may have affected the banking sector. Just wondering if there's anything else to call out there.
Daniel Chan: You think could be affecting it and then as a follow on given that the view that interest rates may decline. Later. This year do you think that would be a driver to our growth back in that sector. Later this year.
Operator: So that's kind of the general cycle, and like I said, we're seeing that not just in the U.S. but also a bit in the U.K. and Canada. And then looking at your Asia-Pacific business, and then more broadly just around the trend toward offshoring, Asia-Pacific is slow; the growth there is slow in the single-digit range, whereas it's been in double digits for a number of quarter Are you seeing the trend towards offshoring in your business begin to slow down? Or is it just some other factors that are mixed in there, and do you expect Asia-Pacific growth to ramp back up? Yeah, actually, believe it or not, our Asia Pacific region was also impacted by some of the slowdown in SINC, including, particularly, in banking.
George D. Schindler: Yes, I do think.
George D. Schindler: It's a bit of wait and see and I think just the uncertainty is what's driving some of this and so I think when there becomes a little more certainty.
George D. Schindler: Not if but when that occurs I do think you'll see more loosening of those actions like I said the interest is there and what we're doing is building the pipeline, making sure. We're part of the conversations but I do think youll see some of that in general that's the.
The landscape that that I see it's one it's really the interest rates, but it's also.
George D. Schindler: Dealing with the the increase if you will and regulatory elements. There's a lot of focus short term on mix.
George D. Schindler: Sure. It's a regulatory is has dealt with and I think that's a it's been a main focus which kind of.
Operator: So, but the continued strength and demand for these managed services deals, they're facing the same thing. Some of those deals take a little more time to transition to global delivery, but global delivery was part, a big part, of those deals. So, I think you're going to see, over time, as SINC stabilizes, and I think you're going to see some of that growth coming back to Asia Pacific.
George D. Schindler: Removes the focus from some of the other areas, but I think youll see that loosening up like I said I can't call win but I do think that that's a that's on the horizon and you're already seeing it stabilized it's not getting better yet.
George D. Schindler: Yes.
George D. Schindler: Yeah.
Speaker Change: That's helpful. Thank you and then you've been pretty optimistic on the.
Operator: Like I said, it's, has been a push; it gives our clients optionality and gives them some of that cost optimization they're looking for. So, we're actually seeing that grow, including in parts of Europe, including in France. We're seeing more take-up on global delivery offshore specifically, whereas they've been more near shore focused; we're seeing more of that go offshore in France. Okay, thanks for taking the question. Yep. Thank you.
Speaker Change: On the M&A opportunities over the last couple of years anything to call out in the current environment that changes your level of optimism relative to last year.
Speaker Change: No well I would say it's.
Even more optimistic that there are opportunities of course, we're going to we're going to continue to have the focus that we have to make sure that we're bringing in the.
Speaker Change: The right companies and that can be that catalyst for growth that we talked about.
Speaker Change: And provide the accretion to our shareholders, but I become more and more.
Operator: Next question will be from Richard Tse at National Bank Financial, score. Oh. Yeah, given you have such, Garam would be kind of unreasonable.
Speaker Change: Bullish on the opportunities just given kind of where the where the market is where the valuations are and where we are as a company you see our balance sheet. So.
Operator: TheFNDC.com, Yeah, it's a great question. We are looking at M&A in both government and commercial. I wouldn't say we're favoring government because we like having a good mix of industries out there. But at this point, yeah, government, we're going to play into that. And so we do have a set of government opportunities in our active funnel right now, and then, you know, with respect. Howard Fo
Speaker Change: But we're going to continue to be disciplined on that approach.
Speaker Change: Alright, Thanks George.
Speaker Change: Yep.
Speaker Change: Thank you.
Speaker Change: At this time, Mr. Linda and we have no other questions. Please proceed.
Linda: 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 one 870, 767 hundred 47070, and using the pass code <unk> seven <unk> hundred six as well a podcast of this call will be available for download within a.
Linda: A few hours follow up questions can be directed to me at $1 905, $9 73, <unk> hundred 60, III. Thanks, again, everyone and look forward to speaking soon.
Linda: Yes.
Speaker Change: 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 enjoy the rest of your day.
Operator: Yeah, so there's kind of two aspects of AI, right? Introducing AI into the solutions. And like I said, I think everybody's interested in seeing how they can leverage that, particularly in operational-type solutions. And so that's a lot of our IP, right? We do a lot of our IP in operational efficiencies for our clients. And so we're introducing a lot of AI, and that's very welcomed by them in those types of solutions because they're interested in kind of proving out some of these cases and business cases. And so that's something that is an element of those. And of course, given that it's in high demand, yeah, there's an element where accelerating those comes at a slightly higher margin profile. So that's the good news there.
Speaker Change: [music].
Operator: But there's also the opportunity for us to use AI in our own delivery, in the delivery of everything that we do. So we're looking at that from bid and proposal support to code design and testing, documentation, code generation, and code migration. So that's the opportunity for, I think, margin improvements, especially as you do that on an outcome-based solution sale. So that's really the opportunity, I think, for us. It's twofold,
Operator: It's introducing that for our clients into the profile. Now, what I would say is we're still seeing pilots that some of the enterprise clients are maybe doing that at a little more scale, larger implementations. We are seeing that at some of the larger implementations. But there still tend to be smaller point projects and absolutely still experimentation when you're talking about customer-facing AI use.
Operator: So this is what our clients say to their customers. So I think it's still, that's why I mentioned the early days, but it's certainly, there are opportunities here for sure. Yep, yep. Thank you. Ladies and gentlemen, a reminder that if you have a question, you will need to press star 1 on your telephone keypad. And your next question will be from Jason Kupferberg at Bank of America. Please go ahead. Hi, George and Steve. This is Tyler DuPont on behalf of Jason.
Operator: Thanks for taking the questions. I wanted to start by asking about visibility into calendar 24 client budgeting decisions. It seems like, based on your comments, that, you know, backlog is rising quite steadily and nicely, but some clients are more cautious about pulling the trigger on converting some of those budgets into actual spend. I'd be curious, sort of, how this current environment compares to previous time periods and when you believe the visibility will firm up more substantially as we look through the year. Yeah, well, you know, I've said this for several, actually years, I think that I think that just given the nature of how important it is to the business, it's, it's, in general, not seen as discretionary. Of course, within the spend, of course, there's, there's, there's, there's, there's, there's, there's, there's, there's, But in general, it's not seen that way.
Operator: So I think you're going to see more rapid, you didn't see as deep of a slowdown despite some of the uncertainty, and I think you'll see a faster ramp back up. When that happens, I can't call it, you know, but I think you're going to see some of that in the back half of the year.
Operator: But that's the discussion we're having. So you're right, we're building that pipeline and not pulling the trigger yet. But I really believe it's going to be a little bit faster. I think everything happens faster in today's world. But I think you're going to see that happen a little quicker than some of the prior, prior cycles. Even their buying is different, right?
Operator: The way we execute projects, the way they buy projects, is different than it was in previous economic slowdowns. So that's, that's kind of what I see. Of course, I can't, I can't call that, but, but that's what, that's what I would anticipate. Sure, sure, that's super helpful, thanks.
Operator: And I guess, as a follow-up, I'd be curious to hear more about the pricing dynamics you're seeing, given the current demand environment. Based on comments, it seems like SINC projects are a little bit softer with clients favoring more mannered services at the moment, understandably. I'd be wondering if there's any pricing concessions being made in SINC to secure the deals that do exist, and maybe if you can sort of juxtapose what you're seeing there versus the strength of the mannered services deals. Yeah, we're not really seeing that. I mean, I guess there would be two things, right?
Operator: There are there's the SINC deals that are more focused on cost optimizations. We're selling those as ROI-driven. And so we're pretty good at doing that. And so it's still, although it's not a managed service, it's still driven kind of outcome-based. And so you can, you know, the pricing is different in those situations.
Operator: And then the other SINC that's going on is pretty important, and quality becomes very important, and the time to deliver becomes important. And so we're not really seeing big concessions on those projects wholesale. Of course, there are always bad behaviors, I would say, in any given bid.
Operator: But in general, we're not seeing that. You see, our actual bill rate efficiency is holding pretty steady. We're not seeing a rising rate environment like we saw a year ago, but we're not seeing degradation. Great. Thank you. I appreciate the color.
Operator: Thank you. The next question will be from Devaya Goyal at Scotiabank. Please go ahead. Good morning, everyone.
Operator: George, I wanted to get some color on this variance between Europe versus North American growth that we've been seeing, and I know the peers have been commenting on it. We have an outlook on it. But it's it's I'm just curious, is the variance because Europe is doing better than North America, or is it because North America undertook those business transformations sooner than Europe did, and it is because of those macroeconomic conditions that is driving this variance at this time?
Operator: Yeah, you know, I got to tell you, we mentioned our growth is pretty balanced between the two. And in general, I see it less being about the geographies and far more being about the industries and the services that you're offering. And of course, we talked about SINC versus managed services, NIP, and even NIP; it depends on what solutions you're offering and your business solutions, right? And then, you know, from an industry perspective, clearly, banking has been hit by this interest rate rise. And so that's certainly a pretty dominant factor, particularly in North America. So I think that's where you might see some of that in some of the comparisons. But of course, given our strength in government and national critical infrastructure industries, including utilities, that are strong in all geographies, both North America and Europe, I think that's why we have a little more of a balance. To your specific question, no, I don't think it's necessarily one is ahead of the other.
Operator: I think, and especially when you look at some of the newer technologies and the new opportunities, I think you're going to see a little more similarities than differences. That's helpful. Just from your M&A pipeline standpoint, you did mention that some government-led businesses are in the pipeline. Do you see any alignments to certain geographies as well?
Operator: Again, going back to this Europe versus North America growth trajectory that we have been noticing over the recent quarters, yeah, yeah, what I would say is that we're always looking at all locations, as I mentioned already, to gradually grow in each of those metro markets. But certainly, the US, France, Germany, and the UK are areas where, if you look at our active funnel, there are probably more opportunities in those areas. And, like I said, both government and commercial opportunities in each of those geographies.
Operator: That's helpful. And I have one last question here on cash flow from operations. So over the past two quarters, the CFO has been trending higher than the historical norms here and, obviously, undertaking these cash optimization initiatives as well. Could you help us understand the go forward trajectory for the CFO? Steve.
Operator: Look, the cash flow, I would say the best thing is to look at it from a last-12-month point of view. That's really how we look at it internally. But obviously, when the margins are improving, the cash flow will improve. We are investing in the business right now with the objective to improve future earnings and also future cash flow. That's helpful. Thanks, George.
Operator: Thanks, Steve. Thank you. Thanks to you. The next question will be from Robert Young at Chemicor Genuity; please go ahead.
Operator: Hi, good morning. I wanted to put that 200 million in incremental bookings related to AI into context. It seems like a good number. Thanks for sharing that. But I think of that as a relative percentage of the SINC bookings; it's over 10%. But I just think of it as a percentage of the new bookings for new business. It's, you know, a larger percentage.
Operator: And I'm trying to put that into context with the comment you gave on an earlier question around how some of that is embedded into IP delivery. Like, I'm trying to get a sense of how much of this is new business that is completely driven by AI and how much of it is embedded into other parts of, you know, existing delivery. Yeah, and thanks for the question.
Operator: It's not all brand new business. Some of that is embedded. Of course, it helps us continue to grow our relationship with our clients and be part of where the business is heading. And that's why I highlighted that. But some of that is part of existing deals or would be part of existing deals. I don't know if I, you know, I'd say roughly maybe 60% within existing deals, 40% new.
Operator: But that's just a rough estimate. We could go back and give you some of that. But again, given what we see, lots of deals with AI, but not necessarily big, large-scale implementations yet. We're starting to see that again, focused on operations efficiencies. We're starting to see that in some of the larger engagements that we have with the largest of customers, but most are still smaller point solutions, you know, proving this out.
Operator: Most of our clients are being very cautious. I think we would agree with them being very cautious in how they use this, how they keep humans in the loop, and doing this in a modified way. That's why I say it's still the early days. Yeah, thanks a lot of color.
Operator: That's still great numbers. I'm curious, if you could help me maybe summarize all the different drivers of margins that you're looking at right now, you know, based on the comments of the call, it sounds like the cost optimization, maybe some utilization benefits, given there's lower attrition and maybe slightly lower hiring, the IT growth, global delivery, still growing as a percentage, if I heard that right. And like, are there any other pieces that you would highlight that would be supportive of margin expansion here in the near term? That's pretty good.
Operator: That's pretty good, Robert. You know, if I think about it, I would say, for me, it would be managed services growth, particularly with global delivery, because you see the margins that drive it. IP as a percentage of revenue. Certainly, the cost optimization program for SG&A, including that real estate. One of the areas that maybe we didn't talk about is continuous improvement in geographies. You saw the Scandinavian improvement; we can see continued improvement there. That's through a combination of SG&A revenue mix and growth. And then I did mention productivity from generative AI. I think that'll be a tailwind in the quarters to come, as we leverage AI for our own operational efficiencies, including in leveraging it for some of our own IP development. You know, we've got CGI with over half a billion lines of code under our own ownership.
Operator: And to the extent that we can turn AI loose on our own intellectual property, our own software, it's not open to anybody else, we can maybe see some benefits there. So we're looking at that as well. So all those are opportunities for us to continue to provide incremental margin improvement as we continue to grow the business. All right, thanks a lot for taking the question here. Thank you. The next question will be from Daniel Chan at TD Cowen. Please go ahead.
Operator: Hi George, good morning. You mentioned interest rates may have affected the banking sector. Just wondering if there's anything else to call out there that you think could be affecting it? And then, as a follow-on, given the view that interest rates may decline later this year, do you think that would be a driver of growth back in that sector later? Yeah, I do think, you know, it's a bit of a wait and see. And I think just uncertainty is what's driving some of this. And so I think when there becomes a little more certainty, not yet, but when that happens, I do think you will see more loosening of those actions. Like I said, the interest is there.
Operator: And what we're doing is building the pipeline, making sure we're part of the conversations. But I do think you'll see some of that. In general, that's the landscape that I see. It's one, it's really interest rates, but it's also, you know, dealing with the increase, if you will, in regulatory elements. There's a lot of focus in the short term on making sure that the regulatory issue is dealt with. And I think that's, it's been a main focus, which kind of removes the focus from some of the other areas.
Operator: But I think you'll see that loosening up. Like I said, I can't call when, but I do think that that's, that's on the horizon. And you're already seeing it stabilized.
Operator: It's not getting better yet, but it is. That's helpful. Thank you. And then you've been pretty optimistic about the M&A opportunities over the last couple years. Anything to call out in the current environment that changes your level of optimism relative to last year? No, I, well, I would say it's, I'm even more optimistic that there are opportunities. Of course, we're going to, we're going to continue to have the focus that we have to make sure that we're bringing the right companies in that can be that catalyst for growth that we talked about and, and provide accretion to our shareholders But I'm becoming more and more bullish on the opportunities, just given kind of where the market is, where the valuations are, and where we are as a company, you see our balance sheet.
Operator: So, but we're going to continue to be disciplined in that approach. Yeah. Thank you. And at this time, Mr. Linder, we have no other questions. Please proceed. 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 1-877-674-7070 and using the passcode 827836. Additionally, 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 I look forward to speaking soon. Thank you. 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, and George.