CGI Inc

TSX:GIB.A

Earnings Call Transcript 2018-Q2

[Operator]

Good morning, ladies and gentlemen. Welcome to the CGI Second Quarter Fiscal 2018 Conference Call. I would now like to turn the meeting over to Mr. Lorne Gorber, Executive Vice President, Global Communications and Investor Relations. Please go ahead, Mr. Gorber.

[Lorne Gorber, Executive Vice]

Thank you, Valarey, and good morning. With me to discuss CGI's second quarter fiscal 2018 results are George Schindler, our President and CEO; and François Boulanger, Executive Vice President and CFO.This call is being broadcast on cgi.com and recorded live from Paris at 3:00 p.m. local time or 9:00 a.m. Eastern Time on Wednesday, May 2, 2018. Supplemental slides as well as the press release we issued earlier this morning are available for download, along with our Q2 MD&A, financial statements and accompanying notes, all of which have been filed with both SEDAR and EDGAR.Please note that some statements made on the call may be forward-looking. Actual events or results may differ materially from those expressed or implied, 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. We encourage our investors to read it in its entirety and to refer to the risks and uncertainties section of our MD&A for a description of the risks that could affect the company.We are reporting our financial results in accordance with the International Financial Reporting Standards, or IFRS. As before, we will also discuss non-GAAP performance measures, which should be viewed as supplemental. The MD&A contains definitions of each one used in our reporting.All of the dollar figures expressed on this call are Canadian, unless otherwise noted.I'll turn it over to François now to review our Q2 financials, and then George will comment on our operational highlights and our strategic outlook. François?

[François Boulanger, Executive VP & CFO]

[Foreign Language] I'm pleased to share our results for Q2 fiscal 2018. Revenue was $3 billion, an increase of $226 million or 8.3% compared with last year. On a constant currency basis, revenue grew 4.9%. Bookings in Q2 were $3.5 billion or 119% of revenue, driven by increases to the scope of services on renewals as well as the addition of new clients, including TalkTalk in the U.K., SNCF in France and MEYER WERFT in Germany. Over the last 12 months, total bookings were $12 billion or 108% of revenue.Adjusted EBIT was $424 million, a year-over-year increase of $29 million and representing a margin of 14.4%. This compared with $395 million or 14.5% for the same period last year.During the quarter, we incurred costs of $27.5 million related to our strategic restructuring. Through the end of March, we had expensed $149 million against the plan. We are generating the planned benefits and expect to complete all remaining actions before year-end. The total investment will be $185 million as we have [ identified ] additional opportunities through the implementation of our strategy as well as currency headwinds.As a reminder, the majority of the programs cost are focused on positioning CGI to capture the significant shift in demand across global markets as evidenced by our strong bookings this quarter. An approximately 15% of the $185 million expense is related to the retirement of certain assets that are no longer needed in the implementation of our as-a-service delivery model. Going forward, this will drive lower capital requirements in our infrastructure business, allowing increased investments in areas such as our IP portfolio. We also incurred expenses of $11 million in Q2 for the integration of Affecto and Paragon.Turning to income tax. Our effective rate in Q2 was 25.5%, down from 27% last year, largely the results of U.S. tax reform. We expect the tax rate for the full fiscal year to be between 24.5% and 26.5%. Adjusting for integration and restructuring expenses, net earnings grew to $303 million in the second quarter, up $28 million year-over-year. Earnings per share on the same basis expanded by 14.3% to $1.04 per diluted share. And net margin was 10.3%, up 20 basis points from the year ago period. On a GAAP basis, net earnings were $274 million, and EPS was $0.94, up from $0.90 in Q2 last year.Turning to cash. Our operations generated $426 million in the quarter or 14.4% of revenue, despite payments of $43 million related to the restructuring. In the first half of 2018, our operations generated $826 million, an increase of $120 million when compared to the same period last year. Over the last 12 months, we generated $1.5 billion or 13.2% of revenue, representing just over $5 in cash per share. We ended the quarter with a DSO of 46 days compared to our target of 45 days.In the second quarter, we invested $91 million back into our business, including the development of our IP and the ramping up of new outsourcing contracts. We reduced our debt by $90 million, and we invested $221 million buying back shares. Under the current buyback program, we can purchase and cancel an additional 17.4 million shares through February 2019.Net debt was $1.5 billion at the end of Q2, representing a net debt to capitalization ratio of 17.5%. With our revolving credit facility and $288 million in cash, we have over $1.7 billion readily available liquidity and access to more as needed in order to pursue our Build and Buy strategy.Now I'll turn the call over to George.

[George D. Schindler, President, CEO & Director]

Thank you, François, and good morning. I am pleased with our performance in Q2 and throughout the first half of the fiscal year. In both the quarter and the 6-month period, we delivered constant currency growth of 5%, nearly half of which was organic. We remain well positioned for the second half of the year, with strong bookings in the quarter and underlying growth trends in every operating segment.Our positive business outlook reflects the priorities and budget plans of our clients. CGI's leaders around the world recently completed over 1,400 in-person discussions with client executives, which we will analyze and share as a CGI Client Global Insights again this year.Although we just concluded the interview process, 3 clear trends are already emerging across industries and geographies. First, a larger percentage of clients we spoke with are increasing their total IT spend in both new applications as well as in existing systems. This is reflective of organizations evolving from smaller dollar, stand-alone projects to larger dollar enterprise solutions. In fact, our largest Q2 bookings across the banking, insurance and government industries demonstrate this trend.Second, addressing regulatory compliance and securing data and systems moved up in terms of top priorities for both business and IT this year. We are well positioned to assist in these increasingly important areas for our clients. For example, CGI is establishing a leadership role in helping clients develop and manage their compliance road maps and assist them in assuring vulnerabilities are addressed at every organizational level.With the EU's GDPR, General Data Protection Regulation, coming into effect this month, we expect this to be an area of continued opportunity for us to assist clients. And heightened security risk and awareness are also creating more opportunities for us to consult on advanced threat detection and mitigation planning. These consulting opportunities are leading to longer-term client engagements to remediate vulnerabilities and provide ongoing security managed services.The third clear trend that I would like to share is that, once again, our clients are aligned on the need to become digital organizations, underscoring the expectations of consumers and citizens for seamless, real-time and connected experiences. As a result, demand is increasingly being driven for emerging technologies and services, such as advanced data analytics, intelligent automation and blockchain. Clients investments in these emerging areas are driving more consulting and systems integration work, which is up 20% compared to the same quarter last year. This presents an opportunity to convert more business over time into longer-term recurring revenue.In addition, our own IP is one of the biggest beneficiaries of clients' digital priorities. For example, we have embedded RPA into our Advantage and Momentum solutions; intelligent automation and robo-advisory services into our Wealth360 platform; blockchain technology into Trade360, Payments360 and our utility solutions; and all of our global IP has been made available in the cloud. As such, our IP revenue grew in dollar terms year-over-year.Now turning to our Q2 performance of our global operations. I'll start in North America. In the U.S. commercial and state government segment, our expanding footprint and capabilities allow us to beat more of the growing demand. Constant currency revenue growth was 13%, driven by the relationships and enhanced capabilities from recent mergers. We successfully earned new engagements with clients in the utilities, manufacturing, retail and health sectors, leading to an overall book-to-bill of 125%.We also saw increased strength in our state and local government business and are optimistic about the growth expectations for the back half of the year. EBIT margin in this U.S. segment was 14.4%, down from last year, given the mix of business in the quarter. This is due to fewer licenses as more clients convert to SaaS and the short-term impact of fully implementing the CGI model in multiple new acquisitions.With the bookings from the increased geographic and industry footprint from these acquisitions as well as IP opportunities, we expect margins to expand in the coming quarters. U.S. federal operations grew 7% organically and delivered an EBIT margin of 12.7%. Bookings for the quarter were again over 100% of revenue, with the last 12 months book to bill now at 136%.The administration's focus on mission outcomes and performance metrics are fueling more opportunities in all areas of IT modernization, particularly for our Momentum business, which grew 20% over the same quarter last year. In addition, we continue to see increasing security spending across U.S. federal government agencies, where we now have over $1 billion in security-focused bids awaiting award. As recent wins in Momentum and other modernization opportunities ramp-up over the coming quarters, we expect that margin will expand.In Canada, our team delivered constant currency revenue growth of 5.6% and a strong EBIT margin of 21.9%. Bookings were 110% of revenue for the quarter, 33% of which was IP. Strength in financial services continued in Q2. For example, we were awarded a contract with the top Canadian bank to consolidate their multiple portfolio systems into a single-integrated Wealth360 platform.I would also like to highlight CGI's role in Canada's Innovation Superclusters Initiative, where the government is investing to build world-leading innovation ecosystems and accelerate economic growth. CGI is a key partner to scale AI, one of the 5 consortiums or superclusters selected. We are joining other leading firms and world-class research institutions to design and launch projects that will accelerate next-generation artificial intelligence-powered supply chains into the Canadian economy.Turning to the performance of our European operations. We saw constant currency revenue growth across Northern Europe, France and ECS of 4%. And in the U.K., the positive bookings trend continue this quarter, strengthening our confidence in the team's ability to return to growth later this year. Across our European operations, Q2 EBIT margins were 12%. The evolving revenue mix and IP profile in Europe, combined with the benefits of the restructuring program, are expected to drive continued margin expansion going forward.This evolving revenue mix entails more IP in France; outsourcing wins in ECS; consulting traction in the U.K.; and continued emerging technologies in Northern Europe. For example, open finance in France is a new piece of IP that enables clients to integrate traditional banks and FinTechs to create new offerings or helping them anticipate and comply with the emerging regulatory requirements for payments. New large outsourcing wins in ECS contributed to the region's strong bookings of over 115% in the quarter. These new engagements demonstrate the journey many clients are on today as they turn to technology to help drive business transformation and achieve their growth goals.In the U.K., in addition to recent wins in government, utilities and communications, there is increasing demand for consulting and financial services, particularly. In the quarter, for example, we initiated consulting projects with 3 U.K.-based financial services institutions, including Metro Bank, a new digital entrant.And in Northern Europe, we are seeing the conversion to SaaS, hybrid cloud and advanced analytics gaining traction in most sectors. In utilities, for example, we are well positioned as Nordic countries begin standing up [ and ] national energy market later this year. Now that the integration of Affecto is largely completed, and the transformation of our infrastructure business has progressed, we believe this region is poised for second-half growth.Turning to our Asia Pacific operations. Our teams posted sustained growth and an EBIT margin of 18.6% in Q2. India continues to be an innovation incubator, particularly for intelligent automation solutions in support of clients around the world. Each of our recent outsourcing opportunities also benefited from our DevOps and quality engineering expertise centered in this region.In summary, the first half of 2018, we delivered revenue of $5.8 billion, up 5% in constant currency; adjusted EBIT of $831 million, up 5%; adjusted net earnings of $591 million, up $39 million for a net margin of 10.3%; EPS ex items of $2.03, up 13%; cash from operations of $836 million, up $120 million; and bookings of $6.5 billion, up $0.75 billion or 113% of revenue.In closing, let me reemphasize our optimistic outlook for the second half of fiscal 2018 and beyond. We are now a team of 73,000 professionals worldwide, with added management capacity and geographic footprint to capitalize on increasing demand for IT services. We have nearly completed the planned restructuring actions with a better positioned global workforce of industry and technology experts to drive growth, higher utilization and expanding profitability.Our year-over-year increase in SI&C revenue represents an opportunity to generate larger, recurring revenue engagements for future growth and margin expansion. We continue to advance our pipeline of buy opportunities across each of our operating regions. And with the completion of our annual Voice of the Clients interviews, we have recently added hundreds of new potential buy candidates.Thank you for your continued interest and support. Let's go to the questions now, Lorne.

[Lorne Gorber, Executive Vice]

Just a quick reminder that there'll be a replay of the call available, either via our website or by dialing 1 [phone] and using the passcode 4909880, and that will be available until June 2. And as usual, there'll be a podcast of the call available for download within a few hours. And all follow-up questions can be directed to my office at [phone]. Valarey, if we can poll for questions, please?

[Operator]

[Operator Instructions] Our first question is from Steven Li with Raymond James.

[Steven Li, Senior Vice President]

Couple of questions from me. I thought cash flow has been really good for a couple of quarters now. So maybe you can talk about what's driving this improvement. And also at 14% of revenues, is that sustainable in the second half?

[George D. Schindler, President, CEO & Director]

Yes, well, first -- for your first answer, I do believe it's sustainable. You see the DSO in line with our expectations and coming down, but really, the cash is being generated by the fact that our business is growing on the top and the bottom line, and that's fundamentals, and the cash is coming along with that. So I do believe that, that will continue, Steve.

[Steven Li, Senior Vice President]

Okay, great. And George, maybe you can also just talk about your recent acquisitions, so Affecto and Paragon. Any revenue synergies you're seeing thus far? And how can Affecto be a catalyst for the Nordics?

[George D. Schindler, President, CEO & Director]

Yes, no, that's a good question. On Affecto specifically, we are seeing take-up around the region and interest in some of the skill sets and offerings that we have for Affecto in all European regions and, quite frankly, around the globe. Most importantly, utilization is up significantly in that merged set of individuals and offerings. So that's a positive. But I think, most importantly, if you look at all of the recent acquisitions, rolling them up, our book to bill in the areas where we merged operations in are over 110% book to bill, and that's significant because those operations are primarily SI&C. And so through that increased bookings in the SI&C business, we're establishing or reestablishing, in some cases, relationships to allow us to sell through the full offering suite of CGI IP and the recurring revenue of larger outsourcing. So we're having the initial traction with the SI&C work, but we see that continuing. It takes a little time, but that's what we see in these operations. Quite frankly, we're doing that a little bit faster than even I planned.

[Operator]

Our next question is from Richard Tse with National Bank Financial.

[Richard Tse, Managing Director and Technology Analyst]

Congratulations on the big bookings number there. I was wondering if you could give some -- a bit more color on those bookings. Are these engagements longer in term, the proportion of sort of IP digital within that bookings? And also, looking at the margin profile of these bookings, are they sort of trending higher? Because it's -- you are making that pivot to IP in digital. My guess is that some larger profile's going to have -- improve here over time?

[George D. Schindler, President, CEO & Director]

Yes, no, that's a -- it's a great question, and thank you for pointing out the bookings, Richard. A lot of hard work went into making that happen. But I can give you a little more color, and it really does relate back to what I talked about, that we're seeing early returns from our Voice of the Client interviews and that is, that we're seeing our clients looking at increasing their budget, not just in the new point solution applications but also in some -- making some of the necessary investments in their existing operations and applications and linking them together. So in fact, what we've seen is that, even in our renewals -- so it's about 60% new business, good news, and in our top 10 to 15 bookings, about 50% new business, 35% overall -- I see François looking at me, 35% overall, but in our top-ticket bookings, it was about half new business and half renewals. The good news is 100% of those renewals in our top 10 bookings were actually at a higher run rate. And that is so important because where we've come from, if you're just renewing an outsourcing deal that is expected to drive additional cost savings, and that's all you're doing, then it's going to be at a lower revenue, and that's what we've seen over the last several years. But consistent with the trends that I outlined in our Voice of the Client, these renewals are coming at expanded run rates. And why is that? Because they're investing in introducing both new technologies into the current operations as well as connecting the existing operations into the new applications, the digital applications they're putting in. So it's some digital, some existing, linking them together, all at higher revenue rates and as you might expect then, higher-margin profiles.

[Richard Tse, Managing Director and Technology Analyst]

Okay. With respect to the U.S. federal government market, I sort of noticed that the book to bill has really picked up lately. It seems like that lull is behind you. Is that in fact the case? And I guess, with respect to government, where do they stand in terms of embracing this digital shift? My impression was always that they're, like, a little bit behind what you say that they are -- or where they stand relative to the commercial market.

[George D. Schindler, President, CEO & Director]

Yes. I would say that's -- it's very insightful. They do tend to lag. But when they decide to make the shift, they move almost all at once, just given the way that the governments can operate, which is a little different than a public company. So they can make all the investment all at once. And you're absolutely right, state and local specifically has lagged, even central governments, but we're seeing both pick up. We do see some stronger bookings, which will lead to stronger growth in the future in state and local. And as I've outlined in the last couple of quarters, that's been kind of masking some of the growth on the other side of our U.S. commercial business, for example. And then central governments as well are embracing this shift in a bigger way. So we see that as a tailwind moving forward.

[Operator]

Our next question is from Thanos Moschopoulos with BMO Capital Markets.

[Thanos Moschopoulos, VP & Analyst]

George, if you look at the recent tuck-ins over the past year, are they currently where you want them to be from a margin and operational efficiency perspective? Or is there still some more work to do in that regard?

[George D. Schindler, President, CEO & Director]

Yes. They're -- I would say, they're performing the way I would expect. However, there's still a little more work to do. It takes a little bit of time, and they're all at a slightly different place. We track each one of them, as you might expect us to do, given our operational discipline. We continue to have integration meetings with some of the more recent ones. Like I said, a positive utilization trend, but not where I think, ultimately, we want them, need them and expect them to be. But it takes a little time to get into the CGI model. But once in the model, the performance is there. So I'm pleased with the tuck-ins. I'm pleased with the teams, particularly our new leadership, which really have embraced the model, but it's -- there's a number of members -- new members that we have to get working in that model, but it's definitely progressing well, not fully in yet.

[Thanos Moschopoulos, VP & Analyst]

And then in the U.K., you alluded to the new consulting engagements. It looks like revenues were up sequentially in British pounds. So should our takeaway be that the region has now finally stabilized and that customers have adjusted to the new reality of a post-Brexit world, or what should our takeaway be there?

[George D. Schindler, President, CEO & Director]

I think we see 2 things. One, in the macro sense, yes, I think we're moving more into the acceptance phase and more certainty, and so that certainly helps the situation. I would also say, just from a CGI profiling, we do believe we've bottomed -- hit the bottom on the revenue side, and we're on the upswing, just as I discussed in the last couple of quarters. We are seeing that, and you're starting to see that, even though it was negative. As you pointed out, sequentially, it's up actually pretty significantly. And a strong bottom line, even if you take out for the one -- for some one timers, it's still strong bottom line margin improvement.

[Operator]

Our next question is from Maher Yaghi with Desjardins Capital Markets.

[Maher Yaghi]

George, I wanted to just follow up on some of your comments regarding the transition of recent business wins into longer-term contracts. How is that going? And how much of that is built into your forecast of improved margins? When you -- when we look at the business, where do you see margins going to, let's say, later this year? And I have a follow-up question on the financial stuff.

[George D. Schindler, President, CEO & Director]

Sure. Thanks, Maher. So here's what I would say on the -- on where we are in that mix of business, and I did highlight the mix of business, higher SI&C, lower on the managed services and about stable on the IP but again, opportunities as we move more towards management services and IP and then due to the conversion, as you discussed. It takes some time on the conversion. So we're ramping up the pipeline and the opportunities. We have some success stories. But as you see, it's still growing on SI&C faster than the managed services. That's not built in to my confidence on the -- at least, the second half expanding margins. The second half expanding margins are exactly what I highlighted. The higher utilization, the higher gross margins from some of that mix of business on the consulting side as well as the impacts of repositioning our global workforce on the restructuring. So all of that is my confidence for the expanding margins. I believe that, that conversion is more of an opportunity for us next year to continue to expand the margins. So there's opportunity, and there's opportunity.

[Maher Yaghi]

Great to hear. And in terms of cash usage, François, I wanted to just pick your brain on how do you allocate the upcoming cash generation? You always get this question all the time on the conference call. But with $1.5 billion of cash generation and $5 per share, is there any way of just telling us what are your priorities in terms of maybe buyback or... Because I don't think you can repay the debt necessarily quickly.

[François Boulanger, Executive VP & CFO]

Yes. Thanks, Maher, for the question. So for sure, again, as it won't be a surprise, the first priority is to invest back into business. We increase our investment in IP, and we'll continue. We sign a couple of outsourcing contract lately, TalkTalk, like I was saying. So that will ask for some contract cost at the beginning of the contract. So that's the first thing. As George indicated, we had our new voice of our client just done. So we have now a lot more new opportunities on the acquisition side. So we will look at these opportunities and these new names and see what's the potential on that side. Actually on the debt, now we have $90 million on the line of credit and close to USD 200 million to pay in the next 12 months. So that will be also in the making, and we'll need to reimburse the debt. And again, at the end of the day, we will relook at share buyback as an opportunity and are flexible, too, when needed to. We still think that, to some point, the share is undervalue, and it can be still a very good investment.

[George D. Schindler, President, CEO & Director]

Yes, maybe I'll just -- I'll add to that. Given our planned expectations for growth on the top and the bottom line expanding margins, and we look at the valuation, we still believe that share buyback is accretive way to use our cash.

[François Boulanger, Executive VP & CFO]

Yes.

[Maher Yaghi]

Has the situation changed in terms of looking at paying a dividend?

[François Boulanger, Executive VP & CFO]

I -- No, we didn't. We did the analysis last January. As you know, in February -- every January that we'll be looking at it at -- with the board. And so we'll look at it again next January.

[Operator]

Our next question is from Daniel Chan with TD Securities.

[Daniel Chan, Research Analyst]

Good to see that the U.S. still continues to be a really strong region for us. I want to talk about that segment a little bit. First on the commercial side, are you seeing any impact when you talk to customers from more spending as a result of the tax cuts there?

[George D. Schindler, President, CEO & Director]

I haven't really seen that specifically highlighted. I think it plays into the overall confidence, but again, remember what's driving some of the spending really is the need and the demand from their customers, but I haven't seen necessarily any direct correlation, at least as of yet. But again, commercial business continues to be strong. And with our acquisitions, we have an expanded footprint, which I did highlight in some of my remarks. So that continues to be a strong area for us.

[Daniel Chan, Research Analyst]

Okay. And then on the federal side, the budget increase earlier this year, has that budget increase already started to flow through and you're starting to see awards being given out?

[George D. Schindler, President, CEO & Director]

Well, awards and throughput in the federal government is always a little slower than we would like it to be, and we continue to see some of that. But I'll tell you what we do see is that the more certainty around budgets. Because not just the amount of the budget, it's the fact that you can spend the budget in the ways you need to spend it. When it's continuing resolution regardless of what that number is, they can only spend it on existing priorities. Now they can defund and start new priorities. And as you suggest, with the increase in the budget, yes, we see more and more of that opening up, first in RFPs and task orders under our many vehicles and then on actual awards, but you do see that, the strong bookings. This is seasonally our weakest quarter in the U.S. federal, and we were over 100%. So that gives you some indication that things are opening up, but we see more opening up in the future.

[Operator]

Our next question is from Robert Young with Canaccord Genuity.

[Robert Young, Director]

Some of your peers have been dampening margin expectations. I think they've been highlighting things like some of the impact of renewals, pricing pressures come up a couple of times. And you're highlighting margin expansion. You're talking about a few company-specific events or benefits from the restructuring and resubmitting, some higher utilization. You also said that you're benefiting from renewals as the mix shifts to higher value, it seems different than your peers. And so I wonder if you can talk about that specifically? And maybe generally talk about why you're talking about margin expansion when some of your peers are talking about -- talking that down?

[George D. Schindler, President, CEO & Director]

Yes, I can't -- thanks, Rob, for the question. I can't really speak to the -- to my peers. I can tell you that, again, it's driven -- the confidence is driven by a combination of what we're hearing from our clients as well as maybe where we play. Remember, we're playing end-to-end. So we're playing on the front end, and we're playing on the back end, and we see more of those projects and contracts get bigger and get connected. So that's an opportunity for us. We're -- We continue to sell more of our IP in a managed services sense. And yes, we jumped on this, as you know, several quarters ago to reposition our workforce. We've already double down on our proximity model. We've been doing the tuck-ins. Now we're starting to see some of the benefits of the restructuring. I'll remind you, where 80% of the actions have been taken at less than half of the benefits on a full-rate basis are in these numbers that I'm announcing here. So that's -- gives you some of the confidence of the expanding margins.

[Robert Young, Director]

Okay. And then just talking -- thinking about margins in the longer run, there's a lot of -- the way I think about it, there's a lot of investments in some of the newer revenue flows around digital and cloud and whatnot. And so should we be thinking of a sustained margin expansion over the years as the investments in those revenue lines stabilizes? Is this a sustainable margin growth that you see over the next few years?

[George D. Schindler, President, CEO & Director]

Yes, I would see that. And you're right because we've got a couple of things going on at once in this shift: one is the technologies, and two is our clients having to make some of the spend to connect that front end in with the back end. So yes, I think it is sustainable.

[Robert Young, Director]

Okay. Last question for me. You flirted around some of the IP metrics. I was wondering if you could give the percentage of revenue and bookings in the quarter, and I'll pass the line.

[George D. Schindler, President, CEO & Director]

Yes, yes. So we're -- we continue to see growth on the dollar, but as I mentioned last quarter, we did a reset. It's still at[ Audio Gap ]holding at 21% of revenue as we grow our SI&C business a little bit faster, and we get less of the licenses as we convert over to software-as-a-service. Our managed services business is up on the IP, up to 50%. That's up about 500 basis points or so year-over-year. And then, the actual bookings were 100%, I want to say, 109% were the bookings for the quarter. Strong, but not as strong as our overall bookings of 119%. So I'll take that in the quarter.

[Operator]

Our next question is from Paul Treiber with RBC Capital Markets.

[Paul Treiber, Associate]

With the growth that you're seeing in the SI&C business, are you also seeing tightness in the labor market, just given that utilization is going up? And how are you addressing that? And then with the growth in SI&C, is there an opportunity to push through price increases on the labor rates in SI&C?

[George D. Schindler, President, CEO & Director]

Yes, so on the -- the answer to both questions is yes. Let me maybe start with your second question because -- given the tightness in the labor market, the value of the services, in fact, we are seeing some opportunities for us to increase rates or and more importantly -- and what we're seeing on a lot of our existing contracts, adding some additional labor categories, particularly as it relates to the emerging technologies, the new digital technologies. There's a expectation that, that might come at a different rate structure. So that's an opportunity for us, and we can do that on many of our contracts. And then certainly, when we're talking about, say, consulting agreement or consulting arrangement, like I mentioned in the U.K., those are coming at higher overall rates than we've seen in the past. On the tightness in the labor market, yes, the 2 do go somewhat hand-in-hand. One of the ways we address that, as you know, is through our global delivery. And our global delivery is not just in the offshore particularly, as some of the new digital projects require more on-site presence, we've always had a global delivery model that includes delivery resources that can get on-site very quickly in country but are located in lower-cost areas, therefore, their -- the cost structure looks different, but more importantly, the labor market is different, and we can tend to be the bigger employer in those areas. Another thing I'd highlight, though, and it's very important, our member satisfaction is linked to our client satisfaction. And then the nice place we are right now, our client satisfaction scores continue to go up. As you know, we talk to everyone of our clients multiple times, everyone of our engagements with our clients multiple times a year. Ask them a series of questions. Our client satisfaction is higher. Likewise, our member satisfaction is higher. So even though our turnover is up slightly, it's lower than the overall benchmarks. It always goes higher in areas where we merged operations in, but that's stabilized in all those areas. And our referrals are over 25% of our hires. So they tend to be more sticky higher. So we do see some of that. And so what are we doing to address it other than everything I just talked about in the model? We're investing in the growth of our own resources, hiring more entry-level individuals, and we have a series of training programs that we rollout to members of every level, and we're seeing good experience and take-up there. Especially, some of these newer technologies, you have to continue to grow your career.

[Operator]

Our next question is from Stephanie Price with CIBC.

[Stephanie Doris Price]

I wanted to focus a little bit more on this move to SaaS from license sales. Can you talk a bit more about what you're seeing here and what you expect the margin impact to be in the U.S. especially?

[George D. Schindler, President, CEO & Director]

Yes. So -- thanks, Stephanie. Some of the managed services and software-as-a-service wins now build the license and maintenance into the subscription price. And so as more of our clients take us up on that offer, what happens is that you don't get the large license onetime, but over time, the overall engagement is lifted in margin. And of course, as we know, when you're ramping something versus buying something, the overall margin gets lifted. So it's just a shift in when we get some of that margin. So that's -- again, it provides some sustained margin expansion, but we do take a bit of a hit. Now that's not the entire answer because not all of our clients are taking true software-as-a-service. They might even be buying managed services but still be willing to buy the license. And this is -- I had the question on tax impact. This is one area where I see maybe some of that difference, whereas normally they might go straight to a SaaS, they say, "Well, look, I'll buy the license because I actually have money now. I don't need to capitalize that over time." So we're seeing on mix. It's a hybrid situation right now, partly because we offer a hybrid situation. We'll meet our client where they want to be, whereas maybe some of the pure software players would go, "You're only offering it as a service." They're taking a bigger hit than we'll take. We'll just take that over time. And again, we get that back and then some in the out quarters.

[Stephanie Doris Price]

Great. In terms of the acquisition environment, can you talk a little bit -- you mentioned an extended pipeline that you were seeing after the Voice of Clients?

[George D. Schindler, President, CEO & Director]

Yes. So really -- Remember, what our strategy is on the tuck-in mergers is, we're looking for culturally-aligned organizations. And part of that cultural alignment is a strong sense of proximity with clients and having the relationship with clients. So we're really good at identifying that with our existing leaders in the areas we are, but maybe we're undersized or in the areas that we are or may be in one industry and not in another industry, we're not as good as sourcing those opportunities or we're just not in the region at all. And so that's why we turn to clients but also prospective clients, clients that are located in areas that were not as well as 17% of the 1,400-plus clients that we talked to this year in Voice of the Clients actually were prospective clients. So we're reaching out. That's why some of those new ones come in that we hadn't sourced before. We're also sourcing from some of the best of list, best consultants in a certain area list so that we can gain more access and source better. Now we're very good at one sourced, we're very good at running the various metrics and ensuring that, in fact, it's a merger that will fit with the CGI culture and be accretive in the first year. We're very good at that, but it's really the sourcing that we continue to work on.

[Operator]

Our next question is from Ralph Garcea with Echelon Wealth Partners.

[Ralph Garcea]

Yes. First on the IP side, if -- where are you seeing the biggest take up, I guess? Is it RPA, artificial intelligence, blockchain? And as a typical path 6 to 12 months SI&C project and then that converts to a managed services or a long-term outsourcing deal?

[George D. Schindler, President, CEO & Director]

Yes, so everything that you asked about is -- in fact, we see take up. Particularly right now, RPA is becoming very mainstream, but in fact, it's a big opportunity for our clients, both on the operational side and on the new side. You mentioned that -- as far as IP, we're introducing now all of that into our IP, but then also doing that industry projects for SI&C. And both then convert -- can convert to larger managed services opportunities, but it's not a 6 to 12-month or 18-month, it's a larger engagement. So let me give you an example. We might do a series of SI&C engagements. I'm using a real example here. I won't mention him, but it's a European client. And as you know, I'm in Europe, and I may be visiting some clients this week. And it's a client that we did some SI&C work growing, maybe at 10% a year for a couple years. And then they come to us, and they say, "Hey, we've done 5 or 6 discrete projects." We come to them and say, "Here's what we could do to connect them together." They come to us, and they say, "We like to connect them together." And we elevate the discussion in this case to the global CIO and the global COO and business leaders and actually become one of their strategic partners to connect them. That then turns into outsourcing deals. So it's not like 1 discrete project turns into an outsourcing deal. It's typically a series of deals. That's what -- that's over a 2-year period that I'm describing. That's just one example.

[Ralph Garcea]

Great. And then on the outsourcing side, how much of a factor is an [indiscernible] IT workforce in driving outsourcing contracts, especially in the government sector?

[George D. Schindler, President, CEO & Director]

Yes, and on a -- on the government side, it's a big driver. I was just in the U.S. last week with our U.S. Federal Board of Directors. As you know, we have a separate board there, given that we work on classified work in the U.S., and we have that set up in other locations around the world. And that is an expected big driver. And so what government clients are jumping on is that they have the opportunity to embrace these new technologies and then not replace the people because they have the same tight labor force that we have.

[Ralph Garcea]

And just one last one. On the transformational M&A side, I mean, any preference on a pan-European deal or a U.K.-centric or U.S. commercial? Or is it all going to come down to the right price at the right time?

[George D. Schindler, President, CEO & Director]

Right company, right time, right price.

[Operator]

Our next question is from Paul Steep with Scotia Capital.

[Paul Steep, Analyst]

Great. George, could you talk a little bit about transformation in the infrastructure business in Canada. You've largely done the heavy lifting from the Nordics, and that took a while. But if -- could you talk about where you're at in terms of contracts? And then maybe also where you're -- we're at in terms of the infrastructure investment cycle?

[George D. Schindler, President, CEO & Director]

Yes, yes. So thanks for the question. Actually, we're a little bit ahead in Canada, but we're catching up now, progressing in the Nordics. And in Canada specifically, it is continuing to transform quickly. We went through the first wave. There are multiple waves to follow, and a big part of the restructuring was, unfortunately, some individuals are not as able to move to the new, and as we shift, particularly in the infrastructure world, we're automating more and more so quickly. But that infrastructure transformation, that's the whole reason we went to asset-light strategy. That transformation on that hardware side, we don't do now, right? Because that's hardware and system software that now is either owned by our client or using some sort of a hybrid public and private cloud, and so their -- your traditional cycle of investment on the hardware/software side starts to go away. It's more on the automation side, and we continue to evolve with that automation shift.

[Paul Steep, Analyst]

What do you think the timing is to sort of complete that shift, George?

[George D. Schindler, President, CEO & Director]

Yes, it's a great question. Because the shift is continuing, it's about keeping up and staying on the curve, not being too far ahead of the curve, but not being behind the curve. And -- but it's still transforming, so I can't predict when that automation wave continues because what we're seeing is more and more of the artificial intelligence being used that actually helps us, helps everybody, helps our clients in, particularly, delivering those infrastructure services. But again, I want to remind you, that's just the way we deliver the business solutions that we're really focused on.

[Paul Steep, Analyst]

Okay. And then the last one from me is, it's been a while since we've talked about it. You clearly got the financial capacity. Could you talk a little bit about the structuring, the size and the organizational capacity to go after maybe a significantly larger number of smaller deals?

[George D. Schindler, President, CEO & Director]

Yes. No, thank you for that. As you know, we have a proximity-based, decentralized model. And with the central management foundation that governs and guides that, we do the same thing on the M&A, and so we have the organizational capacity in the 8 strategic business units, the 60-plus business units and even at the sub business unit level to do multiple acquisitions at the same time because other than the governance structure and assistance that we provide at corporate, all of the due diligence and all of the integration work, again, outside of the governance, is done in those regions. So conceivably, I could do 60-plus in a month at the same time.

[Operator]

Our last question is from James Schneider with Goldman Sachs.

[James Edward Schneider, Vice President]

Just wanted to maybe ask, again, on the margin side of things. From here, I mean, what's your level of confidence in being able to deliver kind of meaningful margin expansion as we head through the end of the fiscal year? And the reason I ask the question is, just given the commentary we're hearing from some of your peers or competitors in India about some pricing and margin issues, I'm just kind of curious on your overall take there?

[George D. Schindler, President, CEO & Director]

Yes, no, thanks for the question. Couple of elements, I think, that maybe if you compare to an India player. We already have the proximity model built out. So that's not an investment for us. And we always embraced offshore as a dimension of our global delivery, but it's interlinked with our nearshore and our onshore delivery centers, then along with our proximity model. So we don't have a lot of investment there with the restructuring that now we have mostly action, but not all flowing through the P&L yet. We see expansion opportunities. And one area I'd like to come back to that I haven't come back to in a while, we do see opportunities to bring some of our European operations closer to where we've been in our North American operations. So even though we're approaching double digits everywhere around the world, what would like to see is moving more towards those North American margins, at least into the mid-teens. That's a big margin opportunity for us longer term. Shorter term, I gave you some of the drivers, which has given me some of the confidence.

[James Edward Schneider, Vice President]

Helpful color. And then maybe just one clarification. Good to see the strong bookings growth in the quarter. Can you maybe just kind of help us parse out how much of that bookings was driven by outsourcing kind of longer-dated contracts versus a consulting side of things and how that kind of played into the growth?

[George D. Schindler, President, CEO & Director]

Yes. Do you have the number?

[Lorne Gorber, Executive Vice]

It's in the MD&A.

[George D. Schindler, President, CEO & Director]

It's in the MD&A. Do you have that? I can't -- I just don't want to give you the rate. Systems integration and consulting was 54%, and the outsourcing was 46%.

[Lorne Gorber, Executive Vice]

Thanks, Jim. Thank you, everyone, for joining us today, and we'll see you back here mid-July for our Q3 numbers. Thank you.

[François Boulanger, Executive VP & CFO]

Back in Paris?

[George D. Schindler, President, CEO & Director]

No.

[François Boulanger, Executive VP & CFO]

Thank you.

[Operator]

Thank you, gentlemen. The conference. [Audio Gap]