CGI Inc

TSX:GIB.A

Earnings Call Transcript 2020-Q4

[Operator]

Good morning, ladies and gentlemen. Welcome to the CGI Fourth Quarter and Fiscal 2020 Conference Call.I would now like to turn the meeting over to Mr. Maher Yaghi, Vice President, Investor Relations. Please go ahead, Mr. Yaghi.

[Maher Yaghi]

Thank you, Julie, and good morning. With me to discuss CGI's fourth Quarter fiscal 2020 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 at 9:00 a.m. Eastern Time on Wednesday, November 11, 2020. Supplemental slides as well as the press release we issued earlier this morning are available for download along our 2020 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 on cgi.com. We encourage our investors to read it in its entirety.We are reporting our financial results in accordance with International Financial Reporting Standards, or IFRS. As always, we will also discuss non-GAAP performance measures, which should be viewed as supplemental. The MD&A contains definitions of each one used in our reporting. All of the dollar figures expressed on this call are Canadian, unless otherwise noted.So with that, I'll turn it over to François.

[François Boulanger, Executive VP & CFO]

Thank you, Maher, and good morning, everyone. Let me start by acknowledging that today is Remembrance Day in Canada and in many countries across Europe as well as Veterans Day in the U.S. I want to recognize all those who have served or are serving in the defense of their nations. Thank you. So let us now go to the Q4 results. Despite the widespread disruptions that the pandemic has caused to world economies, our results in the quarter demonstrate the resiliency of CGI's business model and the value that we provide to our clients, helping them emerge stronger from this very difficult period. Overall, we are pleased with our fourth quarter results underpinned by strong bookings, profitability and cash generation.Revenue came in at $2.9 billion, down 1.1% when compared to last year and representing a constant currency decline of 4.5% year-over-year. IP as a percent of revenue was 22% in the quarter, up from 21% in Q3. Revenue increased in transaction-based IP for trade, collections and insurance, partly offset by lower volumes in our IP engagements related to areas affected by the pandemic, such as lower payroll volumes and travel restrictions. We booked a healthy $3.5 billion in new contracts in Q4 or 119% of revenue, with particular strength in North America. This demonstrates the value of our services despite the pressure on world economies.Adjusted EBIT in Q4 was stable from the year ago period at $458 million while EBIT margins increased to 15.6%, up 10 basis points compared to Q4 last year. The year-over-year increase was mainly the result of lower SG&A discretionary expenses, synergies in our infrastructure business, savings from our restructuring plan and $8.5 million related to IFRS 16.Restructuring expenses were $84 million in the quarter as a result of actions taken in response to the pandemic as we outlined in Q2. We do not expect additional restructuring-related to the pandemic at this time. Our effective tax rate in Q4 was 25.4% or 25.5% when excluding nondeductible restructuring expenses. This compares with 25.1% last year and was within our expected range for the year.Net earnings were $252 million for a margin of 8.6% and diluted earnings per share were $0.96. Excluding integration and restructuring costs, earnings were $318 million or a margin of 10.9% and diluted earnings per share were $1.22 compared to $1.21 in the same quarter last year. We are especially pleased with the continuing trend of strong cash generation. In the quarter, cash provided by operating activities was $492 million or 17% of revenue, representing an increase of $87 million compared with Q4 last year. This improvement was driven by lower DSOs coming in at 47 days compared to 50 days in the same period last year as a result of better collections and a positive impact from the adoption of IFRS 16.Net debt to capitalization decreased sequentially due to strong cash generation from 28% in Q3 to 24% at the end of September, offering us increased flexibility to execute our Build and Buy strategy. Turning now to our fiscal 2020 full year results. Revenue was $12.2 billion. On a constant currency basis, revenue was stable year-over-year. Bookings for the year totaled $11.8 billion or 97% of revenues. Our global backlog remained healthy at 1.9x revenue or $22.7 billion, the vast majority of which are comprised of long-term managed services engagements.Adjusted EBIT was $1.9 billion, representing a margin of 15.3% for the full fiscal year, up 20 basis points from last year. And earnings were $1.1 billion for a margin of 9.2% and diluted earnings per share were $4.20. When excluding acquisition, integration and restructuring related expenses, net earnings for the year totaled $1.3 billion and earnings per share were $4.89, $0.19 higher than last year, representing growth of 4%. For the full year, operating cash flows were $1.9 billion or 15.9% of revenues, an improvement of $305 million versus $1.6 billion last year.Throughout fiscal 2020, we made a number of accretive investments, $315 million back into our business, $267 million in acquisitions and we invested $1 billion repurchasing 10.6 million CGI shares.Looking ahead, we plan to utilize our strong cash position to drive growth in the business. At our disposal are $1.7 billion of cash on hand and a $1.5 billion revolver, which we will use to drive investment in our internal IP, M&A and share buybacks.With 23 active discussions ongoing and others in the pipeline, we continue to engage with potential M&A targets in order to accelerate, both our metro market strategy as well as potential transformational acquisition opportunities.Now I will turn the call over to George to provide more details on the operations, our strategy and on the outlook for our business and markets. George?

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

Thank you, François, and good morning, everyone. I would also like to begin my remarks today by recognizing the men and women serving in the military around the world. Thank you for your service and sacrifice.Now I'll turn to CGI's performance for the fourth quarter. Our Agile operating model, locally empowered leaders and global alignment on key priorities has enabled us to protect and preserve shareholder value despite the continued disruptions created by the pandemic. In the quarter, we delivered on key short-term priorities for sustaining value, including expanding our margin, generating superior cash, maintaining incumbent work and growing share with enterprise clients. We now see increased client demand materializing in most geographies. The actions we have taken over the last few quarters will enable us to rapidly meet this demand and achieve our plans to return to revenue growth by the second half of this fiscal year. In the quarter, margin expansion was delivered through a combination of operational excellence and business mix. We further reduced discretionary SG&A costs and generated savings from the permanent restructuring actions taken over the last 2 quarters. As François mentioned, these actions are now completed and behind us. Therefore, we expect net earnings to increase on a go-forward basis.The continued shift in the business mix towards longer term, higher-margin recurring revenue also contributed to the strong bottom line. Managed services now accounts for 56% of total revenue, expanding steadily throughout the year and in line with our projections of renewed client demand for these services, intellectual property, including SaaS-based solutions, also increased year-over-year. We generated strong cash from operations, in large part due to lower DSO. This lower DSO is a result of the shift in mix to more managed services and also reflects the value of the services to our clients and the quality of our project delivery.As we shared earlier this year, this financial strength anchors CGI's resilience, and we maintained our incumbency and grew our share with enterprise clients. Representative wins in the quarter, included a new project for the global retailer where CGI's team of proximity-based onshore and global delivery consultants will help advance the client's U.S. digital road map. A large smart city digitization program for the City of Edinburgh, it builds on our existing managed services agreement and expands on it to now include machine learning solutions, advanced analytics and Internet of Things services and a new engagement with one of the top 5 automotive manufacturers in the world to deliver robotic process automation solutions that will optimize hundreds of processes and reduce costs across their enterprise.Now let's review the Q4 regional performance highlights. I'll start in North America. In the U.S., Q4 revenue grew year-over-year, and bookings were up 40% compared to Q3, reflecting our ability to bring solutions to help clients navigate these dynamic times. Overall, revenue and bookings were strong across all industry sectors this quarter, particularly in government at the federal, state and local levels. In Canada, revenue and margin were impacted just temporarily by the effects of the pandemic. Primarily within the financial services sector and in the transaction-based payroll services IP business. Clients, however, reiterated their confidence in CGI through awards of key opportunities driven by new initiatives in the financial services sector, resulting in a book-to-bill of over 100%, the highest level of Canadian bookings this year.Increased technology intensity in all industry sectors across North America is driving client demand for our end-to-end services. Automation and platform-related services are in particular demand and are fueling increases in the North American pipeline of opportunities.Moving now to the U.K. and Australia. The team again delivered strong bottom line results and a book-to-bill of 122%. While revenue was down in the quarter, our pipeline of opportunities continues to be significant, driven by the strength of our work for existing clients in government, national critical infrastructure and the space sector. Our public sector market leadership position was recently highlighted as the Scottish Borders Council, CGI and Apple were honored for our public private partnership. Together, we are creating a world-class digital learning environment for students to reduce inequality, improve academic performance and boost student employability.And now moving to the rest of Europe. Across Western and Southern Europe, the follow-on economic effects of the pandemic continued to impact our revenue and margin. The SG&A reductions we initiated last quarter enabled us to mitigate the full impact of this disruption to our business. In Central and Eastern Europe, our actions in the last few quarters as well as strengthening demand from clients, enabled us to improve our margins year-over-year despite declines in revenue. And in our Northern Europe segments, we again experienced lower client spending for our higher-end consulting and advisory services in the quarter.Importantly, our restructuring actions initiated last quarter have enabled us to adjust to the changing client demand. As a result, we are seeing strong trends in our pipeline compared to this time last year.Despite the renewed pandemic related shutdowns in some European geographies, we continue to have productive discussions with clients as they reassess their operation and consider ways to rebound post pandemic. In fact, our pipeline continues to increase, up 20% year-over-year in Europe based on the relevance of our end-to-end portfolio services. And finally, in Asia Pacific, we delivered double-digit revenue growth with improved margin, demonstrating the resiliency of our global delivery services model and the quality of our Asia Pacific delivery team. Across all geographies, we continue to see increased levels of client demand for CGI's global delivery model, which balances offshore, onshore and nearshore options for our clients.Turning now to fiscal year 2021. We informed our annual plan from over 1,400 client conversations with an objective to build on our strong foundation and focus on those priorities that will generate new value for all stakeholders with growth through both Build and Buy. In these planning discussions, each of our stakeholders reiterated that technology is now core to how organizations create value for their customers and shareholders. Response to the pandemic has accelerated this by creating new consumers across every generation, now having digital-first expectations that clients must aim to meet.We continue to see tremendous opportunities to help clients transition their quick response digitization efforts into meaningful and sustainable enterprise outcomes. For some, these initiatives will help drive revenue growth, and for others, it will help them achieve immediate cost savings. We expect many clients to seek to achieve both of these objectives using a percentage of the cost savings to fund customer-oriented digital initiatives. We firmly believe that the 3 fundamental shifts in client demand that I outlined last quarter will drive CGI's return to profitable growth. These opportunities include enabling our clients to achieve business agility, to adapt to the future of work and to reinvent their technology supply chains.These 3 shifts will continue to generate client demand specifically, our managed services and intellectual property. We see this trend in our pipeline with over 50% comprised of managed services opportunities. In addition, our IP pipeline is up 25% compared to this time last year. While the rebound time lines and business objectives will vary by industry sector and organization, our diverse presence across the government and commercial sectors in every region positions us well for these 3 opportunities. Industries that have faced significant hardships like transportation, manufacturing and oil and gas are now turning to us to help them manage costs and enable resiliency. Although the spend continues to be constrained, we are helping them through our managed services, business continuity and automation offers. We now see cautious investments returning in other commercial sectors like communications and media firms, utilities and even some retailers as they look to accelerate digitization, rebalance their IT supply chains and leverage cloud and automation to increase their business agility.We saw a particularly strong trend in our Q4 bookings across financial services as more banks and insurers resume some investments in digital channels and technology modernization. And lastly, the government and health sectors have maintained high levels of demand over the last several quarters as both sectors have been at the heart of the needed support to citizens and societies. Our government clients' confidence in CGI resulted in strong bookings and healthy revenue growth in these sectors year-over-year.To summarize our fiscal year 2021 plans, we remain committed to executing our strategy through a balance of Build and Buy growth while maintaining our focus on creating incremental shareholder value. We plan to accelerate our Buy strategy given the strength of our operational readiness and financial capacity. As François outlined, we are actively assessing a growing pipeline of potential mergers and are well positioned to move quickly with discipline on the right opportunities.As always, our capital allocation approach will be prioritized to drive profitable growth. Specifically, we will continue to invest back into our business, including in people, IP and managed IT services contracts, fund our Buy strategy, both transformational and metro market mergers and buy back our stock to increase returns to our shareholders.In closing, we remain optimistic as we begin our new fiscal year. Our confidence is rooted in our strong positioning, strategically, operationally and financially. CGI has a legacy of resilience. And our strategic aspiration remains to double the size of the company over the next 5 to 7 years for the benefit of all our stakeholders.Thank you for your continued interest and support. Let's go to the questions now, Maher?

[Maher Yaghi]

Just a reminder that a replay of the call will be available either via our website or dialing 1 [phone] and using the passcode 5631496 until December 11. As well, a podcast of this call will be available for download within a few hours. Follow-up questions can be directed to me at [phone].And operator, we're ready to take the questions.

[Operator]

[Operator Instructions] And your first question comes from the line of Thanos Moschopoulos with BMO Capital Markets.

[Thanos Moschopoulos, VP & Analyst]

First, with the -- George, with Europe entering new lockdowns, how should we think about the near-term trajectory there? Could that lead to some near-term revenue pressure? Or have people adjusted to working to the extent that, that shouldn't necessarily be a headwind short-term?

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

Yes. It's more of the latter, Thanos, clients are reacting very differently now, 7 to 8 months into the pandemic. They're more prepared. They also recognize the need for technology. And as a result, even with some of those rolling shutdowns that are occurring, we're seeing very few delays, many new initiatives actually continuing. And specifically, it's interesting in the European clients, the domestic business does take a bit of a hit due to the shutdowns. But our enterprise clients, many are seeing increasing demand in Asia, which they didn't see the first shutdown because Asia was still in lockdown.So for example, the auto manufacturers in Sweden and Germany, luxury retailers in France, defense manufacturers across Europe are all seeing increasing earnings, and that's good because that drives some investments. So we're seeing a very different reaction. And the same thing we're seeing in Canada, manufacturing, financial services, as I said in my opening remarks, we're seeing those actually new starts coming up. So despite the obvious health prices, we are seeing a different reaction this time around. And I don't think it changes anything, which is why you heard some of the confidence in my remarks.

[Thanos Moschopoulos, VP & Analyst]

And then I think you very often get this question heading into a new fiscal year. So I'll ask it. Just given what you're seeing in the pipeline and some of the puts and takes, would you see a path to double-digit organic EPS growth this year? Or might there be some issues that make that challenging?

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

Yes. Our plans are always to create shareholder value. And so our plan is always to generate that double-digit earnings per share growth in the new fiscal year.

[Thanos Moschopoulos, VP & Analyst]

Okay. And then one for François. Would you be able to quantify the level of government stimulus or the rate subsidy contribution in the quarter?

[François Boulanger, Executive VP & CFO]

Sorry. I missed the start of the question, Thanos.

[Thanos Moschopoulos, VP & Analyst]

Yes. Would you be able to quantify the level of government subsidies or stimulus contribution in the quarter?

[François Boulanger, Executive VP & CFO]

Well, not more than the months or quarter before, not on the P&L, at least, where in some places, we have some breaks on some of the payments, on some of the taxes, especially in Europe on the payroll taxes. But outside that, in the P&L, nothing out of the ordinary versus the other years.

[Operator]

And your next question comes from the line of Richard Tse with National Bank.

[Richard Tse, MD & Technology Analyst]

So as we look out to next year, trying to be an optimist here, if we see kind of a rapid snapback in terms of activity, let's say, assuming that the vaccine's out earlier. Could you guys sort of handle that increase in volume under the current sort of operating structure? Or would you need to sort of bring on more people? I'm just trying to figure out how much operating leverage is in the model, if that were to happen?

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

Yes. No, I think I understand the question. Right now, we are planning and expect for continued positive trends as we move through the quarters here next fiscal year. And we even saw that as we moved through the last few months with positive trends in utilization and other key metrics. But it's been a more steady increase. So I think your question is, what if there's a more immediate snapback. We already are having some very, very strong pipeline of new hiring that's going on. And I think that's a good positive. I think we'd be able to accommodate because remember, a lot of our larger managed services deals, we actually bring people on board from our clients. And so it's an automatic where we can meet the demand. And so I would see more of that occurring as well.

[Richard Tse, MD & Technology Analyst]

Okay. So we're prepared. Okay. And with respect to your comments on second half pickup next year, I'm assuming that's organic growth. And...

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

Yes.

[Richard Tse, MD & Technology Analyst]

Can you maybe sort of give us some color in terms of the type of projects that are going to be scaling in that back half? Are those the ones that really you don't need to be on-site as much or the nature of those type of deals?

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

Yes. Well, as you're aware, the whole world has kind of navigated this and pivoted to being able to work some remotely. We've always done some of that through our global delivery model, where we have on-site, offshore. And then, of course, the nearshore in between, so I would expect the projects actually to be -- to run the gamut. And we're seeing that now. We're seeing systems integration and consulting projects kick off with -- that have cloud migration and enablement, RPA automation, as I mentioned, one of the new wins with the automotive manufacturer, rationalization and modernization, even DevOps and Agile methodologies. So we have about 12% of our people on-site now. It actually had reached 20% before some of the shutdowns. So I don't -- I think it's all of the above. Simplification of IT supply chain, some of that. Those larger deals, yes, some of that's done more remotely through global delivery anyway. And then our IP platform, we kind of call them business platforms as a service, those are driving some of that growth as well. So again, a lot of positive signs, but it's really the end-to-end services, I would say, that is what we're seeing right now, Richard.

[Richard Tse, MD & Technology Analyst]

Okay. And just one last quick one for me. You seem to be a bit more focused on the acquisition side relative to previous quarters. Is that because valuations have started to come in? Or maybe you can give us a bit of color on that. That's it for me.

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

Yes. Well, I mean, in the initial response to the pandemic, there were a lot of economic stimulus payments going out to some of the smaller and medium-sized private companies. So they kind of -- they didn't want to move until they understood that landscape. Of course, we wanted to be cautious as well. Yes, we see that now playing out. Those companies now actually are more motivated given what's happening in the marketplace. And I would say that those midsized metro market, private companies, the valuations are starting to settle and the expectations are starting to settle.Of course, in the public companies, it's still more volatile, up and down, and so we'll have to see there, but -- our financial capacity. And I think the other element there, Rich, is our operational readiness. We really focused on the fundamentals, got their restructuring behind us. So we're well positioned both financially and operationally.

[Operator]

And your next question comes from the line of Jason Kupferberg with Bank of America.

[Jason Alan Kupferberg, MD in US Equity Research & Senior Analyst]

Guys, I just wanted to start with a question on the bookings in the quarter. Obviously, very strong. Looked like it was tilted a little bit more towards renewals vis-à-vis newer than what we've seen historically. But I was hoping maybe you can unpack the bookings numbers for us a bit and highlight some of the particular areas of strength that you saw?And I'd love to just hear your general thoughts about translating backlog to revenue, it feels like some of the trends there in the industry are a little choppy right now. So the bookings are a great leading indicator for sure, but just wanted to get your take on conversion to revenue and what that's looking like in your portfolio?

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

Yes. So you're right in your assessment that a lot of this is with our existing customers. Not all renewals, though, right? Some of it's add-on work on top of those renewals. And that, actually, to your last part of your question bodes well because translating backlog to revenue on a booking where you're already working with the existing client, it's just an add-on. Some of that work can happen very quickly. And we're already starting to see some of that and some of you -- are trending. As I mentioned, our utilization has increased throughout the quarter. And some of it's related to some of those bookings that occurred throughout the quarter.Nice to see that we are seeing some additional new starts on the financial services side. And specifically there, some of that's being driven by our intellectual property. Again, if I just use financial services, as an example, wealth IP coming in North America, payments IP in Europe, our trade IP and collections IP globally. So our Retail 360 IP, particularly with our new Meti merger with some of their IP is driving some nice bookings. And again, a lot of that is with their existing customers, existing clients. And so that will translate, I think, a little bit faster than the completely new starts.But our pipeline is full of new clients as well. Those tend to move a little slower. But again, we see positive traction in every geography around the world.

[Jason Alan Kupferberg, MD in US Equity Research & Senior Analyst]

Okay. And then just a revenue question. So here in the quarter, you were down 4.5% in constant currency. I wanted to get a sense of just how that compared versus your expectations? And do you think that this ends up being the trough quarter, and we start to see some reacceleration in the first quarter of '21 as you proceed towards the goal of getting to positive growth in the second half of fiscal '21?

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

Yes. No, it is what we expected. So -- because there's a lag in getting some of those projects start back up. As I mentioned, we see some positive signs, particularly in some of the weaker areas, like I mentioned in the manufacturing, specifically as well as retail. If you take out the MRD just as an industry from those Q4 numbers, we're approaching flat for the quarter-over-quarter. So that gives you some idea. So that's why I highlighted some of those as manufacturers do better and so some of those new starts, some of the luxury retailers, like I mentioned, given the strength now of the Asian economy, that bodes well for us to continue to move through there.But the bookings and the translation, as you asked, and then those utilization and we're increasing our open position and our hiring in a lot of places. So all of that is going to drive -- as we move through the months and quarters. So it's a long way of saying, yes, I think we've reached the trough and we -- I just wanted to give you some color on why we think that and what are some of those positive sides.

[Operator]

Our next question comes from the line of Deepak Kaushal with Stifel.

[Deepak Kaushal, Director and Technology & Communications Analyst]

Just a couple of follow-ups, George. You talked about strength in the Asian markets. I'm just trying to understand. I can understand how it's translating into improved business for European and North American companies that export into those markets. What are the activities for you guys in terms of local business there and local delivery in that theater? And what's the strategy for that area?

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

Yes, yes. So no, the way we're approaching those markets are not domestically, we're approaching them through those enterprise clients that you just mentioned. So if that market is stronger for, like I said, an auto manufacturer in Sweden and Germany, and they're selling more cars in that market, they're making more investments in their operations in Germany and in Sweden. Same thing for the luxury retailers, et cetera. So we're applying to the domestic markets in Europe and in North America, but helping those enterprise clients drive growth in the Asian market. So that's why I mentioned that as an important difference from the first wave of the pandemic.

[Deepak Kaushal, Director and Technology & Communications Analyst]

Got it. And so when we think of your 5-year plan to double the business, is there a piece in there that involves increasing local Asia Pacific business or even a return to local Latin American business? I'm just trying to understand what the global strategy is outside of the traditional market?

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

Yes, yes, yes. Well, if you look at the global strategy and really the strategy of CGI as we built the company has always been to merge with like-minded companies that have a presence and an understanding of a local market. It's hard to break into a market on your own. And so it would be through that merger and acquisition process. So -- and it would probably be in a more transformational. We wouldn't look to necessarily buy a metro tuck-in in one of those domestic markets because that would be counter to the strategy. It would be more of buying a transformational way into one of those markets. And there, it's always looking for the right company at the right time at the right price. So -- but again, a lot of the enterprise clients will come with some of that work, and that will then -- will follow our clients and their clients into those markets.

[Deepak Kaushal, Director and Technology & Communications Analyst]

Got it. And then the last follow-up, just on that basis, when François mentioned the 23 companies in the pipeline for M&A, is this kind of global merger type of idea included in that pipeline? Or is this outside of that immediate pipeline?

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

That pipeline right now is mostly on the metro market tuck-ins, but we -- so those active ones are mostly in the metro market tuck-in that does not mean that we're always having discussions and looking at the transformational, but that's not really included in the 23.

[Operator]

And your next question comes from the line of Stephanie Price with CIBC.

[Stephanie Doris Price]

Just wanted to chat a bit on the SAP outlook a few weeks ago. The company noted an accelerating shift to the cloud with ERP clients. Just wondering in terms of CGI, if you could comment on the cloud vendors, you're working with the most, and how you kind of think about that cloud opportunity over the next couple of years?

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

Yes. Well, we -- as always, we like to stay partner agnostic and really make sure that we're providing the best advice to our clients. So the reality is we're working with each of the major cloud providers, helping our clients in their efforts in cloud enablement and cloud migration. So there's not any one. We do have a renewed interest in working with the platform providers whether it's SAP, Salesforce or any of the others in helping our clients best use those platforms. And then like I said, using our own IP kind of business platforms as a service, so as a complementary element to that. So we're very active in that market. But Stephanie, true to our values and our client-first approach, we're working across all of those partners.

[Stephanie Doris Price]

Okay. That makes sense. And just switching over to the U.S. Government, just in terms of the government transition that's going on, can you talk a bit about what you usually see in the near-term as these transitions kind of go through?

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

Yes, yes. So as you might expect, our U.S. team is well prepared and always is looking at the elections as an opportunity to help in the transition. And that transition, we are preparing for this regardless because there's always a transition that occurs even if it -- even if the administration stays, there's always a transition. And I might also add, it goes on at all levels of government. So it extends to the state and local government space. So what we typically see is there's a little slowdown in the bookings, why it was so important for us to increase and bring a lot of those bookings into Q4 ahead of the elections.But usually, the transition happens fairly quickly. And as you're probably aware, most administrations have -- here's our priorities for the first 100 days. That always requires technology changes as we continue to become more and more dependent on technology for implementing any of those programs.So we're very close to it. And working at -- like I said, at every level of government.

[Operator]

And your next question comes from the line of Steven Li with Raymond James.

[Steven Li, Director & Equity Research Analyst]

George, just wanted to revisit your remark about revenue growth in the second half. This is positive organic growth you're referring to? Or just overall revenue growth?

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

Well, it's both. I'm talking about organic revenue growth and M&A growth. So it would be both.

[Steven Li, Director & Equity Research Analyst]

Okay. And what happens in the first half if we get a vaccine early? Can you also see organic growth in the first half?

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

Yes. That's why I said by the second half. We can't predict the exact pace of this. The vaccine, from everything I read, it's going to be a process. So I don't think it's going to be -- just turn it on and things happen quickly. But we can't always predict sentiment. And if -- certainly, if our clients and that growing pipeline that I mentioned materializes faster, then there's certainly -- growth will follow. So we'll be staying very close to that and certainly we'll accelerate if our clients accelerate.

[Operator]

And your next question comes from the line of Ramsey El-Assal with Barclays.

[Ramsey Clark El-Assal]

I wanted to ask you a question about the impact of the pandemic and kind of the virtualization of the workforce and how that might, in turn, impact the sort of metro market strategy, which if I understand correctly, is sort of based around proximity. Is there any -- has there been any rethinking of that strategy? Or have you seen any impact on the efficacy of that strategy just based on folks working from sort of wherever relative to being embedded potentially like on-site in those metro locations?

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

Yes. No, it's a good question. And as you might imagine, we're focused and very close to that. But the reality is that, although we're very focused and it's 1 of the 3 fundamental shifts that I mentioned in the remarks, it's really the future work. What we're actually seeing is that as that future work goes to maybe a slightly more remote -- permanently remote workforce, it also is providing opportunities for technology to automate more, quite frankly, and make it easier for that workforce to work remotely.Having said that, what we see around the world that the key decision-makers are, in fact, back at the office. Most of the CEOs that I speak to from my office are actually at their office. They recognize the importance of having people working together. And so I think what you're going to see is a hybrid model. And so there's opportunities for technology to help remote workforce, but the proximity model being close to the decision makers, where -- especially given some of the importance and complexity of the work that we do for clients that technology enables, we don't see a change in that at this point in time.

[Ramsey Clark El-Assal]

Okay. And then a follow-up for me is, could you give us an update on the recent acquisitions, both in terms of the performance and also, just any color around cross-selling or cost synergies or anything that may be still benefiting the company as we head into fiscal '21?

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

Yes, yes. No, it's a good question. Definitely, if you start with the most recent, the TeraThink merger and the U.S. Federal business has been instrumental in some of their growth. And as you saw, they're continuing to grow and have very strong bookings, and that gives us a new channel. So we're seeing opportunities to expand on the work that they're doing.Likewise, we're seeing that with the Meti intellectual properties, I mentioned, that got folded into our Retail 360. That's been very fundamental to some of the work and the rebound rate we see on the retail side of the house in France and across Europe, where we now can go full end-to-end from the front office to the inventory in the back office, especially with the remote work that's going on now that's been fundamental to some of the strength as we go forward.The media work SCISYS, and quite frankly, all of the work we're doing in the space sector, which has been part of the driver for not just the revenue but the margin growth that we're seeing in -- across Europe and in the U.K. So SCISYS is going well. Sunflower has been -- fully been integrated into our government ERP momentum. And we had -- I think I highlighted this a couple -- a quarter ago, we saw some wins that wouldn't have happened. They couldn't have done it on their own, but being part of momentum, we had the vehicle to allow that to happen. So that's just a nutshell of some of the more recent mergers. I think I have told you, we track this for our own Board of Directors, the performance has been pretty strong, both top line and bottom line, keeping clients, but then expanding on those clients as we move forward.Probably, the one that's been a little bit difficult is the Acando merger, just given the nature of the work they did, coupled with the pandemic, given some of that consulting and advisory services that was -- a lot of those projects were delayed.Having said that, we've repivoted those individuals into some of the larger managed services opportunities, given their deep industry knowledge and actually, it has positioned us very well. And then we did do one in Canada, it's at Raymore, and that's been very, very successful as well in helping us navigate some of the new project starts that we have in Canada. So pretty -- it's been pretty impactful, and that's why we're very interested, now with the valuations maybe looking a little more attractive and given our operational readiness and financial capacity to continue to accelerate that.

[Operator]

And your next question comes from the line of Daniel Chan with TD Securities.

[Daniel Chan, Research Analyst]

If we look at your mix of managed services, like you mentioned, the bookings and the revenue mix from that continues to improve just want to confirm that this is a result of a lot of the deals that you had. You said these can take a little bit longer. Just wanted to make sure that these are some deals that you saw over the last year or 2 and just starting to materialize? And then as we expect that mix to improve, should we expect margins for fiscal '21 to continue to improve from the current levels?

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

Yes. So a lot of that, I think I've mentioned before, those larger deals don't happen overnight. They -- there's a slightly longer period of time to close those deals. And so the good news is we're working on these preparing for this market 12, 18 months ago, and some of those are those kind of deals. But they all work at different paces. And so sometimes, a deal comes to us and moves through the process more quickly. The good news is we have double-digit opportunities of these types of larger managed services deals in every single geography, which we operate right now. And so that's the positive. So we continue to follow the -- build the pipeline so that we have a consistent opportunity that we can close in any one quarter.

[Maher Yaghi]

Margin?

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

The margin part of your question. I forgot about the margin part of your question. So yes, as I've always mentioned, the reason we have a 70% managed services, 30% SI&C and 30%, which you saw we also increased by 1% our intellectual property as a percentage of revenue, that gives us the ultimate revenue mix. As we approach that, we should continue to see margins increase as we move through that process.

[Operator]

And your next question comes from the line of Rob Young with Canaccord Genuity.

[Robert Young, Director]

Maybe just a follow-on question to the last one there. The growth that you're expecting to see return in the second half, it seems to me that, that might be shorter-term consultative type of business. And so could you find yourself in a situation where you've got strong shift toward managed services, but then the buoyancy of -- a return of the shorter term?

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

Yes, yes. The pipeline is up in both managed services, which are very instrumental, but it's also up in systems integration and consulting. So that will help buoy it because we're coming from a market where it was a lot more on the SI&C side. I think we're going to see -- now we're moving into the managed services side, but the goal is to have both firing. And I think we're moving into that type of a market, which should be good from a growth perspective.

[Robert Young, Director]

One of the things, I think, that a Democrat government, if that happens in the U.S., would be potentially an expansion of H-1B visa and maybe some change in immigration rules. And maybe is there any thoughts there on how that might change your view on the local delivery model?

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

No, not really. Less than 10% of our workforce right now works in a visa. And so we're close -- given the various policies that are going around there. I think, in any case, our onshore delivery centers expect to be in demand across the U.S. I don't think our proximity model changes much. And of course, we always have that global delivery model, which is in higher demand, and that's why you see the double-digit increases in our India operations on revenue, even as we're going through the pandemic. So we think we have a very strong offering in the U.S. regardless.

[Robert Young, Director]

Okay. Last one for me, maybe a little higher level. In the prepared remarks, you mentioned retail just as one of the areas where you've seen some strength in. So just one of the areas that seems to be very strong investment wise, technology is the shift towards e-commerce. And so I just wondering if you could give us some highlights on where CGI plays there and whether that is a driver for you?

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

Yes. Well, the short answer is, yes, it is a driver, and that's why I highlighted one of the new wins, it was absolutely to help a global retailer get their U.S. e-commerce platform, right? And it extends beyond just the ordering, it goes straight through to the delivering, which is where the Meti software is helping us significantly. So we play across the entire spectrum from the front end straight through to the fulfillment end.

[Operator]

[Operator Instructions] And your next question comes from Jerome Dubreuil with Desjardins.

[Jerome Dubreuil, Associate]

Maybe one for François. In terms of working capital, I don't think we should expect a similar boost in fiscal '21, we expect maybe a more stable working cap. And related to that, would the $1.9 billion cash generated from operating activities, be a good run rate estimate for next year?

[François Boulanger, Executive VP & CFO]

Thanks for the question. As for the working cap, you're right that we had a boost on the working cap by $200 million if you are looking at the financial statement. And again, that was helped by the fact that we were pretty good this year to reduce the DSO from 50 days to 47 days. So that was a great achievement by the team to be capable to continue to collect and even reduce the DSO year-over-year. That said, we're still expecting next year to be in the high, at least $1.7 billion -- $1.6 billion, $1.7 billion and perhaps even more cash from ops by -- before working cap. And after that, depending on the working cap, can even be higher than that. So we're still very bullish on the fact that we will be capable to generate a lot of cash next year.

[Jerome Dubreuil, Associate]

Okay. And maybe could that prompt you to resume NCIB activity?

[François Boulanger, Executive VP & CFO]

We are -- yes, we are looking at it. We -- if you saw, we did some share buyback even in the October time frame. And we will look to see how we can come back on the NCIB pretty soon. You'll see that.

[Maher Yaghi]

Thank you, everyone, for joining us this morning. We'll see you for our first quarter results of 2021 in the next year. Thank you all.

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

Thank you.

[François Boulanger, Executive VP & CFO]

Thank you.

[Operator]

This concludes today's conference call. You may now disconnect.