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Good morning, ladies and gentlemen. Welcome to the CGI Fourth Quarter and Fiscal 2021 Conference Call. I would now like to turn the meeting over to Mr. Maher Yaghi, Vice President, Investor Relations. Please go ahead, Mr. Yaghi.
Thank you, Julianne, and good morning, everyone. With me to discuss CGI's fourth quarter fiscal 2021 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 10, 2021. Supplemental slides as well as the press release we issued earlier this morning are available for download along with our Q4 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. 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 1 used in our reporting. And all of the dollar figures expressed on this call are Canadian unless otherwise noted.I'll turn it over now to François to review our Q4 financial results. And then George will comment on our business and market outlook. François?
Thank you, Maher, and good morning, everyone. I am pleased with our Q4 performance as revenue growth and operational discipline contributed to double-digit EPS accretion, and increased cash from operations.Our year-over-year constant currency revenue growth accelerated in Q4, as previously booked orders began to flow into revenues. We delivered 15% adjusted EPS growth. We generated strong cash flow from operations, up 7.1% year-over-year in Q4, bringing the last 12-month total to over $2 billion, an increase of 9.1% year-over-year. And we strengthened our balance sheet by executing our first public debt issuance both in the U.S. and in Canada. This was supported by strong investment-grade credit ratings from both Standard & Poor's and Moody's.For Q4, we delivered revenue of $3 billion, up 6.4% year-over-year on a constant currency basis. This is an acceleration from the 3.5% growth in Q3. Double-digit growth in constant currency was achieved in the following geographies: Western and Southern Europe, up 13.6%; Asia Pacific, up 11.5%; U.S. commercial and state government up 7.1%; Canada, up 10.5%; and Central and Eastern Europe, up 10.1%. This was driven by strong demand in the following industries: health care grew 10.8%; MRD grew 9.9%; and Financial Services grew 6.4%. The total bookings of $2.9 billion, representing a book-to-bill of 97.1% for the quarter, while our trailing 12-months book-to-bill stands at 114.2% and up 17% year-over-year.I would like to highlight a few reporting segments with strong bookings in the quarter. U.S. commercial and state government, with a book-to-bill of 117%. U.K. and Australia at 111%, and U.S. Federal at a 110%. New business in the quarter was 31% of bookings, an increase from the previous year's 22%.On a trailing 12-month basis, new business was 32% of bookings versus 25% order a year ago. Given the continued increase in demand for our services, are as it reflected by the strong bookings in the last 12 months, we expect continued positive growth trends in fiscal 2022.We finished our 2021 fiscal year with a backlog of $23.1 billion. Adjusted EBIT in Q4 was $493 million, while EBIT margins increased to 16.4%, up 76 basis points compared to Q4 last year.The year-over-year increase was mainly due to higher utilization rates, and lower nonrecurring project adjustments. We saw strong margin improvements in U.S. Federal with margins up 350 basis points, as well as U.S. Commercial and Scandinavia, both showing 170 basis point improvement. This was partially offset by lower margins in Canada due to lower tax credits this year, as well in the U.K. due to a nonrecurring contract provision.Our effective tax rate in Q4 was 25.5%. We continue to expect our tax rate for future quarters to be in the range of 24.5% to 26.5%.Net earnings were $346 million and diluted earnings per share were $1.39, representing an increase of 44.8% year-over-year. This improvement was mainly due to revenue growth, margin improvement, and lower restructuring costs.Excluding integration and restructuring costs, net earnings were $347 million for a margin of 11.5%, and diluted earnings per share were $1.40, an accretion of 14.8% when compared to $1.22 in the same quarter last year.In the quarter, DSO was 45 days, down from 47 days last year. Cash provided by operating activities was $527 million, an increase of 7.1% year-over-year. Net debt to capitalization decline quarter-over-quarter to 26.6% from 30.9% in Q3.We are proud as an organization to have a new group of investors in our company through our integral bond offering, raising in the process $1.8 billion across the U.S. and in Canada. We used a large portion of these funds to prepay the USD 1.25 billion loan facility that was due in 2023.More importantly, with this debt raise, the weighted average maturity of our debt has increased from 1.6 years to 4.7 years with 91% being fixed interest debt versus flooring interest debt.For the last 12 months, cash provided by operating activities was $2.1 billion or 17.4% of revenue. This is an improvement of $177 million year-over-year. In fiscal 2021, we invested $1.9 billion in our Build and Buy profitable growth strategy, comprised of [ $101 ] million back into our business, mainly in IP, and managed services engagements, $99 million on business acquisitions and $1.5 billion to buy back our stock. Buying back CGI stock has been an accretive, and flexible way to return capital to our shareholders. In fiscal 2021, we bought back 15.3 million shares at an average price of $98.16. As of the end of Q4, the company could purchase up to an additional 10 million shares under the current NCIB program. Looking ahead, our cash allocation priority remains the same: investing in our business, pursuing accretive acquisitions, and buying back our stock. With cash of $1.7 billion on hand, and a $1.5 billion revolver that remains fully accessible, we have $3.2 billion readily available. In addition, we now have access to the public debt market to support our Build and Buy profitable growth strategy. Now I will turn the call over to George, to provide perspectives on fiscal year 2021, and on our business for the year ahead. George?
Thank you, François, and good morning, everyone. I am pleased with our team's performance in the fourth quarter and full fiscal year. I would like to recognize our now 80,000 consultants and professionals around the world, for their tremendous commitment to delivering end-to-end digital value for our clients. Through the expertise, insights, and disciplined project delivery of our team, and the continued trust of our clients, CGI returned to revenue growth for the second half and created incremental shareholder value.For fiscal 2021, we delivered double-digit GAAP and adjusted EPS accretion, a 9% increase in cash from operations, and a nearly $2 billion increase in bookings. This morning, I will provide more context on the fundamental components of our business that contributed to the strong full year performance.Specifically, our diverse presence across industry sectors and regions, and our proven delivery of end-to-end digital services.Starting with revenue. We finished the year with revenue of $12.1 billion, and in line with our projections for growth in the second half of fiscal 2021, CGI grew 4.9% on a constant currency basis compared to the second half of last year. Growth was broad-based across every industry sector during the second half, with constant currency growth of 8.9% in manufacturing, retail and consumer services, driven by Western and Southern Europe with 18.5% growth. 8.4% in health care, led by Central and Eastern Europe with 44% growth, 6.1% in Financial Services with Scandinavia delivering just over 9% growth, and 4.2% in communications and utilities led by U.S. commercial and state government, at 47% growth. Our government business also grew in the second half at 1.4%.Even as clients continue to reprioritize their IT investments in line with the changing public health and economic environment. We remain well positioned as a partner of choice to help governments address a wide range of domestic priorities, including infrastructure, environment, and the climate, and cybersecurity.We believe this strong second half performance demonstrates CGI's role as a leading digital services partner, positioning us well for future growth. As clients accelerate spending to capture the increased benefits of digitization for their customers and employees. This strong client demand environment drove our robust bookings on a full year basis, with a book-to-bill of 114%. We sustained our incumbency with enterprise clients, and we're also awarded net new projects, and expanded scope, growing our share of client spend.Recent new awards for digital transformation services in the fourth quarter included the following: Canadian banks selected CGI to help with this business transformation journey. CGI will lead the modernization, and migration of client interaction platforms to the cloud. Volkswagen Group U.K. awarded CGI a 5-year managed services contract to implement enterprise automation to improve employee productivity as well as support their sustainable mobility strategy.Valley Bank in the U.S. awarded CGI new work to support the bank's omnichannel digital enablement, drawing on our capabilities in robotic process automation, machine learning, and application modernization. And the U.S. Centers for Medicare and Medicaid Services, will leverage CGI's digital modernization services to move legacy platforms into the cloud.In the year, bookings were strong across several industry sectors. In manufacturing, retail and consumer services, bookings were up 16% over last year, with a book-to-bill of 115%. Bookings increased based on demand for omnichannel transformation, supply chain modernization, and data analytics. Government and health care bookings were up nearly 13%, with a 115% book-to-bill for the year, based on continued demand in citizen and patient services, application modernization, and cloud.Financial services bookings were up 20% with a book-to-bill of 111% for the year. This was led by strong demand in the insurance sector for transformational managed services, to enhance customer and employee experience while delivering cost efficiencies. Communications and utilities bookings were up 27% year-over-year with a book-to-bill of 114%. This uptick was led by strong demand from utilities providers to help address climate risk and the energy transition.Moving to our fiscal year 2021 profitability. Adjusted EPS accretion of 11% was delivered through a combination of revenue growth, improved business mix, operational excellence, and share buybacks. Our EBIT expanded to 16.1%, up 78 basis points year-over-year.An important element of our improved business mix is business and strategic IT consulting, where demand accelerated in the second half of the year, notably for business model transformation, change management, customer experience design, and digital advisory services. We continue to invest in talent, methods, and accelerators, to support our growth in high-end consulting services.CGI's proprietary industry-specific blueprints as well as cross-industry ecosystem frameworks are designed to help our clients navigate the changing business models, and evolving value chains.Intellectual property revenue remained steady at 21% of our overall revenue mix. Despite the volume headwinds in our transaction-based IP solutions, specifically those related to travel services. We saw a significant growth in revenue from new solutions, including 50% year-over-year growth in IP acquired through recent mergers, demonstrating CGI's ability to leverage our global footprint, to expand the reach of acquired services and solutions.We also saw significant growth in our Open Grid 360 platform, which helps clients manage the energy transition. We expect continued strong demand for this solution as part of CGI's suite of sustainability offerings, which we are highlighting during COP26 in Glasgow through the end of this week.SaaS-based IP revenue was also up year-over-year, in line with overall increases in demand for cloud-based solutions, closing out the fiscal 2021 review, and setting the stage for growth in fiscal 2022, was our strong cash generation. As we shared throughout the year, our financial strength anchors CGI's resilience, and enables continued investment in our Build and Buy growth strategy.Last quarter, I shared with you some of the findings from our proprietary research, notably the characteristics of leading digital organizations. I will now highlight a few of our delivery successes from the past year in helping clients realize the full potential of their digitization.We're 1 of the world's largest communication and media companies. We are delivering digital design studio as a service, which combines consulting and managed services, to create a unified vision for customer experience across multiple commercial platforms, 30 products and more than 50 development teams. This is improving the company's agility, and reducing their overall time to market.We're a leading global financial services company, we're helping to redesign, digitize and automate all business operation processes for their retail banking line of business. To deliver on this complex enterprise project, a multi-shore team has been established to join up our industry, and technology experts across Canada, the Czech Republic, Germany, India, Poland, and Spain.We are supporting the French agency for ecological transition, and digitizing their ecosystem partner network to enhance public-private collaboration on the energy transition. And the formation of a new Salesforce base customer relationship management platform is underway to provide them better visibility and to their partners and case management across functional teams.Together, with the Swedish traffic administration, we are pioneering the collection of driver-based friction data to provide a real-time view on current road conditions, hazards and potential road maintenance issues. Our solution uses sensor-based data and crowdsourcing, to gather and analyze millions of data points to help the agency ensure driver safety.CGI implemented a new cloud-based policy administration and agent portal system, for a leading U.S. insurers commercial products business. We are migrating them from a legacy solution to the cloud based [ Guidewire ] platform. We help reduce their product time to market. And for a leading interbank payments network CGI is migrating its e-transfer compute capabilities with on-premise cloud deployment in Microsoft Azure with the aim to improve resiliency and performance of a national payment system. These are just a few of the examples as how we are collaborating with clients to develop and drive their transformational strategies. You have the opportunity here more about our digital capabilities at the upcoming Investor and Market Analyst day on November 22. I'm please to host this event along with François, and Julie Godin, our Co-Chair of the Board. Join us on the virtual stage will be the president of our operating segments and our global executives responsible for talent, M&A, marketing, and investor relations. Together, we will tell you more about our vision, growth agenda, industry expertise, global alliances, and capital allocation strategy, as well as take live questions.Importantly, the day will begin with an overview of CGI's talent strategy. As a leading professional services firm, we believe engaging our existing talent, and attracting new candidates, is always our most important investment.In fiscal 2021, we continue to increase our investments in learning and development programs, including virtual boot camps and online learning.During the year, we surpassed 380,000 courses completed in CGI's online university to deepen employee skills in key areas of client demand, such as cloud, data science, AI, customer experience, and business consulting.Our hiring continues to be on pace to surpass pre-pandemic levels. Our ownership culture continues to be a key differentiator in attracting the best consultants and experts in our industry. In fact, our employees referred over 30% of our new hires to join them in working at CGI this past year.We also continue to invest in industry-leading programs for diversity, equity, and inclusion, and employee health and well-being. Over the past year, our programs were recognized by several external organizations, including the Human Rights Campaign Foundation for our policies and practices promoting LGBTQ+, workplace equality in the U.S. Enterprise on Sante in Canada for our global network of mental health champions, and certified mental health first aiders. Jobs for her, for our diversity hiring, and learning, and development programs for women across Asia Pacific.Universum for being selected by female IT professionals as the best ideal employer in Finland, and the diversity charter in Germany for the creation of an innovative tool to ensure job advertisements are gender-neutral. During the Investor and Market Analyst event, we will also provide a briefing on our plans to accelerate the buy side of our profitable growth strategy.The start of fiscal 2022, we received government approvals for and subsequently closed to new mergers in October. Array, a digital services firm primarily in the U.S. Federal market, which will expand our client relationships in the strategic markets of the U.S. Air Force and the Space Command, while deepening our offerings in modernization and DevOps.And CMC, which is a leading technology and management consulting firm primarily serving the Spanish market. This merger expands our client proximity footprint, key metro markets, as Madrid and Barcelona, extends our global delivery network, deepens our capacity to deliver digital transformation in the region, and brings new relationships with enterprise clients in the IBEX 35.I would like to take this opportunity to warmly welcome the over 1,770 new consultants and technology experts joining CGI from these 2 firms.As we enter fiscal year 2022, we are confident in our positioning to provide the best services and solutions, to our prospective, and current clients around the world. Particularly given our industry and technology expertise along with the ability to hire and build the necessary capacity to achieve our growth agenda.We remain committed to executing our growth strategy through both Build and buy. Our capital allocation priorities are aligned to drive continued revenue growth, and double-digit earnings per share accretion.Thank you for your interest. Let's go to the questions now, Maher.
Thank you, George. And Julianne, now will let you all know how you can queue up for Q&A. So Julianne?
[Operator Instructions] Your first question comes from Richard Tse from National Bank Financial.
So your ability to sort of expand margins here in a fairly tight labor market is pretty impressive. Can you maybe walk through some of the levers that you may be pulling to not just preserve those margins but expand them?
Yes. Thanks, Richard. As you know, we have a pretty robust model and measurement process here at CGI that we really stick to, it's called the CGI Management Foundation, and that's really built for a professional services firm. And so we believe we can continue to grow, and grow our margins at the same time. Of course, when you think about our margin, some of that is coming from revenue growth. And the scale that, that provides us, some of that's coming from the business mix. And I highlighted in the opening remarks, both consulting and intellectual property. Some of it comes from our operational excellence, and that's a discipline that comes with the management foundation.And then, of course, some of that expansion is coming from the share buyback. So it really is a combination of all of the above. And given the outlook and demand outlook, we expect that to continue.
Okay. And I think you touched briefly on sort of hiring in your comments here. Can you maybe give us some context in terms of the number of headcount -- open headcount positions versus what it may have been a year ago or 2 years ago?
Yes. Well, the head count is up significantly. And you're comparing -- if you compare over a year ago, that was the beginning of the pandemic. You almost have to go back to 2019 to look at it. But it's up against where we were pre-pandemic, and rising in essentially in every strategic market that we're dealing in. And -- but it's interesting when you look at talent, it is more intense at the current place, given the heavy demand for technology and digitization services. But it is part of the business of CGI. So we're employing all the same tactics and strategies that we do throughout the years, and it's working very well.
Okay. And just 1 last quick 1 for me. like the growth is clearly quite broad-based geographically and by vertical here.How much do you think that is coming from the catch-up with the reopening following the lockdowns of last year versus a kind of a more normalized run rate? Or do you think this is the normalized run rate going forward?
Yes. I mean, yes, thanks for the question, Richard. A lot of this is -- and I mentioned this before, when we went through the pandemic, I think it put a spotlight on some of the weaknesses in various technology platforms. It also raised the expectations of employees, and of customers for digitization.So I think you could argue that some of this is catch-up, but it's more of a catch-up from some technology debt that they weren't even aware of. So it's not just catch up of a delayed project. I think it's more broad-based than that. And therefore, it's going to be longer lived than that.
Your next question comes from Thanos Moschopoulos from BMO Capital Markets.
George, maybe just expanding on the hiring question. Can you speak to retention, how that's been trending? And how you feel you're tracking relative to your industry peers?
Yes. So here's where we are with turnover. It's up, but it's still on a trailing 12-month basis, slightly less than our pre-pandemic levels. And speaking of catch-up. I think there was a little bit of catch-up that occurred more than a lot of movements going on right at the hike of the pandemic, and we're seeing and experiencing that just like our peers, we continue to be at or below in all of our key markets.We do track that versus the industry average. And I think a lot of that is because of the culture of CGI, and particularly our ownership model, which plays into that. And if you look at why people want to leave, it's usually a career development. And that's why we've doubled down, and actually increasing our training programs by another 33% here in fiscal 2022. It's the compensation of benefits that come with that career development. And so we're doing lots of promotions as a result of the training and then its purpose.And of course, in a culture like CGI ownership culture, where we have the clear equilibrium between our 3 stakeholders, and the strong support for the communities in which we live and work it really speaks to purpose.So we believe we can continue to hold our own. Like I said, it's a more intense environment right now. So there is a lot of movements, but that's why I really focus on those employee referrals as well, because that's the way we can tap into talent.And then the last part is really tapping into talent in those global delivery centers, not just offshore but also those onshore nearshore centers, which are growing at twice the rate as the rest of the company.
Great. And looking at the U.S. Federal business, I know that the book-to-bill was above 1, but year-over-year bookings were down a fair base. I presume that's related to some of the budget delays in the U.S.If you could provide some color just in terms of when you think on a resolve, and what you're seeing as far as the pipeline and timing in that business?
Yes. Specific to the U.S. market or just in general?
U.S. Federal, specifically.
Well, U.S. Federal, you saw the bookings are actually above 100% for the fourth quarter. So we're seeing some of that movement occurring. Government in general, including the U.S. Federal market has been a bit sluggish. I call it the a kind of COVID hangover fighting with various. Do we do a mandate? Do we not do a mandate on vaccines? Do we do a booster? Do we not do a booster? There's a lot of that a kind of dominating some of the agenda. But I would say both in the U.S., and around the world, there are a lot of domestic priorities that we're well positioned for.Interestingly enough, if you look at the Infrastructure Bill that was passed by the House and looks like it will become real. A lot of that work actually comes to the state and local governments. And so a lot of that's grants, the state and local government. So that will help our U.S. Commercial and State & Government business. But the Federal business really will be helped by a lot of the infrastructure, is actually cybersecurity infrastructure, and Department of Homeland Security and other areas.So we're again, we're very well positioned for that. So we like where things are heading. But you're right, it's been a bit sluggish as of late, and you see that.
Your next question comes from Paul Steep from Scotiabank.
Could you speak a little bit more? Can you comment about accelerating the investment in the business into '22, maybe talk about whether that's a larger magnitude that you and François want to talk to?Or where that -- those investment dollars might be getting redirected, some of your comments earlier about robotic process automation, and maybe other areas of investment?
Yes. Well, part of that investment is on the training and development, I mentioned a 33% increase in our training budgets around the world, and that's really to make sure that we're keeping pace with the demand that's out there. 1 part is hiring. The other part is retaining your people and giving them the growth that they need as they pivot to the new opportunities.So that's 1 part of it. Of course, another part of it is we are also increasing the investments in our intellectual property. I mentioned some of the opportunities we see with the changes we've made in the IP Group, the opportunities to spread our IP into broader markets, also string the IP together. And then also create some new IP for the sustainability opportunity. So that's another 1. But then, of course, we also have investments to grow our buy side. So I don't know, François can add a little bit about that.
Already, we started the year with 2 acquisitions that we closed in October. So versus last year, we finished with 2 for the full year. So it's a great start for 2022. And the expectation is that, that will be accelerating in the future quarters. So that you can expect more.
Great. 1 cleanup just on operations. How should we think what used to be Northern Europe, but I think it's mainly in Scandinavia, where we were running off some business that maybe wasn't a fit for you and the clients, and you transitioned them. How close to the completion of that are where we might see -- start to see hopefully an inflection in that region towards more growth in the future?
Yes. Thanks for the question. So we've now isolated the issues really in just 2 metro markets. Otherwise, we're strong, both on bottom line and returning to growth. We've made leadership changes in those metro markets. And our COO, Jean-Michel, is now focused and he can travel. He's been there half a dozen times since the summer. We're focused on margin first. And so you see the improvements going on margin, and then the revenue follow. But the good news is we've isolated now to just a couple of metro markets, and I think you'll start to see a gradual improvement over the quarters to come.
Your next question comes from Paul Treiber from RBC Capital.
Just you commented that the structural organic growth is perhaps higher than historically. Does that change the prioritization of acquisitions here.In other words, I mean, with faster organic growth, and also gaining a greater footprint with existing clients. Like is it as much of a necessity to accelerate the pace of acquisitions? How do you think about that here?
Yes, I actually think it's the perfect time to accelerate the pace of the M&A because again, what the M&A does, we have a very different viewpoint. We're looking for quality client acquisitions. That's part of what we do. Of course, we get a lot of very strong capabilities that come with those types of acquisitions. But we're really looking for new clients to bring in.So given the fact that we are doing -- we're getting the organic growth of existing clients, and achieving some new clients on the organic side, we want to accelerate that with the buy. So we've got a very active pipeline. We've improved our sourcing. You see that we just did 2 in parallel. That's the idea as we increase that pace. And the investments we've made, and we didn't talk about this, but we did make investments in the capacity to drive more velocity, and you're starting to see that come through.
And could you speak to the size of potential acquisitions. There was a news article, a media article in August? I think they've mentioned, what I quoted and maybe they misquoted, but they mentioned Francois said that you're looking at some pretty large acquisition targets. Can you just elaborate on that or clarify that?
Yes, we're always looking for some large ones. If you recall, we have the metro market acquisition policy, but we're also looking for the transformational ones. Given valuations that hasn't been -- hasn't been as achievable as of late. And then, of course, we paused during the pandemic for a while there. But that's always been -- we have the appetite for that. We have the -- we certainly have the balance sheet, which I'm sure 1 of the things that Francois was talking about. And that's kind of still on the, on the docket.There are fewer of them, and there are fewer of them that makes sense for CGI, but we'll always be looking at that. I also mentioned that we're also looking at larger metro market acquisitions. So you saw that in the CMC acquisition, and even Array larger than the average we've done over the last 24 months, you should expect to see more of that as well.
And just on -- just elaborating on like the quality versus valuation spectrum. Are there areas where you're looking to flex on either of those? And with the digital transformation initiatives, like would there be areas that you would be willing to go into that are nontraditional IT services. So things may be more like in the BPO area, content moderation, things like that, that traditionally you haven't looked at.
Yes. I think there are some adjacencies that we are, in fact, looking at, Paul, and I think it's a good question as the -- as the market continues to -- digitization continues to converge some of these elements together.So that is strategically something that we're looking at in opening the aperture, if you will, for some of the acquisition targets, that we wouldn't have necessarily qualified for in previous years. So yes, that is something we're looking at.
Your next question comes from Stephanie Price from CIBC.
Talk a little bit about the pricing environment, and maybe your ability to pass on some potential wage or cost inflation here?
Yes. No, it's a good question because obviously, wages are being increased in across many different industries, and given the supply and demand situation. We look at it this way. The value proposition for the digitization services, and the types of projects that I listed off just a few examples in my remarks. They have a real business case. And I even mentioned when we look at it, there's -- the leaders are getting more out of these digital projects, and we're seeing everybody get sharper about what they want to do there.They're focused on the business outcome they're not focused on the business inputs. And of course, our clients, like everybody else, realize what's going on in supply and demand, and they want the best people on the project.So that's a long way of saying, yes, we are able to achieve, and pass on, any wage increases in the rates. And that's not just for new projects. We have those clauses in most of our existing contracts tied to things like consumer price index and inflation rates.So we're able to support that. And all you have to do is look at the margins that we're able to achieve as we continue to grow in this high demand market to see that, that, in fact, is happening.
Okay. Great. And then obviously, a very strong environment here. Just curious what you're hearing from clients in terms of spending priorities in 2022 budgeting?
Yes. Again, the priorities are many of the areas I rattled off around modernization, about moving to a more agile environment, which includes elements of things like cloud, that's the technology, but it's really about moving to an agile environment. And being more digitized on a holistic basis. So those are the priorities we're looking at.And then, of course, how they can leverage the technologies, the various technologies, whether it's machine learning, whether it's cloud, whether it's AI, et cetera, to help them achieve those goals.The other 1, I would say, Stephanie, that we're hearing more and of course, with COP26, it's pretty loud, is really around sustainability. And it comes up in every client meeting I have, whether it's a financial institution, whether it's manufacturing, of course, with the energy companies, that's front and center, it is -- and even the retailers. It's a discussion that we have. And of course, with our IP centered on the all-important element of data, that's where we see a lot of demand and opportunity moving forward.
And then maybe more broadly, and maybe building on the answer to that last question, when you think about doubling the size of the business. Can you talk a bit about where you see those major sources of incremental revenue coming from?
Of the incremental revenue. Well, again, a lot of it's play. Yes, a lot of it is playing into the demand you see. I answered Paul's question, some of it. I think as you see some of this convergence, there is opportunities for us to add more to our IP around the business process side. There is opportunities for us to move into the convergence, what we see on the Internet of Things for manufacturers, and get into some of what previously might have been referred to as engineering services. So I think those are some of the opportunities for us to grow. And of course, we'll do that as a balanced build, but also looking to buy.
Your next question comes from Daniel Chan from TD Securities.
With the increased wage environment, any thoughts on changing up your mix of staffing to potentially increase it more in low-cost areas or nearshore areas?
Yes. It's a great question, and I kind of threw this into 1 of my previous answers. But yes, we are actually growing faster in our global delivery centers of excellence around the world, and we'll continue to do that.CMC comes with some global delivery centers and areas that we didn't have before. We are seeing uptake for that from our clients. And again, it's not just offshore. In fact, it really is -- I think the model that we have on global delivery is playing very well in tapping some talent in other locations, but still closer to time zones and closer to clients. So a kind of a mix between proximity and offshore. It's playing very well, and we expect to continue to grow there.
That's helpful. You've mentioned that you had some CPI adjustments built into your contracts. Can you just remind us of the mechanics around that? Does that usually happen around the renewals? Or can you a kind of go while the project is still running if there are some roles that are met.
Yes. No, it's a good question. Typically, they run on either a contract annual basis. or sometimes a calendar annual basis, and other times the client's fiscal year annual basis.So some combination. So there's no -- you're not going to see 1 uptick, but we don't have to wait for the end of the contract renewal. François, anything?
No, I totally agree. Most of our contract, if it's not the vast majority, we have [indiscernible] in the contract so that we can increase at least on an annual basis.
Okay. That's good to hear. And then last 1 for me. I know bookings can be a very volatile metric, but can you a kind of comment on the low bookings in this quarter relative to a strong market backdrop. Just wondering if there's anything there.
Yes. And thanks for mentioning that, the bookings are always lumpy in general, which is why we really focus on the trailing 12. But a few larger deals, 1 in particular did push out of the quarter. it's 1, but not signed. And of course, we need to make sure that we do all the -- Is and cross all the Ts. And so we're not too fussed about any 1 quarter. But certainly, we had strong IP bookings, strong consulting bookings, and the new business is up.And some of that is we did some of the big renewals in certain locations like Canada earlier in the year. That's good news because now you see the bookings are really going to be driving nearer-term growth. So that's a kind of how I look at the bookings right now. So nothing to be too concerned about.
Your next question comes from Kevin Krishnaratne from Desjardins.
Question for you. You talked about how your SaaS-based IP revenue was up strong, and you alluded to cloud growth there as well.Is there a way you can give us perhaps the size of the cloud business right now for you? Or maybe another way, any thoughts on how penetrated you are in the cloud, what your customers are saying about where they are on the journey. Just any updated thoughts there on the cloud business.
Yes. Thanks for the question. We don't break it out. That's why I gave some of the color commentary on some of the deals, and you see that probably 2/3 of the deals I mentioned, some element of the cloud involved there. I've also mentioned, I think last quarter, that we've elevated the partnerships with each of the major cloud providers, direct report of mine, owns each of those engagements.So -- because we see a lot of opportunity. In general, from a market perspective, there's still a lot of applications, not on the cloud that could take advantage of the opportunities of the cloud. And of course, there's a lot of work between here and now. It's not just -- don't just look a switch in the cloud work.So that's why the partnerships with the cloud providers, we see as a big opportunity. We don't break it out that way, but that's something that we have. And of course, we have, as I mentioned, the SaaS revenue for our own IP is going up as well. That's now over. Half of our IP now is -- bookings are on a SaaS basis. I know that because that's our own IP.
Got you. Okay. That helpful, a kind of goes to my next question on competition. I'm wondering if you could talk about if there's been any change, any material change, how your win rates are progressing. You've talked about the consulting-based revenue has been doing well and accelerating.Just curious to know what you're doing, what you're seeing, how you're winning business, how you bring your IP into the table to win those deals?
Yes. Well, it's interesting. We made some investments on the IP, and I mentioned that better leveraging our global footprint as a channel for the IP. So that's that highlight I gave on the 50% increase in acquired IP. But what I didn't say is that the deal size in the pipeline for our IP is going up, and that's through -- partly through linking some of those IPs together, along with some of our other services, including consulting and BPO, and then the win rate is increasing.So we're leveraging our global IP subject matter experts better across the company by bringing it into that global footprint. So that's what -- so the win rate is actually increasing with our IP, and it's holding steady across the company.
Okay. That's great to hear. 1 last 1. Look, on supply chain, I know that there's obviously no direct implications given your business software cloud-based. But just wondering if you're seeing any sort of indirect exposure, for example, if there might be a deployment for an IoT project or you're working on -- with the client on a deployment that requires a lot of devices on their end.Is there any sort of timing delay that you might be seeing or being impacted from anything?
Yes. Yes, it's a good question. You're right. There's not direct, but there is pockets of indirect, but it's pretty limited right now, but we do see it. So something that we continue to look at.A lot of our clients are enterprise clients, as you know, and they tend to have the power right now. And so they've done -- they've actually managed it quite well, very impressed with how our clients have managed some of this. But we do see pockets of it popping up, and we're keeping an eye on that. It hasn't delayed any of our projects, maybe delayed some of our revenue in certain places, but again, just pockets.
[Operator Instructions] Your next question comes from Rob Young from Canaccord Genuity.
You just said a little bit ago that consulting bookings were quite strong. And so I was looking at the absolute dollar contribution from SI&C. It seems low going back a little ways.And so I'm just trying to reconcile that statement. Is that short-term signings? I mean, any kind of color around what's going on there?
Yes, yes. Well, I'm breaking out consulting from systems integration. And I had mentioned earlier that some of that systems integration work, we're now embedding into those managed services contracts. So that continues to be a trend. In fact, it's part of the offering, the way we offer our managed services, how do I save some money on 1 side, and then spend that money in traditional systems integration.So you're seeing that, we're even seeing that in some of our local government work where we extend the managed services contract, and then the system integration, which is near-term spend, but it's under the umbrella of the managed services. So it shows in the managed services revenue.So that's -- I think that's what you're seeing. But discrete consulting projects are up both in bookings and in revenue. I mentioned some of that's in digital advisory. A lot of that's in change management. And again, this is really good because it's a discrete consulting, which then may lead to that broader systems integration wrapped in managed services. So that's why I highlighted that.
Okay. That's great color. And then, I mean, a lot of comments on the call today about the hiring. And I think you earlier said that utilization was very high, very strong contributor to margins this quarter. And so I mean, if you stand back and look at the business, are you seeing constraints related to capacity? Or would you say it's -- because it doesn't sound like there's demand constraints.And just -- I mean, to better understand the business, are you able to ratchet up your consultants? Are you're able to hire in lockstep with the demand that you're seeing out there? Or would you say capacity growth is a constraint?
We have been -- thanks for the question. We have been able to keep up. But it is an intense environment, as I've mentioned. Maybe just give you some color commentary. 1/3 of our new hires come through those referrals that I mentioned earlier, 30%. About 1/3 come to us and actually inbound. So we advertise and with the movement, actually, people are looking to move to companies like CGI. And so about 1/3 of them are coming from -- coming in. And so 1/3 is coming from that outreach.And so we've increased our recruiting a twofold to ensure that we keep up with that. I'm not going to say that, that's not still intense, and we continue to increase that. That's a good news. But again, that's also where we need to focus on the retention, which I mentioned earlier, and our high engagement, our culture, and what we're doing there on the training and development, are helping us to keep up with that. I'd also mention 1 other statistic. Our hiring has increased, but our acceptance rate has held at above 80%, which is very positive, saying that we're able to not just attract but to get the acceptance from those that we choose to make offers to.
Okay. That's great. And maybe last question. I used the term technology debt, I really like that term sort of leading in the [ tech lexicon ] here. Would you -- when you look at your customer mix, would you say that relative to other -- your peers in the space, would you say that your customers lean a little towards those that would have technology debt? Or would you say that your mix is less than some of your peers?
No, I would say it's on par. I haven't -- every industry, every geography, and most clients have some technology debt. And so I think it's just a matter of, like I said, helping them work through that. And remember, the technology debt is increasing just by the very nature of what's going on in the marketplace.So it might not be debt that's 30 years old, it might be debt that wasn't there 5 years ago. But now as you move to more agile DevOps type environment, you got to make some of those changes. So we're seeing our clients move very quickly along with the marketplace.
Are there any end markets where it's more pronounced?
Well, there's always regional differences across this. Europe might be a little ahead in 1 area, whereas North America might be a little ahead in a different area. And so, this is the richness of bringing our global insights and being able to do that across regions, and also across industries. As 1 industry moves to more of a customer-facing environment that they weren't in before, they can learn from another industry. So not a pronounced way, but certainly an opportunity for a global consulting firm to help our clients across the book.
Your last question comes from Howard Leung from Veritas Investment Research.
The first 1 I have is on the leases and just overall, how you view workers going back to the office or staying remote. I saw that there was a gain on lease termination, and also the lease liabilities. I think they were down something like 12% from last year. Is that -- is your plan to a kind of continue winding down some of these leases? And with all the questions before about hiring workers, how does that fit in with your view about retaining or attracting talent?
Yes. Yes. Maybe I'll let François talk a little bit about the leases. But just in general, when we look at our talent, and what we are doing on behalf of our clients and working with our clients, we find it's important to spend some time working with your colleagues and sometimes working with your clients.And so we do believe that there will be a return to the office. We're up to about 25% if you take out India. Probably 30% of our employees now spending some time in the office, more pronounced in Europe, where it's 50%, in some cases higher. A little bit of a lag in North America, including in Canada, but we're beginning that return in Canada in November, and even beginning to return in India in January.We think that's important for innovation. We think that's important for mentoring, which is what people are looking for as far as growing their careers. Having said that, of course, we also recognize that people were very productive during the pandemic, and some of the work that they're doing.And so it really is, we believe, a hybrid, at least for the current environment is 1 that we'll continue to look at. So to the leases, yes, we're looking at hybrid, right?
Exactly. So that's why in the meantime, our renewal or what we're doing is that we're reducing the number of years. So -- and going a little bit more on short-term leases than signing 7 or 10 or 15 years leases, just to understand also where the market is going.And like George is saying, since -- for now, we're to a certain hybrid model, until we'll have a better visibility when people will come back on a full basis. For now, we're going with shorter lease, and sometimes even not renewing some leases in the meantime.
That's Great. No, that's really helpful. And any -- I guess, maybe it might be too early to call out, what kind of impact that could have on your adjusted EBIT or free cash flow margins going forward?
Well, for the EBIT margin, like George alluded, I think we had strong EBIT margin this quarter, this year, over the 16%. I think we still have some opportunity to increase it with example, like we're seeing Scandinavia, that the expectation, is that we would see improvement on the EBIT margin in this area.But on the other hand, also with the return back, the fact that we're meeting clients more and more now present, some of the travel, and out-of-market expenses are coming back in. So that will be naturally a headwind. But again, compensated by improvement that we can still see in the operations.
That's great. Great. And then just 1 on M&A. George, you mentioned earlier that you're investing more in M&A now, and you invested more in the capacity.Just wanted to see if there's any more color on that? Is that increasing the size of the M&A team, software for M&A, infrastructure or the process? Just wanted to find out how it's expanded.
Yes. No, it's a very good question because yes, everything you just said, it's increasing the team size particularly across each of the markets, so not just centralized but adding individuals dedicated to M&A within each of the proximities closer to the sourcing.It's leveraging some infrastructure, some various software platforms to ensure that we're seeing all the deals. And then it's also some changes to the process. So it's really all of the above.
Okay. Okay. That's great. And just 1 final 1 for me. I saw that buyback in the quarter. I think slowdown, ticked down, quite a bit from the previous quarter. Was that just -- does it have anything to do with the price or maybe just because you were going through the bond offering. I just want to know if there was anything to call out there.
Yes. No, nothing related to the price. We -- yes, we did work on the bond offering. But again, that was not necessarily having an impact of why we didn't go on the market but also the fact that we had some good momentum on the acquisition, and finally close 2 new ones in October. It was close to even close them in September.So that was also part of the equation why we were slowing down some share buyback in the quarter. Again, just to reiterate our priority is investing back in the business.And the second priority is M&A. The share buyback is the third 1, naturally. So last year, we had only 2 acquisitions, but this year, the momentum is very good, starting with the 2 new 1 in October, and hoping that we'll have more in the year.
We have no further questions in queue. I'd like to turn the call back over to Maher Yaghi for closing remarks.
Thank you, Julianne, and lots of great questions, guys. Thank you, everyone, for participating on this call. We hope that you will join us for our Investor Day on November 22, just a reminder. And please put it in your calendar. We hope that you can join us then. And a reminder that a replay of the call will be available either via our website or by dialing 1 (800) 770-2030, and using the passcode 8986313. As well, a podcast of this call will be available for download within a few hours. And follow-up questions can be directed to me at (514) 415-3651. Hope to see you soon. Thank you.
Thank you.
Thank you.
This concludes today's conference call. Thank you for your participation. You may now disconnect.