Good morning, ladies and gentlemen. Welcome to the CGI Q4 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, Juliane, and good morning, everyone. With me to discuss CGI's Q4 fiscal 2021 results are George Schindler, our President and CEO, and Francois 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 one used in our reporting, and all of the dollar figures expressed on this call are CAD 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, Mike, 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 operation, up 7.1% year-over-year in Q4, bringing the last 12 months total to over CAD 2 billion, an increase of 9.1% year-over-year. 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 CAD 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 11.1%. Canada, up 10.5%, and Central and Eastern Europe, up 10.1%. This was driven by strong demand in the following industries. Healthcare grew 10.8%, MRD grew 9.9%, and financial services grew 6.4%. Total bookings of CAD 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%, 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 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% a year ago. Given the continued increase in demand for our services as reflected by the strong bookings in the last twelve months, we expect continued positive growth trends in fiscal 2022. We finished our fiscal 2021 with a backlog of CAD 23.1 billion. Adjusted EBIT in Q4 was CAD 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 non-recurring 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 improvements. 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 non-recurring 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%-26.5%. Net earnings were CAD 346 million, and diluted earnings per share were CAD 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 CAD 247 million for a margin of 11.5%, and diluted earnings per share were CAD 1.40, an accretion of 14.8% when compared to CAD 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 CAD 527 million, an increase of 7.1% year-over-year. Net debt to capitalization declined 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 inaugural 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 $1.25 billion US 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 floating 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 $301 million back into our business, mainly in IT 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, Francois, and good morning, everyone. I'm pleased with our team's performance in the Q4 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 CAD 2 billion increase in bookings. This morning, I will provide more context on the fundamental components of our business that contributed to this 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 CAD 12.1 billion. 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 healthcare, led by Central and Eastern Europe with 44% growth. 6.1% in financial services, with Scandinavia delivering just over 9% growth. 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 continued 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 Q4 included the following. Canadian banks selected CGI to help with its business transformation journey. CGI will lead the modernization and migration of client interaction platforms to the cloud. Volkswagen Group UK 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 omni-channel digital enablement, drawing on our capabilities in robotic process automation, machine learning, and application modernization. The U.S. Centers for Medicare & 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 omni-channel transformation, supply chain modernization, and data analytics. Government and healthcare 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 efficiency. Communications and utilities bookings were up 27% year-over-year with a book-to-bill of 114%. This uptick 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 remains 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 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 OpenGrid 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. For one 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. For 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 in digitizing their ecosystem partner network to enhance public-private collaboration on the energy transition. Implementation of a new Salesforce-based customer relationship management platform is underway to provide them better visibility into their partners and case management across functional teams. Together with the Swedish Transport 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. insurer's commercial products business.
By migrating them from a legacy solution to the cloud-based Guidewire platform, we helped reduce their product time to market. For a leading interbank payments network, CGI is migrating its e-transfer compute capabilities to an on-premise cloud deployment in Microsoft Azure with the aim to improve resiliency and performance of a national payments system. These are just a few of the examples of how we are collaborating with clients to develop and drive their transformational strategies. You will have the opportunity to hear more about our digital capabilities at the upcoming Investor and Market Analyst Day on November 22nd. I'm pleased to host this event along with François and Julie Godin, our Co-Chair of the Board. Joining us on the virtual stage will be the presidents 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 continued 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 wellbeing. 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. Entreprise en santé in Canada for our global network of mental health champions and certified mental health first aiders. JobsF or 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. 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. To start fiscal 2022, we received government approvals for and subsequently closed two 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. CMC, which is a leading technology and management consulting firm primarily serving the Spanish market. This merger expands our client proximity footprint in key metro markets such 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 two 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, Matt.
Thank you, George. Juliane now will let you all know how you can queue up for Q&A. Juliane.
Thank you. If you would like to ask a question, please press star followed by the number one on your telephone keypad. To withdraw your question, please press star one again. We'll pause for just a moment to compile the Q&A roster. Your first question comes from Richard Tse from National Bank Financial. Please go ahead, your line is open.
Yes, thanks. So your ability to sort of expand margins here in a fairly tight labor market's pretty impressive. Can you maybe walk through, you know, some of the levers that you may be pulling to not just preserve those margins, but expand them?
Yeah. 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. 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's coming from revenue growth and the scale 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. Of course, some of that expansion is coming from the share buyback. It really is a combination of all of the above. You know, given the outlook and demand outlook, we expect that to continue.
Okay. Yeah, 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 open headcount positions you know versus what it may have been a year ago or two years ago?
Yeah. Well, the headcount is up significantly. You know, 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. It's up against where we were pre-pandemic and rising in essentially every strategic market that we're dealing in. You know, it's interesting when you look at talent. It is more intense at the current pace, given the heavy demand for technology and digitization services. It's part of the business of CGI.
We're employing all the same tactics and strategies that we do throughout the years and it's working very well.
Okay. Just one last quick one for me. Like the growth is clearly quite broad-based geographically and by vertical here. How much do you think that is coming from, you know, the catch up with you know, the reopenings following the lockdowns of last year versus kind of a more normalized run rate? Or do you think this is the normalized run rate going forward? That's it. Thanks.
Yeah, I mean, yeah, thanks for the question, Richard. You know, 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. I think you could argue that some of this is catch up, but it's more of 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 gonna be longer-lived than that.
Great. Thank you.
Your next question comes from Thanos Moschopoulos from BMO Capital Markets. Please go ahead. Your line is open.
Hi. Good morning. 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?
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. 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 height of the pandemic. 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. I think a lot of that is because of the culture of CGI and particularly our ownership model, which plays into that.
If you look at why people want to leave, it's usually career development, and it's why we've doubled down in actually increasing our training programs by another 33% here in fiscal 2022. It's the compensation and benefits that come with that career development, and so we're doing lots of promotions as a result of the training. It's purpose. Of course, in a culture like CGI ownership culture, where we have the clear equilibrium between our three stakeholders and the strong support for the communities in which we live and work, it really speaks to purpose. 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. That's why I really focus on those employee referrals as well, because that's the way we can tap into talent. 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. Looking at the U.S. federal business, I know that the book-to-bill is above one, but year-over-year bookings were down a fair bit. 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, you know, when you think that might resolve and what you're seeing as far as pipeline and timing in that business.
Yeah. Specific to the U.S. market or just in general?
U.S. federal. Yeah, no, U.S. federal specifically.
Well, U.S. federal, you saw the bookings were actually 100% for the Q4 . 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 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 kind of dominating some of the agenda. 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. A lot of that's grants to state and local government, so that will help our U.S. commercial and state and government business. 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. We're, again, very well positioned for that. We like where things are heading. You're right, it's been a bit sluggish as of late, and you see that.
Great. Thanks, George. I'll pass the line.
Yep.
Your next question comes from Paul Steep from Scotiabank. Please go ahead, your line is open.
Good morning, George. Could you
Sure.
Speak a little bit more? You comment about accelerating the investment in the business into 2022. Maybe talk about, you know, whether that's a larger magnitude that you and François want to talk about, or you know, where that, those investment dollars might be getting redirected, you know, some of your comments earlier about robotic process automation and maybe other areas of investment.
Yeah. Well, you know, 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. You know, one 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. That's one 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 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. That's another one. But then, of course, you know, we also have investments to grow our buy side. I don't know if François can talk a little bit about that.
Yeah. You know, already we started the year with two acquisitions that we closed in October. Versus last year, we finished with two for the full year. It's a great start for 2022. The expectation is that it will be accelerating in the future quarters. That's. You can expect more.
Great. One 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 we, where we might start to see hopefully an inflection in that region towards more growth in the future?
Yeah. Thanks for the question. We've now isolated the issues really in just two metro markets. Otherwise, we're strong both on bottom line and returning to growth. We made leadership changes in those metro markets, and our COO, Jean-Michel, is now focused. Now 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 will follow. The good news is we've isolated now to just a couple metro markets, and I think you'll start to see a gradual improvement over the quarters to come.
Great. Thanks.
Yep.
Your next question comes from Paul Treiber from RBC Capital. Please go ahead, your line is open.
Thanks very much, and good morning. Just you commented that, you know, the structural organic growth is perhaps higher than historically. You know, does that change the prioritization of acquisitions here? In other words, I mean, much of a necessity to accelerate the pace of acquisitions. How do you think about that here?
Yeah. 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 type of acquisitions, but we're really looking for new clients to bring in. Given the fact that we're getting the organic growth of the existing clients and achieving some new clients on organic side, we wanna accelerate that with a buy. We've got a very active pipeline. We've improved our sourcing. You see that we just did two 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.
Could you speak to the size of potential acquisitions? There was a news article, a media article in August, I think, that mentioned or that quoted, and maybe they misquoted, but they mentioned François said that you're looking at some pretty large acquisition targets. Can you just elaborate on that or clarify that?
Yeah. Well, we're always looking for some large ones. If you recall, we have the mid-market acquisition policy, but we're also looking for the transformational ones. Given valuations, that hasn't been as achievable as of late. We paused during the pandemic for a while there. We have the appetite for that. We certainly have the balance sheet, which I'm sure one of the things that François was talking about. That's kind of still on the docket.
There are fewer of them that makes sense for CGI, but we'll always be looking at that. I'd also mention that we're also looking at larger metro market acquisitions. 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.
Just elaborating on, like, the quality versus valuation spectrum, are there areas where you're looking to flex on either of those? With the digital transformation initiatives, like, would there be areas that you would be willing to go into that are, you know, non-traditional IT services, so things maybe more like, you know, in the BPO area, you know, content moderation, things like that traditionally you haven't looked at?
Yeah, I think there are some adjacencies that we are in fact looking at, Paul, and I think it's a good question as the digitization continues to converge some of these elements together. That is strategically something that we're looking at and opening the aperture, if you will, for some of the acquisition targets that we wouldn't have necessarily qualified for in previous years. Yes, that is something we're looking at.
Okay. Thank you. I'll pass on.
Yep.
Your next question comes from Stephanie Price from CIBC. Please go ahead, your line is open.
Hi, good morning.
Hi, Stephanie.
I wonder if you could talk a little bit about the pricing environments and maybe your ability to pass on some potential wage or cost inflation here?
Yeah, no, it's a good question 'cause obviously wages are being increased across many different industries and given the supply and demand situation. You know, 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. I even mentioned, you know, 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 wanna do there. They're focused on the business outcome. They're not focused on the business inputs.
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. That's a long way of saying, yes, we are able to achieve and pass on any wage increases in the rates. 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. 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 in fact is happening.
Okay, great. Obviously a very strong environment here. Just curious what you're hearing from clients in terms of spending priorities and 2022 budgeting?
Yeah. Again, the priorities are many of the areas that 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. Those are the priorities we're looking at. 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 one I would say, Stephanie, that we're hearing more and more, and of course, with COP26 is pretty loud, is really around sustainability.
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, it's front and center. It is 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.
Maybe more broadly, and maybe building on the answer to this, 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.
Yeah.
A lot of it's playing into the demand you see. I answered Paul's question. Some of it, I think, as you see some of this convergence. There are opportunities for us to add more to our IP around the business process side. There are opportunities for us to move into the convergence, what we see on the Internet of Things and for manufacturers, and get into some of what previously might have been referred to as engineering services. I think those are some of the opportunities for us to grow. Of course, we'll do that as a balanced build, but also look into buy.
Perfect. Thank you very much.
Your next question comes from Daniel Chan from TD Securities. Please go ahead. Your line is open.
Hi, good morning. With the increased wage environment, any thoughts on changing up your mix of staffing to potentially increase it more in low-cost areas or near-shore areas?
Yeah, no, it's a great question, and I kind of threw this into one of my previous answers. 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 in areas that we didn't have before. We are seeing uptake for that from our clients. 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 a client. Kind of a mix between proximity and offshore.
It's playing very well, and we expect to continue to grow there.
Thanks. That's helpful.
Yep.
You 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 kind of go while the project is still running if there's some thresholds that are met?
Yeah, 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. Some combinations. There's no, you know, you're not gonna see one uptick, but we don't have to wait for the end of the contract renewal. Francois, anything?
Yeah. No, I totally agree. Most of our contract, if it's not the vast majority, we have a COLA clause in the contract so that we can increase at least on an annual basis.
Okay. That's good to hear. Last one from me. I know bookings can be a very volatile metric, but can you kind of comment on the low bookings in this quarter relative to a strong market backdrop? Just wondering if there's anything there. Thank you.
Yeah, thanks for mentioning that, the bookings are always lumpy in general, which is why we really focus on the trailing 12. A few larger deals, one in particular did push out of the quarter. It's one, but not signed and of course, we need to make sure that we dot all the i's and cross all the t's and so we're not too fussed about any one quarter. Certainly we had strong IP bookings, strong consulting bookings, and the new business is up. You know, 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 gonna be driving nearer term growth. That's kinda how I look at the bookings right now, so nothing to be too concerned about.
Hey, Jerome Dubreuil, please go ahead. Your line is open.
Hey, good morning, gentlemen. Question for you. You talked about how your SaaS-based IP revenue was up strong, and you alluded to cloud growth. 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?
Yeah. Thanks for the question. As I mentioned, some element of the cloud involved there. I also mentioned, I think, last quarter that we've elevated the direct report of mine owns each of those engagements, so 'cause 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. Of course, there's a lot of work between here and now. It's not just you don't just flick a switch and the cloud works. 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.
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 bookings are on a SaaS basis. I know that because that's our own IP.
Gotcha. Okay, that's helpful. It kinda goes to my next question on competition. I'm wondering if you could talk about, you know, if there's been any change, any material change, how your win rates are progressing. You talked about, you know, the consulting based revenue, you know, has been doing well and accelerating. Just curious to know, you know, what you're doing, what you're seeing, how you're winning business, you know, how you bring your IP into to the table to win those deals.
Yeah. Well, it's interesting, you know, 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 the highlight I gave on the 50% increase in acquired IP. What I didn't say is that the deal size in the pipeline for our IP is going up, and that's partly through linking some of those IPs together, along with some of our other services, including consulting and BPO. Then the win rate is increasing. We're leveraging our global IP subject matter experts better across the company by bringing it into that global footprint. The win rate is actually increasing with our IP, and it's holding steady across the company.
Okay, that's super great to hear. One last one. Look, on supply chain, I know that, you know, there's obviously no direct implications given, you know, your business software cloud-based. 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 know, you're working on with a client, on a deployment that requires a lot of devices on their end. Is there any sort of, you know, timing delays that you might be seeing or being impacted?
Yeah.
from anything? Yeah.
Yeah, 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, 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. 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. Hasn't delayed any of our projects. Maybe delayed some of our revenue in certain places, but again, just pockets.
Great. Thanks a lot. I'll pass the line.
Yep.
As a reminder, if you would like to ask a question, please press star followed by the number one on your telephone keypad. Your next question comes from Robert Young from Canaccord Genuity. Please go ahead, your line is open.
Hi, good morning. You just said a little bit ago that consulting bookings were quite strong. I was looking at the absolute dollar contribution from SI&C, and it seems low going back a little ways. I just try to reconcile that statement.
Yeah.
Is that short-term signings? I mean, any kind of color around what's going on there?
Yeah. Yeah. Well, you know, I'm breaking out consulting from systems integration. I'd mentioned earlier that some of that systems integration work we're now embedding into those managed services contracts. 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 one side and then spend that money in traditional systems integration? You're seeing that. We're even seeing that in some of our local government work, where we extend a 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. I think that's what you're seeing.
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. Again, this is really good because it's a discrete consulting, which then may lead to that broader systems integration wrapped in managed services. That's why I highlighted that.
Okay, thanks. That's great color. I mean, a lot of comments on the call today about the hiring, and I think you earlier said the utilization was very high, a very strong contributor to margins this quarter. If you stand back and look at the business, are you seeing constraints related to capacity? Or would you say it's 'cause it doesn't sound like there's demand constraints. Just, I mean, to better understand the business, are you able to you know, ratchet up, you know, your consultants? Are you able to hire in lockstep with the demand that you're seeing out there, or would you say capacity growth is a constraint?
Thanks for the question. We have been able to keep up, but it is an intense environment, as I mentioned. Maybe just give you some color commentary. You know, a third of our new hires come through those referrals that I mentioned, or 30%. About a third come to us actually inbound. We advertise and you know, with the movement actually people are looking to move to companies like CGI. About a third of them are coming in. A third is coming from that outreach. We've increased our recruiting twofold to ensure that we keep up with that.
I'm not gonna say that that's not still intense and we continue to increase that. That's the good news. Again, that's also where we need to focus on the retention, which I mentioned earlier. In 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 one 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. Maybe last question.
Yeah.
I use the term technology debt. I really like that term, sort of leading into the tech lexicon here. Would you, when you look at your customer mix, would you say that relative to other your peers and, you know, in the space, would you say that your customers lean a little towards, you know, 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. Every industry, every geography and most clients have some technology debt. I think it's just a matter of, like I said, helping them work through that. Remember, you know, the technology debt is increasing just by the very nature of what's going on in the marketplace. It might not be, you know, debt that's 30 years old. It might be debt that wasn't there five years ago. Now, as you move to more agile DevOps type environment, you gotta make some of those changes. We're seeing our clients move very quickly along with the marketplace.
Are there any end markets where it's more pronounced, like regions or, you know?
Well, you know, there's always regional differences across this. You know, Europe might be a little ahead in one area, whereas North America might be a little ahead in a different area. This is the richness of bringing our global insights and being able to do that across regions and also across industries. As one industry moves to more of a customer-facing environment that they weren't in before, they can learn from another industry. You know, not a pronounced way, but certainly an opportunity for a global consulting firm to help our clients across the globe.
All right. Thanks.
Yep.
Your last question comes from Howard Leung from Veritas Please go ahead. Your line is open.
Great. Thanks for taking my questions. The first one I have is on the leases and just overall, how you view workers, you know, going back to the office or staying remote. I saw that there was a gain on lease termination and also lease liabilities. I think they were down, you know, something like 12% from last year. Is that your plan to kind of continue winding down some of these leases? You know, with all the questions before about, you know, hiring workers-
Yeah.
How does that fit in with your view about retaining or attracting talent?
Maybe I'll let Francois talk a little bit about the leases. Just in general, you know, 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 some time working with your clients. 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 in some of the work that they're doing. It really is, we believe a hybrid, at least for the current environment, is one that we'll continue to look at.
Yeah.
Yeah, we're looking at hybrid, right?
Exactly. That's why in the meantime, our renewal or what we're doing is that we're reducing the number of years, and going a little bit more on short-term leases and, you know, signing seven or 10 or 15 years leases, just to understand also where the market is going. 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 non-renewing some leases in the meantime.
Right. Great. No, that's really helpful. Any, I guess maybe it might be too early to call out, you know, 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, you know, we had strong EBIT margin this quarter, this year, over 16%. I think we still have some opportunity to increase it, for example, like we're seeing in 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, in presence, you know, some of the travel and out-of-pocket expenses are coming back in. That will be naturally a headwind, but again, compensated by improvement that we can still see in the operations.
That's great. Then just one 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. You know, is that increasing the size of the M&A team, you know, software for M&A infrastructure or the process? Just wanted, you know, find out how it's expanded.
Yeah, no, it's a very good question because it's yes to 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. It's also some changes to the process. It's really all of the above.
Okay. No, that's great. Just one final one for me. Saw that buybacks in the quarter, I think slowed down, ticked down quite a bit from the previous quarter. Was that just, you know, does it have anything to do with the price or maybe just because you were going through the bond offering? Just wanna know if there was anything to call out there.
Yeah, no, nothing related to the price. You know, yes, we did work on the bond offering, but again, that was not necessarily having an impact of why we didn't go or go on the market. Also the fact that, you know, we had some good momentum on the acquisition and finally closed two new ones in October. It was close to even close them in September. That was also part of the equation why we were slowing down some share buyback in the quarter. Again, you know, just to reiterate our priorities, investing back in the business. The second priority is M&A, and the share buyback is the third one, naturally so.
Last year we had only two acquisitions, but this year the momentum is very good, starting with the two new ones in October, and hoping that we'll have more in the year.
Thanks so much. That priority makes sense. I'll turn it back.
Thank you.
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. 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. 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.