Earnings Call: Q2 2020

Apr 29, 2020

Good morning, ladies and gentlemen. Welcome to the CGI Second Quarter Fiscal 2020 Conference Call. I would now like to turn the meeting over to Mr. Lorne Gorber, Executive Vice President, Investor and Public Relations. Please go ahead, Mr. Gorber. Thank you, Alana, and good morning. With me to discuss CGI's 2nd quarter fiscal 2020 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 am Eastern Time on Wednesday, April 29, 2020. Supplemental slides as well as the press release we issued earlier this morning are available for download along with our Q2 MD and 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 and 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 and A contains definitions of each one used in our reporting. All of the dollar figures expressed on this call are Canadian unless otherwise noted. So with that, I'll turn the line over to George and Francois to discuss the quarter. Over to you, George. Thank you, Lauren, and good morning. First, on behalf of CGI's entire executive leadership team, our thoughts are with those of you most affected by COVID-nineteen. I also want to acknowledge and thank our clients and all others delivering essential services to those in need. On behalf of CGI's employees around the world, we are proud to be supporting our clients and their customers and citizens with critical technology services during these uncertain times. In March, more than 90% of our employees successfully transitioned to working and delivering services remotely. We rapidly mobilized our resources and systems to maintain continuity of service for our clients. I want to take this opportunity to thank our employees for their commitment and ongoing engagement and support of our clients, CGI and our communities. While the pandemic has created unprecedented business conditions, our Q2 performance is a reflection of our resilient business model and operational excellence. Before sharing some additional perspectives on how COVID-nineteen is currently impacting our business and how we are responding, I'll ask Francois to review the specifics of our Q2 financial performance. Francois? Thank you, George, and good morning, everyone. I will share the results for our Q2 and in doing so, highlight the main drivers behind our financial performance. Revenue in Q2 was $3,130,000,000 up 2% when compared with last year. On a constant currency basis, revenue grew by 3% year over year. CGI Federal grew 7.3% in Q2 as large task orders previously booked continue converting into revenue. Scandinavia grew 19.4%, driven by last year's merger with Akendal. Central and Eastern Europe grew by 7.5% largely due to both the Acando and Sisys mergers and in the UK and U. S. Commercial and state government businesses saw revenue decline in Q2 to 2.1% and 4.6% respectively. In both cases, the decrease stems from a strong comparable for last year's Q2 due to a large financial services IP deal. IP based services and solutions represented 22% of revenue, flat year over year, but up sequentially by 1% or $47,000,000 The impact of COVID in March resulted in clients delaying award decisions. As a result, bookings were $2,800,000,000 in Q2 for book to bill of 89% and $11,900,000,000 or 97% for the last 12 months. Backlog remains healthy at $23,000,000,000 or 1.9 times current revenue, the vast majority of which is comprised of managed services engagements. CGI Federal and the UK had book to bills of 28% and 77%, respectively, as governments were more focused on addressing the public health crisis resulting in delayed award decisions. The UK and CGI Federal both maintained strong government backlogs and pipelines comprised of larger long term deals. Scandinavia booked 104% of its revenue in Q2, while Central and Eastern Europe booked 129 percent of revenue on the strength of winning additional work with existing clients. Adjusted EBIT improved to $483,200,000 in Q2 and included $9,300,000 related to IFRS 16. EBIT margin of 15.4% expanded by 60 basis points year over year. The region driving this improvement were Canada with an EBIT margin of 21%, mostly due to the benefits of previously announced optimizations to its infrastructure business. Western and Southern Europe with an EBIT margin of 16.1%, up mostly due to the recent actions taken to exit Brazil and refocus the Portugal business and Asia Pacific with an EBIT margin of 28.2%, which reflects the quality of delivery and ongoing client trust in utilizing our offshore services. Lower margins in both the U. S. And the U. K. Were due to the same IP deal in Q2 last year, which included a large license. Our effective tax rate in Q2 was 25.9% compared with 25.5% last year, which is within the expected range for the full fiscal year. On a GAAP basis, net earnings were $314,800,000 and EPS was $1.18 per diluted share. Excluding $31,000,000 in acquisition and integration related costs, net earnings for the quarter were $338,400,000 up 4.3% from last year and net margin increased by 20 basis points to 10.8%. Adjusted earnings per share as a result were $1.26 per diluted share, up 7.7% from $1.17 last year. Profitable growth, operational excellence and share buybacks drove EPS accretion in Q2. Our operations continue to produce strong cash flow. In the 2nd quarter, we generated $396,000,000 or 12.7 percent of revenue. This includes a positive IFRS 16 impact of approximately $45,000,000 Over the last 12 months, we generated $1,600,000,000 in cash from operations or 13.4 percent of revenue. Cash management, as always, remains a priority. We continue sustaining service levels for our clients, allowing for strong cash collections. DSO was 51 days stable compared with last year when adjusting for the impact of currency fluctuation at the end of Q2. In Q2, we continued allocating capital with discipline. We invested $89,000,000 back into our business. We invested over $1,000,000,000 buying back and canceling 10,400,000 shares of CGI and we merged with France based Mitzi bringing additional IP into our portfolio as well as Terrafinc which closed on the last day of the quarter and will deepen our work with the U. S. Federal Government. These integrations continue to progress at pace in virtual formats and with the same discipline applied to all of our integrations. Both integrations will be completed as planned in the second half of this fiscal year. Net debt at the end of Q2 stood at $3,800,000,000 or 29 0.2 percent net debt to capitalization when excluding IFRS 16. This compares to 17.4% at the end of Q2 last year. With an objective of successfully navigating the current prices and reinforcing our competitive position for the rebound and beyond, we entered into a 2 year unsecured term loan credit facility of US750 $1,000,000 during the quarter. In April, we added US500 $1,000,000 to the facility for a total of US1.25 billion dollars or CAD1.76 billion. Before turning the call back to George, I want to reiterate that financial strength is a core value of CGI and key to the execution of our strategy. We now have nearly $1,000,000,000 in cash and an untapped $1,500,000,000 line of credit readily available. This financial strength anchors CGI's resilience, which George will now talk about. George? Thank you, Francois. In addition to our financial strength, I would like to underscore the other attributes of CGI's resilience that are enabling us to navigate this crisis and the uncertainty we all face. 1st, our mix of services is weighted toward longer term recurring revenue projects, including SaaS based intellectual property solutions, which are continuing without interruption. In fact, overall managed services accounted for percent of revenue coming from industries less affected by the current crisis, including government, healthcare, insurance, utilities and communications. For example, the vast majority of our government managed services and systems integration projects have remained funded and operating. In Q2, our revenue coming from the government sector is up 6.6% year over year. And finally, CGI's proximity based model allows us to stay close to our clients, which is particularly important in times like these. Approximately 85% of our revenue is driven by members located in proximity to our clients, allowing for faster response and adapting to evolving client needs. This model is further complemented by a robust network of global delivery centers with just over half located in onshore or nearshore locations and the remaining located offshore. When taken in combination, these attributes enable CGI to mitigate the considerable business disruption created by the global pandemic on our clients' operations, an impact which varies in intensity by industry and by geography. It is important to note that CGI clients across industries and geographies are predominantly large global enterprises and governments, whom we believe are better positioned to weather this crisis. Industries that have been significantly impacted by the current crisis include manufacturing due to factory closures, transportation and logistics, particularly passenger transport, consumer retail excluding food services and energy, particularly in oil and gas. Although we have less overall exposure to clients in these industries, the impact some clients are facing results in the stoppage or delay of some CGI systems integration projects. While we cannot predict the future, we can continue to take preventive action to preserve and protect shareholder value and to retain our talented employees of whom 86% are also shareholders. As part of our crisis response, we have instituted cost reduction and avoidance efforts to protect our margin. In instances where CGI have stopped where CGI clients have stopped or delayed CGI projects, employees are using vacation time, reducing their hours or if needed taking leave without pay. We instituted temporary salary adjustments starting with me as well as our Executive Chairman and the Co Chair of our Board. The 3 of us are forfeiting all salary during this time. In addition, the independent members of our Board and our Corporate Executive Vice Presidents have taken significant salary reductions. These actions as well as our engagement in relevant government programs allow us to supplement in large part lost compensation for our employees on leave without pay. This ensures that our talent is available to support clients in the rebound, while at the same time protecting shareholder value. Some of these temporary measures may need to become permanent depending on the duration of the pandemic and the pace of the rebound activities within the impacted industries and geographies. These are difficult decisions to make, but are necessary to ensure we have the right talent in the right places to support rapidly evolving client demand. For now, we estimate that these permanent restructuring actions will result in a cost between $40,000,000 $75,000,000 which we would plan to expense over the next couple of quarters. As countries begin to reopen, we expect the focus for many commercial clients to turn to prioritize an agility and operational excellence and we'll look to IT partnerships to deliver on these imperatives. For government clients, we expect the focus to be on managing the evolving employment programs, billions in new loans and the initiation of new economic stimulus packages. These policies and programs will require IT services and solutions to implement, while also ensuring public accountability. CGI's annual Voice of Our Clients program was conducted over the past few months with our leaders holding over 1400 interviews with client executives globally in person and more recently via video. We completed the program about a week ago with the interviews split nearly fifty-fifty between the timeframe before and after the pandemic was declared. The unique timing of these strategic conversations is providing us preliminary insights in how business and IT priorities are rapidly evolving. For example, the interviews held following the pandemic declaration are revealing an even higher client demand for services and solutions associated with data analytics, application managed services and business agility when compared to the pre pandemic discussions. As organizations around the world have responded to this crisis, technology has played an intrinsic and inseparable role in clients' ability to deliver critical services, sustain productivity of remote workers and quickly adapt business models and services to new realities. Going forward, we expect this dependence on technology to deepen, creating larger and longer term opportunities for CGI to partner with clients on initiatives to meet business objectives, including delivering operational savings. In order to best prepare for our clients' evolving priorities, we have secured additional financial flexibility to allow us to invest in CGI's future organic growth, including through large recurring opportunities in both managed services and intellectual property. We also continue to assess opportunities on the buy side of our strategy in preparation for continued consolidation in our industry. To continue to best serve our clients, we plan post crisis to accelerate the pace of metro market and transformational mergers. In order to prioritize the investment in these growth initiatives, it is our intention not to utilize our stock buyback program at this time. As a company of owners, CGI is focused on being there for our people, for our clients and for the communities we call home. We continue to hear from our clients that when complex serious work needs to be done, they turn to CGI as their trusted partner, particularly at this time. We are confident that we will emerge post crisis in an even stronger position to continue to execute on our Build and Buy strategy to the benefit of our members, clients and you, our shareholders. Thank you for your continued interest and support. Let's go to the questions now, Lorne. Just a reminder that there will be a replay of the call available either via our website or by dialing 1-eight hundred-four zero eight-three thousand and fifty three and using the passcode 9,364,262 that will be available until May 30. As well, a podcast of the call will be available for download within a few hours and follow-up questions as usual can be directed to me at 5148413 55. Alana, could we poll for questions, please? Certainly. Thank you. The first question is from Thanos Moschopoulos with BMO Capital Markets. Please go ahead. Hi, good morning. George, can you expand on CGI's response to COVID? What has this transition to work from home look like for CTI? What have been the key challenges in getting your employees up and running remotely? And then from a customer facing perspective, what changes have you had to make to better adapt to your clients' challenges and what you're asking of you? Yes. So thanks for the question Thanos. I would just start with our leadership team and our employees did a fabulous job preparing for and executing on our business continuity plans. And if anything, I would say we were a few days ahead of the shutdowns in almost all cases and moving to working remotely. And really immediately and that happened I would say pretty smoothly. I think part of that is our global delevering network where we're already used to working in some cases with we wrote teams across different locations, even though the vast majority of our people are located in proximity to our clients. But it really immediately turned we turned our attention to assisting many of our clients first in helping them move to remote work, helping them implement collaboration software in many cases, enhanced cybersecurity, the infrastructure associated with making sure that happened. And then in those early days, we found ourselves actually working very quickly with our clients to support their needs on behalf of their clients, putting changes into their applications or into their services to allow them to best implement the programs and serve their clients. And of course then we also engaged in community work helping schools and the like work more remotely. And even I think you've seen the announcements even helping with recruitment process for a study on a drug with in conjunction with Montreal Heart. It's now in use in Canada, New York and in the U. S. And in Spain and it's being looked at other places. So a lot of work in many of those cases, people would work all night, day and night to implement changes very rapidly so our customers could respond, but always in collaboration with our employees. In terms of employees working at home, but if you think about capacity or productivity, can you quantify what that looks like relative to pre pandemic levels and to what extent there still might be a gap with your ability to deliver services? Yes, as you might imagine, we track that very closely. And in fact, while some certainly initially there was some productivity hits by and large, the fact that our members are equipped to work remotely, working in conjunction with our clients, clients have been extremely flexible in kind of modifying the way we work, but the productivity is actually is very high. And I also should mention that about 3% of our workforce, a couple of 1,000 people are delivering essential services for our clients and are either still working at a CGI office in a very safe manner and or working at a client site. And certainly, so that work has continued as well. So by and large, we've been able to keep the productivity. Of course, that's for the projects to continue. There has been some impact obviously of projects that could delay their stock. Great. And finally for Francois. You provide some color in terms of the level of COVID transition costs we've experienced in the quarter? Sorry, I didn't fully understand the question. Sorry, yes, the level of transition costs you may have had in the quarter with respect to transitioning employees to working remotely, were those costs material or not worth calling out? No, no, no. Nothing material on that side. Transition went pretty fast going from to the home and working from home, so not material costs in there. Great. Thanks for that color. Thanks, Thanos. Thanks Thanos. Thank you. The next question is from Stephen Lee with Raymond James. Please go ahead. Thank you. And hope the entire CGI team is doing well in these tough times. Question is on organic growth. I didn't get it from your prepared remarks. So just wanted to follow-up on that. And also conceptually, George, should we expect organic growth to deteriorate a little more in the next couple of quarters before turning? Thank you. Yes. So on the organic growth, we are most resilient in our managed services and in our intellectual property offerings. But certainly there is a bigger impact in the systems integration projects and they're delayed or stopped. And this happens to both our base business and the business that we merged into the company in some ways and even in a bigger way, because they were 100% systems integration consulting efforts. So we do believe that some of that impact will continue. I can't really predict that right now. But what I can tell you is we see some small positive signs where as certain countries are beginning to go back to work, this is particularly happening in the Scandinavian region, we do see some of our consultants being called back to work. But of course, in other areas, we see some of that being extended. So this is going to be a wait and see, which is why we took the actions we did, but also why we took the actions we did on a temporary basis, so that we can bring people back if and when needed. Is there any specific number for organic growth, George, for the quarter? Yes. So, well, as I mentioned, because the SI and C projects are impacted on both the organic side and the inorganic side, it becomes a little more a little less meaningful to break it down and a little more difficult to do that. So maybe, Francois, you could give some of those examples and answer that. Yes. So I'll give you the example of some acquisition we had lately, CKC for example in Germany, where they are very heavy also on the manufacturing side. And again, manufacturing were hit in Germany. So it hit what we had already in Germany and naturally also what we purchased with CKC. Another example, if I'm taking example at Kendall, where we're doing it was a lot of business consulting. As you know in these time with this crisis, the first thing client is cutting is high end consulting. And so that's why it had an impact as well Cango acquisition than the rest of the business. So that's why we didn't see relevant to split both of them. But if we would do it based on the run rate like we did in the past or you would expect it, you would have seen a decline in the organic growth by close to 1%. Okay. That's helpful. And then a cash flow question for you, Francois. Your CFO was down 14% and the 1st 6 months, it's now flattish despite the IFRS 16 boost. Anything unusual there Francois? Thank you. This quarter, we had some payments, larger payments that we did in the quarter that we didn't had in the Q1. So that's why it hit us a little bit. You're right that on a year to date basis, we are flat despite IFRS 16, but we had some payment that we did from the restructuring that we announced at the beginning of the year and that put some pressure to on the cash from ops and that's why you're seeing it flat year over year. But there's still very good cash generation with more than $800,000,000 for the 1st 6 months and more than 1.6 $1,000,000,000 for the last 12 months. So still good cash generation. Very helpful. Thank you. Thanks, Steve. The next question is from Richard Tse with National Bank Financial. So George, I noticed that you guys announced an actual win here this morning, which was kind of quite notable. So I wonder if you maybe just give us a bit of color on that. And I guess in that context, what your ability is like to sign bookings on the current crisis here? Yes. Thanks, Richard. Yes, we did have a nice win that we just announced. It was actually awarded last week and we were able to announce it here. It's actually a total cybersecurity engagement for 86 different agencies across the U. S. Federal Government. It's a sister type effort to one that we were awarded, I think, 18 months ago or so that had a $335,000,000 booking over 6 years. Obviously, that's going very well because we were able to win this award and it's net new business. It will actually will be hiring for that, which is nice given some of the other headwinds that are going on in other parts of the world. And I think it's a testament to the strength of the CGI federal team there in the U. S. It comes at a nice time too because you might have noticed that the bookings were depressed in the U. S. Federal business. Part of that's just the focus that the government has right now on public health, but we do believe there'll be stronger bookings in the next quarter in all of our government businesses. And then looking forward, we actually believe that we're well positioned, if you will, to help our clients both respond to the crisis and rebound from the crisis. And if you think about the last crisis in 2,008, obviously a very different crisis and you can't really compare the 2. But some of the solutions are being repurposed in a very big way to help our clients at this time, helping them implement government programs and grants management, which obviously have ERP software around the world, particularly in the U. S, helping them with payroll services because a lot of these stimulus programs go through payroll. We have a lot of those services in Canada, Scandinavia, Finland, Poland, and the Baltics helping with remote learning. We're actually doing that both in the UK and France as our clients transition to a whole new way of working. The education space is kind of pioneering and innovating. We have solutions to help there. Health and public health, we have telemedicine solutions and we're actually helping the government in the UK and some pilot projects around testing and monitoring because unfortunately this crisis doesn't necessarily end until we have the final solution and even as we begin to reopen. I mentioned the opportunity helping Montreal Health. And then also on the as clients rebound from this, there's opportunities for us to help them both governments, financial institutions and the like in collections, in payments, in fraud detection, even digital solutions for consumer retail. We're actually seeing projects get accelerated on in the consumer retail space around digital. And we recently merged with Mette who has some solutions in that area that complement our own retail solution. So it's a long way of answering your very simple question of do you think you can book work in the current climate. Obviously, much more pressure in the immediate term when clients were just focused on making sure that they could keep their services going. But as we look to kind of the new normal, if you will, all of these solutions help. And I guess I should mention the biggest one, which is really the managed services. We believe that the selling cycle will shorten and the savings value proposition will strengthen for our managed services solutions and because fewer partners can be relied on and obviously the savings are needed by our clients. So we believe that in a safe and responsible manner, we can be there to help our clients with solutions for these tough times. Okay. And then with respect to sort of M and A, no doubt you guys are quite well capitalized here. But my guess is that some of the prospects that you're looking at in the past may not have been given some of these metro market companies. Do you get a sense at this point in time whether those valuations are going to come in to you kind of down the road here? Yes. Well, we would certainly expect that the valuations would change. They are changing for the public companies. For the private companies, it would be the same. The payback period obviously would become more attractive for us I think the impetus for a lot of these companies to join with a company like CGI also strengthens. So I think all of those work in our favor. Of course, we will still be very diligent and focused on making sure that we're merging with the right companies, even if the timing and the price becomes far more attractive. We still look for all three, but that's why I mentioned we did make sure that we were capitalized to take advantage of that opportunity. Okay. Just one last one for me. It's probably more Francois. But have there been any requests from any of your current customers to maybe push or defer payments here over the short term? Yes, I'll start, Francois, and then you can close. And the reason I'm going to start, Richard, is that the best antidote for that, yes, we have had a few of those requests, but the best antidote for that is superior delivery, which our teams are doing. And that's how we start. And then of course, we expect the payment to come with that because of the excellent service that we are providing and in many cases critical service. So Francois, you've had a couple of those requests. We've instituted a process. They all come to Francois. And so far, Francois, what's the answer? No. So exactly what like George is saying, the first thing I had a couple of calls with some of the CFOs in the market. And again, the first question I ask is how is the service going and all that. And naturally with the answer positive answer we have, again, we're saying you need to pay for these services. So and we put yes, we did put something inside internal to have me going to me for approval for any extension and for now we didn't give any extension. At the same time, since clients is asking us for delay in payments, we are also doing the same thing with our suppliers. And in some places, we're taking advantage of some governments payroll taxes that they accepted to push. So we'll take that in consideration as like real estate that we are having discussion with some of the owners to push some payments. So what it's both sides of the equation that we're working on the cash. Okay, great. Appreciate the color. Thank you. Thanks, Richard. Thank you. The next question is from Maher Yaghi with Desjardins. Please go ahead. Yes. Thank you for taking my question. I want to start with a question on the things you can control with revenues being influx and hard to assess what's happening with COVID and how long it's going to take. You have much more control on your cost structure and we've seen it in the quarter here with earnings growing. I wanted to ask you about your EPS accretion for 2020. What's your expectation in terms of how much revenue would need to decline for you to not be able to support a growth in EPS year on year? I have another question to follow-up. Yes. Thanks for the question, Maher. It's as you correctly state, the uncertain times obviously make it very hard to predict on the revenue side, but we do have in our business, we're able to protect the margin because most of our costs are variable. And as a services firm, this is mostly other costs, which is why we took the actions we did on the both the permanent restructuring, but also on the temporary leave without pay situation to make sure that we keep our costs in control. Of course, we can't protect all of the margin given the fact that we do have with the lost revenue at some point you do have that. We have a set of different scenarios and we're monitoring that, but responsible for our clients. And realistically, responsible for our clients. And realistically, obviously, our plans for where we want to go in the short term are interrupted. But I want to be clear that we're committed to continuing to meet our aspiration of doubling the company over the next 5 to 7 years, even though our short term plans may be interrupted. Is the situation severe enough at this point in time for you not to be able to grow your EPS year on year in 2020? I know it's hard to predict what's going to happen down the road as we see it right now. Yes, it depends right now, like I said, we see a pretty stable environment. We have it fluctuates between 2% 5% of our members on a temporary leave without pay situation as I mentioned. But we've already had some of those consultants call back and then we've had others added to that. So it's fairly stable in that range right now. And from talking to our clients, we don't know where we'll go. But from talking to our clients right now, we're very close to our clients. We believe we can manage in that range. But again, it's going to be dependent on both governments and the timing of when and how they reopen and dependent on our customers, our clients and their customers on how quickly some of that returns. We believe in the intermediate term we're in a strong position, but it's right now it's it literally it's changing on a daily, weekly basis. So it's difficult to predict. Okay. No, that's helpful. On the backlog, you have a very strong amount of backlog that you can count on, but how much of that backlog could be at risk? I'm trying to see could we see some not delays, but cancellations of contracts that you have in the backlog? Have you started seeing something like that? No, the vast majority of that work is in the managed services area. It's typically pretty critical to our clients to continue that. In reality, we've actually seen some expansions of some of that work in the early days here that actually contributed to some of our stronger bookings in places like Central and Eastern Europe. So, right now, we believe that looks pretty solid. We don't see a lot of that. Of course, some add on systems integration projects on top of that backlog doesn't happen as quickly, but we're pretty conservative in how we book that backlog. So we're not very concerned right now at this point. It's pretty solid. Great. And my last question, I saw that you increased your credit line In April, you as you mentioned this morning, you're putting a pause on your backlog. How much of those moves are related to conserving cash versus being opportunistic for potential increases in M and A possibilities in the next couple of years? Trying to just see your views on that. Yes. It's a perfect question and you did give the answer. It's by and large positioning us for the future. But taking that opportunity to do it now to ensure that we have that at our access for if and when those opportunities present themselves. So it really was more about our future growth both organically because as I said, we do believe that the managed services value proposition strengthens in this current environment and to do those deals properly sometimes it takes some cash. And then obviously our intellectual property and as I mentioned that's well suited for these tougher times that our clients face. And then ultimately on the buy side as we mentioned, we do believe there are clearly going to be opportunities for merger opportunities post crisis. Okay. Thank you very much. Thanks, Maher. Thank you, Maher. Thank you. The next question is from Jason Kupferberg with Bank of America. Please go ahead. Hi, this is Cassie on for Jason. Just wanted to ask about on the demand side, I know you guys said that there were delays in contract awards, but just wanted to get a little more color on what you're seeing in terms of the pace of new requests for proposals, conversion of these RFPs in the bookings, ramp of existing work into That's a lot of questions there, Kathy, but I'll try to get there. I think your main question was really what are we seeing on the demand side. And what we're seeing is it does vary by both industry and by geography. And the industries that we are seeing more demand obviously are in the health, the utilities, the critical services and of course government. And those are really working although there was that initial interruption due to kind of governments being focused on the public health. We're seeing those projects continue. The demand is actually pretty strong, as I mentioned. And so and that's across all those telecommunications would be 1 as well on the critical infrastructure side. And for example, in the UK, we're a named strategic supplier to the central government and we've been very active in assisting on projects of national importance on their behalf. And so in fact, we're hiring in the UK and as I mentioned with the award we just had in the U. S. Federal, we're hiring there as well. Where it's most impacted on the demand side is very clear and I called some of those out is where you have a factory closed. Obviously, the demand is very different and we do see that in manufacturing. We saw that initially in consumer retail. But even in consumer retail, we're seeing a shift to omnichannel help as their customers are shifting very quickly. And then on your final question on price concessions, we have had some of our clients come to us and look for various discounts. As I mentioned, we're working very collaboratively with our clients and that's part of the CGI model and the proximity. And in those cases where we've been asked for that, we've worked collaboratively with them to say, okay, what can we do on scope changes or even expansions to allow for a reduction for them without an impact on CGI and maybe even a positive impact on CGI. And we've been successful on a couple of those. We're in discussions on others. And so we haven't seen any material changes in that regard much like we talked about with the payment terms. And it all comes down to having those close relationships with our customers. I've had a number of these discussions at the CEO levels. And I think they're truly we're working together and thankful in helping them meet their customers' needs and therefore helping CGI continue to be resilient at this time. Thanks. And just one follow-up, more like a clarification question. I know you guys mentioned the $40,000,000 to $75,000,000 restructuring costs expected for the next few quarters. Are you sort of expecting that majority to land in 3rd quarter with a little bit in 4th quarter? And then on the are you guys still expecting incremental restructuring costs with the Portugal, Brazil and Sweden delivery centers? Thanks. Yes. We have I'll answer your last question first. We are expecting just a limited amount, still within the range. We announced there's just some trailing items in Sweden. All the rest is past us. Francois can give you the exact number maybe. But then on the other items, the timing is difficult to predict. And let me maybe start this way. It is our hope that we won't need to use anything close to the upper end of that range because things will recover quicker. And remember, these are members that are very important. They were doing important work before this crisis. They're dislocated. It's why we took some of the actions we did on the salary reductions. That money is going to really supplement their pay and therefore not impact the company's bottom line protecting our shareholders. So we don't want to do any of it, but we will have to take actions if necessary. So I think it would probably be split between the quarters just depending on how these openings happen and what we see, how the clarity comes. But right now, if I had to guess and it really is a guess, I don't think we'll have full clarity for another couple of months. The next question is from Stephanie Price with CIBC. Please go ahead. Good morning. Just to follow-up on the last question. I'm just wondering what you're seeing from competitors in the current environment and whether competitors have gotten more competitive in terms of pricing out there? Yes. We haven't really seen that, Stephanie. If anything, we've seen some of our competitors maybe not move quite as quickly as we were able to move to the new way of working remotely. We filled some gaps for some of our competitors from that perspective. I think that was I think our ability to do that was really the fact that we are in proximity to our clients. We live and work in the same locations. And so when various shutdowns occurred, shelter in place orders happened, our people were already in the locations and didn't have to have a disparity between your home location shelter at home versus your clients shelter at home area. But right now, as I mentioned, we have had a couple of requests from our clients on discounts, but we haven't seen anything regarding broader changes in the landscape. It's still early days, but we haven't seen it right at this point. Okay, great. And in terms of the IP and cloud business, just hoping you could talk a little bit about the relative resilience of that business, both in the short term and maybe in the longer term as well? Yes. Well, thanks for the question. Certainly, our IP is becoming a bigger value proposition in the fact that all of it or the majority of it is accessible via software as a service. It's still right around only half of our IP is purchased software as a service, but we do believe that that would increase as clients add capacity and infrastructure and look to providers like us to provide the service and not have to deal with that themselves. So we think it's a strong environment for that. But I got to tell you, more important than the infrastructure side on cloud, it really is the business solutions themselves, Stephanie, that becomes the more important element. And I mentioned we have a number of our software actually provides critical business services, maybe even more critical at this time for some of those business services and we've actually modified some of that IP to be more relevant in the current environment. So we think it's a stronger environment for IP. And of course, that's nice to be able to say because both SaaS and license and maintenance IP is at the higher end of the CJack margins as you know. Great. Thank you very much. Thanks, Stephanie. Thank you. The next question is from Deepak Kaushal with Stifel GMP. Please go ahead. Hi. Good morning, guys. Thanks for taking my question. George, Francois, I know there's a lot of questions and there's a lot of uncertainty in the near term. I'm curious, given that you've done 50% of the voice of the client after the impact of COVID and you have an army of high value consultants, what kind of permanent structural changes do you anticipate as a result of this pandemic? And what do you think in terms of strategy, how you can change or tactically adjust to take advantage of these structural changes going forward? Yes. Thanks, Deepak. We actually do have an army of consultants right now thinking through those questions. And in fact, we have really a point of view, quite frankly, by industry, because it's going to vary by industry. And I do agree with you there will be some permanent changes. Obviously, we had a broken supply chain in many industries as that gets reorganized as certainly customers now have been accelerated to be even more digital than they were previously. And I think there are going to be opportunities across each of the opportunities. And essentially, the way we're looking at this is really 3 phases, Deepak. We're looking at the respond phase, which essentially is what we're in now. And I mentioned some of the things that we're doing to help our clients, which only deepen our relationship during the respond phase. But then there's going to be an initial rebound phase. And in that rebound phase, that's where some of our IP as we talked about will really apply, but also those managed services for the cost savings becomes a better value proposition. But then we believe there's going to be a 3rd phase, which is reinvent. And that's where some of those permanent structural changes are going to occur. And I've had a number of discussions with CEOs where they said, we're evaluating right now as we've reacted to this crisis, what things are we going to keep doing that same way and what things are we going to change back to the way we were before. And everybody's looking at that. And I think it will be industry by industry, but in some cases, it will be company by company. And so we're preparing for that as we speak. And that's why it was so valuable to have done the voice of the customer the way we did it. And again, just another shout out to both our member employees as well as our clients. The fact that we were able to continue those strategic discussions really almost seamlessly in the remote world and get the value from it, I think is a testament to the relationships we have. Okay. Thank you. And then just a quick follow-up on the M and A strategy. I was hoping for some more nuanced insight on the metro market versus transformational. You've been doing a lot of metro, that's quite well understood. Transformational, like the last big one was Logica. It seems like it's becoming a bigger priority now to look at transformational. Can you get these done in environments where governments are saying we don't want companies to be forced to sell? How do you think that plays out? And I know it's hard to give us a sense of timing, but is this kind of a 1 year to 2 year to get done or is it a 6 months to get done or a 5 year thing that we should think about in terms of transformational? Yes. No, I wish I could answer the timing point, but we want to be prepared for any of those scenarios. But the tilt towards transformational is very simple, right? The valuations of those larger companies obviously become more attractive. The payback period becomes more attractive and becomes more doable. I'm not as concerned about the point you make about the company takeover scenario because really in all cases, we come in as really the local players whether it's a metro market merger or a broader one. So in many ways we can work with governments and mitigate that. We've done that successfully even in the U. S. So I'm not as concerned about that. But certainly the opportunity and the tilt towards transformational is really all about the opportunity and that pricing has a big play in that. Okay. And should we expect something transformational to look like a CGI and when you take out cost synergies or to look very different from the CGI where you can get a broader kind of capability? No, I think it's we have end to end services. We like our end to end services. Think you'll see us stay true to those end to end services. So it would look more like that. Okay. Thank you for taking my questions. Thanks, Dick. Okay. Thank you. The next question The next question is from Paul Treiber with RBC Capital Markets. Just want to follow-up on one of your last comments on CGI's proximity model. Broadly speaking, are you seeing from your customer base an increasing willingness or improved or change in sentiment that they may have towards onshore or nearshore versus offshore? There's been tremendous pushover loss in 20 years probably for offshore. Do you think the disruption that came out in this environment is perhaps much more apparent to end customers now and they're maybe shifting their priorities a bit? Yes, we have seen some of that and we've had discussions with clients or actually in discussions with clients about that now. The pockets of, I would call it, rebalancing, not wholesale. It's not exiting the offshore, but there are pockets of rebalancing and we think we're very well positioned for that. I also should take the opportunity to let you know our India operations has performed extremely well. All of our global delivery centers have but particularly in India performed extremely well. Obviously, you know the 21 days shutdown and then that was extended. All of our people were able to transition remotely. You saw the margins. This is even in at least the beginning of the shutdown period and that continues. So I think that becomes a differentiator. And I guess, Paul, what I see is clients looking for partners that can do the right balance. And this is what we always have said to our clients. It's a global delivery. It's not onshore or offshore. It's really a global delivery. We'll put the right services in the right places and make sure that they're comfortable. And that's the conversation we're having as some are looking at doing that rebalancing. Okay? Okay. Thanks for taking my question. I'll leave it at that. Thanks, Paul. I guess we'll take one more question. Certainly. Thank you. The last question will be from Rob Young with Canaccord Genuity. Please go ahead. Hi, good morning. You said that you've seen the cycle sales cycle shortening on managed services or perhaps you said you expected to see that? Maybe if you could clarify that for me. And then what's giving you the confidence to say that? Is it better access to more senior decision makers in your customers? Is this crisis getting you better access at the higher level? Is it previous discussions that are accelerating? Why are you confident that you're going to see that cycle shortly? Yes, I'll start this way. It's mainly an expectation, but it's an expectation based on a strengthening value proposition as far as what that provides to our clients. But it's all of the above. There are more discussions being had at the senior client level. They're more engaged in these discussions given what they're going through. And then like I mentioned, the value proposition becomes much stronger. So it really is all of the above. But this is where we and it's also based on what we've seen in past past crisis and what and how the behaviors and the pressures on our clients change and how we can then provide the offering to help them. And yes, we have had a number of these discussions ongoing straight through this crisis period. Okay. And are you seeing that accelerate? Like is it actually shortening or you expect it to shorten? We expect it to shorten. Okay. And then just one clarification, one of your peers said that they expected a top line impact from travel reimbursement. I assume that given 85% of your revenue, like you said earlier, comes from members and proximity, that isn't as much of an issue for you. Maybe just talk about that and then that's it. Yes, we have a much smaller amount of that and that's a good news, bad news story because we also don't have any of the benefits of having people in the short term not traveling and have the impact of that on our bottom line. But no, that's not a big item for us. There are some projects where it occurs, but it's minimal. Thanks. Thank you, Rob. Thank you, everyone, for joining us today and we look forward to talking to you again with the Q3 results in July. Again follow-up with me, 514-841-3355. Thank you. Thank you. Thank you very much. Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.