All participants, please stand by. Your conference is ready to begin. Good morning, ladies and gentlemen. Welcome to the CGI first quarter fiscal 2019 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, Elena, and good morning. With me to discuss CGI's first quarter of fiscal 2019 are George Schindler, our President and CEO, and François Boulanger, Executive Vice President and CFO. This call is being broadcast on cgi.com and recorded live at 9:00 A.M. Eastern Time on Wednesday, January 30th, 2019. Supplemental slides as well as the press release we issued earlier this morning are available for download along with our Q1 MD&A, financial statements, and accompanying notes, all of which have been filed with both SEDAR and EDGAR and are available for download on our website. 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 statement, whether as a result of new information, future events, or otherwise, except as required by applicable laws. The complete safe harbor statement is available in both our MD&A and press release, as well as on cgi.com. We encourage our investors to read it in its entirety and to refer to the risks and uncertainties section of our MD&A for a description of the risks that could affect the company. We are reporting our financial results in accordance with the International Financial Reporting Standards, or IFRS. As before, we will also discuss non-GAAP performance measures, which should be viewed as supplemental. The MD&A contains definitions of each one used in our reporting.
All of the dollar figures expressed on the call are in Canadian dollars unless otherwise noted. We are hosting our AGM this morning, so we hope you'll join us live for that broadcast at 11:00 A.M. Eastern Time. I'll turn it over to François now to review our Q1 financials, and then George will comment on operational and strategic highlights and outlook. François?
Thank you, Lorne, and good morning, everyone. I'm pleased to share our results for Q1 fiscal 2019. Revenue was CAD 2.96 billion, an increase of CAD 147 million or 5.2% compared with last year. On a constant currency basis, revenue grew 4.5%. Bookings were over CAD 3 billion or 102% of revenue. 43% of the contract awards were related to new business, while six of our top 10 bookings in the quarter were new multi-year recurring revenue streams. Over the last 12 months, total bookings were CAD 13.5 billion or 116% of revenue. As of December 31st, the backlog increased to CAD 23.3 billion, up CAD 2.2 billion compared with last year. Adjusted EBIT was CAD 439 million, up 8.1% from last year. EBIT margin was 14.8%, an improvement of 40 basis points.
Our effective tax rate for the quarter was 25.9%, stable with last year, when excluding a one-time tax benefit in Q1 of 2018 dated to U.S. tax reform. For the remainder of fiscal 2019, we expect a range of 24.5%-26.5%. Net earnings improved to CAD 311 million in Q1, and EPS grew 13.3% to CAD 1.11 per diluted share. Net margin on the same basis was 10.5%, up 40 basis points. When excluding expenses related to the acquisition and integration of ckc AG in Germany, net earnings improved to CAD 315 million or 10.6% of revenue, also up 40 basis points. Earning per share were CAD 1.12, an improvement of 13.1% compared with the CAD 0.99 in Q1 last year. In the quarter, our operations generated CAD 392 million in cash or 13.2% of revenue.
Over the last 12 months, we have generated CAD 1.5 billion or CAD 5.15 in cash per share, compared to CAD 4.76 for the same period last year. We ended the quarter with a DSO of 54 days, up from 52 days last quarter and 47 days last year. This increase in DSO may be due to fluctuations in currency at the end of the quarter that had a three-day impact. During the quarter, we disbursed CAD 17 million against last year's restructuring program. As previously communicated, we expect the majority of the remaining payments to be made in Q2. In the first quarter, we allocated cash across several strategic priorities, invested CAD 80 million back into our business, including in the development of our IP and the ramping up of new outsourcing contracts. We acquired ckc AG for CAD 23 million.
We repurchased 4.2 million shares for CAD 348 million, and we repaid CAD 383 million of long-term debt. Combined with improved profitability, these accretive investments drove our return on invested capital to 14.5%, or 80 basis points higher than last year. Buying back CGI stock remains an accretive and flexible way to return value to shareholders. As such, this morning, our board of directors approved the extension of our share buyback program until February 2020. This will give us the flexibility to purchase 20.1 million shares over the next 12 months. Under the current program, we have invested CAD 1.2 billion, repurchasing 15.9 million shares or 77% of the program's limit at a weighted average price of CAD 78.77. This represents a return of 10%. We also took the opportunity during the quarter to negotiate a new five-year, $500 million U.S. term loan.
The fixed interest rate of this debt is less than 1.2%, following the completion of a cross-currency swap into euro. At the end of December, net debt stood at CAD 1.7 billion, representing a net debt to capitalization ratio of 19%, stable compared to last year. With our revolving credit facility and over CAD 400 million in cash, we have CAD 1.9 billion in readily available liquidity and access to more as needed in order to pursue our build-and-buy strategy. Before turning the call over to George, I would like to highlight a few adjustments we made to strengthen our operation, and as a result, changed our reporting segments. The former France segment has been renamed Western and Southern Europe, as it now includes Belgium, Spain, Portugal, and the Brazil Global Delivery Center.
A result of this realignment, the former Eastern, Central, and Southern Europe segment has been renamed Central and Eastern Europe and comprises Germany, Netherlands, Czech Republic, and Slovakia. Finally, we transferred ownership of some IP solutions and client relationships between segments. Results and the year-over-year comparables have been updated in the MD&A to reflect these adjustments. Historical results for the last four quarters are also available on cgi.com. I'll turn the call over to George.
Thank you, François, good morning, everyone. Throughout the first quarter, clients remained focused on enterprise-wide digital aspirations. What were generally less defined enterprise strategies a year ago continue to become more actionable as organizations focus on practical implementation of digital, including analytics, cyber, and systems modernization. Looking forward, some clients, particularly in manufacturing and retail sectors, have started to adjust their priorities given the anticipation of a potentially slower growth environment. These clients are focusing their IT initiatives to accelerate efficiencies and gain cost savings. These savings will allow them to fund future IT investments. We continue to hear from business and IT executives that investing in technology is a top priority as IT has now become core to their value proposition.
CGI's strong results continue to demonstrate our position as one of the few firms with the global scale, end-to-end services, and proven ability to deliver on client demand for operating efficiencies and new technology investments. In the quarter, constant currency revenue growth was 4.5%, with continued organic growth acceleration of over 3%, up from 2% last quarter. In fact, six of our seven client-facing operating segments grew in local currency. The only exception was in Northern Europe, where the comparables from a year ago included low-margin revenue from Affecto that was subsequently exited as planned throughout the year. EBIT margins were up 40 basis points as seven of eight segments reported double-digit margins, with the only exception in Central and Eastern Europe, where margins are on an upward trend, improving 120 basis points year-over-year.
Net earnings margin increased 40 basis points to 10.6%, while EPS expanded by 13% to CAD 1.12. Turning to the year-over-year regional highlights of our first quarter, I will start in North America. In the U.S. Commercial and State Government segment, revenue growth was 3.54% in constant currency, led by broad-based commercial growth, particularly in financial services and health and life sciences. EBIT margin was 15.6%, up 60 basis points, and bookings were 111% of revenue, led by the strength in digital demand. During Q1, we built on client relationships from recent mergers through our end-to-end value proposition. For example, our team in Nashville built on a strong SI&C relationship to secure a long-term managed services agreement valued at over CAD 60 million.
Following the expansion of our footprint in Pittsburgh, we opened a new innovation center to further support this metro market, which has grown organically more than 15% from a year-ago. In our U.S. federal operations, revenue grew 3%. EBIT margin was 13.7%, up 20 basis points, and bookings were 53% of revenue, impacted toward the end of the quarter by the U.S. government shutdown. We remain confident in the strength of our federal business, with bookings of 157% of revenue over the last 12 months. Despite the initial 8 days of the 35-day U.S. government shutdown being in Q1, there was no impact on our results beyond bookings as it fell at the end of December during the traditional holiday period.
The impact of the remaining 27 days in our Q2 was largely mitigated due to the sizable volume of work we do that is either fee-based or considered essential and therefore unaffected even in the closed agencies. We proactively reduced the impact to margin and revenue by restaffing some employees on work in other sectors across our broader U.S.-based business, a strategy we would implement again should we be faced with a similar situation later in the quarter. Now that the government has reopened, we are focusing on accelerating any affected projects to further minimize impact in Q2. In Canada, our team delivered revenue growth of over 6%, driven by demand in financial services across the country and oil and gas in Western Canada. EBIT margin was again over 20%, and book-to-bill was 87%.
With a backlog equal to 4 years of revenue and Canada's Q1 bookings consisting of over 50% new business, we are well-positioned for continued organic growth. For example, we are seeing new business activity in the transportation sector to optimize the digital customer experience. As such, new Q1 bookings in this industry totaled CAD 75 million. Turning to our European operations. In Northern Europe, revenue is stable, even as we executed our plan to run off non-core, low-margin work coming from the Affecto merger. Without this impact, Northern Europe would have shown positive growth. Demand in this segment remains healthy and broad-based across several industries, with particular strength in financial services modernization, as well as in the transportation industry. EBIT margin expanded 130 basis points to 10.7% as a result of the planned run-offs and the realization of benefits associated with last year's restructuring program.
Bookings were strong at 138% of revenue, providing a positive growth outlook for the remainder of fiscal 2019. Our optimism for future growth in this region was further solidified last week as I met with top executives across the Nordics and addressed some 1,200 clients at our annual solution seminar in Helsinki. In Western and Southern Europe, revenue grew 5%, driven primarily by the strength in our French operations, particularly in the manufacturing, transportation, and government sectors. EBIT margin was stable at 14%, despite the timing of R&D tax credits in France when compared with last year. Bookings came in just under 100%. Going forward, we expect to reinvigorate the growth prospects of our operations in Spain and Portugal as they benefit from the commonality of clients and industry expertise with our French operations. We see this opportunity particularly in the utilities, transportation, and defense industries.
In the U.K., revenue grew 6%, fueled by the growth in local government engagements, such as with the city of Glasgow, and newer outsourcing engagements with commercial clients, including with TalkTalk Telecom Group. EBIT margin was 15.8%, and book-to-bill came in at 85% of revenue, impacted by a slowdown in government procurement decisions due to the ongoing uncertainty related to Brexit. Given the strength of our local relationships and positioning on 17 government frameworks or contract vehicles, we remain confident in our ability to continue supporting our U.K. government and commercial clients irrespective of the Brexit outcome. In Central and Eastern Europe, revenue growth was 14.5%, the majority of which was organic, as both Germany and the Netherlands posted significant year-over-year improvement.
EBIT margin continued to accelerate with 120 basis point expansion to 8.8%, and bookings came in at 153% of revenue on the strength of CGI being selected as a preferred global partner by clients who are consolidating their IT services providers. We expect profitability to increase in this segment given the improved workforce positioning following last year's restructuring. In addition, demand continues to be strong, and we expect this new higher-end business mix to further improve future performance. In Asia-Pacific, when excluding a one-time favorable impact in Australia last year, our teams posted revenue growth. EBIT margin was strong at 25%, driven in part by increased utilization and growing use of automation. In summary, we're off to a great start for the year. Looking ahead, we are optimistic for the remainder of 2019 with a strong balance sheet and several other tailwinds in our favor.
The fragmentation of the IT market remains high, and we expect merger opportunities will increase in an environment of macroeconomic pressures. For proven consolidators like CGI, this provides both niche and transformational buy opportunities at potentially more reasonable valuation. The benefits of last year's restructuring program are being realized as planned, delivering margin improvement as a result of investments we made in adding high-demand expertise and in executing an asset-light infrastructure strategy. Client demand for end-to-end innovative solutions in our proximity-based metro markets is accelerating as we continue to drive both growth and cost savings for our clients. We remain focused on executing our strategic aspiration of doubling over the next five to seven years through continued build and buy. Thank you for your interest and support. Let's go to the questions now, Lorne.
Just a reminder that a replay of the call will be available either via our website or by dialing 1-800-408-3053 and using the passcode 6149639, and it'll be available till March 2nd. As well, a podcast of this call will be available for download within a few hours. As usual, follow-up questions can be directed to me at 514-841-3355. A last reminder, our AGM today at 11:00 A.M. Hopefully, you can join us on cgi.com, if not in person. Elena will now pull for questions.
Thank you, Mr. Gorber. We will now take questions from the telephone lines. If you have a question and you're using a speakerphone, please lift your handset prior to making your selection. If you have a question, please press star one on your telephone keypad. If at any time you wish to cancel your question, please press the pound sign. Please press star one at this time if you have a question. There will be a brief pause while the participants register. Thank you for your patience. The first question is from Thanos Moschopoulos with BMO Capital Markets. Please go ahead.
Hi. Good morning. George, can you expand on your commentary regarding the broader spending climate? You mentioned that clients are looking to accelerate efficiencies in response to some incremental macro uncertainty. How's that manifesting itself in terms of spending priorities and sales cycles? Does that mean more digital? Does that mean more outsourcing? What do you think?
Yes. Thanks for the question, Thanos. The spending environment on the digital, we don't really see slowing down at all. In fact, the demand from customers and citizens alike is relentless on the desire to interact with businesses from a digital platform. What we see is the added view from our clients saying, "If we're going to prepare for maybe a slower growth environment, let's make sure that we're running our own businesses as efficiency, operationally efficient as possible." We're seeing a shift to some thinking about that type of spending pattern. That should, over time, result in higher outsourcing opportunities. That's a look ahead. We don't see that yet. In fact, our SI&C business was stable in the quarter. If you look at our bookings, actually higher bookings in systems integration and consulting. That's good news for us in the future.
Sales cycles aren't being impacted at this point?
Not right now, no.
Okay. In terms of the margins, obviously some good margin expansion, 40 basis points year-over-year. As we look at that year-over-year improvements, what would you say was the single biggest driver? Was it mix? Was it utilization? Or was it the restructuring efforts you took last year?
It was really the combination of the restructuring and higher utilization, which has climbed quarter-over-quarter, really since we initiated the restructuring program. That's really the majority of it. Remember that restructuring also was to cull down some of our infrastructure work, which was lower margin. That's having a tailwind on the margins as well. Looking forward, though, there is still an opportunity for us to get closer to the ideal business mix that we have. Both the SI&C outsourcing and IP was stable this quarter in revenue, but has been increasing SI&C and reduced in outsourcing. As we go into more of that operational efficiency spending pattern, we should see more of those higher-end SI&C relationships converting into outsourcing, which will help be also a tailwind to our margins looking forward.
Great. Thanks for the outline.
Yep.
Thank you. The next question is from Steven Li with Raymond James. Please go ahead.
Thank you. A couple questions for me. George, when the group was planning for 2019, on Brexit, what was considered a worst case scenario, and how could it impact U.K.?
Yeah, it's a good question. We have three different scenarios, as you might imagine, on Brexit. We plan for all of them. Both the hard exit, where there's actually an opportunity for us to deploy more resources to assist the government if that were to occur. The negotiated softer exit, in which case we could use our framework agreements to increase work with the government. The delay, which is really the outcome that could occur here as we get closer to the March 29th date. That's the environment that we're in now. Again, where we see that is getting closer to our customers on the government side, on incumbency. Things are going well there. Commercial right now is a little less impacted. Certainly, some things have moved to other parts of Europe.
We have a proximity model, we can catch that in proximity and then stay focused on helping our clients in the U.K. I think they all have their different opportunities and challenges, but we're planning for all of the above.
Okay. That's helpful. George, for Northern Europe, you talk about runoffs. Are there more coming or should we expect the revenue growth to start improving for the rest of the year?
Yeah, runoffs are past us, it was really just that. That was really a comparable. That was done in the first quarter. It was just it hit us on a comparable for Affecto. That's past us.
Okay, great. Quick one for François. Your cash from operation, did it include any restructuring disbursements? Thank you.
We had for CAD 17 million of disbursement, and again, mostly payments will be finished in the next quarter or this quarter at the end of March.
Thank you.
Thanks, Steve.
Thank you. The next question is from Richard Tse with National Bank Financial. Please go ahead.
Yes. Thank you. George, I wonder if you could provide some color on the source of the organic growth. Is it coming from the existing base or through the niche acquisitions that you guys have done over the past few years that are consuming more of CGI's broader portfolio?
Yeah, that's a great question, Richard. It's actually coming from both. The demand in digital and our refocus on metro markets, which we've done in conjunction with the buy, but we've done this everywhere, is generating some increases in our SI&C work with new clients within proximities that we haven't done, or metro markets where we haven't done acquisitions. Where we have done metro market mergers, it's actually accelerated. I highlighted what's going on in Pittsburgh and in the southeast of the U.S., but we also see it going on in Denver. We see it going on in the northeast U.S. We see it going on in northern Germany. We see it going on in Finland. You see it everywhere we've done a metro market merger, it's actually accelerating. It's a little of both.
Okay, that's helpful. Does that mean that you might sort of spend a bit more time focusing on some of these niche acquisitions where it seems like you're getting kind of returns from a bit more revenue synergies?
Yes, we would like to accelerate that. Having said that, we will continue to be disciplined and, because culturally when it fits, you get the acceleration. If it doesn't, it looks nice on paper, but it's not going to drive the synergies that everybody's looking for. We're still going to be disciplined about that, but we'd like to see that accelerate. That's why I mentioned, we think we're moving into a climate where that would be driven to accelerate more in the future.
Okay. I heard your comments on SI&C being a strong part of the business. I've noticed that over the past year. Have there been any situations yet where you've seen some of these SI&C engagements sort of move over to longer-term outsourcing engagements?
Yeah, I highlighted the one that we did there in Nashville this quarter. We are seeing some of those happen over time. It takes some time. We do see, and we're having those types of conversations right now.
Okay. Just one last one for me. The headcount at the end of last fiscal year, what was it, and what are your targets here going into 2019? Thank you.
Yeah. Good question. We don't look at specifically headcount because we're continuously introducing agile methodologies. We're introducing advanced automation, particularly in our delivery centers. Some of our delivery centers actually, and you see this quarter in our operations in Asia Pacific, which is dominated by our India operations. You see that uptick on margin that's occurring through additional efficiencies driven by automation that we're using to deliver for our clients. Less people. Higher margins. The infrastructure, same thing going on, automation. It's tough just to look at the headcount. Yes, for SI&C, that's driven by headcount. Other parts of the business, actually, we don't have as much. We have a pretty aggressive hiring target for the year, and we're on track for that through the first quarter.
That's great. Thanks, guys.
Thank you, Richard.
Thank you. The next question is from Paul Treiber with RBC Capital Markets. Please go ahead.
Oh, thanks so much. Just following up on Richard's question around headcount, and then you mentioned your hiring targets. Just in regards to the Washington, D.C. area, just specifically in light of the shutdown and also with Amazon announcing plans to come there, how are you seeing the labor market there, in particular, your retention and churn?
Well, that's an interesting question. I was just talking to our federal team. They did a really nice job in managing the shutdown. Fortunately, they're practiced at it, but they did a very good job of working on that. We didn't lose any of our members that were in the closed agency over this time period, or very little did we lose. That's a good sign. There's definitely some pressures just in general of, given the shutdown, given kind of that landscape with still a temporary deal, that we're prepared that maybe some individuals would exit this type of work for other works because the demand is high, as you mentioned, in the Washington, D.C. area. Having said that, we have an advantage in our CGI federal operations in that we have the rest of the U.S. to deal with, including intellectual property.
We actually did move some people that would have been in a more tenuous situation without an agency to or a project to work on. We actually moved some of those people to our broader U.S. business. I think that's a differentiator for us in that marketplace where we're competing in the federal space with a lot of pure-play federal that are far more exposed when events like the shutdown happen. We're planning for it, but we're in a good position.
In terms of the U.S. federal business going forward, you mentioned that the shutdown is, or the completion of the shutdown is temporary. Could you just elaborate on the strategy and I guess the nimbleness to move, and to mitigate that impact if there is another shutdown in the remainder of the quarter?
Yeah, I think, as I mentioned, we'd do the exact same thing that we did here. A lot of our work, 90%-95% of our business right from the start is unaffected, both because, and I'll remind you, two-thirds of the government is fully funded. Not two-thirds of the agencies, but two-thirds of the government is, of the dollars are fully funded. Then we do a lot of work, for example, our work in the passport area and our visa area, that's funded through the fees that applicants pay in that space. That's fully funded. That's what I mean by fee-based work, there's other work we have like that.
We have mission essential work, like a lot of our financial processing and agency that's partially opened or even that's closed and needs to reopen, still needs to have a financial system operating to close their books for a month or to open them for the following month. A lot of our work is deemed essential, it's already minimized by that. We did, as I mentioned, move people very rapidly across, both within our federal government business because it's partially opened, and then outside of the federal business. We're pretty nimble, and the impact, for example, of these 28 days is very minimal even at the federal level and really not material at the company level.
Just one last one for me. Just shifting gears to the U.S. commercial side, just looking at the profitability there is down from Q4. Was there anything in terms of IP or unusual that drove the quarterly change in profitability?
It's really a lot of smaller things on the U.S. commercial side. The IP is lumpy, as we know. Also we're seeing a shift more pronounced this quarter than I've even reported on previous quarters, as we move from a license basis to a software as a service. It's up 6% this quarter. I think in the long term, that's good news because higher profitability in the longer term, but it causes a bit of lumpiness there. I think that's all you're seeing.
All right. Thank you. I'll pass the line.
Thanks, Paul.
Thank you. The next question is from Maher Yaghi with Desjardins. Please go ahead.
Yes, thank you for taking my question. I wanted to just go back maybe on your expectations for organic revenue growth. We've seen a nice increase over the last recent quarters. We went from 2% to 3%, 3.5% in the quarter. Year, what's your expectations going forward? I compare your improvement in organic growth with some of your peers, which are seeing some decline in organic growth. I'm trying to see how much visibility you have going forward on organic growth. My second question would be, when I look at your exposure or your revenue distribution, bookings revenues in Europe, it's running at 55%. What's your propensity to look for acquisitions in Europe? That's where probably we're seeing the more decline in valuations recently.
Are you willing to increase your exposure to Europe, and to what extent are you willing to do that through acquisitions?
For sure. Thanks, Maher, for the questions. On the outlook for revenue growth, I'll give you the metrics we use to see whether that's going to continue. We're looking at our pipeline. We're looking at our trailing 12-month book-to-bill. You see the backlog had a nice increase on the strength of that book-to-bill. We see opportunities to continue accelerating our growth, and it's broad-based growth in every metro market around the globe. Its underlying demand is really for our customers to go digital and have a digital customer experience for their customers, and then also the cost savings, as I mentioned. We believe by playing on both sides of that equation, we should see revenue continuing to accelerate throughout the year as we planned. On the revenue distribution, yes, you're right.
We're a little over half now in Europe, but it's obviously a big market. We think of this as every one of our strategic business units has an opportunity to continue to buy and merge with like-minded companies, including on the transformational side. We'll look at both sides of the ocean to do that for sure.
Where have you seen valuations getting more interesting lately? Because you mentioned that on your opening remarks.
Yeah, I said I believe the climate will be a situation where we should see that potentially in the future. Right now, I don't see it yet. We'll continue to be disciplined. Over time, that's where we would see it heading. On some of the larger commercial players, you do see that, particularly in Europe, those that are publicly traded. We haven't seen it yet on some of the private valuations.
Okay. Thank you.
Thanks, Maher.
Thank you. The next question is from Edward Caso with Wells Fargo. Please go ahead.
Hi. Good morning. I was curious, you talked about, I guess I was a little unclear whether you said the legacy support business was improving or you were expecting it to improve. Maybe you could talk a little bit about price pressure and the sort of non-digital, non-IP part of your business.
Thanks, Ed. What I did mention is that on the operational side, which you could mention is the traditional legacy side of keeping operations running for an organization, that we do see a better climate for that because through introduction of increased automation and just general management efficiencies, we can still drive some cost savings out of that. One of the reasons for that is it's hard to separate new from legacy, because as you introduce your new digital operations, yes, some of that's discrete from the front-end perspective, but it's got to connect in with that legacy. This is what I mentioned on the practical applications of digital. We see more clients going in that direction, holistically changing their entire enterprise, which changes then the dynamics of the legacy. In doing that, we don't necessarily see price pressure.
We see opportunities to actually give cost savings to our clients and drop higher margins to CGI. That's what we see right now. It's not there yet, but I'm just predicting that's where we see it heading in the longer haul. Also, on the traditional infrastructure side, this is why we went to an asset-light. We do see price pressures in that piece of the landscape.
My other question, maybe you said it and I missed it, but your IP, what was it as a % of the revenue in the quarter? What is it as a % of the backlog and your pipeline, please?
It's stable as far as the business mix, so it's still 21%. We reset that from 23 to 21 given a lot of the mergers that we did that were pure SI&C, so it's just numerator and denominator, but it continues to be stable. The dollars continue to grow, but they grow in line with the growth of our overall business. I don't have a pipeline number for you right now, but we could probably get that for you.
Okay. Great. Thank you.
Thanks, Ed.
Thank you. The next question is from Robert Young with Canaccord Genuity. Please go ahead.
Hi. Just to maybe summarize some of the comments you've made around the environment for acquisitions, the valuation environment. Maybe if you could just talk about what are the drivers that you see that you're supporting the expectation or the potential that valuations could improve for you? Is that more of an impact on the metro market targets, or is it something more relevant to larger consolidation targets?
Yeah. No, it's a good question. I see two things. What we see in the overall marketplace is maybe two areas of the valuations. I think as our clients look more to go enterprise digital and IT becomes more and more core to their operations, they're looking for fewer partners. When they look at fewer partners, there's a consolidation in the marketplace. When there's a consolidation in the marketplace that goes broad-based, and we maybe see a slower growth environment, so some of their spending becomes more focused, some of the smaller players get a little more exposed and a little more motivated to move. We've already seen the first part, but the second part we see happening maybe a little bit faster. That's on the metro market niche opportunities.
On the larger opportunities, the market is changing quickly, and I think as various competitors make different choices in where they do or don't want to play, I think that could change some valuations as well for their businesses, which then gives us an opportunity on the consolidation side.
Okay, great. That's great color. Something else that you said earlier in the call about longer-term outsourcing opportunities potentially being connected to spending patterns moving more towards IT efficiency.
Yeah.
Am I making that link correctly? Do you see that, or do you see larger, longer-term digital-related outsourcing or longer-term contracts as well?
It's a good question. The two are a bit related. We do see the longer-term digital-type opportunities that are also going to drive some of the efficiencies, which allows increased investment to keep those digital opportunities or digital systems fresh. We're seeing a bit of a convergence in the discussions there, just like we see a convergence between IT and business organizations. We see that coming together.
The opportunity for longer-term outsourcing opportunities around IT efficiency, that's still a strong business for you, I assume.
Yeah.
It could potentially get stronger if the macro conditions get worse.
I think.
Is it something you generally see?
I completely believe that the way you characterized it is correct. We don't see that in our bookings just now. We do see it in the conversations that we're having with clients as they think about their next year or years' budgets.
Just to dig in a little, I guess investors could assume that large enterprise is taking IT and technology as more of a driver of their strategy, so may want to have more control of that, which may suggest less focus on outsourcing those components to companies like CGI. How would you respond to that?
Yeah. I don't necessarily see it. I wouldn't characterize it that way. I think the three things really come together. I think clients are very interested in engaging with fewer partners that can be a true extension. We see that through digital, extending your ecosystem. We're part of that ecosystem now. Also connecting the digital with the legacy, driving both operational efficiencies and an opportunity to retain and capture new customers. It's really all of the above, and we see that coming together, which is why there's fewer players that can play in all aspects of that.
Okay, that's great. Just two little ones for me. The very high SI&C bookings, is there a seasonality factor? Q1 last year, there was a bit of a bump there as well. Is there something to understand seasonality-wise?
I don't think it's really seasonality. It's really probably us just having the opportunity to meet some of the demand. I don't think it's seasonal.
I don't know if you mentioned it and I missed it, but did you call out potential for double-digit EPS growth looking forward through this year?
We are-
Is that still an expectation?
We are absolutely focused on continuing to have EPS growth moving forward.
Great. Thanks for answering all my questions.
Yeah. Thanks, Rob.
Thank you. The next question is from James Schneider with Goldman Sachs. Please go ahead.
Good morning. Thanks for taking my question. Maybe just wanted to follow up on some of the earlier questions around outsourcing. Clearly, it seems like, as you mentioned, there's many companies focused on fewer partners, especially in the outsourcing. At the same time, some of the larger IT services firms seem to be de-emphasizing the outsourcing operations. Is that something you're seeing in terms of competitive bids for large-scale outsourcing? Would you expect you'd benefit from that in the overall market? Maybe just talk about overall pricing dynamics in large outsourcing deals, please.
Yeah. Thanks for the question, James. Yes, we do see the outsourcing, well, some of our competitors changing their focus on where they want to play, just like we changed our focus on the asset-light and not going to big infrastructure. We're leveraging the cloud in our opportunities there as opposed to creating necessarily our own. The dynamic of those outsourcing deals have changed. As I mentioned, you still have to run your legacy operations. As you introduce your new digital, there's a different way of introducing digital, but you still have to run your operation from an enterprise perspective. We believe there's still an opportunity. We're just in the next wave of evolution in IT, and there will be another wave behind this. That's why we want to play in that end-to-end spectrum. I do think that perhaps helps us.
We do see fewer competitors in some of those deals, although a lot of the same competitors over the last few, several quarters.
Thank you. Maybe as a follow-up, with respect to margins for the year, you put up a solid 40 basis point expansion this quarter. A lot of those you mentioned is due to restructuring and utilization. Do those restructuring benefits fade over the course of the year? Maybe can you talk about what level of upside there is potentially on the utilization front? I'm just trying to understand whether we should kind of be modeling the same kind of margin expansion throughout the year as we saw this quarter.
It's the right question asked. There is a tailwind a bit as we run through the year because of the comparisons. You will get some of that tailwind on a year-over-year comparison. We do see continued sequential opportunities, both in higher utilization and higher gross margins as we implement our metro market strategy. We see that. The bigger opportunity over time is through improved business mix within our outsourcing, Systems Integration & Consulting, and intellectual property. I mentioned outsourcing intellectual property were stable, but they have ticked up over the last several quarters. As we bring that back in line in capturing some of the opportunities that I discussed in outsourcing, that is a higher margin business for us because it drives higher utilization and lower cost of sales. That's a tailwind in the future.
Some from a comparison year-over-year, some from just small incremental increases in our utilization and gross margin on a sequential basis, longer-term growth on the business mix.
Thanks. Maybe if I could just sneak in one last one from an accounting perspective. I think the DSOs this quarter kind of extended to 54 days, and I think that's quite a bit well beyond the mid-40s where you were running most of last year. Can you maybe talk about what's driving that and whether you expect that to normalize?
Well, as I indicated in the script, three days only is explained by FX. Again, meaning that if I would have calculated in local currency, we would have been actually at 51 days instead of 54. It's really because of the swing of the FX at the end of the quarter. Still at 51, an increase versus last year. Again, it reflects the fact that for more than a year now, the S&C percentage is higher than the outsourcing. Again, coming from the acquisition that we did in the last year and a half, that bumped the S&C revenue higher than the outsourcing. As you know, with S&C, with the work, the milestone, and paying after the work is done, naturally is putting pressure on the DSO.
Thank you.
What George was saying with the outsourcing that we're seeing coming back, that will have a positive impact also on the DSO.
Thank you.
Thanks, Jim. Elena, I think we'll take one last question.
Certainly. Thank you. The last question will be from Howard Liang with Veritas. Please go ahead.
Morning. Thanks for sneaking me in there. I want to ask a question about the cash levels. They've gone back up almost to kind of 2016 levels, thanks to the low rate debt that you took out. After 2016, you made a number of acquisitions and were investing in IP. Where do you see deploying cash, focusing your deployment cash this time? Is it more in acquisitions, the buybacks, or maybe reducing the higher rate of debt?
For sure, after investing back in the business, that is always our first priority. For sure, we still want to be very active on the acquisition. We still think, like George was indicating, that the market is very. We have good opportunity on it. We will be disciplined, for sure. We'll take the ones that are making sense. Depending of the timing of it, we'll go back in the market and seeing and doing some share buyback. As you saw this morning also, we had a second press release to say that the board of director did renew the NCIB for next year. We will be opportunistic on the market on that side also. As for the debt, market was pretty good. We had some payment done this year, close to 200 million USD.
We have another $100 and more U.S. to pay next year on the long-term debt. We saw that the market was very good, as you saw, 1.2% of interest rate was very good. We decided to renew our $500 million U.S. on this.
Right. That makes sense. Talking about the buybacks, the valuation for the CGI shares has run up a bit. At what point does it make sense for you to look and see that maybe it's more attractive to deploy capital internally or in acquisitions versus buybacks, especially since, I guess maybe some of your peers are trading at lower levels?
Well, again, you're totally right. The first two priority is, again, to go on share buyback and acquisition. For sure, we are looking at the valuation. You're right, some valuation went down a little bit, but we're still very close to it.
That's why we like the buybacks. It's a flexible way to return cash to the shareholders, but we can redeploy to the larger acquisition when we need to. We balance those two, as François said, in priority order.
Just one last one from me. Some of your larger peers have been struggling. They got negative sales growth, and they've been beat up a bit. How do you think CGI is differentiated from them, and are you actually finding you're taking market share from them, given your healthy bookings?
Well, I think the biggest differentiation we have is our relationship with our clients and the fact that we do that in proximity to our clients. It really gives us a nice opportunity to stay close to them, to meet their needs and challenges and opportunities. We do that in every place that we operate around the world. I think that's a big differentiator for us. I think the other big differentiator for us is our people that are able to develop those relationships, and the fact that 85% of them are owners. They really are focused on taking care of our company just like a shareholder owner would do.
All right. Thanks, guys.
Okay.
Thank you, Howard, and thank you everyone for joining us today. Again, follow-ups directed to me, 514-841-3355, and hope to see you or hear from you following our AGM.
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