Earnings Call Transcript - GIB Q4 2020

Operator, Operator

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

Maher Yaghi, Vice President, Investor Relations

Thank you, Julie. Good morning. With me to discuss CGI's fourth quarter fiscal 2020 results are George Schindler, our President and CEO; and François Boulanger, Executive Vice President and CFO. This call is being broadcast on cgi.com and recorded live at 9:00 AM Eastern Time on Wednesday, November 11, 2020. Supplemental slides as well as the press release we issued earlier this morning are available for download along with our 2020 MD&A, financial statements and accompanying notes, all of which have been filed with both SEDAR and EDGAR. Please note, that some statements made on the call may be forward-looking. Actual events or results may differ materially from those expressed or implied, and CGI disclaims any intent or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The complete Safe Harbor statement is available in both our MD&A and press release as well as on cgi.com. We encourage our investors to read it in its entirety. We are reporting our financial results in accordance with International Financial Reporting Standards or IFRS. As always, we will also discuss non-GAAP performance measures, which should be viewed as supplemental. The MD&A contains definitions of each one used in our reporting. All of the dollar figures expressed on this call are Canadian unless otherwise noted. So with that, I'll turn it over to François.

François Boulanger, Executive Vice President and CFO

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

George Schindler, President and CEO

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

Maher Yaghi, Vice President, Investor Relations

Just a reminder that the replay of the call will be available either via our website or by dialing 1-855-859-2056 and using the passcode 5631496 until December 11. A podcast of this call will also be available for download within a few hours. Follow-up questions can be directed to me at 514-415-3651, and the operator, we're ready to take the questions.

Operator, Operator

Thank you. Your first question comes from Thanos Moschopoulos with BMO Capital Markets. Please go ahead.

Thanos Moschopoulos, Analyst

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

George Schindler, President and CEO

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

Thanos Moschopoulos, Analyst

And then I think you often get this question heading into a new fiscal year, so I will ask it: just given what you're seeing in the pipeline, would you see a path to double-digit organic EPS growth this year, or might there be some issues that would make that challenging?

George Schindler, President and CEO

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

Thanos Moschopoulos, Analyst

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

François Boulanger, Executive Vice President and CFO

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

Thanos Moschopoulos, Analyst

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

François Boulanger, Executive Vice President and CFO

Well, not more than the month or quarter before, not on the P&L at least. Where in some places, we have some brakes on some of the payments on some of the taxes, especially in Europe, on the payroll taxes, but outside that, in the P&L nothing out of the ordinary compared to the other years.

Thanos Moschopoulos, Analyst

Great. Thanks.

Operator, Operator

And your next question comes from Richard Tse with National Bank. Please go ahead.

Richard Tse, Analyst

Yes, thank you. As we look ahead to next year, trying to be optimistic here, if we see a rapid snap back in terms of activity, let's say, as soon as the vaccine is out earlier, could you guys sort of handle that increase in volume under the current operating structure, or will we need to bring on more people? I'm just trying to figure out how much operating leverage is in the model if that were to happen.

George Schindler, President and CEO

Yes, I think I understand the question. Right now, we are planning for and expect continued positive trends as we move through the quarters here next fiscal year, and we even saw that as we moved through the last few months with positive trends in utilization and other key metrics. But it's been a more steady increase. I think your question is, what if there's a more immediate snapback. We already are having some very, very strong pipeline of new hiring that's going on. I think that's a good positive sign. I think we'd be able to accommodate because remember, a lot of our larger managed services deals involve bringing people on board from our clients. That's an automatic way to meet the demand, so I would see more of that occurring as well.

Richard Tse, Analyst

Okay. And with respect to your comments on the second half, pick-up next year, I'm assuming that's organic growth. Can you provide some color in terms of the type of projects that will be scaling back half? Are those the ones that really you don't need to be on site as much, or what is the nature of those types of deals?

George Schindler, President and CEO

Yes, well, as you're aware, the whole world has navigated this and pivoted to be able to work remotely. We've always done some of that through our global delivery model where we have on-site, offshore, and of course, the near shore in between. I expect the projects actually to run the gamut. We're seeing systems integration and consulting projects kick off that involve cloud migration and enablement. RPA automation, as I mentioned one of the new wins with the automotive manufacturer. Rationalization and monetization even DevOps and agile methodology. We have about 12% of our people on-site now, and it actually had reached 20% before some of the shutdown. It's a mix of simplification of the IT supply chain. Some of those larger deals, yes, some of that’s done more remotely through global delivery anyway. Also, our IP platform, we call them business platforms as a service. Those are driving some of that growth as well. So again, a lot of positive signs, but it's really the end-to-end services. I would say that is what we're seeing right now, Richard.

Richard Tse, Analyst

Okay. And just one last quick question for me: you seem to be a bit more focused on the acquisition side relative to previous quarters. Is that because the valuations are starting to come in? Or could you provide some color on that? That's it for me. Thanks.

George Schindler, President and CEO

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

Richard Tse, Analyst

That's great. Thank you.

Operator, Operator

And our next question comes from Jason Kupferberg with Bank of America. Please go ahead.

Jason Kupferberg, Analyst

Good morning, guys. I wanted to start with a question on the bookings in the quarter. Obviously, very strong, but it looked like it was tilted a little bit more towards renewals versus new work than what we've seen historically. Could you comment on the bookings numbers for us a bit and highlight some of the particular areas of strength that you saw? I'd also love to hear your general thoughts about translating backlog to revenue. It feels like some of the trends there in the industry are a little choppy right now. So our bookings are a great leading indicator for sure. But just wanted to get your take on conversion to revenue and what that's looking like in your portfolio?

George Schindler, President and CEO

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

Jason Kupferberg, Analyst

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

George Schindler, President and CEO

Yes, it is what we expected. There is a lag in getting some of those projects started back up. As I mentioned, we see signs particularly in the weaker areas, like I mentioned, in manufacturing and retail. If you take out the MRD, just as an industry, from those Q4 numbers, we’re approaching flat for the quarter over quarter. That gives you some ideas. That’s why I highlighted that manufacturers are doing better. A few of those new starts are involving some luxury retailers, like I mentioned, given the strength of the Asian economy. That bodes well for us as we continue to move through there. The bookings and the transitions have driven our increasing open position and hiring in various places. So, all that is going to drive our progress as we move through the months and quarters. So, that's a long way of saying I think we've reached the trough, and I wanted to provide some color on why we think that and what some of those positive signs are.

Jason Kupferberg, Analyst

Helpful. Thank you.

Operator, Operator

And your next question comes from the line of Deepak Kaushal with Stifel. Please go ahead.

Deepak Kaushal, Analyst

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

George Schindler, President and CEO

No, the way we're approaching those markets is not domestically; we're approaching them through those enterprise clients that you just mentioned. If that market is stronger for, like I mentioned, an auto manufacturer in Sweden or Germany, and they're selling more cars in that market, they’re making more investments in their operations in Germany and Sweden. So we're applying to the domestic markets in Europe and North America while helping those enterprise clients drive growth in the Asian market. That's why I mentioned that as an important difference from the first wave of the pandemic.

Deepak Kaushal, Analyst

Got it. And when we think of your five-year plan to double the business, is there a piece of that plan that involves increasing local Asia-Pacific business or even a return to local Latin American business? I want to understand what the global strategy is outside of the traditional markets.

George Schindler, President and CEO

The global strategy and really the strategy of CGI, as we built the company, has always been to merge with likeminded companies that have a presence and an understanding of a local market; it's hard to break into a market on your own. So it would be through that merger and acquisition process. It would probably be in a more transformational context; we wouldn't look to necessarily buy a metro tuck-in one of those domestic markets, because that would counter the strategy. It would be more about buying a transformational approach into one of those markets, looking for the right company at the right time and the right price. But again, a lot of the enterprise clients will come with some of that work, and we'll follow our clients and their clients into those markets.

Deepak Kaushal, Analyst

Got it. And then, the last follow-up just on that, on the basis of what François mentioned about the 23 companies in the pipeline for M&A, is this kind of global merger type of idea included in that pipeline, or is it tied to that automated pipeline?

George Schindler, President and CEO

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

Deepak Kaushal, Analyst

Okay, got it. Well, thank you for taking my questions. I’ll pass the mic.

Operator, Operator

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

Stephanie Price, Analyst

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

George Schindler, President and CEO

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

Stephanie Price, Analyst

Okay, that makes sense. Switching over to the U.S. government's transition: can you talk a bit about what you usually see in the near term as these transitions go through?

George Schindler, President and CEO

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

Stephanie Price, Analyst

Great, thanks so much.

Operator, Operator

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

Steven Li, Analyst

Hey, George. I wanted to revisit your remarks about revenue growth in the second half. Is this positive organic growth you're referring to, or is it just overall revenue growth?

George Schindler, President and CEO

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

Steven Li, Analyst

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

George Schindler, President and CEO

Yes, that's why I said by the second half, we cannot predict the exact pace of this. The vaccine, from everything I read, it's going to be a process. I don't think it will just be a switch. We can't always predict sentiment, and certainly, if our clients and their growing pipeline materialize faster, then there will certainly be growth that follows. We will be very close to that and certainly will accelerate if our clients accelerate.

Operator, Operator

And your next question comes from Ramsey El-Assal with Barclays. Please go ahead.

Ramsey El-Assal, Analyst

Thank you for taking my question this morning. I wanted to ask about the impact of the pandemic and the virtualization of the workforce. How might that in turn impact the sort of Metro market strategy, which if I understand correctly, is based around proximity? Has there been any rethinking of that strategy, or have you seen any impact on the efficacy of that strategy based on folks working from wherever relative to being embedded on site in those metro locations?

George Schindler, President and CEO

It's a good question. We are focused and very close to that. The reality is, even as the future of work shifts to a more permanently remote workforce, it provides opportunities for technology to automate and facilitate that working model. Nonetheless, we see that the key decision-makers are typically back at the office. A lot of the CEOs I speak with are actually at their offices. They recognize the importance of having people working together. So I think what you're going to see is a hybrid model. There are opportunities for technology to help a remote workforce, but the proximity model, being close to decision-makers, remains highly relevant due to the importance and complexity of the work we do for clients that technology enables. We don't see a change in that at this point.

Ramsey El-Assal, Analyst

Okay. And then a follow-up: Could you provide an update on the recent acquisitions, both in terms of performance and any color around cross-selling or cost synergies that may still benefit the company as we head into fiscal '21?

George Schindler, President and CEO

Yes, definitely. If you start with the most recent acquisition, the TeraThink merger and the U.S. Federal business has been instrumental in some of their growth. They continue to grow and have strong bookings which provide us with a new channel. We're seeing opportunities to expand on the work they're doing. Likewise, we’re seeing that with the intellectual properties; I mentioned that got folded into our Retail 360. That's been very fundamental for some of the work in the rebound we see on the retail side in France and across Europe, where we now can go end-to-end from the front office to the inventory in the back office. Especially with the remote work going on now, it's been foundational as we go forward. The media work with SCISYS and all the work we're doing in the space sector has also been part of the driver for not just revenue but margin growth across Europe and in the U.K. So SCISYS is going well, and Sunflower has been fully integrated into our government ERP Momentum. I previously highlighted wins that wouldn't have happened without this integration; they couldn't have done it on their own. Being part of Momentum, we had the vehicle to allow that to happen. That’s just a brief overview of the more recent mergers. I’ve mentioned before, and we track this for our Board of Directors, that the performance has been pretty strong, both at the top and bottom line, keeping clients and expanding on those clients as we move forward. The only more challenging one was the Acando merger, given the nature of the consulting and advisory work impacted by the pandemic. However, we have pivoted those individuals into larger managed services opportunities with their deep industry knowledge, which has positioned us greatly moving forward. We also did a merger in Canada, Trey Moore, which has been successful in helping us navigate some of the new project starts in Canada. Overall, it's been impactful, and that's why we’re very interested now with favorable evaluations; they seem to be looking a bit more attractive, and our operational readiness and financial capacity drive us to continue to accelerate.

Ramsey El-Assal, Analyst

All right, terrific. Thanks so much.

Operator, Operator

And your next question comes from the line of Daniel Chen with Citi Securities. Please go ahead.

Daniel Chen, Analyst

If we look at your mix of managed services, like you mentioned, the bookings and the revenue mix from there continues to improve. I want to confirm that this is a result of a lot of deals that you had, which you said can take a little bit longer. Are these some deals that you saw over the last year or two just starting to materialize? As we expect that mix to improve, should we expect margins for fiscal 2021 to continue to improve from the current levels? Thanks.

George Schindler, President and CEO

A lot of that – I think I mentioned before, those larger deals don't happen overnight; they take a slightly longer period to close. The good news is we've been preparing for this market 12, 18 months ago with those kinds of deals, but they all progress at different paces. Sometimes our team gets a deal that moves through the process more quickly. The good news is we have double-digit opportunities of these larger managed services deals across every geography we operate right now. So that’s the positive. We will continue to build the pipeline so we have consistent opportunities to close in any given quarter. Regarding margin, I forgot your margin part of the question. Yes, as I’ve always mentioned, the reason we have a 70% managed services, 30% SI&C, and we saw we also increased by 1%, our intellectual property as a percentage of revenue; that gives us the ultimate revenue mix. As we approach that, we should continue seeing margin increases as we move through the process.

Operator, Operator

Thank you. Your next question comes from Rob Young with Canaccord Genuity. Please go ahead.

Rob Young, Analyst

Hi, good morning. Maybe just a follow-up on the last question. The growth you expect to see return in the second half seems like it might be shorter-term consultative type of business. Could you find yourself in a situation where you have a strong shift toward managed services, but then the buoyancy of short-term growth returns?

George Schindler, President and CEO

The pipeline is up in both managed services, which are very instrumental, and also in systems integration and consulting, so that will help buoy it. We're coming from a market that was much more on the SI&C side. I think we’re now moving into that managed services side. We have positive signs moving into that type of market, which should be favorable from a growth perspective.

Rob Young, Analyst

One of the things that a Democratic government, if that happens in the U.S., would potentially do is expand the H1-B visa and maybe change some immigration rules. Are there any thoughts there on how that might change your view on the local delivery model?

George Schindler, President and CEO

Not really. Less than 10% of our workforce currently works on a visa, so we're close. Given the various policies around this, our onshore delivery centers are expected to be in demand across the U.S. I don't think our proximity model changes much. We have that global delivery model, and it's in higher demand, which is why you see the double-digit increases in our India operations on revenue, even as we navigate the pandemic. We believe we have a very strong offering in the U.S. regardless.

Rob Young, Analyst

Okay, last one for me: In the prepared remarks, you mentioned retail as one area where you've seen some strength. Given the significant investment in technology towards e-commerce, I wonder if you could provide highlights on where CGI plays and whether this is a driver for you?

George Schindler, President and CEO

The short answer is yes, it is a driver. That's why I highlighted one of the new wins was to help a global retailer enhance their U.S. e-commerce platform. It extends beyond just ordering, going straight through to delivery, which is where the Mesi software is assisting us significantly. We are involved across the entire spectrum from front-end to fulfillment.

Operator, Operator

And your next question comes from an indiscernible source. Please go ahead.

Unidentified Analyst, Analyst

Good morning. Thanks for taking my question. Maybe one for François. In terms of working capital, I don't think we should expect a similar boost in fiscal 2021, but rather more stable working capital. Related to that, would the $1.9 billion cash generated from operating activities be a reasonable run rate estimate for next year?

François Boulanger, Executive Vice President and CFO

Thanks for the question. Regarding working capital, you're right; we saw a boost in working capital by $200 million if you're looking at the financial statements. Again, that was aided by our ability to reduce DSO from 50 days to 47 days, which was a great achievement. We managed to collect and even reduce year-over-year. That said, we're still expecting next year to be in the high range of at least $1.6 billion to $1.7 billion, and potentially even more cash from operations before working capital; depending on working capital, it could be even higher. We're very bullish on generating cash next year.

Unidentified Analyst, Analyst

Thanks. Could that prompt you to resume NCIB activity?

François Boulanger, Executive Vice President and CFO

Yes, we are looking at it. If you saw, we did some share buybacks even in the October timeframe, and we will be looking to resume NCIB activity soon. Thank you, everyone for joining us this morning. We'll see you for our first quarter results of 2021 next year. Thank you all again.

Operator, Operator

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