CGI Inc (GIB) 2007 Q2 法說會逐字稿

Good morning ladies and gentlemen. Welcome to the CGI quarterly results conference call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Mr. Lorne Gorber, Vice President, Global Communications and Investor Relations. Please go ahead Mr. Gorber.

Thank you, Chris, and good morning. With me to discuss the second quarter of fiscal 2007 are Michael Roach, our President and Chief Executive Officer; and David Anderson, Executive Vice President and Chief Financial Officer.

This call is being broadcast on CGI.com, and as Chris said, recorded live at 9 AM on May 2. Supplemental slides as well as the press release we issued earlier this morning are also available for download. Additionally, our Q2 MD&A Financial Statements and Accompanying Notes are posted on our Web site and are being filed with both SEDAR and EDGAR.

Please note that some statements made on the call may be forward-looking. Actually 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.

We report our results in accordance with Canadian GAAP, but we do discuss non-GAAP performance measures, which should be viewed as supplemental. The MD&A contains definitions of each non-GAAP performance indicator used in our reporting. All the figures expressed on this call are in Canadian dollars unless otherwise noted.

I will turn the call over to David first to review the quarter's financial highlights and then to Mike, who will make concluding remarks before going to your questions. So, with that, David?

Thank you, Lorne, and good morning. I'm very pleased to share the financial details of a very good quarter.

Revenue was $951.3 million compared with $904.1 million in the first quarter of 2007 and $866.8 in the same period a year ago. That's 10% growth year over year and 5% sequentially. After the first half of fiscal 2007, our revenue stands at $1.86 billion or nearly $100 million higher than the first six months of fiscal 2006. Our EBIT margins remained strong in Q2 at 10.7%, improving from 7.2% in the second quarter of 2006.

Q2 net earnings were $62.7 million. This is nearly 4 times the $14.1 million reported in Q2 of 2006 and almost $20 million or 44% better than last quarter. In the span of a year, our net earnings margin has gone from 1.6% to 6.6%. At this level we rank among the best of our peer group, both in North America and Europe.

On an EPS basis, the Company earned $0.19 per share in the second quarter of fiscal 2007 compared with $0.04 in the same period last year and $0.13 per share in the first quarter of 2007. As a reminder, our restructuring program ended in December so there were no related charges in Q2. Now, let's turn our attention to the balance sheet and to the generation of cash flow.

We improved our DSO to 43 days from 50 days in the year-ago period. At this level, it remains an industry -- we remain an industry leader and it clearly demonstrates our continued focus on cash management. This, in turn, drove our ability to generate $129 million in cash from operating activities in the second quarter. That's $46.4 million higher than the second quarter of last year. We invested more than $34 million in CGI stock, purchasing an additional 3.5 million shares in the quarter. This brings the total number of shares repurchased in the first half of 2007 to 5.4 million shares at an average price of $9.12.

In Q2, we also repaid $134.1 million in debt. At the end of March, including cash and cash equivalents of $93.8 million, our net debt was $500 million. Our net debt to capitalization ratio at the end of Q2 was 20.2%, a significant improvement from the 28.2% recorded at the end of the second quarter of 2006. From a financial perspective, we remain very well positioned to meet our strategic goals. I will turn the call over to Mike. Mike?

Thank you, David, and good morning, everyone. I'm very pleased with the positive outcomes resulting from the actions taken over the last 12 months, including the ability of our team to create and seize opportunities to profitably grow our business. We had a very strong quarter two. In fact, against many indicators, we had a record quarter. Our performance in the second quarter represents another significant milestone in the successful execution of our business strategy and demonstrates our ongoing commitment to operational excellence. Our quarter two revenues and net earnings performance was the best in our history.

On a cost and currency basis, we delivered growth across each of our geographies. 12% in the United States, 6% in Canada, and 14% in Europe and Asia Pacific. The pipeline continues to expand globally as demand for our services grow and we ramp up the rollout of our full offering cross-selling strategy. Our business development initiatives are yielding the expected profitable growth. Additional profitable revenue is being generated with new clients, contract extensions, and additional services from existing clients. This, combined with the improved market conditions has resulted in increasing recruiting efforts across CGI.

As you will recall, the full offering strategy was put in place to stimulate profitable growth. We posted 10% revenue growth in quarter two while expanding our profitability significantly. Our bookings improved to $859.5 million in the quarter or 0.9 times revenue. We remain committed to getting over 1 times revenue on an annual basis and growing the size and the duration of our backlog.

On the cash side, we generated almost $300 million from operating activities during the first half of 2007. Over the last 12 months, we generated $1.40 in cash per share. We remain convinced there are significant growth opportunities for the Company to pursue which will generate additional shareholder value. Accordingly, we will continue to invest in these profitable growth opportunities through the pursuit of large outsourcing contracts and strategic accretive acquisitions. We'll also continue to reduce debt and buy back our shares as part of our ongoing commitment to create shareholder value.

Against many key financial metrics that drive valuation, we believe our performance is superior to our peer group. EBIT and net income margins, cash flow, and now, revenue growth. While we are pleased that the CGI value proposition is beginning to be recognized by investors, a valuation gap remains. And, therefore, the opportunity for further appreciation also remains. We're committed to closing this gap by continuing to deliver profitable growth and aggressively communicating our business strategy and competitive differentiators with a particular emphasis on the U.S. market.

In summary, we will continue to identify and pursue value-creating opportunities for CGI's shareholders.

Let's go to the questions, Lorne.

Just a quick reminder that a replay of the call will be available either via our Web site or by dialing 1-800-408-3053 and using the pass code 3219797# until May 16. As well, a podcast of this call will be available for download at either CGI.com or through iTunes within a few hours. Follow-up questions can be directed to me at 514-841-3355 and media can follow up directly with [Phili Poragad] at 514-841-3218. Chris, if we could poll for questions from the investment community, please.

(OPERATOR INSTRUCTIONS). Jason Kupferberg, UBS.

For you, on the IT services business segment specifically, that's where the bulk of the upside at least in our model was from a revenue perspective. So you were at 832 million here in the March quarter. I wanted to get a sense if that kind of run rate is sustainable. You took kind of a jump up here versus what the recent rough range had been over the last three or four quarters. So, if you can give us a sense of, A, what kind of growth that gap up this quarter and B, is this kind of general run rate sustainable going forward? That would be helpful.

I think, Jason, I might have missed the first part of that but I think what you were asking was most of the revenue uptick came on the ITS side and is that is sustainable over a longer period of time?

Maybe just a couple of comments. On the BPS side, when you get the results there, we'd like to draw your attention last year, we had a lot of activity on the claims side being driven by the hurricane season in the U.S., which we didn't see this year. And secondly, the claims volumes continue to be soft, which is softening a bit the revenue line on the BPS side.

On the IT side, again, what we're doing is continuing to implement our plan in getting out and reviewing our capabilities with our clients. And we believe that that program is taking traction. You've seen that in the quarter. Our goal is to continue to execute against that plan. And again, our strong belief based on the reaction that we're seeing from our clients, which is very positive, that we will continue to profitably grow the Company over time.

And again, I always emphasize that we're looking not only at the top line but at the bottom line. The goal here is to generate profitable growth so that we can add real value for our shareholders. So, the work we're doing is starting to pay dividends. You've seen it and it crossed all three geographic areas. Very strong growth in the U.S., which we expect will continue. The market there is a very big market. We've got some great offerings. Some of the work that we've done following the AMS acquisition is starting to take hold now. The work we're doing in the government side with our solutions, turning them from one time revenue streams into multi-year revenue streams. You saw the announcement I guess it was this quarter on EPA -- another example of taking what would have been a onetime revenue and turning it into a long-term revenue.

So those kind of initiatives are taking hold. We've certainly stabilized and brought the bottom line back up to the levels that CGI are more comfortable at operating at. And the work we've done over the last number of quarters is starting to show up on the top line.

Okay, so based on that commentary and the strength of the pipeline, do you expect the book-to-bill to go back over one in the second half of the year and, therefore, try and reverse the, I think it's four straight quarters now of backlog declining sequentially. Any thoughts there in terms of bookings and backlog and how those might trend based on what you see in the pipeline? And maybe tie in some discussion of sales cycles there. I would greatly appreciate that.

I think good question. And again, it did reinforce my comments. We're committed to getting above a book-to-bill of one. We've now had three quarters where the book-to-bill has strengthened. And one of the key items of our full offering strategy was also sit down with our clients and look at extending existing contracts. We have a number of signed MOUs now that will increase the backlog or certainly push us above a book-to-bill of one and extended duration, which is very, very important to us. Extend the age of that backlog. So, we expect that as we move from the MOU stage to the contracting stage, that will help us get over one and hopefully again put us on the path where we are extending the life of the backlog and the size of the backlog.

Okay, and just one more question if I may. You've obviously paid down another chunk of debt here this quarter. Cash flow remains healthy. Are you now poised with the further increases in balance sheet flexibility to perhaps even more aggressively look at M&A? I know you've had a number of things probably on your radar for some period of time but maybe if you can talk about incrementally versus last quarter, anything kind of moving to the forefront in terms of possible execution of transactions?

Well I think a couple of comments there. First, as everyone knows for the last 31 years, we've been executing a build and buy strategy. Certainly, over the last, or the first six months of this year, you've seen a heavy emphasis on the build side. You see the organic growth. That growth is coming from winning and extending deals with new and existing clients.

On the acquisition side, I mean we continue to look for opportunities, but again, I would remind you that we've always said that financial flexibility is only one of the criteria we look at. It has to be a strategic fit. It's got to be something that we can integrate operationally so that we can actually get the value for the shareholders and for the clients.

And again, good example is AMS. There's a case where it was a healthy size; it was [in] a strategic fit. The financials were good. It was a Company that had long-term relationships that we could leverage from onetime revenue into recurring revenue and we've executed against that acquisition, I think, very, very well.

So we continue to look there. We do have the financial flexibility. Again, I would remind you that when you look at our financial capability, one shouldn't just look at our line of credit. It was constructed that to find the right balance between interest costs and other considerations, we have the financial strength here to do a deal as long as it fits the criteria that I mentioned, including, of course, that it has to be accretive to earnings. Okay?

Mike Abramsky, RBC Capital Markets.

Your unit margin growth that you earlier talked about is now approaching peers. Do you see room for more upside and on what basis?

Well, again, you know, in a Company like ours, we -- because so much of our revenue comes, Mike, from outsourcing, candidly, we adopt and we live by a restructuring mentality. So, every morning here we get up thinking about how to do the work differently, more cost-effective in order to meet the requirements of our clients but also drive more value for our shareholders. So we are continuing to look at areas to improve the top line and the bottom line.

And you are quite right. While at 6.6, we are one of the best if not the best, we continue to look for opportunities to drive improved bottom-line performance, and believe, over time that we can gradually improve both the top line and the bottom line.

I guess of the things that you've done to continue that, are there still more things [of] that look to do or do you have to look to other levers?

No. I think, you know, from an operations perspective, the new good news always is there's always opportunities to drive more efficiencies to make sure that we are always looking at utilization rates -- you know, the drivers of our costs and we continue to do that and we continue to build out our global delivery centers that again give us more flexibility in terms of costs. But we look at everything and still believe that over time we can gradually improve our margins.

Having said that, at 6.6, I think it is a record for our Company, especially when you consider that we are expensing options, that we've had the expense of the debt in that number. You know, it's a very strong number in terms of our history, and as I said, I think it ranks very well in the peer group. And we intend to stay amongst the best in the peer group on that indicator.

On the 10% growth, which I think is the strongest you've had year over year in a couple of years. Is there a bit of a pig in the python going on with some execution kind of catching up now to your existing opportunity? Or do you see that 10% being sustainable for over the next 12 months, for example?

Well again, I'm not going to forecast here guidance. But, again, what we're implementing, Mike, is a plan, that if you look back, we addressed the cost structure over the last 12 months. We launched the emphasis on business development getting out and we've said that that would take a little more time to show up than the cost cutting. And our belief is it started now to show the positive impacts of that effort. And we expect that to continue. Now, whether it will be at 10% or not, I mean I don't want to predict to that level of precision. But I think what you can go away with, we're going to continue to execute against the plan and we expect the outcomes of that to be contract extensions with existing clients, a greater share of wallet with existing clients and new business with new clients.

Maybe just another way to ask the question, just to qualify is, how much runway and penetration is left to go for some of these existing initiatives? For example, in contract extension, are you sort of at X% of your base and in the [midst] way of discussions and you are yet to talk to Y%. Is there some way you can give us some framework as to (multiple speakers)?

Well we're -- probably if you look at contract extensions, we are pretty well in discussions with the top 20 right now, and moving through that list, well that's the largest component of the revenue opportunity. But we're going to look at them all. And again, our sense is that that process is going well, very well. And that should, as I say, increase the backlog.

And again, I keep emphasizing the age of the backlog, which I think is also very important. And we have had successful discussions there, and as I mentioned in a number of cases, we have MOUs. We haven't turned them into contracts yet, and when we do, you will see the positive impact on the backlog.

Scott Penner, TD Newcrest.

Could you just maybe remind us what if any minimums there are related to this year's business out of BCE and whether you've seen any reluctance on new development given what's going on there?

The minimums with BCE on a calendar year, because again, their fiscal, Scott, is a calendar. So, for calendar 2007 is $425 million. They are -- based on the last quarter they are on a run rate of about $400 million. Traditionally, they invest more at the back end of the year than the first half because they have to define the program. And by the time it moves through their business over to us to actually do the work, it's normally more slanted to the back end of the year.

As far as any impact of their discussions, we've not seen any. Frankly, I suspect it's too early to see any and we're -- whatever happens there we have a long-term contract that goes out to 2016. We also have delivered significant value to BCE over the last 10 years and believe that we can continue to do that in the current ownership structure or any other ownership structure that may come out of those discussions.

Okay and just if you could help me triangulate one other thing within the numbers. So you mentioned that the U.S. business was, obviously, quite strong, up 12%. And the government business was also up, by numbers, about 17%. And we obviously saw another strong quarter in the SI&C business. Is it an accurate read to say that there is a lot of shorter-term signing, shorter-term business being done right now in the U.S. government segment? So maybe if you could comment on the profile of business there and maybe some of the more anticipated opportunities on the horizon.

Well again -- no, I wouldn't -- in fact, I guess the message I want to leave around the U.S. government business is that the strategy that we communicated at the time of the AMS acquisition is beginning to bear significant benefits to us. And again, if I remind you, if you look at the state and local business, we have a solution there called Advantage, which is really the back room or ERP solution for state, local governments, large cities. And then on the federal side, we have a solution called Momentum, which is an ERP for federal government agencies.

Again, what we're doing there is instead of, which was the tradition in AMS, instead of just selling a license and maybe being involved with the build, we're actually now moving that to what we call a build run and operate model. And, you know, in the momentum alone, our backlog has now gone to I think it's a quarter of $1 billion, where we have built long-term revenue out of what would've been short-term revenue.

Same thing is happening on Advantage. We believe that governments will continue to move to more managed services. And again, the driver to that is the demographics that's hitting governments in North America, especially where the IT force, amongst the other groups in the bureaucracies are aging; continuing cost pressures to deliver more for less; and also, retention issues in terms of being able to retain the skills to actually maintain some of these mission critical applications.

Against those kind of pressures, we're very well positioned. I mean our position in those markets in terms of ERP supplier. In the federal side if you took all our competitors and added their penetration there, it still doesn't equal the penetration we have in terms of momentum in those agencies. So, what you're seen there is us turning that from a onetime into a recurring revenue stream. What you don't see in those announcements because all we are announcing candidly is the -- pretty well the run component -- is all the other SI&C and consulting business that goes with establishing those contracts and turning them into long-term contracts. So in some cases, you're seeing that kind of activity there associated with those contracts.

Beyond that, you're also seeing and will see more contracts in the child welfare space, where we have a good solution called [SacWish]. We continue to be a leader in that space.

So those are the kind of things you're seeing coming out of the U.S. And again, some of the benefits of that will be more visible as the years go on because instead of having a lumpy revenue stream of SI&C, we're building a base here of ongoing revenue.

It also creates what we believe is a very significant barrier to entry from some of our competitors in the ERP space. Because most of them, their business model is built on a onetime license sale. And they really don't have a business model that includes managed services. When we put that in front of a client, there is very clear distinction between the capabilities that we offer, not only on the software but more importantly on the services and the ability to run this in an ASP model or on a managed service model over a seven to ten-year period.

So these things we believe are starting to take root. We did say it would take some time because, again, you've got to visit these clients. We had to stabilize them. You know, government is not as fast necessarily in some cases on moving to managed services. But, we are very confident that that movement there not only in the U.S. but in other jurisdictions that we operate in.

Richard Tse, National Bank Financial.

Could you just give us a sense of the order of magnitude, relative size of your pipeline sort of today versus where you were about a year ago? Understanding that you have been spending a better part of the last couple of years integrating the AMS operations.

Well, I guess the best I could do is say that the pipeline is growing. Again, we're seeing quite a bit of growth in the government space related to that movement that I mentioned earlier, Richard, that if I look at the pipeline two years ago in the U.S. government business, it would have been 80% in the SI&C and maybe 10%, 15%, 20% in the outsourcing. I would say now, it's more heavily weighted to the managed services than the SI&C. And that's not because the SI&C have shrunk in absolute terms. It's just that that pipeline now is reflecting the emphasis we're putting on managed services and reflecting the clients' ongoing interest in more managed services. And again, this is not only in the U.S. In Canada as well, we have opportunities that we are working on here, where it's now moving to long-term ASP model or managed services model. And we're very well positioned and I think better positioned than our competitors to capture a good share of that business.

Okay. And you talk often about the U.S. government market. What about some color on the U.S. commercial business? Are you getting any success there, and give us a bit of color on that side.

Yes, I think there it's always a massive market. Again, our ability to cover all that market with the same density as we do in the U.S. government market is obviously different and a little more challenging, given that the footprint that AMS had in the government space. But I would say in the financial vertical and in the telecom vertical, we continue to make headway there.

One of the challenges we have down there to be honest in those other two verticals is that a lot of our clients do not allow us to announce wins. So we have had wins in both the telecom and financial verticals, but our clients will not allow us to announce them. So it has changed significantly. And that's not only a factor in CGI. I think it is an industry-wide trend that for competitive reasons and other reasons, clients are very reluctant to have press releases done. So we're making headway there. Unfortunately, you can't see it. In the government space, of course, this stuff is much more visible and is made public before you are seeing it. But we have a lot of good solutions and experience in the other verticals, especially in the finance vertical. And we're making good progress there.

We also see a similar trend happening there. We have a number of clients again that have our solutions in the credit space -- [CAC], strata. We have ability to upgrade them to newer versions. We also have the opportunity to turn them into a recurring revenue stream, where we manage them on a build to operate and run model. And we are also going at that market with the same vigor that we're going at the government market to build, again, a recurring revenue stream there and a backlog.

One last question. With respect to that government of Canada RFP, I'm assuming that's not in the backlog. And can you give us a sense of whether you're sort of bidding on this on your own now and the timing on when this would hit your backlog?

Well, it's not in the backlog. We are very pleased to have won that opportunity. As you know, that particular bid is under protest. As I said in the press release, we followed the rules to the letter in terms of procurement. We expect to finish contract negotiations there within the quarter and at that time, when they are concluded we will do an announcement in terms of the size, duration, and the scope of that work.

Susan Chen, Merrill Lynch.

Mike, when you discuss the strategies, success with the strategy like cross selling, you also mentioned improving market conditions. I wonder if you could give us some color on what areas of the market you are seeing improving and what business line is benefited from those conditions.

That's a good question, Susan. And I've been looking for this for some while, and I would point out that the premise that I'm working on is having lived through the Y2K era, there was a significant advancement in my view of technology investments during that period. Candidly, I think companies really opened up the budgets there in terms of replacing infrastructure and systems to address the Y2K challenge. But it's now been six to seven years since those investments. We're starting to see some of that on what I call our infrastructure tier 1 business, where clients now are looking at making additional investments in there. There's been technology changes in there in terms of things like storage, other virtualization of servers, other enablers that clients are now looking for. I think we're starting to see a positive return to investments that will start in the infrastructure side and then roll over to the application side, and that will and has begun to generate positive revenue for us. And I think over time, it will actually generate some strength in the general market on a macro basis for the industry itself. And we haven't had that.

Most of growth over the last number of years after Y2K is -- you're eeking out growth by creating it or taking it from a competitor. In my belief, the industry really hasn't seen any kind of real good pressure coming from the market. We're starting to see that. We're seeing it tightening up on the resourcing side. And those are the kind of signs that I am talking about.

In our case, it has meant that we've eaten into our benches fairly significantly and are actually out there recruiting in a number of areas to ensure that we've got enough capacity on the bench to meet the demand that we see coming.

Question is the use of cash. In the past couple of quarters, you saw stock repurchase and paid down debt. And I'm just wondering what about -- can you give us an update on the acquisition front? Do you see or do you think the acquisition multiple is higher, that's why you're using the cash on repurchasing and pay down debt first?

Well again, I think from our standpoint, the most effective use of our cash is to invest in organic growth. It's the most cost-effective way to grow the business. Secondly, accretive acquisitions and then after that, looking at paying down debt and/or continuing to buy back shares. As I mentioned to an earlier question, financial -- we have the financial capacity and in my belief have always had it to continue to pursue all of those items. In the case of acquisitions, it's not only having the financial flexibility, it's finding the right target at the right price, at the right time, along the criteria I said earlier. We continue to look at those, and certainly committed to executing our build and buy strategy over time.

Having said that, to date we've had enough financial capacity to continue to invest in the organic growth piece of our business. We haven't found an acquisition target at this point that we decided to pursue in the first half of the year. And accordingly have used our cash to pay down debt, you know, reducing interest expense and buy back shares.

As I mentioned in my remarks, I believe that while our stock has appreciated over the last number of months, there still is a valuation gap between us and the average of the peer groups and to some of the leaders in terms of valuation in that peer group. We continue to work to close that valuation gap and we continue to believe at this price that the stock is undervalued. And accordingly, we will continue to reserve our right to continue to buy back stock and reduce debt as we see appropriate throughout the balance of the year.

David Wright, BMO Capital Markets.

With the larger contracts being more scarce these days, the multi-year mega-projects, a number of the larger outsourcers have been talking about moving down market to emphasize more of the mid markets. I wondered if you could talk about the competitive pressures that you are observing these days. You've got some good growth here but just wondering, are you seeing more competition on larger contracts you are bidding on? Is there any increased pricing pressure? So are you able to get this growth despite this going on?

I think, David, it's a good question. I mean, we probably emphasize or focus more on those mid-sized contracts anyway. I think one of the challenges our competitors have -- I don't believe they have the cost structure or the nimbleness and flexibility necessarily to attack that market as effectively as we do. And what I mean by that, I mean in some cases you're dealing with companies here that are looking for a very nimble, flexible entrepreneurial partner that can move rapidly, and that has always been our strength.

I'm not seeing a new influx of competitors. In fact, with the consolidation going on in the market with private equity firms -- [active] at Keane and a couple other firms, it will be interesting to see what that dynamic is in the market from a competitive positioning going forward.

But, no, at this point, I mean we're seeing the kind of usual suspects. And again, in the space that we operate, I believe we have a lot of good differentiators there that allow us to be price competitive and generate better margins than our peers in that space.

With your emphasis on managed services, do you feel that you have the infrastructure that you are happy with in the U.S. to generate I guess double-digit growth? I'm asking because I think the growth has not been that strong in the U.S. and I'm wondering what else it takes to grow? Is it just a matter of time because now you've got your team in place or are you still missing something?

No, I think you've got to -- when you look at the growth, David, I think, unfortunately, because of the currency over the last year or so since we did the AMS piece plus just as we continued to call out low-performing contracts and that type of thing from the AMS acquisition, that some of the real growth was masks in the past. If you look at this quarter, the growth was very strong in the U.S. on a year-to-date basis. It's very strong. So we're -- candidly I'm very pleased with the contribution of the U.S. operation -- both on the top line and the bottom line. You know, all our units are performing very, very well across the U.S., and the opportunities there are very, very large in comparison to Canada.

So while you were asking about the mid market, again, I would remind you in the government space is an area in the U.S. where we can compete and have and won very large contracts in that space. So, no, I think the growth in the U.S. is certainly sustainable.

We have a very large data center in Phoenix that has lots of capacity to add new clients. And, of course, we also have and will continue to offer clients in the U.S. the opportunity to backhaul that work into Canada. We've also done some of that. So, from the infrastructure standpoint, I think we are well -- we're continued, as I mentioned, recruiting, and also looking to add critical mass in some centers across the U.S. to allow us to fully implement our global delivery model, which has local presence, as well as near-shore, home-shore and offshore.

So, that's -- we're going to continue to actually execute the model that we have done successfully in Canada in the other geographies. And to date, we're very, very pleased with what we see in the U.S. and Europe.

What sort of recruiting numbers are you looking at?

Well, again, it varies. But I would say probably across the Company, anywhere from 500 to 1000 people would not be out of line. As I said, what is -- our utilization rates have tightened up, and what we see coming, we decided to go out there and fire up recruiting in a number of various across the Company.

That's great. And could you comment on the top five clients that was a year ago running at about 26% of your business. Has it changed much from that?

I don't think so. I will take a look, David. I don't see any material changes in that list.

I think, Chris, we'll have time for one last question here.

Naser Iqbal, Salman Partners.

Great results. I'll just make it brief. Two quick questions. Michael, if we could just maybe understand on where the growth has been coming from, spread between existing customers and new customers. How would you characterize where the growth has been coming from? Has it been 50-50 or skewed towards one client base type?

Well, I think it is a good question. And again, as I said earlier, we're seeing the growth coming across all geographies. So, it shows that the program we're putting in is being executed on a disciplined basis across all our areas. There has been a lot of the growth coming on the IT side for the reasons I explained earlier versus the business process because of the claims business.

As far as existing and new clients, I would say at this point, we are a little more heavily weighted on existing clients, because again, if you look at the kind of program that we are in, it's always easier to win an additional dollar of revenue with an existing client than a new client. A new client obviously takes a little more time. So I haven't broken it down to those percentages, but we're probably somewhere between 60% or 70% with existing clients -- 30% to 40% with new clients. But, as we work through clients, the percentages will then shift over time to the new client side. And that should keep the growth going here over time.

Great. I think that adds a lot of flavor. And just one quick question for David. Just in terms of where the actual backlog stands and given what your bookings were for the quarter, it seemed a little bit lower. Is there just any like accounting or currency effects going on there?

Yes, maybe I will take that. I think if you look quarter over quarter, there is two or three factors. First, you would see just the delta in the book-to-bill at being at 0.9 and not 1. So you see a deterioration in the backlog for that. There is some FX impact. And the third impact is, we had a client who merged and restructured in the U.S. We are able to create a new contract and extend that contract for I think it's ten years. But, decided to reduce the backlog that was in our backlog for the existing contract to ensure that we are very conservative. So that was a onetime event quarter over quarter, that we don't expect to see next quarter.

Thanks a lot, guys, and congratulations.

Thank you, everyone, for being here today and we will see you on Wednesday, August 1 for the third-quarter results. Have a good day.

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