CGI Inc (GIB) 2008 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the CGI second quarter conference call. Please be advised 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.

Thank you, and good morning, everyone. With me to discuss the second quarter of fiscal 2008 are Michael Roach, our President and CEO; and David Anderson, Executive Vice President and CFO. This call is being broadcast on CGI.Com and recorded live at 8:00 a.m. on April 29, 2008. Supplemental slides as well as the press release we issued earlier this morning are also available for download along with our Q2 MD&A financial statements and accompanying notes, each of which are being 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. We report our financial 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 in this call are in Canadian dollars unless otherwise noted. I'll turn the call over to David first to review the quarters financial results and then Mike who will discuss strategic highlights of the quarter. David?

Thank you, Lorne, and good morning. I'm pleased to share the financial detail of of another very good quarter. Revenue was $949.1 million compared with $951.3 million in the same period a year ago. On a constant currency basis, the Company grew by 5.3% year-over-year. Compared with the same period last year, the net negative impact of foreign currency on the revenue was $52.5 million, due primarily to the weakening U.S. dollar. Given this year-over-year weakness, I want to reiterate that our strategy of using natural hedges like insurance, maintenance and software contracts has continued to shield a majority of the currency impact on the bottom line. EBIT margin strengthened year-over-year in Q2 to 11.4% improving from 10.7% in the second quarter of 2007.

Net earnings were $68.8 million or 10% better than the $62.7 million reported in Q2 of 2007. Our net earnings margin significantly improved year-over-year to 7.2% in the second quarter. We continue to maintain our leadership position within our North American and European peer groups. Earnings per share in the second quarter was $0.21 per share. This compares with $0.19 in the same period last year. Now let's turn our attention to the balance sheet and the generation of cash flow.

We generated $44.4 million in cash from operating activities in the second quarter. The decrease compared with the year ago period resulted mainly from a net change in working capital driven by the timing of the following items. Client payment in the amount of $32.5 million which pushed our DSO up by three days to 46 days, accrued compensation by $22.5 million predominantly due to the annual profit-sharing pay out for fiscal 2007, and the payment of prior year tax assessments in the amount of $16.1 million.

As we have seen in the past, we expect that our cash flow from operating activities will rebound as the impact of these timing differences work their way through the financials of subsequent quarters. Over the last 12 months, we generated $419.5 million in cash or 11.3% of revenue. Under our normal course issuer bid, we are able to buyback up to 10% of CGI's publicly traded stock over a 12 month period, or approximately 28.5 million shares. During the quarter, we purchased an additional 6.3 million shares for $68.1 million, since the beginning of fiscal 2008 we've invested $83.8 million in buying back and canceling CGI shares. Taking into account cash and cash equivalents of $82 million , our net debt was $367 million at the end of Q2 for a net debt-to-capitalization ratio of 15.3%. As a reminder, we have $1.5 billion currently available under a credit facility to support our build and buy strategy.

In summary these results continue to demonstrate our ability to profitably grow the business. I'll now turn the call over to Mike.

Thank you, David and good morning, everyone. Our team continues to deliver strong performance across all business metrics. The success of our full offering strategy in securing new clients, renewing and extending contracts and earning additional services from existing clients is working and is continuing to gain momentum. At constant currency, quarter two marks our sixth consecutive quarter of profitable year-over-year revenue growth. In quarter two, we booked $1.1 billion in new contract wins, extensions and renewals, equating to a book-to-bill ratio of 1.1 times our quarter two revenue. As I mentioned before, we remain committed to consistently delivering a book-to-bill ratio greater than 1-times revenue on a trailing 12 months basis. Including quarter two we are now running slightly ahead of that committment.

With respect to quarter two bookings, I would like to draw a particular attention to the U.S. market where our teams signed more than $584 million in new contracts. This success takes on an additional significance in the current economic environment of the U.S. further demonstrating the relevance of our solutions and managed services to clients navigating through more challenging times. The U.S. bookings were almost evenly split between the commercial and public sectors resulting in additional work with both new and longstanding clients. In fact, approximately a third of these bookings represent new business with new clients.

In addition, we are pleased that we can begin work on our previously announced 10 year, $83 million contract with the U.S. Environmental Protection Agency to modernize their financial systems, following the temporary suspension and debarment of a competitor who ultimately withdrew his protest of the original award. This contract is another example of our ability to execute our post-AMS strategy to transform one-time IP solution sales into a long term recurring revenue stream. In addition to this contract, we also recently announced a new $19 million task order with the EPA to test, implement and support software for scientific research. At the end of the quarter, our backlog of signed contracts totaled $12.04 billion representing $3.2 times our annual revenue. This backlog ensures a high level of recurring revenue and provides us with a steady foundation to continue to profitably grow our business. While we conservatively define 55% of our revenue as being recurring or tied to long term contracts, it's important to distinguish the other 45% of our work from being pure discretionary spending. In fact I would call most of it repeatable work with longstanding clients, some of whom have been characterized in the non-recurring revenue bucket for more than 25 years.

We continue to pursue all profitable growth opportunities, recurring and repeatable and as a result continue to deliver industry leading margins. EBIT margins reached 11.4% in quarter two and our net earnings margin was 7.2%. This improvement can be directly correlated to our ongoing ability to execute, improving efficiencies and continually reducing costs across our global operations. A key element of our committment to operational excellence is based on ensuring the satisfaction of our clients and our members. We measure both diligently and I'm pleased to report that our client and member satisfaction scores are at all times highs. As a result, our global attrition rates are tracking to our targeted levels which have traditionally been the lowest in the industry. We are particularly pleased with our Indian operations where our operating model is being embraced and attrition rates currently stand at approximately 12%. At the end of the day, turnover is a clear cost input, which if not properly managed can negatively impact client satisfaction and margins for CGI shareholders.

Before closing, I'd like to summarize our performance after six months of fiscal 2008. At constant currency, our revenue is up by more than 5%. This is pure organic and highly profitable revenue. Our bookings have improved by nearly 40%. Our EBIT margin is running at 11.5% after six months. Our net earnings are up 33% and our earnings per share are up 34%. We have bought back and canceled 7.7 million CGI shares in the last six months. Our net debt-to-capitalization ratio at the end of quarter two was 15.3% and over the last 12 months our return on invested capital was 12.8% while return on equity stood at 14.2%. With $1.5 billion in available liquidity we have the flexibility to continue pursuing our build and buy profitable growth strategy.

In conclusion, our diverse mix of vertical expertise, IP and high end consulting work continues to contribute to new bookings and a healthy funnel of opportunities moving through the pipeline at increasing speeds. Thank you, and let's go to the questions, Lorne.

Just a quick reminder that a replay of the call will be available either via our website or by dialing 1-800-4058-3053 and using the passcode 3258462 until May 13. 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 514-841-33 55. If we could poll for questions from the investment community, please?

Thank you. (OPERATOR INSTRUCTIONS) The first question is from Jason Kupferberg from UBS. Please go ahead.

Thanks and good morning, guys.

Good morning, Jason.

I have a question on the U.S. in particular, obviously you had real strong bookings there in quarter. The revenue performance has been negative year-over-year growth for the last couple of quarters. I wanted to get a sense of how the bookings in the U.S. might be expected to ramp here. In other words, do you expect the revenue growth trends you've seen in the last couple of quarters in the U.S. to start to reverse here if we look out over the next several quarters based on the ramp up plans for some of the newer bookings in that region?

Thanks, Jason. First, I think in the comparison, you got to obviously adjust the U.S. revenue for the FX impact.

Yes, do you have the constant currency off hand on that?

If you could just give us a moment, Jason, as Mike is answering the other part of your question we'll pull up those numbers for you?

Sure.

So I think a couple points. One, as I said we're very very pleased that the bookings were so strong in the U.S. And I chose to highlight them to actually demonstrate the continuing strength of our offerings in the U.S. regardless of economic conditions. The second thing is those bookings as I mentioned about a third of them were with new clients and new business. The fourth thing I mentioned, the EPA which is an example of something we actually won a year ago but weren't able to start work. In that case, we expect working through the task orders now we expect to start to work in May, June, so that would be an example there, Jason, where we would actually start ramping up revenue on a booking that we took over a year ago. So over time obviously these bookings that we announced this quarter will start to show up in revenue and as I said, we're still remain very confident in the U.S. operations in terms of growing and demonstrating year-over-year growth there, once you adjust for the FX.

And Jason in regards to the actual growth factors themselves, the growth over previous year was 2.3% in constant currency and the growth over the previous quarter was 5.4%.

Okay, 2.3% year-over-year positive?

That's correct. And from the previous quarter was 5.4% positive.

Okay, that's helpful. And Dave, maybe, can you give us any sense on SG&A spending trends in the business? I know you guys generally don't break out traditional kind of cost of services versus SG&A, but obviously given the margin performance, to help us get a better sense of the sources of the margin performance. Can you help us out there in terms of any color on either further opportunities for cost cutting or what's really been the biggest driver over the last year or so?

I think the biggest driver partially is if you go back to what our operating model is. When the owners are looking at where they're spending the money they really focus in hard to really understand if it's a good dollar being spent or if the dollar is not getting a good yield. So year-over-year what we see within our various metrics is that the discretionary spending is continuing to work its way down. We have folks really looking in a couple of different fronts trying to train the folks a little better so we can get better mileage out of the resources we do have. We're also looking at there's tool improvements that are going in place, things around organization, like shared service activities where we're looking to try to leverage from a back office perspective. So there are a number of initiatives that we're just continuing to try to gradually improve margins as we go forward here.

So you you would characterize most of the year-over-year margin improvement, operating margin improvement due to better SG&A management as opposed to gross margin improvement?

No, I wouldn't. There's still a lot of activity that Mike and the operating teams are focused on when it comes to the execution of the projects themselves and making sure we don't have bad projects, making sure if there is a project and it's starting to get into trouble that we bring the power of CGI to the project and get it corrected as quickly as we can.

Okay, and just last question on the balance sheet. Obviously you've been managing down the net debt-to-cap ratio here. Down to 15% and it's been quite awhile since you've done a material acquisition, valuations have moderated a bit in recent months. Is this a function of not being able to find the right fit, you guys have always been very patient and disciplined but how do you see the near term pipeline from an M&A perspective?

Well again, Jason, I think you you hit the nail on the head. Financially, we're well positioned to do an acquisition but again we're being very patient. Valuations have come down as I've said before, we're actually looking for companies that would be very synergetic to our offering and to help us continue to strengthen our position in geographies, particularly the U.S. and Europe. The funnel, we continue to qualify the funnel of targets but we're going to remain patient here until we find the right target at the right price and the right time. I would say the right time is getting there, now we're working on the other two variables.

Okay. Thanks, guys.

Thanks, Jason.

Thank you. The next question is from Scott Penner from TD Newcrest. Please go ahead.

Thanks, just Mike, I wanted to back up one level and just the dichotomy about the bookings versus the constant currency growth that you mentioned. I mean bookings being up 36% through the first six months and the organic growth hovering around 5 to 6%. When -- do a lot -- do some of the ratios first of all in the U.S. of both the one-third to new business, does that hold on an overall basis and really, when should we see some of that new business really filter in and start to jack up the organic growth rate?

Well again, Scott, I think you dissect and I use the EPA as an example so there's a booking of $83 million but it's spread over 10 years, so if you look at that on an average that's $8.3 million a year in terms of the organic growth against an $83 million booking, but again, as you know our strategy is to drive for a long term recurring revenue which in times of uncertain economic environment liked today, always sets CGI I think in a better defensive position than most of our competitors. So our bookings by design have also a long term aspect as part of our strategy to drive long term recurring revenue engagements. So that's something you have to factor into our bookings.

We're also extending contracts, going out another 10 years, pushing some of our contracts now out to the year 2020, so we take a very long term view. Having said that, we're continuing to increase our outsourcing bookings in the U.S., about 43% of the total bookings in the U.S. actually have an aspect of outsourcing or long term revenue to it. So that's kind of how you got to look at the bookings to the revenue. It will eventually work its way through but in some cases, it's over a longer period of time. Frankly, I see that as good news in that if somebody is announcing huge bookings and you see it all the next quarter in the revenue, it tells you that it's very short-term bookings and therefore, as fast as it goes up, it can also go down in terms of the impact on the revenue.

Okay. What about your view on your international platform outside of the U.S.? Other of your peers have said that that seems to be a pretty, an area of higher growth in the international markets. Do you have a platform there that you can grow substantially or do you need to acquire a stronger brand like you did in the U.S?

Well again, I think if you look outside of North America, probably what about 8 to 10% of our revenue is outside North America, it's a massive market, it's a very important market to us. If I take it at two levels, we continue to drive decent organic growth there with some good margins but we're certainly undersized for the size of that market and we certainly have identified Europe as a target for an acquisition so when I talk about the buy side of our strategy, the areas that we're targeting are Europe and the U.S. Having said that, this Company from its early days has been growing organically 50% of our growth over our history has come from organic opportunities and in Europe, we have shown year-over-year growth there in constant currency of about 7.8% and to the previous quarter about 4.3% so it's running a little bit higher than the Company average but and when I look at the funnel there we see some good opportunities, not only in the SI&C side or the solutions side but we also see some outsourcing opportunities in Europe.

Great. Thanks for your answers.

Thanks.

Thank you. Your next question is from Richard Tse from National Bank Financial. Please go ahead.

Hi. Just a question on your funnel you suggested that you're seeing the funnel growing in size and sort of accelerating or getting close to conversion. Like can you give us a sense on a year-over-year basis as to the size of growth and sort of the relative growth in that funnel and where you are in terms of you're at the beginning end or the middle with respect to most of your contracts there?

Well, again, I don't really share the funnel size for a couple of reasons. Given the outsourcing it's very lumpy so that the size of the funnel, Richard, can go up and then if an outsourcing opportunity drops out, it can change the funnel so it's not that relevant of a measure given the amount of outsourcing that we pursue. Having said that I would say that what you're seeing and I've been telegraphing that for awhile in the sense that we've been moving items through the funnel and therefore you're seeing it in the bookings, the bookings now we have two quarters where it's in excess of $1 billion. That tells you that the opportunities are starting to move through the funnel.

Having said that and I should always remind you, that given a significant amount of our business is in the government, of course the speed of that funnel can be lumpy. Government could take quite a while to move something through the funnel, on the other hand, it can come in bunches and move through rather rapidly. But again, I think the basic message here, which we've been working on is that our full offering strategy of getting out there and talking to our clients, exposing them to the full capabilities of CGI, I think our timing on initiating that initiative was good and it's paying off. I mean as I mentioned a third of the bookings in the U.S. last quarter were with new clients, new business, and we had a mix there between government, commercial, and in the commercial we even had telcom, we had financial services, insurance, bank, so we had a nice mix of clients across the various verticals.

Okay. With respect to your headcount in previous quarters, you've suggested that you're looking to ramp your headcount. What's your view on that now, and where does your headcount currently stand at?

Our headcount is approximately 27,000, so that's I think pretty well in line with the continuing ramp up that we're seeing here in terms of ensuring we've got enough professionals in the right markets.

And your plans going forward? So it doesn't sound like you're hire you're hiring?

No, no, we continue to hire. I mean one of the things I pointed out is our attrition rates are well under control which I think is an interesting metric to one of the earlier questions on margins, as an Operator, I keep trying to reinforce the point that if you're churning 25% of your staff, that's a cost input to your business model, in our case, our attrition rates are significantly lower than that and as I mentioned in India, I would surmise that we must be the lowest or one of the lowest in terms of turnover rates in India and again, that ensures I don't need to hire as much to replace. I'm hiring primarily for growth and for targeted skills. So we're going to continue along that the path but when we look ahead, we're still actively hiring in our major centers, including in many of our global delivery sites.

Okay, thank you.

Thanks, Richard.

Thank you. The next question is from Paul Steep from Scotia Capital. Please go ahead.

Good morning. Mike, can you maybe talk a little bit just about the SI&C market and we seem to be holding up better in this recession than we were the last time out. What you guys have done that's different this time and maybe how you've improved the process to better protect the business against the downturn that we're seeing in the economy in North America.

Yes, I think that's a good question, Paul, and again I'd tell you that having lived through the last recession one of the big differences is this time we're going into it with the capabilities of the solution set that we acquired through the AMS acquisition, and it's actually added another layer, if you will, to protect us from getting hit as hard as some of the other competitors and has also on a more positive note put us in a better position to help some of our clients and we have gone out to the marketplace with specific solutions focusing more on areas where clients need help during tougher economic times. So we have our outsourcing model that's very well attuned to clients now that are looking to strengthen their bottom line. We have solutions targeted at managing credit better for telcom, for government, for financial institutions, we have options for clients to go long term with us that gives them more immediate benefits and helps them get a more predictable cost line as well, our SI&C this time as I mentioned is also very much tied to some of the solutions that we sell so as I mentioned for every licensing dollar we now get over $7 of SI&C and we get $15 of recurring revenue.

So I think we have -- the Company has broadened its capabilities. We're even more balanced from a geographic perspective now, and of course, which I believe is a strong differentiator. We're still sitting on a recurring revenue stream as I said which is conservatively pegged at 55%. We have many clients as I mentioned that are repeatable and what I mean by that, we have clients who will only sign up for us on a 12 month basis. We don't include those in our recurring revenue but they've been signing up with us for 25 years, so they aren't essentially going anywhere. It's more of an issue on how they procure the services. When you look at a client where we've done this for 15 or 20 years, the skills and the knowledge were deeply embedded into their IT delivery infrastructure and those contracts are secure and in fact when things tighten up in some cases you actually see more work going into those vehicles as opposed to hiring internally because a lot of companies in a downturn will put hiring freezes on internally which actually pushes more work out to the supply chain of partners they have, partners like CGI.

Great. I guess the second one I had was really again for you. I know in the U.S. Federal, last I recalled it was sort of the 11% range of sales down there, but any impact in the election year at least at the federal level and then maybe a little bit on the state, it sounds like there's some budget pressure creeping back in there. How that's going?

Well, if we take the states again on a state level, candidly, I think it's much like my comments about commercial side of the business. States, when they're pushed financially, they're looking to do more with less. We have a number of solutions as you know including EVA which is a procurement capability that actually helps states procure at better pricing and broader set of solutions. We also have benefit funded initiatives, on collections where we'll generate increased revenue for states and funded out of the benefits and in quarter two alone, we had two kind of deals like that with two states that further support that direction.

On the U.S. Federal side, I have to tell you the more that we work down there you have to put it in perspective. This is a massive budget, probably running in excess of $100 billion a year in IT and it will continue to run candidly independent I think of political changes. Against that though, as I say, I think we're very well positioned in the Federal space. I think the win we had at EPA even after a year of protest, our award held up. It was a very competitive award. We took on the biggest competitors in that award.

On the Alliant, which is the U.S. Federal Government general vehicle to procure, it's a $50 billion vehicle, we protested that and the judge has now opened that back up, citing that there were certainly some concerns on how that was done so we're well positioned there to get another good look at that vehicle. That would be a new vehicle for us that would open up many more opportunities. So we're feeling good about our position in government, not only in the U.S. but again I would remind you that we do a lot of government business in Canada and are avery big player in player in Canada and have many long term relationships and contracts with both the Federal and provincial levels here in Canada as well.

Great. Just two quick questions for David and then that's it for me. Any update on sort of the long term debt target some you continue to sort of fit well below the 18% we've talked about for awhile. Any thoughts on updating that and secondly if you could just throw out maybe later in the call what the U.S. bookings figure was a year ago it would just be helpful to see that growth. Thanks.

Well, in regards to the long term debt target, being just slightly over 15%, maybe we are just a little bit lower than what we had originally targeted for but again we're just looking at the acquisition opportunities that are in front of us. If we're not using the cash for that particular growth, we're looking at share buybacks, we're looking at the investments in our own plant and equipment with our CapEx but our CapEx is running relatively constant at about 3.4 to maybe 3.6% so we're not seeing big spike there so once we go through that I think we're just looking at what is the next place to put the cash in. At this stage we're continuing to look at the acquisitions and looking to see if there are some good opportunities out there and see if we can can pull something together.

Great. Thanks.

Thanks, Paul.

Thank you. The next question is from David Wright from BMO Capital Markets.

Thank you very much, good morning.

Hi, David.

I wondered if you have a means of measuring your potential growth versus your actual growth and so that with the slowdown in the economy, you're posting some growth which is encouraging but I wonder if there's a way to look at your team and how you measure the potential growth and are you satisfied with the growth you're currently getting?

Well, again, am I satisfied with the growth we're currently getting? As I've said before, David, the way we're trying to manage this Company is to find the right balance between top line growth and bottom line performance. So, as I mentioned I'm pleased that in the last six quarters we've shown year-over-year growth and against that six quarters, three of them have been at margins, net margins of seven or greater which is the best in the industry so when I look at the combination of top line and bottom line growth I think we're performing pretty well.

I do see additional opportunities to profitably grow the top line. I think the bookings are a lead indicator of that and I think we're well positioned to continue to profitably grow the Company over the next period of time. And again, we don't give guidance but we've given direction there over the next three to five years that we see market conditions all being relevant that we can continue to ramp up to growth with a combination of organic and acquisition. So we're still on that plan and feel well positioned to execute against that.

Okay, thank you. I'm wondering, a question for David, about the interest charges. I was thinking with interest rates coming down and your debt paying off that the interest charges would be lower than what they are. Is there something going on there I don't know about?

No. They should be coming down. I know if you're -- depending on which quarter you're looking at?

Just the last three quarters and the interest expenses have been rising.

Yes. In a couple of the quarters there had been a couple of other items related to R&D, et cetera that when it came to the interest income, they were offsetting the interest expense items so as an example, we had a payment that related to R&D claims that we had made for three and four years ago. When that finally was assessed and the check was cut, it came with about a million and a bit of interest income on it , so that would actually reduce the net amount of interest you would see on the P&L so those are the types of items that are flowing through and impacting that number.

Okay. So for modeling purposes going forward, again interest rates are coming down and your debt balances are falling. Yet the last three quarters your interest expenses have been rising, so should I be modeling rising expenses for the next couple of quarters or should I have the expectation that interest expenses will fall over time?

It should be falling over time. I think that would make the most sense.

Yes.

We'll take a look at it. It might just be in the rounding too. I think your concept is right, David. If the deck were to stay constant with falling interest rates, the interest charges should come down.

So I'm wondering why it's going up.

Yes.

Okay, I guess we'll talk off line.

Yes.

Third question is what can you tell us for expectations about the BCE account? As much as you can. Obviously, they're hoping to be private and they could make changes to their spending, so just wondering what your expectations are there?

Oh, yes, I reiterate the facts we have a contract that goes out to 2016, we have a minimum in the calendar year this year of 425 million BCE and Bell have met those commitments since we signed the contract. I would expect that to continue. The Company itself obviously, our head is down trying to push through their engagement. We continue to have very good relationships there, develop -- delivering good quality and remain available to participate in any initiatives they want to implement, post-change of ownership to meet their business goals.

There haven't really been any discussions at this point about new projects to take on?

Well, again, we constantly have in front of all our clients including BCE initiatives and projects that will help them meet their goals, and those projects are continually being reviewed over there, but again, I would reiterate that the new owners are not in place, so we're dealing with the current ownership structure and the current leadership there, but again, I've had meetings and have meetings on an ongoing basis with the CEO, the Chief Operating Officer and CFO, CIO, so we continue to keep close relationships with what is a a very good client.

Very good. Thank you very much.

Thanks, David.

Sorry David just in regards to the question you're asking for the latest quarter, there is a $1.1 million impact that came through from a Rabbi trust. The offset to that amount ends up in the cost of sales so there is no net P&L impact and it happened to be part of a compensation program that had come forward from the AMS acquisition, so there is no, sorry it was from the UAB acquisition, so it was not something that's actually impacting our P&L performance itself. It's just the line items that has to hit within the P&L statement.

Okay, thank you very much.

Thanks, David.

Thank you. The next question is from Richard Tse from National Bank Financial. Please go ahead.

Hi, just wanted to follow-up on a question on bookings here. So you've had two consecutive quarters now where they've been over $1 billion and it's sort of a pretty meaningful ramp versus last year, given you had the second consecutive quarter. Should we be looking at bookings as staying around this level now given that it seems that you're sort of executing on this plan to leverage the U.S. base a bit more?

I think in fairness, Richard, what I've said is that on a trailing 12 month basis, we realize that in order to continue to build our backlog and to increase our recurring revenue, we have to drive a book-to-bill of 1 or greater over a 12 month period. Bookings are lumpy. I mean if you looked at the bookings in the first quarter in the U.S., they were much different than the bookings in the second quarter in the U.S. That's why we look at that indicator on a trailing 12 month. Also, there's some degree as I mentioned, there are some elements of seasonality also to the bookings. You could be in various budget cycles in governments where they close out some items at the end of one budget cycle before the opening of another. So they vary. That's why I look at that indicator on a trailing 12 months. Having said that, I can assure you we've got the heat on here to continue to drive bookings and ultimately profitable revenue in every quarter.

Okay, thanks.

Thanks, Richard.

Thank you. The next question is from Naser Iqbal from Salman Partners. Please go ahead.

Congratulations on the quarter and thanks for taking my call. I just have a couple of quick questions. On your potential debt capacity do you have the total of the $1.5 billion or is it slightly less than that some

There's also, there's a there $250 million accordion that we have, so under the actual credit facility we could go up to 1.75 when we do a total draw on it.

And that full amount would be available to you?

Yes.

Okay. Just another question about before, but, just in terms of the Indian operation, your competitors are if anything, increasing their presence in that location. I mean you've been hovering at about this 10% level. Do you think given the benefits of a Canadian dollar, strong Canadian dollar that you'd be moving more of that, your operations towards India ?

Well, again, I think we've been fairly consistent on that again. We grow out our delivery centers consistent with the demands of our clients and the profile of the clients we have, they -- we're meeting their needs and if their needs start to move where we need to continue to ramp up India more, we will do that, as I say we've opened a new facility there. We have room for growth there. We've got our turnover rate in great shape. The economics of our Indian operation are very solid, stable. So we're well positioned to continue to expand consistent with the requirements and needs of our clients.

Right. Okay. And just the final question, would the effects of the Canadian dollar, would that have had any impact on your bookings and if so, how much?

It's a little hard to say because the bookings are just, are items that are coming in the door today, so the impact of FX are usually items that were booked a year ago and then get retranslated as we go through time. Now, if we were to go back though in history and take these same bookings that were booked today and have booked them a year ago there's about a 15% change that we would have seen in that number, they would have been higher by 15%.

Right, okay, no, I appreciate that. Thanks very much.

All right, thanks for your comments.

Thanks, Naser.

Just in regards to the U.S. bookings, there was a question that Paul Steep had asked a little bit earlier. The comparable number from the 584 this year for the U.S. bookings, the number a year ago was 357 so it's an increase of 64% year-over-year.

Next question?

Thank you. The next question is from Paul Lechem from CIBC World Markets.

Thank you, good morning. In terms of the foreign exchange impact, just one more take on this. What's the impact on the backlog because in the last 12 months as you mentioned the book-to-bill has been over 1 but the backlog is actually down so can you talk about what the impact from the foreign exchange on the backlog was and how much of the backlog is in the U.S?

We're just trying to dig that up, Paul. There's no doubt that FX does have an impact obviously in the bookings and the backlog we have at the U.S.

The bookings, the impact this quarter was $15 million but you have to recall that that backlog is revalued every quarter, so last quarter, the number I'm just going from memory now , I think it was like 40 million or $50 million that we just as impact last quarter going back to Q1 so just a currency impact at the end of Q1 to Q2 caused it to be decreased by another $15 million.

So you don't have a figure if we did it on a year-over-year comparison basis?

I don't have that with me right now, sorry.

Do you have any sense of how much the backlog is in U.S. dollars or in the U.S?

I do have that but I don't have it with me.

Okay, I'll move on. Just one other question on the bookings side. The U.S. obviously strong this quarter. What about Canada? We haven't talked much about that. Is this a factor of the BCE is such a large component of your Canadian revenue?

I think Paul, last quarter, Canada was very strong. As again, I think you have to look at bookings just the way I explained. They're lumpy. They change quarter to quarter, so no, I wouldn't read a lot into that. Again in Canada, I reiterate I think we're very well positioned in Canada.

Do you think you can drive a book-to-bill ratio of 1 in both the U.S. and Canada?

Canada as you mentioned is a big hurdle given the amount of our revenue that is already recurring and tied up with outsourcing deals. So that does pose a good challenge but again, I'm more committed on doing it on a Company basis but I do look at each geography as being able to over time get above 1. Including Canada.

Okay, and on a trailing 12 month basis would Canada be over 1 as well or would it--?

I don't have that but again, I would say in Canada, it may take a longer period than an average 12 months depending on where we are on renewing in fact some of those long term outsourcing contracts because in those cases, so much of our Canadian revenue is recurring that in order to get it over 1, you've got to sell significant amount in a fixed period and part of that has to be renewing these long term contracts, and you've seen some of that. We have been announcing periodically extensions to contracts that we have all of Canada pushing them back out to a full 10 years and part of that as that works through the Canadian bookings should also run at greater than 1.

Okay. Last question, on the acquisition front. You've always mentioned you're looking for synergistic acquisitions, I'm just wondering especially in the U.S., for instance, what does that mean? Does it mean different geographies that you're in now? Can you talk about where you're weak, where you're strong, where you might want to full in, different industries?

Well, again, I think obviously, whatever we do as you know from a financial standpoint, has to be accretive, so we have that as a kind of a premier overriding consideration. Having said that in the U.S., given our footprint there, we would love to strengthen our position in government. Certainly, the U.S. government as I mentioned we got a CGI Federal set up. We're very competitive there. It's a big market, $100 billion, something there would be very accretive and very interesting, very synergetic, also, in the commercial side, in the U.S. something even serving the financial vertical wouldn't bother me at all. I mean, I believe the long term prospects of serving the financial vertical is absolutely where we would want to be, so something that's serving insurance companies or financial institutions, wealth management are all very interesting areas. Geographically, we're a little heavier in the Eastern part of the U.S. than the West. That -- something came up that would fill out our footprint a little better in the West, that would be interesting, but having said that, we're interested in really increasing our capability and footprint in the U.S. and in Europe.

Excellent. Thank you very much.

Thanks, Paul. We have time for one more question.

Thank you the next question is from Scott Penner from TD Newcrest. Please go ahead.

Oh, thanks. Nice easy one here. David, just if you could remind me how many shares are remaining on your normal course issuer bid and when that expires?

The total program is about $28.5 million and we're at about 25% of our limit right now. So we have about 75% left to go.

And it is renewed in February each year at our AGM, Scott.

Okay. And what should we expect for the tax rate? It looks like it's been running a little bit under sort of the 33% range. What would you look for going forward?

It normally runs around the given guidance in the 32, 34%, again as you can imagine with an organization that has many different tax jurisdictions there's lots of assessments that are out there, there's lots of things that cleared up, so if we do have some that come in that go our way, then we might be able to reduce the rate a little bit. If they happen to go the other way it might come up but I think if you continue for your modeling purposes in that 32, 34% it would be a pretty safe number.

Okay, great. Thank you.

Thank you, Scott. And thank you, all for joining us this morning and we'll see you on July 29, for our third quarter results for 2008.

Thank you.

Thank you. The conference has now ended. Please disconnect your lines at this time. We thank you for your participation.