CGI Inc (GIB) 2011 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the CGI First Quarter 2011 Results Conference Call. I would now like to turn the meeting over to Mr. Lorne Gorber, Senior Vice President, Global Communications and Investor Relations. Please go ahead, Mr. Gorber.

Thank you, Jenny, and good morning. With me to discuss CGI's first quarter fiscal 2011 results 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 9.30 AM on Wednesday, January 26, 2011. Supplemental slides, as well as the press release we issued earlier this morning, are available for download, along with our Q1 MD&A, financial statements and accompanying notes, all of which 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 statement, whether as a result of new information, future events, or otherwise. The complete Safe Harbor statement is available on both our MD&A and press release, as well as on cgi.com. We encourage our investors to read it in it's entirety. 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 of these non-GAAP performance indicators used in our reporting. All of 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 financial results for the first quarter, and then he'll pass it over to Mike who will discuss a few strategic and market highlights. Before turning the call over, just a reminder that our annual meeting is scheduled for 11.00 AM this morning, so our comments will be brief to leave as much time as possible for Q&A. But we'll have to limit the call to about 45 minutes. We do hope you can join us either in person or via the web for our AGM, and as usual, we'll always be available for follow-ups later in the day. David?

Thank you, Lorne, and good morning. I'm pleased to share the financial details of a good quarter to begin our fiscal 2011. In the first quarter, revenue was CAD1.12 billion, an increase of 22.7%, or CAD207.7 million, compared with the same period last year. Revenue on a constant currency basis was up 25.9% after adjusting for our foreign exchange fluctuations which negatively impacted revenue in the quarter by CAD29.4 million, or 3.2%, compared to the same period last year. Adjusted EBIT was CAD158.5 million, up 32.7% compared with Q1 of last year, and our EBIT margin strengthened to 14.1% this year from 13.1% in the first quarter of 2010.

Net earnings in Q1 2011, were CAD126.6 million, or 13.8% better than the CAD111.2 million reported in Q1 of 2010. Net earnings margin for the first three months of fiscal 2011 remained strong at 11.3%. Diluted earnings per share were CAD0.45 compared with CAD0.37 in the same period last year, an improvement of 21.6%. Included in these results were favorable income tax adjustments totaling CAD18.7 million. We also had similar tax adjustments which positively impacted last year's Q1 results by CAD30.5 million.

On a comparable basis, when excluding the tax adjustments from both periods, net earnings in Q1 2011 were CAD109.4 million, or 9.8% of revenue, compared with CAD80.7 million, or 8.8% of revenue, in the same period last year. Diluted earnings per share would have been CAD0.39, up 44.4% compared with CAD0.27 in the first quarter of 2010. We generated CAD196.6 million of cash flows from our operations before taking into account the changes in our working capital. This was up CAD55.6 million, or 39.4%, from Q1 of last year, as well as being up CAD16 million sequentially from last quarter. When we fold in the changes in the working capital, our cash flow from operating activities was CAD95.2 million.

I would like to remind you that on occasion, due to the fluctuations of certain working capital items, this amount can vary from quarter to quarter. The main items composing the fluctuations of the working capital are related to the management of our accounts receivables and working process and the timing of tax installments, vendor payments, and payroll-related disbursements.

In regards to the management of our accounts receivables and work in process, I am pleased that our DSO for the end of the quarter was 42 days, three days below our target. However, it was 12 days higher than the level achieved a year ago, thus accounting for the majority of the downdraft in the cash flow from operating activities experienced this quarter. I'd like to remind you that this is also the first time that full quarter of Stanley's operations have been included in our results, and the business impact can be seen across many metrics. In year-over-year comparisons, the impact is evident not only in revenue, but in amortization, cost of services, and probability of our US operations, as well as DSO, interest expense, and the debt levels.

Total long-term debt was down CAD63 million from the end of Q4. Net debt was CAD1 billion at the end of Q1, representing a net debt to capitalization ratio of 30.6%. In the quarter, we continued buying back our stock, acquiring 5 million shares of CGI for CAD81 million. As of last Friday, we had acquired 92% of the maximum allowed under the current program. At the end of Q1, our return on equity was 17.2%, while our return on invested capital had reached 15.7%. A final reminder that following an organization adjustment completed in fiscal 2010, we are now reporting a new horizontal segment and breaking out our global infrastructure results from all the geographies, the biggest impact of which can be seen in the Canadian results. Now, I'll turn the call over to Mike.

Thank you, David, and good morning, everyone. We are off to a strong start, achieving very good results in our first quarter. In the interest of time, and to allow for more questions, I'm going to focus my comments on three areas -- revenue, margin, and our market outlook. We grew revenue by 26% at constant currency, led by strong growth in the US and Europe. While Canada remained essentially flat, we did sign some significant wins during the quarter and continue to see good growth opportunities for the balance of the year.

This is the first quarter in our Company's history that the US and European revenue combined was more than 50% as we continued to shift and diversify our revenue in line with our strategic plan. Quarterly global bookings of CAD1.2 billion indicate a strong start to fiscal 2011. Given your interest in the recent integration of Stanley and the associated US Federal Government business, I will share the -- I shared the book-to-bill last quarter. Once again, we achieved a book-to-bill in excess of 130% at CGI Federal. These wins were well-balanced between civilian and defense agencies. We remain confident that the integration has been effective and that transition with our clients has been seamless.

On a go-forward basis, it is not my intent to segment the bookings for CGI Federal on a regular basis. Globally, 87% of our bookings came from our two largest verticals -- government and healthcare, as well as financial services. Over the last 12 months, we have booked CAD4.2 billion in new business, reaching a book-to-bill ratio of 108% of revenue. Our margins continue to strengthen this quarter, fueled by our ongoing focus on increasing sales of our IP and software-based solutions. In addition, we continued to deliver our projects on time and on budget, and in the process, have continued to reduce margin leakage, thus adding additional dollars to our bottom line. As the market recovery continues to strengthen, we are experiencing increased utilization rates and the additional SI&C and IP-related projects will continue to support our EPS growth.

As David mentioned in his remarks, this is the first quarter where we have segmented our global infrastructure business from our major geographies. The strength in the global infrastructure margins reflect an ongoing, disciplined focus by our management team to deliver service excellence at competitive prices, while ensuring sufficient margins to continue to reinvest in this capital-intensive business. This is another area of our business which is best measured on a trailing 12-month basis because of seasonality, as well as a level of fixed price contracts within the segment.

Canadian EBIT of 21%, excluding the global infrastructure business, reflects the deep high-quality mix of our Canadian franchise, which is primarily composed of long-term IT and business process outsourcing, IP-based solutions, recurring utility services, and a growing funnel of SI&C work. US EBIT margins were also strong this quarter, especially when adjusted for about a 2% impact of intangibles associated with acquisitions, including our most recent, Stanley.

As I mentioned previously, we continue to execute against numerous margin levers, which, over time, gradually strengthen our earnings per share performance. On the markets, we continue to see encouraging signs that economic recovery is underway in most of our key markets. Client activity is growing, as evidenced by our increased pipeline of new opportunities and the consistent strength of our bookings. Government and financial verticals have continued to invest throughout the economic cycle and we do expect this to continue. We also anticipate increased opportunities in all our verticals, including healthcare, which is a growing market and one in which we are already a significant player. For example, our healthcare services and solutions impact more than 1,000 healthcare organizations, 200,000 hospital users and 45 million citizens.

The demand for managed services in both government and commercial sectors is also increasing. Business continues to push hard for productivity improvements and cost advantages to compete on the global scale. Looking ahead, we have CAD13.1 billion in committed long-term orders, an increase of almost CAD2 billion from last year. This level of recurring and predictable revenue is particularly attractive for investors and allows CGI to stay focused on the execution of our long-term strategic objectives.

Including our line of credit in place through fiscal 2012, we continue to have more than CAD700 million in available flexibility to make the most accretive investments for our shareholders. Consistent with these investment priorities and our belief that CGI remains a very good investment, the Board of Directors approved this morning the extension of our normal course issuer bid. This will give us the flexibility to purchase approximately 23 million shares over the next 12 months. At today's price, this would represent an investment of CAD415 million.

In summary, we continue adhering to the fundamentals of running a sound business and remain focused on executing our long-term strategic plan and our fiscal 2011 business plan. I hope you'll be able to join us at the AGM at 11 where we'll discuss our outlook in greater depth. Thank you for your interest and confidence in CGI. Let's go to the questions, Lorne.

Just a reminder that a replay of the call will be available either via our website or by dialing 1-800-408-3053 and using the passcode 4151122 until February 9. As well, a podcast will be available for download at either cgi.com or through iTunes within a few hours. Follow-up questions can, of course, be directed to me at 514-841-3355. Jenny, if we could poll for questions from the investment community.

Thank you.(Operator Instructions)Our first question is from Scott Penner from TD Newcrest. Please go ahead.

Mike, quickly on the organic growth side or growth side; have you started to see the pretty sizable amount of new business bookings over the past couple of years? Are you really seeing these impact now the year-over-year growth stats?

Well, again, we're starting to see it gradually come on, not only the bookings, but as I mentioned, Scott, we're seeing a tick-up in the systems integration consulting business, which to me, is a pretty good lead indicator. I'm not only seeing the funnel in that business grow, but I'm also seeing the size of the SI&C projects growing, which is a good sign, of course, for both top line and bottom line.

And just reading through the MD&A, David, in the US Division, you mentioned a license sale. Was that 100% margin?

It's Mike. Normally, depending on what kind of investments we've made in those, the majority of that does drop to the bottom line. Having said that, and again, throughout the various conference calls that we've covered, as you know, Scott, in order to improve the mix of and the quality of revenue, we continue to push hard in increasing the sales of our IP-based solution. That would be one example, and I think you'll see more of that as that added focus takes shift. And we're going to do that, not only directly with our own IP, but as part of our partnership strategy, we want to work with other IP-based companies who are actually looking for a services arm. So when I add that IP license mix to my services level, it should be accretive to our margins.

Thanks for that. Lastly, David, the tax rate, I think, adjusted to 29% this quarter. Last quarter, if I'm not mistaken, you said the range of 30% to 32% about. Is that still a good modeling range?

It still is, yes.

Thank you. The following question is from Tom Liston from Versant Partners. Please go ahead.

Just on those comments, on the SI&C, I've seen it with other companies as well; does it make you think about expanding a little more aggressively into other verticals? You've obviously done a good job at being in verticals that have survived the recession quite nicely, and certainly there's growth areas within those verticals even as things pick up. But are you starting to think more about investing in some of the other verticals, and what's your bias, organic-type investment versus acquired?

Well, again, Tom, as a general strategy, we are increasing our bidding rate. So as I use the term -- bid more to win more -- I think what we wanted to do is ensure that the proposal centers and the machine will actually catch the uptick in the market by actually bidding more business, because I think it'll help us capture some of that growth. I did call out the healthcare a little bit more this time, because we are winning and seeing more opportunities in healthcare. And we've traditionally bundled that with government, but it's taking on a presence and a growth rate that might be worth us calling out a little bit more. But certainly an area where we intend to invest more, and we believe the growth rate there will be higher than the other sectors on an organic basis going forward.

Telecom's coming back a little, but again, our major focus would continue to see, in the short run here, government, healthcare, and the financial vertical as the three we see continuing strength and opportunities.

So related, obviously the Societe Generale's agreement from a few weeks ago was interesting. Was that part of it, too, where you say -- okay, look, we have critical mass in the US, Europe's a little more solid, and let's be more strategic about some of the bigger accounts so they know that we can deliver on both sides of the ocean -- that sort of thing? Is that what we'll see more as Donna heads up those geographies?

Well, as I mentioned, our strategy in Europe is, in fact, to focus on a number of large enterprises there, and make sure that we qualify on their vendor of record, and we have been. We've been able to make our case very compellingly with these large corporations that CGI offers something different and unique, including the ability to deliver our projects on time and on budget, which is absolutely essential to companies regardless of where they are in the world.

In the case of Societe Generale though, it's also back to a strategy that we're ramping up, which is to be able to make the case that for French corporations, that Quebec and French Canada is a very legitimate alternative for them to consider for global delivery. If you look at Tunisia as one of their markets, Morocco, Vietnam, I think we can make the case and are making the case and did make the case in the Societe Generale opportunity that Quebec is a legitimate and a competitive place to consider for global delivery.

Thank you. The following question is from Richard Tse from Cormark Securities. Please go ahead.

Congrats on the good quarter here. You guys have been very strong certainly on the federal government side. What's the status of state and local? And is that an opportunity that could really be a kicker here this year for you guys?

That's a good question. Actually, I would say that we're growing a little more optimistic on state and local. We've stayed in that game right through the downturn. And again, our solutions, I think we coined them solutions for tough times, are very applicable there, especially as state and local governments continue to try and work through very significant deficit issues.

So again, we're focusing on being the solution to those challenges. So things like recovering tax recovery, benefit-funded deals, looking at replacing our advantage systems in there, either on a new install or into a long-term managed services contract; these are all the type of things that we're focusing on. Child welfare is another example. So, yes, I think from our perspective, the state and local will have bottomed out, and that we'll see more opportunities over the next 12 months or so in that area, Richard.

Okay, great. And just one final question. Don't know if you can give this, but can you give us, or potentially give us your pipeline relative to what it was last year in terms of a percentage increase, or is that something you're not prepared to talk about?

Yes. I don't really release that other than to say that both our SI&C and outsourcing pipeline has expanded from the same period last year and quarter-to-quarter. And I'm noticing it -- as I say, the lead indicator I'm looking at is the SI&C one. The outsourcing pipeline, as you know, takes a while to move through because of the size of these things. But the SI&C to me in the short run is a good lead indicator, and also helps with utilization rates. So it's very much a two-for for us in terms of the top line and bottom line.

Thank you. The following question is from Ralph Garcea from Northland Capital Partners. Please go ahead.

Good morning, gentlemen.

Hi, Ralph.

Just on the health of the SI&C business, are a lot of those contracts precursors to outsourcing deals? And what sort of conversion rates do you have? You've done a 12-month project for a company and then you end up converting that into a three- or five-year deal.

Yes, our strategy on that has a number of dimensions, Ralph. One we're looking at is also -- of course, our preference is the full outsourcing deal. So, as you mentioned, sometimes you build a relationship with a client by delivering your service -- your SI&C projects on time and on budget, and then you evolve that to a broader full outsourcing.

However, in more cases, we're also seeing clients now looking at more vertical outsourcing, or are really down to an application. So what we try to do in some of these cases is stand up an application. It could be a banking application, and then evolve it into an ASP service. So a utility service, and then add on other clients. Another area would be, when we look at the cloud, cloud computing could also be an area where we're able to attract more targeted outsourcing opportunities. Hopefully on a path to a larger full end and outsourcing deal, because this is where we believe we can bring the greatest value to our clients and also to our shareholders.

And then, as you evolve these solutions and get the increased business, what sort of capacity do you have in your data center network from a CapEx perspective to deliver these services?

Yes. That's a good question. And again, maybe a couple of comments. We've certainly invested significant cash in our data center infrastructure over the last 12 to 18 months. But by now, combining that vertical or that operation on a global basis, Ralph, we've, in fact, been able to manage our capacity instead of country by country, on a global basis, which gives us more flexibility for growth within our existing capital expenditures.

As well, the footprints of the technology is actually getting smaller. So in a number of these centers, we're actually reclaiming capacity, and just investing primarily on the environmentals to make sure that we have the cooling and those type of things necessary for the load. So we're not capacity-limited here in our data centers, and I'm not looking to make a major investment in our existing group. Having said that, I would look at acquiring a data center in some geographies, ideally with a deal, so that I have a revenue stream and not in the situation where I've bought capacity that's underutilized.

And just lastly, is the healthcare business greater than 10%? And will you split that out as a separate line item going forward?

It's not greater than 10%. I'm looking at whether I would split it out. It's a bit complicated because in Canada, there's an element that's very much linked to government. In the US, we have a bit of a mix. So, if I look at payers versus providers, you get a different split, Ralph. So, we're looking at that. I would say, and you'll see it in our announcements, you're seeing more announcements coming out in that area, whether it's Medicaid or Medicare or disease management. We're certainly seeing more opportunities in the healthcare space, and this is an area where we have a very good team on a global basis, and we expect to win more business in there. But we'll take a look at that, at whether it's a -- at what point it's a tipping point to break it out.

Thank you. The following question is from Steven Li from Raymond James. Please go ahead.

Thank you. Have a few questions. Can you remind us when we see the actual impact of the Desjardins renewal?

April, I think, it's quarter 3.

Okay. So, no impact in the March quarter, and it should drop off in the June quarter?

Well, if there's any impact, we'll be seeing it in the third quarter.

Okay, great. And also on the bad debt collection, (inaudible) reversal that helped the Canadian EBIT by CAD6.5 million. Is that correct?

Yes. We have, on an ongoing basis on a company this large, you'll have cases where there are issues. We normally provision for those. And then, so you get the negative impact in one quarter or one period, and then later on, as we recover it, you get the offset.

Okay. Great. And then, Mike, you mentioned there's a 2% impact from intangibles. Which line item did that impact?

Well, it flowed through the amortization. Usually when Mike's referring to the 2%, it is, if we were to not have any amortization for the intangible from the acquisition of AMS or Stanley, being the most recent ones. So it's trying to normalize between what the results are that we have in the US operations versus what we have in Canada.

Okay, great, thanks.

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

Good morning. I'll be fast. Just, on the new segment, just want to be clear on the definition for global infrastructure services. Is this only the Canadian operations, or is there other operations that Canada lumped in here?

It's global.

Okay, just checking. So then, secondly on that, at the margin lift, you gave Ralph the info about what you've invested heavily in. What inning are we in, Mike? Obviously, productivity never stops here, but the big gains; it's a big jump on a percentage basis, on a trailing run.

I think, Paul, again, I think I've explained a number of times, I don't think any company, including ours, are firing at 100% on any of the levers for margin expansion. But again, the ones that I'm calling out, which over time I think will be very helpful to us, is really trying to continue to drive the best optimal mix of quality revenue. And the one that I've highlighted this quarter, because you've seen some of that impact this quarter as well, is to be able to generate more IP sales, IP integrated in a solution, be it a utility service or a ASP.And then the third area is trying to take advantage of what I see as a market opportunity here, whereas the technology industry consolidates, where hardware, software, and services companies are amalgamated into one, it does create an opportunity for independence. An independent software company who needs a services arm to compete against those integrated players, we provide that opportunity. We can level the playing field for these independent software guys by actually wrapping their software into our solutions, taking their license and amortizing it over a long term deal, much like an integrated competitor would.

So, hence my focus on calling out and working with IP-based partners, and Oracle's a good example. We have others that will help us and them win more business, and will contribute to our goal of constantly improving the quality and the mix of our revenue, and this is an opportunity. The other opportunity is, as the market comes back -- we've had to manage our utilization our rates pretty tough over the last number of years, because we're not seeing a general lift or getting anything from the market. If that continues to come back, obviously utilization rates will climb and that can also help us improve our margins.

Okay. Last one, just for David. G&A in the quarter with Stanley in there, is that a normalized number, or is there still a tick-up left in Q2?

No, it's pretty much normalized, because we've gone through the purchase price acquisition equation, that's being finalized, and there was just a very small adjustment that we finalized and that was noted in the financial statements this past quarter.

Great. Thanks, guys.

Thank you. The following question is from Michael Urlocker from GMP Securities. Please go ahead.

Good morning. Mike, I wonder if you could just touch on, maybe from a management perspective as you're dealing with the federal systems and the groups that are acquired from Stanley. If we look at both the opportunity for increased profits and increased sales and the downside, the risk of somehow the ball getting dropped on a continuation of business, what are the steps or processes that you put in as a management team to ensure the ability to move upstream on profitability and to protect the downside against misfortune?

Yes, so again, in the final analysis in our business, the services business, it all comes down to people. And so we started there. We have acquired, with that acquisition, some very strong leaders. They've stayed with the Company; they have really demonstrated their commitment and leadership in helping us through what is a very rapid integration, I would tell you, for a company that large. The team, our team and the Stanley team have just done an excellent job on the integration.

The second thing is, when we look at a company like that, it had backlog of over CAD2 billion, Michael, so it gives us some runway in terms of building and reestablishing and reinforcing our positioning in that market with the client base, because there's a backlog, as I mentioned, of over CAD2 billion. The third indicator I look at is actually the contract vehicles; our ability to renew the contract vehicles and win new ones. So that's the third indicator I would look at. And against all three, I'm satisfied where we are and how we're positioned.

On top of that, as you may have seen, we were named by a local association in Washington as the contractor of the year to the US federal government, of large companies with over CAD300 million a year. Our Company, CGI Federal was called out as one of the top 10 companies to watch in Washington in terms of growth, and our leader down there was also recognized as one of the top leadership candidates in this business. So those are all pretty good, to me, sign posts. Our relationships are good with the clients.

And so on top of that, of course, we put our operating model in that we put in from the start of the business here. We always integrate and normalize, I would say, into our operations, including things like share ownership, where we encourage people to own shares in CGI and take on the ownership mentality and really see as their responsibility to identify opportunities to grow the business profitably. So all those things are in place. We have also a very strong Board down there that oversees our federal business. And we continue to attract very high-quality, experienced Board members that are really near the client base in which we operate, both on the civilian and the defense intel space.

Thank you. And if we look in terms of the ability to grow the profitability of the federal business, is moving into more prime contractor roles, is that the biggest lever available?

No, I would say the biggest lever is probably looking at things like intellectual property, again. If you look at our existing US civilian business, we have a healthy mix of intellectual property that we own. But as I said earlier, I would just say that our overall strategy, in terms of IP and IP-solutioning also applies on the partnership side to all of our verticals, including the government business. So, to the extent that you can increase the mix, the extent that you can get more managed services, be it outsourcing, vertical outsourcing, application-related outsourcing, utility, cloud, anything that has a recurring revenue stream to it where we can add multiple clients; this affords us the maximum opportunity to give our clients very competitive pricing, high-quality service, and affords us the opportunity, if we execute, better margins than the average of the corporation.

Excellent. Thank you very much.

Thank you. The following question is from Gabriel Leung from Paradigm Capital. Please go ahead.

Thanks, and good morning. Just want to revisit the EBIT margins again. Obviously a very good quarter, though there were a couple of things that helped out this specific quarter. Question is, having said this, it sounds like, based on what's in your pipeline and ongoing cost containment, would it be fair to say that the 14% or so range for EBIT is sustainable into fiscal 2011?

As I mentioned many, many times, I don't manage this corporation by quarter. What we're committed to our shareholders is to run a very solid business and create additional value over time. And I believe that there are numerous levers of which we execute probably better than most, but not perfect in terms of driving margin. So, as we continue to pull those levers over time, I believe that we can continue improving the earnings per share of our Company.

And so there are still opportunities out there. Certainly some quarters are stronger than others. Part of that, in some cases, comes from -- we make investments. If you go back and look at our MD&A over the last 12 quarters, you'll see quarters where we've made investments. We've either done some restructuring in one area or another, or we made some investments in intellectual property. And what you're seeing over time is the return on those investments coming in our margins, and ultimately into our earnings per share. So this is the goal that we have. I balance, obviously, our ability to be competitive and offer our clients the best value. But on the other hand, in our industry, if you can deliver your projects on time and on budget, and you are not taking write-downs, you can achieve both.

That's great. Maybe just one last question. Given how well the Stanley integration has progressed thus far, if another Stanley-type opportunity were to come up over the near term, would you feel comfortable moving forward? Would you want to get your net debt position a little bit lower first before pursuing something of that nature?

Well, no. I think our strategy has always been a combination of build and buy. The debt position we have, obviously, is quite manageable of a firm of this size. I think the interest rates we pay all-in are about 1% on that debt. We have a line of credit, as I mentioned, out to August 2012. We would and are continuing to look at quality acquisitions. I think what we've been able to demonstrate, hopefully investors would agree, that we do deliver these acquisitions at an accretive rate. In the Stanley case, we said it would be 15% to 20% over the first 12 to 24 months. I believe we're seeing that accretion rate already, given the speed at which we've done the integration, reduced the costs; so we're starting to see that.

So yes, the short answer is we continue to look and we remain confident that if we found the right target, at the right price, at the right time, and not one out of the three or two out of the three, we would step up again. Stanley has been an excellent acquisition, it's opened up a new vertical for us, it's well positioned us in a massive market, CAD100 billion a year, good people, and we like it and we would definitely look in that area again.

That's great. Thank you.

Thanks, Gabe. Jenny, we have time for one last question.

Certainly. The last question is from Chris Fidyk from Findlay Park. Please go ahead.

Great. Thanks for fitting me in. Just a couple quick questions about the cash flow statement, please. So, in this quarter, you paid something like [CAD40 million-ish] of debt down. Is that a pace at which we can assume you will continue paying down debt over the course of this year?

I'll take that one, David. I think, again, what we look at is prioritizing our use of cash in the most accretive way to shareholders. When you get down to debt repayment and share buy back, clearly we have some flexibility there given the cost of capital. We have some notes maturing, I guess, the 29th of this month that are a legacy of our AMS acquisition. Those notes carry a higher interest charge then our line of credit. We'll retire those notes, as one example.

But we're a little more opportunistic there. We have the flexibility. We didn't reissue our normal course or issuer bid. We do believe that has been a very accretive program for shareholders. In fact, I think I will cover off of the AGM this morning that over the last five years, the accretion rate has been about 73%. So, we consider both, but certainly the net debt to capitalization of about 30% is not something that is particularly worrisome to us.

Okay. That doesn't answer the question, unfortunately.

That's the answer to the question.

Okay. All right. And then, secondly, you explained in the note and you explained earlier, David, about the working capital and the CAD100 million drag, which was mostly a timing issue. Can you give me some sense, both as you look forward over the next year or two years, just any period of time that smoothes these timing issues?Should the working capital line be flattish, or do you think it's a slight contributor to cash if you work the DSOs down? And is the DSOs the thing that affects that the most?

DSO, tax payments also because when we're growing the amount of tax that we have to pay in the first quarter, it ends up being a little bit higher. But just on a longer-term basis, if you were to take a look at the cash being generated from operating activities before working capital, that should be a relatively good measure. And then, from a working capital perspective, there should be a little bit of growth, investment in the working capital. So, over a period of time, if we're able to balance, or manage our balance sheet well, we should be able to come back very close to those numbers.

Okay. All right, perfect. Thank you both very much.

Thanks.

Thanks, Chris, and thank you all for joining us. Once again, we hope you can join us for the AGM at 11, and feel free to call me with any follow-ups -- 514-841-3355 and we'll get back to you this afternoon. Thank you.

Thank you, gentlemen. This concludes today's conference call. Please disconnect your lines, and thank you for your participation.