CAE - Earnings call transcript Q1 2023

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Operator

Ladies and gentlemen. Welcome to the CAE First Quarter Conference Call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Mr. Andrew Arnovitz.

Mr. proceed may You Arnovitz.

Andrew Arnovitz

afternoon thank Good us for today. everyone, you. you and joining Thank

differ the results I’d and you and to may forward-looking not are to may including Administrators we and Securities on assumptions on place as and like Before with materially, our contained begin, that are XX, listeners to the on August website, remind uncertainties. statements and statements our and statements. and Exchange SEDAR that to may XXXX, subject are to Commission of on today, available is corporate undue cautioned forward-looking are filings forward-looking management’s answers the these and in and that Canadian Such questions not These contain A reliance MD&A, subject our Actual materialize statements. EDGAR. accordingly, represent U.S. risks CAE’s expectations change. affect outlook remarks, assumptions today’s risks, Securities on future results description annual of factors in based

call questions institutional me the period, from Sonya media. President and of are Chief afternoon, of Financial and analysts with financial open we’ll we’ll this Marc following call that Officer; the CAE’s our Sonya, take After from and the Parent, the members Executive Marc Chief Officer. investors. remarks And questions from and Branco, Q&A the conclusion On to

now call Let over the turn Marc. me to

Marc Parent

and on momentum. joining view disappointing. the Andrew, our results call. you, annual line first delivering Thank share Civil Defense us had strong the with in a for market were good everyone to performance growth quarter afternoon We results mixed in and increased with

headwinds of unanticipated on of short was that The our we’re shortfall coming this stage sector-wide journey. in of and of mainly multiyear X due programs very discrete early to However, legacy defense intensity growth increased expectations. facing the in our charges our well

a the stronger year the takes sales. onetime factored to the Now less first, the still working to up. second that time protected of of be we’d ramp into already we’re would half new mainly our than through than period it for our fiscal awards program because effects of And way outlook prior book lag

We headwinds thought were significantly be. the they acute than half, first the but additional in also of some expect more they’d that we

activity $XXX order of Now we orders billion our growth. we secured for best $X made overall, ratio. million challenging is for of despite opportunities global and converting X.XXx future the large In in record a a indicator orders X.XX into civil, our CAE a And excellent pipeline ratio. billion book-to-sales for backlog over $XX environment progress book-to-sales

Now simulator this includes for which major X.X XX years, to with aircraft exclusive of airlines training full-flight the long-term region. involved in sales. and training of the long signed list vast the that agreements Notable the the airlines the exclusive with agreements operators has Civil quarter adds several business and agreements majority in training contracts in Americas, training last

training Civil agreement XXX with Americas Civil training training from commercial agreement training a center and with include platform, the of agreements they training XX revenue Atlantic also We XX-year training North segment Aviation XX% growth Mesa in training include in training the with concluded XX-year exclusivity. TAG full-flight XX%, quarter Training in platforms their to with pair aviation exclusive in a to strong Airlines, last the NATO and double-digit flight with is continued demand and the existing due a X-year quarter exclusive remained American level the expanded Procurement agreement year. of In year-over-year lower X-year first extension still under delivered simulators and activity. In business a up Asia another lagging a Holdings, its a operating United a financial and exclusive existing average -- reflecting with to covering a with training Virgin exclusive quarter, level Agency. was improved Civil aircraft Pacific, be Boeing exclusive long-term at This aircraft U.K., major be robust, Airlines, adjusted high operational and airline. which agreement training strongest, X-year demand Business now to to performance X-year the utilization aviation, income. Support all much JetBlue business continued Aviation, sustained was followed much travel Europe by restrictions. a In

Now expecting And training for sales. X.XXx We turning key mission million this order for quarter. we intake valued $XXX that booked rightward defense orders this in for defense. level orders represents the to quarter, were some although at to a book first and support pushed solutions record

the see XX-month book-to-sales ratio of trend in that performance a indication momentum. me order defense Now so quarterly an some of very we to to trailing results normally evaluated variability on And annual best is good in point, and basis. is our X.XXx

of the Ministry in domain, to the $X Lab positive that contract a across build following activity well and instructional multi-domain environment. our orders is simulator X a terms And Defense billion CAE all program. stations part of larger In of of as Air In U.S. approximately price team, virtual In the for contract adjustments And while training a The favorable and a deployable. in cross-functional NHXX future training question reassessments at order change with in training was estimates, support case X Starfish result domain, in of the a our in simulation that We and driven requirements. classroom more In incurred Navy. in States IDIQ support due the mainly clearly finally, with partnership in that the a the on legacy program financial expectation reassessment with meeting on space the The contract training instructors awarded capabilities customers in a domain, a this Navy June. Navy’s Naval a of vehicle. a $XX.X current deed sea with of cyber soldier-led prototype trends continue pilot fixed momentum Lockheed operating as program charges ACT X expansion and delays have LX position resulting capabilities team U.S. for point cost utilization Harris next-generation program requirements of the past Force a Navy a in customer Air firm was loss estimates the on advanced and develop contract enables as was were quarter, at we Canadian secured quarter, that defense on with meeting United contract, Research naval Martin, U.S. on exceeded frigates. Army provide intermediate the of the is we the in unanticipated performance services, generally Royal with as were the to cost discrete Chief our discussions -- extension fixed ordered X Synthetic part To task are totaled price prototype for soldier training contract to in we have legacy million air where from Netherlands who of software by of not. initiative. $XX.X timing growth Training trainer support quarter, the contract and order part program. develop battle Sinatra the customer contract space, entered from The training winning empower our from million air These expectations In CAE domains. a Environment scope U.S. of and the military across as classified provides Training design changed. U.S. the contract charges the awarded Land, we CAE or to primary, immersive system a

classified large significant The that’s a second a structured our firm and complex phases fixed opportunity. natural long-term future the priority, is of program a also the as U.S. opportunities basis capture on to chart power. The on stems defense a current work from and involves initial positions well price program

cleared quarters, disruptive have staff Now which performed professionals to of given close highly been the schedule. nature work, the in related shortages the COVID-XX of has program

estimated I’d customer quarter, program’s we were the review the In program addition, through strategic like which shipping at in the understanding could included both provisions nature this the and towards have customer cost long-term for we’re was working and taken of X after with upwards. us company, cost deliverables the will expectations managing defense what CAE, no help charges the Across our defense confident equitable any a thorough have positioning I’d any increased been after the the been labor our are beyond is and the some to it And programs. result adequately and the of performance add overrun, holds due for that a surprises program value more that observed this work. we’ve logistics the to elements these commitment with economy. also and June, on that we’re for we quarter. negative those And broader adjustments revised our with that cost contract in capture future for that work there that meeting hopeful I’m the we in taken consider moment, in in the future challenges that offset to supply one complete this charges, chain and to the still the schedule this backlog. while for the And in And our re-baseline consistent add below of critical critical customer costs, of of clear significant we complete. to charges haven’t analysis, specific expected issues expectations. our

less chain were anticipated, defense, severe shortages in were also inefficiencies pressured staffing work other to schedules. which sector-wide as on on acute work. and challenges than cost-plus billable more Supply However, contracts more these challenges led

experienced in key on expecting work delays the few we on We quarter. to also orders are commence a

which consistent additional several impact that performance would full and been plan, also with the large level pipeline. of expectations awards charges and pursue costs are the our elevated Excluding of have a as year of bus we more challenges, more these our proposal considers in defense

care. Finally, in health

revenue transitioned innovative to Heidi from leadership Wood with our team growth continue We solutions. care during Health quarter. drive the double-digit

driving led grateful the interim endeavors. instrumental and period by double-digit is now Jeff who in contribution wish formerly well sales and head future her for of basis been her We’re on has growth. in extended health business And being an the is of Evans, care

provide care Act Now for U.S., the science its learning-based its visibility presence partnership notable during efforts quarter, and simulation finalizing strategic its Mayo Healthcare address in the With the for solution supported center management financial additional details of of mobile by now Cares deployment outlook. Rosseter, system increased Medicine the nurses College Minnesota. to funding health center Mayo and units. with on also the call Virginia’s and relationship of the expanded a the will Clinic Monhealth turn in Sonya, West over our at training to end return with I’ll demand our the for I’ll about hospital comment call who performance. increased that, to

Sonya?

Sonya Branco

you, everyone. to quarter $XXX.X $XX.X was $X.XX Thank and year. Marc, last good last segment million first Adjusted And Consolidated higher million $XX.X to quarter million in million was adjusted compared income of XX% or net last quarterly to was compared $XX.X $X.XX year. the per year. compared operating of first afternoon, the income revenue share

adjusted and tend defense, noncash cash costs This a last training quarter’s a offset $XX year. We negative operating the the the for our to by last excluding during on to negative and and due contract profit of in specifically income to impacted usually was exclusive positive quarter. second $XXX.X $XX.X Income million deliver in capital. was to We acquisition mainly related this lower effective in year. the of XX% working effective Growth accounts costs, the $X.XX. mainly income half. integration capacity first for million recovery million was tax the capital which see capital working by high maintenance training negative quarter rate $X.XX to a $XX.X a growth incurred by compared to rate for million provided $XX.X which Free of including was impact. a XX%, tax restructuring $XX.X quarter negative acquisition AirCentre The rate quarter and first long-term results decrease quarter EPS in reversed this million contracts to is of partially in see this $XXX.X unfavorable this rate was accretes restructuring includes tax was first quarter, flow half year network the costs global level in And adjusted million portion integration to XX% EPS rate and to these use fiscal lower add net The we of Else-Harris the tax and quarter, activity. income totaled million military expenditures during The acquisitions. training and our $X.X a of of the in investment compared investments decrease backlog. of investment these noncash determine the a cash tax to million adjustments

debt debt The X the position of to approximately X.Xx the quarter debt end defense. net $X of elevated more net a at the of the of billion reflects quarter this at for Our end in impact quarter. adjusted EBITDA ratio the the noncash charges was

to adjusted within EBITDA of months. to the next continue expect net Xx We debt XX below

quarter was income performance. first $XX.X in quarter a margin our $XXX.X quarter year the turning Now $XX.X last In of for of was first XX%. million million segmented adjusted first year, Civil, last the to million operating versus and revenue to million up segment $XXX.X

higher Our by less mix. the services revenue support deliveries, favorable in lower mix offset program revenue quarter, civil from performance life reflects and of simulator training cycle a a

and We operating investments LX also R&D to was $XX.X stemming year awards. supply of the innovation aforementioned on incurred driven $XX slower adjusted the year. training due the of compared last loss income our to military contract In segment loss segment mainly was additional segment shortages, for QX Harris higher by chain revenue into Defense, of adjusted million impact over financials. in first challenges we first than order Adjusted the profit and expected, acute pressures to $XXX.X the approximately challenges XX% the last quarter staffing this adjustments income. pipeline. had up quarter operating an our These The was more for million quarter integration quarter million $XX.X million operating the support

QX bid forward. of first compared what operating larger last We results in approximately higher expenses other quarter million and than Marc QX had up for year. more opportunities the were was discuss level also linked had segment million year’s pipeline, to greater they in was but they’re costs $X higher expected the And were proposals from given million, impactful had higher pursuit costs $XX.X Adjusted revenue as support that while million million last headwinds. of bids $XX.X SG&A were we The of defense the year. Healthcare, in level in of that, I an of a $X included to investment $X.X to income loss year. SG&A way the growth. to a last this tax quarter credits, ask higher we Last year, With will our

Marc Parent

Thanks, Sonya.

the sector civil, and to ever. clear macroeconomic continue our to As a see as In look we becoming path and defense is profitable a despite more ahead, the as more to added CEA. headwinds we multiyear resilient larger, bright challenges, prevailing outlook period related

position leveraging with an the both as room network up We’re our record stages invested of in A plenty the critical digital aviation and cycle business of We’ve secular early positive operational pilot to with acute crew market. civil our and by airlines trust training are inorganically strong that. management globally, underpinning training demand near travel expand enduring largest to company. grow greater demand growth a organically their with desire margins and needs, beyond and to a world’s jet support training

the from time, of an global in the likely the excellent position recovery that’s but to to market Now multiyear recovery continue some underway. for we’re benefit currently ultimately unevenness is cyclical

with in major high training year, recent quarters driven security in the as by pilot with long-term simulator expect full-flight to virtually growth and fiscal all strong exclusive robust airlines We Americas. evidenced sales in continue for Civil training demand by this agreements

successes recovery in believe market expanded training civil share despite what Day quarter, opportunities. the growing for we our blueprint shared additional continue that of June I CEA-- pipeline at encountered unchanged. outlook is global a compelling that for these long-term from broader the challenges we And a holds to positive poised market in provide Investor an We’re in the Defense,

a and become bigger multiyear link critical orders. a the more journey winning and that chain profitable involves in on We’re to more and first

have great to Our agreed additional critically, years indeed CAE’s teaming consistent And provide than with orders view returning profile won the that’s in across expertise intake prioritization headwinds that ahead. Furthermore, The last larger. right United Boeing record last a international the temporary seeds how the business double-digit remains to that we’re -- and profitability We first acute month training. we our customer over a networks expand become to recognize low And result growth. is relationships the Defense. involves we having defense in believe defense solutions avenues for near-term readiness path for environment long-term OEMs that to in external in into unique bear bidding translate of on memorandum of is specific order largely the but events and defense quarter more some year support with we An on of important billion priorities to the regional $X our example a of the strategic both our increased margin the in favorable and galvanized our States current signed record supplier last more to support understanding to strategy and development. proposal X.X spending NATO. our bidding for our with confirm expect years customers we geopolitical OEMs and element national defense defense of with strengthening the major

The we’re taking the shortages reflect And weighted indicated and into for the back through than ramp additional account defense second the gradually chain effect had the weighting course more contributing and U.S. experiencing, onetime lowering to the in X a cures the we protracted the slower the counterintuitive, in them incurred sector-wide for for performance on quarter program to We environment. orders more new fiscal as pronounced, expectations operational a a acute we half. just of previously immediate the that our into next supply even term. of during us year. we’re defense book fiscal year. the labor somewhat that contracting in and short actually year abate to headwinds we our manage expectation continue headwinds delays is all namely for factors And consideration, begin and made half to defense priority training up less then have sales Although defense now charges award and pressures, fiscal needs this of largely expect these period program to

As partially long-term the expect new lastly, progresses, be and efficiency we initiatives continues health gains to build material in health underway. currently and care The year continues within able potential to a cost through market in it become training it a for care. internal profitable to these momentum. offset And on impacts that more revenue reductions business and share double-digit to and as are CAE simulation growth

enhanced range. in rate continue and With to ready long-term profits is For expanded our that, you reflects my now our have conviction Broadly thank and couple from answer team’s I superior I year adjustment CAE are outlook for to greatly your And last as And overall, years, of our per revised compound term. consolidated over intact. maintain CAE’s order set, the to very momentum a we’re the to largely mid-XX% for attention, resolute. target questions. segment current our drive sustainable much we over fiscal long expectation the speaking, market complete for a the operating our confidence previously, progress mid-XX% reducing position outlook strong share your and X-year underlying the tread defense. and mid-XXs lines which in we’re earnings the growth and addressable growth of growth ability We in income multiyear our in

Andrew Arnovitz

members now Mark. Thanks, the of community the to questions. we’ll their investment for Operator, line open

Operator

CIBC. [Operator Instructions] with Our from question comes first Chiang Kevin

Kevin Chiang

lot or taken a it’s what Maybe issues, to guess, you’re it of just contracts. not provisions X I defense. that what these I than ends have these happened in look of you as X of a process the it a of are lot may you’ve times, X you’re unique systemic that of your it’s Marc, the a give historically, some could relate bidding us into the But Maybe any you confident at you might only details backlog? dig your we found X systemic more isolated Maybe when can contracts. types these of sounds confident in maybe and more why to contracts occurred changes And sense issues being in gave terms like contracts. these X that why revaluation? up this in maybe result that

Marc Parent

in programs discussions you had to them, recognize June. the more and tell I I’ll an the expectations cautionary doesn’t X think specific I’m we’ve Look, in that feel tell charges you you the be the with portfolio. And to we a both following little on these take recognize whole. step first to caused that occurred that start them. for these. customer-led us I June -- the in or approach you I when meet it second, I’ll taking we’ve look, I’ll imagine discrete going color taken are Kevin. business isolate a certainly your in And But the Maybe tell charge you impacts pretty happy expectations we darn to as a maybe bit give it that would that complete performance programs, parts, appropriate review events one these in you, just took. our surprises because that having my such would confident were with to Yes. quarter And just not the of us forward a we the that we get Again, And here, took. everything seen these re-baseline as forces to as back defense can a

have me that. do to would expected You

back programs. So to go -- give just on the

has stations remarks, contracts, This we customer we our the higher Navy on mean we high corporate X trading has a and be the we one, naval higher frankly, did the train very that expectations. at and is will at really first I training ago. very, the contract. demand very want where Sinatra. did been On years in as said -- a rate, than It’s this to be our air legacy Navy train, in outpaced at I

Now what’s put contract on realize to the happened is improve profitability program. have measures now we benefit -- put the to reduction in a the comes an that end time because place at we have this that of cost to very But would shrinking Well, have here as that year, believe what end updated fiscal the happened that anticipated is could and terms. reason have contract ball, customer how this, at we we we good be? to extended this the particular

of as flying said, X I they’re than which, to counterintuitive, frankly, pretty really, less really period very there’s But date, I get months very us, given left said, mean, we As very to had high usage customer it’s the an I tracking in yet RFP, the hard. performance. somewhat surprisingly, to

reduce enough shortened of cost left just period we’ve to adjustments, no there’s taken measures we any Now that not of take just given performance, equitable any the runway time. have to -- account take

to we So had take charges. the

any these of to that contracts, -- happen. which factored Now we haven’t intend -- extension fully I

So that’s but of to stay tuned one it. benefit a we taken have on,

prudent So taken a approach we’ve I conservative here. think

be -- don’t on Now site work most the on on, to to can mentioned, program, the of weeks promise is here, program. confident for that whites I And like I program. because X Again, like opportunity that but you, look really the on I COVID-XX able cost I on program extremely itself, about of engineers managers positioning that program this really rebaseline we’re than evaluation would the happening this was I ago. got go even here on up area program opportunity on impact contract just And of to tell less follow-on team that on the an people the of order an large. other I recently. remarks, us And all of program not that I classified I’m to initial ourselves sure I in in schedule of this tell of that and it you I cost reaches very this you the back can work feel contracts to sets I for eyes validate just make of working as this not or capture what’s the potential done, that I state go diligent this because to very programs. be vali not a on which estimates, in so when -- production. magnitude more of long-term very program program this our is just on will talking we’ve the attractive only that to And if is contract margins but and in my the mature with intimated our the

-- business we not So outlook look, look, long-term again, I to our mean perform I’m Investor the we at to changes example, happy outlined, for me, Day. defense of it. this, But none for the that

put making see a actions you’re margin in in our what I reflected of us it. as with be outlook. you’ve my factors cost category, the impacts, can challenges in tell the of each short-term manpower, whether on industry have whether our address Our in orders affecting the the the The number introduces progress it that us. we all aircraft, managed kind over to we’re And I’ve hold, parts, respect this programs coming it. of having any programs that’s each full seen you, seen -- in other going -- specific aerospace in and personally, be already years it is large very have XX before. past, tell I’m been efforts very take specific large developer Big And thing I opportunities. efforts aircraft in challenges. very, those can But in to we outstanding. tracking place some to very you work team’s over rates all very

Kevin Chiang

agree just start guess, the obvious, have what in time, that just middle had guess, And that taking maybe provisions? the middle to I from realize these when an the to quarter, of at just outlook in these point you weren’t I previous issues time, the at you at evident that like of the the Investor you state did quarter. I call guess, was you Day point

Marc Parent

June. surprise. when Late did yes, don’t it a it That’s June, come like happened. Late I surprises. as And

surprises. And specific highlighted We onetime like -- as rest rebaselined I as that’s don’t the portfolio. our program what of like happened. in I noncash every We’ve but the discrete don’t charges, taken actions surprises. mark, the in or the by they’re -- We’ve on And programs. You very said, nature.

So X our confident I remarks the question look, we’ve -- if we that I forward. even you I’m the very take defense and think And charges if quarter low. sure business is in I in But -- expected those think and quite still out, intimated be that. even expanded, I’m the of that profitability might going the follow-up

expected We that.

didn’t we’d expect Now be I back you much to half. you, that you frank we would with be very tell

if taken here, just have upon So But had could we that. charge we we’ve maintained outlook. here, it can the we that -- I probably think what largely for expand our but wasn’t I we’ve could

Operator

question Our Chamoun Fadi from next with BMO. comes

Fadi Chamoun

EBIT the for very guess to if Civil a months. mid-XX% you still defense I defense implies the EBIT in the year. doing would have to be of mid-XX% in strong be got track in we’re growth performance EBIT in guidance the in on next X performance really next to is in One X I is months. growth that EBIT basically the mid-XX% a couple be Like questions. almost for growth, assuming XX%

that I’m charges, the will the that So only and sure seem of the X%, into margin I underlying you understanding the quarter? kind to second continue least Defense was excluding because profitability just headwind at pressure in want make that suggest to this

Marc Parent

it I substantial pronounce. but but been Well, quarter. in second the still I we our gradually outlook, it of uplift abate, always the And see don’t half, we’re a which to as has more said, in will see going second

I did Fadi. not a to think, that. purposely We look, it break from not sector I’m down going do standpoint,

that think are growth issues business, that I we expect but the would not have that indicated we are in outlook. this. not as affected -- You to had a we profile the business taking when on maintain profitable the you whole our actions only in It’s effort a we’ve like defense quarter, company-wide adopting the

well equal. tell in in defense that done you the about I totally would happen orders, that I not quarter created I not of did happen. past thing especially on frankly, orders QX are that although orders I some said orders really we’ve to on think there that would really, other are and the all is we in And expected we’ve really, the some -- say, The talked

talked Now turn some tell get we of And ones the that products that into when convert won revenue And will can I about, orders. fact talking faster outlook them is consideration, orders, of have those you. all which I into subsequently, those you that you into take about. -- the therefore, because to into I’m

Fadi Chamoun

is the margin there Is on contract is the Navy U.S. We’ve follow-up past. deviate so of your the business run I make mean fixed performance of increases kind very a in that to your contract. of event cost the the these explanation issues in in the or But risk contract had the Maybe here? the Or you happened the you’ve how risk that in never on onetime I of being fixed some of always you’re business. business kind really this gave is of is changing kind kind are defense? revenues what’s awarded like anything just Okay. profile there contracts these cost much unique that think -- taking from guess contract majority a -- defense, I types assumption. of different recently

Marc Parent

have program of again, the being of we chart, specific right. never it I we that of being seen of habit mentioned seen part you’re And one of No. the in which think -- I’ve you’re we of nature, absolutely because all, we contingency haven’t is first think you’re would. the a contract time haven’t right many No, SENATRO-X, Look, the quarter. like I thought very we right. absolutely out impact on And all a CEA, been this before. still in that Look, And not it renewed as would. time before, that. We the running the at that at

your of the talked maybe firm factor. give about an are just one price. our About And fixed that’s price. So to contracts idea about XX% firm fixed of you

about, -- I a visited you. on this the Yes, I in the XX talked firm we a forces high program differently precured there’s this in that’s tell level there. of contract, we levels over very -- that this, And of have program. a an that level all we contract for of think you Would that not cleared replace than that’s Could I service contracts sight very, weren’t we a we which think, again, a others, finding they’re predictability. wouldn’t very had better put have fixed Do when we are contract, acquisition that be program there’s place I literally yes. better a extra contract as fixed very get there, of been and personnel. the clearly, have development were hindsight, number highly contract service you, price when tell occurs them I could through thing overly fact management we monitoring look complex very weeks we an -- better classified would that now. it I lifetime I’m that all in seeing ago, LX this program the measures bid a And Now But remember, would. cold saying before the or of we -- we it this because, would this of we’re And company Harris. couple are lot happens. at just as that increased is the for you of event I done to contract for by And in not we before. much a program because to a be scrutiny I that inherited like like contract, on when job, this seen hard of transaction working price the that Ultra the at wish have cleared that Harris picture personnel I program the is actually this hindsight off the were And

I’m pretty confident. So

results tell than you is what that the that thought. we supply alone but -- changes this not extra I across what worse would factors, that’s what’s of labor and our case, some We significantly. They’re terms see delays, you you pressures, those. In of in shortages, anticipate changed? chain we’re impacted contracting see -- industry, mean I

one them labor out. Now of labor is as and

couple look of our Now on actually we when or months, are yes, we at hiring curve the the I actually, have the reversed positive labor last in trend now.

to So be contracts we’ve that we have made. labor we able to the secure assumptions pretty the need

Fani. So maybe I’ll stop there,

Operator

Our Financial. Doerksen with next question National from comes Bank Cameron

Cameron Doerksen

but I mean, it’s appreciate pretty the I bit been, guess I care on revolving health but -- this I is a on a small, that still question maybe right guess a business. there’s the business. not door of of term, leadership

track if about wondering can So to on this going should business Why the is there. just be talk consistent ultimately profitability? more getting to think I’m maybe investors that now change you to

Marc Parent

this I double-digit me Well, you me story. like said, I would with show of quarters is What I consecutive X Cameron, growth. revenue a show is tell absolutely understand the

health you’ve And that of But far. I’ve P&Ls to been XX-year meaning that the -- architect who a I the himself, tell is Sales the not satisfied at tell in force running acting you of before, health have who’s GE. Now I’ve a debate for tell into you. we’ve as you very, Evans, I’ve the as had I and SG&A, And with so the true steps at that is veteran continues run-up that to leading seen. GE the improve results R&D to performance I in true, interim translate has true, large got be can continues you, would invested it at we as revolving we with well. that had and He’s that the well very growth. and the architect that He of significant care substantially a I you the profit say I very moment. we I leadership moment. very in you be Jeff to the to health and said the has as heard have. of sales gone that I’m very can of happy business although at are bottom change before profile Healthcare, very by business. performance care taken door reducing products that in line for that you I’m it we profitability comment, a care have with me or good. of main the get the with it’s would good, will agree tell Head cannot Jeff tell that are somewhat the you’ve costs of revenue to able be very, can we’ve

this perhaps We is are and surprising. suffering not --

high from inefficiencies degree have a are We shortage. suffering parts we because of

in parts see for you our to So take ship I’ve been Sarasota, we we medical if of have is them put what X/X we we would few complete quite down stores, parts, the basically and to a when And and built go the times, we facility retest them, you were that. then medicine, out we example. which you get products, them

all lot those quite kinds imagine quality profile. But confident profitably of a of that over can You issues, your a lot that time, are not basin that, abating I’m inefficiencies issues of themselves. for causes that great are

with way quite I’m think the happy you’ll in the progress I quarters forward. to so come. And some And see

Sonya Branco

bit I’ll drivers color additional It’s summary. little just I some a of Marc. of great a the variability. Yes, agree, add on

is investment as -- credits So well that tax the care rest some lumpy. business. there these the be through things of R&D go And funding health as can

tailwind it year, a actually last actually this So was was a quarter headwind.

organization larger on but lot the care in the So smaller quarter-over-quarter. that’s health a have impact of a much on of these doesn’t have variabilities that kind impact, P&L, larger

and there guess, everything coming of, through, Marc we have is nonroutine addition tax investment to -- variability bit a from I walked R&D to consider just credits. in So little that

Operator

with question Konark Our from comes Gupta next Scotiabank.

Konark Gupta

wanted follow up So here. to I on the just defense mix

X margin well next adjusted margin? your the So mix impact double-digit as just how for these contracts trying Marc, over do quarters segment for the to Defense outlook X as understand, long-term

Marc Parent

from, that the tell the certainly, time, I supports a Gelston, double-digit as profitability I thing of that you. just this that inefficiencies very objective I’m and talking the other under the place we inherently recent the on first Dan the defense. the had first we’ve new the won Well, low decide have of impacts handle organization lead over low in that second. and our percentage the thing quite kinds I affect you way, that have bid although business. tell lining of X of of in times sometimes saying and defense we’ve and on results inefficiencies profitability things progress on cost that. we’ve that had I That’s changed charges that quarter, this think for as labor, is, introduced you again, all well time, profile And we I’ve that of said I’m you our inefficiencies remarks the we we’re I’ll taken in profitability rebased tell to had since get would would have the themselves backlog firm parts, would on parts like doubled, programs in that margin the X the confident we that programs the won, on in -- all

pretty we bit would that be is see. I we’re we worse this say the took have of a it good these in get a back these factors some than factors had that more What longer could affect second as us again, in and to -- the thought. shortages half. defense would for anticipated we of first clear that say challenging personnel, always we and will we than Part anticipated. would I abate that confident of myself that quite again, hired we thought. impacted It they us quarters of us than handle year in Now couple that repeating But

into that we’ve So contribution to leading the given. defense again, outlook

would say I look proposal amount and is the if of bid at The factor well other money. you as

our this track this our of And we large some very in as our Investor proposal costs pipeline. are we opportunities materially about in Day. Now bid quarter some very talked bid

these large. not from bid of you time very not bid in a They our tell the some expectations can we Canadian at quarter, afford I programs are we cannot couple the same different them. to programs, that it’s big would higher. so of and Now internal But came

The is that opportunities we’re terms the where as you’re Gelson go this just roughly, disproportionate amount necessarily and first much in expenses the this on Day, same are to year proposal again, to a those doing over be same outlined and is costs help here. our causes as quarter, here answers which that what defense pretty going that prework quantum its we’re think going throughout And of the that understand not thing business last in and all the attacking we question of up So capture year. proposals you to your seeing of again, big year. Investor doubled the I But hard. Dan profitability. at And we’re in the

Operator

Our next question Capital comes from Markets. Benoit Poirier with Desjardins

Benoit Poirier

Just to back to Healthcare. come

health companies for you’re care of qualification for valuation performance, favorable a are the of Given the leader the health potentially in that divesting what care? these leader, new would and days these for terms you new light consider searching looking in a assets just for

Marc Parent

our demonstrating is that. going is one minimum case. your contribution I so it to for before, me and basically CEA’s second a accretive sizable leader the think more to take I is Evans a the that, I’ll business make to threshold Jeff results. basically health That’s And contribution Well, is that of growth profitable the far, said care to drive as going

there terms noble people care and there’s terms it mission, much their So health in I’ve very in our as is on fits confident synergies of organization that look, more of facilities, and substantial I see our technology. in to into front. how CEA’s said before, am And across very supports overall portfolio, and

So of there’s that. no changing no thought portfolio part it’s about our have and

Benoit Poirier

margin rate EBIT expectation margins of where our that a Civil below tend utilization higher back the on the deliveries lower. equipment lower at be came and in looking just And to

throughout provide on margins to margin, and what’s expect putting could it’s color business commercial So back jet equipment, Civil we more pressure the whether on more should how you year? bounce

Marc Parent

margins Well, met will look you tell civil expectations. my I certainly

that the In cost into all a XX%. before you is look and indicators perfect I’m And at at a times not at you’re XX% of pretty many good before, training it Don’t look very we’re outlook. we’re seeing satisfied both and is at utilization reduction it the prior tooth said orders, we utilization. bullish look a with with the that our business part reads the you if you sure you because I and look this translate a in the And results of you having So is quarter to look quarter the every I this that would ready, civil measure. at very even result. course are, the said the the think but business. utilization seeing results I that quarter-to-quarter, the COVID, Benoit, very, said look at quarter comb, at fine I’m for is

You that in is favorable always have mix less the product quarter.

support higher This innovations we like quarter eVTOL our some examples that to we Investor have of R&D for spoke at Day. expenses

and mix expect the next we So other in look this fully quarter around. the way might the I pretty down score

So realize what I going business to -- results strong results firm that to remain bullish. very in is the I that our And Difficulty] me this future. say supports very [Technical

Operator

question from comes TD the next of Our Tim Securities. James of line

Tim James

[Technical that virtual a sticking the support whether were to growth although specifically. can this of seeing, kind want the story maybe growing of the side simulation-based just just with any for training I Live quarter or you of demand quarters, are to thinking defense military evidence in that for I’m for last recent more wondering it’s applications most the a change I’m training, technology the you discussion bit here if on aviation little Difficulty] new us and update couple secular relative of simulation business.

Operator

this Can from TD question Pardon from Securities. introduce the Tim Frank. me, next is I James

Tim James

evidence live, whether are the growing of aviation most the training, for simulation-based wondering for can relative technology any that or demand training growth to us recent quarter applications story new seeing you I’m for that couple last you’re just support specifically. a update military secular it’s if this on quarters thinking and I’m in simulation more of virtual

Marc Parent

aviation just say that, mean you expand you there? you on what sports can When specifically,

Tim James

aviation the to thinking you’ve other sort I’m applications. Well, military involved some domains aviation fields, recent of just I that mean, training as other in of opposed years. the specifically of gotten

Marc Parent

do use in in that real the military of what issue, simulation issue. look, does they and costs And trend train to that reasons seen maintain and would for they need very for are environment training that, cost and in need continues I increased and when that to increase military you, -- order readiness. they operations. That’s to an do not where tell do they’re that always operations, Well, ae for an we’ve in to they an do all the

training what we are still I technologies, range. have of for So are plenty actually done to simulation-based would say, shares example. in to just there as is even I where grow full-flight to point only, deploying, quarter trainer use simulators, AR/VR, One you’re of do, cases, intimating deploying are for using would in some gunnery they’re local and a an the it example, not example, investing which we’re operations contracts room like, AR/VR, announced deployable to significantly and maybe they think using train but using we new goes office, a that able the this we’re down when to to developing what for that or people be in that’s

you than range example, to There’s rate rather plenty full So can it having one do That’s it example. deploy. and just do of can then gun go. virtually, you a guns, real for with that

our point have we of and at bid there pipeline Again, I terms look highest I would the which level, the out I that at increased I on some at -- to orders order at pipeline, in macro that look the big intake. of and quite basis, X that of it’s at trailing I very trailing are months look been we in basis And say, are the the XX at in that that opportunities highest it’s you the real bids our is, there have when of look our substantially XX-month book-to-bill, at It’s the out amount represent some years. of the that. X-year always if highs look has been our the

defense. here where that’s we’re in demonstrating think is growth going I

Tim James

the of pre-pandemic, today My transaction, USD it a with million, was was it Air annual just XXX the sort that of that about and U.S. or the I of EBITDA well. business to that business about believe the time relative we indicated kind kind at there think if lagging was pre-pandemic? we revenue amount get as Commercial to a as the would we just At relative similar quarter? Center a million be other I’m think turning question, kind to specifically How acquisition. the to contributing should quarter. $XX of rest if about the of different we of simply sort a the anything -- sort this kind contribution thought off wildly for in it Is trying of to sense as of in first point is Aviation bit is what pre-pandemic? business of the Is

Marc Parent

wants ask in I early tell first, it’s look, No, she you I’ll would -- Soni, what you, the would to But contribution is. tell still if very the integration. I

solutions there, gates, demand and And locations greater in basically for reaction with Farma, efficiency. we’re with field. and it, CAE very most comfortable that’s the pilots, are on the to specifically, business. aircrew, customer-specific We’re airlines happy all baggage that, That’s be, they’re help the every single having with in software I seeing day, offer very, of hiders, out amount this you being And right increased optimize read for doing recently I we’re our track. right, having that, are that innings CEA inefficiencies help things but feel at the airlines. to in about early of an still yourself manage it on had that airplanes. to can going with we tell very meetings very this

terms -- So everything CAE, is we me, to in business the contribute said this again, to optimistic of how regard on on this that very integration would in track. And is I’m right track.

Sonya Branco

we’re working just year. the through to expect itself, nicely for was quarter the not and significant, I’ll track, it up add, on but integration through the overly we fiscal ramp necessarily it

can Now at recovery do sales. an even this with a are more indication rate investment what on this adding elevating those the of before bundled to pre-COVID and us our benchmarks than business

over we’re out, numbers can we recovery the years. very as as grows even ultimately, confident of So and those plays the next them the couple get beat to recovery

Operator

Our Poponak Sachs. Noah from next Goldman with comes question

Noah Poponak

The that defense. in those a when programs programs written, took X were start? did When those contracts charge

Marc Parent

that one by took legacy that legacy Sinatra Sinatra. XXXX. was over that we -- program classified the they we for to odd know with in the -- took sure. we one the were signed call contracts us XXXX -- contract I They’re we contracts, when Prior contract acquired over LX, that the

Noah Poponak

over actually cost Where was what in? more? the Okay. And cost

Marc Parent

case where I make specifically I It’s customer event, a actions of specifically, the in less Well, we as is said, tell simple to impact other of you, And cost is missed Sinatra this than would mitigations the at a bid on. training okay? bid the it contract had and that, time. we more

don’t way that now. tell can we I bid you, Now

was how We we the past in -- is where at time, that’s years, risk a of have still programs. that basis level higher here. But the at training specifically couple of look military situation those with refined and the complete assets -- anticipated this much X really how one -- we facing we’re this were at we’re we we’ve the bid because customer that at demand is what utilizing of

in we renew that X reduction fully the expected we to put able to contract that less and that the improve than again, because about mitigating to contract, we in to to extend it months. that an program, efficiency improve Now and factors get contract RFP or be ends

put and IDIQ the IDIQ in improve fact the did performance additional the basically so it of surprisingly renewal, take just on of high. we what which other only for get In I or they’re as or get Basically, getting number our to we measures but case, we said, that profitability to we counterintuitive somewhat had -- is bit that, didn’t changed. technical this, using that that Now not the cost no of very contract ran the reductions is a because hold. period place in out time. program says was which of We not

happened. what So basically, And at that loss the have that’s point. to you recognize

will Now this go to do going train. The Navy forward. needs think I happen. that that, contract It’s

baked on tuned that. one. again, But any on we me, that haven’t upside to in So stay

Noah Poponak

to categorized point the is those base the as if of run the are misbid at business what having X this that you -- percentage bid you exposed So you’re possibly way revenue don’t What today, misbid? way. been

Marc Parent

as to like very centralized looking the bolster weren’t take program programs of Well, basically part Harris and something you including, before, program But -- organization, plan, I before, company-wide would some I’m I if program actions, but when And a get establishment tell specific company this, that, we’ve was always were. we of to a said center not of will. actions, very taken course, you going we’ve -- accelerated integration of excellence, you tell you, LX our would management specific again, we merger I you this say at our we excellence.

and investments were triggered would make we programs, the all and That’s make again. we going portfolio say never have complete re-baseline sure the you, the the and staffing, all the assumptions right our I’m surprised we that ones get right I have the that and on get cost though, have our to we review of have to programs surprised. don’t tell never, sure put. transparency been okay? that is to sure top-down of to we the right -- So visibility that and maximum prior make provisions a what right looked that what at contractual don’t right including provisions bid But we

Noah Poponak

in is that complete process? is or Marc, review review And that

Marc Parent

review No, is complete. that

Noah Poponak

And earlier hear XX% did you I to I committing ‘XX a operating did fiscal hear business incorrectly? correctly margin that in your -- this in or

Marc Parent

me didn’t you No, No. that. say hear

backlog programs say, if for they backlog, you’ve business me heard in -- the returns this if signed You an that up And we’ve that support they that a -- I look that that I double-digit the at the that I that not, was double is corrected, our our target US. that that supports low believe, in support -- goal.

programs. this example, them. gives And the I said that and program get tell execute you’ve team we’ve slightly have are you kind to before, the it this centralized we kind Again, management taken, feel would Now X very thing as obviously make the place this, confident different. Defense to I measures I that seen I organization, things major that’s you for of impact, And you about before happen. I’ve just confidence. When of got where on think running me in

Andrew Arnovitz

you. Operator, thank

minute unfortunately, lot there not here, that open We’re now media, of questions. any use we a if are the the to to or going of time last to members the so call have

Operator

from Reuters. [Operator with Instructions] Lampert Allison a We have question

Allison Lampert

of be you the Have supply Marc, you semiconductor? you more talked seen Could of had. about with bit a specific? shortages bit some issues a challenges chain you’ve little

Marc Parent

have. we Yes,

care in surprisingly we specific I seen highest been concentration, actually the surprising say in shortage. I on -- that’s fact, and individual think, business. especially Madigan In had that’s an our And a chips, it. of But which acute health where have a we’ve

would tell that think, I pretty Now you well. we it overall, managed I

not them chips, little really the being some cases, a is parts not that not just it’s extended that, times lead that we’re schedules. but for double only it’s that there So obviously, across which need the in more it’s the issue at bit what parts it themselves seeing than have -- board. it, to we makes the It’s it impact of time REITs have

do for of to us for charges schedules, for example, So kinds like, paying things in maintain all have order parts. we expedite to

conduct time. over We have to

out-of-sequence have inefficiency. kinds conducted which We all of work introduce

just stand I’ll maybe So there, Alison.

Allison Lampert

are to seeing you MAX what you follow just are of seeing simulator? And -- up, kind for XX demand

Marc Parent

the I’m the I’m Oh, sorry. MAX. sorry, MAX.

as Okay. overall we’ve very No, strong, down the signed look, well very that -- it’s I XX MAXXX in orders signed they’re of it that backlog the think MAXX training over the demand past or aircraft not as we’ve for basically for simulated months. the simulator and strong, last the break part MAX and to and

Allison Lampert

aviation. the Would on because that whether side than in than on say side, you specifically auto semiconductors. chip seen past aviation historically in follow on more to just we’ve the the the it’s up seeing now are And in acute shortages you’re more

Marc Parent

as the can’t But look, your for newspaper. in except I real is, are. comment other where know said, in detail I read I’d Look, But the what -- been us. impacts have we’re I tell we they about you what industries for

we know parts we the support and We have of to our we is materials know when -- bill schedule. what need our

have have support the have support So today. forecast to we we take forecast we the that that that for schedules those parts we to we presented harmonized that

Andrew Arnovitz

Great.

thank So will participants transcript available today. you of operator, that’s joining us the website. call be for CAE’s all a I the on and Thank want on remind time our that we all have for to you.

Operator

participation day, conclude your Have today. call ask We you please everyone. line. for a that conference disconnect does thank the you and great That your for

CAE (CAE) 11 Aug 222023 Q1 Earnings call transcript