Q3 2022 CAE Inc Earnings Call

Okay.

Speaker 1: Good day ladies and gentlemen and welcome to the CAE third quarter conference call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Mr. Andrew Arevitz. Please go ahead.

Good day, ladies and gentlemen, and welcome to the C. H E third quarter conference call. Please be advised that this call is being recorded I would now like to turn the meeting over to Mr. Andrew <unk>. Please go ahead.

Speaker 2: Good afternoon everyone and thank you for joining us today. Before we begin, I'd like to remind you that today's remarks, including management's outlook and answers to questions, contain forward-looking statements. These forward-looking statements represent our expectations as of today, February 11, 2022, and accordingly are subject to change. Such statements are based on assumptions that may not materialize and are subject to risks and uncertain conditions.

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

Before we begin I'd like to remind you that today's remarks, including management's outlook and answers to questions contain forward looking statements. These forward looking statements represent our expectations as of today February 11, 2022, and accordingly are subject to change such statements are based on assumptions that may not mature.

Realized and are subject to risks and uncertainties actual results may differ materially and listeners are cautioned not to place undue reliance on these forward looking statements.

Speaker 2: Actual results may differ materially and listeners are cautioned not to place undue reliance on these forward-looking states.

Speaker 2: A description of the risks, factors, and assumptions that may affect future results is contained in CEA's annual MD&A available on our corporate website and on our filings with the Canadian Securities Administrators on CDAR and the US Securities and Exchange Commission on EDGAR.

A description of the risks factors and assumptions that may affect future results is contained in Cae's annual MD&A available on our corporate website and in our filings with the Canadian Securities administrators on SEDAR and the U S Securities and Exchange Commission on Edgar.

Speaker 2: On the call with me this afternoon are Mark Talons, the President and Chief Executive Officer, and Sonia Branko, our Chief Financial Officer.

On the call with me. This afternoon are maxed out all these president and Chief Executive Officer, and Sonya Branco, our Chief Financial Officer.

Speaker 2: After remarks from Mark and Sonia, we'll take questions from financial analysts and institutional investors. And following the conclusion of that Q&A period, we'll open the call to questions from members of the media. Let me now turn the call over to Mark.

After remarks from Marc and Sonya, we will take questions from financial analysts and institutional investors.

Following the conclusion of that Q&A period, we'll open the call to questions from members of the media, Let me now turn the call over to Mark.

Thank you Andrew and good afternoon to everyone joining us on the call.

Speaker 3: Thank you, Andrew, and good afternoon to everyone joining us on the call.

Speaker 3: I'm very pleased with our third quarter performance, especially in the context of a still challenging global environment.

I am very pleased with our third quarter performance, especially in the context of a still challenging global environment.

Speaker 3: We delivered double-digit growth, strong free cash flow, and we nearly doubled order intake compared to the third quarter of last year.

We delivered double digit growth strong free cash flow and we nearly doubled the order intake compared to the third quarter of last year.

Speaker 3: On a consolidated basis, we grew revenue by 15% before the contribution of our ventilator to mandatory initiative last.

On a consolidated basis, we grew revenue by 15% before the contribution of our ventilator humanitarian issue last year.

Speaker 3: We also grew adjusted segment operating income by 16% and delivered 19 cents of adjusted earnings per share.

We also grew adjusted segment operating income by 16%.

Delivered 19 cents of adjusted earnings per share.

Speaker 3: Underscoring the cash generative profile of our business, we delivered a healthy $282 million of free cash flow. We also made excellent progress on the orders front, billing even more forward momentum with nearly $1.4 billion in orders for a book to sales ratio of 1.62 times and a backlog of $9.2 billion.

Underscoring the cash generative profile of our business, we delivered a healthy $282 million of free cash flow. We also made excellent progress on the orders front billing even more forward momentum with nearly $1 $4 billion in orders for a book to sales ratio of 162.

Time, and a backlog of $9 2 billion.

Speaker 3: In civil, we have strong performance with double digit growth in training and segment operating income, and with margins break above 20% for the first time since the start of the pandemic.

In civil we had strong performance with double digit growth in training and segment operating income and with margins break above 20% for the first time since the start of the pandemic.

Third quarter average training center utilization was 60% up from 50% last year and was seven percentage points higher than last quarter.

Speaker 3: Third quarter average training center utilization was 60%, up from 50% last year, and was seven percentage points higher than last quarter.

Speaker 3: To me this is an impressive result considering a wide ranging disparity in commercial flight activity and trading demand across regions and because Omicron began to spread in the last month of the quarter.

To me. This is an impressive result, considering a wide ranging disparity and commercial flight activity and trading demand across regions and because omicron began to spread in the last month of the quarter.

Speaker 3: As we've been seeing since the start of the fiscal year, demand in the Americas was by far the strongest, while Europe and especially Asia Pacific continued to lag their recovery, leaving significant headroom to return to pre-pandemic levels.

As we've been seeing since the start of the fiscal year demand in the Americas was by far the strongest while Europe , and especially in Asia Pacific continued to lag the recovery, leading leaving significant headroom to return to pre pandemic levels.

Speaker 3: In business aviation, training demand was also robust, reflecting the high level of flight activity, which was above 2019 levels in the United States and Europe .

In business Aviation training demand was also robust reflecting the high level of flight activity, which was above 2019 levels in the United States and Europe .

Speaker 3: We had very strong order activity in civil in the third quarter, booking training solutions contracts valued at 753 million dollars for a 1.93 book to sales ratio, including 19 full flight simulator sales.

We had very strong order activity in civil in the third quarter booking training solutions contracts valued at $753 million.

For a $1 93 book to sales ratio, including 19 full flight simulator sales.

Speaker 3: This is in sharp contrast to the 11 full flight simulator orders that we booked for the entire fiscal year, last year, and brings our full flight simulator sales for the first nine months to 33.

This is in sharp contrast to the 11 full flight simulator orders that we booked for the entire fiscal year last year and brings our.

Full flight simulator sales for the first nine months to 33.

Since the end of the quarter, we signed orders for another four bringing our year to date tally 37 full flight simulators sold.

Speaker 3: Since the end of the quarter, we signed orders for another four, bringing the year-to-date tally to 37 full-flight simulators sold.

Speaker 3: Consistent with the more advanced air travel recovery in the Americas, over 60% of the year-to-date totals are from customers in that region and include full flight simulators orders from major U.S. carriers, from actually all major U.S. carriers, including orders for multiple full flight simulators for some of the largest United Airlines this quarter.

Consistent with the more advanced air travel recovery in the Americas over 60% of the year to date tolls are from customers in that region include full flight simulator.

Orders for a major U S carriers, both actually all major U S carriers, including orders for multiple full flight simulators for some of the largest unites airlines this quarter.

Speaker 3: Our airline customers in the Americas have been adding back flight capacity and actively ramping up pilot hiring.

Our airline customers in the Americas have been adding back flight capacity and actively ramping up pilot hiring.

Speaker 3: In order to secure the training capacity that they require, they've been working with CE as their training partner of choice, entering new long-term training agreements and acquiring additional simulators.

In order to secure the training capacity that they require they've been working with CE as their training partner of choice entering new long term training agreements and acquiring additional simulators.

Speaker 3: We think this makes for a compelling preview of what an eventual broader global market recovery holds for CAE.

We think this makes for a compelling preview of what an eventual broader global market recovery holds foresee.

Speaker 3: Notable training contracts for the quarter include five-year extensions of commercial aviation training agreements with Endeavour Air in Avianca, a nine-year commercial aviation training agreement with Norwegian, as well as five-year business aviation training agreements with Global Jet Luxembourg, ExoJet, and VistaJet.

Notable training contracts for the quarter include five year extensions of commercial aviation training agreements with endeavor air and Avianca, a nine year commercial aviation training agreement with Norwegian as well as five year business aviation training agreements with global jet Luxembourg, XO jet and risk.

Yeah.

In Defence, we also had double digit growth in the quarter with the contribution of <unk> Harris military training.

Speaker 3: In defense, we also had double-digit growth in the quarter with the contribution of L3Harris military training. And as we expected, we surpassed the $30 million mark in adjusted segment operating

And as we expected we surpassed the $30 million Mark and adjusted segment operating income.

I'm, especially pleased with our order intake.

Speaker 3: I'm especially pleased with our order intake, which totaled $593 million in the quarter for a 1.39 times book-to-sales ratio and a $4.6 billion backlog.

Which totaled $593 million in the quarter or 139 times book to sales ratio and a $4 6 billion backlog.

Speaker 3: We seized on the opportunity of the temporary relaxations in pre-Omicron COVID-19 restrictions and as a result our international book-to-sales ratio was above one for the first time since the start of the pandemic.

We seized on the opportunity of the temporary relaxations and pre omicron COVID-19 restrictions.

As a result, our international book to sales ratio was above one for the first time since the start of the pandemic.

In addition to the positive book to sales. We're also seeing more conversion on our defense strategy to pursue multi domain training and mission support solutions.

Speaker 3: In addition to the positive book to sales, we're also seeing more conversion on our defense strategy to pursue multi-domain training and mission support solutions.

Speaker 3: Orders to date included competitive prime awards, re-competes, and contract expansions across all five domains, air, land, sea, space, and cyber.

Orders to date included included competitive Prime rewards Recompete and contract expansions across all five domains air land Sea space and cyber.

Speaker 3: In the air domain, we strengthen our international presence with the German Air Force's competitive selection to provide ab initio pilot training, replacing the 60-year incumbent.

And the air domain.

We strengthened our international presence with the German Air Force competitive selection to provide Avenue shuttle pilot training, replacing the 60 year incumbents.

Speaker 3: Along with this new live flight training program, we also expanded our relationship with the United States Navy's Chief of Naval Air Training, or SINATRA, by adding T45 live flight training to our instructional services contract.

Along with this new life flight training program. We also expanded our relationship with the United States Navy Chief of Naval Air training, our Sinatra by adding $2 45 live flight training towards structural services contracts.

Speaker 3: Beyond LifeLake training, we were awarded a 19-year base plus options contract from an Australian customer to provide integrated support and training on a range of strategic platforms.

Beyond Lifeflight training, we were awarded in the 19 year base plus options contract from an Australian customer to provide integrated support and training on a range of strategic platforms.

Speaker 3: Other contract expansions including forward task orders on our simulator common architecture requirements and standards or SCARS single award IDIQ as the U.S. Air Force accelerates the integration and standardization of approximately 2,400 simulators across 300 locations.

Other contract expansions, including Ford task orders on our simulator common architecture requirements of standard or scars single Award <unk> IQ as a U S Air Force accelerates the integration and standardization of approximately 2400 simulators.

Across 300 locations.

Speaker 3: Since the end of the quarter, we've made additional notable progress to broaden our position beyond our core defense, air, land, and sea programs by winning our first competitive prime contract in cyber.

Since the end of the quarter, we made additional notable progress to broaden our position beyond our core defense Air land as key programs by winning our first competitive prime contracts and cyber.

And space.

Speaker 3: We were selected by Canada's Department of National Defense to expand cyber intrusion detection capabilities on the Innovation for Defense Excellence and Security, or IDEAS, program. And we were awarded our first prime simulation contract in the space domain with a key U.S. customer.

We were selected by Canada's Department of National Defence to expand cyber intrusion detection cable detection capabilities on the innovation for defense excellent as security or ideas program.

We were awarded our first prime simulation contract and the space domain with a key U S customer.

Speaker 3: These strategic cyber and space prime contracts, along with our first US intelligence community competitive prime win in the second quarter, are great examples of how we're building our defense business for the future by establishing it as the world leading platform agnostic training and simulation pure play, ensuring mission readiness by integrating solutions across all five domains.

These strategic cyber and space Prime contracts, along with our first U S intelligence community competitive prime win in the second quarter are great. Examples of how we're building our defense business for the future by establishing it as the world's leading platform agnostic training and simulation.

And pure play ensuring mission readiness by integrating solutions across all five domains.

Speaker 3: And finally, in healthcare, we delivered our fourth consecutive quarter of double digit year over year revenue growth, excluding the ventilators, as we ramp up our re-energized organization with a clear focus on achieving greater scale.

And finally in healthcare, we delivered our fourth consecutive quarter of double digit year over year revenue growth, excluding the ventilators as we ramp up our Reenergized organization with a clear focus on achieving greater scale.

Speaker 3: We launched updates to expand the feature set and functionality of some of our main product solutions, including Learning Space, our Simulation Center Management System, and Vimedix, our ultrasound education platform. We also introduced eleven new on-demand online digital courses featuring virtual simulation in collaboration with the British Columbia Institute of Technology.

We launched updates to expand the feature set and functionality of some of our main product solutions, including learning space are assimilating simulation Center management system and limits, our ultrasound education platform.

We also introduced 11, new on demand online digital courses featuring vertical virtual stimulation in collaboration with the British Columbia Institute of Technology.

Speaker 3: With that, I'll now turn the call over to Sonia, who'll provide additional details about our financial performance. I'll return at the end of the call to comment on our outlook. Sonia? Thank you, Mark, and good afternoon, everyone.

With that I'll now turn the call over to Sonya, who will provide additional details about our financial performance I'll return at the end of the call to comment on our outlook Sonya.

Thank you Mark and good afternoon, everyone.

Speaker 4: We delivered double-digit year-over-year growth and strong free cash flow during the third quarter, notwithstanding the ongoing challenges of the pandemic. Our performance reflects CA's resiliency and the strength in some of our end markets, as well as our excellent progress to expand our reach and lower our costs.

We delivered double digit year over year growth and strong free cash flow during the third quarter notwithstanding the ongoing challenges of the pandemic our performance reflects CA as resiliency and the strength in some of our end markets as well as our excellent progress to expand our reach and lower our cost structure.

Speaker 4: Consolidated revenue of $848.7 million was 2% higher compared to the third quarter last year, and was 15% higher, excluding the $93.5 million of revenue in the third quarter last year from a contract to provide the Canadian government with ventilators as part of our COVID-19 humanitarian initiative.

Consolidated revenue of $848 $7 million was 2% higher compared to the third quarter last year and was 15% higher excluding the $93 $5 million of revenue in the third quarter last year from a contract to provide the Canadian government with ventilators as part of our COVID-19 humanitarian initiatives.

Speaker 4: Adjusted segment operating income was $112.7 million compared to $97.2 million last year. And quarterly adjusted net income was $60.7 million or 19 cents per share compared to 22 cents per share in the third quarter last year.

Adjusted segment operating income was $112 7 million.

Compared to $97 $2 million last year and quarterly adjusted net income was $67 million or <unk> 19 per share compared to <unk> 22 per share in the third quarter last year we.

Speaker 4: We encourage restructuring integration and acquisition costs of $47.2 million during the quarter related to the Yeltsin-Harris Military Training Acquisition and the enterprise-wide restructuring program underway.

We incurred restructuring integration and acquisition costs of $47 $2 million during the quarter related to the <unk> Harris military training acquisition and the enterprise wide restructuring program underway.

Speaker 4: Cash provided by operating activities this quarter was up 32% to $309.6 million, compared to $234.8 million in the third quarter of fiscal 2021. Pre-cash flow was also higher at $282.1 million, compared to $224 million in the third quarter last year.

Cash provided by operating activities this quarter was up 32% to $309 $6 million.

Compared to $234 8 million in the third quarter of fiscal 2021 free cash flow was also higher at $282 1 million compared to $224 million in the third quarter last year.

Speaker 4: The increase was mainly due to a lower investment in non-cash working capital, partially offset by cash payments of approximately $38 million related to the integration and acquisition costs of our recently acquired businesses and costs associated with our restructuring program.

The increase was mainly due to a lower investment in noncash working capital, partially offset by cash payments of approximately $38 million related to the integration and acquisition cost of our recently acquired businesses and costs associated with our restructuring program.

Growth and maintenance capital expenditures totaled $76 $9 million this quarter, mainly for growth and specifically to add capacity to our global training network to deliver on the long term exclusive training contracts in our backlog.

Speaker 4: Growth and maintenance capital expenditures totaled $76.9 million this quarter, mainly for growth, and specifically to add capacity to our global training network to deliver on the long-term exclusive training contract in our background.

Speaker 4: Our growth CapEx is directly linked to our opportunities to invest incremental capital with attractive returns and free cash.

Our growth Capex is directly linked to our opportunities to invest incremental capital with attractive returns and free cash flow.

Speaker 4: With several attractive market-led expansion investment opportunities on the horizon, we continue to expect total capital expenditures to be more than $250 million in fiscal 2020.

With several attractive market led expansion investment opportunities on the horizon. We continue to expect total capital expenditures to be more than $250 million in fiscal 2022.

Speaker 4: Income tax expense this quarter was $2.6 million for an effective tax rate of 8% compared to an effective tax rate of nil for the third quarter last year.

Income tax expense this quarter was $2 6 million for an effective tax rate of 8% compared to an effective tax rate of nil for the third quarter last year.

Speaker 4: The income tax rate was impacted by restructuring, integration, and acquisition costs this quarter, and excluding these costs, the income tax rate this quarter was 20%, which is the rate used as a basis to determine the adjusted net income of $60.7 million and adjusted EPS of 19%.

Income tax rate was impacted by restructuring integration and acquisition costs this quarter and excluding these costs. The income tax rate. This quarter was 20%, which is the rates used as a basis to determine the adjusted net income of $60 $7 million and adjusted EPS of <unk> 19.

Our net debt position at the end of the quarter was approximately $2 3 billion for a net debt to total capital ratio of 36, 5% and net debt to adjusted EBITDA was 323 times at the end of the quarter. We continue to expect interest expense of about $35 million as a quarterly run rate going forward.

Speaker 4: Our net debt position at the end of the quarter was approximately $2.3 billion for a net debt to total capital ratio of 36.5% and net debt to adjusted EBITDA was 3.23 times at the end of the quarter. We continue to expect interest expense of about $35 million as a quarterly run rate going forward.

Now turning to our segmented performance in civil third quarter revenue was $391 million versus $412 2 million in the third quarter last year and adjusted segment operating income was up $21 $4 million over the third quarter last year to $83 4 million for a margin of <unk>.

Speaker 4: In civil, third quarter revenue was $390.1 million versus $412.2 million in the third quarter last year. An adjusted segment operating income was up $21.4 million over the third quarter last year to $83.4 million for a margin of 21.4%.

One 4% this highly improved performance was driven by higher training utilization predominantly in the Americas and including our interest in joint ventures Civil training services revenue was approximately 10% higher compared to the third quarter last year.

Speaker 4: This highly improved performance was driven by higher training utilization, predominantly in the Americas, and including our interest in joint ventures, civil training services revenue was approximately 10% higher compared to the third quarter last year.

Speaker 4: The higher revenue and training was offset by lower product revenue with the delivery of seven simulators this quarter compared to 10 last year. The lower number of scheduled deliveries in the quarter was expected and is consistent with our outlook for approximately 30 deliveries for the year.

The higher revenue and training was offset by lower product revenue with the delivery of seven simulators this quarter compared to 10 last year.

The lower number of scheduled deliveries in the quarter was expected and is consistent with our outlook for approximately 30 deliveries for the year for the year.

Speaker 4: In defense, third quarter revenue of $426.5 million was up 42% over Q3 last year. This includes $127.9 million from the integration of L3Harris military training into our financials. We indicated on the call last quarter that we would expect the segment operating income to cross into the $30 million range, and indeed it did by reaching $32 million for the quarter, including $19.6 million from the acquisition for a margin of 7.5%.

In defence third quarter revenue of $426 $5 million was up 42% over Q3 last year. This includes a $127 9 million from the integration of L. Three Harris military training into our financials, we indicated on the call. The call last quarter that we would expect a segment operating income to cross into the 30 million.

Range and indeed, it did by reaching $32 million for the quarter, including $19 $6 million from the acquisition for a margin of seven 5% <unk>.

Speaker 4: The organic defense business grew sequentially this quarter, but remained lower compared to last year because of prior period COVID-19 impact on orders and program interruptions, particularly internationally, which have been persistent since the onset of the pandemic.

The organic defense business grew sequentially this quarter, but remained lower compared to last year because of prior period, COVID-19 impacts on orders and programmed program interruption, particularly internationally, which has been persistent since the onset of the pandemic.

Speaker 4: And in healthcare, third quarter revenue was $32.1 million, down from $120.9 million in Q3 last year on a statutory basis, but was up 17% excluding the ventilator contract.

And in healthcare third quarter revenue was $32 1 million down from $120 9 million in Q3 last year on a statutory basis, but was up 17%, excluding the ventilator contract last year.

Speaker 4: A justice segment operating loss was $2.7 million in the quarter compared to an income of $12.9 million in Q3 of last year.

Adjusted segment operating loss was $2 $7 million in the quarter compared to an income of $12 9 million in Q3 of last year.

Speaker 4: The decrease from last year was mainly due to the contribution from the ventilators in the prior period and COVID related labor disruptions in the higher.

The decrease from last year was mainly due to the contribution from the ventilators in the prior period and Covid related labor disruptions and higher costs.

Speaker 4: We're also running a higher level of SG&A expenses to help accelerate top-line growth with a view to sustainable scale and profitability. With that, I will ask Mark to discuss the way forward.

We're also running a higher level of SG&A expenses to help accelerate top line growth with a view to sustainable scale and profitability.

With that I will ask Marc to discuss the way forward.

Thanks Tanya.

Speaker 3: As we look to the period ahead, we continue to see a clear path to emerge from the pandemic a larger, more resilient, and more profitable CE than ever before.

As we look to the period ahead.

We continue to see a clear path to emerge from the pandemic are larger more resilient and more profitable CE than ever before.

Speaker 3: Testimony to that, we're already delivering stronger financial performance, expanding and optimizing our position, and booking substantial orders.

Testimony to that we're already delivering stronger financial performance, expanding and optimizing our position and booking substantial orders.

Speaker 3: Pandemic-related headwinds may persist for some time, including supply chain disruptions, employee and customer absenteeism due to COVID-19 infections, operational constraints imposed by local authorities, and intermittent border

Pandemic related headwinds may persist for some time, including supply chain disruptions employee and customer absenteeism due to COVID-19 infections operational constraints imposed by local authorities and intermittent border restrictions.

Speaker 3: The emergence and rapid spread of the Omicron variant this past December has certainly extended the timeline to a broad global recovery.

The emergence and rapid spread of the only cross variant. This past December has certainly extended the timeline to broad global recovery.

Speaker 3: but it has not changed our position and our positive view of fees potential as our end markets eventually open up more broadly as we emerge from the pandemic.

But it has not changed our position and our positive view of <unk> potential as our end markets. Eventually open more open up more broadly as we emerge from the pandemic.

In civil.

Speaker 3: A greater desire by airlines to entrust CAE with their critical training and digital operational support and crew management needs, higher expected pilot demand, and strong growth in business jet travel demand are enduring positives underpinning a secular growth market.

Greater desire by airlines to Entrusts CAE with their critical training digital operational support and crew management needs higher expected pilot demand and strong growth in business jet travel demand, our enduring positive underpinning a secular growth market.

Speaker 3: The global recovery continues to be narrowly led by the Americas, which means significant upside remains for a more global recovery. And we think the Americas provide a preview of the kind of demand to follow in other regions when conditions permit.

The global recovery continues to be narrowly led by the Americas, which means significant upside remains for a more global recovery and we think the Americas provide a preview of the kind of demand to follow in other regions when conditions permit.

Speaker 3: Since the end of the quarter, we've had to contend with Omicron-related employee and customer absenteeism. However, the Americas are still strongest, and we're currently seeing some increased demand for training solutions in Europe as COVID-19-related travel restrictions begin to ease and airlines plan for what they expect will be a more robust summer travel season and beyond.

Since the end of the quarter, we have had to contend with <unk> related employee customer absenteeism. However, the Americas is still strongest and were currently seeing some increased demand for training solutions in Europe as COVID-19 related travel restrictions begin to ease and airlines plan for what they expect.

B, a more robust summer travel season and beyond.

Speaker 3: As an example, EasyJet just recently announced the drive to hire 1,000 new pilots over the next five years with CAE as their training partner of choice.

As an example, easy jet just recently announced the drive to hire 1000, new pilots over the next five years, which CAE as their training partner of choice.

Speaker 3: Asia-Pacific is currently the most challenging region with relatively low levels of flight activity and training demand as Omicron now makes its way through that region.

Asia Pacific is currently the most challenging regions with relatively low levels of flight activity and training demand as omicron now makes its way through that region.

Speaker 3: Overall, since the end of the quarter, our training centers have been holding at about 60% average utilization levels globally.

Overall since the end of the quarter, our training centers have been holding at about 60% average utilization levels globally.

In business aviation.

Speaker 3: We remain bullish on the long-term and we believe that the market is experiencing a structural expansion with 3.3 million flights worldwide in 2021, the most on record for a single year.

We remain bullish on the long term and we believe that the market is experiencing a structural expansion with $3 3 million flights. The worldwide in 2021, the most on record for a single year.

Speaker 3: COVID-19 headwinds bear mentioning here as well, as Omicron and quarantine requirements were disruptive for our schedule in January for both our customers and CAA instructors. But we look to be back on trend and we're seeing strong demand for training propelled by robust flight activity in the United States and Europe .

COVID-19 headwinds bear mentioning here as well as the only kron quarantine requirements were disruptive towards schedule in January for both of our customers SCE in structures, but.

But we look to be back on trend and we're seeing strong demand for training.

Propelled by robust flight activity in the United States and Europe .

Speaker 3: And in simulation products, we're encouraged by the higher projected delivery rates of new aircraft coming off manufacturers production lines as one of the, of course, the main drivers for full flight simulators.

And in simulation products, we're encouraged by the higher projected delivery rates of new aircrafts coming off manufacturers' production lines as one of course, the main drivers for full flight simulator sales.

Speaker 3: We're seeing higher demand, as evidenced by this quarter's full-flight simulator order intake, coming mainly from customers in the Americas and Europe , and we expect to maintain our leading share of the market.

We're seeing higher demand as evidenced by this quarter's full flight simulator order intake coming mainly from customers in the Americas, and Europe , and we expect to maintain our leading share of the market.

The unevenness of the global recovery is likely to continue for some time.

Speaker 3: The unevenness of the global recovery is likely to continue for some time, but we're ultimately in an excellent position to benefit from the multi-year cyclical market recovery that's currently underway.

We're ultimately in an excellent position to benefit for the multiyear cyclical market recovery is currently underway.

Speaker 3: We continue to expect strong growth in civil for the current fiscal year overall.

We continue to expect strong growth in civil for the current fiscal year overall.

Speaker 3: In defense, the paradigm shift from asymmetric to near-peer threat and a recognition of the sharply increased need for digital immersion-based synthetic solutions across all five domains in national defense are tailwinds that favor C's business.

In defence the.

Paradigm shift from Astra metric to near peer threats and a recognition of the sharply increased need for digital immersion based synthetic solutions across all five domains of national defense or tailwind for <unk> business.

Speaker 3: Given the increasing relevancy of training assimilation, our defense unit is also on a multi-year path to becoming a larger and more profitable business.

Given the increasing relevancy of training simulation. Our defense unit is also on a multi year path to become a larger and more profitable business.

Speaker 3: We're currently focused on the successful integration of L3 Harris military training, and we're on track to fully realize their 35 to 45 million dollars of cost synergies that we laid out by fiscal year 2024.

We're currently focused on the successful integration of <unk> Harris military training and we're on track to fully realize there are $35 million to $45 million of cost synergies that we laid out by fiscal year 2024.

Speaker 3: The pandemic continues to make international opportunities slower to materialize, but this headwind is temporary, and we have a strong pipeline with some $6.2 billion of bids and proposals pending customer decisions.

The pandemic continues to make international opportunities slower to materialize, but this headwind is temporary and we have a strong pipeline with some $6 $2 billion of bids and proposals pending customer decisions.

Speaker 3: Our increased orders in the quarter puts defense on the path to achieving over one-time book-to-sales for the rate for the year for the first time in the last three fiscal years.

Our increased orders in the quarter flips defense on the path to achieving over one time book to sales for the rate for the year for the first time in the last three fiscal years.

Speaker 3: Our U.S. defense business was also impacted by pandemic-related employee absenteeism in January and it currently faces a temporary budgetary headwind on contract expansions and new program starts as a result of the continuing resolution.

Our U S defense business was also impact impacted by pandemic related employee S&P as of mid January and it currently faces a temporary budgetary headwinds on contract expansions and new programs start as a result of the continuing resolution.

Speaker 3: Defense is indeed managing through its share of ongoing challenges, but we're moving in the right direction and we remain confident that we'll deliver strong annual growth for fiscal year 2022.

Defense is indeed, managing through its share of ongoing challenges, but we're moving in the right direction and we remain confident that we will deliver strong annual growth for fiscal year 2022.

And lastly in healthcare.

Speaker 3: We're focused on achieving greater scale by gaining share in the simulation training market, and we're targeting some of the largest pools of value like nursing.

We're focused on achieving greater scale by gaining share in the simulation training market and we are targeting some of the largest pools of value like nursing.

Speaker 3: Supply chain restrictions, disruptions and staffing shortages are a near-term headwind for the business too, but we continue to expect a double-digit growth in the fiscal year, excluding the ventilator contract.

Supply chain restrictions or disruptions in staffing shortages are a near term headwind for the business too, but we continue to expect a double digit growth through fiscal year, excluding the ventilator contract.

Speaker 3: On the ESG front, I want to highlight that CAE was included in the 2022 Bloomberg Gender Equality Index for the fourth consecutive year.

On the ESG front I want to highlight the CE was included in the 2020 to Bloomberg gender equality index for the fourth consecutive year.

Speaker 3: This award recognizes that HCA is committed to support gender equality through policy development, representation, and transparency.

This award recognizes CAE is committed to support gender equality through policy development representation and transparency.

Speaker 3: We're proud to continue building an inclusive workplace every day.

We're proud to continue building in <unk> and <unk>.

Inclusive workplace everyday.

In summary.

Speaker 3: We've been adeptly playing offense during this period of market disruption by investing organically and seizing on nine acquisitions to enhance our position and broaden our market.

We are definitely playing offense during this period of market disruption by investing organically and seizing on nine acquisitions to enhance our position and broaden our market reach we're also strength. We've also strengthened by permanently reducing our cost base across the enterprise.

Speaker 3: We've also strengthened CE by permanently reducing our cost base across the enterprise.

Speaker 3: The timeline for a broad global recovery is more extended, but our actions and our performance to date give me even greater confidence that we're on the path to strong cyclical recovery and secular growth as our markets eventually open and we all emerge from the pandemic.

The timeline for a broad global recovery is more extended but our actions that our performance to date gives me even greater confidence that we're on the path to strong cyclical recovery and secular growth as our markets eventually open and we all emerge from the pandemic.

Speaker 3: We're delivering on what we said we would do, and I expect CEA to continue driving higher levels of profitability on a significantly larger base of business and with a post-pandemic capital structure that will allow us to sustain ample flexibility to further invest in our future.

We're delivering what we said we would do.

And I expect <unk> to continue drive driving higher levels of profitability on a significantly larger base of business and with a post pandemic capital structure that will allow us with ample flexibility to further invest in our future.

Speaker 3: Our opportunity set continues to look very attractive and I've never been as confident about CA's future as I am today. With that, I thank you for your attention.

Our opportunity set continues to look very attractive and I've never been as confident about <unk> future as I am today.

With that I. Thank you for your attention and we're now ready to answer your question.

Speaker 1: Thank you. Thank you. I'm sorry. Sorry, operator, before we open the lines to questions, I want to highlight that Mark last month was honored with one of the world's most prestigious aviation awards. Having been named industry leader of the year by the living legends of aviation. We're very proud of him and how this reflects positively on all of us. So please do join me in congratulating Mark.

Thank you. Thank you Martin with <unk>, I'm, sorry, I'm sorry.

Before we open the lines to questions I want to highlight.

That Mark last month was honored with one of the world's most prestigious Aviation awards.

<unk> been named industry leader of the year by the living legends of aviation, we're very proud of him and how this reflects positively on all of us at CAE. So please do join me in congratulating Mark.

Speaker 2: We'd now be pleased to take questions from analysts and institutional investors.

We'd now be pleased to take questions from analysts and institutional investors.

Speaker 1: Thank you. If you would like to register a question or comment, please press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the 1 followed by the 3.

Thank you if you would like to register a question or comment. Please press. The one followed by the four on your telephone.

You will hear a three time prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration. Please press. The one followed by this three one moment please.

And our first question comes from Kevin Chiang of CIBC. Please go ahead.

Speaker 1: And our first question comes from Kevin Chang of CIBC. Please go ahead.

Speaker 5: Hi, thanks for taking my question. And I echo Andrew's congratulations there, Mark. Maybe if I could start with the civil margin performance. As you noted, you know, first time during the pandemic, north of 20%, despite utilization still tracking below pre-pandemic levels. If I look at it quarter over quarter, it looks like incremental margins.

Hi, Thanks for taking my question.

<unk> congratulations.

Mark.

Maybe if I could start with the civil margin performance as you know the first contain the pandemic north of 20% despite utilization still tracking below pre pandemic levels. If I look at it quarter over quarter. It looks like incremental margins were about 65% just trying to get a sense.

Speaker 5: We're about 65%, but just trying to get a sense of where you think the margin trajectory goes here as utilization, you know, get back to kind of prepandemic levels of 70 to 75%, you know, could this be a mid 20s.

What do you think the margin trajectory goes here as utilization.

I will get back to kind of pre pandemic levels of 70% to 75%.

Could this be a mid twenties.

Speaker 5: SOI margin business, given all that you've done within the mix of revenue there.

Soi margin business, given all that you've done.

Within the mix of revenue there.

Speaker 3: I had trouble catching the last part of your question, Kevin, but I think I get the gist and maybe I'll try it and you let me know if I've answered it. Look, I think I'm very pleased, obviously, with the margin performance that we had in the quarter in civil, you know, 21, 21.4% margin driven off.

I had couple of kitchen and the last part of your question, Kevin, but I think I get the just maybe I'll try and let me know if I've answered. It look I think I'm very pleased obviously with the margin performance that we had in the quarter in several years 'twenty, one 'twenty, one 4% margin driven off essentially similar revenue.

Speaker 3: essentially similar revenue that we had last year and maybe just I'll pause on that. When you look at the revenue it looks like it's slightly down relative to last year for good reasons of the mix.

That we had last year and maybe just I'll pause on that when you look at the revenue it looks like it's slightly down relative to last year for good reasons of the mix and environment and the fact that we had lower deliveries in our products, but remember that we don't.

Speaker 3: environment, the fact that we had lower deliveries in our products, but remember that we don't.

Speaker 3: We don't want to consolidate JV revenue, and that's not an insignificant number, and that's because of accounting.

We don't want to consolidate JV revenue and that's not an insignificant number.

And thats because of the accounting if you were to add back the.

Speaker 3: The JV revenue, what you'd be seeing is training revenue is about up about 10%.

JV revenue, what you'd be seeing us training revenue was about up about 10% year over year, but coming back to the margin look as I said I'm pretty happy about that youre going like 18% I think 21% 21, and <unk> four I think what Youre seeing there is first of all the mix of business.

Speaker 3: year over year. But coming back to the margin, look, as I said, I'm pretty happy about that. You're going like 18%, I think, to 21%, 21.4%. I think what you're seeing there

Speaker 3: is, first of all, the mix of business. You have business aircraft, which I've always said is that's an attractive margin profile. We have a very good, very nice position in market business aircraft. Business aircraft is doing great. You're seeing that transpire. You're seeing commercial aviation training in the U.S. doing pretty well. And really, the big way what you're seeing is our cost savings, which are structural, coming through the numbers. So that's what you're seeing. And of course,

You have business aircraft, which I've always said is that as an attractive margin profile. We have a very good very nice position in market and business aircraft business aircrafts doing great. You have seen that transpire youre seeing commercial aviation training in the U S doing pretty well and really big way, which youre seeing is our cost savings which are structured.

Coming through the numbers. So that's what you're seeing and of course, we've always said that we fully expect that.

Speaker 3: We've always said that we fully expect that, you know, margins, because of all those reasons that margins going forward should track higher.

Margins because of all of those reasons that margins going forward should track higher than that we've achieved in the past I think our peak peak civil margin was just above 22% historically I would certainly expect to blow through that on a sustained basis. I mean, obviously, one quarter doesn't make a year and with variable, but that would be that would be.

Speaker 3: than we've achieved in the past. I think our peak civil margin was just about 22% historically. I would certainly expect to blow through that on a sustained basis. I mean, obviously, one quarter doesn't make a year and it will be variable, but to me, that would be the trend as you get more utilization.

The trend as we get more utilization.

Speaker 3: And I think the last thing I'll add, of course, I said in the remarks

No that's it.

The last thing I would add of course as I said in the remarks is all of that is achieve on a pre narrowly led recovery thats really United States. So I think thats why you since my confidence excitement as the broader recovery across the globe comes to bear.

Speaker 3: all of that is achieved on a pretty narrowly led recovery that's really the United States. So I think that's why you sense my confidence and excitement as the broader recovery across the globe comes to bear.

Well that's.

Makes sense.

Speaker 5: Just to clarify something, so if I look at the time that you acquired the L3Harris military training business, if memory serves me correctly, I think at that time,

Turning to the effect that just want to clarify some things so if I look at.

At the time that you acquired all three Harris military training business. If memory serves me correct I think at that time.

Speaker 5: You had called out EBITDA margins of roughly 15%, I think. And if I look at what those margins look like since you've acquired it, it looks like it held up pretty well. Where's your legacy margins have tracked about half, if not a little bit below pre-pandemic levels. It sounds like you were talking about primarily a lot of the international restrictions. Is that primarily the reason?

We had called out.

EBITDA margins of roughly 15% I think it's and if I look at.

What those margins look like since you've acquired it looks like it helped held them pretty well.

<unk> legacy margins.

<unk> talked about half of political below pre pandemic levels.

Sounds like you were talking about up to primarily along with international restrictions is that primarily the reason.

Speaker 5: for the underperformance and margins, and you need to see these travel restrictions get eliminated before they can.

The underperformance in margins and continue to see these travelers.

Travel restrictions that are <unk>.

Eliminated before they can.

Speaker 5: you know, get back to 10% or is there anything else kind of holding those margins back?

We'll get back to 10% or is there anything else kind of holding those margins back.

Speaker 3: Well, I think there's a few things in there. I mean, you're absolutely correct, as we cited, the defense business is not immune to COVID, both in the L3Harris business, particularly in the international side of that business. I mean, the international portion of L3Harris business, or the one we've inherited through our practices, is lower than our organic business, but it's still affected nonetheless. And so, it's seen its share of impact there, as you couldn't travel to a lot of those locations.

Well I think there is a few things in there I mean youre absolutely correct as we cited the defense business is not immune to COVID-19 .

In the <unk> business, particularly in the international side of our business I mean, the international portion of <unk> Harris business. So the one we've inherited through our acquisition is lowered in our organic organic business, but it is still affected nonetheless.

So it has seen its share of impact there as you couldn't travel to a lot of those locations. We are also seeing some effects of as I mentioned in the continuous resolution United States that prevents us from having new program starts or expansion of our existing programs. So that has definitely been a headwind then.

Speaker 3: We've also seen some effects of, as I mentioned, the continuous resolution in the United States that prevents us from having new program starts or expansion of our existing programs.

Speaker 3: So that has definitely been a headwind, and we hope to see that being resolved pretty quickly. I can point the contracts that we're on. Like I mentioned, the SCARS contract in the United States.

We hope to see that being resolved pretty quickly.

Point the contracts that were on like I mentioned, the scars contracts in the United States in the GB Gvhd the ground based strategic deterrent contract that we're on a nice states for our <unk> business, our <unk> business those are big contracts and because you have the CR continuous.

Speaker 3: the GBSD, the ground-based strategic deterrent contract that we're on in the United States for our health-rehearsal business, our ex-health-rehearsal business.

Speaker 3: Those are big contracts, and because you have the CR, continuous resolution, you're not, I mean, the contractors themselves, if I think about the prime contractor on GPSD, are not able to make progress in enlarging that contract, so that affects us. And I don't know, I think maybe that's funny. You want to add anything to that? Yeah, I'd probably kind of talk to the organic-based business, and what we talked to, and this is still the case, the base business, first of all, it did sequentially increase both top and bottom line since last quarter, but as you know, our organic business has a higher proportion of international business, and as Mark just talked, that's the one that's been the most disrupted by COVID, especially international product programs, so a couple which are usually higher margins for us.

We are not the.

The contracts themselves.

Think about the prime contract on contractor on GPS are enabled not able to make progress and enlarging that contract so that affects us.

And I think maybe add that Tony do you want to add anything today, I'd, probably kind of talk to the organic base business and what we talked to and this is still the case that the base business first of all it did sequentially increase both top and bottom line for us since last quarter.

But as you know our organic business has a higher proportion of international business and as Mark just talked that's the one that's been the most disrupted by Covid, especially international product program. So a couple of which are usually higher margins for us.

Speaker 4: So first, interrupting execution of existing backlogs, you know, so in certain regions where execution is slowed or even stopped. And as restrictions lift and programs can restart, that will help advance on both revenue and contribution, but also the impact of delays in order intake, especially on the international side. Thank you, everyone.

So first interrupting execution of existing backlog CSN certain regions, where.

Contract.

Execution has slowed or even stopped.

And as restrictions lift in programs can restart.

That will help advance on on both revenue and contribution but also the impact of delays in order intake, especially on the international side, we've we've gone.

Speaker 4: several years, at least definitely since the pandemic, with book-to-sales less than one, as contracts are selected, etc., but not necessarily moved to award it. Now, we've seen some good advancement in the quarter with the book-to-sales and the international sites going above one, and so as those take traction, whether it is

Several years at least definitely since pandemic would look the sales less than one as contracts are selected et cetera, but not necessarily move to award. It now we've seen some good advancement in the quarter with the book to sales in the international side going above one.

And so as those take traction and weather.

Speaker 4: the restrictions lifted and we secure those delayed orders on the product and international side and then on of course a layer on the continued synergies that we're starting to ramp up with the acquisitions. These will contribute to growing both on the top line and the profitability.

The restrictions lifted and we secure those delayed orders on the product and international side and then of course the layer on the continued synergies that we're starting to ramp up with the acquisition. These will contribute to growing both on the top line and the profitability.

Speaker 5: that's helpful. And maybe just last one for me, you know, I appreciate, you know, the pipeline of opportunities you see in healthcare, and I think there are a lot of

That's helpful.

Just last one for me.

I appreciate it.

The pipeline of opportunities you see in health care.

And I think there are a lot of.

Speaker 5: you know, synergies with your core competency in terms of what you're trying to do there, but.

So synergies with your core competency in terms of what Youre trying to do there but.

Speaker 5: When you have an incremental dollar of capital, why healthcare would be an appropriate place to put that versus what you're seeing within civil and defense? It just feels like you've got better scale in those businesses, you can generate, I would imagine, better incremental returns.

Maybe explain to me what.

You have the incremental dollar of capital Y Holdco will be.

Appropriate place to put that versus what youre seeing in civil and defense. It just feels like it got better scale in those businesses.

You can generate I would imagine better incremental returns.

I guess.

Speaker 5: I guess, explain to me why a dollar to healthcare would make sense versus the other.

I guess explain to me what wine dollar to help deal with makes sense versus the other two.

Speaker 3: Well, I think the first thing I'd point to, other than the fact that we continue to strongly believe in that health care will become a more material part of the sea in the not too distant future. I'm quite confident of that. But I think the thing I would point to specifically the question of capital deployment is that the business is largely self-funding, I think essentially all of self-funding. And so the question that you asked, there isn't really no decision to be made with regards to that.

Well I think the first thing I'd point to other than the fact that we continue to strongly believe in that healthcare will become a more material part of <unk> in the in the not too distant future that I'm quite confident of that but I think the thing I would point to two specific E. The question of capital deployment is that the business is largely self funding I think essentially all self fund.

And so.

The question that you asked there is really no decision to be made with regards to that.

Speaker 6: Okay, that's that's it for me. Thank you very much. Thank you.

Okay. That's it for me thank you very much.

Thank you.

Thank you.

Speaker 1: The next question comes from Konark Gupta of Scotiabank. Please go ahead.

The next question comes from <unk> Gupta of Scotia Bank. Please go ahead.

Thanks, and good luck and good afternoon, everyone and congrats Mark on your accomplishments.

Speaker 7: Thanks and good afternoon everyone and congrats, Mark, on your accomplishment.

Speaker 8: So maybe my first question, just following on the back of Kevin's question on civil margin, obviously you saw a pretty strong performance here. I understand there's business share training, which is high yielding and then cost savings as well flowing through, but anything sort of non-recurring in nature you think are not going to recur again in Q4 or the future quarters you saw in Q3 perhaps that you can speak to? No.

Thank you.

Maybe.

First question.

Building on Kevin's question on Civil margin, obviously, you saw a pretty strong performance here I understand there's this business jet training, which is higher yielding and net cost savings as well as flowing through but anything on sort of non recurring and made sure you would think.

<unk>.

Going to recur again in Q4 are the future quarter as we saw in Q3, perhaps.

Nope.

Speaker 4: No, this is just really, you know, I think step up in operations, really, you know, a 35% increase in SLI on 60, still 60% utilization and lower delivery. It's really the mix. You see the operating leverage that's coming from that increase in utilization and the cost savings. So I think there's no non-recurring items, just strong performance on the civil side. It's all good stuff.

No fair enough.

Or it is just really I think a step up in operations really.

35%.

Increase in Soi.

<unk> is still 60% utilization and lower deliveries, but it's really the mix.

You see the operating leverage that's coming from that that increase in utilization and the cost savings. So I think theres no nonrecurring items just.

Strong performance on the civil side, it's all good stuff.

Speaker 7: Okay, no, it's kind of like more curious about, you know, seasonality in the business, right? All the time that you have probably business jet training, it's stronger in the fourth quarter. And then it kind of drops off in the first half, like sequentially. So like, does it does business jet make seasonally seasonality actually more pronounced and margins because of, you know, these

Okay.

Just kind of like more curious about seasonality in the business right. Obviously some of you have probably business jet training.

The stronger in the fourth quarter, and then it kind of drops off in the first half by sequentially. So it does it does the first check make seasonally seasonality actually more pronounced in margins because of these dynamics.

Speaker 3: I think, well, we still have the normal seasonality, although it's not as pronounced this year just because there's so much disruption across areas. Look, it's too early to say, but I wouldn't expect so, based on the mix that we have. I don't expect.

I think we still have the normal seasonality, although it's not as pronounced this year, just because there's so much disruption across areas.

It's too early to say, but I wouldn't expect so.

Based on the mix that we have I don't expect.

Speaker 3: that we'll see a profound change, at least I don't see any so far. Did we do that, Annie? Well, I would just caution that, you know, there is always volatility on quarter-to-quarter margins, right, because of the mix and so on. So we always kind of give it a view on an annual basis. But, you know, I think there's no significant ups or downs.

That will see a profound change at least I don't see any so far what would you add anything.

Well I would just caution that.

There is always volatility on quarter to quarter margins right because of the mix and so on so we always you can give it a view on an annual basis.

Got it.

I think theres no theres, no significant ups or downs there.

Okay. That's helpful. Thanks, and then a couple of things on the defense side of things.

Speaker 9: Okay, that's helpful. Thanks. And a couple of things on defense side of things. So I mean, it revolved sequentially, certainly with both margins and revenue. And I think last quarter, Sonia, I think you probably would have mentioned that, you know, you expect something in the 30s shortly, and then

So.

It rebounded sequentially certainly.

Both margins and revenue.

I think last quarter funding at the probably what I've mentioned, you expect something in the <unk>. Shortly and then eventually in the forties in terms of Soi Whats your visibility now with the kind.

Speaker 9: eventually in the 40s in terms of SOI, what's your visibility now with the kind of recent order intake at Defense? Does it give you more confidence in that 40 plus SOI number shortly or are you still thinking that still lays out?

Recent order intake and see does it give you more confidence in that 40, plus soi number shock me or something to worry about.

Speaker 4: Well, so I think a great performance on the order intake and of course that gives you confidence to build on future growth. And what we like is that it's both on the U.S. and international side both over one time. And so, like we spoke about it last quarter, we expect it to be in the 30s in Q3.

Well, so I think a great a great performance on the order intake and of course that gives you confidence.

Build on on future growth and what we like is that it's both on the U S and international side, both over one times and so like we spoke about it last quarter, we expect it to be in the <unk> in Q3.

And and then based on a few factors securing.

Delayed orders, especially on the product international side.

As restrictions lifts enough and consistently to be able to advance programs that we have in backlog and then Larry on the synergies that that gives us kind of line of sight at around 40 now.

Speaker 4: order intake, but it does take a while to ramp up these orders. So at the end and the average life of these orders are over several years. So yes, it's it's a great refill of the backlog gives us better confidence for the quarter, but we'll see a lot of that ramp up. Maybe just the start of that ramp up in Q4 and the rest for the upcoming years. Hey, Kona, what what one thing I want just to point out there, go back to your previous question there. Or at least the first part of this question is that business business training is usually the strongest for us in our Q4. I don't expect that to change. The one thing as I mentioned, we were

Great order intake, but it does take a while to ramp up these orders so at the end and the average life of these orders are over several years. So yes, it's a great refills the backlog gives us better confidence for the quarter, but we'll see a lot of that ramp up.

Speaker 4: maybe just the start of that ramp up in Q4 and the rest for the upcoming year.

Maybe just to start of that ramp up in Q4, and the rest for the upcoming years.

Speaker 3: Hey, Kornar, one thing I want to just point out there, going back to your previous question there, or at least the first part of this question, is that BizNet training is usually the strongest for us in Q4. I don't expect that to change. The one thing, as I mentioned, we were impacted like most everybody else in January with a lot of instructors off with COVID related sickness, but we're having a strong order and we're back on trend.

Corner.

One thing I wanted just to point out that going back to your previous question there or at least the first part of this question is that.

Biz jet trading is usually the strongest for us in Q4, I don't expect that to change. The one thing as I mentioned, we were impacted like most everybody else in January with lot of instructors off with Covid related.

But we're having a strong shorter and we're back on trend.

Speaker 9: That's helpful, Mark. And actually, on the defense, I wanted to ask you another question on L3 Harris. It showed some sequential improvement in margins. So I'm just kind of wondering if there's some seasonality to that margin, or was there any synergies that you kind of realized early on?

That's helpful Mark and actually on the defense.

I had to ask you another question on <unk>.

It showed some sequential improvement in margins.

Just kind of wondering if there is some seasonality to that margin.

Was there any synergies that you can have your lifestyle.

Speaker 3: Yes, on the synergies, there are certain synergies that come through. And I guess what I would say is, I've always said in defense, it is no different. One quarter does not make a year, it's always been lumpy, I will expect it to remain lumpy, but you are seeing some synergies come through.

Yes on the synergies we are starting to finish to do just come through.

And I guess, what I would say as I've always said in defense as there is no different.

One quarter does not make a year, it's always been lumpy I will expect to remain lumpy, but you are seeing some synergies coming through.

Speaker 4: Yes, I'll just add, Mark, you know, we're ramping up the integration efforts. There were some redundancies actioned, consolidation efforts, et cetera. So you're starting to see some of those synergies flow through. And depending on where those synergies lie, because they could lie in the organic or the inorganic basis, it will drive some volatility. In this case, it fell more on the inorganic side, but to Mark's point, that can drive some volatility in the quarters and so on in between. But essentially, that's the synergies starting to come through.

Yes, I'll just I'll just add mark.

We're ramping up the integration efforts there were some redundancies actions consolidation efforts et cetera, So youre starting to see some of those synergies flow through and and depending on where those synergies lie because they could lie on the organic or the inorganic basis. It will drive some volatility in this case.

It's all more on the inorganic side, but to Mark's point that can drive some volatility in the quarters and fall in between but essentially that's the.

The synergies starting to come through.

Great.

Thank you.

Speaker 10: Thank you.

Thank you.

Speaker 1: The next question comes from Saadi Shamoon of BMO. Please go ahead.

The next question comes from Asahi Shimbun of BMO. Please go ahead.

Speaker 11: Good afternoon, and thanks for taking my question. Again, around the margin, Sonia, you know, you're talking about 65% incremental margin this quarter.

Good afternoon, and thanks for taking my question again on the margin.

You were talking about 65% incremental margin this quarter.

Speaker 11: Is there a reason why you can't sustain this level of incremental margin going forward? I'm just kind of triangulating a little bit. You still have low utilization, travel, recovery still in the early stage, and that training network typically have very high incremental margin.

Is there a reason why you can't sustain this level of incremental margin going forward I'm, just kind of triangulating a little bit.

Still have low utilization travel recovery is still in the early stage in that training metric typically have very high incremental margin.

Speaker 11: Is that the right framework to think about the aviation business in the next two years as you kind of move up that utilization curve?

Is that the right framework to think about the aviation business in the next two years as you kind of move up the utilization curve.

Speaker 4: We're also seeing, we see obviously the mix from business jet, which helps on the margins and that mix will vary, especially as we hopefully see CAT appreciating on the margins as well. But you're right, the operating, we're starting to see the operating leverage on digitalization kind of flow through and also a big chunk, a significant part of cost savings. Now, the slope on those cost savings will start to slow, but it'll just.

We're also saying we see the obviously the mix from business jet, which helps us on the margins and that mix will vary, especially as we hopefully see cat appreciating on the margins as well, but you are right.

Operating.

We're starting to see the operating leverage on the utilization kind of flow through and also big chunk.

Significant part of cost savings now.

The slope on those cost savings will start to slow, but it will just kind of continue to.

Speaker 12: and I continue to.

Speaker 12: to help on the operating margin, so on the operating leverage rather. So, you know, I think it's a very good performance and, you know, like Mark said, we see this with volume contributing to exceeding prior pre-pandemic.

Two.

Help on the operating margin so on the operating leverage rather so.

I think it's a it's a very good performance and.

Like Mark said, we see this.

With volume contributing to exceeding prior pre pandemic peaks.

Speaker 3: Don't forget, Patty, of course, that the future revenue will include a greater proportion of full flight simulator deliveries and ab initio kind of work or park aviation kind of work. So that is a different margin profile. So you can't obviously consider it all a training revenue. So yes, to your incremental margin, but certainly not straight line.

Don't forget Saudi of course that the.

The future revenue will include a greater proportion of full flight simulator deliveries and have initial kind of work or a park aviation kind of words. So that has a different margin profile. So you can obviously consider it all trading revenue so yes to your incremental margin, but certainly not straight line rate.

Speaker 11: Okay. Okay. That's helpful. The follow-up question is on

Okay. Okay.

That's helpful.

The follow up question is on.

The.

Speaker 11: the air mobility market, the eVTOL market, I guess.

The air mobility market.

You thought market I guess.

Speaker 11: You're dabbling in it, you have some partnerships kind of coming through right now. I'm just trying to understand what exactly you're helping these partners, like I guess we've got John and a couple of others. What exactly is he involved with these?

Dabbling in it you have some some partnerships kind of coming through right now I'm just trying to understand what exactly you are helping these partner looks like.

I guess, you've got John and.

Couple of others.

What the what exact beauty involved with these.

Speaker 11: partners in terms of helping them.

Yes.

Partners in terms of.

Helping them.

Speaker 11: right up to training, I guess, going into these big launches. And two, what does this market look like three to five years down the road? Does it does it look like more business aviation where you're providing full turnkey solutions? And if you have any color around.

Caught up the training I guess going into these big launches and two what does the market look like three to five years down the road, but just does it look like more business aviation, where youre, providing full turnkey solutions.

And if you have any color around.

Speaker 11: what kind of size market are you potentially looking at over the medium longer term?

What kind of size market are you potentially looking at what would've been medium longer term.

Speaker 3: Yeah, thanks for the question. I think, Fadi, the first thing I would object to is the word dabbling. Dabbling in this market. We definitely intend to be a major player in this market. I think it's a very exciting market. I've said that before. I think it's a market that will materialize before anybody thinks it does because it's so compelling.

Yeah. Thanks for the question I think fatty the first thing I would object to us that we're dabbling.

I believe in this market.

We've definitely that we are we definitely intend to be a major player in this market I think it's a very exciting market I've said that before I think it's a market that will materialize before anybody thinks it does because it is so compelling.

Speaker 3: In the history of aviation, I'm a bit of, as I think you know, a bit of a history buff, and especially in aviation specifically, and what has always stimulated.

In the history of aviation I'm, a bit of history as I think you know bit of a history buff and especially in aviation specifically and what is always stimulated the growth of aviation is new power plant technology and what you have here is new power plant technology, specifically distributed.

Speaker 3: the growth of the aviation is newer power plant technology. And what you have here is new power plant technology, specifically distributed electric power plant.

Electric power plants, and the immense software systems that permits you to have these very complex vehicles that are inherently unstable to be able to be economically produced so thats why you see a plethora of large the large number of these companies come in.

Speaker 3: and the advanced software systems that permit you to have these very complex vehicles that are inherently unstable to be able to be economically produced. So that's why you see a plethora, a large number of these companies.

Speaker 3: coming through to produce vehicles of all types.

Coming through to produce vehicles of all types to service air mobility market. So for <unk>, we're not picking winners and losers losers here in this market what were doing is were getting evolve it and by the <unk>.

Speaker 3: to serve this air mobility market. So for C, we're not picking winners and losers here in this market. What we're doing is we're getting involved. And by the way, it's not yesterday we became involved. I went to a major conference, and I say major, an invitation-only conference about four years ago in this market, was held in Texas, where all of the players at that time were getting together.

Yesterday, we became involved I went too.

A major conference and I'd say major invitation only conference of about four years ago. In this in this market was held in Texas.

All of the players at that time, we're getting together.

Speaker 3: and really saw the potential for this market. So short answer to going back to your question.

And really solve the potential for this market. So short answer to to go back to your question is the ice really believes that this market is going to be needing about over 60000 pilots over the next 10 years and there is no way that these pilots that will fly. These vehicles are not going to be have to train.

Speaker 3: is that I certainly believe that this market is going to be needing about over 60,000 pilots over the next 10 years.

Speaker 3: And there's no way that these pilots that are going to fly these vehicles are not going to have to train to a high level.

<unk> a high level.

Speaker 13: In order to operate in the airspace that we have today and congested airspace because by definition these vehicles will fly

In order to operate in the aerospace that we have today in congested airspace because by definition. These vehicles will fly in and around cities. So they are going to have to be trained so what you see is us positioning ourselves as the company. We are we can help first of all define the kind of training.

Speaker 3: in and around cities. So they're going to have to be trained. So what you see is us positioning ourselves.

Speaker 3: as the company we are. We can help, first of all, define the kind of training infrastructure and kind of training standards that will be required by training these pilots of these vehicles.

<unk> infrastructure and kind of training standards that will be required by training. These pilots of these vehicles working with the company is working with the regulators and offering the service and as you say it may be a business aircraft type construct or it may be involving us selling devices. It.

Speaker 3: working with the companies, working with the regulators, and offering the service. And as you say, it may be a business aircraft type construct, or it may be involving us selling devices. It will be a combination of both. It is being defined today, just as this market is being defined today. But make no mistake, I fully expect us at CEA to be a major part of that.

Will be combination of both it is being defined today just as this market is being defined today, but make no mistake I fully expect us to be a major part of that mark.

Okay.

Speaker 11: Okay, that's great. You know, maybe the last question, you mentioned about kind of how the aviation demand has been led by North America, U.S. I guess in particular.

Great.

Maybe the last.

A question you mentioned about kind of how the aviation demand has been.

Led by North America U S I guess in particular.

Speaker 11: Wouldn't it pick up in travel in Asia and some of these markets that still are behind in the recovery be more attractive to you because you tend to do a little bit more web training or a little bit more turnkey solution in those markets?

Wooden would kind of pick up.

Travel in Asia, and some of these market Thats still.

Our behind the recovery be more attractive to you because you tend to do a little bit more wet training or a little bit more turnkey solution in those markets.

Speaker 3: Well, I think if you're able to look at the overall market for us in training.

Well I think the.

I think if you're able to look at the overall market for us in training.

Speaker 3: We've seen business aviation itself, your training, doing very, very well. Of course, you know, that's all wet, so that's very good. The rest of the world.

We've seen business aviation itself Youre training doing very very well of course, you know thats all with so thats very good the.

The rest of the world.

Speaker 3: I think when the recovery comes back in Asia Pacific, we tend to do, on average, a bit more wet in that region. But I think I would point to training in commercial aircraft as a whole.

I think what I would point to when the recovery comes back in Asia Pacific We tend to do.

On average a bit more wet in that region, but I think I would point to training and commercially craft as a whole.

Speaker 3: Today, Asia-Pacific is operating at about 50% of where it was in pre-pandemic, so there's a lot of recovery left to have in that market. So definitely, I think that any expansion going back to normal 2019 levels, whether it be wet or being dry, is going to be good for CE.

To date Asia Pacific is operating at about 50% of where it was in the pre pandemic. So theres a lot of recovery left to have in that market.

So definitely I think that any expansion going back to normal 2019 levels, whether it be with or being dry is going to be good for CAE.

And what are be Europe , whether it be Asia Pacific again look back at what's happening in the U S and the U S. Today. It is it's a narrow OLED recovery.

Speaker 3: And whether it be Europe , whether it be Asia Pacific, again, look back at what's happening in the U.S. In the U.S. today, it's a narrow-led recovery.

Speaker 3: People are scrambling to train their pilots, they're buying more simulators. So look at the recovery in the simulators that we've had just this year relative to last year. It's quite impressive. Largely driven by the United States and some in Europe . So imagine that rolling over into Europe and Asia-Pacific. And I think there's a large potential for that. And I think that leads us to where our asset base is.

People are scrambling to training our pilots are buying more simulators. If you look at the recovery in the simulators that we've had.

Just this year relative to last year is quite impressive largely driven mainstay United States and some in Europe , So imagine that rolling over into Europe , and Asia Pacific and I think theres, a large potential for that and then I think that leaves us to where our asset base is.

Speaker 3: Today, about 33% of our simulators or about 54 simulator equivalent units are in the Americas.

To date about 33% of our simulators or about 54 simulator equivalent units R&D Americas.

Speaker 3: In Europe , they're about 44 percent, about 72. In Asia Pacific, 36.

In.

Europe thereabout, 44% by <unk> 72 in Asia Pacific 36, what's interesting, though is as we talked about during the pandemic.

Speaker 3: What's interesting, though, is, you know, as we we talked about during the pandemic, we

We moved stimulated a lot of simulators that we launched a lot of simulators to go where we thought.

Speaker 3: simulators, a lot of simulators, and we launched a lot of simulators to go where we thought, you know, using the Gretzky analogy, where the puck was going, where the puck was going, where training demand will be.

Using new Gretzky analyses analogy, where the puck was going where the puck was going we're training demand will be.

Speaker 3: And no surprises being led by the United States. So if you look at.

And no surprises being led by the United States. So if you look at going into next year, where our simulators are we're going to have about the same number in absolute number of similar equipped.

Speaker 3: going into next year, where our simulators are, we're going to have about the same number, an absolute number of similar equivalent units in the Americas as in Europe . So we're seeing, we're shifting our asset base to where the demand is. I think that's going to be pretty attractive. And that's impressive.

Equivalent units in the Americas is in Europe . So we're seeing we're shifting our asset base to where the demand is I think thats going to be pretty attractive and that's impressive, especially considering that we acquired FSC in Amsterdam. So inherently we've added a lot of simulators in Europe itself. So the fact that we are.

Speaker 14: especially considering that we acquired FSC in Amsterdam, so inherently we've added a lot of simulators in Europe itself. So the fact that we're beyond par, I think is.

It would be on par I think as you know.

Speaker 3: you know, a very good move that we've made guaranteeing the future for us.

A very good move that we've made guaranteed to future for us.

Okay. Thank you I appreciate the color on that.

Speaker 2: Operator, if I could just interject for a second here. We still have quite a few people on the line wishing to ask questions and we'd like to get to all of them if we can. Maybe at this point we would restrict to one or two part questions just so that everybody gets a chance. Thank you.

Operator.

Just interject for a second here, we still have quite a few people on the line wishing to ask questions and we'd like to get to all of them. If we can.

Maybe at this point, we would restrict to one or two part questions. So that everybody gets a chance.

Thank you.

Speaker 1: The next question comes from Cameron Dorksen of National Bank Financial. Please go ahead.

The next question comes from Kamran Dorsen of National Bank Financial. Please go ahead.

Speaker 2: Yeah, thanks. Good afternoon. I'll stick to one question. Obviously, we've got maybe a little more visibility today on how the airlines are going to recover. Maybe there's certainly some markets that are a little more uncertain, but I guess maybe given that greater visibility by many airlines,

Yeah. Thanks, good afternoon, I'll stick to one question.

Obviously, we've got maybe a little more visibility.

Today on how the airlines are going to recover maybe there are certainly some markets that are a little more uncertain, but I guess, maybe given that greater visibility by many airlines.

Speaker 2: Can you talk a little bit about what you're seeing on, I guess, the potential for outsourcing? You know, I think one of the issues in the last couple of years is that airlines just didn't know what their fleets were going to look like and, you know, when the market was going to recover. But, you know, as I said, there's probably a little more visibility today, so I'm wondering if any of those kind of talks around outsourcing deals have picked up at all.

Can you talk a little bit about what you're seeing on I guess the potential for outsourcing.

One of the issues. The last couple of years that are always just didn't know what their fleet. So we're going to look like and when the market was going to recover but as I said, there is probably a little more visibility today. So I'm wondering if there's any of those kind of talks around outsourcing deals have picked up at all.

Well, there's definitely again high.

Speaker 3: Well, there's definitely, again, a high volume of conversations occurring and there's contracts occurring and you're seeing that as a testimony to the amount of simulators that we've deployed in the United States specifically. You know, I was pointing an answer to Fadi's question, the fact that we've been increasing the number of simulators, you know, quite substantially in the United States and some of that is for business aviation, which is growing, but, you know, another large part of that is for the commercial aviation.

High volume of conversations occurring and there are some contracts occurring and youre seeing that a testimony to the amount of simulators that we've deployed in the United States specifically.

Pointing in answer to <unk> question. The fact that we have been increasing the number of simulators placed substantially in the United States and some of that is for business aviation, which is growing but another large part of that is for the commercial aviation training network and all of those simulators are going.

Speaker 3: training network, and all of those simulators are going.

Speaker 3: essentially to either new airlines that are starting which are going straight to an outsourcing model or to airlines including legacy carriers that are

Essentially to either new airlines that are starting which are going straight to an outsourcing model or two.

Airlines, including legacy carriers that are.

Speaker 15: trusting CE with long-term contracts for training. So that's not de facto a complete outsourcing, but it is definitely a different

Trusting CAE with long term contracts for training, so that's not the factor or complete outsourcing, but it is definitely a different.

Speaker 3: trend that you see where airlines, in order to be able to secure the training need that they have on an acute basis, they're willing to, and they're seeing the attractiveness of going into long-term contracts with us. So that is a difference, but there is continuing conversation, and I would say that we're certainly not in a steady state.

<unk> trend that you see where airlines to two in order to be able to secure the training needs that they have on an acute basis. They are willing to and theyre seeing the attractiveness of going into long term contracts with us. So that is a difference, but there is continuing conversation I.

I would say that we're certainly not in a steady state.

Speaker 16: Yeah, we're maybe better than we were last year, but Omicron has turned a bit of a monkey wrench into any kind of steady state in the airline business right now.

Yes, there may be.

Later than we were last year, but only kron has turned a bit of a monkey wrench into.

Any kind of steady state in the airline business right now.

Okay. That's helpful. Thanks very much.

Thank you.

Speaker 1: The next question comes from Christine Lewag of Morgan Stanley . Please go ahead.

The next question comes from Christian <unk> of Morgan Stanley . Please go ahead.

Speaker 17: Hey, thanks. Mark, you know, domestic U.S. air traffic had a very steep recovery, so if global air traffic follows a similarly steep recovery, let's say second half of the year, I mean, we don't know, but should it happen, can you discuss any labor or supply chain constraints that could slow down your ability to meet a potentially roaring demand? Because with the footprint that you have there, it sounds like it should be a pretty good year should we see that air traffic come in.

Hey, thanks.

I will mark our domestic U S air traffic had a very steep recovery.

Global Air traffic follows a similarly steep recovery, let's say second half of the year I mean, we don't know but should it happen.

Can you discuss any labor or supply chain constraints that could slow down your ability to meet or potentially volume demand because with the footprint that you have there it sounds like it should be a pretty good year. So we see that air traffic come in.

I don't see it I don't see it as certainly they don't see any.

Speaker 3: I don't see it. I don't see it. Certainly, I don't see any kind of parts related issues that way. Labor, I don't see it. I think that we're well positioned. You know, we spend a lot of time during the pandemic,

Kind of parts related issues that way labor.

I don't see it I think that we're well positioned we spend a lot of time during the <unk>.

During the pandemic, especially the first year, we if you go back to some of the things that we're seeing in the beginning is we will take advantage of the period that we have a lower demand at lower demand environment to optimize our training network and Thats, where you see a lot of recurrent and permanent cost reduction coming through but we also.

Speaker 3: If you go back to some of the things I was saying in the beginning, I said we will take advantage of the period that we have of lower demand and lower demand environment to optimize our training network. And that's where you see a lot of recurrent and permanent cost reduction coming through. But we also said that we keep our powder dry and powder dry, meaning that I said it right from the beginning. People are not going to give up the freedom they have to travel.

You said that we keep our powder dry and powder dry meaning that I said it right from the beginning people are not going to give up the freedom. They have to travel and we see that we saw and we see that in certainly the domestic flying United States. So we're going to see that and I see no structural reason.

Speaker 3: And we see that. We saw, we see that in certainly the domestic flying in the United States. So we're going to see that. And I see no structural, you know, reason that, you know, we will not benefit from that recovery. And, you know, when that timeline is, certainly, I think the Omicron as.

And that we will not benefit from that recovery and when that timeline is certainly I think the omicron is likely extended that recovery timeline, maybe but that will be measured in months certainly not in years. So.

Speaker 3: likely extended that recovery timeline, maybe, but that'll be measured in months, certainly not in years. So, call us very confident in the long term.

All of us very confident in the long term.

Thanks, Mark and if I could sneak a second question on off the math here.

Speaker 1: Thanks, Mark. And if I could squeeze a second question on the MAX here, I mean, in December , we finally saw the airworthiness directive from the CAC, saving the return to service on the MAX. Are you seeing any acceleration and training activity on the MAX from China?

December we finally saw the airworthiness directive from the <unk> keeping the return to service of the Matt are you seeing any acceleration in training activity on the Max from China.

Speaker 3: Well, we definitely think training for the max training for the max is at high levels. It has been for a while on the return to service, even before the return to service as, you know, people could see the, you know, the airplane is going to go back into the sky. So, I would just say it's a high level of activity and I, I perceive that continuing as more and more maxes are being delivered.

Well, we definitely see training for the Max training for the Max has had high levels. It has been for a while on the returning to service even before the return to service has people could see that.

The airplane is going to go back into the Sky. So I would just say, it's a high level of activity.

I foresee that continuing as more and more maxes are being delivered.

Thanks Mark.

Speaker 3: And in China, I think what you'll see is that'll manifest itself in largely in full flight simulators sales.

And in China, I think what Youll see is that will manifest itself in and largely in full flight simulator sales.

Thank you.

Speaker 1: The next question comes from Benoit Poirier of Desjardins Capital Markets. Please go ahead.

The next question comes from Ben what Boggy of digital Bank capital markets. Please go ahead.

Speaker 18: Good afternoon and congratulations, Mark, for your prestigious award. And Mark, we've seen some M&A among the airlines with Spirit and Frontier. Any thoughts on whether M&A could slow down or accelerate outsourcing?

Hi, good afternoon, and congratulations Mark for your prestigious award.

Mark we've seen some M&A among the airlines with spirit and frontier any thoughts on the weather and then it could slow down or accelerate outsourcing.

Speaker 19: And will you force me more M&A activity among the airlines, Mark?

Well, if you look forward to see more M&A activity among the airlines the mark.

Speaker 20: Well, I'm not going to predict it, I'll let, inevitably, you know, whatever that kind of event happens, it's usually a catalyst for us to have a discussion with them because the airline itself is looking for new ways of doing things. So.

Well I'm not going to predict it.

I'll, let you inevitably.

What the whatever that kind of event happens, it's usually catalyst for us to have a discussion with them because the airline itself is looking for new ways of doing things. So.

Speaker 3: So I think to me, that's where I would leave it. I, you know, I can't be a predictor of how much M&A they would have, but certainly there's a lot of opportunity in airline business today, perversely continues to be a number of quite a number of new airline starts. And that's good opportunity for us as well, because.

I think to me, that's where I would leave it.

I can't be a predictor of how much M&A they would have but certainly theres a lot of opportunity in the airline business. Today Perversely continues to be a number of quite a number of new airlines starts and that's good opportunity for us as well because.

Speaker 3: You know, we offer a ready-made international, you know, global network of training solutions. So offering them a solution that was never there before. So I think that's good for us.

We offer a ready made.

International.

<unk> Global network.

Our trading solutions, so offering them a solution that was never there before so I think thats good for us.

Speaker 18: Okay, that's great. And my follow-up is for Sonia. You provided great color about the booking for defense, the fact that it's been spread out on the global scale. Anything particular to highlight on what drove the big change in momentum during the quarter? And for the free cash flow generation, was there anything unusual in the quarter, or should we expect another strong fourth quarter?

Okay. That's great. My follow up is for Sonya you provided great color about the bookings for defense. The fact that it's been spread out on a global scale anything particular to a light on what drove the big change in momentum during the quarter and 4% to free cash flow generation was there anything.

Unusual in the quarter or should we expect another strong fourth quarter.

Speaker 21: I'll start on the free cash flow. I think it's just very, very strong performance in the quarter of $282 million. That's on strong operational performance, and as you know, it's a very cash-generative business. It's also driven with a solid non-cash working cap reversal in the quarter with over $200 million of reversal, and that's really continued persistent focus on working capital, improved collections, conversion of work-in-progress into AR and cash, and reflection of higher orders. So higher orders come in with milestone payments and deposits on contracts, so that contributes to a really good performance of free cash flow, and that's despite continued cash payments on the restructuring program, which was about $38 million in the quarter. So nothing unusual, just strong performance and good reversal of working cap, and we've guided to continued 100% free cash flow conversion of net income to free cash flow.

I'll start on a free cash flow I think is very very strong performance in the quarter with $282 million Thats on strong operational performance and as you know, it's a very cash generative business. It's also driven with a solid noncash working capital reversal in the quarter with over $200 million.

Rehearsal and Thats really continued persistent focus on working capital.

Collections conversion of.

Where can progress into <unk> in cash and reflection of higher orders, so higher orders come in with milestone payments and deposits on contracts.

That contributed to a really good performance of free cash flow and Thats. Despite.

Continued cash payments on the restructuring program, which was about $38 million in the quarter. So nothing unusual just strong performance and good reversal of market cap and.

We've guided to.

Continued.

100% free cash flow conversion of net income to free cash flow now on your first question I didn't quite hear on the defense side.

Speaker 1: Now, on your first question, I didn't quite hear on the defense side.

Speaker 18: Oh, just in the sense that there's been a big change in the booking for defence. I was curious to get more color about what drove the big change, positive tone in terms of booking with respect to defence, Sonia.

Just in the sense that there is being a big change in the bookings for defense I was curious to get some more color about what drove that big change a positive tone in terms of booking.

With respect to defense Sonya.

Speaker 22: Well, maybe I can answer that Benoit, look, it's the big pipeline of orders that we've talked about, the bids that we have that are waiting for customers to pull the trigger. Really, you see a lot of that. We took the advantage, especially internationally.

Well, maybe I can answer that.

Luca.

It's the big pipeline of orders that we've talked about the bids that we have theyre waiting for customers too.

Pull the trigger really that you see a lot of that week, we took the advantage is especially internationally.

Speaker 23: where, you know, right before recall, we had a period of time there, we could finally start traveling and people were willing to meet us. So, I can tell you, we took our international teams, took the opportunity to really go after it and fill the pipeline. And they did. You know, I talked about a defense book to build.

We're right.

Right before I recall, we had a period of time there we could finally start traveling and people were willing to meet us. So I can tell you we took our international teams took the opportunity.

To really go after it and fill the pipeline and they did I talked about the defence book to Bill.

Speaker 3: above one, I can tell you it's well above one and I think they did a very, very nice job and that reverses the trend that we've had that largely caused by COVID that of the, you know, the orders gap in that segment, particularly internationally.

Above one I can tell you its well above one and I think they did very very nice job and that reverses the trend that we've had.

Largely caused by Covid that of the.

The orders gap in that segment, particularly internationally.

Speaker 24: And in the U.S., look, I think it's just good work by our teams. Great work by our teams. I love the orders.

And then the U S.

Look I think it's just good work by our teams great work our teams I loved the orders as I said in my.

Speaker 25: in my remarks that are coming across on all five domains, the first prime contract in the space domain, the first prime contract in cyber, on top of the great wins like for example the

In my remarks that are coming across on all five domains. The first prime contracts in the space domain. The first prime contract in cyber on top of the great wins like for example, the AB initial wins that we had through for doing all the training for the Luftwaffe on Germany, beating a 60 year incumbent.

Speaker 3: ab initio win that we had there for doing all the training for the Luftwaffe in Germany, beating a 60-year incumbent. I think it's great work by the teams in defense and working in collaboration, I would say, for example, in that last contract with their colleagues in civil, leveraging the full power of what we like to call as 1C.

I think it's great work by the teams in defense and working in collaboration I would say for example in that last contract with their colleagues in.

Civil leveraging the full power of what we like to call is one CE.

Thank you very much for the time.

Speaker 1: Thank you. Thank you. The next question comes from Tim James, TD Securities. Please go ahead.

Thank you. Thank you.

The next question comes from Tim James TD Securities. Please go ahead.

Speaker 5: Thanks very much. Good afternoon. Everyone mark. Congratulations on that. That's fantastic awards for the

Thanks, very much good afternoon, everyone.

Congratulations on that that's Fantastic awards real accomplishments.

Speaker 5: Having said that, I'm going to save some time here. Actually, all my questions have been answered. So, thank you. Well, thank you, Tim.

Having said that I'm going to save some time here actually all my questions have been answered so thank you.

Well, thank you Tim I appreciate it.

Thank you.

Speaker 1: The next question is from Anthony Valentini of Goldman Sachs. Please go ahead.

The next question is from Anthony Valentina <unk> of Goldman Sachs. Please go ahead.

Speaker 26: Hey, y'all, you got Anthony Balancini on for NOAA today. Thanks for the time. My first question is on the 10% training growth that you guys put out, inclusive of the JVs. I think it's super helpful, and, you know, the investment community is going to welcome that metric going forward. I'm curious what that looks like over the last few quarters, if you can provide it, and even, like, sequentially, I think would be really helpful.

Hey, Al you got Anthony balance sheet neon for Nellix at all thanks for the time.

My first question is.

The 10% training growth that you guys put out of the JV is I think it's super helpful. In the investment community has been a welcome that metric.

Metric going forward I'm curious what that looked like over the last few quarters. If you can provide it.

And even like sequentially I think would be would be really helpful. And then my second part for Mark I'm just curious.

Speaker 27: And then my second part for Mark, I'm just curious what you think the next catalyst is going to be here for the global recovery, specifically in Asia. I know that you mentioned the new variant, but I know we've been having, you know, kind of this conversation on these calls for the last few quarters now. Is it a matter of us just learning, or just in Asia, like us learning to live with, you know, the pandemic, or is it an event like the end of the Olympics? Your color there would be great. Thanks.

What you think the next catalyst is going to be here for the global recovery specifically in Asia I know that you mentioned, the new variance, but I know we've been having this conversation on these calls for the last few quarters now.

Is it a matter of us just learning or just in Asia like us.

Learning to live with the pandemic or is it an event like the end of the Olympics.

Your color there would be great. Thanks.

Speaker 3: Look, I think it's just basically lifting of COVID restrictions. I mean, they're really impediment to travel.

Look I think it's just basically the lifting of Covid restrictions I mean, they're the real the real impediment to travel.

Speaker 28: and air goal revenue for us in training.

And Eric goal revenue for us in training.

Speaker 3: is not largely because people are afraid of getting on airplanes.

Is that largely because people are afraid of getting on airplanes is because people can't go anywhere or they have to wait like for example in Asia Pacific in some cases till 'twenty, one day up to 21 days of.

Speaker 3: is because the people can't go anywhere or they have to wait, like for example, in Asia Pacific, in some cases, still up to 21 days, you know, of having to quarantine after you come back. That means you got to be, you know, you got to want to travel when you have something like that. So to me, it's all tied to the lifting of those restrictions. The great news

You are having to quarantine etsy come back that you got to be you're going to want to travel when you have something like that so to me. It's all tied to the lifting of those restrictions. The great News is I think that we're seeing for example, I don't know where you already have secured New York, but I would be here in Quebec.

Speaker 3: You know, we're seeing, for example, I don't know where you are, I think you're in New York, but I mean, here in Quebec, we're seeing lifting of all, you know, essentially all restrictions here in Quebec by the end of March. I think that's a very positive news. Doesn't do much for air travel, but I mean, it's an indication. We're seeing European countries, literally one by one, basically calling an end to restrictions.

We're seeing lifting of all essentially all restrictions here in Quebec by the end of March I think Thats, a very positive news.

<unk> do much for air travel, but I mean, it's an indication were seeing European countries.

One by one basically calling in and to restrictions that's going to be the catalyst. So ultimately I think that's what we got to see in Asia, but Asia Pacific.

Speaker 3: That's going to be the catalyst. So ultimately, I think that's what we got to see in Asia Pacific.

<unk>.

Speaker 3: I'm not a government employee, I can't tell you when that's going to happen, but inherently I know it will happen. So barring any new variants, hopefully not, but I mean I'm optimistic that we're on a good trend here.

I am not a government employee can't tell you when thats going to happen, but inherently I know it will happen so barring any new variance hopefully not but I'm optimistic that we're on a good we're in a good trend here.

Okay, Larry today, Mark Okay, Yes, yes.

Speaker 3: first part of my question yeah you another question yeah on the JV review it I think it's fun you can give it yeah yeah so 10% including so training growth including the contributions for JV I don't necessarily have the last quarter on hand because a couple of different elements

First part of my question.

The other question Jan on the JV revenue.

Sonya can give a gift.

Present, including training growth, including the contributions for GE I don't necessarily have.

The last quarter on hand, because a couple of different elements, but what I would say, it's higher because because obviously you see the utilization and we saw a really nice ramp up.

Speaker 29: But what I would say is higher because obviously you see the utilization and we saw a really nice wrap-up on certain regions where we have joint ventures, but we can get back to you with the numbers.

And certain regions, where we have joint ventures, but we can get back to you with the numbers.

Okay, great. Thank you.

Yeah.

Great operator.

Speaker 30: It looks like we've run out the hour, I do want to still use a couple of minutes if we can for members of the media if there are any questions.

It looks like we are.

Run out the hour I do want to still use a couple of minutes. If we can for members of the media. If there are any questions from members of the media.

Speaker 31: As a reminder, via the phone lines you may press the 1 followed by the 4 on your telephone keypad to register a question or comment. Once again, the 1 followed by the 4.

As a reminder, via the phone lines came at Bristol One followed by the four on your telephone keypad to register a question or comment once again, the one followed by the four.

Speaker 1: The first question comes from Stéphane Rolland of La Presse canadienne. Please go ahead.

The first question comes from Stefan <unk> of luck question Adjourn. Please go ahead.

Speaker 32: Yes, hello Mr. Tarrant, thank you for taking my question. I was wondering, you talked about air mobility, I imagine it's the air taxi.

Let me say that Amit.

<unk>.

And then just the Monday Air mobility edge mentioned celerity.

Yes.

Speaker 33: Do you think that it will be unblocked more quickly than people think? Can you give me a little bit more of a comment on your impression? What makes you think that it will be unblocked more quickly? And on what horizon can we see that happening?

Peter.

I'm quite excited.

Mac air lease up.

It's confirmed or presumed dead.

The data come out fast enough.

I'll give some space there.

Not.

Resolved before.

Speaker 3: Well, as I said, I definitely believe that it will happen faster than people think. First of all, my impression is based on the fact that no one really expects it to happen, so there are a lot of people who are not in the field, who have not yet really heard of these famous air taxis, so that's what we're talking about.

What causes quite definitive.

<unk> bonds.

<unk> sat down with them.

All sides of apex.

<unk> demand, you'll bulk call the Irma Thomas Bellizzi familiar with <unk> its message took off.

Speaker 3: It's because I've been in the field for years, I'm aware of it, and I'm very close to the development of all these different devices around the world. There are some that are very close to us. For example, there's our partner, Beta. Beta is here in Burlington, in the south of Montréal. They also have an office here at the airport in Montréal, not far from us, where they take care of engineers, among others.

It's the Bhaskar.

The nation in dementia.

<unk> Asia, plus plus to develop amounted to <unk> <unk>.

A third of our Mone <unk> temporarily exempt.

And have a better bet excellent Caesars have Burlington <unk> Joe.

The.

We always see a level of palm oil following new.

<unk> Yao on hold.

Speaker 3: here in Montréal. So, they steal their air taxis, if you want to call it that, and

You see ammonia.

No no <unk> AC.

The design.

Speaker 3: It's a design that, for me, will be able to be certified on a horizon that is not very, very far away, because it's not revolutionary, but we'll see it happen. And they already have orders. They have orders with government agencies in defense, and they have orders for companies that issue fees, like FedEx, UPS, for example. So that's why I think we'll see it happen.

Designed for one voyage Sofia done now.

The results reported today link Oscar support is that come with it will you set on it.

<unk> had to come on line or they come on the IV <unk> Gorilla, Montana, let if honestly yield command.

For the company to lead the pack.

It's Frank on the Fedex GPS biopic for circa possible worldwide.

So D C. This.

Speaker 34: By definition, these are vehicles with electric propulsion.

<unk> <unk>.

Electric fix it today call.

Speaker 35: So it's very eco-energetic, and it's very...

<unk> eight <unk>.

Speaker 36: So, for me, I see a great opportunity for us in the development of pilots, among other things. So, that's why we're very excited.

<unk> got that baked porcelain mixing up.

<unk> Stifel New value added 90 pit hoped fix will show corn it is Steve.

Speaker 37: of the textile industry. We were also involved in helping companies to certify their products.

<unk> hundred 80, <unk> guess this is up IAC B <unk>.

Speaker 3: And I think that, among other things, I would add to our last call, I think that it is also excellent, it offers perfect opportunities for Montreal in general, because we have a staple here in Montreal.

And that doesn't mean that there's pockets of Nick sent out we'll see.

This has helped <unk> get asked.

Gap is similarly at key <unk> instead of <unk> board authorization for the.

Speaker 38: that is almost unprecedented across the planet. So this offers excellent perspectives for our engineers, for our technicians who leave our schools, our software development people, to participate.

<unk> T cell <unk> <unk>.

Dilution on the <unk>.

<unk>.

B.

Speaker 3: au développement et à la croissance de cette industrie-là.

Development at <unk>.

Speaker 39: Excellent, thank you. And maybe one last question, if you have the time. What would be the next step for the development of this sector? Do we still have to develop the technology? Aren't we more on the regulatory side, granting air corridors, establishing a regulatory framework? What is the next step for the industry? Both. Both. It depends on the devices. As I said, it's a...

Thanks, Jeremy <unk> don't see that.

And since that question you topped 400 is a power system under <unk>.

And I'll just repeat that.

Yes.

<unk> looked at accordingly, cutting dog I at the AAN.

<unk> taken them out of the asset.

That question is absolutely.

I need to.

The fund is about eight.

It doesn't he.

At the end.

Speaker 40: The market itself, what we still call the taxiway, is stimulated by the benefits of this new electric propulsion. We see dozens and dozens of different manufacturers that are developing prototypes. So the first thing, depending on the prototype, will depend on the certification of this vehicle.

The <unk> is going to bid on a current amount call. It <unk>.

Jimmy Lee.

TD, then that the beta fish guests you've got missed it properly.

Eric.

A web what'd the Zen PD Zen.

Manufacturing.

And the dividend.

The positive things that plenty of shows the finance tips have efficacy.

The founder of <unk>.

Speaker 41: Secondly, it is going to require new regulations to know how these new vehicles are going to integrate into the air environment that we have now.

Doosan FSC mass have upon the dividend income at that show pool.

So I won't come on.

<unk> <unk> dawn of Illinois.

England.

<unk> do <unk>.

Speaker 42: There will be steps to be taken in development, and that will be done over the next few years. I expect that over the next 10 years, we will see, let's say for our industry, a potential of at least 60,000 pilots who will have to be developed and trained to be able to pilot these new aircraft.

So avoid the visit that Pascal sheet that development style.

Favorable awkwardly portions at EEP.

Or toward the this portion has an equal above wall zone pulled nut industry.

<unk>.

<unk> going to really develop a fault me for vault <unk> was happening.

Thanks, Sam Yes, seaborne gentlemen.

Let's see.

Okay.

Okay.

Speaker 43: conclude the call at this time as we've overrun the hour. I want to thank all participants again for joining us today. Merci beaucoup tout le monde à nos appels de compérences. I would remind you that a transcript of the call can be found on CE's website at ce.cae.ca.

The call at this time as we've overrun the hour I want to thank all participants again for joining us today most people enrolled.

Has that helped at all.

I'd remind you the transcript of the call can be found.

<unk> web site at <unk> Dot com.

Speaker 44: Thank you. This does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you and have a good day.

Thank you. This does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect. Your lines. Thank you and have a good day.

Okay.

So.

Okay.

Thanks.

Okay.

Yes.