Q2 2023 CAE Inc Earnings Call
Okay.
Yeah.
Okay.
Good day, ladies and gentlemen, welcome to the C. H E second quarter Conference call. Please be advised that this call is being recorded I would now like to turn the meeting over to Andrew Art of it. Please go ahead.
Okay.
Good afternoon, everyone and thanks for joining us 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.
Forward looking statements represent our expectations as of today November 10, 2022, and accordingly are subject to change such statements are based on assumptions that may not materialize 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 a description.
Risks factors and assumptions that may affect future results is contained in Cae's annual MD&A available on our corporate website and our filings with the Canadian Securities administrators on SEDAR and the U S Securities and Exchange Commission on Edgar.
On the call with me this afternoon are Marc.
<unk>, President and Chief Executive Officer, and Sonya Branco, our Chief Financial Officer after remarks from Marc and Sonya, We'll open the call for questions for financial analysts.
The conclusion that that segment will open the lines to members of the media.
Let me now turn the call over to Mark.
Yeah.
Thanks, Andrew and good afternoon to everyone joining us on the call.
We had strong performance in the second quarter led by double digit growth in civil and sequentially better results in defence.
We continue to secure seats future with nearly $1 3 billion and total orders were a record $10 $6 billion of adjusted backlog and one three times book to sales ratio.
In civil we.
We made excellent progress converting our large opportunities pipeline into $751 million of orders.
Resulting in a 148 times book to sales ratio.
This is especially impressive considering that revenue is 40% higher than last year.
Orders include long term training agreements with airlines and business aircraft operators, including a new 15 year pilot training and operational agreement with Qantas one of the world's most renowned airlines and black Sea and name synonymous with safety.
We also secured training agreements with Virgin Australia, Jeff Smart airline DHL Air UK and American Airlines.
Demand for full flight simulators was robust with 18 sales in the quarter.
We sold another five full place and actually bringing our total year to date tally the 'twenty nine.
Since the end of the quarter, we sold another five full flight simulators for a total of 34 sales since the start of the fiscal year.
Civil financial and operational performance was also strong in the second quarter with double digit growth across all metrics.
We delivered 10 full flight simulators in the quarter and averaged training training center utilization was 66% up from 53% last year.
This reflects the air traffic recovery in select regions and a measure of summer seasonality.
Commercial aviation training demand in the Americas continues to be very strong while Europe was seasonally lower on a sequential basis.
In Asia, the reopening of Japan has been a positive catalyst, but the regional overall remain well below pre pandemic levels due to the ongoing travel restrictions in China.
In business Aviation training demand continues to be robust throughout our network, reflecting a high level of pilot training to support business aircraft flight activity, which has shown signs of stabilization that approximately 20% above pre pandemic levels.
In defence.
We've been saying for some time the earliest signs of our progress towards our larger and more profitable business is order intake.
And Testament to that this past quarter marks another step in the right direction.
We booked orders for training and mission support solutions valued at 500 billion.
For a 113 times book to sales.
Which marks the fifth consecutive quarter that this ratio has been above one and situates us with a book to sales ratio of 133 times on a trailing 12 month basis.
We're now sustaining higher order intake replenished, our backlog with new and more profitable defence contracts.
The first quarter as this quarter reflects our capabilities across all five battlespace domains.
And the air domain, we signed a contract with <unk> aerospace for the <unk> hundred 80, <unk> advanced <unk> full flight simulator for the Italian Air Force.
And we expanded our relationship with Lockheed Martin for system trainers and modification or evolving C 130 platforms.
A key tenet of our strategy is to develop strategic relationships with platform Oems and these agreements. In addition to our recently announced Mou with Boeing for a global collaboration are notable signs of progress.
And the land domain, we expanded our capabilities with a prototype development award under the U S Army soldier virtual trainer contract.
A component of the synthetic training environments.
The soldier virtual traded contract for SPT continues the expansion of <unk>.
Synthetic training environments with a platform to empower soldierly trends.
Defence also won a contract in the sea domain with the platforms and system training contract to support the Royal Australian Navy.
And this program is strategically significant in the context of Australia's defense modernization priorities in light of geopolitical tensions in the Indo Pacific region.
Under a five year agreement will be supporting the future training transformation of Royal Navy.
Mariners across four C platforms on site import NFC.
We're leveraging our experienced training marina worldwide, including the U S. Navy on multiple naval aircraft platforms breached training for literal littoral combat ship and the U S Army Maritime integrated training system.
In the space and cyber domains.
We received additional awards from our key space and missile defense customer along with fiber technology updates on our core platforms and systems from various customers within the U S Department of Defence.
Our unique combination of experience digital technology and subject matter expertise also provided new opportunity this quarter with strategic customers for prototype development.
They include an authorization from the Air Force Research lab to develop and demonstrate innovative mission effective unmanned air vehicle capability to assist with manned unmanned teaming along within the aviation mission planning prototype for a sensitive customer.
Both our U S national defense priorities and leverage capabilities across six business units.
Our financial performance for defense in the quarter improved sequentially consistent with our expectations.
This performance is a result of our heightened operational focus in the face of the challenges that we highlighted last quarter.
Namely the prevailing supply chain and labor headwinds and order delays all of which are pervasive across the defence sector and broader economy.
With that I'll now turn the call over to Sonya, who will provide additional details about our financial performance.
Thanks, Mark and good afternoon, everyone.
Consolidated revenue of $993 $2 million was 22% higher compared to the second quarter last year. Adjusted segment operating income was $124 7 million compared to $90 7 million in the second quarter last year.
And quarterly adjusted net income was 65, $61 $5 million or <unk> 19 per share compared to 17, 7%.
Second quarter last year.
We incurred restructuring integration and acquisition costs of $22 $6 million during the quarter relating mostly to the LTE Harris military training and Air Centre acquisition.
Net cash provided by operating activities. This quarter was $138 million compared to $30 9 million in the second quarter of fiscal 2022 free cash flow was $108 4 million compared to $19 $4 million in the second quarter last year the.
The increase was mainly due to higher cash provided by operating activities and lower investment in noncash working capital.
<unk>, usually sees a higher level of investment in noncash working capital accounts during the first half of the year and tends to see a portion of these investments reversed in the second half.
Capital expenditures totaled $68 $6 million this quarter, but approximately 80% invested in growth specifically add capacity to our civil global training network to deliver on the long term training contracts in our backlog.
Income tax expense this quarter was $14 5 million for an effective tax rate of 24%, which is higher than our annual outlook of 22%, which remains our expectation going forward.
Our net debt position at the end of the quarter was approximately $3 2 billion for a net debt to adjusted EBITDA of one seven times at the end of the quarter. We continued to expect net debt to adjusted EBITDA of below three times by the middle of next fiscal year.
Now turning to our segmented performance in civil second quarter revenue was up 40% to $507 2 million compared.
Compared to the second quarter last year and adjusted segment operating income was up 60% to $104 4 million.
The second quarter last year for a margin of 26% are stronger year over year Civil performance was mainly due to higher training network utilization and simulator deliveries and we also integrated into our results.
<unk> Center results, which represented approximately 7% of civil revenue in the quarter.
In defence second quarter revenue of $442 $4 million was up 6% over Q2 last year. Adjusted segment operating income was $18 4 million for the quarter down from $26 7 million in the second quarter last year, the revenue growth stems from higher level of activity on programs, while the lower adjusted segment operating.
Income reflects higher costs associated with supply chain and labor shortages, partially mitigated by our cost reduction initiatives.
And in healthcare second quarter revenue was $43 6 million up from $34 $9 million in Q2 last year, mainly due to increased sales of patient simulators.
Adjusted segment operating income was $1 $9 million in the quarter compared to a loss of $1 2 million in Q2 of last year.
With that I'll ask Marc to discuss the way forward.
Thanks Tanya.
The strength that we saw during the second quarter. It gives us the confidence to reaffirm both our fiscal 'twenty two 'twenty three outlook and our long term targets.
Our outlook for civil remains strong with industry, leading positioning enabling us to grow significantly through the commercial aviation market recovery and beyond.
Over the last two years, we've expanded our reach capabilities to better serve our customers while significantly improving our cost structure.
We expect our rate of civil commercial aviation training recovery to continue to be driven in large part by eventually easing of remaining travel restrictions, especially in Asia, where China remains a large component of any global recovery scenario.
A potential recovery in China would also.
We expected to lead to further recovery in full flight simulator sales and on the macroeconomic front.
Watching the global energy situation closely and particularly in Europe with respect to operating cost, which have already increased across our network and the potential for impact on travel demand.
In business aviation the consensus view at the recent MBA conference was highly positive and we continue this strong demand for pilot training.
In response to market demand.
We have new training capacity coming online to include our new business Aviation training Center in Las Vegas, which opened last month, and Singapore, which began operating in this month.
For the second half of the fiscal year, we expect similar to grow faster than it did in the first half and to be weighted more to the fourth quarter.
We expect to deliver a higher number of full flight simulators in the fourth quarter and I have a higher number of simulators are Ceos come online in our training network.
In addition to continuing to grow our share of the aviation training market and expanding our position in digital services, we expect civil to maintain its leading share of full flight simulator sales and to deliver more than 45 full flight simulators to customers worldwide. This is up from our previous outlook for 40.
In defence, our sequential growth paired with the significant bookings and improved backlog that we're experiencing gives us confidence for stronger near term performance.
And the last two years defence has become the world's leading pure play platform agnostic training and simulation business.
Well positioned to address larger more profitable and more comprehensive program across all five battlespace domains.
We are closely aligned with national defense priorities focused on near peer threats.
And the increased need for digital immersion based synthetic solutions.
We are uniquely positioned in this regard being able to drive directly from CS innovations to the commercial aviation stimulation trademark.
Defence represents a secular growth market for CAE as the sector is in the early stages of what we believe will be an extended up cycle driven by geopolitical realities and increased commitments to defence Modernisation and readiness.
The earliest indications of our success have been orders.
Leading us to build a more profitable backlog.
We are bidding more and we're bidding larger and what I see ahead is highly encouraging with a pipeline, but multiple hundred million dollar plus programs and the number of $1 billion plus programs that we're bidding over the next three years.
As we replenish our backlog we expect defence was strength in the next couple of years to a low double digit percentage adjusted adjusted segment operating income margin profile.
Currently active bids and proposals awaiting customer decision stands at approximately $8 billion.
Which is nearly double the amount outstanding three years ago.
Looking to the remainder of fiscal year for defence, we expect the current widespread macroeconomic headwinds, including supply chain and labor challenges to persist for some time and that order delays will continue to be a factor.
We're focused on execution and we are confident in our expected stronger second half performance, which we expect to be substantially weighted to the fourth quarter.
Underlying this view is our expectation for select delayed program awards to come to fruition and that we'll be able to execute our programs and backlog.
We also expect to partially mitigate these headwinds with internal cost reductions and efficiencies, which are ramping up towards the end of the fiscal year.
And in healthcare, we see potential for more value creation as we gained share in the healthcare simulation and training market and continues to build on its growth momentum and increased profitability.
In terms of our capital allocation priorities.
We're now concentrating on organic investments that are made in lock step with customer demand.
We're also focused on reducing leverage and as Tony indicated we are confident our net debt net debt to adjusted EBITDA ratio will decrease to below three times by the middle of next fiscal year, which at that time will further increase our financial flexibility.
<unk> management and board of Directors are also focused on reinstating and prioritizing return of capital to shareholders on a timely basis, which is a cornerstone of our main capital allocation priorities.
In summary.
The overall strength that we saw in the quarter and our current expectations for the balance of the year.
It allows us to reaffirm our outlook for mid 20% consolidated adjustment segment operating income growth this fiscal year and to maintain our long term target of a three year EPS compound growth rates in the mid 20% range with that I. Thank you for your attention that we are now.
Ready to answer your questions.
Thank you Marc operator, we'd now be pleased to take questions from financial analysts.
Thank you for analyst wishing to ask a question or comment. Please press. The one followed by the four on your telephone you.
Here are three tome prompt to acknowledge your request is.
Your question has been answered and you would like to withdraw your registration. Please press. The one followed by this three one moment. Please for our first question.
The first question comes from Kevin Chiang of CIBC. Please go ahead.
Thanks for taking my question.
Maybe just the first one here I believe the U S Department of Defence.
<unk> issued a memo.
Two contractors for equitable equitable adjustments for cost overruns, just given the unprecedented inflation I believe CAE.
Has applied for some of these some of these adjustments to maybe help offset previous inflation. Just just wondering what was that one if I'm correct too.
Two maybe where that sits today and I know you're starting to see maybe some of those adjustments show up either in the quarter that just ended or maybe in the back half of this fiscal year.
Well I can certainly confirm that theres a lot of efforts going on in that very guard regard, Kevin weather, whether it be direct representation by us.
Two lawmakers.
Capital I can tell you about that and true.
Combined efforts that we do with industry associations and letters have gone out and and.
And I fully expect action to occur there when it happens when it.
I really can't tell you, but I've always been of the view that we've shared this on last call that we expect that we will have some measure of mitigation on somebody's cost overruns.
That would have occurred we've made no real.
We've taken no benefit of that so far but I fully expect in the future that we will get some.
Okay. That's that's helpful. Just my second question on the on the last quarterly call.
You provided a lot of detail on the problem contracts that resulted in the write down one of the legacy <unk> defence contracts and I think one of the issues was.
Just the expected renewal of that contract was maybe not coming in as fast as originally anticipated, which maybe drove some of that write down just just any update there in terms of the bidding process for that and maybe your confidence in being awarded the renewal.
Well I would tell you that the RFP is out and we are bidding on it.
So.
It's the nature of the contract. This change I think it's a lot more attractive in terms of a contract. So look we'll see I think we have a very attractive bid where the incumbent so I have high hopes, but we're very we'll be very prudent in that regard.
Okay.
One thing I will tell you, which is which is very.
A testament to what I was saying about.
In terms of changing nature of this particular contract and others. If you take what that contract looks like it's changed from really being at the lowest price technically acceptable contract and we saw initially to now a contract that's based more on the best value that plays very well to see strengths.
Meaning not just around costs and the way we bid it as per the terms that are in the contract which includes specific banding around utilization rates. So the risks that we saw in the.
So on that contract, where we basically bid at a certain level of utilization in the amount of utilization of the customer made a it was much higher we wouldn't have that risk anymore. That's been completely taken out of the risk profile of the contract.
That's good to hear I'll leave it there. Thank you very much.
Thank you.
Thank you. The next question comes from body some movement of BMO. Please go ahead.
Thank you and good afternoon.
Just one quick clarification first.
I hear you mentioned civil you expect.
The growth in the second half to exceed the growth and of course from an EBIT perspective is that the guidance.
Yes. It is.
Okay.
Okay. So okay.
Quite stronger than then.
I think what you are expecting maybe at the beginning of the year.
What what's driving that specifically.
I mean, you'll have some decent amount of all going to be a debate and it looks like.
Sequentially in the second quarter, we've had a big jump.
More than seasonal jumbo, we'd say in the second versus the first.
Asian market coming back a little bit stronger in their area of that kind of surprised you on the positive side I'm just curious about.
The pro forma.
So I didn't mean to interrupt you said hey look.
I think as a general rule in our places are a consolidated.
The outlook that we've given for the back half.
It's slightly steeper to normal in <unk>.
When we talk about civil I'd say, we're not we're not yet in a normal environment, where as I've said in the calls it was China is still really not real business, so thats, putting a lid on things there but.
What youre seeing in the back half as us.
First of all you are seeing the benefit of all the simulator orders that we've signed this year.
<unk> had more than our share of orders they are very happy to see that and so we're seeing a lot of.
That order intake translating into deliveries in the back half and in specific in the fourth quarter. So I have very high visibility on that plus or ramping up.
Capital that we've already deployed in terms of simulators in both the commercial and business aircraft training networks.
Specifically as I mentioned in my remarks, you see that in the past months, we have opened our new Las Vegas business Aviation Training Center you see this.
You'll see us.
Sure very shortly.
Open our Singapore business Aviation training center, so all of those factors.
Is the order and take a look at the order intake again this quarter at 148 times, both the sale of civil on top of revenues that are 40% higher.
Year over year, So I think thats all that is what's translating into growth that youre seeing.
Yeah.
Okay great.
One question on the defense side.
May.
We get a lot of the.
Okay.
Kind of question from investors.
Are there in the backlog.
Other contracts like this CAE legacy contract that you had last quarter, where you are still expecting renewal may be contracts that are not performing to our expectation and youre still expecting a new.
Or is it.
It kind of all behind us at this point.
Look I, if youre, referring to the charges and I think yard that we recognized in the first quarter.
I think as I've said at the time I really see those as unique and one off in nature. They are really not typical of the risk profile of our business and I have been as you know very well I've been at the business 17 years and it's the first time that I've ever seen charged slate that hit our <unk>.
In a quarter like that it's not that we don't manage programs that are all watch.
We've blended hundreds of programs some have a higher margin others, but we manage them well. So obviously an event like this forces you you'd be foolish not to go back and even enhanced should the level of scrutiny and of course, we've done that.
As part of a lot of that but.
Specifically to your question I don't see any similar risk in our backlog programs certainly are the ones that we see at that time and to give you some more color if I look at.
In terms of conditions of contracts that we're bidding. These days I was giving the example of <unk> and the discipline that we're that we're applying to those bids.
It gives me a lot of content in our current leadership teams and the expected margins that we'll be able to execute on those contracts.
Okay. Thank you.
Thank you. The next question comes from James Mcgarrigle RBC. Please go ahead.
Hey, everyone. Thanks for taking my question.
I just had a quick question on <unk>.
Increase on the defence backlog and some of the new contracts you are putting on do you have any protection for any potential supply chain issues on those new contracts I think our supply chain.
They're very uncertain as to when things are going to get better and.
If supply chain issues were to persist for.
Another year another two years.
Should we see any risk to margins with those new contracts that you're bidding on or is there some protection kind of being built into those.
New agreements that Youre working through right now.
Well you can be sure that the contracts that we're bidding now taking to account the situation that we that we see now including.
Issuance has continued inflation at the levels that we've seen and as our customers by and large are.
Understand that reality so.
Just the contract that I reviewed the other day, where it.
Fairly major contract, where you typically as previous contracts, which you would've seen you've seen fuel being an element that we have the cost of there but.
But with the price of fuel the way, it's escalated to the unpredictably of it.
Customer themselves don't want us to bid to cover ourselves can we bid at a very high rate to cover ourselves. So what you will see specifically in that contract, which is I think a very good example of kind of the things that we see is we bid it basically what that component as an OTC.
Other direct cost so it means it takes it out completely a neutralizes that.
Totally and Thats, what you see happening.
And by and large.
In a previous answer I was talking about this that we're seeing a shift in contracts that certainly the ones that were bidding on going from really lowest price wins, what's called lowest cost.
Likely acceptable contracts to best value.
States Defence Department, So I am pretty confident that the.
First of all that the programs that we're winning that earned a backlog for us.
Certainly in the last five quarters, where we've seen this strong backlog increased are at profitability levels that support our objectives for low double digit profitability and we will I'm quite confident we will execute them at that margin profile.
I appreciate that.
My last question is on these at the civil business.
The recovery there is obviously predicated obviously on a recovery to pre pandemic travel and I know you don't operate in China, but Youre Asia businesses.
Affected by what goes on in that country. So how is that countries Europe public policy affected your recovery how are you kind of managing through that uncertainty going forward.
I think that will start to start by saying is.
When you look at the margins that we're printing right now in civil without.
In the Asia market really being back and we're back to margins that are near pre pandemic levels near 21%.
That what youre seeing and.
Obviously at a lower level of revenue that we saw pre pandemic and Thats just showing you the cost savings that we've taken out out of our network coming to fruition. So expect as the recovery continues to progress, which we fully expect that it will expect murder for.
Further margin progression that regard somewhat but going back specifically to your question the way to China.
Thanks.
Historically, we've had a very high market share of selling simulators in China.
I fully expect that that will continue as the market is low right now so we're not selling a lot of simulators in China right now nobody is.
As I look at how else does that how does that China situation affect us is that all of our training centers in Asia Pacific the anchor customers that we have the training those location.
A lot of their flights to and from China everyday so that obviously affects the amount of flight activity and therefore, it about a training activity and Thats why.
That's where there's a lot of expected recovery in that regard.
I appreciate it and I'll turn the line over thank you very much.
Thank you. The next question comes from Corn market group that with Scotia Bank. Please go ahead.
Thanks, operator, and good afternoon, everyone.
Just wanted to first.
So I'm trying to make sense of the defence.
Soi for the second quarter, which for us I think $18 million.
Still kind of down.
Below the normal levels that you had before the last quarter.
So I understand that you have supply chain issues, you mentioned on the labor issues had some order delays and all of those things but.
What do you say, even if you strip out those issues.
Contract adjustments that you took in fiscal Q1 that would have been still.
Showed up at the new margin level in fiscal Q2 and that should continue I'm like I'm, just trying to understand like how how defence. So I can go from 18 in Q2 two six.
It can be higher numbers than that in Q3 and Q4.
Well I think I'd start by saying our two two of a Walmart was as we expected it to be.
As I said.
It would be on the last call. It sequentially ahead of last quarter.
Adjusted for the discrete charges that we saw in Q1 of course, which are as I said one off.
We're not alone in this like our peers. We continue that we continue to feel the effects, some very real labor and supply challenges across the industry.
And I think we're managing them well.
But as well, we do see select or ordered award delays on order intake. So we're continuing to work this and.
Simply with regards to labor supply changes the way we're managing it of course has they affect our company. We see these are baked in by the year end not going away totally but certainly abating I shouldn't ask what are you seeing that plus specific orders that we see coming in that we have high visibility on.
It gives us the confidence.
We can achieve the ramp up in in defence number.
In terms of profitably in the third and especially the fourth quarter now of course, one thing that I think like meal and be excited about is the order intake which continues to be very strong as we've got five quarters of.
Book to Bill hired one with <unk>.
<unk> 12 months trailing book to Bill at a bit higher than one three that that really points to strong and improved performance in the future.
That's helpful. Mark Thanks, so much and one more for perhaps lasagna.
I think in your comments you mentioned that you want to reinstate shareholder returns overtime.
So.
Two part question on there like does that mean dividends or buybacks and would you have to wait until the leverage ratio going down below three times before you reentered the old thing.
So as we mentioned our first priority.
Is to Delever and we continue to be on track to bring our net debt to adjusted EBITDA down to below three times.
By mid next fiscal year.
And then we believe we'll then be in a position to consider return on capital our return of capital to shareholders. So.
Too soon to to really speak to the forum.
But with the added once we receive.
Reach kind of a normalized balance sheet and financial flexibility.
We'll turn to returning capital to shareholders.
Okay. Thanks, Tony.
Thank you.
The next question comes from Kristine <unk> of Morgan Stanley . Please go ahead.
Hey, good afternoon, everyone.
Hello.
Hey, Marc maybe just circling back on defence, you've highlighted some of the puts and takes there but can you provide.
More detailed bridge on how you get from 4% margin, where the business is today and how you get to a high single digit or potentially low double digit at some point how much of this margin expansion is a function of lower margin contracts rolling off or better execution or better volume to absorb some overhead.
Like that any more detail would be appreciated because it seems like there are a lot of moving pieces in terms of that recovery.
Well I think the components of our executive when you said.
Yes.
If you look at our business and we've been talking about this for a while we've just come off before the five quarters of <unk>.
Book to bills higher than one we have the patented three years before that we were at book to Bill below one so we're running out of backlog. This inherently inefficient, okay by itself Covid affected us.
We are working through labor supply chain supply chain challenges that the industry itself is facing so for us it's really rolling off contracts that are lower a lower profitability.
<unk> seen them with contracts that we've been winning again going back to the order intake and the orders that we're winning are accretive to the objectives that we have.
Low double digit return.
Right.
<unk>.
Operating income sorry.
And so to be look again, I said continuing to watch order intake. So order in case, the one to watch I'd say I've been saying this for a few quarters now and order intake is very very good were bid as I said, we're bidding more we're building larger.
And just look at it.
Dow got.
Outstanding bids and proposals or $8 billion, which is a very substantial increase so all of those other factors that are going to be that bridge that you were looking for.
I see and then Mark would you quantify how much of that lower margin defence revenue is rolling off this year.
To help us with modeling.
We havent can't be that specific really at this time. So do you have anything you would add.
No I think it would have to leave it to what we have.
We've said already.
Great and if I could add one more maybe on a commercial.
You you've taken up your restructuring costs.
Going forward can you share the magnitude of what these costs with Intel next year.
And also when you think about the once you fully realized the cost benefits of these actions, how we should think about incremental margins.
So Kristina I'll take this one but the restructuring program.
And so the costs are behind it ended in Q1 and as you can see it.
Being realized already as we see it sort of go through the civil margins right, because we had committed to $70 million plus of recurring structural savings and we see it we see it in those margins.
What's left in those accounts is really the integration cost of the major acquisitions and on the <unk> Harris military training that'll be trailing off in the second half and Air Centre will continue the integration for the next two quarters.
Great. Thank you Mark Thank you Sonya.
Thank you.
The next question comes from Anthony <unk> of Goldman Sachs. Please go ahead.
Hey, guys. This is anthony on for now or how are you.
Good thing Anthony.
I just wanted to focus on the civil segment for a second if I'm looking at the metrics correctly here it looks like this.
Simulator deliveries were flat quarter over quarter utilization was down and there's less simulators in the network.
Revenues were up 6% sequentially. So can you just like help to bridge that for me.
Well, I think maybe saying give us more color.
Color, but I think as I've said in the past that.
First of all margins and utilization are perfectly correlated.
You see a lot of mix not all simulator orders are created equal either.
They can depend quite substantially from one quarter from one quarter to next just specifically where for example, if the.
Data is supplied.
By directly by the Euro as an example.
Maybe sandy you want to expand on or anything.
Yeah, absolutely so despite the the deliveries being flat I.
I think product mix was favorable and was even more favorable in quarter.
And mixed matters in terms of the the training as well so less seasonality on the business jet side than the commercial side. So that helped the margin and you spoke to the Sims in the network, while the absolute number of Sims was lower because we did a bit of a rationalization of the said use which.
It drives the revenues of which stimulators are active or revenue generation actually went up quarter to quarter.
Okay. That's helpful and in terms of the mix can you guys comment on the amount of deliveries that are wide body and the amount of orders that you guys are getting more wide body versus narrow.
We don't actually break it out.
Frankly.
So we're pleased with that follow up but I don't think there's I don't even we don't have actually the data. We don't we don't break it out that way, but we don't necessarily break it out that you can you can assume that it's mostly narrow bodies.
Okay, Great and then last one on this for me is how.
How much is the revenue and soi contribution in the.
Quarter from Sabre.
7% in revenue.
7% of the civil revenue, so that equates to about $35 million and a pretty strong accretive margins to the business.
Great. Thank you so much.
Thank you.
The next question comes from Michael <unk> of <unk>. Please go ahead.
Alright. Thank you for taking the question maybe just on the announcements with Qantas and Virgin do you expect further outsourcing of training across the airline industry given that they are facing higher costs right now in other parts of their business.
Yes, I think this is a continued good.
Good time for in the future for outsourcing as we've predicted all along.
It's just a natural evolution of the business we've created there.
Any real global third.
Third party.
Way to be able to do training and we're the largest training network in the world training over 1 million hours of.
Of trading a year. So we provide huge synergy there and huge benefits to airlines that want to do it. So yes, I continue to see more opportunities out there we announced the big ones like you were talking about Qantas, but theres a lot that we will do overflow training.
And that's been a factor as well as we're putting simulators out there.
Contracts to do just that and when we do that we get long term contracts, that's going to be going forward. So I continue.
I continue to see that as being a trend going forward.
Perfect. Thank you that's great color and maybe just on the fixed price contracts I saw bowling at their Investor day came out and said that going forward. They are no longer appetite for fixed price programs.
Maybe just your opinion in the industry aerospace industry as a whole do you share that view and if the industry is maybe stepping away from that.
Yes.
Look I can only comment about us we bid on the contracts that fit our strategy and.
The capabilities that we have been.
Yeah, a lot of them are fixed phase FERC price contracts and we're good at executing those kind of contracts as I said notwithstanding the what happened then is specifically for one off reasons last quarter, we have a very good track record of building over multiple years.
<unk>.
Very confident that we can execute contracts.
That are fixed firm price.
In the future and.
Going back to what I was saying a while ago in a previous answer what we see specifically in the U S market is a shift to best value contract and that that is very positive for CE.
Our specific different differentiation in the market.
So and I think the last thing to say is again in previous as an answer to a previous question.
The government does.
Wants to create an environment in which case the.
The risks are well managed that was using the example of fuel prices.
Taking that out of the equation, so I think that.
And summarized as to summary, we will continue to bid on contracts and what our fixed firm price or not and we will execute them all of them quite often.
Thank you I appreciate it.
Okay.
Thank you.
The next question comes from Lee of <unk> Brown. Please go ahead.
Alright. Thank you, yes, just a clarification on the civil utilization rate.
<unk> declined.
71%.
Last quarter, it's down 66 is that declined due to seasonality COVID-19 or are there. Some other factors involved there.
Mainly seasonality.
Okay.
Okay and.
In terms of looking longer term that that utilization rate I think prior to corporate goes in the mid 70 range is that do you expect to get back to that kind of range longer term or do you expect to be higher or lower.
I can't see any reason why not that we're operating in the U S, but much higher rate than that right now.
And so look there is no. There is no natural reason why that would stop it's really going to be.
A.
Late as it always is to the amount of flying that are done by by the airlines and business aircraft, So and Thats been a very high rate as I say this aircrafts stabilizing as flight level of flight activity of about 20% over prior to Covid period, and I see that continuing so I think thats going to be pretty good.
Historically I think the reason I use that example of a business aircraft is usually that'll that'll be a lower utilization by their very nature that we don't train as much.
Back end of the pockets like in business aviation, So inherently brings a utilization level balance even though it is still a very good revenue.
Alright, okay. Thank you.
Operator, I want to thank members of the investments to community for <unk>.
There are questions and now we'd like to open the lines to members of the media for any questions from media. Please go ahead.
Thank you as a reminder, if you'd like to register a question or comment. Please press. The one followed by the four on your telephone.
Once again to register a question or comment the one for one moment. Please.
Yeah.
The first question comes from Stefan <unk> of that plus kind of Jim. Please go ahead.
So Mr <unk> to the <unk>.
Have a good bonuses intestinal sol.
Campbell.
The 600, <unk> Nissan Clarkson, whereas in my understanding if that's the only because it is just getting asthma.
Seeing their talents and skill to that is yes.
No on a full on what put the singer.
That smell ill quantify at all the bullets fly phosphate.
<unk> does that.
It may still under the table as it has done is my best cylinders.
And we will visit.
Doug Moss has shown us into all of the new.
<unk> <unk> has shown no policy.
Sure.
Although I don't want that showing the volunteers.
So the volatile come out whether they come on at <unk>.
<unk> you.
Our tier one market a cabinet come onto the vessel testing guest ebix, although further than a smartphone officer.
Okay.
To take them.
<unk> is the only thing they ask us.
With that Tom Bailey.
Yes.
So if you jump to select actually end up with Gen myeloid today's Tuscan that EPA Paul that differently.
And it just <unk> or more key subject because they thought may help us too.
And you just touched on is we don't want to cut down on it on a call or now called Edp Geek suddenly that pushes the sheer unmet needs still complex that sector that if asked yes, I forget to tell Amanda desk yet there.
It's a question we did that.
The <unk> civil cost of of course news FSD or web Com, Inc.
<unk>.
Neither.
Is it favorable yes, how many zones there southern amendment kept cm call pick <unk> mix.
Okay.
No. This is Tony the peso CCAR share then.
<unk> at Tinder as Stefan said about it.
Okay and then.
<unk> <unk>.
And you'll get some car that's guessing.
Yes, Alex smartly can each fix it presets in their gasoline was down for a week of Chaucer mumps et cetera.
Yes.
But you know as a follow up to <unk>.
Good.
The fair.
For the main street.
C C.
Sure that made them a food chain that TV is still a gallon new call Gallagher of any pushing that a <unk> approval on new.
Ken made of <unk> spent the one embedded vis vis <unk> <unk>.
Main festival for the EPS.
<unk> got such a small add on the Capex.
Wallboard capacity.
<unk>, calling on behalf of all of that made up of on EPS <unk> Pos looked like about the Denise.
That is to simply we join us.
Okay and still have opportunity.
Michelle.
Yes.
Massachusetts doesn't die off get told that was our final question I will turn the call back over to our hosts for any closing remarks.
Thank you operator, and thanks to everyone for joining us on the call today I would remind you that a transcript of today's call will be located on <unk> website for future reference.
I wish everyone. Good afternoon.
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.
[music].
Okay.
Okay.
Yes.
[music].
Okay.
Okay.
[music].
Yes.
[music].
Okay.
Yes.
Yes.
<unk>.
[music].
Okay.
Yes.
Okay.
Sure.
[music].
Okay.
Okay.
Okay.
Yeah.
Thanks.
Okay.