Q2 2023 CAE Inc Earnings Call
With growth in civil and sequentially better results in defense.
We also delivered another quarter of double digit revenue growth in healthcare with higher profitability.
We continued to secure six future with nearly $1 $3 billion in total orders were a record $10 $6 billion of adjusted backlog and one three times book to sales ratio.
In civil.
We made excellent progress converting our larger opportunities pipeline into $751 million of orders.
Resulting in a 148 times book to sales ratio.
This is especially impressive considering it revenue was 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 operations agreement with Qantas one of the world's most renowned airlines and like CE and name synonymous with safety.
We also secured training agreements with Virgin Australia, Jeff Smart Airlines, DHL Air UK and American Airlines.
Demand for full flight simulators was robust with 18 sales in the quarter.
We sold another five full plate and actually bringing our total year to date tally to '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.
Civils 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 average 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 continued 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 region 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 defense.
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 high order intake replenishing, our backlog with new and more profitable defense contract.
Defense quarters this quarter reflects our capabilities across all five battlespace domains.
And the air domain, we signed the 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 modifications 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 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.
As a soldier virtual traded contract or SVP continues the expansion of synthetic training environments with a platform to empower soldier related trends.
Defense also won a contract in the sea domain with the platforms and system training contracts to support the Royal Australian Navy.
And this program is strategically significant in the context of Australia as 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 and Port NFC.
We're leveraging our experience training marinas worldwide, including the U S. Navy on multiple naval aircraft platforms breached training for literal littoral combat ship.
In the U S Army Maritime integrated training system.
In this space and cyber domains.
We received additional awards from our key space and missile defense customer along with cyber technology updates on our core platforms and systems from various customers within the U S Department of defense.
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 of 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 with that we highlighted last quarter.
Namely the prevailing supply chain and labor headwinds and order delays all of which are pervasive across the defense 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 19 per share compared to <unk> 17.
Second quarter last year.
We incurred restructuring integration and acquisition costs of $22 6 million during the quarter relating mostly to the <unk> 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.
Free cash flow was $108 4 million compared to $19 4 million in the second quarter last year.
The increase was mainly due to higher cash provided by operating activities and lower investment in noncash working capital.
They 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 with approximately 80% invested in growth to 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 to the second quarter last year and adjusted segment operating income was up 60% to $104 4 million versus 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.
The Air 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.
<unk> 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 simulator.
Adjusted segment operating income was $1 $9 million in the quarter compared to a loss of $1 3 million in Q2 of last year.
With that I'll ask Marc to discuss the way forward.
Thanks Sonya.
The strength that we saw during the second quarter 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 and capabilities to better serve our customers while significantly improving our cost structure.
We expect the rate of civil commercial aviation training and recovery to continue to be driven in large part by the eventual 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, we're watching the global energy situation closely and particularly in Europe with respect to operating costs, 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 to see 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 this month.
For the second half of the fiscal year, we expect civil 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 or if he use 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 play 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 defense.
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 defense has become the world's leading pure play platform agnostic training and simulation business.
We are well positioned to address larger more profitable and more comprehensive programs across all five battlespace domain.
Were 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 draw it directly from CS innovations to the commercial aviation simulation training market.
Defense 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 defense modernization and readiness.
The earliest indications of our success have been orders.
Leading us to build a more profitable backlog were.
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 defense with 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 defense, 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 as our expectations for select delayed program awards to come to fruition.
And that will be able to execute on 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 gain 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've concluded a heavier than usual inorganic growth investment cycle, which spanned the last two years as we see opportunities in a disrupted market to enables CA to become a bigger stronger and more profitable company for the future.
We're now concentrating on organic investments that are made in lockstep 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 are what 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 analysts wishing to ask a question or comment. Please press. The one followed by the four on your telephone.
Here are three tome 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 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 defense.
<unk>.
Issued a memo.
Two two to two contractors for 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 wondering 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 it is 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 through.
Combined efforts that we do with industry associations and letters have gone out 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 will get solved.
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> defense contract 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.
<unk>.
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.
But one thing I would tell you that which is which is very.
Testament to what I was thinking about.
In terms of changing nature of this particular contract and others.
What that contract looks like it's changed from really being at the lowest price technically acceptable contract and we saw unusually 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.
On that contract, where you don't mean basically a bid at a certain level of utilization that the amount of utilization of the customer made a it was much higher we wouldn't have that risk anymore.
Completely taken out of the 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 <unk> <unk> of BMO. Please go ahead.
Thank you and good afternoon.
Just one quick clarification first.
Did I hear you mentioned.
Do you expect the <unk>.
Growth in the second half to exceed the growth and of course from an EBIT perspective.
The guidance.
Yes. It is.
Okay.
Okay.
It quite strong David again.
I think what you are expecting maybe the beginning of the year.
What what's driving that specifically and aviation I mean, you'll have some decent amount of all year to date.
It looks like.
Sequentially in the second quarter.
We've had a big jump.
Seasonal jumbo.
And the second is actually 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.
Sorry to interrupt you say look I think as a general rule in places are a consolidated.
The outlook that we've given for the back half.
Lately steeper to normal.
And particularly when we're talking about civil.
I'd say, we're not we're not yet in a normal environment. So as I've said in the calls it was China is still really not reopen so that's putting a lid on things there but.
What youre seeing in the back half as us.
First of all <unk> seen the benefit of all the simulator orders that we've signed this year.
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 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 network spin.
Specifically as I mentioned in my remarks, you see that in the past months, we have opened new Las Vegas business Aviation training Center <unk>.
See this youll see us Josh.
Sure very shortly.
Open our Singapore business Aviation training centers, 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 the civil on top of revenues that are 40% higher year.
Year over year, So I think thats all that is what's translating into growth that youre seeing.
Okay great.
One question on the defense side, if I may.
We get a lot of the.
Kind of question from investors.
And the backlog.
And contracts like this.
Legacy contract.
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 renewal or is this.
It kind of all behind us at this point.
Look 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.
We really see those as unique and one off in nature. They are really not typical of the risk profile of our business.
As you know very well I've been at the business 17 years and it's the first time that I've ever seen charges like that hit.
Our P&L in the corner like that it's not that we don't manage programs that are all watch.
We've landed hundreds of programs some have higher margin than 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 certain 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 that could give me some more color if I look at it.
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 confidence in our current leadership team 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.
Chris 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.
Those new contracts I think supply chain.
Very uncertain as to when things are going to get better and.
Supply chain issues were to persist.
Thank you for another year another two years.
Could 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.
While you can be sure that the contracts that we're bidding now take into account the situation that we that we see now including.
Issues as continued inflation at the levels that we've seen and as our customers by and large.
Understand that reality so.
Just the contract that I reviewed the other day where a.
Fairly major contract, where you typically as it has been previous contracts for what you would have seen you've seen fuel being an element that we have a cost of there but.
But with the price of fuel the wings escalated to the unpredictably of it.
Customer <unk> don't want us to bid at.
To cover ourselves because we have been to have 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 with that component as a an OTC or other direct costs. So it means it takes it out completely it neutralizes.
<unk>.
Totally and Thats, what you see happening.
And by and large.
His 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 technically acceptable contracts to best value in the United States Defense Department, So I am pretty confident that.
First of all the programs that we're winning that earn a backlog for us.
Certainly in the last five quarters, where we've seen this strong backlog increase 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 the civil business.
The recovery there is obviously predicated.
August .
Coverage of 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 are zero public policy.
<unk> your recovery, how are you kind of managing through that uncertainty going forward.
Well I think I will start it will start by saying is.
When you look at the margins that we're printing right now in syllable without.
In the Asia market really being back and we're back to margins that are near pre pandemic levels near 21%.
Is 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 merger.
Further margin progression that regard somewhat but going back specifically to your question the way China affects US is historically, we've had a very high market share of selling simulators in China.
We would expect that that will continue as the market is low right now so we're not selling a lot of simulators to 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, the amount of training activity and Thats, why thats, where theres a lot of expected recovery in that regard.
I appreciate it and I'll turn the line over thank you very much.
Yes.
Thank you. The next question comes from Corn Arc group to ask Scotia Bank. Please go ahead.
Thanks, operator, and good afternoon, everyone.
I just wanted to express.
So I'm trying to make sense of the defense.
So why for the second quarter, which for US I think $18 million still kind of down below.
Below the normal levels that you had before the last quarter.
So I understand that you have supply chain issues, you mentioned that the labor issues had some order delays and all of those things.
But what do you say.
Even if you strip out those issues.
The contract adjustments that you took in fiscal Q1 that would have a 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.
Defense Soi can go from 18 in Q2 two.
It can be higher numbers than that in Q3 and Q4.
Well I think.
By saying our Q2 performance 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'll continue to work these and.
Specifically with regards to labor supply changes the way we're managing it of course has they affect our company we see these.
<unk> by the year end, not going away totally but certainly abating I shouldn't ask where youre seeing.
That plus specific orders that we see coming in that we have high visibility on.
It gives us the confidence that we can achieve the ramp up in defense numbers in terms of profitably in the third and especially the fourth quarter now of course, one thing that I think like video have been excited about is the order intake, which continues to be very strong and we've got five quarters.
<unk>.
<unk>.
Book to Bill hired one with.
12 months trailing book to Bill at a bit higher than one three that really points to strong and improved performance in the future.
That's helpful. Mark Thanks, So much and then one more.
Perhaps lasagna.
I think in your comments you mentioned that you want to reinstate shareholder returns over time.
So like.
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 read stable 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 will 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 <unk>.
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 Cristina <unk> of Morgan Stanley . Please go ahead.
Hey, good afternoon, everyone.
Hello.
Hey, Marc maybe 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 or anything 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 are exactly what you said.
We.
If you look at our business and we've been talking about this for a while we just come up off before the five quarters of <unk>.
Book to Bill hired in one we have the patented three years before that we were at book to bills are below one. So we're running out of backlog is 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.
Placing 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.
On the rig.
<unk>.
Operating income sorry.
And so to be and look again, I said continuing to watch order intake. So order intake 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 <unk>.
Dow got outstanding.
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 youre looking for.
I see and then Mark would you quantify how much of that lower margin defense revenues rolling off this year to.
To help us with modeling.
We havent can't be that specific really at this time, so anything you would add.
No I think it would have to leave it to what we have.
We have said already.
Great and if I could add one more maybe on a commercial.
You're thinking of your restructuring cost.
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 margin.
So Kristina I'll take this one but the restructuring program.
And so the concept behind it ended in Q1 and as you can see it it's.
Being realized already as we see it sort of goes through the civil margins right. It was we had committed to $70 million plus of recurring structural savings and we see it and we see those margins what's with US in those accounts is really the integration costs of the major acquisitions and on the <unk> Harris military training that will be trailing off in the second half.
Air Centre will continue the integration for the next few quarters.
Great. Thank you Mark Thank you Sonya.
Yes.
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.
I just wanted to focus on other civil segment for a second if I'm looking at the metrics correctly here it looks like.
The simulator deliveries were flat quarter over quarter utilization was down and there's less simulators in the network yet 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, but I think as I've said in the past that.
First of all margins and utilization arent perfectly correlated.
You see a lot of mix not all simulator orders are created equal either.
<unk>.
They can depend quite substantially from one quarter from one quarter to next just specifically where for example, if the the data supplied.
Vice directed by the airline as an example.
Maybe sandy you want to expand on anything to spend on it yes, absolutely. So.
Despite the the deliveries being flat.
I think product mix with favorable it was even more favorable in quarter.
And mixed matters in terms of the of the training as well so less seasonality on the business jet side than the commercial client. So that helped the margin and you spoke to the Sims in the network, while the absolute number of Sims was lower as we did a bit of a rationalization of the said use which.
It drives the revenues of which escalators 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 hoping we can follow up but I don't think that I don't even we don't have actually the data. We don't we don't break it out that way, yes, 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 margin.
For the business.
Great. Thank you so much.
Thank you.
The next question comes from Michael <unk> with Deutsche Bank. 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 continuous good.
Good time for in the future for outsourcing as we predicted all along.
It's just a natural evolution of the business we've created.
Morning.
Global third.
Third party.
Way to be able to do training and we're the largest trading 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.
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 it specifically for one off reasons last quarter, we have a very good track record of doing over multiple years.
And im very confident that we can execute contracts.
That are fixed firm price in the future.
And I think 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 CEO what are 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 and that was using example of fuel prices.
Taking that out of the equation. So I think that is.
Summarized as to summary, we will continue to bid on contracts and whether fixed firm price or not and we will execute them all of them quite often.
Thank you I appreciate it.
Thank you.
The next question comes from Lee of <unk>.
Bryan. Please go ahead.
Alright, thank you.
Just a clarification on the civil utilization rate.
Potential decline.
71% last quarter and is now 66 is that declined due to seasonality cold it or are there. Some other factors involved there.
Mainly seasonality.
Is now okay.
Okay and <unk>.
In terms of looking longer term that that utilization rate I think prior to Cologuard to 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.
Lower.
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.
Linked as it always is to the amount of <unk> done by by the Airlines and business aircraft. So and that's at a very high rate as I say this aircraft is stabilizing as flight level of flight activity of about 20% over prior to Covid period, and I see that continuing so I think that's going to be pretty good at it.
Historically I think the reason I use that example of a business aircraft is usually that will that will be a lower utilization by the very nature that we don't train as much on a back end of the pockets like in business aviation. So inherently brings the utilization level of balance.
Even though it's still very good revenue.
Alright, okay. Thank you.
Operator, I want to thank members of the investment community for their.
Your questions and now we'd like to open the lines to members of the media for any questions from media. Please go ahead.
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The first question comes from Stefan <unk> of <unk>. Please go ahead, Jim. Please go ahead.
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Michelle.
Yes.
<unk> 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.
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 great day.