Q1 2024 CAE Inc Earnings Call
Yeah.
Yeah.
Good day, ladies and gentlemen, welcome to D. C. H E first quarter conference call. Please be advised that this call is being recorded.
I'd now like to turn the meeting over to Mr. Andrew <unk>.
May not proceed Mr. Horowitz.
Good afternoon, everyone and thank you for joining us today before.
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 August nine 2023, 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 of the risk 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.
On the call with me. This afternoon is Mark Carl <unk>, President and Chief Executive Officer.
Sonya Branco, our Chief Financial Officer is unfortunately under the weather today, so I'll be covering off her remarks.
Also on hand, with US is constantino Malatesta, our corporate controller.
After remarks from markedly we'll open the call to questions from financial analysts and at the conclusion of that segment. We will open the line to 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.
We're off to a strong start to the fiscal year with first quarter results driven by double digit year over year growth in civil continued strengthening in transformation in defence.
And increased profitability in healthcare.
We made excellent progress the securities future growth with over $1 billion in total order intake for a record $11 $2 billion backlog.
We also further bolstered our financial position and we're on track to meet our leverage target by mid fiscal year.
In civil our markets are thriving and we're addressing a greater share of our customers' training and operational needs as evidenced by our long term training services agreements that now include nearly every major U S airline.
We booked $730 million of orders with customers worldwide for our 135 times book to sales ratio.
<unk> 22 full flight simulator sales in a range of multiyear training contracts in commercial and business aviation.
We delivered six full flight simulators during the quarter and average training center utilization was 77% up from 71% last year.
As this increase suggests commercial and business aviation training demand was strong across all regions, particularly risk customers get got their required training sessions done ahead of the busy summer travel period.
While airlines in Asia Pacific are still not yet back to full capacity on international routes. They continue to make rapid progress to restore their operations for 2019 levels and beyond.
During the recent Paris Air show several of our airline partners, Inc. Sizable aircraft orders can be able to execute on their growth plans and we're excited to be in a position to serve their needs over the next several years.
Also significant during the Air show was our announcement of a strategic alliance with Boeing whereby HCA will become it bought Boeing authorized training provider and the first to offer its competency based training and assessment curriculum.
With this arrangement Boeing is CAE will expand accessibility to high quality innovative flight training to commercial aviation customers worldwide.
We're immensely proud of this collaboration with Boeing first and foremost in our mission to advance safety by bringing forth solutions that will revolutionize the future of training.
As you can imagine we welcome any and all opportunities to help advance the industry forward.
We also use the occasion of the Paris Air show to release, our 2023 aviation talent forecasts, which anticipates the global need for one 3 million new aviation professionals to join the industry as pilot aircraft maintenance technicians and cabin crew over the next 10 years to support the.
<unk> growth of the commercial and business aviation markets.
In Defence performance was in line with our expectations and we're making excellent progress to transform our business.
That's particularly demonstrated by our recent large strategic program wins and a record $5 4 billion dollar defence backlog.
These involve larger and more profitable opportunities that we now have the capabilities to bid and win.
This quarter, we booked orders across multiply multiple demands for training and mission support solutions with the funded portion of orders valued at $238 billion.
Four five times book to sales.
Given the large size a number of major program wins in the U S. This quarter. The unfunded portion of contracts awarded was even more significant and more than three times the funded portion.
In total these represent an additional $779 million contribution to adjusted backlog.
Notable awards include the contracts, we announced in May support <unk> TSS at Ford No Lasalle, Alabama.
In the U S Air Force Aftr contract for initial helicopter flight training out of our existing training centre in Dothan, Alabama.
Both programs involve delivering simulation and training solutions that are very similar to what we offered commercial aviation except for of course for defence customers, who set of airlines.
Additionally, defence was recently awarded a contract with a land domain that is critical to the U S armies mission, namely phase two of their rapid prototyping effort supporting the soldier virtual trainer program for the replacement of 800 plus legacy training.
Since the end of the quarter Defence has continued to leverage Tes Dolton training center, and our industry's leading business aviation training expertise to provide mission critical solutions for the U S Army with a contract for simulation based training for the Army key next generation ISR.
Our system called Haiti's, meaning the high accuracy detection and excellent patient system, which.
<unk> is based on the Bombardier Global 6500 business jet a platform for which we are the global authorized training provider and civilly. These.
At the end of July the government of Canada announced the selection of Skyline, a partnership between CAE and JF aerospace as the preferred bidder for the future aircrew training program. Our fact to provide next generation pilot training and aircrew training for the Royal Canadian Air Force.
This is a major development for CE and underscores my excitement for our future in this space.
We're now entering discussions with the Canadian government and our partners and the award is anticipated in 2024.
In context of securing cease future growth, we expect the fact program to become our largest contract win to date, representing a multibillion dollar generational training opportunity that will ensure work for CA over the next quarter century.
Turning now to healthcare, we continued to gain share in a stimulation market delivering above market revenue growth and higher profitability with our dynamic team and highly innovative solutions.
We had notable contract awards for our learning Space Center management solutions for the Thomas F. <unk> Junior College of Medicine in Nashville, Tennessee, and a contract and the University of North Dakota, where a multi sim sale to outfit their stimulation in motion mobile education system.
And by leveraging our technology and subject matter expertise healthcare delivered or entered an agreement with Abbott laboratories to develop a training program to support the launch of a new commercial pay space.
Without with that I'll now turn the call over to Andrew will provide additional details about our financial performance Andrew Thanks Mark.
Consolidated revenue of 105 billion was 13% higher compared to the first quarter last year and adjusted segment operating income was $145 1 million compared to $60 9 million in the first quarter last year, our quarterly adjusted EPS was <unk> 24 compared to <unk> in the first quarter last year, which include.
<unk>, a <unk> <unk> negative EPS impact from contract profit adjustments in defence.
We incurred restructuring integration and acquisition costs of $15 million during the quarter relating mostly to the air Centre acquisition.
Net cash from operating activities. This quarter was negative $49 3 million compared to negative $162 6 million in the first quarter of fiscal 2023.
Free cash flow was negative $104 9 million compared to negative $182 4 million in the first quarter last year.
The increase was mainly due to higher cash provided by operating activities and a lower investment in noncash working capital free.
Free cash flow performance in the quarter was in line with our expectations and outlook.
We usually see a higher investment in noncash working capital accounts in the first half of the fiscal year and as in previous years, we expect a portion of this to reverse in the second half and we continue to target 100% conversion of adjusted net income to free cash flow for the year.
Capital expenditures totaled $90 $6 million this quarter with approximately 60% invested in growth to specifically add capacity to our civil global training network to deliver on our long term training contracts that are in our backlog.
Income tax expense this quarter was $8 2 million for an effective tax rate of 11%. The adjusted effective income tax rate was 13%, which includes a onetime favorable impact to income tax expense from a tax court decision related to the safety program.
This by the way was offset by a one time negative impact from higher interest expense related to the very same matter.
As such net finance expense this quarter amounted to $54 1 million, which is up from $51 $4 million in the preceding quarter and $36 2 million in the first quarter last year the.
The increased finance expense relative to both prior periods, mainly reflects the impact of higher interest rates on our variable rate debt instruments and also the aforementioned tax court decision.
Our net debt position at the end of the quarter was approximately $3 2 billion for a net debt to adjusted EBITDA of $3. Two two times at the end of the quarter.
With this continued strengthening of our financial position. We are on track to meet our expected leverage ratio of about three times net debt to adjusted EBITDA by the middle of the fiscal year.
Now turning to our segmented performance.
In civil first quarter revenue was up 12% to $540 3 million compared to the first quarter last year and adjusted segment operating income was up 37% to $119 million versus the first quarter last year for a margin of 22%.
As we expected we're seeing the benefit of some mix improvements in the quarter with a greater proportion of revenue coming from trading services overall compared to Q1 last year, we had higher training utilization and increased volume from some of the recently deployed simulators in our network.
This was partially offset by lower simulator deliveries, which as we previously indicated in our outlook are profiled more to the back half of the fiscal year.
In Defence first quarter performance was in line with our expectations and outlook for the fiscal year.
We generated revenue of $471 7 million, which is up 14% over Q1 last year and adjusted segment operating income was $24 3 million for the quarter, giving US an adjusted segment operating income margin of five 2%.
This compares to a loss of $21 $2 million in the first quarter last year.
Defence revenue growth stems, mainly from a higher level of activity on programs, while the higher adjusted segment operating income reflects the adjustments that we made last year and also the ongoing progress we've been making to execute on legacy contracts and mitigate costs as well as the effects of a gradually easing of economic headwinds.
And in healthcare first quarter revenue was $42 4 million up from $39 6 million in Q1 last year.
Adjusted segment operating income was $1 8 million in the quarter for an adjusted segment operating income margin of four 2%, which is up quite nicely from Q1 last year.
With that I'll ask Marc to discuss the way forward.
Thanks, Andrew.
Our outlook continues to be bullish for the fiscal year and beyond.
We are delivering tangible success in driving strong order flow, where a significant and growing backlog.
Our customers in each of our markets have a greater need for innovative training and operational support solutions to succeed in ever more complex environments.
As we look at the period ahead, we continue to be highly encouraged by the secular tailwind that all segments and the growth that we expect to deliver by harnessing our global market technology leadership and the power of <unk>.
In civil.
You've traveled at all over the last few months.
You'll know firsthand that demand for air travel is as strong as ever.
For the first quarter this calendar year alone worldwide passenger traffic increased by 58% compared to last year.
In the United States, the TSA reported a new daily record for passenger screening at the end of June and yet not all of our airline customers are back to their 2019 operating levels, specifically in Asia, where international traffic is still lagging nearly 75% of pre pandemic activity.
We see significant demand ahead for air travel in the remainder of the cyclical recovery and beyond.
We're proud to be the world's largest provider of civil aviation training services and we're on track this year to deliver approximately $1 2 million hours of training and our broad global network of training centers.
No matter, where you fly chances are to pilot. Our first officer has been trained in the flight simulator designed and built by CE or one of our training centers around the world.
Our highly differentiated solution solutions in the aviation market, including the most extensive global training network World, leading stimulation products unique technology and software solutions and strength in training partnerships with operators and Oems positions us very well for the long term.
We expect the pace of change in aviation to be substantial over the next few years the demand for training aviation professionals is greater than ever and continues to be driven by air traffic growth personnel requirement retirement and by the number of new aircraft deliveries.
The fact that over half the commercial and business partners will be active a decade from now has yet to even begin their training.
These growth dynamics in a highly regulated market.
Together with our ability to win a bigger share of our customers' training needs are indeed, very significant drivers for CAE.
Given that context.
We expect our civil business to continue growing at above market rates for the foreseeable future and in fiscal 2024.
We maintain our expectations for low to mid teen percentage annual growth that civil adjusted segment operating income.
With a higher level of flying activity. This summer, especially in Europe . We also continue to expect a more typical seasonal pattern for train demand this fiscal year weighted more heavily to the second half.
Additionally, we still plan for about three quarters of our approximately 50 annual full flight simulator deliveries to occur in the second half.
Turning to defense.
We expect to continue executing on our multiyear transformation, which we expect to culminate in a substantially bigger and more profitable business.
At least as we've shown with our recent S. TSS at Hades wins with the U S Army.
We are uniquely positioned to leverage the full range of key civil aviation training expertise in the defence market.
In fact the.
The solutions that we're providing on these two contracts are very similar to what we deliver to our airline and business jet customers.
We're in a very good position with our recent strategic a generational wins record 535, 4 billion adjusted backlog of $8 8 billion pipeline of bids and proposals outstanding and continued order momentum to me. These are all positive signs of the transformation that is underway.
As we look to the remainder of fiscal 2024, we continue to expect defence to renew its backlog with larger and more profitable programs.
Whilst timeless.
Simultaneously working its way through a critical mass of lower margin legacy contracts.
We're highly focused on execution and for the fiscal year, we expect defence to drive continued year over year quarterly performance improvements.
If you are waiting for the second half consistent with historical seasonality.
And in healthcare simulation based training as one of the most effective ways to prepare healthcare practitioners for the moments that matter treating patient handling critical situations and enhancing patient safety.
Over the past accelerated value creation by continuing to gain share in our simulation and training market and driving top and bottom line growth.
Have a very strong team and I expect to see healthcare positive momentum continue.
In summary, I continue to be excited about the future. We're on track to our targeted three year EPS compound growth rate in the mid 20% range.
I'm very pleased with the important progress we have made in the first quarter and expect this to continue for the fiscal year and beyond with that I. Thank you for your attention and we're now ready to answer your question.
Thanks, Mark Operator, we'll now open the lines to members of the analyst community for questions.
Thank you.
If you are an analyst and we'd like to register a question. Please press the one four on your telephone you will hear a three pronged technology request.
Your question has been answered and you would like to draw your registration. Please press. The one followed by the three one moment. Please for the first question.
Okay.
Our first question comes from <unk> Gupta with Scotiabank. Please proceed.
Thanks, operator, good afternoon, everyone.
ISO.
Yes. Good afternoon. So first question on <unk>.
Had very similar to.
<unk> two airline training contract can you explain us what the similar similarities and respect.
Margin profile, so in terms of the execution of customer quality.
Background on that please.
Well I think there are elements of all of that let.
Let me just illustrate a little bit if you think about first of all let me just go back a step two story, which which I really love and excited about is what we're doing in low lower Alabama.
That's.
Big training based on the U S Army for Nova style and rebound road.
Is our training center in Dothan, Alabama, So I go back to that fears ago as Youll remember that 2015, we invested to create a turnkey training facility, where we put.
Our Greenfield facility was opinion feel where we set it up we put buildings. There we put simulator, we bought aircraft and we won the contract to train all of the U S Army fixed wing pilots.
Recently this year, we won the Recompete asset add up to seven years, that's good so.
Good for another seven years, Eric so in.
And it was a strong win.
So basically accretive to kind of the expectations, we have with regards to margin expectations that we set out there in the market now and think about what we're doing now the recent contracts that we've won let.
Let me start by just the contracted one would FTR ICR is now as the airports U S. Air Force now we've won the contract to train all of their rotor wing pilots and we'll be doing that in at our facility at doses, so as well as imagine now the synergy synergistic benefits of using our existing facilities.
Yeah.
Would it be hangers personnel management all of that so the synergy benefits benefit of now throwing more training at the same facility. So that's one example, now thinking about the next one I talked about Hey, these contract with the U S Army.
Different contracting authority by the way different customer part of the U S. Army that's exciting in itself, although we're going to be doing here. This is Nate.
Joining us for our global 6500 business aircraft, where we have done we do the simulators worthy authorized training provider for Bombardier customers of that aircraft and so we are basically going to put now.
Basically going to put a global 65 simulator and don't pin Alabama.
And.
We are going to be announced selling training.
To the U S Army.
For literally years to come so again, leveraging our assets leveraging what is a commercial stimulator built here in Montreal.
And you can expect that the kind of margin profile that we met because we are putting our assets there.
That we can derive a better margin because this is it's basically we are producing.
Basically furnishing the asset so in all of this as more business.
Using this caused by the same assets.
That's very difficult months. Thanks, so much and then if I can just quickly follow up some of your peers have publicly mentioned about.
They want to kind of move away from from fixed price contracts in defence and obviously you guys had a lot of other guys are thank.
Thank you.
The cost inflation.
And talking to customers any updates on on those fronts.
Are you positioning on the new contract wins with respect to fix drybulk cost plus.
Well I think the first thing I'd tell you is.
Our bid discipline is very stringent and.
Yes.
No secret that we've talked about in the past year that we executed contracts and we still have some of our backlog that were executed at the time there were bid at the time, where that was below hyper inflow or quasi hybrid reflection part shortages things like that so you can expect that as we bid now, especially on fixed price contracts.
We're either going to have escalation criteria that protects us for quite a bit and in any scenario or we will basically.
Executed with.
Having so many elements as pass throughs.
Okay. Thanks, Thanks for the color I appreciate it thank you.
Okay.
Hey, good afternoon guys.
Good afternoon.
Mark.
How should we be thinking about the topline growth rate civil.
Can see into the medium term.
You've alluded to not having recovered all the pre pandemic.
And you have some exposure to the geographies that are that have been a little slower to recover.
And then once we kind of click back end.
Six 7% air traffic growth Youre, taking market share.
You're training a lot of new pilots youre growing our software business so its become organic.
I mean do we see multiple years beyond this year of continued double digit organic revenue growth from Stifel.
Well I don't know if I can go out there to say double digit, but I can tell you.
A very very good use of years for <unk> for years to come absolutely.
Okay.
On the margin in the segment I.
I wondered if you could just spend a second on the shape of the year because.
It seems like given the full year target in the first quarter being the same.
Number the seasonality this year is maybe a little different than in the past is that down sequentially and then higher in the back half or just anything you could share on the shape of the year and the civil margin.
Well look I would tell you that as you said in your question is Q1, so it will get ahead of ourselves although.
Obviously very very pleased with the results that we havent civil busy Q1 as in all of our businesses.
And as I look yet to repeating again, what I've said and you've emphasized again and the question is that.
Or were they more kind of let's call it normal kind of flying activity.
Now meaning that.
Anybody goes to airports heated right that in airplanes are full and flights are full so what youre seeing is.
When all the airlines are flying and having trouble meeting the demands for that's out there.
Less training and that's across our commercial and business aviation in the summer as we always do in a more normal environment. What I would tell you though is the bookings then as towards the third and fourth quarter are strong and indicative of its going to be another good year, but.
I'm not going to get ahead of myself Q1 here.
Okay.
Thanks, a lot I appreciate it.
Thank you.
Our next question comes from Kevin Chiang with CIBC. Please proceed.
Hi, Good afternoon. Thanks for taking my question, maybe just following up on some of the color you provided there.
Some of these recent defence wins, which which look to be highly accretive to leverage some of the fixed assets you already have in place does that strategically changed how you think about.
I guess the capital allocation in defence I guess, historically I thought of that as being more of an asset light.
This will your partner typically puts in the capital, but it seems like you're having some wins here.
Deploy capital and how you can leverage those fixed costs.
A bit of a change of thinking how you think about deploying capital into them.
Okay.
Not really no I think we've done this before as I'm, saying at the outset of question corner, we deployed a few years ago.
Our first facility in.
In lower Alabama, and at that time, we had zero percent market share with U S. Army today I would tell you we have a very high market share in both rotary and fixed wing contracts with the U S. Army. So that's been a very very attractive opportunity they will be literally for years and years to come. So we look it depends of the opportune.
What youre seeing is here as is really the we use the term I use the term a lot one CE and that applies to teamwork, but it also applies to how we go to market and leveraging our advantages what are being civil on defence or defence on civil So when you think about it really.
If you look at the model go back to the Heydays model. This is.
Where we're putting our global 6500 simulator and we're selling training to this new part of the U S Army.
We are doing on mark at <unk>.
Margin expectations, there that are going to be.
The kind of margins that were more used to win similar so.
I think so it doesn't really change anything.
Anything with regards to how we will market depends of the opportunity and.
<unk> seen in civil the kind of incremental returns that we get in training and if we're deploying assets like that for this kind of opportunity expect the kind of the key.
Same kind of return profile, which is part and parcel of the outlook that we've given for improving margins in defence pretty outlook that we've given.
That's helpful and maybe just my second question, maybe just sticking with defence.
I think if I go back to the last earnings call you talked about some of these problem contracts.
Those both broadening broadening off by the end of this fiscal year, which gave you that.
That visibility to inflect into double digit soi margins, maybe sometime in fiscal 2025.
If an update there in terms of how that runoff is progressing.
So the broad timeline, we should be thinking about in terms of margin progression in defence this year and into next year.
Yes, well I think first thing.
Ill emphasize those contracts that we talked about as being lower.
Lower margin profile in some days very low margin, we're talking about a very small number of contracts relatively speaking compared to the hundreds of contracts that we execute at any given quarter in defence and we're steadily closing out that work we have done seven closing out.
Some of those programs or advanced.
The progress we've made on those programs in recent quarters again this quarter I would tell you look we're.
We're basically where we thought we would be we would expect to be will continue to work.
Through our existing backlog, we're making very good progress as planned.
And even more importantly, as we answered the previous question, we are winning new profitable business and with the bid discipline and the execution discipline I fully expect to be able to execute those contracts at the margins that we bid them, which again are accretive to margin expectations that we communicate.
And if I'm looking at the year I mean look it takes time for these new contracts to work themselves through so as we've said before we expect.
Second half.
Performance in defence to step up more.
<unk> and margin in absolute levels.
I would expect Q2 to look similar to Q1 at all.
In broad terms.
Again, thanks to step up in the second quarter and as we expected as we've communicated a bigger inflection in margins next fiscal year.
Thank you for the color and congrats on a solid start to the fiscal year.
Our next question comes from James Mcgarrigle with RBC capital markets. Please proceed.
Hey, good afternoon, everyone and thanks for taking my question.
Good afternoon.
Yes, so I just wanted to ask a question on the civil segment and kind of the impact on a potential slowdown in the economy.
Training is regulated and travel demand is extremely strong right now, but we're past recessions be a good indicator of what we could potentially expect on.
On the civil side of the business, if the economy potentially slowed or do you think some of those changes.
You've made during the pandemic some of the M&A that you did during the pandemic kind of changes the way you think the civil business will perform any event.
Potential slowdown.
We looked at what else without being appeared to be pollyanna here.
All ICL there is unmet demand.
And.
Not seeing any slight a slowdown in terms of.
Good level of trading activity.
In our forecast either in commercial or business aviation training. So I don't want to really heightened can be.
B a hypothetical about the future.
Look.
We're ramping up to satisfy the demand as you've seen we deployed I think 23 full flight simulators last year in both civil and more profitable we will open up new training centers.
I'm, the CEO and I got it.
Anecdotally just doesn't happen everyday but.
Just give you an idea I got to text messages per day during the board meeting for people that I know are looking for training slots and obviously they are calling means because there's so many people that have flight departments of whatever the economy to say can you help me out it's really.
We have slots.
We're filling them.
And.
So I'm not seeing any signs.
And.
Basically slowed down and there are a lot of people out there that I talked to that actually would welcome a little bit and it could catch up.
And then another cost.
Followed by high was on.
How your team is viewing some of the organic opportunities or potentially M&A in the current environment. Obviously, you just said demand has been very very strongly now and we're seeing that in the results. So it is kind of creating any opportunities for additional organic investments or for M&A.
Hard to look into fiscal 2025, and if so how would you prioritize.
Investment spend, especially given some of the progress you're making on your your.
Our balance sheet targets.
Well look I would tell you is maybe.
Question depends on timing on right now as we said before our priority has been on deleveraging and we're well on down on the track that we've said two to reach our deleveraging target. This year, we've made excellent progress I'm very happy to see down to $3. Two this quarter and so im pretty confident.
No big risk on us achieving our leverage target of three times mid year. So that opens up possibilities for us in terms of capital allocation look I think in terms of M&A I'll say it again, there is nothing that we need to buy okay. We have everything we have however, if theres opportunities out there we're always looking obviously.
But you don't speak about some of the acquisitions, we've made that would be accretive to the growth that we have consolidated picture I mean, theres not a lot of people that can bring to the amount of synergy that we can bring to an acquisition.
I don't I wouldn't be looking for anything in the short term.
What we will do is continue to deploy assets in line with the market you've.
You've seen us do that and again just highlighting what we just said in a previous call. If you have if you've seen some of the incremental returns that we're making out of both the commercial and business aviation training simulators that we put in the market.
I think I think you would be pleased for us to deliver that capital in.
Before we will deploy that capital unless we have long terms contracts to back them up. So look I think look continue to look for a balanced capital allocation approach from us.
Awesome I appreciate you, taking the time and I'll turn the line over thank you.
Yes.
Our next question comes from Tim James with TD Securities. Please proceed.
Thanks, very much good afternoon, everyone.
I was wondering first mark.
The award the bowling authorized training provider agreements.
I think it seems to me like quite a quite an interesting.
In a position to be taking on Boeing and as we look.
Training into the future I'm just wondering if you could talk about what.
That agreement means to CAE and into the future.
Commercial training in the Companys positioning.
Well I think it's great I mean, it looks to me I couldnt be as I said it could be more proud of the partnership we're doing it with Boeing here and what this is about.
About safety, it's about safety and and you couldnt be more proud of the fact that the.
A company that is Boeing is basically entrusting us to deliver the training.
New competency based training curriculum to the airlines of which they sell aircraft, whereas this is a contract that is basically an umbrella contract covering covering the world is like we're launching in India, and so we will be delivering the competency base.
Training for Boeing in India, and as you know, there's a lot of airplanes consultant, India, So thats going to be a good business. So.
Yes, it's about safety here.
As long term training agreements end.
We're very proud of it obviously.
Maybe if I can just fall under that question is it about scale for Boeing C, helping them roll out their competency based training to a bigger footprint through through through your assistance or is it about Boeing wanting to be aligned with sea because of the safety aspect of it.
Or is it bulks.
Look I think it's buoying, recognizing who see is while we do at <unk>.
He is simulation training training here no.
No. We do it we will do a $1 2 million hours of training. This year, so well imagine the technology, we bring to bear the insights we bring to bear based on this the sheer amount of training that we do.
Right part of the site, yes, we're levered <unk> installations that we have around the world. So they are basically have facilities there with simulators that we get that are either there or we can deploy to deliver the trading delivered using your curriculum, but we're able to as well provide objective data base is high.
As to how well for example, the curriculum is we've been assimilated so that.
Around the world.
There is still I can see to be able to make sure that safety remains paramount.
We're getting we're basically going to the next level of safety here again, leveraging data and data analytics based insights.
Okay. That's really helpful. And then just my last question.
Rather broad question, but.
I guess I'm thinking more about the civil side of the business I mean your competitive position is is is quite something is very very good are you seeing any changes in the competitive environment. So I mean, the outlook is very strong you are generating good results and momentum is there is it attracting any moves on the <unk>.
Imperative front that you're noting are worth calling out.
No look I don't see differential I would tell you that Turkey before I concentrate on customers and medium customers demands across our business what I am focused on that's what we're focused on.
As <unk> mentioned is not to satisfy customers' delight customers, while we do see is and.
<unk> seen it.
Airlines are much more amenable to our sourcing because we provide them the only real global alter.
Alternative globally based alternative to be able to outsource to train and deliver training.
Trading that is.
To the level that it airline would provide leveraged not only a regulatory meeting regulatory requirements or requirements of the airlines themselves their standard operating procedures as an example.
I'll just point to the.
The fact that six out of the top seven U S Airlines know R&R training within our network.
Fortunately again, Bruce again zero before the pandemic you've seen us now.
Do it do a deal for training AGM largest Greek here training with Qantas I mean, these are marquee airlines that do that.
The dynamic that we see some of the competitive.
To me.
Look I don't see any difference in the competitive environment from that standpoint.
Okay. That's great. Thank you very much mark.
Okay.
Our next question comes from Kamran Derksen with National Bank Financial Please proceed.
Sure.
Yes. Thanks. Good afternoon, just a question on the full flight simulator orders 22 in the quarter, obviously very strong I just wonder if you could talk about the outlook for order activity there for the remainder of the year because it does seem like you would be.
It's only one quarter, but pretty much on pace to exceed last year's total which was which was also pretty strong.
It's been a long time since we haven't had a question on the number of full flight similar delivers.
Pat.
But look I expect it to be elevated look we've got 22, so far.
Well, we're always focused cameras, maintaining our share our leading share then we're not going to take every order if it doesn't make sense.
It has to be accretive to our expectation, but by and large it look.
Commanding market share that we have it it will imagine that it's not a commodity game here, we basically compete on.
The fact that.
Are things are going to be out there for decades, we're going to be supportive of them because thats. What we do so look I would expect it to begin.
You made an elevated thats, what I said will deliver probably over 50 full flight simulators for the year.
Get to get ahead of myself with the demand, but I can tell you that the demand is still very the demand out there in terms of where we see the market is still pretty high.
Okay, great that's good to hear.
The second question on the future aircrew training contract.
Selected as preferred bidder for.
We see a huge contract over a long period of time, assuming that that contract actually gets awarded in 2024 I. Just wanted if you could talk a bit about how that kind of scales up I mean does that something where you would start to see workflow in CAE youll fairly quickly after contract award.
Well I think the short answer is yes, okay. It is going to last for quite a long time, it's really and when we talk about generational contract no exaggeration.
I'm pretty darn sure I can tell you I was in Moose jaw, just last Friday <unk>.
<unk>.
That's going to be a contract that we were going to hire people that are spending a whole careers on this contract with generation.
I am very proud of that the fact that we're creating such an opportunity.
So I look I can't go and I think you'd understand.
That doesn't include the specifics of the contract because now we've got to move from being selected to negotiate terms and get get the contract signed so can't go into detail, but what I would tell you is that it's a meaningful expansion of the work that we do today.
It will start to deliver fairly early because theres a lot of work to be done to prepare.
Billings new aircrafts.
Lot of new things do simulators.
But I won't get into absolute details right now.
Okay fair enough thanks very much.
Yeah.
Okay.
Our next question comes from Kristine <unk> with Morgan Stanley . Please proceed.
Great Hey, good.
Afternoon, guys.
The pilot shortage issue in the industry has been longstanding for the past few years now and here. We are it seems like there's still tightness in the industry and this could get worse.
Can you get worse, so maybe a three part question and I apologize in advance.
So first how far along is the industry in adjusting that I read in the second inning. The seventh inning are we spring training.
Second.
When you talk to airline customers about their need what is the level of urgency that they have and trying to attract new pilots in the industry versus where they should be if they want to address the problem and the third.
A portion of this question would be.
If the industry were to act with appropriate urgency and actions to fully address this issue what does that look like for CAE.
Okay, a lot of questions here, but yes look.
Your question on <unk>.
Baseball analogy I think we're still in the early innings, we've got.
It's a market that's the way I would characterize it.
Look there is lots of room lots of time to play this out.
And of course people are focused on the United States, but it is a global situation with different dynamics, depending on where you are.
And for Us.
Airlines are doing a lot to attract and retain pilots you see is you see everywhere.
And for Us look.
We're not putting a finer point on it we just put out.
Saying, our aviation professionals forecast with Paris Air show and there's going to be a lot of pilot a lot of air cooled auto maintenance technicians going to ask the train over the next 10 years and that's our business. That's what we do and we're number one in the world added so.
Im bullish almost any almost any scenario.
Great and then in terms of the actions that they take if they actually take those I mean, what does that mean for CAE D would you need to open up new aviation training facilities.
Can you size the market and the opportunity.
Actually take that action today.
Well, we are doing it I mean, you saw as we I think we launched.
Launched 23, new simulators last year.
I think.
Neither launched store open ground broke ground on AGM assimilate our centers in the past the past few months. So we're moving and we will continue to move in lock step with demand. That's what we've always done and that will continue to do but again I'll emphasize that if we're going to deploy that capacity.
We're going to do it with.
It's not a question of.
We're going to build it and they will come it will be we could see that demand for years to come and it will be in the contracts will be based on us being able to.
<unk> support that capacity profitably in line with the expectations that we have for those for that.
<unk> segments.
Great. Thank you Mark.
Thank you.
Our next question comes from Ron Epstein with Bank of America. Please proceed.
Hi, Good afternoon. This is Jordan on for Ron.
I just had a question about it.
$100 million in unfunded backlog could.
Could you guys give more color on when you expect that funding to come through.
Well when we talk about unfunded backlog you really what you are talking about is.
I'm sure you know, but it's really a few when let's say you win a seven year contract United States will will only take the first year because thats not funded part of the U S. Government. So we fully expect that the full contract to be realized and I don't think I've ever seen a contract.
Certainly the U S on that definition is gone.
Anywhere, but that way so.
Ill give you example.
On the <unk> TSS contracts actually use contract.
We will be deploying.
You use simulators for the U S Army training and Fort Rucker.
<unk> no cell.
Would you be for us.
Slide $455 million of contract and now deploy over 12 years, So right now.
We're not our order intake is not $455 million very small actually.
Very small part of that.
In our in our order intake, but of course will be reflected in unfunded backlog.
Got it. Thank you and then just one quick follow up too on the $8 8 billion that you guys have out for bids and proposals.
Okay.
What are you guys.
She is your competitive advantage for those proposals to turn them into wins.
Well I think the first thing I would say is that.
We wouldn't bid them. If we didn't think that we have a pretty good shot at winning them because.
If they can defence proposals.
They are very costly and timely to bid and they require a lot of manpower expertise. So you want to make sure that your expertise your resources are deployed.
The ones that you think you can win.
So look I think that being sold so we expected to win and where we have a pretty darn good shot so beyond that what our advantage as well.
For sure the technology the market leadership that we have.
And the fact that you look you look at.
CA in the market and we're really the only pure play platform independent which is important because that makes us objective defence simulation training company. So that's very attractive in the market out there.
Great. Thank you guys so much.
Thank you.
Our next question comes from Michael <unk> with <unk> capital markets. Please proceed.
Thanks, and good afternoon, maybe on the Indigo order for 500, <unk> hundred <unk> I don't CAE currently has some exposure through the <unk> in the Gulf Cadet pilot program, maybe just when should we expect any civil topline or simulator deliveries to be potentially impacted by disorder and is it possible that in.
To go with the airline kind of run to run this training to be ready for when the fleet capacity actually starts to be delivered.
Well I think we're very well exposed to that because.
And the goal is we're partner with the goal and we have been partners the beginning and launch the aircraft.
It is not only on Avon initial but it's on all Theres simulator based training centers that they do so a very strong exposure to and Thats what were very very happy to see.
See that I mean, indigo will look at.
Basically carry 50% of passengers over 50% of the passage of India and they fly to every airport in India.
None of them well, great airline and again, that's going to be very good for them, it's going to be very good for us.
Thanks, that's great color and maybe just on the India market in general maybe some of the potential advantages of that.
Yes.
China, we can actually provide on premise training as well as Olivia simulators.
Well, we have a number of training centers in India right now in Bangalore.
The two centers in Delhi, right off the bat with Abbott issue operations, there as well so we're well exposed on the ground in India right now.
Perfect that's great and maybe just quickly a quick one on defence. Your margin came in slightly below sequentially <unk> into <unk> of last year is that mostly due to seasonality or was there any type of.
One time cost or other elements that impacted that.
No it's in line with our expectations.
There is one.
It's certainly not a drop or anything.
It's basically what I thought it would be.
We basically talked about what the margin profile should be this year.
Alright, Thanks, a lot that helps.
Thank you operator, I think thats all the time, we have for financial analysts, we do want to open the lines and the minutes remaining to members of the media. So I'd ask you to please open the queue to members of the media.
Thank you.
Part of the press or media. Please press the one four on your telephone.
Yeah.
Operator are there questions from the media.
There seems to be no questions at this time.
Okay, well that being the case, we will conclude the conference call I want to thank those participants who joined US today and remind you. The transcript will later be posted on <unk> website. Thank you all.
That does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect. Your line. Thank you.
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