Q4 2024 CAE Inc Earnings Call

'twenty 'twenty four conference call.

Speaker Change: As a reminder, all participants are in listen only mode and the conference is being recorded.

Speaker Change: After the presentation, there will be an opportunity for analysts to ask questions followed by a Q&A for members of the media to join the question queue. You May Press Star then one on your telephone keypad should you need assistance during the conference call you May signal, an operator by pressing Star then zero.

Speaker Change: I would now like to turn the conference over to Mr. Andrew <unk>. Please go ahead Mr. Horowitz.

Mr. Horowitz: Good morning, everyone and thanks for joining us before we begin I'd like to remind you that today's remarks.

Speaker Change: Oh well.

Speaker Change: 25 minutes.

Speaker Change: Just a questions contain forward looking statements.

Speaker Change: These forward looking statements represent our expectations as of today May 28, 2024, and accordingly are subject to change such statements are based on assumptions that may not materialize and are subject to risks and uncertainties.

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

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

Speaker Change: With the divestiture of <unk> health care business, all comparative figures discussed here and in our financial results have been reclassified to reflect discontinued operations.

Speaker Change: On the call with me. This morning are Mark to home <unk>, President and Chief Executive Officer, and Sonya Branco, Our Chief Financial Officer.

Speaker Change: <unk> newly appointed Chief operating Officer is also on hand for the question period.

Speaker Change: After remarks from Marc and Sonya, we'll open the call to questions from financial analysts and at the conclusion of that segment.

Speaker Change: We'll open the lines to members of the media.

Speaker Change: With that let me now turn the call over to Mark.

Mark: Thank you Andrew and good morning to everyone joining us on the call.

Mark: As you'll have seen from our earnings release fourth quarter results are unchanged from last week's pre announcement, which was mainly intended to communicate the re baseline of our defence business and appointment of Nicky OTT is a proven seed veteran as our chief operating officer.

Mark: To provide additional context last week. We also offered an earnings for you in our preliminary fiscal 2025 outlook.

Mark: This morning, I'll provide a bit more color on our performance and our very strong financial position.

Mark: Last week, we took decisive action to establish a clear path for margin improvement in our defense team.

Speaker Change: I certainly recognize that our defense performance has significantly fallen short of our expectations and understand and share investors' frustration.

The impairment and accelerated risk recognition on the legacy contracts that we announced last week are disappointing, but necessary steps towards putting the overhang of these past issues behind us.

Speaker Change: These actions were made possible by renegotiating agreements, where our customers our suppliers adjusting the scope and the timing of these contracts for our mutual benefit.

Speaker Change: Ultimately this enables us to address the programmatic risks that have been affecting our business.

Speaker Change: Alongside a re baseline of the defense business was the acceleration of risk recognition on legacy contracts.

Speaker Change: And execution of our leadership, our reorganization and implementation of targeted operational enhancements at both the segment and corporate levels.

These initiatives are designed to fortify our execution capabilities and fostered greater synergies between our defense and our civil businesses.

Speaker Change: I fully expect these changes to enable greater focus to the simplification of our operating structure with our C. O overseeing the five P&L that encompasses and tire business school.

Speaker Change: This new structure at recent Upskilling of talent and defense will further enhance the execution and oversight of major defense programs and facility the exploration that realization of synergies between our civil and defense operations.

Speaker Change: Also and in the vein of further bolstering seize future our fourth quarter and full year results reflect continued strong growth in our core markets.

Speaker Change: Just order flow and consistent cash generation.

Speaker Change: Overall, we grew adjusted backlog by approximately 13% year over year with $1 6 billion in orders in the quarter or one three book to sales ratio.

Adjusting the scope and the timing of these contracts for our mutual benefit.

Ultimately this enables us to address the programmatic risks that have been affecting our business.

Speaker Change: And for the year, we booked over $4 $9 billion in orders or a 1.15 times book to sales ratio.

Alongside a re baseline of the defense business was the acceleration of risk recognition of our legacy contracts.

Speaker Change: As of the end of March we had a record backlog of 12 point 12, $12 2 billion.

And execution of our leadership, our reorganization and implementation.

Speaker Change: We also further strengthened our financial position, having generated $418 million of free cash flow during the fiscal year and together with proceeds from the sale of health care, we reduce leverage to below three times net debt to adjusted EBITDA, excluding legacy costs.

Target at operational enhancements at both the segment and corporate levels.

These initiatives are designed to fortify our execution capabilities and foster greater synergies between our defense and our civil businesses.

I fully expect these changes to enable greater focus to the simplification of our operating structure with our C. O overseeing the five P&L that encompasses an entire business school.

Speaker Change: Right.

Speaker Change: In civil we booked orders in our fourth fiscal fourth quarter fiscal quarter or $832 million, including contracts for seven full flight simulators.

This new structure and recent Upskilling of talent and defense will further enhance the execution and oversight of major defense programs and facility the exploration that realization of synergies between our civil and defense operations.

Speaker Change: This brings the total civil order intake to a record $3 billion for the year, including 64 full flight simulator sales demonstrating the sustaining high demand for pilot training solutions and our flight solutions software platform.

Also and in the vein of further bolstering seize future our fourth quarter and full year results reflect continued strong growth in our core markets robust order flow.

Speaker Change: Civil concluded the year with a record adjusted backlog of $6 4 billion.

Speaker Change: Notable contracts in the quarter included a multiyear commercial aviation training agreement with Ita Airways and a first of its kind partnership in Canada, where she structures will deliver initial training for NAV, Canada flight service specialists and air traffic controllers.

<unk> cash generation.

Overall, we grew adjusted backlog by approximately 13% year over year with $1 $6 billion in orders in the quarter or $1 38 book to sales ratio.

Speaker Change: And Testament to our progress in flight solutions, we announced yesterday.

And for the year, we booked over $4 $9 billion in orders or a 1.15 times book to sales ratio.

Speaker Change: Signing of European Ultra low cost carrier with her as our new partner under a multi year supply agreement.

As of the end of March we had a record backlog of 12 point 12, $12 2 billion.

We supply was there with six operational control and crew management software and six recovery manager solutions for operational crude the structures.

We also further strengthened our financial position, having generated $418 million of free cash flow during the fiscal year and together with proceeds from the sale of health care, we reduce leverage to below three times net debt to adjusted EBITDA, excluding legacy costs.

Speaker Change: Average training center utilization was strong at 78% for the fourth quarter and 76% for the year up from 72% the year prior.

Speaker Change: In products, we deliver 17 civil full flight simulators in the quarter and 47 for the year compared to 46 deliveries in the prior year.

Right.

In civil we booked orders in our fourth fiscal fourth quarter fiscal quarter or $832 million, including contracts for seven full flight simulators.

Speaker Change: As disclosed last week this is a bit lower to the approximately 50 that we had expected.

This brings the total civil order intake to a record $3 billion for the year, including 64 full flight simulator sales.

Speaker Change: Timing difference due to customer request to postpone deliveries because theyre all facilities werent ready to receive the full flight simulators as originally planned.

Demonstrating the sustaining high demand for pilot training solutions, and our flight solutions software platform.

Speaker Change: Taking time delays from last year to account, we expect to deliver more than 50 full flight simulators with fiscal 2025.

Civil concluded the year with a record adjusted backlog of $6 4 billion.

Speaker Change: Turning to defense.

Notable contracts in the quarter included a multiyear commercial aviation training agreement with Ita Airways and a first of its kind partnership in Canada, where see structures will deliver initial training for NAV, Canada flight service specialists and air traffic controllers.

Speaker Change: At the same time as we've been taking actions to re baseline the business. We've continued to make headway with our transformation strategy.

Speaker Change: We reached $1 9 billion of adjusted order intake on an annual basis.

Speaker Change: All the training and simulation solutions for one all four times book to sales ratio.

And Testament to our progress in place solutions, we announced yesterday.

Speaker Change: This contributed to a $5 7 billion of adjusted Defense backlog.

Signing of European Ultra low cost carrier with her as our new partner under a multi year supply agreement.

Speaker Change: In the quarter, we had orders totaling $718 million, including a transformative win involving a contract with general atomics to support the remotely piloted aircraft system or our pass program.

We will be supplying was there with six operational control and crew management software and six recovery manager solutions for operational crude the structures.

Average training center utilization was strong at 78% for the fourth quarter and 76% for the year up from 72% the year prior.

Speaker Change: Delivering aircrew and maintenance technician training and supporting train devices of courseware to meet candidates are past requirements.

Speaker Change: This to me is a prime example of kind of larger and more differentiated program that we're in a position to address that will ultimately drive the defense transformation that we've been expecting.

In products, we deliver 17 civil full flight simulators in the quarter and 47 for the year compared to 46 deliveries in the prior year.

As disclosed last week this is a bit lower than the approximately 50 that we had expected with timing difference due to customer request to postpone deliveries because their own facilities werent ready to receive the full flight simulators as originally planned.

Sonya Branco: With that I'll now turn the call over to Sonya who'll provide a detailed look at our financial performance I'll return at the end of the call to comment on our outlook Sonya.

Thank you Mark and good morning, everyone.

Sonya Branco: Looking at our fourth quarter results on a consolidated basis revenue of $1 $1 billion was down 6% compared to the fourth quarter last year.

It's taken time delays from last year to account, we expect to deliver more than 50 full flight simulators with fiscal 2025.

Sonya Branco: Adjusted segment operating income was $125 $7 million or $216 million, excluding the impact of the legacy contract compared to $193 million last year.

Turning to defense.

At the same time as we've been taking actions to re baseline the business. We've continued to make headway with our transformation strategy.

Sonya Branco: Quarterly adjusted EPS was <unk> 12 per share or <unk> 37 cents, excluding the legacy contracts compared to 33 cents in the fourth quarter of last year.

We reached $1 $9 billion of adjusted order intake on an annual basis involving training and simulation solutions for one all four times book to sales ratio.

Speaker Change: We incurred restructuring integration and acquisition costs of $55 million during the quarter in connection with the previously announced restructuring program related to portfolio shaping actions, including the sale of health care and to the continued integration of Air Centre.

This contributed to a $5 7 billion of adjusted Defense backlog.

In the quarter, we had orders totaling $718 million, including a transformative win involving a contract with general atomics to support the remotely piloted aircraft system or our pass program.

Speaker Change: Your sensor integration is progressing as planned and is expected to wind down by the end of June the.

Speaker Change: The restructuring program is related to portfolio shaping actions at the streamline <unk> operating model and portfolio optimize our cost structure and create efficiency.

We're delivering aircrew and maintenance technician training and supporting train devices of courseware to meet candidates are past requirements.

Speaker Change: Total restructuring costs incurred since the start of this restructuring program this quarter amounted to $39 $3 million and we expect to record approximately $10 million of additional restructuring expenses over the next two quarters in light of the organizational and operational changes announced last week the replay spine the defense business.

This to me is a prime example of the kind of larger and more differentiated program that we're in a position to address that will ultimately drive the defense transformation that we've been expecting.

Sonya: With that I'll now turn the call over to Sonya who'll provide a detailed look at our financial performance I'll return at the end of the call to comment on our outlook Sonya. Thank you.

Speaker Change: They're strengthen our execution capabilities and drive additional synergies between Cae's defense and civil aviation businesses.

Sonya: You Mark and good morning, everyone.

Sonya: Looking at our fourth quarter results on a consolidated basis revenue of $1 $1 billion was down 6% compared to the fourth quarter last year.

Speaker Change: For the year consolidated revenue was up 7% at $43 billion.

Speaker Change: Segment operating income was up 2% to $549 $7 million and annual adjusted net income was $276 $8 million or <unk> 87 per share, which is stable compared to 87 last year.

Sonya: Adjusted segment operating income was $125 $7 million or $216 million, excluding the impact of the legacy contracts compared to $193 million last year quarterly adjusted EPS was <unk> 12 per share or <unk> 37 points, excluding the legacy contracts compared to 33 cents in the.

Speaker Change: Couldn't legacy contracts adjusted segment operating income was up 19% to $640 million in annual adjusted net income was $355 $3 million or $1 12 per share, which is up 29% compared to last year.

Sonya: Fourth quarter last year.

We incurred restructuring integration and acquisition costs of $55 million during the quarter in connection with the previously announced restructuring program related to portfolio shaping actions, including the sale of health care and to the continued integration of Air Centre.

Speaker Change: Net finance expense this quarter amounted to $52 $4 million, which is stable from the preceding quarter and up from $50 4 million in the fourth quarter of last year.

Sonya: We are sensor integration is progressing as planned and is expected to wind down by the end of June the.

Speaker Change: I expect our annual finance expense in fiscal 2025 to be similar to fiscal 2024 on lower interest expense on debt offset by higher lease expense related to recently deployed training centers and our global training network and.

Sonya: The restructuring program is related to portfolio shaping actions at the streamline <unk> operating model and portfolio optimize our cost structure and create efficiency.

Sonya: Total restructuring costs incurred since the start of this restructuring program this quarter amounted to $39 $3 million and we expect to record approximately $10 million of additional restructuring expenses over the next two quarters in light of the organizational and operational changes announced last week the replay spine the defense business.

Speaker Change: In support of growth.

Speaker Change: Income tax recovery this quarter was $80 $6 million, representing an effective tax rate of 14% compared to an effective tax rate of 24% in the fourth quarter last year.

Speaker Change: The adjusted effective tax rate, which is income tax rate used to determine adjusted net income and adjusted EPS was <unk>, 47% this quarter compared to 23 in the fourth quarter last year. The increase in the adjusted effective tax rate was mainly due to the derecognize certain of tax assets in Europe, partially offset by the change in mix of income from various tiers.

Sonya: Other strengthen our execution capabilities and drive additional synergies between the three of us defense and civil aviation businesses.

Sonya: For the year consolidated revenue was up 7% at forthcoming $3 billion.

Sonya: Segment operating income was up 2% to $549 $7 million in annual adjusted net income was $276 $8 million or <unk> 87 per share, which is stable compared to 87 cents last year ex.

Speaker Change: Yeah.

Speaker Change: On the same basis, the adjusted effective income tax rate for the year was 17%.

Speaker Change: The annual effective income tax rate in fiscal 2025 is expected to be approximately 25% considering the income expected from the various jurisdictions and the implementation of global minimum tax policy.

Sonya: Excluding legacy contracts adjusted segment operating income was up 19% to $640 million in annual adjusted net income was $355 $3 million or $1 12 per share, which is up 29% compared to last year.

Speaker Change: With the closing of the sale of our health care business.

Speaker Change: Net income from discontinued operations was $25 million this quarter compared to $4 $8 million in the fourth quarter last year, the increase compared to the fourth quarter was mainly attributable to the after tax gain on the disposal of discontinued ops of $16 $5 million related to the sale of the health care it.

Sonya: Net finance expense this quarter amounted to $52 $4 million, which is stable from the preceding quarter and up from $50 4 million in the fourth quarter last year.

Speaker Change: Net cash provided by operating activities was $215 2 million for the quarter compared to $186 million in the fourth quarter last year and for the year, we generated $556 $9 million from operating activities compared to $184 million last year.

Sonya: I expect our annual finance expense in fiscal 2025 to be similar to fiscal 2024 on lower interest expense on debt offset by higher lease expense related to recently deployed training centers and our global training network.

Sonya: In support of growth.

Sonya: Income tax recovery this quarter was $80 $6 million, representing an effective tax rate of 14% compared to an effective tax rate of 24% in the fourth quarter last year.

Speaker Change: We had free cash flow in the quarter of 191 $1 million and $418 $2 million for the year for an annual cash conversion of 151%.

Sonya: The adjusted effective tax rate, which is income tax rate used to determine adjusted net income and adjusted EPS was <unk>, 47% this quarter compared to 23 in the fourth quarter last year.

Speaker Change: We continue to target an average 100% conversion rate going forward.

Speaker Change: Uses of cash involved funding capital expenditures for $91 $7 million in the fourth quarter and $329 $8 million for the year driven mainly by the expansion of our civil Aviation training network and lock step with secured customer demands.

Sonya: The increase in the adjusted effective tax rate was mainly due to the derecognize shouldn't of tax assets in Europe, partially offset by the change in mix of income from various jurisdictions.

Sonya: On the same basis, the adjusted effective income tax rate for the year was 17%.

Speaker Change: These opportunities translate to some of our best returns as our simulators asset ramp up within the first few years of their deployment commensurate with our ongoing success to capture market opportunities in training I expect total capex in fiscal 'twenty to 'twenty five to be $50 million to $100 million higher than fiscal 2024.

Sonya: The annual effective income tax rate in fiscal 2025 is expected to be approximately 25%.

Sonya: <unk> the income expected from the various jurisdictions and the implementation of global minimum tax policy.

Sonya: With the closing of the sale of our health care business.

Sonya: Net income from discontinued operations was $25 million this quarter compared to $4 $8 million in the fourth quarter last year, the increase compared to the fourth quarter was mainly attributable to the after tax gain on the disposal of discontinued ops of $16 $5 million related to the sale of the health care business.

Speaker Change: Approximately three quarters of this relates to organic growth investment and stimulated equity to be deployed to our global network of primarily civil aviation training centers and backed by multi year customer contract.

Speaker Change: Our net debt position at the end of the quarter with $2 $9 billion for a net debt to adjusted EBITDA of $3. One seven times, excluding legacy contract leverage was at 289 times at the end of the same period.

Sonya: Net cash provided by operating activities was $215 $2 million for the quarter compared to $186 million in the fourth quarter of last year and for the year, we generated $566 $9 million from operating activities compared to $184 million last year.

Speaker Change: We're prioritizing a balanced approach.

Speaker Change: Capital allocation, including funding accretive growth continuing to strengthen our financial position commensurate with our investment grade profile and returning capital to shareholders.

Sonya: We had free cash flow in the quarter of 191 $1 million and $418 $2 million for the year for an annual cash conversion of 151%.

Speaker Change: Given our progress and strengthen <unk> financial position as we announced last week, we are reestablishing a normal course issuer bid as part of our capital allocation strategy.

Sonya: We continue to target an average 100% conversion rates going forward.

The NCI is currently intended to be used opportunity over time with excess free cash flow.

Sonya: Uses of cash involved funding capital expenditures for $91 $7 million in the fourth quarter and $329 $8 million for the year driven mainly by the expansion of our civil Aviation training network and lockstep with secured customer demand.

Speaker Change: Given our outlook and the cash generative nature of a highly recurring business.

Speaker Change: <unk> Board of Directors will also continue to evaluate the possibility of reintroducing a shareholder dividend.

Speaker Change: At the same time I expect that we will maintain a very solid financial position bolstering our balance sheet through ongoing deleveraging consistent with our investment grade profile.

Sonya: These opportunities translate to some of our best returns as our simulators assets ramp up within the first few years of their deployment commensurate with our ongoing success to capture market opportunities in training I expect total capex in fiscal 'twenty to 'twenty five to be $50 million to $100 million higher than fiscal 2024.

Now to briefly recap our segmented performance in civil fourth quarter revenue was up 6% year over year to $700 $8 million and adjusted segment operating income was up 17% year over year to $191 4 million for.

Sonya: Approximately three quarters of this relates to organic growth investments and stimulated equity could be deployed to our global network of primarily civil aviation training centers and backed by multi year customer contract.

Speaker Change: Were a record margin of 27, 3%.

For the year Civil revenue was up 12% to $2 4 billion and adjusted segment operating income was up 13% to $548 $9 million for an annual margin of 22, 5%.

Sonya: Our net debt position at the end of the quarter with $2 9 billion for a net debt to adjusted EBITDA of $3. One seven times, excluding legacy contract leverage was at 289 times at the end of the same period.

Speaker Change: In defense as we disclosed last week, we accelerated the recognition of risks associated with our legacy contract in the fourth quarter following revised agreements on scope and timing with customers suppliers and other stakeholders. These actions resulted in profit adjustments associated with the reassessment of our estimated cost.

Sonya: We're prioritizing a balanced approach.

Sonya: Capital allocation, including funding accretive growth continuing to strengthen our financial position commensurate with our investment grade profile and returning capital to shareholders.

Speaker Change: Fourth quarter defense revenue of $425 $5 million was down 21% over Q4 last year.

Sonya: Given our progress and strengthen <unk> financial position as we announced last week, we are reestablishing a normal course issuer bid as part of our capital allocation strategy.

Speaker Change: Includes a $54 3 million dollar impact from the accelerated risk recognition on legacy contracts and the conclusion of certain service contracts he decided to no longer pursuits.

Sonya: The MTI B is currently intended to be used opportunistically over time with excess free cash flow.

Sonya: Given our outlook and the cash generative nature of a highly recurring business.

Speaker Change: Adjusted segment operating loss was $65 $7 million and adjusted segment operating income excluding legacy contracts with 24.

Sonya: <unk> Board of Directors will also continue to evaluate the possibility of reintroducing a shareholder dividend.

Speaker Change: No.

Speaker Change: Compared to an adjusted segment operating income of $35 million in the fourth quarter last year.

Sonya: At the same time I expect that we will maintain a very solid financial position bolstering our balance sheet through ongoing deleveraging consistent with our investment grade profile.

Speaker Change: For the year Defence revenue was stable at $1 8 billion and adjusted segment operating income was down 19% to 800.

Sonya: Now to briefly recap our segmented performance in civil fourth quarter revenue was up 6% year over year to $700 $8 million and adjusted segment operating income was up 17% year over year to $191 4 million were a record margin of 27, 3%.

Speaker Change: Point your point $8 million.

Speaker Change: Adjusted segment operating income excluding the legacy contracts was up 72% to $91 $1 billion.

Speaker Change: With that I'll ask Martin will discuss the way forward.

Martin: Thanks Danielle.

I'm going to separately address the outlook for our two segments.

Sonya: For the year Civil revenue was up 12% to $2 4 billion and adjusted segment operating income was up 13% to $548 $9 million for an annual margin of 22, 5%.

Martin: Before I offer any numbers I'd.

Martin: I'd like to mention that.

Martin: Our combination of our civil and defense businesses have significant strategic advantage.

Sonya: In defense as we disclosed last week, we accelerated the recognition of risks associated with our legacy contracts in the fourth quarter following revised agreements on scope and timing with customers suppliers and other stakeholders. These actions resulted in profit adjustments associated with the reassessment of our estimated cost.

Martin: Now, let me reiterate that and be very clear.

Martin: Our defence performance.

Martin: There is a problem profitability certainly hasnt met my expectations so far.

But our strategy remains solid.

Martin: Over the past two years, we've achieved some 20% growth in adjusted backlog and expanded our pipeline with bid opportunities that align very well with our core strengths and training assimilation.

Sonya: Fourth quarter defense revenue of $425 $5 million was down 21% over Q4 last year.

Sonya: This includes a $54 3 million dollar impact from the accelerated risk recognition on legacy contracts and the conclusion of certain service contracts, you decided to no longer pursuits.

Martin: <unk> offering attractive risk return profile.

Speaker Change: Our simulators in our training products are very complementary for both civil and defense purposes.

Sonya: Adjusted segment operating loss was $65 $7 million and adjusted segment operating income excluding legacy contracts were $24 8 million.

Speaker Change: <unk> are strong in terms of technology manufacturing as well as go to market approach.

Sonya: Okay.

Sonya: Compared to an adjusted segment operating income of $35 million in the fourth quarter last year.

Hardware and software commonality in the products and increasingly there's operational synergy and how we optimize training across the two businesses.

Sonya: For the year Defence revenue was stable at $1 8 billion and adjusted segment operating income was down 19% to 800.

Nick: I am very confident that Nick lean with Tito's will strengthen our execution capabilities and drive additional focus and synergies between both of our business segments.

Sonya: 0.0 point $8 million.

Sonya: Adjusted segment operating income, excluding the legacy contracts was up 72% to $91 $1 million.

Nick: For civil this secular demand picture for aviation train solutions remain very compelling underpinned by growth in air travel.

Sonya: With that I'll ask Martin to discuss the way forward.

Martin: Thanks Danielle.

Martin: I'm going to separately address the outlook for our two segments.

Nick: The demand for pilots and the need for them to stay current with always advancing aviation technology and regulation.

Martin: Before I offer any numbers I'd like to mention that.

Martin: Our combination of our civil and defense businesses have significant strategic advantage.

Nick: Our business is driven primarily by the regulated training required to maintain the pilots and crews who operate the global in service fleet of commercial and business aircraft.

Martin: Now, let me reiterate that and be very clear.

Martin: Our defence performance in terms of problems.

Nick: And as additional secular driver, we expect a sustained high level of pilot movements from the growth and replacement of reactive type pilot population.

Martin: He certainly hasnt met my expectations so far.

Martin: But our strategy remains solid.

Over the past two years, we've achieved some 20% growth in adjusted backlog and expanded our pipeline with bid opportunities that align very well with our core strengths and training assimilation offing offering attractive risk return profile.

Nick: According to our estimates over half the commercial and business jet pilots will be active in a decade from now have yet to even begin their training.

Nick: With that background I expect low double digit percentage civil annual adjusted segment operating income growth in fiscal 2025 and continued margin strengthening within annual segment operating income margin of approximately 23%.

Martin: Our simulators our training products are very complementary for both civil and defense purposes.

Martin: The synergies are strong in terms of technology manufacturing as well as go to market approach.

Speaker Change: The expected increase in civil margins reflects the ongoing ramp up of your training centers and recently deployed full flight simulators, partially offset.

Martin: There's hardware and software commonality in the products and increasingly there's operational synergy and how we optimize training across the two businesses.

Speaker Change: By the South conversion, that's currently underway and our freight operations solution software business.

Speaker Change: I am very confident that Nick lean with Tito's will strengthen our execution capabilities and drive additional focus and synergies between both of our business segments.

Speaker Change: As in previous years, I expect annual civil performance to be more heavily weighted to the second half.

Speaker Change: For civil the secular demand picture for aviation training solutions remain very compelling.

Speaker Change: In Defence. We're also in a secular growth market as the sector enters an extended up cycle marked by rising budgets cross NATO and Allied nations.

Speaker Change: Underpinned by growth in air travel.

Speaker Change: The demand for pilots and the need for them to stay current with always advancing aviation technology and regulation.

Keith: Keith key trends include heightened focus on near peer threats greater government commitments to defense modernization and readiness.

Speaker Change: Our business is driven primarily by the regulated training required to maintain the pilots and crews who operate the global in service fleet of commercial and business aircraft.

Keith: Geopolitical tensions and a growing demand.

Keith: For the training and simulation solutions that we provide.

Speaker Change: And as additional secular driver, we expect to sustain high level of pilot movements from the growth and replacement of reactive type pilot population.

Keith: Our expertise in both civil aviation and defense positions us well to meet those needs.

Speaker Change: And specific to see.

Speaker Change: We're seeing a consistent demand driver across regions for our training solutions.

Speaker Change: According to our estimates over half the commercial and business jet pilots will be active in a decade from now have yet to even begin their training.

Speaker Change: Shortly a uniformed personnel for defense, which is led militaries to rely on industry partners like E for training solutions to ensure readiness.

Speaker Change: With that background I expect low double digit percentage civil annual adjusted segment operating income growth in fiscal 2025 and continued margin strengthening within annual segment operating income margin of approximately 23%.

Speaker Change: This aligns perfectly with our core strengths that our defense transformation strategy over the past few years, our focus on expanding our leadership position on integrated training and simulation solutions.

Speaker Change: This strategic focus has allowed us to streamline our project selection to ensure a better risk return balance.

Speaker Change: The expected increase in civil margins reflects the ongoing ramp up of your training centers and recently deployed full flight simulators, partially offset.

Speaker Change: Moreover, we've renegotiated favorable terms such as cost plus contracts for development work and tighter pricing bands on service contracts, while leveraging civil like business models in defense.

Speaker Change: By the South conversion, that's currently underway and our flight operations solution software business.

Speaker Change: As in previous years, I expect annual civil performance to be more heavily weighted to the second half.

Speaker Change: These improved terms will positively impact our risk adjusted returns as you were contracts ramp up.

Speaker Change: In Defence. We're also in a secular growth market as the sector enters an extended up cycle marked by rising budgets cross NATO and Allied nations.

Speaker Change: This approach has already resulted in significant backlog growth with larger more profitable programs and we anticipate even greater growth in fiscal 2025.

Speaker Change: I teach key trends include heightened focus on near peer threats greater government commitments to defense modernization and readiness.

Speaker Change: Our expectations for fiscal 2025 reflect our rebase lining of the business any enhanced visibility that this obviously gives us.

Speaker Change: Good geopolitical tensions and a growing demand.

Speaker Change: For the training and simulation solutions that we provide.

Speaker Change: We're extremely focused on acting on what we can control it will prove it through execution in the coming quarters.

Our expertise in both civil aviation and defense positions us well to meet those needs.

Speaker Change: We expect annual revenue growth in the low to mid single digit percentage range and annual defense and Soi margin to increase to the 6% to 7% range and like civil to be more heavily weighted to the second half.

Speaker Change: And specific to see.

Speaker Change: We're seeing a consistent demand driver across regions for our training solutions.

Speaker Change: Shortly a uniformed personnel for defense, which is led militaries to rely on industry partners like E for training solutions to ensure readiness.

Speaker Change: We have large multiyear programs currently in negotiation that should add significantly to our backlog shoot.

Speaker Change: This aligns perfectly with our core strengths and our dispense transformation strategy over the past few years, our focus on expanding our leadership position on integrated training and simulation solutions.

Speaker Change: Beyond our selection on transformation transformational defense contracts in Canada, we are well positioned over the next year on several strategic programs across the Indo Pacific regions.

This strategic focus has allowed us to streamline our project selection.

Speaker Change: To ensure a better risk return balance.

Speaker Change: Moreover, we've renegotiated favorable terms such as cost plus contracts for development work and tighter pricing bands on service contracts, while leveraging civil like business models in defense.

Speaker Change: And in the United States.

Speaker Change: In particular, the demand for aircrew training programs similar to Canada is back in our past across the five Ais a NATO partners as well as the allies continues to increase.

Speaker Change: These improved terms will positively impact our risk adjusted returns as you were contracts ramp up.

Speaker Change: These programs require the types of technologies efficiency that are key strengths.

Speaker Change: This approach has already resulted in significant backlog growth with larger more profitable programs and we anticipate even greater growth since fiscal 2025.

Speaker Change: We intend to leverage our position on these generational programs in Canada to enable multi domain train and secure synthetic environments across our global network.

Speaker Change: Our expectations for fiscal 2025 reflect our rebase lining of the business.

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

Speaker Change: The enhanced visibility that this obviously gives us.

Speaker Change: Thank you Maher thank you operator.

Speaker Change: We'll take our first question is from.

Speaker Change: We're extremely focused on acting on what we can control it will prove it through execution in the coming quarters.

Speaker Change: And that's what community.

Speaker Change: Great. So I'll begin the analyst question and answer session. As a reminder, you can press star one on your telephone keypad and you'll hear a tone of collagen your request to the start of your question. Please press Star then two.

Speaker Change: We expect annual revenue growth in the low to mid single digit percentage range and annual defense and Soi margin to increase to the 6% to 7% range and like civil to be more heavily weighted to the second half.

Speaker Change: The first question is from Kevin Chiang from CIBC. Please go ahead.

Kevin Chiang: Thanks for taking my question good morning, everyone.

Speaker Change: We have large multiyear programs currently in negotiation that should add significantly to our backlog shoot.

Speaker Change: We've also just start with a simple question.

Speaker Change: Just the slippage of some of the full flight simulators simulators it sounds like the quiet wasn't.

Speaker Change: Beyond our selection on transformation transformational debenture contracts in Canada, we are well positioned over the next year on several strategic programs across the Indo Pacific regions.

Speaker Change: Our position to take those take the take those product, but I'm wondering if you can start to see.

Speaker Change: Any impact on pilot training demand just with some of the aircraft delivery issues at the large Oems is that does that impacting what you're seeing from the airlines in terms of the demand for training maybe relative to what you would've forecasted well expected.

Speaker Change: And in the United States.

Speaker Change: In particular, the demand for aircrew training programs similar to Canada is back in our past across the five Ais a NATO partners as well as the allies continues to increase.

Speaker Change: It's a six to nine months ago.

Speaker Change: Just wondering if youre seeing anything material there.

Speaker Change: These programs require the types of technologies efficiency that are key strengths.

Okay, Let me take it Kevin look I mean, first and foremost you're right I mean the.

Speaker Change: We intend to leverage our position on these generational programs in Canada to enable multi domain train in secure synthetic environments across our global network.

Speaker Change: Changes that we saw just in the.

Speaker Change: Relative to <unk>.

Kevin Chiang: Outlook on delivery of simulators and therefore, the adjusted operating income growth was purely because of those training centers that were already a customer trade centers were already in.

Speaker Change: I. Thank you for your attention and we're now ready to answer your question.

Speaker Change: Thank you Barak, Thank you operator.

Kevin Chiang: Basically those familiar with will deliver this year. So that's really what happened there it's not a reflection of any type of.

Speaker Change: Let's take our first question from.

Speaker Change: Community.

Speaker Change: Great. So I'll begin the analyst question and answer session. As a reminder, you can press star one on your telephone keypad and you'll hear a tone acknowledging your request to withdraw your question. Please press Star then two.

Kevin Chiang: Demand.

Kevin Chiang: Change in the market.

Speaker Change: I mean, if I could ask and maybe Nick can more color Craig required, but look I mean, we've been living in the kind of environment of lower lower than Europe.

Speaker Change: The first question is from Kevin Chiang from CIBC. Please go ahead.

Speaker Change: Jordan potentially anticipated deliveries of 737 Max aircraft Oh.

Kevin Chiang: Thanks for taking my question good morning, everyone.

Speaker Change: We've also we will start with a simple question.

Speaker Change: Okay.

Speaker Change: Less activity because of the engine issue, that's affecting mainly Airbus airplanes that as you know we have literally hundreds of airplanes grounded around the world. So we've been living in that environment for quite a while so there really isn't really changing so.

Speaker Change: Just the slippage of some of the full flight simulators simulators it sounds like it wasn't.

Speaker Change: Our position to take those take the take those product, but I'm wondering if you can start to see.

Speaker Change: I would say theres pockets in that and I think there is pockets that you see that airlines are affected by the slow downs are not able to get the airplanes that they want to secure the demand. The demand itself is very strong and what you see as airplanes a year late pulling your airplanes out of mothballs basically taking airplanes that are.

Speaker Change: Any impact on pilot training demand just with some of the aircraft delivery issues at the large Oems is that does that impacting what you're seeing from the airlines in terms of the demand for training maybe relative to what you would've been forecast very well expected.

Speaker Change: It's a six to nine months ago.

Speaker Change: That all of that coming off season, maintaining them on lease.

Speaker Change: Just wondering if youre seeing anything material there.

Speaker Change: We're not really seeing a change in the demand environment. At this time, we will watch it yet and the guidance that we put or civil for next year or for this coming year.

Okay, Let me take it Kevin look I mean first and foremost you are right I mean the.

Speaker Change: [noise] changes that we saw just in the end.

Speaker Change: Relative to <unk>.

Speaker Change: Outlook on delivery of simulators and therefore, the adjusted operating income growth was purely because of those training centers that were already a customer say etcetera is we're already in.

Speaker Change: Reflects our cautious outlook in that regard.

Speaker Change: That's helpful.

Speaker Change: My second question.

Speaker Change: I appreciate all the color you provided in terms of the re basing out.

Basically those familiar with will deliver this year. So that's really what happened there it's not a reflection of any type of.

Speaker Change: Of defense.

Speaker Change: It also feels like a segment it feels like it's been in some sort of perpetual restructuring for quite some time now or at least.

Speaker Change: Demand.

Speaker Change: Change in the market.

Speaker Change: I mean, if I could ask it maybe Nick for more color code required, but look I mean, we've been living in the kind of environment.

Speaker Change: No.

Speaker Change: Some sort of strategic repositioning you know with the acquisition of health Rehearses military training Division.

Speaker Change: More lower than the other parts like let's say, Lord and potentially anticipated deliveries of 737, Max aircraft as well.

Speaker Change: Maybe if I were to us when you look out two years from now or whatever the timeframe is.

Speaker Change: What is it what should defense look like like the revenue needs to be bigger in order to get the margins you want.

Speaker Change: Hello.

Speaker Change: Less activity because of the engine issue that is affecting mainly Airbus airplanes that yeah. As you know will have literally hundreds of airplanes grounded around the world. So we've been living in that environment for quite a while so there really isn't really changing.

Speaker Change: And maybe give us the backlog in terms of there's always risks around execution as it is being more focused on the addressable market you're trying to go after them I'm just trying to get a sense of it.

Speaker Change: No.

Walter: All goes Walter and defense when you fast forward two years, what exactly does defense it looked like it's a bigger business.

Speaker Change: Yeah, I would say theres pockets in that and I think there is pockets that you see that airlines are affected by the slow downs are not able to get the airplanes that they want to secure the demand. The demand itself is very strong and what you see as airplanes.

Walter: With better margins is it a smaller business with better margins.

Speaker Change: Any color there would be helpful.

Speaker Change: Well look I think I would start by all of those Kevin.

Speaker Change: Pulling your airplanes out of mothballs basically taking airplanes that are.

Speaker Change: Clearly as I said look the numbers that we're printing now surely you'll meet my expectation and neither does our investors clearly but.

Speaker Change: That all of that coming off season, maintaining them on lease, but we're not really seeing a change in the demand environment. At this time, we will watch it yet and the guidance that we put or civil for next year or for this coming year rift.

I think what we're what we've done here is.

Speaker Change: He is re baseline of the business.

Speaker Change: We've been talking about the issues are affecting us in defense.

Speaker Change: Reflects our cautious outlook in that regard.

Speaker Change: Or.

Speaker Change: You know at least a couple of quarters here at least in the detailed last quarter. We gave you precision on that.

Speaker Change: That's helpful.

Speaker Change: Second question.

Speaker Change: Really there were eight contracts, we called the legacy contracts that were really undermining the profitability of our business I mean, those contracts are all have the same kind of AMOLED sign.

Speaker Change: I appreciate all the color you provided in terms of the re basing of.

Of defense.

Speaker Change: It also feels like a segment that feels like it's been in some sort of perpetual restructuring for quite some time now or at least.

Speaker Change: Her to Covid fixed firm priced contracts and they were very very much.

Speaker Change: No no.

Some sort of strategic repositioning you know with the acquisition of L. Three houses military training Division.

Speaker Change: Hershey affected by supply chain issues manpower actually runaway inflation of which we're not immune.

Speaker Change: Maybe if I were to us when you look out two years from now or whatever the timeframe is.

Speaker Change: What is it what should defense look like like the revenue needs to be bigger in order to get the margins you want.

Speaker Change: Lot of our defense of the SaaS clients and its sister companies across.

Speaker Change: The defense environment, particularly well actually I wish I'd say only in United States across the world actually.

And maybe give us the backlog in terms of you know there's always risks around execution as it is being more focused on the addressable market you're trying to go after them I'm just trying to get a sense of.

Speaker Change: We do.

Speaker Change: Those affected us we ring fence.

And this quarter, what we've done here.

Speaker Change: No.

Walter: All goes Walter in Defense you fast forward two years, what exactly does it look like it's a bigger business.

Speaker Change: Is basically worked extremely hard to renegotiate with our customers in this regard to figure out exactly what the remaining scope on those programs is the time, it's going to take those to execute those contracts. The cost is going to take us with those contracts.

Walter: With better margins is it a smaller business with better margins.

Walter: Any color there would be helpful.

Well look I think I would start by all of those Kevin.

Speaker Change: Clearly as I said look the numbers that we're printing now surely don't meet my expectation and neither of those are investors clearly, but I think what we're what we've done here is.

Speaker Change: And the difference between that and our cost it.

Speaker Change: We anticipate in the past.

Speaker Change: It is 90 million and that's to a certain extent, maybe it shouldn't be much of a surprise because if you remember in the third quarter. What we had said is that those eight contracts, we're really going to drag for next by three to 300 basis points for the next six quarters, while we execute those.

Speaker Change: He is re baseline of the business.

Speaker Change: We've been talking about the issues are affecting us in defense.

Speaker Change: Or at.

Speaker Change: At least a couple of quarters here at least in the detailed last quarter. We gave you precision on that.

Speaker Change: Really there were eight contracts.

Speaker Change: We called the legacy contracts that were really undermining the profitability of our business I mean those contracts.

Speaker Change: Sure.

Speaker Change: The what we've done here is through the actions that we've taken through the agreements we have made for our customers, we're able basically to take that risk off.

Speaker Change: All have the same kind of AMOLED sign.

Speaker Change: Off the table or are people principle, because we're taking it now.

Speaker Change: Covid fixed firm priced contracts and they were very very much.

So that gives us a clear view of the future and the programmer the programmatic risks now going forward not only in those eight programs, but overall on across all the program is the best is balance.

Speaker Change: Virtually affected by supply chain issues manpower actually runaway inflation.

Speaker Change: Which we're not immune.

Speaker Change: A lot of our defense of the SaaS clients and its sister companies across.

Speaker Change: The defense environment, particularly in well actually I wish I'd say, one thing I'd say is across the world actually.

Speaker Change: So that's one major component there.

Speaker Change: Other component is I'll go back to the.

Speaker Change: We.

Speaker Change: The success of our strategy on the front end I'll reiterate the fact that our.

Speaker Change: Those affected us we ring fence.

Speaker Change: In this quarter, what we've done here.

Speaker Change: When we look at the book of business, we are winning business, we are winning a larger business.

Basically worked extremely hard to renegotiate with our customers in this regard to figure out exactly what the remaining scope on those programs is the time, it's going to take those to execute those contracts.

Speaker Change: In the areas, where we have core capabilities.

Training centers training products, meaning full flight simulators, where this is core to us we know how to do that we know how to do it well we've signed them at margins that are accretive to the outlook that we havent defense, which is 10% or more in terms of profitability.

Speaker Change: Cost is going to take us just contract.

Speaker Change: The difference between that and our cost it.

Speaker Change: We anticipate in the past.

Speaker Change: It is 90 million and that's to a certain extent, maybe it shouldn't be much of a surprise because if you remember in the third quarter. What we had said is that those eight contracts, we're really going to drag for next by three to 300 basis points for the next six quarters, while we execute those.

Speaker Change: Those programs are going to materialize in our backlog.

Speaker Change: I expect about 15% of that.

Speaker Change: All of those.

Speaker Change: To materialize in our revenue this year, that's all going to contribute to the answer to your question is stable revenue growth.

Speaker Change: Margins on the way to the low teens are north of 10% margins I want this and generating stable cash flows, which should you should expect out of the defence business, because we're basically selling to customers with sovereign guarantees so.

Speaker Change: Yeah.

What we've done here is through the actions that we've taken through the agreements we have made for our customers, we're able basically to take that risk.

Speaker Change: Off the table or are people principle, because we're taking it now so.

Speaker Change: So that gives us a clear view of the future.

Speaker Change: That's what I expect out of the festival.

Under the program.

Speaker Change: Programmatic risks now going forward not only in those eight programs, but overall on across all the program is the best is balance.

Speaker Change: That's that's very helpful color. Thank you for taking my questions.

Speaker Change: The next question is from James Mechanical from RBC capital markets. Please go ahead.

Speaker Change: So that's one major component there.

Speaker Change: Other component is I'll go back to the success of our strategy on the front end or reiterate the fact that our.

James Mechanical: Good morning, and thanks for having me on.

Speaker Change: Thank you all.

Speaker Change: On the defense margin guidance why the I'll pick it up in the back half. So can you just talk to the visibility that.

Speaker Change: When we look at the book of business, we are winning business, we are winning a larger business.

Speaker Change: That you have into the higher margin in the back half and is there any seasonality in the defense side going forward or should we expect that.

Trey: In the areas, where we have core capabilities Trey.

Trey: Training centers training products, meaning full flight simulators, where this is core to us we know how to do that we know how to do it well we've signed them at margins that are creative to the outlook that we havent defense, which is 10% or more in terms of profitability.

Speaker Change: Back half margin to kind of be the exit rate for margin into the upcoming fiscal year.

Speaker Change: So I think that is.

Speaker Change: If you look at our performance for the past few years, you always see is back half loaded and there is reasons for that.

Trey: These programs are going to materialize in our backlog.

Speaker Change: In the <unk>.

The specific countries, there's programs ramping up this year I mean, we have high visibility of this year the majority of.

Trey: I expect about 15% of that.

Trey: Of those two.

Trey: To materialize in our revenue this year, that's all going to contribute to the answer to your question is stable revenue growth higher margins on the way to the low teens or pet care north of 10% margins I want this and generating stable cash flows with.

All the revenue and are going to cross.

That we need to execute this year plan and meet the guidance of 7% that we put out there. We've already won those contracts. They are in our backlog of square feet.

Uh huh.

Speaker Change: We have.

Speaker Change: Very high visibility on the legacy contracts that we've talked about having to re baseline the programmatic risk there.

Trey: You should expect out of the defence business, because we're basically selling to customers with sovereign guarantees so.

Speaker Change: So.

Speaker Change: Yeah, what I'd say is basically we're going to in terms of again in terms of the variability in the year. It's basically just a just.

Trey: That's what I expect out of the festival.

Speaker Change: That's that's very helpful color. Thank you for taking my questions.

Speaker Change: Just as the same way we've seen it in previous years.

Speaker Change: Yeah.

Speaker Change: I think maybe to provide a little bit more color on it I'd say that.

Speaker Change: The next question is from James Mechanical from RBC capital markets. Please go ahead.

Speaker Change: When we look at the year of the average the average margin, we talked about roughly 6% to 7%.

Tim James: Good morning, and thanks for having me on.

Speaker Change: Thank you your answer is it depends.

On the defense margin guidance why the I'll pick it up in the back half. So can you just talk to the visibility.

Speaker Change: Would expect that we'll start the year, where we ended at in terms of profitability. So call. It in the five north of 5% range with stronger in the second half.

Speaker Change: That you have into the higher margin in the back half and is there any seasonality in the different thought going forward or should we expect the back half margin to kind of be the exit rate for margin into the upcoming fiscal year.

Speaker Change: That's what I would say.

Speaker Change: Thank you and then.

Speaker Change: As a follow up on the civil side.

Speaker Change: Like that a lot of that organic investment you're making this year is going to be in the civil business you know you'd previously flagged.

Speaker Change: So I think that if.

Speaker Change: If you look at our performance for the past few years, you always see is back half loaded than there is reasons for that budget.

Speaker Change: <unk> returned 20% to 30% in that business to ramp up.

I mean, we should be thinking about growth at current levels or even higher.

Speaker Change: Uh huh.

Speaker Change: Specific countries. There is programs that were ramping up this year I mean, we have high visibility of this year. The majority of the revenue and ergo the problem that we need to execute this year plan and meet the guidance of six 7% that we put out there. We've already won those contracts there and the backlog of square feet.

Speaker Change: Over the next two or three years can you talk to the visibility and the conversations you're having with your customers.

Speaker Change: A little longer term on the civil side.

Well look I think that I fully expect that the demand is there.

Speaker Change: Demand environment as civil business.

Speaker Change: Three years ago.

<unk>.

Speaker Change: I think maybe just a little bit provide a little bit more color on civil I think.

Speaker Change: We obviously have.

Speaker Change: Very high visibility on the legacy contracts that we've talked about having to re baseline the quote.

Speaker Change: If you think about the civil business. You know you saw the changes we've made or the under under Nick now with C. At a seal.

Speaker Change: Dramatic risk there.

So.

Speaker Change: You know what I'd say is basically we're going to in terms of again in terms of the variability in the year, It's basically just a.

Speaker Change: You're giving more visibility on the leaders of that business.

Speaker Change: Just as the same way we've seen it in previous years.

Speaker Change: Three layers that we have with <unk>.

Speaker Change: Alex Pebble, we're running the business aircraft training Michel has already moved up running.

Speaker Change: I think maybe to provide a little bit more color on it I'd say that when.

Speaker Change: We're running our commercial aviation training simulators Pascal radiate running the software business will be able to provide you.

Speaker Change: When we look at the year of the average the average margins, we talked about roughly 6% to 7%.

Would expect that we'll start the year, where we ended at in terms of profitability. So call. It in the five north of 5% range with stronger in the second half.

Speaker Change: It's more a more a broader view of those specific.

Speaker Change: Individual business with civil but let me just have a shot at that maybe both city.

Speaker Change: So your answer here.

Speaker Change: That's what I would say.

Michel: And if you break down the revenue in our civil business about a third of it comes from selling simulators to world's airlines.

Speaker Change: Okay. Thank you and then.

Speaker Change: As a follow up on the civil side.

Speaker Change: But a lot of that organic investment you're making this year is going to be in the civil business. You know you'd previously flagged really saw.

Michel: A third of it comes training for the Worlds Airlines, who are training centers for airlines around the world and a third of it comes from business Aviation training in the final really 10% comes from our software business. Each each of these business has its own dynamics that drives margins.

All returns, 20% to 30% in that business to ramp up.

Speaker Change: I mean, we should be thinking about growth at current levels or even higher.

Speaker Change: Over the next two or three years can you talk to the visibility and the conversations you're having with your customers a.

Speaker Change: We've talked a lot about your utilization, which is a strong metric, but it's not the only metric that is affected by seasonality, especially when you get into the second half.

Speaker Change: A little longer term on the civil side.

Speaker Change: Well look I think that I fully expect that the demand is.

Speaker Change: The demand environment is civil business, you started three years ago.

Speaker Change: Lower utilization in our training centers because the airlines.

Speaker Change: I think maybe just a little bit provide a little bit more color on civil I think.

Speaker Change: Certainly in the west Western Hemisphere, Theyre flying so theyre not trading in a large part.

Speaker Change: If you think about the our civil business. You know you saw the changes we've made or the under under Nick now with see a seal.

Speaker Change: Within our product segment, which is selling simulators.

Speaker Change: The the margins in the end they actually the revenue can be affected.

Speaker Change: You mean more visibility on the leaders of that business.

Speaker Change: Quite significantly by who is the customer.

Speaker Change: Make sure that's familiar whether the equipment to supply five buyer in terms of the cockpit equipment for example.

Speaker Change: Three layers that we have with Alex pivotal running business aircraft training Michelle as are the wound up running.

Speaker Change: There was an impact from joint ventures, as well because we do a lot of joint ventures and in those cases.

Speaker Change: We're running our commercial aviation training is simulators Pascal radiate running the software business will be able to provide you.

Speaker Change: Don't see the revenues, but youll see the city income pickup and finally the software.

Speaker Change: More a more broader view of those specifics.

Speaker Change: That's really affected by.

Speaker Change: The timing of.

Speaker Change: Individual businesses with civil but let me just have a shot at that maybe both city.

Speaker Change: The contracts, whether or not their SaaS contracts, which we are prioritizing and that has a lower margin Alicia while we're going through that chefs conversion.

Speaker Change: So your answer here.

Speaker Change: And if you break down the revenue in our civil business about a third of it comes from selling simulators for the worlds Airlines.

Speaker Change: And so and that's the reason I'm explaining all of that that's why we tend to drive we guide on an annual basis civil.

Speaker Change: A third of it comes training for the Worlds Airlines, who are training centers for airlines around the world and a third of it comes from business Aviation training in the final really 10% comes from our software business. Each each of these business has its own dynamics that drives margins.

Speaker Change: Look I mean going forward the trend is going to be higher in civil and all of those segments with a provisory as I talked about the SaaS conversion, which is probably a two to three year.

Speaker Change: Basically ramp up as we go through the SaaS conversion.

We.

Speaker Change: We've talked a lot about your utilization, which is a strong metric, but it's not the only metric that is affected by seasonality, especially when you get into the second half where you have lower utilization in our training centers because your lives.

I appreciate the color and I'll turn the line over thank you.

Speaker Change: Welcome.

Speaker Change: The next question is from Ben Walker from Dish I think capital markets. Please go ahead.

Speaker Change: Certainly in the west Western Hemisphere, Theyre flying so theyre not trading in a large part.

Speaker Change: Yeah. Thanks, Good morning, Mark Good morning Sanyo.

Speaker Change: Yeah, just to come back on the assumption behind the six 7% EBIT margin target for defense in fiscal year 'twenty five I think I heard that's about 15%.

Speaker Change: Within our product segment, which is selling simulators.

Speaker Change: The the margins in the end they actually the revenue can be affected.

Speaker Change: Quite significantly by the customer.

Speaker Change: Total revenue is expected to come from those transformative deal with are already in the backlog so.

Speaker Change: Make sure that familiar whether equipment, just Wi Fi buyer in terms of the cockpit equipment for example.

Speaker Change: There was an impact from joint ventures, as well because we do a lot of joint ventures and in those cases.

Speaker Change: Could you maybe provide some color about what was the contribution in Q4 and what makes you confident John the visibility you have with respect to the ramp up in the ER.

Speaker Change: Don't see the revenues, but youll see the city income pickup and finally the software.

Speaker Change: That's really affected by that.

Speaker Change: The second part of the year.

Speaker Change: The timing of.

Speaker Change: The contracts, whether or not their SaaS contracts, which we are prioritizing and that has a lower margin Alicia while we go through that shop conversion.

Speaker Change: Now it may not be as clear or maybe when I answered that question, it's up 50%.

Speaker Change: It's one 515% of the revenue that we're going to get this year comes from those transformational programs, it's been a while.

Speaker Change: And so and that's the reason I'm explaining all of that that's why we tend to drive we guide on an annual basis civil.

Speaker Change: And that's relative to 3% last year so.

Speaker Change: So we had last year, we had like 20% of our backlog in defense was these new transformational program our programs and that was that translate and 3% of revenue again. This year that will be 15% this year and obviously growing in the years to come as they ramp up.

Speaker Change: Look I mean going forward the trend is going to be higher in civil and all of those segments with a provisory as I talked about the SaaS conversion, which is probably a two to three year.

Speaker Change: Basically ramp up as we go through the SaaS conversion.

Speaker Change: Okay, and obviously you provide some color about fiscal year 'twenty five but previously you mentioned that it would take us six to eight quarters to achieved the completion of those legacy contract.

Speaker Change: I appreciate the color and I'll turn the line over thank you.

Speaker Change: Welcome.

The next question is from <unk> from Desjardins capital markets. Please go ahead.

Speaker Change: Yeah. Thanks, Good morning, Mark Good morning Sanyo.

Speaker Change: Should we be thinking beyond fiscal year, 'twenty, five and use the 10%.

Speaker Change: Yeah, just to come back on the assumption behind the six 7% EBIT margin target for defense in fiscal year 'twenty five I think I heard that's about 15%.

Speaker Change: That's still achievable.

Speaker Change: Well, the 10% margin absolutely still achievable and that's all the actions we've put in place.

Speaker Change: Total revenue is expected to come from those transformative deals that are already in the backlog so.

Speaker Change: It's going to make that happen.

Speaker Change: No we haven't guided to next year that we haven't been precise, but it'll happen and it in within the plan period. So quick so within the next few years, but we haven't gotten ahead of ourselves beyond this year.

Speaker Change: Could you maybe provide some color about what was the contribution in Q4 and what makes you confident or the visibility you have with respect to the ramp up in the ER.

Speaker Change: Okay, and with respect to the appointment of Nic as a C. O. Obviously has been a C for over 35 years could you talk maybe mark about the strategy here with the action that Nick is going to undertake and maybe more color about the expected synergies.

Speaker Change: The second part of the year.

Speaker Change: Now it may not be as clear or maybe when I answered that question, it's up 50%.

Speaker Change: Is one 515% of the revenue.

Speaker Change: That we're going to get this year comes from those transformational programs.

Speaker Change: You would like to extract between civil and defense.

Speaker Change: That's relative to 3% last year so.

Youre going to have to ask me to put Nick on the spot, but before I do so let me talk about how long do you think that Nick as you said mix is a best friend.

Speaker Change: So we had last year, we had like 20% of our backlog in defense was these new transformational program or programs and that was that translate and 3% of revenue again. This year that will be 15% this year, and obviously growing into years to come as they ramp up.

Speaker Change: All of this company.

Speaker Change: And it's interesting you may or may not know actually Nick started his career defense. So heavy led.

Speaker Change: Okay, and obviously you provide some color about fiscal year 'twenty five but previously you mentioned that it would take us six to eight quarters to achieved the completion of those legacy contract how should we be thinking beyond fiscal year, 'twenty five and use the 10%.

Speaker Change: Starting as an engineer but.

Speaker Change: Like I was by the way but.

Nick Lean: Having led some major defense contracts, including the most complicated the more extensive that we've ever had probably before a fact, which was putting together the first <unk> contract in U K and defense, which was standing up.

Speaker Change: It's still achievable.

Speaker Change #101: Benson training center, where we train all medium helicopters rural airports I think you may have visited at one point that training center.

Speaker Change: Well, the 10% margin is absolutely still achievable and that's all the actions we've put in place.

Speaker Change #102: We have in the Royal Air Force, which is still one of the most procedures and technology advanced in the world. So they can put that together.

Speaker Change: It's going to make that happen.

Speaker Change: No we haven't guided to next year that we haven't been precise but it'll happen and it's in within the plan period. So.

Speaker Change #102: So just suffice to say you know having known there and then it gets worked for me directly ever since I've been at sea and various roles.

Speaker Change: So within the next few years, but we haven't gotten ahead of ourselves beyond this year.

Speaker Change: Okay, and with respect to the appointment of Nic as a C O obviously.

Speaker Change #102: Nick understands the business and that Nick has a very strong operational mindset and focus on execution as well as strategy and that's basically the reason I put him in charge of expense over 10 years ago, and and I think he's done a pretty good job is tripling the operating.

Speaker Change: C for over 35 years could you talk maybe mark about the strategy here are the action that Nick is going to undertake and maybe more color about the expected synergies that you would like to extract between civil and defense.

Speaker Change #102: In civil in that period and building the franchise that we have in defense he's going to put those strengths to fold. This in defense.

Speaker Change: Youre going to have to ask me to put Nick on the spot, but before I do let me.

Speaker Change: Talk about how wide using.

Nick as you.

Speaker Change #102:

Speaker Change: Next is our best friend of this company.

Speaker Change #103: Beyond that I mean specifics look I see theres a lot of simplification here that can be had through greater focus is very clear to me that.

Speaker Change: And it's interesting you may or may not know actually Nick started his career defense. So heavy led.

Speaker Change #104: One of the reasons certainly not the only one but key reason that we've been successful in civil is the focus I talked about the three P&L leaders that are fully accountable and have all the tools to be able to execute and their business, we're providing through the changes that we're making here we're enhancing the folks.

Speaker Change: Starting as an engineer but.

Like I was by the way, but you know having led some major defense contracts, including the most complicated the more extensive that we've ever had probably before a fact, which was putting together the first <unk> contract in the UK and defense, which was standing up.

Speaker Change #104: This year to very specific P&L leaders in the United States. The largest business is the largest military.

Speaker Change: Benson training center, where we train all medium helicopters rural airports I think you may have visited at one point that training center.

Speaker Change #104: The market in the world by far very specific focus with Jason good friend.

Speaker Change: With that we have in the Royal Air Force, which is still one of the most procedures and technology advanced in the world So Nick put that together.

Speaker Change #105: As you know present interim president there working for working.

Speaker Change: So just suffice to say you know, having known Nick and Nick has worked for me directly ever since I've been at sea and various roles.

Speaker Change #106: The U S or for Nick.

Speaker Change #107: <unk> always market English avoid running all of our international programs, including Canada, where we have some very large contracts.

Speaker Change: Nick understands the business and that Nick has had very strong operational mindset and.

Speaker Change: Our focus on execution as well as strategy and that's basically the reason I put him in charge of expense over 10 years ago, and and I think he has done a pretty good job is tripling the operating.

I announced today. So number one is greater focus that's very important and atmos beyond that the synergy capture is clear to me that there is.

Speaker Change #107: A lot of synergy left to be had.

In civil in that period and building the franchise that we have in defense he's going to put those strengths to fold. This in defense.

Speaker Change #108: Leveraging our scale and technologies across the entire enterprise and Thats going to be key to next responsibly, but beyond that and it may be a couple of words from your side.

Speaker Change #109: Yeah, I was just going to reinforce I mean, the simplification and accountability.

Speaker Change:

Speaker Change: Beyond that I mean specifics look.

Speaker Change: There's a lot of simplification here that can be had through greater focus is very clear to me that.

Speaker Change #110: If we went a little bit of history.

Speaker Change #110: Trying to do all of that.

Speaker Change #111: Under the guise of the two business units I think the we have go to market business units and business aircraft in commercial and in DNS U S DNS International.

One of the reasons certainly not the only one key reason that we've been successful.

In civil is to focus I talked about the three P&L leaders that are fully accountable and have all the tools to be able to execute and their business. We're providing through the changes we're making here. We're enhancing the focus here is a very specific peach P&L leaders in the United States our largest business.

And then we'll drive synergies across that of course is going to be some.

Speaker Change #111: Some <unk>.

Speaker Change #111: Restructuring I wouldn't use the word restructuring of course, because we have some duplication, which.

Speaker Change #111: Where necessary at the time, but I think it's.

Is the largest military.

Speaker Change #112: It's one of those things when you look at it and you say, okay well.

Speaker Change: Market in the world by far very specific focus with Jason good friend.

Speaker Change #113: We need to make change and by the way. That's my right now I'm just asking question I will ask questions about everything why is it. So I guess why is it like that and it's amazing the answers that you get so I think a lot of times, it's we get we get.

Speaker Change: Ill present interim president there working for working.

Speaker Change: The U S or for Nick.

Speaker Change: And always market English avoid running all of our international programs, including Canada, where we have some very large contracts that I announced today. So number one is greater focus that's very important and atmos beyond that dis synergy capture is clear to me that there is.

Speaker Change #113: We get.

Speaker Change #113: People working on this that people know what to do I'm, just going to enable them to do it.

Michael: And and as Michael we play as a team and we're gonna have to do this together as a team and people know where the inefficiencies are and they know what they need to stop doing.

Speaker Change: A lot of synergy left to be had.

Okay.

Michael: That's great color gentlemen, and maybe a very quick one for Sun, you're just looking at your Capex is expected to be up 50 to 100 million how should we be thinking about the sustainable capex. It seems a bit elevated versus their story. So I'm just wondering I understand the growth of fortunate.

Across the entire enterprise and thats going to be key to Nick's responsibly, but beyond that and it may be a couple of words from your side.

Speaker Change: Yeah, I was just going to reinforce I mean, the simplification and accountability.

Speaker Change: If we went a little bit of history.

Speaker Change: Trying to do all of that.

Michael: But just want to try to look beyond fiscal year 'twenty five about.

Speaker Change: Under the guise of the two business units I think the we have.

Speaker Change: Go to market business units.

Michael: What what could be kind of the sustainable level of capex. Thank you.

Speaker Change: Business aircraft in commercial in and DNS U S DNS international.

Sun: Yes, Andrew Thanks for the question so the Capex.

Speaker Change #116: It's really the spend that's really a direct reflection of the success that we've had with all of the orders we secured to outsource more training. So two quarters of this capex is simulators to our network. So whether it's Qantas AGM, we've got plenty of Las Vegas.

And then we will drive synergies across that of course is going to be some.

Speaker Change: Some.

Speaker Change: The restructuring I'll use the word restructuring of course, because we have some duplication, which.

Speaker Change: Where necessary at the time, but I think it's.

Speaker Change: It's one of those things when you look at it and you say, okay well.

Speaker Change #116: Some examples.

Speaker Change #116: Through that record order intake that we've got in the years. So we don't deploy simulators to our network on a speculative basis every single one of them are backstopped by signed long term recurring revenue customer contract. So you.

We need to make change and by the way. That's my right now I'm, just asking question and I'll ask questions about everything why is it. So I guess why is this like that and it's amazing the answers that you get so I think a lot of times, it's we get we get.

Speaker Change #116: You know what we see the this year's Capex is really a reflection of the secured order intake that we have and this is to deliver to growth and our customers and and frankly, we have a proven track record of delivering.

Speaker Change: We get.

Speaker Change: We're working on this the people know what to do I'm, just going to enable them to do it.

Speaker Change: And and as Michael.

Speaker Change: We play as a team and we're gonna have to do this together as a team.

Speaker Change #116: Really accretive returns on this organic capex, the 20% to 30% range of incremental return on capital on our organic growth. So.

Speaker Change: People noteworthy inefficiencies are and they know what they need to stop doing.

Speaker Change: That's great color gentlemen, and maybe a very quick one for Sanyo just looking at your Capex is expected to be up 50 to 100 million how should we be thinking about the sustainable capex. It seems a bit elevated versus the story. So I'm just wondering I understand the growth of fortunate.

Speaker Change #116: What was not necessarily going to guide beyond that year, but it will be a function of the level of orders and market capture that that will we'll succeed.

Speaker Change #117: Thank you very much.

Speaker Change #117: Okay.

Speaker Change #118: The next question is from Conor Gupta from Scotiabank. Please go ahead.

Speaker Change: But just want to try to look beyond fiscal year 'twenty five about.

Conor Gupta: Thanks for taking my question sounded defense I'm wondering mark how does the rebase lining of legacy contracts affect your market position and are you able at the structure of future burts appropriately.

Speaker Change: What could be kind of the sustainable level of capex. Thank you.

Speaker Change: Yeah. Thanks for the question so the Capex.

Speaker Change: Is really the spend that's really a direct reflection of the success that we've had with all of the orders we secured to outsource more training. So two quarters of this capex is simulators to our network. So whether it's Qantas AGM, we've got plenty of Las Vegas.

Speaker Change #120: I think it reinforces the.

Speaker Change #120: Because I think what's important here is that it.

Speaker Change #121: To me. This is a very successful renegotiation that we've done the teams. The teams have been on this for quite a while obviously we have tiger teams on every one of those programs for obvious reasons, but.

Speaker Change: Plenty of examples you know through that record order intake that we've got in the years. So we don't deploy simulators to our network on a speculative basis every single one of them are backstopped by signed long term recurring revenue customer contract. So.

Speaker Change #121: Focus on execution of those of those contracts, but.

Speaker Change #121: When I talked about in the previous quarter, when what I said that we're going to take every effort to be able to accelerate the recognition of risks on those programs. So really scope out the remaining work here.

Speaker Change: You know what we see the this year's Capex is really a reflection of the secured order intake that we have and this is to deliver to growth and our customers and and frankly, we've we have a proven track record of delivering.

Speaker Change #121: And I had talked about at the time that look we're gonna have to have tough negotiations here.

Speaker Change #121: And it could it could lead to in some cases, you know basically having to.

Speaker Change: Really accretive returns on this organic capex, the 20% to 30% range of incremental return on capital on our organic growth.

Speaker Change #122: Except penalties for example.

Speaker Change #122: Because we're late on contracts. So that's just one example, but the real issue is we havent to do that.

Speaker Change: Well, we're not necessarily going to guide beyond that year, but it will be a function of the level of orders and end market capture that will will succeed.

Speaker Change #122: We haven't had to do that at any one of these cases.

Speaker Change #123: So we're going to do with C always stuff.

Speaker Change #123: We are going to execute on those contracts and the customers.

Speaker Change: Thank you very much for this one.

Speaker Change: Yeah.

Speaker Change #124: For every one of them on these eight contracts are very happy with the outlook that we now have almost full it says we will deliver what we committed all of those contracts.

Speaker Change: The next question is from Conor Gupta from Scotiabank. Please go ahead.

Conor Gupta: Thanks for taking my question I'm, just kind of a defense I'm wondering mark how does the rebase lining of legacy contracts.

Speaker Change #125: And at the <unk> and the timeline and the scope of what we'll do is in line with your expectations kind of have a winter. So our reputation as he has always delivering is intact and in some cases actually in somebody's program and Thats really why pockets I talk about it as particularly successful.

Conor Gupta: Affect your market position and you're able at the structure of future burts appropriately.

Mark: I think it reinforces the.

Speaker Change: Because I think what's important here is that.

Speaker Change: To me. This is a very successful renegotiation that we've done the teams. The teams have been on this for quite a while obviously we have tiger teams on every one of those programs for obvious reasons, but.

Speaker Change #126: In some cases, we have to negotiate additional scope on those contracts you'll follow on contract as a result of the negotiation so long answer, but basically say.

Speaker Change: Focus on execution of those of those contracts, but.

Speaker Change: When I talked about in the previous quarter, when what I said that we're going to take every effort to be able to accelerate the recognition of risk on those programs. So really scope out the remaining work here.

Speaker Change #127: If anything just enhances our reputation.

Speaker Change #127: Perfect No that's fair, thanks, and if I can follow up quickly with Nick.

Speaker Change #128: They get talked about a minute obviously some of the low hanging fruit there from synergy standpoint from technology et cetera duplication all that any any specifics you can share. It I know, it's early but anything you can tell about what best practices can you bring to the defense segment due to derive a supports all of the synergies.

Speaker Change: And I had talked about the time that look we're gonna have to have tough negotiations here.

Speaker Change: And it could it could lead to in some cases, you know basically you're having to.

Speaker Change: Except penalties for example.

Speaker Change: Because we're late on contracts. So that's just one example, but the real issue is we havent to do that and we haven't had to do that at any one of these cases. So we are gonna do we see always stuff.

Speaker Change #129: Well I think.

Speaker Change #129: I can't give you a lot of examples but I wanted to try not to right now, but I can say that.

Speaker Change #129: L. Three acquisition for example.

Speaker Change #129: The legacy <unk> business, there's a lot of overlap in technologies.

Speaker Change: We are going to execute on those contracts and the customers.

Speaker Change: For every one of them on these eight contracts are very happy with the outlook that we now have almost full it says we will deliver what we committed all of those contracts.

Speaker Change #129: Best example, I can give you is the country one called that's both teams have products. So these things have to be rationalized. So they don't have to be done I mean, we're supporting customers, we're supporting but.

Speaker Change: And at the <unk> and the timeline and the scope of what we'll do is in line with your expectations kind of have a winter. So our reputation that she has always delivering is intact and in some cases actually in somebody's program and that's really why I talk if I talk about it as particularly successful.

Speaker Change #129: We need to.

Speaker Change #130: We need to build up the synergies and and develop a strategy where the whole company is one product in some of these areas same with the same on the civil side there are opportunities for the defense guys to offer solutions.

Speaker Change #130: Gulf streams in globals, because as you know these aircrafts are huge submission.

Speaker Change: In some cases, we have negotiated additional scope on those contracts you'll follow on contract as a result of a negotiation so long answer but this is say.

Speaker Change #130: Missionize.

Speaker Change #131: Missions, if I could use those words.

Speaker Change: If anything just enhances our reputation.

Speaker Change #132: So right now you know, it's very much it's very much not.

Speaker Change: Perfect No that's fair, thanks, and if I can follow up quickly with Nick.

Speaker Change #132: I don't know what the civil guys do and we don't know what.

Mike: Mike you talked about obviously some of the low hanging fruit there from synergy standpoint from technology et cetera.

Speaker Change #133: Defense requirements are but for sure the customer is interested in having these solutions and as we know, especially on some of these programs like the globals and the Gulfstream. These are these are very good programs for us and I mean, basically we lift and shift our training program, we lift and shift of simulator.

Although any any specifics you can share it I know, it's early but anything you can tell about what best practices can you bring to the defense segment to derive a supports all of the synergies.

Speaker Change: Well I think.

Speaker Change #133: <unk> and instructor training and we have a program you can have a government program anywhere you want so I think that's the kind of stuff that I think we're going to pursue maura.

Speaker Change: I can't give you a lot of examples but I've been on it for.

Speaker Change: Try not to right now, but I can say that.

Speaker Change: We also re acquisition for example.

Speaker Change #133: Because obviously, we will always have these programs.

Speaker Change: The legacy business, there's a lot of overlap in technologies.

Speaker Change #134: You know are a little bit more complicated than and yes, we'll protect for all the all the obvious stuff, but but we need a base of business, which is a little bit less volatile and I think these are you know.

Speaker Change: Best example, I can give you is the country one called bulk.

Both teams have products. So these things have to be rationalized. So they don't have to be done.

Speaker Change: We're supporting customers, we're supporting but we need to.

Speaker Change #134: Couple of examples of things that I think we can do.

Speaker Change: We need to build up the synergies and and and develop a strategy where the whole company is one product in somebody's area same with the same on the civil side there are opportunities for the defense guys.

Speaker Change #134: To make make ourselves more successful.

Speaker Change #135: That's a that's really great color. Thanks, so much and congrats on the neutral Nick Thanks.

Speaker Change #136: Thank you.

Speaker Change #136: Yes.

Speaker Change #136: The next question is from Kamran Derksen from National Bank Financial. Please go ahead.

Speaker Change: To offer solutions like Gulfstream and globals, because as you know these aircrafts are huge submission for.

Speaker Change #136: Yeah. Thanks, Good morning, maybe just a couple of balance sheet cash flow questions from me for for Sonya can you just talk about what your expectation is for for debt reduction.

Speaker Change: <unk> mission is.

Missions, if I could use is worth so so so right now you know it's very much it's very much not.

Speaker Change #137: <unk> this fiscal year and maybe you can just update on what do you sort of the target leverage for the company as it has over the next few years.

Speaker Change: I don't know what the civil guys do and we don't know what.

Darren: Yeah. Thanks Darren.

Speaker Change: Defense requirements are but for sure the customer is interested in having these solutions and as we know, especially on some of these programs like the globals and the Gulfstream. These are these are very good programs for us and I mean, basically we lift and shift our training program, we lift and shift of simulator.

Sonya Branco: Part of our continued balanced capital allocation, where we're going to continue to focus on deleveraging. We had always said that the three times. So it's really just a waypoint.

Sonya Branco: On the way to a lower leverage so that's a continued focus we don't have we haven't necessarily set a target it's going to be a balance that's something in line with our investment grade. So I'd say you know.

Speaker Change: <unk> and instructor training and we have a program you can have a government program anywhere you want so I think that's the kind of stuff that I think we're going to pursue maura.

Two to two and a half times is a usual for an investment grade.

Sonya Branco: It gives us flexibility and it gives us flexibility to bring back current returns and support our organic investments in Capex a lot of longer term, that's what I'd be targeting but ultimately over the next year, it's really continuing on the deleveraging profile.

Speaker Change: Because obviously, we will always have these programs.

Speaker Change: As you know are a little bit more complicated than and yes, we will protect for all the all the obvious stuff, but but we need a base of business, which is a little bit less volatile and I think these are.

Sonya Branco: While we continue to invest in accretive organic investment.

Speaker Change #139: And bringing back some some shareholder returns.

Speaker Change: Couple of examples of things that I think we can do.

Speaker Change #140: Okay, and the working capital I mean, a pretty big.

Speaker Change: To make make ourselves more successful.

Speaker Change: That's a that's really great color. Thanks, so much and calling out some unusual Nick thanks.

Speaker Change #139: It's a cash tailwind in fiscal 'twenty for the fall.

Speaker Change #141: Hold a significant investment in fiscal 'twenty three I'm just wondering if you could maybe talk about what your expectation is for fiscal 'twenty five as far as the working capital investment and.

Speaker Change: Thank you.

Speaker Change: Yes.

Speaker Change: The next question is from Kamran Derksen from National Bank Financial. Please go ahead.

Cameron Doerksen: Yeah. Thanks, Good morning, maybe just a couple of balance sheet cash flow questions from me for for Sonya can you just talk about what your expectation is for for debt reduction this fiscal year and maybe you can just update on what do you sort of the target leverage for the company as he is over the next few years.

Speaker Change #141: And maybe you could talk about how it sort of changes through the year, but quarter to quarter.

Sure I'm I'm really curious as to what the purpose on the noncash looking out for the year. So it's really the result of continued focus on efficiency of our key metrics, whether it's DSO inventory management deposits and AR and Unbilled.

Speaker Change: Absolutely I think salmon.

Sonya: Part of our continued balanced capital allocation, where we're going to continue to focus on deleveraging. We had always said that the three times. So it's really just a waypoint.

Speaker Change #141: Sales. So it resulted in a strong reversal and an overall reduction in non cash working cap on the balance sheet. So our focus is continuing for the year and expect the historical trends should continue both on our seasonality a H one H two that trend continues although.

Sonya: On the way to a lower leverage so that's a continued focus we don't have we haven't necessarily set a target it's gonna be a balanced but something in line with our investment grade. So I'd say you know.

Speaker Change #142: More abated.

Speaker Change #143: And for the year, you know training is still the bulk of our business.

Two to two and a half times is a usual for an investment grade.

Speaker Change #143: And that's generally billed after execution, so and as it grows it is slightly noncash working cap.

Sonya: It gives us flexibility and it gives us flexibility to bring back current returns and support our organic investments in Capex a lot of longer term, that's what I'd be targeting but ultimately over the next year, it's really continuing on the deleveraging profile.

Speaker Change #144: But we continue to focus on the metrics on the efficiency of those metrics and overall, we target 100% conversion of net income to free cash flow.

Speaker Change #144: Yeah.

Sonya: While we continue to invest in accretive organic investment.

Okay. That's helpful. Thanks very much.

Speaker Change #144: Okay.

Sonya: And bringing back some some shareholder returns.

Speaker Change #144: The next question is from Tim James from TD Securities. Please go ahead.

Speaker Change: Okay, and I don't know the working capital I mean, a pretty big.

Speaker Change #145: Thanks very much.

Speaker Change: It's a cash tailwind in fiscal 'twenty for the fall.

Tim James: Just one question here.

Hold a significant investment in fiscal 'twenty three I'm just wondering if you could maybe talk about what your expectation is for fiscal 'twenty five as far as the working capital investment to and and maybe.

Speaker Change #147: So when you you mentioned that expansion of the training network will be in lock step with with customer demand and then you mentioned you look to sign long term contracts for recurring revenue at customers is it possible to outline.

Speaker Change: Talk about how it sort of changes through the year, but quarter to quarter.

Speaker Change #148: Hurdle rates that accompany that approach.

Speaker Change: Sure I'm I'm really pleased with the purpose on the noncash you can calculate a year. So it's really the result of continued focus on efficiency of our key metrics, whether it's DSO inventory management deposits and AR and Unbilled.

Speaker Change #148: And what I'm trying to get out is just that.

Speaker Change #149: A sense or a comfort level for <unk>.

Speaker Change #149: One outcome where customers.

Speaker Change #150: Maybe their own demand change from what they contract with C and how do you manage that and how are you insured against changes in their own activity levels that they want to put through.

Speaker Change: Sales. So it resulted in a strong reversal and an overall reduction in non cash working cap on the balance sheet. So our focus is continuing for the year and expect the historical trends should continue both on our seasonality a H one H two that trend continues although.

Speaker Change #150: Our specific full flight simulator in the future.

Speaker Change #150: I'll hand, it off to Nick to give a bit of color, but you know the hurdle rates are high and the capital.

Speaker Change: More abated.

Nick: Investments are ultimately as I said, we never did.

Speaker Change: And for the year, you know training is still the bulk of our business.

Nick: Speculative and so these are all backed by at least one if not several customer contract.

Speaker Change: And that's generally billed after execution, so and as it grows it is slightly noncash working cap.

Nick: And ultimately the proof is in our is that our results straight to driving 20% plus margins on the civil network and the ramp up of these incremental return on capitals of 20% to 30% within two to three years. So you can see not only what we expect for what we deliver on the Capex and on the on the on the outsourcing profile liquor.

Speaker Change: But we continue to focus on the metrics on the efficiency of those metrics and overall, we target 100% conversion of net income to free cash.

Speaker Change: Okay.

Okay. That's helpful. Thanks very much.

Okay.

Speaker Change: The next question is from Tim James from TD Securities. Please go ahead.

Speaker Change #151: I was just going to say a lot of our contracts.

Tim James: Thanks very much.

Speaker Change #151: In particular, our good clients.

Tim James: Just one question here.

Speaker Change #152: People like lead time I mean, these are secured capacity. So the so the exchange. There is okay. You secure me X number of simulators that capacity because I need that just to be able to keep all the pilots.

Tim James: So when you you mentioned that expansion of the training network will be in lock step with that with customer demand and then you mentioned.

Speaker Change: Look to sign long term contracts for recurring revenue with customers is it possible to outline.

Speaker Change #152: Current in their in their and their aircraft or training on another aircraft or whatever and then in exchange for that I will pay you a certain amount of money to keep that capacity now of course, you know like to cover is a good example, right. We had COVID-19 customers came back and said Hey, we need some relief whatever okay.

Speaker Change: Hurdle rates that accompany that approach.

Speaker Change: And what I'm trying to get out is just that.

Speaker Change: A sense or a comfort level for <unk>.

Speaker Change: One outcome where customers.

Speaker Change: Maybe their own demand change from what they contract with C and how do you manage that and how are you insured against changes in their own activity levels that they want to put through.

Speaker Change #152: But contractually we have the.

Speaker Change #152: Have the.

Speaker Change #153: The the hammer hate to use that word, but we have the hammer and then the question becomes okay. Yes, if an airline wants to change the capacity now you got to remember these are a lot of waste or like I don't want to use the word mathematical but you have so many pilots we need so many hours of training youre going to have so much churn youre going to have so much which I mean, it's not.

Speaker Change: Our specific full flight simulator in the future.

Speaker Change: I'll hand, it off to Nick to give a bit of color, but you know the hurdle rates are high and the capital investments.

Speaker Change: Investments are ultimately as I said, we never.

Speaker Change: Very speculative and so these are all backed by at least one if not several customer contract.

Speaker Change #153: The airlines can be a very good at predicting.

Speaker Change #154: There their demand so we contract on that basis. So there you're fluctuations tend to be a little bit less pronounced, especially on the commercial side.

Speaker Change: Ultimately the proof is in our is that our result states are driving 20% plus margins on the civil network and the ramp up of these incremental return on capitals of 20 to 30 per cent within two to three years. So you can see not only what we expect for what we deliver on the Capex and on the on the on the outsourcing profile Nick Huh.

Okay. That's helpful. Thank you just wondering if I could just return. So you mentioned the 20% 30% return on capital target within correct me, if I'm wrong, but you said two to three years can you just remind us on the is that return on capital calculation mimic what you I think publishes a consolidated target is that how we.

Speaker Change: I was just going to say a lot of our contracts.

Speaker Change: In particular, our good clients.

Speaker Change: People like lead time I mean, these are secured capacity. So the so the exchange. There is okay. You secure me X number of simulators that capacity because I need that just be able to keep all the pilots.

Speaker Change #155: You should think about that kind of a numerator and the denominator in that in that metric when we're thinking about an individual.

Speaker Change #156: All are invested in a full flight simulator.

Speaker Change #157: So that's that incorporates all of that calculation. So ultimately we look at it simulator by stimulator and this is the aggregate of all of the simulators, we've deployed and ultimately attract the contribution of that familiar over over its capital cost and so you know what they were.

Speaker Change:

Speaker Change: You know current in their in their in their aircraft or training or another it cuts or whatever and then in exchange for that I will pay you a certain amount of money to keep that capacity now of course like to cover is a good example, right where COVID-19 customers came back and said Hey, we need some relief whatever okay.

Speaker Change #157: The incremental accretive benefit of that growth in that.

Speaker Change: But contractually we have the we have the.

Speaker Change #158: Super Thank you.

Speaker Change: The the hammer hate to use that word, but we have the hammer and then the question becomes okay. If an airline wants to change the capacity now you've got to remember these are a lot of waste or like I don't want to use the word mathematical but you have so many pilots we need so many hours of training youre going to have so much churn youre going to have so much I mean, it's not.

Jordan <unk>: The next question is from Jordan <unk> from Bank of America. Please go ahead.

Speaker Change #160: Hey, good morning could you just give us some color on what you're seeing for utilization rates going into the summer.

Speaker Change #161: There's good activity at the Vegas facility.

Speaker Change #162: Did you say the Vegas right.

Speaker Change: The airlines can be a very good at predicting.

Speaker Change #162: Yeah.

Speaker Change #163: Yeah, well, maybe I'll turn it over to you.

Speaker Change: Their demand so we contract on that basis. So then youre fluctuations tend to be a little bit less pronounced, especially on the commercial side.

Speaker Change #164: Well the biggest facility as is.

Speaker Change #165: You know is ramping up this year, we'll have.

Speaker Change #165: We will have.

Speaker Change #166: Pretty close to a steady.

Speaker Change: Okay. That's helpful. Thank you just wondering if I could just return so you mentioned the 20% to 30% return on capital target within correct me, if I'm wrong, but you said two to three years can you just remind us on the <unk>.

Steady state year, we've been working on the screen. So it has been open now for a couple of years.

Speaker Change #167: Just had a review with the team and.

Speaker Change #168: They've got a they've got a good plan to bring it up to what we would call a steady state.

Is that return on capital calculation mimic what you think publishes a consolidated target is that how we should think about the kind of the numerator and the denominator in that in that metric when we're thinking about an individual.

Speaker Change #168: Uh huh.

Speaker Change #169: And more generally of course, Q2 will always be a little bit quieter, especially in places like Europe, because we have some big customers like easy jet or basically forbidding anybody to train.

Speaker Change: <unk> invested in a full flight simulator.

Speaker Change #169: I just want everybody flying for the summer season.

Speaker Change: So that's that incorporates all of that calculation. So ultimately we look at it stimulated by stimulator and this is the aggregate of all of the simulators, we've deployed and ultimately attract the contribution of that familiar over over its capital cost and so you know what they.

Speaker Change #170: So we will see some slow down there in the U S. Maybe less because theres still a lot of hiring going on so that's not as.

Speaker Change #169: That's not as.

Speaker Change #169: Affected by by seasonality, but in Europe, definitely we see a lot of seasonality.

Speaker Change: We're measuring the incremental accretive benefit of that growth in that.

Speaker Change #171: Got it thank you.

Speaker Change #171: Okay.

Speaker Change #172: As a reminder, any analyst who wishes to ask a question May Press Star then one.

Speaker Change: Thank you.

Speaker Change: The next question is from Jordan <unk> from Bank of America. Please go ahead.

Noah <unk>: The next question is from Noah <unk> from Goldman Sachs. Please go ahead.

Hey, good morning could you just give us some color on what you're seeing for utilization rates going into the summer.

Speaker Change #174: Hi, good morning.

Speaker Change #174: Good morning.

Speaker Change #174:

Speaker Change: There's good activity at the Vegas facility.

Noah <unk>: The use of the term rebase lining I'm trying to better understand.

Speaker Change #100: Did you say the Vegas is one.

Speaker Change #101: I feel.

Speaker Change #175: How much you.

Speaker Change #103: [laughter], yeah, well, maybe I'll turn it over to him.

Speaker Change #176: I've actually reset schedule scope.

Speaker Change #102: Well the biggest facility is.

Speaker Change #176: If you've had any price reset in these legacy contracts.

Speaker Change #104: <unk> is ramping up this year, we will have.

We will have.

Speaker Change #177: Versus you know the charges just to reflect the <unk>.

Speaker Change #104: Pretty close to it.

Speaker Change #104: Steady state year, we've been working on.

Speaker Change #177: Mark to market of the reality of their current <unk>.

Speaker Change #104: The <unk> Center has been open now for a couple of years in fact, I just did a review with the team and and they've got they've got a good plan to bring it up to what we would call a steady state.

Speaker Change #178: But what was it in country.

Speaker Change #178: It's really back as I was mentioning no what each one of these contracts.

Speaker Change #179: There have been substantial.

Speaker Change #104: And in more generally of course, Q2 will always be a little bit quieter, especially in places like Europe, because we have some big customers like easy jet or <unk>.

Speaker Change #180: An extensive renegotiated on every part of those contracts.

Speaker Change #181: And that's really to define the remaining work that we have to do on those contracts. The time, it's going to take us and they're very specific cost is going to take us I would tell you on still on top of that as you would expect on every one of those contracts on top of it or was that house. Please put to you.

Speaker Change #104: Basically forbidding anybody to train.

Speaker Change #104: Just want everybody flying for for the summer season.

Speaker Change #104: So we will see some slow down there in the U S. Maybe less because theres still a lot of hiring going on so that's not as.

Speaker Change #104: That's not as.

Speaker Change #104: Affected by by seasonality, but in Europe, definitely we see a lot of seasonality.

Speaker Change #181: Usual.

Speaker Change #181: Contingencies that are associated with any remaining what I would call normal risk on the old program. Because you can never fully eliminate risk there's always some risk, but we have contingencies against them.

Speaker Change #105: Got it thank you.

Speaker Change #105: Okay.

Speaker Change #106: As a reminder, any analyst who wishes to ask a question May Press Star then one.

Speaker Change #181: And we have on top of that management reserve on top of those individual program and through our whole defense Skok law as a whole so if anything when I look at those contracts.

Speaker Change #107: The next question is from Noah <unk> from Goldman Sachs. Please go ahead.

Noah Poponak: Hi, good morning.

Speaker Change #108: Good morning.

Speaker Change #108:

Speaker Change #182: I would I would feel good that we should be in a position that we're in.

Speaker Change #108: The.

Speaker Change #110: Use of the term re baseline and I'm.

Speaker Change #182: We're in a situation that we haven't been in quite a while you're sort of on those programs, where basically we don't have to use.

I'm trying to better understand.

Speaker Change #110: How much you.

Speaker Change #110: I've actually reset schedule scope.

Speaker Change #182: Eddie.

Part all those contingencies, we want to outperform models program very clearly.

Speaker Change #110: If you've had any price reset in these legacy contracts.

Speaker Change #110: Versus you know the charges just to reflect the <unk>.

Speaker Change #183: Really what we mean by Rebase funding here. It is put this overhang behind us we're not going to we still have to execute on those contracts were not walk away walking away from anything here, we're still largely going to be executing on those contracts to bring them to a close over the next six to eight quarters and a couple of them probably will go into the next year.

Speaker Change #110: Mark to market of the reality of their current <unk>.

Speaker Change #111: So those are the country.

Speaker Change #111: It's really bad.

Speaker Change #111: I was mentioning no what each one of these contracts.

Speaker Change #111: There have been substantial and extensive renegotiated on every part of those contracts.

Speaker Change #183: Because of the timeline, but again you always predicted what the cost is going to be on those programs. So.

Speaker Change #111: And that's really to define the remaining work that we have to do on those contracts. The time, it's going to take us and they're very specific cost is going to take us I would tell you on still on top of that as you would expect on every one of those contracts on top of those that we've put to you.

Speaker Change #184: Good very good about the execution of the business.

Speaker Change #184: On those bookings.

Speaker Change #184: Okay.

Speaker Change #185: Have you actually been given higher prices by your customer on some of them or is it sort of the same price and just <unk>.

Speaker Change #111: Useful.

Speaker Change #185: Resetting.

Speaker Change #111: Contingencies that are associated with any remaining what I would call normal risk on those programs because you can never fully eliminate risk there's always some risk, but we have contingencies against them and we have on top of that management reserve.

Speaker Change #186: All of the other.

Speaker Change #186: Inputs.

Speaker Change #186: Yes.

Speaker Change #187: Uh huh.

Speaker Change #187: I was mentioning that some of those contracts that we've actually been successful in getting follow on work, what it might be or what I mean by that.

Speaker Change #187: E C diesel engineering change proposals on a couple of them and one in particular in Europe, we actually got a follow on contract, which is definitely a better pricing in trucks.

Speaker Change #111: Half of those individual program and through our whole defense backlog as a whole so if anything when I look at those contracts.

Speaker Change #111: I would I would feel good that we should be in a position that we're in.

Speaker Change #187: Okay.

Speaker Change #188: And how many of the eight are unprofitable.

Speaker Change #111: We're in a situation that we haven't been in quite a while you're sort of on those programs, where basically we don't have to use.

Speaker Change #188: There I mean going forward all of them are being well not all of that they most of them are instituted zero margin because we're setting in there because we've taken the.

Speaker Change #111: Eddie.

Part all those contingencies. So we want to outperform models program very clearly that's really what we mean by re baseline and here. It is put this overhang behind us.

Speaker Change #188: The charges on the there was about.

Speaker Change #189: There are three of them that are operating at a very slight profit going forward. So that's the situation.

Speaker Change #111: We still have to execute on those contracts were not walk away walking away from anything here we are.

Speaker Change #188: Yes.

Speaker Change #188: Okay.

Speaker Change #111: Still largely going to be executing on those contracts to bring them to a close over the next six to eight quarters.

Speaker Change #190: Thank you.

Speaker Change #190: Welcome.

Speaker Change #191: Operator, I see we've used the full hour and then some so I think we'll close the call here I want to thank participants for joining us. This morning, and remind you that a transcript will be available shortly.

Speaker Change #111: Couple of them probably will go into the next year, just because of the timeline, but again, we've predicted what the cost is going to be on those programs. So.

Speaker Change #111: Good very good about the execution of the visibility.

Speaker Change #191: The call on <unk> website.

Speaker Change #111: On those programs.

Speaker Change #192: Thank you and have a good day.

Speaker Change #111: Okay.

Speaker Change #192: That's good.

Speaker Change #112: Have you actually been given higher prices by your customer on some of them or is it sort of at the same price and just <unk>.

Speaker Change #111: <unk>.

Speaker Change #111: All of the other.

Speaker Change #111: Inputs.

Speaker Change #111: Okay.

Speaker Change #113: Uh huh.

Speaker Change #114: I was mentioning that some of those contracts that we've actually been successful in getting follow on work, what it might be or what I mean by that.

Speaker Change #114: E C diesel engineering change proposals on a couple of them and on one in particular in Europe, We actually got a follow on contract, which is definitely a better pricing in trucks.

Speaker Change #114: Okay.

Speaker Change #115: And how many of the eight are unprofitable.

Speaker Change #116: There I mean going forward all of them are being well not all of that they most of them are instituted zero margin because we're setting in there because we've taken the.

Speaker Change #116: The charges on the there was about.

Speaker Change #117: There's three of them that are <unk>.

Speaker Change #117: Operating at a very slight profit going forward. So that's the situation.

Speaker Change #117: Yeah.

Speaker Change #117: Okay.

Speaker Change #118: Thank you.

Speaker Change #118: Welcome.

Speaker Change #119: Operator, I see we've used the full hour and then some so I think we'll close the call here I want to thank participants for joining us. This morning, and remind you that a transcript will be available shortly.

Speaker Change #119: The call on <unk> website. Thank.

Thank you and have a good day.

Speaker Change #120: That's good.