Q2 2025 CAE Inc Earnings Call
Editing, Sound Production, Animation, VFX and Art chief Productions
Thanks to our extraordinary people at CAE.
We can proudly say that over the last couple of decades.
We absolutely reshape aerospace industry.
Creating something that's truly unique.
He cranes more pilots than anyone else in the world by far.
And by leveraging technology we.
<unk> prepared countless people for.
The moments that matter and fulfill our mission to make the world safer.
This is the right time for a transition process.
And as our financial performance shows.
Which we'll get to in just a moment, we're in a solid financial position our markets are on a long term growth trajectory.
And our competitive position in each of those markets is strong our innovative technology outstanding people now set the standard for safety and training worldwide.
And I'm confident that she has a very bright future ahead.
Now turning to the business at hand in the second quarter.
Our performance in the second quarter.
Strong demand for civil and defense market solutions and despite some of the challenges we faced in commercial aviation.
Aircraft supply disruptions, we've achieved solid results.
Additionally, we extended our positive trend in defense this quarter with growth in margin enhancements that are largely attributable attributable to our dedication to focus customer centricity and operational excellence across all of Cae's p&l's.
Highlighting our graph a stronger positioning in growth markets, we secured nearly $3 billion in total orders this quarter, bringing our adjusted backlog to a record $18 billion, which is up over 50% compared to just over a year ago.
In civil we delivered 18 full flight simulators to customers during the quarter and our average training center utilization was 70%.
A decrease of one percentage point compared to the previous year.
This quarter, we experienced year over year broken business Aviation training commercial training in Asia Pacific and simulator products.
However, mainly due to OEM aircraft supply disruptions U S pilot hiring remained low during the quarter impacting the incremental pilot training demand, we would have expected under more normal conditions.
Overall commercial aviation training utilization was approximately three percentage points lower than last year on average which is still very good.
It would have been even stronger if not for the temporary pressures on initial training pilot churn in the Americas.
We continued to deliver strong order flow in the quarter in a large secular growth market, which seems highly differentiated training and flight operations software solutions.
We booked.
$693 million in orders with civil customers worldwide for a 1.08 book to sales ratio on revenue, that's 12% higher than Q2 of last year.
We ended the quarter with a record $6 $7 billion total civil adjusted backlog.
Which is up 13% year over year.
We received orders for 16 full flight simulators in the quarters, including four based on the Comex C 919 airliner, and we signed long term training services.
Hi, good operation solution contracts with commercial and business jet operators worldwide.
In Defence performance continued to track our expectations driven by strong execution risk retirement.
And you have taken backlog growth and improving backlog quality.
We made excellent progress during the quarter to renewed growth and increased margins, including successfully concluded one of the legacy contracts from the backlog.
Securing a $1 $7 billion transformative award under tender future aircrew training program.
For the quarter, we recorded orders worth $2 $3 billion.
Resulting in a $4 six times book to sales ratio.
Leading to a record $11 $4 billion and defense adjusted backlog.
This is up approximately 94% year over year.
Over the past 12 months the defence book to sales ratio was two point all four times.
With that I'll now turn the call over to Dino who will provide you additional details about our financial performance.
Dino: Thank you Mark and good morning, everyone.
Dino: Consolidated revenue.
Dino: $4 billion, 8% higher.
Dino: Quarter last year, while adjusted segmented operating income was 149.0 million comparing to $135 6 million in the second quarter last year.
Dino: Our quarterly adjusted EPS was <unk> 24 cents that compares to 26 cents in the second quarter last year.
Dino: We incurred restructuring integration and acquisition costs of $30 9 million during the quarter.
Dino: This is comprised of $5 1 million for the now completed integration of their center.
Dino: $25 8 million in connection with the restructuring program to streamline <unk> operating model and portfolio optimize our cost structure and create efficiencies.
Dino: Restructuring program was also completed in the second quarter no further restructuring expenses are expected.
Dino: The conclusion of these programs is beneficial to the company's free cash flow profile going forward also.
Dino: No.
Dino: We continue to expect to fully achieve annual run rate cost savings of approximately $20 million by the end of next fiscal year.
Dino: Net finance expense this quarter amounted to $52 9 million, which is up from $49 5 million in the preceding quarter and $47 1 million in the second quarter last year.
This was mainly as a result of higher finance expense on lease liabilities and supportive training network expenses.
Dino: Partially offset by lower finance expense on long term debt.
Dino: Due to a decreased level of borrowings during the period.
Dino: Income tax expense this quarter was $10 4 million for an effective tax rate was 16%.
Dino: The adjusted effective income tax rate was 18%.
Which is the basis for the adjusted EPS calculation.
Dino: Net cash from operating activities this quarter was $162 $1 million compared to $180 2 million in the second quarter fiscal Q4.
Dino: Oil.
Free cash flow was $140 million compared to $147 4 million in the second quarter last year.
Dino: The decrease was mainly due to a lower contribution of noncash working capital.
Dino: As in previous years.
Dino: We usually expect that portion of our noncash working capital in the first half.
Dino: To reverse in the second half.
We also continue to target an average 100% conversion of adjusted net income to free cash flow for the year.
Dino: Capital expenditures totaled 57 zero million dollars this quarter with approximately 65% invested in growth, mainly due mainly to add capacity to our global training network to deliver on the long term training contracts in our backlog.
Dino: We are now expecting total capex for fiscal 2025 to be slightly below our previous.
Dino: I mean, it's range, which as indicated that 50 to 100 million higher and 30 million, we invested in fiscal 'twenty four.
Dino: This change reflects the agility of our investment process and our ability to move in lock step with the market.
Our net debt position at the end of the quarter was approximately $3 $1 billion for a net debt to adjusted EBITDA of three.
Dino: Three to five times a quarter.
Dino: For the impact of our legacy contracts.
Dino: Debt to adjusted EBITDA was two seven times.
Dino: Our increased investments in suit does not change our leverage expectations. We continue to expect we continue to expect to be below three times net debt to adjusted EBITDA by the end of the fiscal year and our deleveraging focus remains the same.
Dino: During the quarter <unk> repurchased and canceled a total of 392730 common shares under its normal course issuer bid in CIB, which began on may 30th 'twenty 'twenty, four and weighted average price $24.43 per common share for a total.
Consideration of $9 $6 million.
Dino: Now turning to our segmented performance.
Dino: Civil second quarter revenue grew 12% year over year to $647 million, while adjusted segment operating income rose one.
Dino: Well at $115 9 million.
Dino: <unk> and an 18, 1% March.
Dino: With 18 full flight simulators delivered this quarter, we saw a notable shift in revenue mix with a higher proportion from products compared to last year, when we delivered 11.
Dino: Defense revenue rose, 4% to $495 $9 million while.
Dino: While adjusted segment operating income rose, 55% to $33 $1 million delivering a six 7% margin right on target thanks to strong execution from the team.
Legacy contracts remain on track, which cost and schedules well managed.
Dino: As planned we concluded one legacy contract this quarter and on track to finalize another one next quarter with yet another following in the quarter after.
Dino: This quarter legacy contracts contributed around 30 basis points margin dilution.
Dino: This impact the adjusted segment operating income margin for defense would have been 7%.
Speaker Change: With that I will ask Marc to discuss the way forward.
Speaker Change: Thanks Dino.
We're seeing overall, a key factor driving long term demand in both our civil and defense fitness is the high level of demand pilots pilot training demand in schools.
Speaker Change: Replace those that are retiring.
Speaker Change: The outlook for aviation training solution civil is as strong as ever driven by growth in air travel the need for more pilots and your requirement for continuous training to keep up with evolving aviation technologies as well as great release.
Speaker Change: Our business is largely supported by the regulator train pilots and crews me maintain certification.
Speaker Change: Commercial business aircraft.
Speaker Change: And this will only compound as the in service commercial jet fleet roughly doubles within the next two decades.
Speaker Change: Factors.
Speaker Change: Like the agent pilot workforce mandatory retirements and sustained growth for air travel solidify our long term confidence in she's feature.
Speaker Change: [noise] Oems aircraft supply destruction testify with recent labor disputes, but with now with that now positively resolved, we believe that the airline industry and that will begin to gradually recover from these narrow body supply challenges.
Speaker Change: With some relief expected in the coming periods as grounded aircraft return to service and new aircraft delivery rates eventually rise.
Speaker Change: Underscoring the temporary nature of the supply.
Speaker Change: Okay.
Speaker Change: Airbus have a combined order backlog.
Speaker Change: <unk> thousand aircrafts amounting to about a decade's worth of deliveries.
Speaker Change: With regards to business aviation specifically.
Speaker Change: I'm thrilled about the agreement announced lastly to purchase a majority stake in our Syncom prevention.
Speaker Change: This strategic organic investment strengthens our position in the core business aviation training market boost.
Speaker Change: Both recurring revenue and deepens, our commitment to delivering top tier training solutions or vital customer segment.
Speaker Change: Under this agreement both CE and Cingal has also extended our exclusive business aviation training partnerships with flagship and.
Speaker Change: And its affiliates by an additional five years.
Speaker Change: During the year.
Speaker Change: This long term agreement functions like an outsourcing agreement with one of the world's premier luxury companies.
Speaker Change: Companies, giving see increased exposure to the rapidly growing fractional jet and charter aviation markets.
Speaker Change: We anticipate that this investment will be accretive to both earnings and free cash flow in our first full year going forward.
Speaker Change: Regarding our civil outlook.
Speaker Change: <unk> instructions and aircraft supply have a E impacted an incremental portion of the band and we normally see in our commercial aviation training Division.
Speaker Change: Consequently, we implemented measures to enhance operational efficiency and mitigate the decrease in training to that.
Speaker Change: Despite persistently low pilot hiring levels in the United States.
Speaker Change: <unk> bookings for third and fourth quarters are higher.
Speaker Change: Reinforcing our expectation for a stronger performance in the latter half of the fiscal year.
Speaker Change: Additional factors that underlie our expectations for a stronger second half includes the seasonal improvements in commercial and business aviation.
Speaker Change: Accretion for our increased investment in <unk> com.
Speaker Change: And an uptick in volume and profitability from full flight simulator deliveries.
Speaker Change: On balance.
Speaker Change: We're maintaining our target of approximately 10% annual growth in civil adjusted segment operating income for fiscal 2025, and we continue to extend and annual civil adjusted segment operating income margin between to be between 22 and 23%.
Speaker Change: With ample room to grow beyond that.
Speaker Change: Volume efficiencies and mix.
Speaker Change: And defense well.
<unk> position in a growth market.
Speaker Change: As the sector moves into a prolonged upcycle with increased budgets across NATO.
Speaker Change: And Allied nations rising geopolitical tensions are driving a focus on near peer threats defense modernization and readiness.
Speaker Change: Fueling demand for the training and simulation solutions that we offer.
Speaker Change: Our expertise spanning civil aviation and defense uniquely equips us to meet these needs.
Speaker Change: Demand for our training solutions remained strong driven by a global shortage of uniformed personnel.
Speaker Change: Prompting militaries partner would see to support readiness.
Speaker Change: By leveraging our position on programs like the Canadians back.
Speaker Change: We aim to advance multi the main training.
Speaker Change: Sure synthetic environments across our global network.
Foundation is solidly set for renewed growth and margin expansion.
Speaker Change: Defense business in the coming periods.
Speaker Change: We strengthened our processes sharpened our strategy and enhanced our talent to improve efficiency and execution means.
Speaker Change: Meanwhile, we've achieved transformative growth and our backlog of high quality programs.
Speaker Change: Our fiscal 2025 defense outlook reflects the businesses re baseline reached base lining.
And improved visibility that it provides.
Speaker Change: We anticipate annual revenue grow in the low to mid single digits and expect defense adjusted segment operating income margin to increase to 6% to 7% range with performance like civil weighted more towards the second half of the year.
Speaker Change: With that I.
Speaker Change: You for your attention and we're now ready to answer your question.
Marc: Thank you Marc operator, we'd now like to open the line to members of the family.
Yeah.
Speaker Change: Certainly to join the question queue. You May Press Star then one on your telephone keypad, you'll hear a tone acknowledging your request.
If youre using a speakerphone please pick up your handset before pressing any key.
Speaker Change: To withdraw your question Press Star then two.
Speaker Change: My first question is from Kevin Chiang with CIBC. Please go ahead.
Kevin Chiang: Thanks, Thanks for taking my question and congrats.
Kevin Chiang: Congrats Mark on your on your pending retirement here.
Kevin Chiang: Hum.
Kevin Chiang: Maybe just on defense.
Kevin Chiang: Defense you called out 7%.
Kevin Chiang: 7%, that's what why margins, excluding the legacy cars.
Kevin Chiang: Contracts.
Kevin Chiang: With a target of eventual ability to to double digit ROE over time just how.
Speaker Change: How do you think about bridging that gap.
Speaker Change: Was that 10% of the backlog today or or does this require.
Speaker Change: <unk> restructured and how youre bidding.
Speaker Change: And what Youre, what youre, winning order to ultimately get to that double digit EBIT margin.
Speaker Change: Well I think the factors that's going to drive the growth of the same ones that we've talked before it's really and thanks for your comment Kevin by the way about me I appreciate it it really comes back to.
Speaker Change: The retirement of the legacy contract risk and we're right on track on that one and really replacing contracts in our backlog that are at that we'd want over the over the last few years and that are are lesser margin.
Speaker Change: Then the 10% or so there'll be targets and replacing them with contracts at Hyatt, though a higher margin and that's really what's happening here and I think you can see with the growth in the backlog that we're having a light.
Speaker Change: With success on.
Speaker Change: On that front.
Speaker Change: Nor are they want to add anything so there are no thinks of the market.
Speaker Change: So absolutely I think what Mark said is conceptually bearing on there.
Speaker Change: We it was really based on continuing strong execution racing team as planned and some shrink road.
Speaker Change: It was more transformative backlog as an example, it's $170 million contract awarded in Q2.
Defence pipeline is still strong at $72 million for you know well see a gradual increase over well over time in the next the second half here Q2, probably be very similar to Oh, sorry, Q3, probably similar to Q2.
Speaker Change: With some improvement and then Uh huh.
Speaker Change: Your improvements on the fourth quarter.
Speaker Change: Okay. That's that's helpful.
And then just my second one here we're holding.
Speaker Change: Although the margin guide for civil I'm sure some call them helps here in the back half of your fiscal year, but you also have operator are you still there.
Speaker Change: Can you hear me.
Speaker Change: Yes, the operators here and I can hear Mr. Chang.
Okay.
Speaker Change: This question the.
Speaker Change: Next question.
Speaker Change: Oh sure.
Speaker Change: Only one Paula take much Jay.
Speaker Change: The next question is from Sheila <unk> with Jefferies. Please go ahead.
Speaker Change: Oh, Thank you very much and congratulations mark on what an accomplishment.
Speaker Change: So hmm I'm gonna stay on the last question so maybe.
Speaker Change: If we could talk about the several inflection that's under right until the second half how do we think about that what's driving some of that you know some com flight operations, our software profitability and cost out.
Speaker Change: You could comment on some of the drivers into the second half.
Speaker Change: And then my follow up would be on it for principal payoff grabbing how that has that shifted over that last three months.
Oh, Thanks, Sheila and again, thanks for your comments as well.
Speaker Change: Well when we when we look at things like let's think about all the factors there.
Speaker Change: Hey, guys here.
I think in commercial aviation training, whether you highlighted the issues that are affecting us is still affecting us the lower deliveries out of Blaine exacerbated by the strike of course, that's resolved now are the impacts from the all the grounded aircraft.
Speaker Change: At Airbus aircraft because of the G T F and that's that's come off the peak.
Speaker Change: Itself.
Speaker Change: Ruling off.
Speaker Change: This last summer.
Speaker Change: He was very hot pilot hiring trend in United States. So so look I mean, as we look at the period ahead, and what underlies our forecast is that.
Speaker Change: As I mentioned the impact from Europe house of impact of the GTA upon airplane Airbus Groundings is improving people eog's are behind us.
Speaker Change: We see.
Some modest I'd say modest, but definitely uptake towards more normal pilot pilot hiring by U S Airlines.
Speaker Change: We do expect an improvement at some point borne deliveries, although I would say like anybody else that remains probably the biggest question Mark something that we're watching.
Speaker Change: So what we see taking all of that into account specifically for airlines.
Speaker Change: We see improvements in the bookings.
Speaker Change: In Q3, Q4, so there's clearly some pluses and minuses in the outlook.
And we've taken.
Speaker Change: Taking control of our own destiny with that.
Speaker Change: And in basically managing our costs and of course.
Speaker Change: The strong position that we havent business there are business hevia straining the contribution of Sim com with that.
Speaker Change: The fact that coming back the airlines as well I think we tend to look at the U S. A lot, but I can tell you activity in the Asia Pacific is very strong. So I think all of that is what's contributing to our optimism or maybe just.
Speaker Change: What we'd like to add to that.
Yes, I mean, I mean, I guess from.
Speaker Change: From a utilization, we expect training the training business, meaning commercial and business we are doing.
Speaker Change: <unk> will be much higher in the second half and historically Q4 is our biggest.
Speaker Change: The biggest quarter in and it looks like it's going to be the same this quarter.
Speaker Change: We are going to get contribution from some com that we didn't.
Speaker Change: That comes with the acquisition and we're also going to see better contribution by quite services. So you put all that together and these are you know kind of a higher margin component you put all those together it gives us the confidence that we know what whatever outlook, we've given you.
Speaker Change: 20%, we're going to be able to hold it.
Speaker Change: Yes.
Speaker Change: The next question is from Asahi Shimbun with BMO capital markets. Please go ahead.
Speaker Change: Yes, good morning, and congratulations Mark on your retirement.
Speaker Change:
Speaker Change: The full flight simulator delivery target still in the 50 range this year or has that changed.
Speaker Change: And I wanted to ask also like.
If you can give us some perspective on kind of the supply chain issues in the aviation like.
Speaker Change: If the aircraft deliveries.
From Boeing in particular, but generally Airbus and Boeing kind of struggled too.
Speaker Change: Get off the ground in the next six to 12 months because of the supplier initiatives like.
Speaker Change: Can we.
Speaker Change: Potentially start seeing some of these issues.
You are experiencing in the U S now.
Speaker Change: The other reason is there.
Speaker Change: Potential risk for some the Liberty deferrals I'm just trying to.
Speaker Change: Just kind of understand from your conversation with customers.
Speaker Change: What does this look like or are there kind of starting to get nervous about potentially.
Speaker Change: You know.
Speaker Change: Aircraft deferrals driving.
Speaker Change: Some some deferrals on the F F Liberty side or.
Speaker Change: Just looking over the next kind of two to four quarters. If you can provide some perspective on that that would be great.
Speaker Change: Okay. Thanks again.
Or how much of the.
Speaker Change: The west South and the.
Speaker Change: A pleasure working with you I'm sorry, three years I look forward to the next two to three quarters to do that.
Speaker Change: Just going back to some of your questions.
Speaker Change: Start with the first one yes, we target we still aiming for over 50 deliveries this year that hasn't changed.
Speaker Change: That we don't expect that to change either.
I think the factors you've talked about a little worse, we're obviously not immune.
Speaker Change: As to what May happen in the market clearly in terms of delivery of aircraft, but when I look at.
Speaker Change: The situation I talked about with the groundings are off the peak because you.
Speaker Change: With regard.
Speaker Change: Again, just a strike at Boeing is resolved and I'm sure they're doing their utmost to get paid.
Speaker Change: It gets deliveries restarted safely and then Cabo is a great company that has kind of happened. So and you know we've taken I think youre pretty sanguine view of how that.
Speaker Change: That all would play out and in the meantime, what you see is on our side is managing our cost spend our capex.
Speaker Change: Hey.
Speaker Change: <unk> simple demand with regards to sentiment out there.
Speaker Change: We're a global company so when I looked at the situation in utilization in Asia Pacific very hot.
And that's still with a situation that.
Speaker Change: Specifically, if I look at you know.
Geographies like China, there really hasn't been a recovery in international travel.
Speaker Change: On domestic but not any efforts still.
Speaker Change: Played there, but again I don't want to provide more color on based on what you see Oh, well, yeah. I mean, I think we you know as the opportunities for US are right now or you know, especially in full flight simulators as Mark said the deliveries, we don't see any softness and we don't see like we don't see people backing off from what they've ordered.
Speaker Change: I think in terms of the numbers, we will see by the end of the year, but you know we are we are winning.
Speaker Change: We are winning business from places like Asia right. Now are these days more than we did in the last couple of years, where they were kind of coming out of it. So.
Speaker Change: China, Mark mentioned that we.
Speaker Change: Since the mortgages that are out of China, and I think the.
Speaker Change: Overall, I don't know I mean at least for now you know we don't see any change, though you know the you know the.
Speaker Change: The deliveries that you mentioned I mean, I mean, they're low, but they're not that you know, they're actually not that different to last year. So no. It's on both sides Airbus and Boeing so they are lower for sure.
Speaker Change: But there actually are very similar to what what what was delivered last year. So there are still opportunities for US you know new stimulator to drive capacity needs and that drives you know either the training business or the products business too.
Speaker Change: The demand and so we're capturing it wherever it is geographically.
Speaker Change: Maybe just at a last point the battery market.
Speaker Change: Yes.
Speaker Change: These factors are clearly temporary.
Speaker Change: Yeah, that's what I'm, saying in my remark.
Speaker Change: There is a backlog.
Speaker Change: <unk> thousand airplanes.
Speaker Change: Airbus and Boeing.
Speaker Change: Over the next few years.
Speaker Change: Lot of pilot them, all across the world desktop and compound that with pilot hiring.
Speaker Change: We want it.
Speaker Change: Or is that.
Speaker Change: <unk> has got a problem I'm just look at it just one factor you think about India, we do a lot of business in India, where we're very strong there.
Speaker Change: And you know there's about in terms of just wide body aircraft.
Speaker Change: For a population of what is about $1 3 billion people.
Speaker Change: About 60 wide body aircraft.
Speaker Change: And Singapore alone, there's about I think about 250 think about that.
Speaker Change: Here's the ratios won't be perfect, but that's just tell me how much is remaining at just one country.
Speaker Change: One that doesn't have a lot of the competing infrastructure.
Speaker Change: That basically competes what airlines. So I'm just getting that gives you an idea where all those airplanes are going to go to an end and they've been spoken for they're going to be deliberate. So make no mistake. This is a temporary a temporary situation that we see here, we're quite convinced of that.
Yeah.
Speaker Change: I appreciate it thank you.
Speaker Change: The next question is from James Mcgarrigle with RBC capital markets. Please go ahead.
Speaker Change: Hey, good morning, Congrats on a really good quarter.
Speaker Change: I just had a question on the book to Bill came in above one this quarter, but you know below what we'd been seeing off from your team and you know that the past few quarters and then we thought you know the Capex guide come down right.
Speaker Change: Anything to read into there and anything changed about how you're looking at the longer term growth opportunity interval or just more of a you know the impact from a near term headwind from OEM delays.
Speaker Change: Pilot hiring in the Americas.
Speaker Change: Actually the way, we look at it the civil booked.
Speaker Change: Book to Bill ratio was still comfortably above one the strong growth and of course, you've got to look at it on that.
That growth is on top on top of you know quite a rise in revenue. So that tells you that market is still pretty hot but at least want to comment on that yeah. I don't think there's a 17th to read into it is above one.
Speaker Change: As Mark said revenue revenue was 640 million. So it's a it's a high number compared to last year, which is about $68 million lower so I.
Speaker Change: I think the we get the we get the opportunity to book to Bill above one so you should take that as growth.
Speaker Change: Maybe on the Capex side effectively we have changed the guidance to specify that we expect capex to be.
Speaker Change: 25 to be slightly below the previous guided range of 50 to 100 million more than FY 'twenty. Four 'twenty. Four is number was $230 million, but again. This is an example of our agility in our investment process and you know to move lock step with the market as we don't deploy simulators on speculation.
Speaker Change: Our highest returns we get are from organic investments a track record of delivering 12% to 30% range incremental pre tax ROE cheat on organic growth.
Speaker Change: You know we continue to monitor the market situation, but we never wanted to be ahead of our customers. So discipline is key.
Speaker Change: Okay I appreciate the color and then on the Defense margin Guide you know it applies.
The improvement as you mentioned in Q3, and then into Q4. So can you just provide some more color on what's driving that is there a seasonality in the defense business at all.
Speaker Change: I'm, just trying to get a better understanding of the margin exit rate.
Speaker Change: And whether or not you know that represents a good run rate to use for fiscal 2026 now I'll turn the line over after that thank you.
Speaker Change: Well, it's I mean, we're not going to go ahead and get into.
Speaker Change: Fiscal 'twenty six right at this point, except to say that it's got to be right in line with the guidance that we've previously given that we will definitely reiterating feel very confident about the guidance. We gave in regards to margins and growth.
Speaker Change: For defense.
Speaker Change: Here and there where that's coming from whether that's why maybe it's one well it's coming from both sides.
Speaker Change: So I think we described at the beginning.
Speaker Change: Beginning of the year a cost.
Speaker Change: Cost savings are definitely you know running through the <unk>.
Speaker Change: Turning to the P&L now and obviously, we expect that to continue to some of these cost savings will only be realized by the end of the year. So so it's good so far and and also of course, the execution and orders. So you know there is there is new business like <unk> for example, which is only getting started now and this new business is going to drive.
Speaker Change: Our growth in the well.
Speaker Change: Not just the backlog, but obviously on the P&L. So fast is a big program, it's going out as an example, and we've announced a number of other programs recently in Canada in particular, and we've also announced some programs wins in the U S.
Speaker Change: In terms of you know, it's just it's just better execution I think is the way you should read it and and that comes with cost savings, but also comes with winning good orders. So I would say you know.
Speaker Change: You know obviously, we don't we don't have what's giving you the guidance we have the visibility to get us there.
Speaker Change: You should take into the bank.
Speaker Change: Yeah.
Speaker Change: The next question is from Nokia Me with Canaccord. Please go ahead.
Speaker Change: Hey, good morning, guys. Thanks for taking my questions and I'll Echo the sentiment Mark.
Speaker Change: On the sitcom stake acquisition, you kind of mentioned in the past that consolidating JV partners is an important area of organic investment for you.
Speaker Change: Do you get the opportunity here to stay with partners to make further transactions of that nature in the medium term or is this one a bit more attractive right now just given how all been shattered pardon me.
Speaker Change: Well yeah.
Reiterate what I've said about this transaction and I'm very excited by what we're very excited about getting into a joint venture with <unk>.
Speaker Change: With our partner in that business in the first place but.
Speaker Change: To me you know when you look at things like this acquisitions happen when they happen and this one is kind of.
Speaker Change: Really it acquisitions and organic investments because we're just consolidating the remaining a large part of our remaining.
Speaker Change: Ownership of that of that business. So look if theres more I've always said, if theres more opportunities to consolidate.
Our joint ventures.
Speaker Change: What kinds of transactions like that are most attractive because we know the business, obviously and we're very strong position.
Speaker Change: Thank you.
Speaker Change: On them, because we know them and then they'll obviously there the wheelhouse.
This particular, one is it's a really great example.
Speaker Change: Al.
Speaker Change: Basically.
Speaker Change: Getting a partner that is is a.
Speaker Change: Extremely strong player practice on the charter market.
Speaker Change: He wasn't getting better even in the most profitable.
Speaker Change: Part of our civil business, which is business aircraft.
Speaker Change: Yeah, and then maybe if I can add to that effectively I think this as you know considering.
Normal course capital deployment evaluation there it looks like you do when we consider deployments for network investments in G DS consolidation opportunities for the network.
Speaker Change: So again very excited about the opportunity with some form it is our highest margin subsequent sub segment and it does secure upside with a key customer rates with extension in 15 years exclusivity periods of flex yet so really excited after the first year I think we can expect maybe low single digit.
Accretion and a mid digit EBIT, EBITDA and free cash flow accretion.
Speaker Change: That starts now.
Speaker Change: Okay. That's helpful. And then maybe one on the cost side. The restructuring program seems to expect to take out about $20 million off the cost base and that's great.
Speaker Change: Are there any other low hanging fruit on the opex side, where costs come out of other areas that could perhaps be a little bit more efficient.
Speaker Change: So again, that's our disciplined approach to managing capital and costs basically you are looking at various opportunities one of the examples is managing capex right, where we reduced the guidance this year to be in lock step with the market, we will do that as well with all the other types of Newcrest and saw an opportunity.
Speaker Change: <unk> and research and development and and and and our overall SG&A you see SG&A actually being a little bit lower this quarter compared to last year and in previous quarters and that is again, a reflection of our cost savings kicking in always looking for efficiencies.
Speaker Change: Part of our disciplined approach in how we spend our money.
Speaker Change: Yeah.
Speaker Change: The next question is from Cameron Jackson with National Bank Financial. Please go ahead.
Cameron Jackson: Yeah. Thank you good morning, and let me Echo congratulations to Mark on your retirement.
Cameron Jackson: I guess a question around the new U S. Incoming administration I'm just wondering if you could maybe discuss.
Cameron Jackson: Some of the risks that you might see and potentially even opportunities with the change in government in the U S. I guess one of the things that is top of mind with what investors is around the impact from tariffs and obviously aerospace products has historically been exempt from for most of those tariffs but no.
Speaker Change: We've got a president incoming president talking about a 10% blanket tariff on anything important into the U S. I'm just wondering about how you see that risk for CAE and then do you potentially if there's other risks or opportunities that you see.
Speaker Change: Well you know I'm sure you'll you'll pardon me if I don't speculate on that situation, but obviously, we're going to monitor it we're certainly not forecasting any kind of significant impact for E. I'd.
Speaker Change: Remember, we have a very strong presence in the United States.
Speaker Change: You don't just give you an idea of that of a statistic I talked about in the past.
Speaker Change: If you look at just the pilot training military powertrain, we train all 43000 aircrew in the U S. Military at some point your career all branches Army Air Force Marines Navy, so and 50% of our employees are there, it's our largest market.
Speaker Change: So look we play in.
Speaker Change: Just going back to what I was saying about the military we play a vital role supporting National Securities just from that standpoint.
Speaker Change:
Speaker Change: In terms of.
Speaker Change: The overall markets I think you've seen a reaction to the market I think overall market I think it's good.
Speaker Change: In sub segments like we have like a business aircraft I think it's a positive definitely so look I think we're going to continue monitor the vouchers situation, but I don't really see any changes near or longer term at at the moment of course, we'll keep monitoring the situation.
Speaker Change: Okay, No that's fair enough and just very quickly just on the defense side just wanted to ask if you'd had any I guess incremental success in accelerating the retirement of some of the legacy contracts I know that was something that was our goal to do maybe you get these completed earlier than what's currently scheduled.
Speaker Change: Well look I'm.
Speaker Change: I'm glad you asked the question and I am very happy about the progress that we're making there we retired one where well there's another one that's a big one that we're retiring literally any day now literally everywhere we're on pace.
Speaker Change: We want to be is that maybe slightly ahead of what I had.
Speaker Change: Yeah, I was going to say overall.
Speaker Change: We're on track to where we want to be with these programs.
I think were you know.
Speaker Change: Where we're over the hump in terms of trying to trying to ring fence them too to a scope that are.
Speaker Change: But that this is manageable and we will.
Speaker Change: No.
Speaker Change: If there's any change, we'll let everybody know, but right now even though the guidance we've given on when these programs are going to retire our our are good and and and the budgets that we have to retire them were also good. So I think we're just going to just kind of run through if obviously, if we can retire them early we will.
Speaker Change: But I.
Speaker Change: I mean, that's not the plan at the moment, Yeah I think the.
Speaker Change: Key takeaway there is good progress to retire their legacy contracts as planned as anticipated one this quarter.
Speaker Change: One expected next quarter and one in Q4 are aiming to outperform on that if we kind of retiring more risks, but it's all planned as Chuck.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: The next question is from Tim James with TD Colin. Please go ahead.
Tim James: Thanks, very much and good morning, Mark.
Tim James: Congratulations on the retirement certainly are well deserved.
Tim James:
First question just in terms of growth in the network I see your growth is it would it be correct to assume that it's really focused in the kind of short to medium term on business jet platforms.
Tim James: Just given the.
Tim James: The dynamics in the in the commercial market currently.
Tim James: Yeah.
Speaker Change: Maybe turn over to Nick Yes, no actually it's both I mean, we are we have hum.
Speaker Change: We have a demand to deploy capacity on the commercial side and on the business on the business side as well.
Speaker Change: You know when you take the Capex number that we've given you guidance the number of simulators that we're deploying is roughly the same as what you would've seen last year.
Speaker Change: And and we have customers you know we have customers.
Speaker Change:
Speaker Change: You know that continued to grow and we have new customers and so between the two we're still deploying.
Speaker Change: It seems on the commercial side.
Speaker Change: Okay. Thank you and my follow up question how.
Speaker Change: How is it challenges facing commercial training, just really been creating a volume impact of throughput impact or has there been a pricing impact there is as well in that business.
Speaker Change: No. It's just it's just volume I mean, most of them most of the customers that we have in terms of pricing I mean that these things are set and we and the contract. So it's really just some some lower volume in some places that are that drive suppression.
Speaker Change: Yeah.
Speaker Change: Okay, great. Thank you very much.
Speaker Change: The next question is from Ron Epstein with Bank of America. Please go ahead.
Speaker Change: Hello. Good morning. This is Jordan line is on for Ron. Thanks for taking my question for the back half of the year for the civil margins.
Speaker Change: How much of that should we be expecting to come through from just software self similar to <unk> of last year.
Speaker Change: You have heard the commitment I think was that the question I think in your question is what we've learned what it really taught go into data centers and software sales. So again, you just completed the integration of our software business. That's important on a go forward basis, we won't be expecting any additional costs. There we are still converting you're going through the process to come.
Speaker Change: Hurting.
Speaker Change: Those contracts onto our platform, it's a small percentage going forward.
Speaker Change: In the second half.
Speaker Change: Got it thank you.
Speaker Change: The next question is from Noah <unk> with Goldman Sachs. Please go ahead.
Speaker Change: Hey, good morning, everyone.
I know.
Speaker Change: And Mark I Echo the sentiments of others on the call and thanks for the time that you spent with us over the years.
Thank you.
Can you guys talk about this defense backlog growth, you've had and how we should think about that flowing through.
Your top line I mean, it's it's huge growth in the backlog or the things going in so long duration that.
Speaker Change: You stay in this low to mid single digit organic revenue growth range or.
Could we see.
Speaker Change: Over the medium term a pretty significant acceleration in your growth rate.
Speaker Change: But you would often see with a with a doubling of our backlog.
Speaker Change: Too early too early to provide you though.
Speaker Change: Longer term growth that we'd given that I wouldn't want to change it at this point except to.
Speaker Change: So it really depends a lot on mix and I think your question I think underlying.
Speaker Change: Otherwise that no because if you look at some of the contracts, we have won and I'll invite.
Speaker Change: I had a little bit more detail here, but for example, some of the big backlog growth not not all of it but some of the big backlog growth you see it.
Speaker Change: He is a perfect example from the fact contracted Candida alone so what that is really a.
Speaker Change: Reiterating a bit of what I said before as US winning pilot training for team military for next 25 years, So a lot of that back.
Backlog is us delivering training for the Canadian Air Force, a train or a buyer I think made it not just pause, but electronic warfare officers I kind of think complete outsourcing.
Speaker Change: Of that segment.
Speaker Change: For the next 25 years, and we already do some of that today, but if we saw something that is income replacement, but it's just it's just a part of it and I would say a relatively small part of it because the contract itself is much larger so instead of doing it's just a part of a trend today, we do like the complete power trading and it and the scope of it.
Speaker Change: Expand it so that's the training part, but again to your question over the next you know three to four years on that contract alone we're going to the government's recapitalizing all of its assets, so which means we will be building a lot of simulators at similar trained about he says.
Speaker Change: In our factories and that has a different profitability mix, we're going to be building, a new hangars runways. All kinds of things are bases, which has different mark the logical path.
Speaker Change: Again, I've said a lot here, but too early to provide you a different guidance, it's going to be but it does give us the confidence and the steady growth of this business that I know I've said goodbye to my statement you want to add anything.
Speaker Change: No that's it the way to look at that contract.
Speaker Change: The first five years as a problem.
Speaker Change: Delivery and then the next 20 years of service delivery unless the government does more so I think mark said it well, it's that that's going to ramp up it's going to ramp up the.
Revenue on that contract.
Speaker Change: Over the next few years yeah.
Speaker Change: And I think we've looked at we concentrate a lot on that contract, but you know there I mean, just we don't spell them out in so much detail I'd like just in the in the backlog this quarter we had.
Speaker Change: There's some significant F 16 contracts in Asia Pacific MH 60 helicopter training contract in India, We're starting our Haiti's program for the U S Army will express.
Speaker Change: So look.
Speaker Change: I'm not going to over promise anything in and.
We know better in our defense, Okay, but what Nick said take it at a bank like I'm, saying that.
Speaker Change: Okay and just.
Speaker Change: On the civil margin for the rest of the year is there any finer point, you you'd be willing to or could put on the split between the third and fourth quarter just.
If it <unk> it looks like last year than <unk> would need to.
Speaker Change: Be around 30%.
Speaker Change: Is the split.
Speaker Change: Similar to last year or is it more like 'twenty fiscal 'twenty three went through Q4, you were fairly even.
Speaker Change: Usually our Q4, our strongest second half is always stronger than the first absolutely, but this year Q4 is stronger with more deliveries coming in in the back half.
Speaker Change: And our cost savings.
Speaker Change: Cost savings kicking in as the as the year progresses, we would expect them to 20 million annual savings at the end of next year.
Speaker Change: And trading performance as well, we see the bookings also variability in every quarter.
Speaker Change: But we are we expect Q4 to be stronger a bit higher than 20% in Q3.
Speaker Change: And then the rest in Q4 higher.
Speaker Change: The next question is from Michael Rehaut with Desjardin capital markets. Please go ahead.
Speaker Change: Good morning, and congratulations mark on the pending retirement.
Speaker Change: Just a question on the CEO search the press release states that will be supporting the process. Mark can you can you maybe provide some details on what type of characteristics at your meal experience Youre looking for in a potential candidates and also maybe clarify if this process will be combined with the ongoing CFO search process.
Speaker Change: On a separate basis.
Speaker Change: Well I just thought that was two separate issues at.
Speaker Change: Altogether, so that one we're conserving internal and external candidates as well.
Speaker Change: That's a job here and there.
Speaker Change: Yeah.
Speaker Change: With regards to the ceiling or yes, I am participated with the board that I'm less supportive and.
Speaker Change: My focus within the borders to ensure that we select the right person man or woman, that's kind of just L. A is a great company and the next and the next level and.
Speaker Change: I don't want to get into the characteristics of what kind of person that is the key.
Speaker Change: Cash is what they need and that is castle why possible and we will get the best person and I think it's too early to provide any more guidance relative to that except that the process is well underway and I've been part of.
Speaker Change: Quite a few meetings on that subject.
Mark: I appreciate it mark.
Speaker Change: Thank you operator, I think that's all the time, we have for the call. It landed at just shy of nine a M. I want to thank all participants for joining us. This morning, and remind you that a transcript of the call will shortly be available on Cae's website. Thank you and have a good day.
Speaker Change: This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Okay.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Uh huh.
Speaker Change: Yeah.
Speaker Change: Yeah.
[music].
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yeah.
Yeah.
Hum.
Speaker Change: [music].