Q4 2025 CAE Inc Earnings Call
Okay.
Speaker Change: Good day, ladies and gentlemen, welcome to the CAE fourth quarter and full fiscal year 'twenty 'twenty five conference call as.
As a reminder, all participants are in listen only mode and the conference is being recorded.
Speaker Change: After the presentation there'll be an opportunity for analysts to ask questions.
Speaker Change: And the question queue you May Press Star then one on your telephone keypad.
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Speaker Change: I'd now like to turn the conference over to Mr. Andrew <unk>. Please go ahead Mr. Ananda.
Speaker Change: Good morning, everyone and thank you for joining us before we begin I'd like to remind you that today's remarks, including management's outlook for fiscal 'twenty six and answers to questions contain forward looking statements. These forward looking statements represent our expectations as of today May 14, 2025 and accordingly.
Speaker Change: Are subject to change such statements are based on assumptions that may not materialize are subject to risks and uncertainties actual results may differ materially and listeners are cautioned not to place undue reliance on these forward looking statements a.
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 plus in the U S Securities and Exchange Commission on Edgar.
On the call with me. This morning are knockdown, she's president and Chief Executive Officer, and Constantino Malatesta, our interim Chief Financial Officer.
Speaker Change: Nuclear and Thetis <unk> Chief operating Officer is also on hand for the question period.
Speaker Change: After remarks from Marc and Constantino will open the calls questions from financial analysts.
Speaker Change: Now I'll turn the call over to Mark.
Mark: Thanks, Andrew and good morning, everyone.
Mark: We delivered an exceptional fourth quarter capped a strong year across all of our key financial and operational metrics.
Mark: I'm very pleased with the performance and proud of how the team delivered with disciplined execution and capital management.
We generated $289 million and free cash flow in the quarter.
Mark: A record $814 million for the full year.
Mark: Translating to a very robust cash conversion rate of 211%.
Mark: That level of cash generation enable us to meet our year end leverage target given our stronger financial position and increased flexibility as we look ahead.
Mark: Importantly, we also continue building momentum for long term growth and profitability.
Mark: We secured $1 $3 billion of new orders in the quarter.
Mark: Record and have you adjusted backlog of $21 billion, which is up 65% from last year.
Mark: This achievement is a testament to the confidence of our customers that have in C and the strength of demand across our markets.
Mark: Turning to our segments I'm extremely proud of what we've accomplished and executing our strategy with dedicated focus and operational rigor.
Mark: Oh, the civil side, despite ongoing constraints in global aircraft supply and the temporary drop of U S pilot hiring we delivered another strong quarter demonstrating both the resilience of our business model and the strength of our global franchise.
Civil achieved a record adjusted segment operating margin of 28, 6% in Q4 and 21, 5% for the year.
Mark: Adjusted segment operating income grew 6% year over year.
Mark: A particularly good result, given the factors that had been that had been holding the commercial market back to more normalized operating.
Mark: Our backlog is civil grew an impressive 37% to a record $8 8 billion supported by $3 $7 billion of new orders, including 56 full flight simulators.
Mark: During the quarter civil assigned training and operate support solutions contracts valued at $742 million, including the sale of 14 full flight simulators and long term training and airline operations digital solutions contracts.
In defense.
Mark: We accelerated our path to greater profitability.
Mark: We delivered an adjusted segment operating income margin of nine 2% in the quarter and seven 5% for the year driven by solid program execution and then your doubling of the adjusted defense backlog to $11 $3 billion.
Mark: During the quarter defence booked orders for $596 million, bringing the full year total to a record $4.0 billion.
Mark: It's very clear that we're gaining traction and are well positioned for continued growth in a market with significant long term tailwind.
Mark: With that I'll now turn the call over to Dino who can provide some detail look at our financial performance I'll return at the end of the call to comment on our outlook.
Dino: Thank you Mark and good morning, everyone.
Dino: Looking at our fourth quarter results consolidated basis revenue of $1 $3 billion was up 13%.
Dino: Third quarter last year.
Dino: Segment operating income was $215 8 million compared to $125 $7 million last year.
Dino: Quarterly EPS was <unk> 47 per share compared to Charleston in the fourth quarter last year.
Dino: For the year consolidated revenue was up 10% to $4 $7 billion.
Dino: Segment operating income was up 32% to $732 million.
Dino: Annual adjusted net income was $385 5 million or $1 21 per share, which is up compared to 87 cents last year.
Dino: Net finance expense this quarter amounted to $56 $5 million, which is up from $52 4 million in the fourth quarter of last year.
Dino: I expect run rate quarterly finance expense to be approximately $55 million.
Dino: We sold six which is a bit higher than last year because of additional lease expenses related to recently opened training centers in our global network.
Dino: Yes.
Dino: The financing cost associated with consolidation of the silicon joint venture in business aviation.
Dino: Income tax expense this quarter was $45 $2 million.
Dino: Representing an effective tax rate 25%.
Dino: Compared to an effective tax rate of just 14% in the fourth quarter last year.
Dino: The adjusted effective tax rate, which is the income tax rate used to determine adjusted net income and adjusted EPS was 25% this quarter or.
Dino: Just 47% in the fourth quarter last year.
Dino: The annual effective income tax rate from <unk>.
Dino: 2026 is expected to be approximately 25%.
Dino: The income anticipated from various jurisdictions and the impact from global minimum tax legislation legislative changes.
Dino: Net cash provided by operating activities was $222 $7 million for the quarter compared to $16 2 million in the fourth quarter of last year.
Dino: For the year, we generated $896 5 million from operating activities compared to $566 $90 million last year.
Dino: This strong performance is a result of the team's focus on execution.
Dino: Hitting program milestones.
Dino: Highly prudent about cash management.
Dino: This effort translated into excellent free cash flow performance. This year, and we're now targeting a conversion rate of 150% for fiscal 2026 and beyond.
Dino: This represents a step change increase from approximately 100% conversion rate.
Dino: Which we previously targeted.
Dino: Underscores the highly cash generative nature of a scale business.
Dino: Uses of cash involved funding capex for $109 million in the fourth quarter and $356 2 million for the year driven mainly by expansion of our civil Aviation training network in lockstep securing customer demand.
Dino: These opportunities translate to some of our best returns as a stimulator assets ramp up with the first three years of development, reaching an average price of 40%.
Dino: Tax incremental return on capital employed.
Dino: We remain highly focused on capital efficiency.
Dino: Total capex in fiscal 'twenty to 'twenty six to be modestly lower than in fiscal 2025.
Dino: This will be concentrated mainly on organic growth investments and similar capacity.
Dino: It can be deployed to Cae's network of aviation training centers, which are backed by multi year customer contracts.
Dino: Our net debt position at the end of the quarter was $3 2 billion for a net debt to adjusted EBITDA of $2 77 times comfortably below our.
Dino: Your target.
Sure.
With our disciplined capital allocation strategy and commitment to financial resiliency, we expect to further reduce net leverage to <unk>.
Dino: Two five times by the end of fiscal 2026 supported by strong sustained free cash flow generation.
Dino: Now to.
Dino: To briefly recap our segmented performance.
Dino: In civil fourth quarter revenue was up 4% over a year to $728 $4 million and adjusted segment operating income was up 9% year over year to 200 and income $4 million.
Dino: Our margin was 28, 6%.
Dino: For the year Civil revenue was up 11% to $2 7 billion and adjusted segment operating income was up 6% to $581 5 million.
For an annual margin of 21, 5%.
Dino: Average training center utilization was 75% for the fourth quarter down from 78% the prior year, mainly to the reduction in pilot hiring in the Americas, we will need as OEM aircraft supply constraints.
Dino: Utilization was 70, 474% for the year down from 76% a year prior.
Dino: In products, we delivered 15 civil full flight simulators in the quarter.
Dino: 61 for the year compared to 47 deliveries in the prior year.
Dino: In defence.
Dino: Fourth quarter revenue of $547 million was up 29% over Q4 of last year.
Dino: Adjusted segment operating income was $50 $4 million for a nine 2% adjusted segment operating income work.
Dino: Legacy contracts remain on track with cost and schedule is well managed and the margin excluding legacy contracts was 94, 9%.
Dino: This compares to a negative adjusted segment operating income of $65 $7 million in the fourth quarter last year.
For the year Defence revenue was up 8% $2 billion.
Dino: And adjusted segment operating income reached $155 million.
Dino: <unk> adjusted segment operating income margin seven 5%.
Dino: Okay.
Dino: Before I turn the call over to Marc I'll make a few comments about the potential impacts of tariffs.
Dino: He is well insulated from direct tariff impacts.
Dino: <unk>, 770% of our Cae's total revenues come from services delivered within our customers wound countries, which significantly limits our exposure to cross border tariffs for the U S market disproportion was even higher around 80% last year.
Dino: Moreover, our flagship product the full flight simulator is exempt from tariffs under the U S. MCA.
Dino: But from an enterprise standpoint, with roughly one third of our workforce based in the United States, a substantial operating footprint and then already significant U S bill of materials.
Dino: Confident that we have the flexibility to effectively manage any residual.
Dino: Exposure.
Dino: With that I will now.
Dino: Ask Marc to discuss the way forward.
Marc: Thanks Dino.
Speaker Change: Before getting into our outlook I want to take a moment to reflect on how far we've come.
Speaker Change: Over the past few months I've had the real privilege of Onboarding, our new directors and our new chairman.
Speaker Change: Spending time with our teams around the world from training centers to benefactor to get engineering sites.
Speaker Change: And what I have seen confirms everything that I have always known about this remarkable company of ours.
Speaker Change: He has transformed into a purpose driven high performance organization.
Speaker Change: Our mission to make the world safer isn't just words, it's really deeply embedded in who we are and what we do.
Speaker Change: Whether it's preparing pilots for complex aerospace, enabling defense forces. It makes it already or supporting critical operations. We are there for the moments that matter.
Speaker Change: What always strikes me most is the caliber and the commitment of our people.
Speaker Change: Across 240 sites in more than 40 countries. Our 13000 employees show up every day with focus resilience and a deep sense of purpose.
Speaker Change: That mindset combined with our unmatched technology, our operational excellence our strategic position.
This makes the clear leader initial mystery.
Speaker Change: And over the last couple of decades, we have evolved from an industrial products company to a global powerhouse in training assimilation widow.
Speaker Change: We're no longer working to meet the center, we're defining it.
Speaker Change: And with the momentum that we've built I believe that the best is Julie.
Speaker Change: The market has begun to recognize our progress across the business as reflected.
Speaker Change: <unk> are in our stock outperformance relative to the broader North American Indians each year.
Speaker Change: As we look ahead to fiscal 2026 or carrying significant momentum with confidence and clarity we have at over $21 billion of adjusted backlog and with financial and operational discipline that we've demonstrated we're.
Speaker Change: We're entering a new fiscal year from a position of real strength with.
Speaker Change: With continued focus on execution innovation and value creation.
Speaker Change: I'm confident that we will build on this foundation to deliver growth higher margin and stronger free cash flow.
Speaker Change: In civil we remain well positioned with strong fundamentals solid demand across both commercial and business aviation.
Speaker Change: Before getting into the specifics of our outlook, it's worth highlighting the recurring nature of our civil business, which is a key reason and we remain confident in its long term resilience and growth.
Speaker Change: Recurring training, which is required approximately every six months to maintain pilot certification represents about 70% of total trading activity and these regulatory requirements are consistent worldwide, making this for sure.
Speaker Change: <unk> durable and relatively insulated from short term economic volatility.
Speaker Change: And the remaining 30% of trading the bank comes from new pilot certifications that aircraft type transitions driven by fleet growth and pilot retirements.
Speaker Change: In the civil business, we also lead the market in the salus or a full flight simulators.
Speaker Change: And while this is inherently more cyclical is closely tied to aircraft deliveries. This part of the business is all supported by very strong long term fundamentals.
Speaker Change: Because of a short term supply chain constraints that event impacted OEM aircraft output.
Speaker Change: We expect modestly lower simulator deliveries this fiscal year with a greater proportion of occurring in the second half.
Speaker Change: For the year as a whole we expect to continue winning our fair share of full flight simulator orders.
Speaker Change: Yes.
Looking longer term the outlook remains highly compelling Boeing.
Speaker Change: Boeing and Airbus have a combined backlog of over 17500 aircrafts at both projects the global in service fleet to nearly double over the next 20 years on top of that.
Speaker Change: More than 280000, new pilots will be needed globally over the next decade to support this growth and offset pilot retirements.
Speaker Change: These structural drivers create a clear and compelling runway for sustained growth in pilot training long term.
Speaker Change: In business Aviation, we expect to see continued momentum as we scale operations that need 20 centers and wrap up recent stimulator deployments with <unk>.
Speaker Change: Business jet segment is benefiting from benefiting from growth in the number of high net worth individuals and a straw.
Speaker Change: Strong OEM backlogs, the structural shifts doors fractional ownership.
Speaker Change: Flight activity levels in the United States are 15% above 2019 and factual.
Speaker Change: The 2019 levels and fractional operators like Flexjet have seen a nearly 60% increase in flight hours over the same period.
Speaker Change: Reinforcing the underlying demand fundamentals.
Speaker Change: Our exposure is weighted towards larger business aircraft types, which have historically demonstrated greater greater resilience to economic cycles. The dynamic that gives us added confidence in the current macroeconomic environment.
Speaker Change: In any event, we still we see no indications.
Speaker Change: Worsening conditions at this time.
Speaker Change: Another example of the growth and resiliency of our civil business as our strategic expansion into the air traffic controller training market, which is a natural adjacency that builds on our decades of experience in simulation based training for highly regulated safety critical roles.
Speaker Change: This initiative has been notably capital efficient with the launch last year.
Speaker Change: First air traffic services, or Ats training centre in Montreal, which leverages, our existing asset base.
Speaker Change: And in partnership with NAV, Canada, which manages one of the largest aerospace areas in the world.
Speaker Change: I am here six months later the center welcome its first students in just over a year since announcing our entry into the Ats training.
Speaker Change: He is now successfully train seven cohorts of air traffic controllers in flight service specialists, who have now completed their basic training and transition back to NAV, Canada or they're on the job training.
Speaker Change: Through this partnership we aim to train approximately 500 personnel by 2028.
And our decision to expand into this segment was driven.
Speaker Change: Driven by clear and growing global knee.
Speaker Change: By our own estimates some 70000 70000, new air traffic controllers are going to be required over the next decade.
Speaker Change: And shortages, particularly.
Speaker Change: As states and parts of Europe are.
Speaker Change: Already putting pressure on aerospace capacity.
Speaker Change: With our established expertise and high consequence printing environments, we are well positioned sport. This essential function of the aviation ecosystem, enhancing both safety and throughput, while adding a new Google revenue stream she civil portfolio.
Speaker Change: For civil overall, we're taking a measured view of the first half of fiscal 2006, as we monitor broader macroeconomic conditions and OEM aircraft delivery rates.
Speaker Change: In terms of our quarterly cadence in civil we expect this year to begin much like last year in both revenue and margins with performance building progressively dorje stronger second half driven by increased trading activity and product deliveries.
Speaker Change: So you're ahead.
We expect segment operating income to grow in the mid to high single digit percentage range.
Speaker Change: With a modest increase in the annual adjusted segment operating income margin.
Speaker Change: In defence, she is well positioned to benefit from a sustained global upcycle and military spend.
Speaker Change: The European condition of recently introduced to re arm E program targeting 800 billion Euro and defense investment by 2030 and could potentially be even greater with proposed fiscal rule exemptions.
Speaker Change: Across NATO, and Allied nations, including notably stronger commitment from Canada, increasing defense budgets are driving demand for the advanced training and simulation solutions, where CAE is it clear competitive differentiation.
Speaker Change: We built a strong franchise in Canada over the past several years with major program wins and extension including contracts.
Speaker Change: On track, we are past contract fixed wing search and rescue and the FTC and the CH 18th systems engineering support contract.
Speaker Change: The kidney to federal government clients nearly doubled its annual defense spending from approximately $40 billion to over $80 billion by 2032.
Speaker Change: And in spite of the substantial growth opportunity or in light actually of the substantial growth opportunity and the scale of our current program base.
Speaker Change: We've recently evolved our defense organizational structure to establish Canada as a standalone region with its own dedicated P&L.
Speaker Change: <unk> side, our U S and international segments.
Speaker Change: This change reflects the growing strategic importance of the Canadian defense market and our leadership position within it while also enabling our international team to sharpen its focus on a broader global opportunities.
We're immensely proud to have been ranked <unk>.
Speaker Change: Once more at Kansas Top Defense company by Canadian Defense Review magazine, marking the third time that sees has received this honor.
Speaker Change: To me this recognition highlights our commitment to advancing global defense capabilities for cutting edge training solutions, ensuring that we remain a trusted ally.
Speaker Change: Securities and operational readiness.
Speaker Change: Our aim is to be the Kansas Premier training partner and one clear validation of the progress we're making came in February when she was named a strategic partner to the government, Canada for the future fighter at leading training program.
Speaker Change: Under this initiative, where it will design and co develop the next generation of training for Royal Canadian airports fighter pilots supporting Canada's fifth generation fighter readiness and reinforcing our leadership in high consequence training and mission support.
Speaker Change: This is just another example of a long term high value opportunities that we see unfolding and it highlights sees all enroll and strengthening the capabilities of Canada and us dollars.
Speaker Change: Well the defense backlog definitely doubled year over year.
Speaker Change: Solid Fallon.
Speaker Change: Foundation of program execution we.
Speaker Change: We expect continued progress toward reaching our goal of a low double digit percentage margin and <unk>.
Speaker Change: Above market long term growth.
Speaker Change: Specifically for the year ahead weeks.
Speaker Change: We expect defense to have low double digit percentage annual segment operating income growth.
Speaker Change: And in annual segment operating margin in the eight to eight 5% range.
Speaker Change: To sum up.
Speaker Change: She is entering fiscal 2026 sort of a position of strength.
Speaker Change: She remains both a highly compelling long term growth story and at the same time, a very good partner store.
Speaker Change: We've built a resilient high performing company, one that's winning in the market delivering for customers and creating long term value for shareholders.
Speaker Change: We bring together all the hallmarks of an excellent company a.
Speaker Change: Our record order backlog deep customer intimacy strong competitive differentiation.
Speaker Change: High proportion of recurring revenue and cash flow.
Speaker Change: And exposure to secular growth market.
Speaker Change: Our focus remains where Leon innovation and delighting, our customers coupled with capital efficiency operational excellence and disciplined execution.
Speaker Change: Lastly, as we manage the planned CEO transition later this summer the board and I are committed to a smooth and seamless handover the.
Speaker Change: The process to identify the next CEO is well underway and we're confident it's going to result, a leader will carryforward chief strategy culture and momentum.
Speaker Change: I feel very good about our strong foundation, our deep leadership team and a clear path ahead.
Speaker Change: D is exceptionally well positioned for continued success and sustainable growth well into the future.
With that I. Thank you for your attention and we're now ready to answer it.
Speaker Change: Yes.
Mark Greater: Thanks, Mark Greater we'll now open the lines to <unk>.
Speaker Change: Analysts.
Speaker Change: Thank you.
Speaker Change: Now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you'll hear a tone acknowledging your request if you're using a speaker phone. Please pickup your handset before pressing any key.
Speaker Change: To withdraw your question. Please press Star then two.
Speaker Change: Our first question is from Kevin Chiang with CIBC. Please go ahead.
Kevin Chiang: Hi, Good morning here. Thanks for taking my question, maybe just my first one if I can dig into whats underpinning your civil outlook.
Kevin Chiang: Understand the prudency, just given all the all the macro uncertainty, but maybe we can dig into what youre seeing in terms of commercial training demand versus business jet training demand.
Kevin Chiang: And then on the on the margin outlook for the year I guess I would've thought mix would have been more of a tailwind if you're selling fewer <unk>.
Kevin Chiang: This year and you have the full benefit of Sim Kong, maybe if you can just walk me through some of the puts and takes on the margin outlook as well. Thank you.
Kevin Chiang: Okay, well look I'll I'll kick it off and maybe turn over to Nick for some additional color on the sort of it look I'm just going back to the civil outlook I mean, what would you lose or taking a measured approach.
Kevin Chiang: Specifically in light of the more cautious tone that we hear from airlines and you have a little bit of softness that we saw late in fiscal year.
Kevin Chiang: As we point out the second half is typically stronger it we've seen that I think every year I've been at sea. So we're expecting a more moderate environment.
Kevin Chiang: In the first half.
Kevin Chiang: Both in terms of the what we see in terms of deliveries of simulators that we're going to.
Kevin Chiang: Execute and some near term uncertainty, but all that's reflected in the guidance that we had.
Kevin Chiang: I will hasten one thing is on the train decided.
Kevin Chiang: Or can they trade demand remains very resilient and we see some regional variation.
Kevin Chiang: We see the pilot activity pick up.
Kevin Chiang: Recently nine states. So we're watching that very closely.
Kevin Chiang: Coming back to simulator deliveries.
<unk>.
Kevin Chiang: Which will really function of the delivery of aircraft out of Boeing and Airbus and then what we see as the supply chain issues are getting better.
Kevin Chiang: But they continue to constrain the aircraft production South we're certainly not at peak production rates. So we're expecting a modestly lower deliveries. This in the first half of this year. So that's going to be weighed towards the back half. So those are the <unk>.
Kevin Chiang: Some of the components, so maybe just add a little bit to that.
Kevin Chiang: I was just going to say, Kevin just the pilot hiring if it goes through their drivers pilot hiring which is one of the one driver is.
Kevin Chiang: Improving for sure, but not not where they were last year.
Kevin Chiang: Aircraft deliveries same thing I mean things are improving actually with with Boeing but we've been pretty lopsided with Airbus being the vast majority of the.
Kevin Chiang: Deliveries and therefore, a lot of our product sales have been in.
Kevin Chiang: In Airbus versus boring and so you know.
Kevin Chiang: And of course, the customers themselves. There is there is a certain amount of.
Kevin Chiang: I guess slack in the system right now because they were hiring at a certain level. So so we just wanted to let all this kind of balance out a little bit I think and and so you know when we look at the when we look at the year and we look at our forecast.
Kevin Chiang: The guidance that we've given I mean, it's taking a little bit of that into consideration because obviously, we see it improving as Mark said demand in the training center, which is still quite strong I mean, obviously, you can always be stronger but the differences.
Kevin Chiang: <unk>.
Kevin Chiang: Not that not that big as you see and you know.
Kevin Chiang: We are.
Kevin Chiang: I mean mid to high single digit growth on the base.
Kevin Chiang: Civil which is this high as you know is.
Something that.
Kevin Chiang: It's not it's not.
Kevin Chiang: We need some of these.
Kevin Chiang: These drivers to improve.
Kevin Chiang: That's helpful. I'll leave it there. This is super helpful. Thank you very much.
Saudi Salmon: The next question is from Saudi Salmon with BMO. Please go ahead.
Saudi Salmon: Hey, good morning, Thank you for taking my question.
Saudi Salmon:
Saudi Salmon: I wanted to ask about the flight operation business.
Saudi Salmon: You put together.
Saudi Salmon: Few small acquisition when Faber.
Saudi Salmon: And I think I recall you.
Saudi Salmon: We have been investing and modernizing with software and modernizing the approach to market.
Saudi Salmon: In that business.
Saudi Salmon: We recently saw Boeing so.
Saudi Salmon: Competing assets to a private equity I wanted to get your thoughts like what state of readiness.
Saudi Salmon: That business segment is out right now from a competitive position perspective.
Saudi Salmon: And if.
Saudi Salmon: If you can give us some color about how it's performing relative to.
Saudi Salmon: The level of what you have expected by this time.
Speaker Change: Okay, Yeah Patty thanks for the question.
Speaker Change: And I'll kick off maybe add again with Niccolo.
Speaker Change: And then we're waiting in a market. That's the first thing I'll say you know we're very well.
Don: And this is Don.
Speaker Change: Just continuing with what I've said in previous calls.
Don: We are winning a disproportionate.
Don: Proportion of the business that we get in campaigns that we see out there for our order book is growing.
Don: I can tell you that basically I would say we're at capacity for the work that we can take on right now.
Don: And if anything were paced right now in terms.
Don: Our growth.
Don: The speed at which the airlines actually.
Don: Under undergo the changes that are operational control centers, because it'll when you're making that change we're adopting a system like ours.
Don: It takes a lot.
Don: Of time and effort.
Don: To implement think like for a company.
Don: <unk> ERP program, that's the same kind of thing so there. So it takes a lot so.
Speaker Change: Youre working hand in hand with Airlines then.
Speaker Change: So what kind of pace of less standpoint below again or avoiding in the market. We're very Canada, we have a growth business over the next few years, what we're seeing what you're seeing is still right. Now is we're winning orders that are basically SaaS kind of profile or which means that we are going to be recognizing them.
Speaker Change: The the revenue any earnings over a number of years as we execute disorders, it's kind of like the analogy, we're moving but.
Speaker Change: Average selling a simulator Saturday like an on premise solution or delivery training, which is over.
Speaker Change: Quite a few years.
Speaker Change: So in terms of the execution of our business, that's where we spent quite happy with our positioning the market and we're executing well we have we have a strong order book.
Speaker Change: In terms of the question you asked about.
Speaker Change: Bowling selling in the Jefferson ill.
Speaker Change: The strong level of interest that we saw the market demonstrates the attractiveness of the size of the market. So.
Speaker Change: Basically that's what I'd point to that.
Nick: Nick do you want anything more with no I was just going to say right now.
Speaker Change: Business.
Speaker Change: The number of implementations have ramped up significantly.
Speaker Change: With the all of the wins so the way I would the way I would look at this.
Speaker Change: Is we have about $700 million of orders and the average contracts about five years. So we have <unk>.
Speaker Change: $150 million of revenue sitting there that we need to implement.
Speaker Change: <unk> solutions that we've sold and start to generate revenue. So you know the best is yet to come I guess is the way I would put it.
Speaker Change: Okay.
Speaker Change: Just.
Speaker Change: Kind of follow up on these comments.
Speaker Change:
Speaker Change: From a scale perspective view deal do you think you have the.
Speaker Change: Gail ultimately to be effective in mis.
Speaker Change: Out of the process and are you finding I mean from the backlog I guess the answer is yes, but are you finding a lot of.
Speaker Change: NRG has been your commercial approach between come out what Youre doing on the training side than what Youre doing on the flight operation side.
Speaker Change: Well I'd just point to one thing just recent example, we just had.
Speaker Change: <unk>, a big customer of meeting of the business.
Speaker Change: Just last week in Greece, and we hosted that that the argue Aegean training center.
Speaker Change: And that was with the seals co Ceos.
Speaker Change: Oh, the AGM and I can tell you that we react to the airlines too.
Speaker Change: Basically with the same.
Speaker Change: Scope of CAE, both in its training market and then there is in the service market just finally brand.
Speaker Change: It capability I think there's definitely synergies there.
Speaker Change: But that's just anecdotal if you want to add anything.
Speaker Change: No.
I mean, the synergies for this business are primarily in the front end. We have teams that are that are active on both sides of the house when it comes to capturing customers and we leverage everything that we do with our customers to support more business with flight scape in particular, so I mean, it's you know it's a different business.
Speaker Change: But it's another it's another.
Speaker Change: Wait for us too.
Speaker Change: You know at the end, we wanted to become as important as we can to our customers and this is another way to do that.
Speaker Change: And maybe just to add on it.
Speaker Change: And I don't think that would maybe is maybe that was part of your question.
Speaker Change: Question on the study.
Speaker Change: The.
Speaker Change: I mean, we absolutely needed.
Speaker Change: Like we need to add any more capability or M&A or anything like that this business again.
Speaker Change: The portfolio that we have in the various software platform. It really allows us to have the success we have in the market.
Speaker Change: Which is going to fuel a strong business for us as demonstrated in the $700 million of added backlog that Nick talked about.
Speaker Change: Thank you.
Speaker Change: The next question is from Carnac Gupta with Scotiabank. Please go ahead.
Speaker Change: Thank you Stan and good morning.
Carnac Gupta: Just wanted to kind of touch on defense margin a bit here.
Carnac Gupta: Looking at obviously the last year, the sequential progression has been pretty remarkable.
Carnac Gupta: The margin exiting.
Carnac Gupta: The fiscal year at about call it 9%.
Carnac Gupta: If we exclude the tax credit and the legacy of dilution.
Carnac Gupta: What's keeping the lid on your expectation for this fiscal year, many were expecting we do it in a 5% margin.
Carnac Gupta: Is there a timing in terms of how the legacy program some fold or.
Carnac Gupta: Is there something in the mix in the backlog that's not letting the margin kind of exceed that 9% you saw in the latest quarter.
Carnac Gupta: Oh, sorry, when I say, we're not putting a lid on anything weird if you think about going to eight 5% on average.
Carnac Gupta: What's inherent in that is it could you could continue to see the inherently the progression that kind of progression you saw this year I think look well we all.
Carnac Gupta: I'd like to walk before we can run and we've been watching pretty fast and I think we're going to continue to do that so look I'd say.
Carnac Gupta: You saw it in the numbers.
Carnac Gupta: We were confident in this year, we continue to feel very good about where we are how we closed the fiscal year was carrying very strong momentum.
Carnac Gupta: The new year.
Carnac Gupta: Look and there's two really two drivers behind the outlook that we're giving the first what you're seeing is the benefit of strong program execution, we're hitting a milestone or unlocking the cash which by the way was a key contributor to the very strong free cash flow performance that we had this in the fourth quarter.
Carnac Gupta:
Carnac Gupta: Second really where we're ramping up higher margin pool that we've won and committed backlog. If you remember the story that we've had.
Carnac Gupta: Quiet for quite a few quarters now is that basically what we've been doing.
Carnac Gupta: Is basically the retiring programs executing our program.
Carnac Gupta: Inherently.
Carnac Gupta: Been one at margins that are basically if you like dilutive or not accretive to the low double digits margin expectations, we have of the business.
Carnac Gupta: Placing them with contracts that too and that's continues to be the story here and when you look at the size of the backlog ending.
Carnac Gupta: Ending the year at 11 three backlog.
Carnac Gupta: Which by the way I would say and that's not over and we have like over $7 billion in bids and proposals that are outstanding so submitted to customers waiting in.
Carnac Gupta: So the customer decision I mean, it really positions us extremely well.
Carnac Gupta: Can you re shaping the business towards a hike towards our goal of a higher quality higher margin work. So well. So I I continue again going back to say Theres no lid on this business I don't certainly expect to perfectly linear upward trajectory, we've done very well there is always going to be.
Carnac Gupta: Jorge quarterly variability in this business because inherently when you execute.
Carnac Gupta: Depending on which program to exclude index in any given quarter, but look we anticipate look could be I would say cadence similar to last year performance building.
Carnac Gupta: Breakfast progressively from Q1 onward.
Carnac Gupta: Hello.
Carnac Gupta: On the bottom line the fundamentals have very clearly improve we've done to turnaround this business and we're very good about the trajectory.
Speaker Change: It sounds familiar Mark. Thank you and then I think you touched on the working capital aspect. There. So I wanted to ask maybe from Dino.
Speaker Change: How should we think about the working capital.
Speaker Change: In this fiscal year do you see these are cash conversions continuing at a similar clip.
Speaker Change: Or the mix low hassle integrations.
Speaker Change: So.
Speaker Change: Thank you for the question effectively I'm really really pleased with their free cash flow generation of $290 million this quarter and a record $840 million free cash flow generated revpar of 25.
Speaker Change: Conversion rate of 211 on <unk>.
Speaker Change: So the capital allocation priorities do remain unchanged deleveraging is central part of what we're envisioning going forward.
Speaker Change: We are aiming to take her leverage down to two five times by the end of the year and that is again as a result of our confidence in our cash the recurring cash generation nature of our business moving forward as well as maintaining our focus on capital discipline.
Speaker Change: Including noncash working capital now we in this year, we have launched a lot from the noncash working capital.
Speaker Change: Fortunately six to help with the cash flow.
Speaker Change: Generation and deleveraging.
Speaker Change: Goals next year, we'll see a continued focus on noncash working capital efficiency.
Speaker Change: And allowing us to maintain our two five times deleveraging target for next year.
Speaker Change: Okay. Thank you.
Speaker Change: Okay.
Derksen: The next question is from Cameroon, Derksen with National Bank Financial. Please go ahead.
Speaker Change: Yeah. Thanks, Good morning, just maybe to follow up on the on the cash question just on the Capex are indicating modest decline year over year, but maybe just two quick questions. On this I mean, one what is your expectation for maintenance Capex.
Speaker Change: For 2026, do we should we expect something similar to what we saw in 2025, and then secondly, maybe you could just sort of detail where I guess the growth Capex is going for this year what specific areas are you investing in.
Speaker Change: Yes. Thank you for the question Henry So.
Speaker Change: We had adjusted our capex guidance or even higher than that.
Speaker Change: 1024.
Speaker Change: And we achieved that by getting to $86 million. This year. So total capex is expected to be modestly lower than last year. Again continued example, disciplined capital approach, we invest organically to keep pace with the growth of our existing customers around 75% of next year's Capex will be effectively.
Speaker Change: To.
Speaker Change: To address some of the market deeds going forward, 25% maintenance capex, so very similar to what we had this year.
Speaker Change: The.
Speaker Change: Generally speaking these opportunities give us the highest returns ramping up with the first years of deployment and are reaching an average 20% to 30% pre tax incremental return on capital employed right.
Speaker Change: Have experienced a more intensive multiyear deployment schedule recently now we're focused on cash generating returning capital.
Speaker Change: Return on capital as well as long term merchant hotel. So a lot of discipline in our execution going forward next year working lockstep with the market to make sure that we have the ability to address and we.
Speaker Change: Reduce or any.
Speaker Change: Any capex is concerned the market calls for it.
Maybe just closing it off the two to Dino his comments camera and look at.
Speaker Change: We just come off.
Speaker Change: Yes.
Speaker Change: <unk> set a multiyear investment cycle, we invest a lot of new training locations. Yet we played offense during the downturn in a big way and seize the opportunity. We took a took share we help customers outsource their training their training, we built into our centers for Grupo <unk>.
Speaker Change: Standard a lot, particularly in business aircraft. So now we find ourselves in a place a very attractive place for now consolidating and operationalize, the napped opportunity and that really transitions.
Speaker Change: The guidance, we have that basically both capex volumes in cabinets.
Speaker Change: Yeah.
Speaker Change: Going off its peak.
Speaker Change: Okay. That's helpful and maybe just a follow up I mean, just thinking about the growth Capex. I mean, you know, it's largely driven by customer needs. I mean should we think about the investment here is largely just adding simulators to existing training centers or are there still some areas, where you think you need a new training center either on the civil side or on the business jet side.
Speaker Change: Excellent yeah, no. So this year the most of the Capex, so that were a bit worse.
Speaker Change: Spending is.
Speaker Change: We're opening Vienna.
Speaker Change: And we're expanding in Orlando after the acquisition that Theres, a theres a theres a few things there.
Speaker Change: And we have a couple of Sims.
Speaker Change: And one of them to our existing training centers in <unk>.
Speaker Change: So.
Speaker Change: There's no there's no plans new.
Speaker Change: Our facilities.
Speaker Change: Really just growing some of the some of the training operations that we were you know it's part of the business cases like some comments that it was a good example of a business case called for a bunch of simulators. So these simulators are starting to be manufacturing now.
Speaker Change: Okay, well, that's very helpful. Thanks very much.
Speaker Change: The next question is from Greg Konrad with Jefferies. Please go ahead.
Greg Konrad: Good morning.
Greg Konrad: Alright, just to focus on several.
Greg Konrad: Civil backlog I mean, you gave a little bit of color around flight operations, but if we think about 2025 growth in backlog of 37% maybe mid single digit revenue growth that it implies a much higher coverage of 2026 revenue than you've historically had.
Greg Konrad: What's shifted in backlog either from a margin perspective, or just recognition just given the high coverage in 2026.
Greg Konrad: I'm I'm, Okay that was it potentially was about where you're already so you started with basically the question with <unk>.
Greg Konrad: In that regard.
Greg Konrad: And maybe add a little bit, but what segment overall civil as a whole you're talking about yeah, just given the strong backlog growth and revenue outlook for 2026, I mean, how you think about that backlog converting to revenue just given there seems to be a much higher coverage for 2026 than you've historically had just given the <unk>.
Greg Konrad: Of the backlog.
Greg Konrad: Yeah, Greg, It's Andrew I think I know, where you're coming from one of the big components of the increase is the consolidation of the Sim common JV.
Greg Konrad: Next Gen contract, which is spread over 15 years. So you can sort of align the purity.
Greg Konrad: Clog increased one one with revenue generation.
Greg Konrad: Perfect.
Speaker Change: And then maybe just given on the civil side, you talked about the U S. A little bit, but just given most of the training or most of the revenue in 2000, Texas coming from training can you, maybe just talk about regionally, where youre seeing the biggest areas of strength within civil aviation.
Speaker Change: Yes, so I think for in terms of in terms of by region I would say.
Speaker Change: Merit, because wood would be.
Speaker Change: Probably our weakest region right at the moment are in.
Speaker Change: And Asia is probably our strongest.
Speaker Change: Because of all the I guess all of the things that you like.
Speaker Change: Probably for them in your question you know, there's a lot of new airlines a lot of growth in our in some of our customers and in particular in some of our customers were seeing some good growth.
Speaker Change: Business aircraft I would say relatively relatively stable I mean, we are expecting some improvement in utilization.
Speaker Change: In business aircraft, but nothing nothing outrageous. So I think you know.
Speaker Change: You know training demand is pretty strong across the board, but of course the U S is the one which is a little bit more a.
Speaker Change: A little bit more muted for us.
Speaker Change: Yeah.
Speaker Change: Thank you.
Okay.
Speaker Change: Once again any analysts with questions should press Star then one.
Speaker Change: Our next question is from Tim James with TD Colin. Please go ahead.
Tim James: Thanks, very much for taking my call good morning.
Tim James: Just one question mm mercury are highlighting them.
Tim James: The Greeks gross.
Tim James: Look now for Canadian defense spending a doubling as you mentioned by 2032, you will see already is just a great presence and a lot of very strong contracts in Canada can you talk about and maybe it's early but any anything you can say in terms of what that big pickup in defense spending could mean in terms.
Tim James: Of additional opportunities for CAE and what those might look like if you have any sense for that at this point.
Tim James: Well I can only give directional and you know Ed.
Tim James: Just look at what our what I talked about in terms of the doubling of the size of expenditure.
Tim James: Defense budget in Canada over the next.
Tim James: A few years I mean.
I feel very very good that that's going to translate into significant growth.
Tim James: For sea on top of the <unk>.
Tim James: We're a very significant level of order intake and actually revenue that we're generating right now on contracts in the <unk>.
Tim James: Canada and.
Tim James: I think we will get.
Tim James: What I would say that a disproportionate share because we we actually literally our strategic partner and that those are there. We're a strategic partner to the government of Canada as they want to operationalize.
Tim James: The acceleration of defense spending in Canada.
Tim James: And when you think about what military Stu when they're not in conflict. It hopefully you never in conflict, but what are Ya man military student or basically they train a train that's all they do train train train so obviously.
Tim James: That's what we do so you can you can be.
Tim James: You could see right off the bat that any capability that they deploy whether it's new aircraft with schuh helicopter existing ships and submarines.
Tim James: All of that is going to require very significant and realistic training so as Canada's strategic partner.
Tim James: I think we were going to continue to do very well in that market in Tennessee.
Tim James: Okay, great. Thank you.
Tim James: Okay.
Speaker Change: Great well, operator, I think we'll bring the call to a close I want to thank all participants for joining us. This morning, and remind you that a transcript of the call on Q&A will be made available on <unk> website.
Tim James: Thanks, very much and good day to all.
Speaker Change: This brings to a close today's conference call. You may disconnect. Your lines. Thank you for participating and have a pleasant day.
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Speaker Change: Yeah.
Speaker Change: [music].