Q1 2026 CAE Inc Earnings Call

Operator: Good day, ladies and gentlemen. Welcome to the CAE first quarter financial results for fiscal year 2026 conference call. As a reminder, all participants are in a listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity for analysts to ask questions. To join the question queue, you may press star, then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star, then zero. I would now like to turn the conference over to Mr. Andrew Arnovitz. Please go ahead, Mr. Arnovitz.

Speaker #2: After the presentation, there will be an opportunity for analysts to ask questions. To join the question queue, you may press star then one on your telephone keypad.

Speaker #2: Should you need assistance during the conference call, you may signal an operator by pressing * then 0. I would like to turn the conference over to Mr. Andrew Arnovitz. Please go ahead, Mr. Arnovitz.

Speaker #1: Good morning, everyone, and thank you for joining us today. Before we begin, I'd like to remind you that today's remarks, including management's outlook and answers to questions, contain forward-looking statements.

Andrew Arnovitz: Good morning, everyone, and thank you for joining us today. Before we begin, I would like to remind you that today's remarks, including management's outlook and answers to questions, contain forward-looking statements. These forward-looking statements represent our expectations as of today, August 13, 2025, and accordingly, are subject to change. Such statements are based on assumptions that may not materialize and are subject to risks and uncertainties. Actual results may differ materially, and listeners are cautioned not to place undue reliance on these forward-looking statements. A description of the risks, factors, and assumptions that may affect future results is contained in CAE Inc.'s annual MD&A and MD&A for the three months ended June 30, 2025, available on our corporate website and in our filings with the Canadian Securities Administrators on SEDAR Plus and at the U.S. Securities and Exchange Commission on EDGAR.

Speaker #1: These forward-looking statements represent our expectations as of today August 13, 2025, and accordingly our subject to change. Such statements are based on assumptions that may not materialize in our subject to risks and uncertainties.

Speaker #1: Actual results may differ materially, and listeners are cautioned not to place undue reliance on these forward-looking statements. A description of the risks, factors, and assumptions that may affect future results is contained in C's annual MDNA, and MDNA for the three months ended June 30, 2025, available on our corporate website, and in our filings with the Canadian Securities Administrators on CEDAR Plus.

Speaker #1: And at the U.S. Securities and Exchange Commission on EDGAR. On the call with me this morning are CAE from CAE, our Cailin Rovinescu, the company's Chairman, Marc Parent, President and Chief Executive Officer, Matthew Bromberg, incoming President and Chief Executive Officer, and Constantino Malatesta, our Interim Chief Financial Officer.

Andrew Arnovitz: On the call with me this morning from CAE Inc. are Kaelin Rovinescu, the company's Chairman; Marc Parent, President and Chief Executive Officer; Matthew Bromberg, Incoming President and Chief Executive Officer; and Constantino Malatesta, our Interim Chief Financial Officer. Nick Leontidis, Chief Operating Officer, is on hand for the question period. After formal remarks, we will open the call to questions from financial analysts. Let me now turn the call over to Kaelin.

Speaker #1: Nick Leontidis, chief operating officer, is on hand for the question period. After formal remarks, we'll open the call to questions from financial analysts. Let me now turn the call over to Cailin.

Speaker #3: Thank you, Andrew, and good morning, everyone. Since being appointed Chairman of CAE earlier this year, I've had the chance to connect with a number of our long-term investors, many of whom I've known through my years at Air Canada.

Matthew Bromberg: Thank you, Andrew, and good morning, everyone. Since being appointed Chairman of CAE Inc. earlier this year, I have had the chance to connect with a number of our long-term investors, many of whom I have known through my years at Air Canada. While this is my first time addressing the broader investment community in this role, I want to share why I was compelled to accept the Chairman position and more recently to take on expanded responsibilities as Executive Chairman. My relationship with CAE Inc. goes back many years. As President and CEO of Air Canada, I saw firsthand the value CAE Inc. brought as a trusted partner in building and sustaining a world-class training organization, particularly through our co-located training centers in Toronto and Vancouver.

Speaker #3: While this is my first time addressing the broader investment community in this role, I want to share why I was compelled to accept the chairman position.

Speaker #3: And more recently, to take on expanded responsibilities as executive chairman. My relationship with CAE goes back many years. As president and CEO of Air Canada, I saw firsthand the value CAE brought as a trusted partner in building and sustaining a world-class training organization, particularly through our co-located training centers in Toronto and Vancouver.

Speaker #3: Earlier in my career, during my time in law and as a managing partner at Steichman Elliott, I also had a connection to CAE through one of its original investors and long-time chairman, Fraser Elliott, co-founder of that firm that bore his name.

Matthew Bromberg: Earlier in my career, during my time in law and as a Managing Partner at Stikeman Elliott, I also had a connection to CAE Inc. through one of its original investors and long-time Chairman, Fraser Elliott, co-founder of that firm that bore his name. As an investor, I have been a long-time supporter of the company's mission and potential. So it is both an honor and a privilege to now take on an active role as Executive Chairman. I have reoriented my professional commitments to dedicate the time required to support Matt and help guide CAE Inc.'s long-term direction. In addition to board duties, I will work closely with him on strategy, operational excellence, and capital allocation, with a clear focus on enhancing the customer experience, improving free cash flow conversion, and driving stronger returns on invested capital.

Speaker #3: And as an investor, I've been a long-time supporter of the company's mission and potential. So it's both an honor and a privilege to now take on an active role as executive chairman.

Speaker #3: I've reoriented my professional commitments to dedicate the time required to support Matt and help guide CAE's long-term direction. In addition to board duties, I'll work closely with him on strategy, operational excellence, and capital allocation, with a clear focus on enhancing the customer experience, improving free cash flow conversion, and driving stronger returns on invested capital.

Speaker #3: A key priority will be deleveraging the balance sheet, not merely as a financial objective, but as a means to enhance shareholder value and strengthen CAE's long-term resilience.

Matthew Bromberg: A key priority will be deleveraging the balance sheet, not merely as a financial objective, but as a means to enhance shareholder value and strengthen CAE Inc.'s long-term resilience. The company made solid progress last fiscal year and we are targeting a net debt-to-adjusted EBITDA ratio of approximately 2.5 times by fiscal year end. I see that as a waypoint, not the final destination, as I believe we can go further in reinforcing our financial position. At the same time, we continue to give thoughtful consideration to the potential timing and form of shareholder returns, including dividends and share repurchases. We have a buyback program in place to be used opportunistically, and at the appropriate time, we may also consider reinstating a dividend. As Executive Chairman, I will also engage regularly with key stakeholders, including investors and government leaders.

Speaker #3: The company made solid progress last fiscal year, and we're targeting a net debt to adjusted EBITDA ratio of approximately two and a half times by fiscal year end.

Speaker #3: I see that as a waypoint, not the final destination, as I believe we can go further in reinforcing our financial position. At the same time, we continue to give thoughtful consideration to the potential timing and form of shareholder returns, including dividends and share repurchases.

Speaker #3: We have a buyback program in place to be used opportunistically, and at the appropriate time, we may also consider reinstating a dividend. As executive chairman, I'll also engage regularly with key stakeholders, including investors and government leaders, with defense spending accelerating across NATO toward five percent of GDP, along with initiatives like the EU's rearm strategy, and renewed momentum in Canada I intend to play an active role in positioning CAE as a strategic partner.

Matthew Bromberg: With defense spending accelerating across NATO toward 5% of GDP, along with initiatives like the EU's ReArm strategy and renewed momentum in Canada, I intend to play an active role in positioning CAE Inc. as a strategic partner. This includes sustained engagement with federal and provincial governments, particularly in Quebec, where CAE Inc. is a long-standing anchor company. Our goal is to ensure CAE Inc. is recognized not only for its critical training and simulation capabilities, but also for the broader economic value we deliver through high-quality jobs, exportable IP, and technology leadership. As defense procurement and policy frameworks continue to evolve, we remain committed to close alignment and active participation. As you all know, today marks an important milestone for CAE Inc. as Matthew Bromberg formally succeeds Marc Parent and steps into the role of Chief Executive Officer following our AGM.

Speaker #3: This includes sustained engagement with federal and provincial governments, particularly in Quebec, where CAE has a long-standing anchor company. Our goal is to ensure CAE is recognized not only for its critical training and simulation capabilities, but also for the broader economic value we deliver through high-quality jobs, exportable IP, and technology leadership.

Speaker #3: As defense procurement and policy frameworks continue to evolve, we remain committed to close alignment and active participation. As you all know, today marks an important milestone for CAE, as Matt Bromberg formally succeeds Marc Parent and steps into the role of Chief Executive Officer following our AGM.

Speaker #3: I want to acknowledge Marc for his outstanding leadership and enduring contribution to CAE. Over his 21 years with the company, including 16 as CEO, Marc guided CAE through a period of tremendous transformation and growth.

Matthew Bromberg: I want to acknowledge Marc for his outstanding leadership and enduring contribution to CAE Inc. Over his 21 years with the company, including 16 as CEO, Marc guided CAE Inc. through a period of tremendous transformation and growth. Under his stewardship, CAE Inc. became the global leader in civil aviation and defense training and simulation that it is today. Perhaps most importantly, Marc is widely credited with instilling a deeply customer-centric culture across the organization that continues to define the way CAE Inc.'s more than 13,000 employees around the world serve our partners and stakeholders each day. Marc has earned a deep respect within the global aerospace industry, and his impact extends far beyond CAE Inc. His vision, passion, and unwavering commitment to excellence have helped shape the future of aviation training globally. On behalf of the board and the entire CAE Inc.

Speaker #3: Under his stewardship, CAE became the global leader in civil aviation and defense training, and simulation that it is today. Perhaps most importantly, Marc is widely credited with instilling a deeply customer-centric culture across the organization that continues to define the way CAE's more than 13,000 employees around the world serve our partners and stakeholders each day.

Speaker #3: Marc has earned a deep respect within the global aerospace industry and his impact extends far beyond CAE. His vision, passion, and unwavering commitment to excellence have helped shape the future of aviation training globally.

Speaker #3: On behalf of the board and the entire CAE team, I want to thank Marc for his legacy that will continue to inspire us as we build upon his accomplishments.

Matthew Bromberg: team, I want to thank Marc for his legacy that will continue to inspire us as we build upon his accomplishments. It's also my pleasure to formally mark the beginning of Matthew's tenure as Chief Executive Officer as he steps into this important leadership role at CAE Inc. I had the privilege of leading the board's CEO selection process, and I'll speak briefly to the qualities and experience that led us to the clear conclusion that Matthew is the right person to lead CAE Inc. into its next era as the company builds on nearly eight decades of leadership and innovation. His appointment follows a comprehensive and highly competitive international search. Given the distinctiveness of CAE's business, we sought a leader with a strong record of value creation in either aerospace or defense, and in Matt's case, we found both.

Speaker #3: It's also my pleasure to formally mark the beginning of Matt's tenure as chief executive officer as he steps into this important leadership role at CAE.

Speaker #3: I had the privilege of leading the board's CEO selection process, and I'll speak briefly to the qualities and experience that led us to the clear conclusion that Matt is the right person to lead CAE into its next era as the company builds on nearly eight decades of leadership and innovation.

Speaker #3: His appointment follows a comprehensive and highly competitive international search. Given the distinctiveness of CAE's business, we sought a leader with a strong record of value creation in either aerospace or defense, and in Matt's case, we found both.

Speaker #3: We also prioritized candidates with experience managing complex, large-scale global operations, and most recently, Matt led global operations at Northrop Grumman, where he drove significant enterprise-wide cost and performance transformations.

Matthew Bromberg: We also prioritized candidates with experience managing complex, large-scale global operations. Most recently, Matt led global operations at Northrop Grumman, where he drove significant enterprise-wide cost and performance transformations. Prior to that, he served as President of Military Engines at Raytheon and earlier as President of Commercial Aftermarket at Pratt & Whitney. Matt brings a rare combination of strategic insight, operational depth, and leadership acumen. He is, as one would expect of an MIT-trained engineer with a business degree, intellectually rigorous. Equally important, he brings a high degree of emotional intelligence. His track record of leadership in world-class aerospace and defense organizations, combined with that important balance of IQ and EQ, makes him exceptionally well suited to carry forward CAE's unique culture, which we believe is one of our most important differentiators. Equally important to the board was Matt's full commitment to CAE's identity as a proudly Quebec-headquartered global company.

Speaker #3: Prior to that, he served as president of Military Engines at Raytheon and, earlier, as president of Commercial Aftermarket at Pratt & Whitney. Matt brings a rare combination of strategic insight, operational depth, and leadership acumen. He is, as one would expect of an MIT-trained engineer with a business degree, intellectually rigorous.

Speaker #3: But equally important, he brings a high degree of emotional intelligence. His track record of leadership in world-class aerospace and defense organizations, combined with that important balance of IQ and EQ, makes him exceptionally well suited to carry forward CAE's unique culture, which we believe is one of our most important differentiators.

Speaker #3: Equally important to the board was Matt's full commitment to CAE's identity as a proudly Quebec-headquartered global company. Matt and his family are relocating to Montreal, which we view as essential.

Matthew Bromberg: Matt and his family are relocating to Montreal, which we view as essential. He has also begun taking French lessons, a reflection of his respect for our local roots and commitment to leading CAE in a way that is fully aligned with our values and culture. On behalf of the board and the broader CAE community, I want to formally welcome Matt as he begins this important new phase with us. As Matt, the management team, and I begin to assess CAE's forward plans, I am highly optimistic about the next three to five-year period. We are building on the strong foundation established under Marc's leadership and are now well positioned to unlock the next level of performance and value creation. With a refreshed board, new CEO, and an even sharper focus on financial and operational priorities, we see a clear path to delivering stronger returns.

Speaker #3: He has also begun taking French lessons, a reflection of his respect for our local roots and commitment to leading CAE in a way that is fully aligned with our values and culture.

Speaker #3: On behalf of the board and the broader CAE community, I want to formally welcome Matt as he begins this important new phase with us.

Speaker #3: As Matt, the management team, and I begin to assess CAE's forward plans, I'm highly optimistic about the next three to five-year period. We're building on the strong foundation established under Marc Parent's leadership and are now well-positioned to unlock the next level of performance and value creation.

Speaker #3: With a refreshed board, new CEO, and an even sharper focus on financial and operational priorities, we see a clear path to delivering stronger returns.

Speaker #3: These internal drivers, combined with favorable long-term market dynamics, support what we believe is a compelling and durable investment thesis. In civil, the long-term fundamentals remain particularly strong despite some timing noise around pilot hiring this summer.

Matthew Bromberg: These internal drivers, combined with favorable long-term market dynamics, support what we believe is a compelling and durable investment thesis. In civil, the long-term fundamentals remain particularly strong despite some timing noise around pilot hiring this summer. The two major aircraft OEMs currently hold a record combined backlog of more than 17,500 aircraft, and both forecast that the global in-service fleet will nearly double over the next 20 years. CAE also estimates that approximately 300,000 new pilots will be needed globally over the next decade to support this growth and offset retirements. These structural drivers point to a sustained runway for growth in commercial pilot training and in earnings. In business aviation, the long-term outlook remains quite positive as well, supported by strong aircraft OEM backlogs, an expanding population of high-net-worth individuals, and a shift towards fractional ownership models.

Speaker #3: The two major aircraft OEMs currently hold a record combined backlog of more than 17,000 aircraft, and both forecast that the global in-service fleet will nearly double over the next 20 years.

Speaker #3: CAE also estimates that approximately 300,000 new pilots will be needed globally over the next decade to support this growth and offset retirements. These structural drivers point to a sustained runway for growth in commercial pilot training and in earnings.

Speaker #3: In business aviation, the long-term outlook remains quite positive as well, supported by strong aircraft OEM backlogs, an expanding population of high-net-worth individuals, and a shift towards fractional ownership models.

Speaker #3: We are in the early stages of a generational upcycle in defense, driven by rising geopolitical tensions and a surge in spending across NATO, the EU, and Canada.

Matthew Bromberg: We are in the early stages of a generational upcycle in defense, driven by rising geopolitical tensions and a surge in spending across NATO, the EU, and Canada. This is fueling sustained demand for advanced training and simulation. This is an area where CAE's global reach, technical capabilities, and trusted customer relationships position us to lead. The Canadian government's renewed emphasis on aerospace and sovereign industrial capacity further reinforces the durability of this demand. As allied nations work to rebuild critical capabilities, CAE's alignment with national priorities, from mission readiness to supply chain resilience, supports our conviction in the long-term growth opportunity ahead. Importantly, our growing defense business provides a predictable revenue stream and adds balance to CAE's portfolio, offering meaningful upside in a sustained upcycle and complementing the secular growth we continue to see in civil aviation.

Speaker #3: This is fueling sustained demand for advanced training and simulation. The scenario where CAE's global reach technical capabilities and trusted customer relationships position us to lead.

Speaker #3: The Canadian government's renewed emphasis on aerospace and sovereign industrial capacity further reinforces the durability of this demand. As allied nations work to rebuild critical capabilities, CAE's alignment with national priorities from mission readiness to supply chain resilience supports our conviction in the long-term growth opportunity ahead.

Speaker #3: Importantly, our growing defense business provides a predictable revenue stream and adds balance to CAE's portfolio, offering meaningful upside in a sustained upcycle and complementing the secular growth we continue to see in civil aviation.

Speaker #3: Looking ahead, our priorities are disciplined execution, greater operating leverage, and translating earnings into robust and sustainable cash generation to support future investment and shareholder returns.

Matthew Bromberg: Looking ahead, our priorities are disciplined execution, greater operating leverage, and translating earnings into robust and sustainable cash generation to support future investment and shareholder returns. With strong market tailwinds, a focused leadership team, and a reinforced internal foundation, I believe we are well positioned to deliver meaningful long-term value to our shareholders. Now, turning to the first quarter performance, overall, we had a solid start to the year amid a backdrop of heightened economic uncertainty. We delivered adjusted EPS of $0.21 and secured $1.1 billion of adjusted order intake. Defense delivered strong year-over-year growth in adjusted segment operating income and margin expansion, driven by improved execution and disciplined program management.

Speaker #3: With strong market tailwinds, a focused leadership team, and a reinforced internal foundation, I believe we're well-positioned to deliver meaningful long-term value to our shareholders.

Speaker #3: Now, turning to the first quarter performance, overall we had a solid start to the year amid a backdrop of heightened economic uncertainty. We delivered adjusted earnings per share of $0.21 and secured $1.1 billion of adjusted order intake.

Speaker #3: Defense delivered strong year-over-year growth, in adjusted segment operating income, and margin expansion, driven by improved execution and disciplined program management. In civil, performance was mixed with continued strength in business aviation offset as I said by some near-term softness in commercial training and pilot hiring, consistent with the outlook we provided.

Matthew Bromberg: In civil, performance was mixed with continued strength in business aviation, offset, as I said, by some near-term softness in commercial training and pilot hiring, consistent with the outlook we provided. I will now turn it over to Marc and Constantino to walk you through the results in more detail.

Speaker #3: I'll now turn it over to Marc and Constantino to walk you through the results in more detail.

Speaker #1: Thank you, Cailin, for your very kind words. Let me start with a few highlights from the quarter. In civil, we delivered solid results, supported by the essential nature of our services at a durability of our recurring training business.

Marc Parent: Thank you, Kaelin, for your very kind words. Let me start with a few highlights from the quarter. In civil, we delivered solid results supported by the essential nature of our services and the durability of our recurring training business. As indicated last quarter, we continue to take a measured view of the first half of this year in light of macroeconomic uncertainty and ongoing aircraft supply constraints. In Q1, we saw an extension of the temporary pause in pilot hiring and a more cautious approach from commercial airlines, particularly in the U.S., where we believe hiring reached a trough with just 55 pilots hired in June by the 13 largest airlines. Similar dynamics were observed in other regions, and these factors contributed to lower utilization and fewer full-flight simulator orders in the quarter.

Speaker #1: As indicated last quarter, we continue to make take a measured view of the first half of this year, in light of macroeconomic uncertainty and ongoing aircraft supply constraints.

Speaker #1: In Q1, we saw an extension of the temporary pause in pilot hiring and a more cautious approach from commercial airlines, particularly in the US, where we believe hiring reached a trough, with just 55 pilots hired in June by the 13 largest airlines.

Speaker #1: Similar dynamics were observed in other regions, and these factors contributed to lower utilization and fewer full-flight simulator orders in the quarter. By contrast, Marc, conditions for business aviation, which accounts for about half of Civil’s profit, remained strong throughout the period.

Marc Parent: By contrast, market conditions for business aviation, which accounts for about half of civil's profit, remained strong throughout the period. Training center utilization came in at 71%, down from 76% in the prior year period, consistent with the short-term softness in commercial training we experienced last year. We also delivered eight full-flight simulators, which is the same number that we delivered last year. While the early part of the year was shaped by macroeconomic uncertainty, we are beginning to see encouraging signs of stabilization, along with improvements in aircraft supply chains that are bringing greater clarity to airline hiring and fleet planning. The recovery in demand for commercial training solutions is really a matter of when, not if, and we continue to expect a positive inflection in the second half of the fiscal year.

Speaker #1: Training center utilization came in at 71 percent, down from 76 percent in the prior year period, consistent with the short-term softness in commercial training we experienced last year.

Speaker #1: We also delivered eight full-flight simulators, which is the same number that we delivered last year. And while the early part of the year was shaped by microeconomic uncertainty, we're beginning to see encouraging signs of stabilization, along with improvements in aircraft supply chains that are bringing greater clarity to airline hiring and fleet planning.

Speaker #1: The recovery in demand for commercial training solutions is really a matter of when, not if, and we continue to expect a positive inflection in the second half of the fiscal year.

Speaker #1: On the order front, we secured 511 million of business, million dollars of business, including five full-flight simulators for a book-to-sales ratio of 0.84 times, and 1.27 times on a trailing 12-month basis.

Marc Parent: On the order front, we secured $511 million of business, including five full-flight simulators, for a book-to-sales ratio of 0.84 times and 1.27 times on a trailing 12-month basis. We ended the quarter with $8.4 billion of total civil adjusted backlog, which is up notably 27% year over year. During the quarter, we announced the expansion of our commercial Embraer E2 training offering with the deployment of the first full-flight simulator to support the growing E2 fleet across Europe, the Middle East, and Africa. Since quarter end, we also announced the E2 pilot training will be delivered in Montreal, further supporting Porter Airlines' expanding fleet and enhancing the efficiency of their pilot training program. In business aviation, we were pleased to open our first dedicated training center in Central Europe, located in Vienna, which welcomed its first customer in April.

Speaker #1: We ended the quarter with $8.4 billion of total civil adjusted backlog, which is up notably 27 percent year over year. During the quarter, we announced the expansion of our commercial Embraer E2 training offering, with the deployment of the first full-flight simulator to support the growing E2 fleet across Europe, the Middle East, and Africa.

Speaker #1: Since quarter end, we also announced that the E2 pilot training will be delivered in Montreal, further supporting Porter Airlines' expanding fleet and enhancing the efficiency of their pilot training program.

Speaker #1: In business aviation, we were pleased to open our first dedicated training center in central Europe, located in Vienna, which welcomed its first customer in April.

Speaker #1: The state-of-the-art business aviation training center, an 8,000-square-foot facility, offers an elevated training experience and reflects our continued commitment to supporting customers closer to where they operate.

Marc Parent: The state-of-the-art Business Aviation Training Center, an 8,000 square foot facility, offers an elevated training experience and reflects our continued commitment to supporting customers closer to where they operate. A Gulfstream G550 full-flight simulator is already in service, and a new Pilatus PC24 full-flight simulator will be added in the second half of 2026. The center will ultimately feature up to nine full-flight simulators, including Europe's first Bombardier Global 7500, a Global Vision, Embraer Phenom 100/300, and a Bombardier Challenger 3500. In airline operations, we're proud to have rebranded our suite of solutions under a new name, FlightScape, powered by CAE. FlightScape is a data-driven platform that delivers real-time insights to help airlines enhance operational performance. It empowers operations control center teams to anticipate disruptions, adapt quickly to changing conditions, and optimize costs, even in the most complex, time-sensitive scenarios.

Speaker #1: A Gulfstream G550 full-flight simulator is already in service, and new Pilatus PC-24 full-flight simulator will be added in the second half of 2026. The center will ultimately feature up to nine full-flight simulators, including Europe's first Bombardier Global 7500, a Global Vision, Embraer Phenom 100-300, and a Bombardier Challenger 3500.

Speaker #1: And in airline operations, we're proud to have rebranded our suite of solutions under a new name, FlightScape powered by CAE. FlightScape is a data-driven platform that delivers real-time insights to help airlines enhance operational performance.

Speaker #1: It empowers operations control center teams to anticipate disruptions, adapt quickly to changing conditions, and optimize costs, even in the most complex, time-sensitive scenarios. During the quarter, we signed a long-term agreement with Allegiant, which will leverage FlightScape to transform its operational intelligence and drive improved performance.

Marc Parent: During the quarter, we signed a long-term agreement with Allegiant, which will leverage FlightScape to transform its operational intelligence and drive improved performance. CAE has a proven track record of leveraging technology to drive innovation and improve the effectiveness of our training solutions. Last fall, we became the first to develop an immersive pilot training app for Apple Vision Pro, enabling pilots to complete key training activities remotely, enhancing efficiency, scalability, and training outcomes. Apple selected CAE as a flagship use case for Vision Pro in aviation, and Apple's CEO, Tim Cook, and the CFO highlighted us on their latest earnings call. They recognize how our adoption of spatial computing will improve pilot readiness and drive more productive simulator training. Turning to defense, we had a particularly strong quarter, driven by solid program execution across the board and improving product mix, and program mix, I should say.

Speaker #1: CAE has a proven track record of leveraging technology to drive innovation and improve the effectiveness of our training solutions. Last fall, we became the first to develop an immersive pilot training app for Apple Vision Pro, enabling pilots to complete key training activities remotely and enhancing efficiency, scalability, and training outcomes.

Speaker #1: Apple selected CAE as a flagship use case for Vision Pro in aviation, and Apple's CEO, Tim Cook, and the CFO highlighted us on their latest earnings call.

Speaker #1: They recognize how our adoption of spatial computing will improve pilot readiness and drive more productive simulator training. Turning to defense, we had a particularly strong quarter driven by solid program execution across the board, and improving product mix and program mix, I should say.

Speaker #1: Adjusted segment operating income and margin grew significantly year over year, reflecting better program performance and the successful completion of lower-margin contracts. We recorded a total of $611 million in defense orders, achieving a book-to-sales ratio of 1.25 times, contributing to $11 billion in defense-adjusted backlog, up 7 percent year over year.

Marc Parent: Adjusted segment operating income and margin grew significantly year over year, reflecting better program performance and the successful completion of lower margin contracts. We recorded a total of $611 million in defense orders, achieving a book-to-sales ratio of 1.25 times, contributing to $11 billion in defense-adjusted backlog, up 7% year over year. Over the last 12 months, the defense book-to-sales ratio stood at 2.08 times. The pipeline continues to be robust, with some $6 billion of orders pending customer decisions. In defense, we continue to win strategically important contracts that really reflect the breadth of our training and mission support capabilities. During the quarter, we secured a continuation of flight training services for the US Air Force on the KC-135 tanker aircraft, as well as an extension of our management role in the simulator common architecture requirements and standards program for the US Air Force.

Speaker #1: Over the last 12 months, the defense book-to-sales ratio stood at 2.08 times, the pipeline continues to be robust, with some 6 billion dollars of orders pending customer decisions.

Speaker #1: In defense, we continued to win strategically important contracts that really reflect the breadth of our training and mission support capabilities. During the quarter, we secured a continuation of flight training services for the United States Air Force on the KC-135 tanker aircraft, as well as an extension of our management role in the simulator common architecture requirements and standards program for the United States Air Force.

Speaker #1: SCARS is a centralized, open systems architecture initiative that supports US Air Force platform simulators and the Joint Synthetic Environment, underscoring CAE's leadership in enterprise training solutions.

Marc Parent: SCARS is a centralized open systems architecture initiative that supports US Air Force platforms, simulators, and the joint synthetic environment, underscoring CAE's leadership in enterprise training solutions. For the US Army, we signed an agreement with GDIT under the Flight School Training Support Services Contract, or FTSS, providing simulation capabilities and training support for rotary wing pilot instruction at Fort Novosel, Alabama. In operational support solutions, we announced a collaboration with Sikorsky to deliver CAE's magnetic anomaly detection extended roll system for the US Navy and the Royal Australian Navy MH60R Seahawk helicopters. Built by CAE and integrated by Sikorsky, this compact removable sensor detects magnetic anomalies caused by submarines, providing a powerful new anti-submarine warfare capability for MH60R operators. In Canada, we signed an additional amendment under the Canadian FACT program, bringing the total value of subcontracts awarded to CAE under the Skyline Joint Venture to approximately $2 billion.

Speaker #1: For the U.S. Army, we signed an agreement with GDIT under the Flight School Training Support Services contract, or FTSS, providing simulation capabilities and training support for rotary-wing pilot instruction at Fort Novicell, Alabama.

Speaker #1: In operational support solutions, we announced a collaboration with Sikorsky to deliver CAE's magnetic anomaly detection extended roll system for the US Navy. And the Royal Australian Navy, MH60R Seahawk helicopters.

Speaker #1: Built by CAE and integrated by Sikorsky, this compact removable sensor detects magnetic anomalies caused by submarines providing a powerful new anti-submarine warfare capability for MH60R operators.

Speaker #1: In Canada, we signed an additional amendment under the FACT program, bringing the total value of subcontracts awarded to CAE under the Skyline Joint Venture to approximately $2 billion.

Speaker #1: This is aligned with our strategy to transition the defense-adjusted backlog towards more accretive long-term contracts, since the end of the quarter, we were also awarded a contract by the Italian Air Force to deliver a Block 5 predator mission trainer plus for PMT Plus, for the MQ-9A Reaper.

Marc Parent: This is aligned with our strategy to transition the defense adjusted backlog towards more accretive long-term contracts. Since the end of the quarter, we were also awarded a contract by the Italian Air Force to deliver a Block 5 Predator Mission Trainer Plus, or PMT Plus, for the MQ-9A Reaper. Developed in partnership with General Atomics, our PMT Plus is the most advanced simulator for the Reaper platform, offering a highly immersive training environment that accelerates readiness and reduces the need for live aircraft time during pilot and sensor operator training. These wins underscore the impact of the improvements we've made across the defense business. Through stronger execution and disciplined program delivery, we are seeing tangible results, both in our operational performance and in growing customer confidence. This progress reflects the focus and hard work of our teams to turn strategy into results and improve profitability.

Speaker #1: Developed in partnership with General Atomics, our PMT Plus is the most advanced simulator for the Reaper platform, offering a highly immersive training environment that accelerates readiness and reduces the need for live aircraft time during pilot and sensor operator training.

Speaker #1: These wins underscore the impact of the improvements we've made across the defense business. Through stronger execution and disciplined program delivery, we are seeing tangible results, both in our operational performance and in growing customer confidence.

Speaker #1: This progress reflects the focus and hard work of our teams to turn strategy into results, and improve profitability. Before I close, I'd like to shift gears.

Marc Parent: Before I close, I would like to shift gears. As many of you know, today is my last day as CEO of CAE Inc., and I want to take a moment to reflect on what these 21 years have meant to me. It has really been the honor of my professional life to lead this company for the past 16 years. When I joined in 2005, CAE Inc. was a very different business, and we have gone through multiple transformations since then, expanding into new markets. Today we are the global leader in aviation and defense training. What I am most proud of is our culture. From the very beginning, I believe that if we take care of our people and our customers, the results will follow.

Speaker #1: As many of you know, today is my last day as CEO of CAE. And I want to take a moment to reflect on what these 21 years have meant to me.

Speaker #1: It's really been the honor of my professional life to lead this company for the past 16 years. When I joined in 2005, CAE was a very different business.

Speaker #1: And we've gone through multiple transformations since then, expanding into new markets, and today, we are the global leader in aviation defense training. But what I'm most proud of is our culture.

Speaker #1: From the very beginning, I believe that if we take care of our people and our customers, the results will follow. And that's what we've built together at CAE, a company that leads with purpose.

Marc Parent: That is what we have built together at CAE Inc., a company that leads with purpose, a company where people take pride in the mission, our noble mission, where safety, innovation, and customer partnerships are not slogans, but they are part of who we are. They are part of our DNA. None of this would have been possible without the incredible team at CAE Inc. I want to thank our instructors, our engineers, our technicians, our support staff, and everyone in between for their dedication, their grit, their passion, and their belief in what we do. As I have often remarked, without the employees of CAE Inc., we are merely a collection of buildings. We have 13,000 people who bring CAE Inc. to life.

Speaker #1: A company where people take pride in the mission, our noble mission, where safety, innovation, and customer partnerships aren't slogans. But they're part of who we are.

Speaker #1: They're part of our DNA, and none of this would have been possible without the incredible team at CAE. I want to thank our instructors, our engineers, our technicians, our support staff, and everyone in between for their dedication, their grit, their passion, and their belief in what we do.

Speaker #1: As I've often remarked, without the employees of CAE, we are merely a collection of buildings without 13,000 people who bring CAE to life. I know much has been asked of you over the past decade and a half.

Marc Parent: I know much has been asked of you over the past decade and a half, all of our employees listening to me, and I am extremely proud of all that you have accomplished to make CAE Inc. the global leader that we are today. I am equally grateful to our exceptional civil aviation and defense customers around the world. We exist to make the world safer, and it has been a true honor to serve as your trusted partner and to help you prepare for the moments that matter most. I also want to thank the board and our investors for their trust over the years.

Speaker #1: All of our employees listening to me, and I'm extremely proud of all that you have accomplished to make CAE the global leader that we are today.

Speaker #1: I'm equally grateful to our exceptional civil aviation and defense customers around the world. We exist to make the world safer, and it's been a true honor to serve as your trusted partner and to help you prepare for the moments that matter most.

Speaker #1: I also want to thank the Board and our investors for their trust over the years. And of course, I want to thank Cailin, Wormley, and welcome Matt as he officially steps into the CEO role today.

Marc Parent: Of course, I want to thank Kaelin Rovinescu warmly and welcome Matthew Bromberg as he officially steps into the CEO role today. I have had the opportunity to work closely with Matthew Bromberg over the past couple of months, and I can say without hesitation that he brings the right mix of leadership, operational discipline, and vision to take CAE Inc. forward, and I am honored that he has been chosen to replace me. I am confident in the team, confident in the company, and incredibly grateful for the opportunity to have served as CAE's CEO, which has really been the privilege of my life. With that, I will turn it over to Dino for some additional financial details.

Speaker #1: I've had the opportunity to work closely with Matt over the past couple of months, and I can say without hesitation that he brings the right mix of leadership, operational discipline, and vision to take CAE forward, and I am honored that he has been chosen to replace me.

Speaker #1: I'm confident in the team, confident in the company, and incredibly grateful for the opportunity to have served as CAE's CEO, which is really have been the privilege of my life.

Speaker #1: With that, I'll turn it over to Dino, from some additional financial details.

Speaker #4: Thank you, Marc. Good morning, everyone. Consolidated revenue of 1.1 billion dollars was 2 percent higher compared to the first quarter last year, while adjusted segment operating income was 147.8 million dollars, up 10 percent compared to 134.2 million in the first quarter last year.

Andrew Arnovitz: Thank you, Marc. Good morning, everyone. Consolidated revenue of $1.1 billion was 2% higher compared to the first quarter last year, while adjusted segment operating income was $147.8 million, up 10% compared to $134.2 million in the first quarter last year. Our quarterly adjusted EPS was $0.21, in line with the first quarter last year. Net finance expense this quarter amounted to $54.6 million, up from $49.5 million in the first quarter last year, mainly because of additional lease financing costs related to the recently opened training centers in our global network in support of growth. We also have additional financing costs associated with the consolidation of the Simcom joint venture in business aviation, which took place in Q3 last year. The increase was partially offset by lower finance expense on long-term debt on a lower level of borrowings during the period, in line with our ongoing deleveraging undertakings.

Speaker #4: Our quarterly adjusted EPS was $0.21, in line with the first quarter last year. Net finance expense this quarter amounted to $54.6 million, up from $49.5 million in the first quarter last year, mainly because of additional lease financing costs related to the recently opened training centers in our global network and support of growth.

Speaker #4: We also have additional financing costs associated with the consolidation of the SIMCOM joint venture in business aviation, which took place in Q3 last year.

Speaker #4: The increase was partially offset by lower finance expense on long-term debt, due to a lower level of borrowings during the period, in line with our ongoing deleveraging undertakings.

Speaker #4: Income tax expense this quarter was 19 million dollars, for an effective tax rate of 24 percent. The adjusted effective income tax rate was also 24 percent.

Andrew Arnovitz: Income tax expense this quarter was $19 million for an effective tax rate of 24%. The adjusted effective income tax rate was also 24%, which is the basis for the adjusted EPS. We continue to expect a run rate effective income tax rate of 25%, considering the income anticipated from various jurisdictions and the impact from global minimum tax legislative changes. Net cash from operating activities this quarter was negative $15.3 million compared to negative $12.9 million in the first quarter of fiscal 2025. Free cash flow was negative $36.2 million compared to negative $25.3 million in the first quarter last year. The decrease was mainly due to a higher investment in non-cash working capital, partially offset by higher net income adjusted for non-cash items and higher dividends received from equity accounted investees.

Speaker #4: Which is the basis for the adjusted EPS. We continue to expect a run rate effective income tax rate of 25 percent. Considering the income anticipated from various jurisdictions, and the impact from global minimum tax legislative changes.

Speaker #4: Net cash from operating activities this quarter was negative $15.3 million, compared to negative $12.9 million in the first quarter of fiscal 2025.

Speaker #4: Free cash flow was negative 36.2 million dollars, compared to negative 25.3 million dollars in the first quarter last year. The decrease was mainly due to a higher investment in non-cash working capital, partially offset by higher net income adjusted for non-cash items, and higher dividends received from equity-accounted investees.

Speaker #4: With continued expected reversals, in non-cash working capital investments, and our outlook for operations, we expect to generate strong free cash flow in the year, with a conversion of adjusted net income of approximately 150 percent.

Andrew Arnovitz: With continued expected reversals in non-cash working capital investments and our outlook for operations, we expect to generate strong free cash flow in the year with a conversion of adjusted net income of approximately 150%. Capital expenditures totaled $106.9 million this quarter, with approximately 75% invested in growth. Approximately 40% of the growth capital expenditures this quarter were for simulators deployed to the FSTSS program in support of US Army helicopter training in Alabama. We remain highly focused on capital efficiency, and notwithstanding this contract-specific investment opportunity in defense, we continue to expect total CAPEX in fiscal 2026 to be modestly lower than in fiscal 2025. This will be concentrated mainly on organic growth investments in simulator capacity to be deployed to CAE's global network of aviation training centers, which are backed by multi-year customer contracts.

Speaker #4: Capital expenditures totaled $106.9 million this quarter, with approximately 75 percent invested in growth. Approximately 40 percent of the growth capital expenditures this quarter were for simulators deployed to the FSTSS program in support of U.S. Army helicopter training in Alabama.

Speaker #4: We remain highly focused on capital efficiency, and notwithstanding this contract-specific investment opportunity defense, we continue to expect total CapEx in fiscal 2026 to be modestly lower than in fiscal 2025.

Speaker #4: This will be concentrated mainly on organic growth investments in simulator capacity to be deployed to CAE's global network of aviation training centers, which are backed by multi-year customer contracts.

Speaker #4: Our net debt position at the end of the quarter was approximately 3.2 billion dollars, for a net debt to adjusted EBITDA of 2.75 times at the end of the quarter.

Andrew Arnovitz: Our net debt position at the end of the quarter was approximately $3.2 billion for a net debt-to-adjusted EBITDA of 2.75 times at the end of the quarter. As Kaelin Rovinescu indicated, we remain committed to further strengthening our financial position and continue to expect to reach 2.5 times net debt-to-adjusted EBITDA by the end of the fiscal year. Turning to our segmented performance. In civil, first quarter revenue grew 3% year over year to $607.7 million, while adjusted operating income rose 1% to $107.6 million, resulting in a 17.7% margin. The approximate 40 basis point decrease in the civil margin reflects lower utilization in commercial training and some differences in product-solution mix this quarter. Looking ahead for civil, we continue to take a measured view of the first half given commercial market dynamics.

Speaker #4: As Cailin indicated, we remain committed to further strengthening our financial position and continue to expect to reach 2.5 times net debt to adjusted EBITDA by the end of the fiscal year.

Speaker #4: Now, turning to our segmented performance. In civil, first quarter revenue grew 3 percent year over year, to 67.7 million dollars, while adjusted operating income rose 1 percent, to 107.6 million dollars.

Speaker #4: Resulting in a 17.7 percent margin. The approximate 40 basis point decrease in the Civil margin reflects lower utilization in commercial training and some differences in product solution mix this quarter.

Speaker #4: Looking ahead for civil, we continue to take a measured view of the first half given commercial market dynamics. We also factor in the usual seasonal impact on our second quarter from the busy summer travel period when pilots are flying.

Andrew Arnovitz: I will also factor in the usual seasonal impact on our second quarter from a busy summer travel period when pilots are flying. We now expect annual adjusted segment operating income to grow in the mid-single-digit percentage range at the lower end of our prior outlook, with annual segment operating income margin remaining stable year over year. The expected weighting of civil's results toward the second half is consistent with prior fiscal years, supported by usual seasonality, proving market dynamics, and macroeconomic conditions. Adding to our confidence is a recent increase in activity with our U.S. airline customers. In defense, revenue remains stable at $490.9 million, while adjusted segment operating income increased 45% to $40.2 million, delivering an 8.2% margin thanks to higher profitability and activity on our North American programs.

Speaker #4: We now expect annual adjusted segment operating income to grow in the mid-single-digit percentage range, at the lower end of our prior outlook, with annual segment operating income margin remaining stable year over year.

Speaker #4: The expected weighting of civil's results toward the second half is consistent with prior fiscal years. Supported by usual seasonality, proving market dynamics, and macroeconomic conditions.

Speaker #4: Adding to our confidence is a recent increase in activity with our US airline customers. In defense, revenue remains stable at 490.9 million dollars, while adjusted segment operating income increased 45 percent to 40.2 million dollars, delivering an 8.2 percent margin.

Speaker #4: Thanks to higher profitability and activity on our North American programs. Legacy contracts remain on track, with costs and schedules well managed, and there's no change to our annual outlook for defense.

Andrew Arnovitz: Legacy contracts remain on track, with costs and schedules well managed, and there is no change to our annual outlook for defense. With that, I will turn the call over to Matthew Bromberg.

Speaker #4: With that, I will turn the call over to Matt.

Speaker #1: Thank you, Dino. And good morning, everyone. I also want to thank Marc and Cailin for the kind words and the entire CAE team for a warm, warm welcome.

Matthew Bromberg: Thank you, Dino, and good morning, everyone. I also want to thank Marc and Kaelin for the kind words and the entire CAE team for a warm, warm welcome. Let me start by saying what an honor it is to be joining CAE and to be stepping into the role of CEO later today. It is a privilege to follow Marc, whose leadership over the past two decades has shaped the CAE we know today. I am also grateful to have had the opportunity to work closely with him in the recent weeks, which has helped ensure both continuity and a smooth handoff. Although my appointment becomes official following today's annual general meeting, I have already had a valuable introduction to CAE through time spent with our people and our customers and other key stakeholders.

Speaker #1: Let me start by saying what an honor it is to be joining CAE. And to be stepping into the role of CEO later today.

Speaker #1: It is a privilege to follow Marc, whose leadership over the past two decades has shaped the CAE we know today. I'm also grateful to have had the opportunity to work closely with him in the recent weeks which has helped ensure both continuity and a smooth handoff.

Speaker #1: Although my appointment becomes official following today's annual general meeting, I've already had a valuable introduction to CAE through time spent with our people and our customers, and other key stakeholders.

Speaker #1: One of my first experiences was attending the Paris Air Show last month, along with the team. It was an intensive and energizing start. And I can say without hesitation, after attending air shows for more than 25 years, I have never seen a company so consistently respected.

Matthew Bromberg: One of my first experiences was attending the Paris Air Show last month along with the team. It was an intensive and energizing start, and I can say without hesitation, after attending air shows for more than 25 years, I have never seen a company so consistently respected. Every conversation spoke to CAE's professionalism, technical leadership, safety mindset and culture, and a deep, deep commitment to customer success. In these early weeks, I have been extremely impressed by the caliber of CAE's people, the strength of our technology, and the depth of our customer relationships. This is a fantastic, a fantastic organization with tremendous potential to build upon past successes. It is clear to me that we have a world-class team, which is an excellent place to start. Over the next 90 days, I will take a pragmatic approach to evaluating the business, both operationally and strategically.

Speaker #1: Every conversation spoke to CAE's professionalism, technical leadership, safety mindset and culture, and a deep, deep commitment to customer success. In these early weeks, I've been extremely impressed by the caliber of CAE's people, the strength of our technology, and the depth of our customer relationships.

Speaker #1: This is a fantastic, a fantastic organization. With tremendous potential to build upon past successes. It is clear to me that we have a world-class team, which is an excellent place to start.

Speaker #1: Over the next 90 days, I will take a pragmatic approach to evaluating the business. Both operationally and strategically. My focus will be on understanding where we can further improve efficiency, sharpen execution, and unlock synergies across our balanced portfolio.

Matthew Bromberg: My focus will be on understanding where we can further improve efficiency, sharpen execution, and unlock synergies across our balanced portfolio. I value what makes CAE distinctive, especially its strong culture, and as I look to the future, I intend to protect what's core while building on our strengths. While it will take time to fully assess and quantify the scale of the opportunities ahead, my initial impressions are that there is real potential to strengthen free cash flow and improve returns on invested capital. This can be achieved not only through enhanced operational excellence, but also through disciplined, data-driven capital allocation. This work will be thoughtful, collaborative, and grounded in a clear objective, creating long-term value for our shareholders. While CAE Inc. is best known for its leadership in civil aviation, our defense technologies are increasingly seen as mission-critical.

Speaker #1: I value what makes CAE distinctive. Especially its strong culture. And as I look to the future, I intend to protect what's core while building on our strengths.

Speaker #1: While it would take time to fully assess and quantify the scale of the opportunities ahead, my initial impressions are that there is real potential to strengthen free cash flow.

Speaker #1: And improve returns on invested capital. This can be achieved not only through enhanced operational excellence, but also through disciplined, data-driven capital allocation. This work will be thoughtful, collaborative, and grounded in a clear objective.

Speaker #1: Creating long-term value for our shareholders. While CAE is best known for its leadership in civil aviation, our defense technologies are increasingly seen as mission critical.

Speaker #1: We help military forces train more safely, more effectively, and with a level of realism that is essential in today's environment. Having spent a fair part of my career in and around defense, including service as a US Navy submarine officer, I understand how vital it is to be fully prepared before a mission ever begins.

Matthew Bromberg: We help military forces train more safely, more effectively, and with a level of realism that is essential in today's environment. Having spent a fair part of my career in and around defense, including service as a US Navy submarine officer, I understand how vital it is to be fully prepared before a mission ever begins. That's exactly what CAE Inc. enables, and it is why I believe we are uniquely positioned to grow our impact as a strategic partner of choice in defense. I see real potential to leverage our advanced defense technologies more broadly across CAE Inc.'s portfolio, including in commercial aviation. At the same time, we can drive greater efficiency by applying commercial best practices within our defense business. This cross-pollination of innovation and efficiency can unlock new value, enhance customer outcomes, and support higher returns.

Speaker #1: That's exactly what CAE enables, and it is why I believe we are uniquely positioned to grow our impact as a strategic partner of choice in defense.

Speaker #1: I see real potential to leverage our advanced defense technologies more broadly across CAE's portfolio, including in commercial aviation. At the same time, we can drive greater efficiency by applying commercial best practices within our defense business.

Speaker #1: This cross-pollination of innovation and efficiency can unlock new value, enhance customer outcomes, and support higher returns. As we focus on efficiency, we will relentlessly maintain our commitment to our customers, to quality, and to safety.

Matthew Bromberg: As we focus on efficiency, we will relentlessly maintain our commitment to our customers, to quality, and to safety. Before I turn the call back to Andrew Arnovitz, I want to take a moment to speak directly to our investors and analysts. I know many of you have long-standing relationships with Kaelin Rovinescu and Andrew Arnovitz, and I've benefited from their insights about what matters to you. I look forward to building those relationships over time, and once I'm fully up to speed, I'll welcome the opportunity to engage with you directly. In the meantime, thank you again for the warm welcome. I'm excited to be here, focused on the work ahead, and confident that we can achieve good growth and a great future together. Andrew Arnovitz, back to you.

Speaker #1: Before I turn the call back to Andrew, I want to take a moment to speak directly to our investors and analysts. I know many of you have longstanding relationships with Cailin and Andrew.

Speaker #1: And I've benefited from their insights about what matters to you. I look forward to building those relationships over time, and once I'm fully up to speed, I'll welcome the opportunity to engage with you directly.

Speaker #1: In the meantime, thank you again for the warm welcome, I'm excited to be here, focused on the work ahead, and confident that we can achieve good growth and a great future together.

Speaker #1: Andrew, back to you.

Speaker #3: Thanks, Matt. Operator will now open the lines to questions from financial analysts.

Andrew Arnovitz: Thanks, Matt. Operator, we will now open the lines to questions from financial analysts.

Speaker #2: Thank you. Ladies and gentlemen, we will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad, and you will hear a tone acknowledging your request.

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. To join the question key, you may press star, then one on your telephone keypad, and you will hear a tone acknowledging your request. If you are using a speaker phone, please pick up your headset before pressing any keys. To withdraw your question, please press star, then two. We will pause for a moment as callers join the queue. Thank you. Your first question comes from the line of Fatty Shimon from BMO Capital Market. Please go ahead.

Speaker #2: If you are using a speakerphone, please speak up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue.

Speaker #2: Thank you, and your first question comes from the line of Fadi Shamoun from BMO Capital Market. Please go ahead.

Speaker #5: Okay. Good morning. First, I want to say congrats to Marc on the retirement and outstanding career. You know, my question may be to Cailin and Matt, but you both referenced, I think, in the press release quote, operational focus, excellence, you know, focus on the operational efficiency side of the story.

Fatty Shimon: Okay. Good morning. First, I want to say congrats to Marc Parent on the retirement and outstanding career. My question may be to Kaelin Rovinescu and Matthew Bromberg, but you both referenced, I think, in the press release quote, operational excellence, focus on the operational efficiency side of the story. It seems also logical after significant growth and the buildup that happened in the last decade that there is kind of road for optimization here. I just wanted to see if you have even high-level thoughts. I know it is kind of early days here in this transition, but if you have any high-level thoughts of where exactly you see the opportunities in terms of improving the margin, improving the cash flow conversion that you talked about.

Speaker #5: And I'm, you know, maybe it seems also logical after significant growth and the buildup that happened in the last decade. That there's kind of road for optimization here.

Speaker #5: I just wanted to see if you have even high-level thoughts. I know it's kind of early days here. In this transition, but if you have any high-level thoughts of where exactly you see the opportunities in terms of improving the margin, improving the cash flow conversion that you talked about.

Speaker #3: Right. Thanks. Good morning, Fadi. Cailin here. And it's good to hear your voice again. Two things. One, as has been referenced in these remarks, CAE has invested significantly over the last period of time in in building up capability.

Matthew Bromberg: Right. Thanks. Good morning, Kaelin here. It's good to hear your voice again. Two things. One, as has been referenced in these remarks, CAE Inc. has invested significantly over the last period of time in building up capability. That investment has started to pay dividends based on the earnings that we're seeing, but we think there's much more potential there. That obviously requires an opportunity to leverage those investments, and that may result in some additional focus on cost, how it is we can best optimize. From my vantage point, as you know, and I referenced this in my remarks, that's actually within Matthew Bromberg's wheelhouse in terms of operational excellence. It's a simple formula of saying when we look at the commercial side of the business in particular, and frankly, the entire civil segment, a lot of investment has been made.

Speaker #3: That investment has started to pay dividends based on the earnings that we're seeing. But we think there's much more potential there. So that obviously requires an opportunity to leverage those investments, and that may result in, you know, some additional focus on cost, how it is we can best optimize.

Speaker #3: And from my vantage point, as you know, and I referenced as well this in my remarks, that's actually within Matt's wheelhouse in terms of operational excellence.

Speaker #3: And so, it's a simple formula of saying when we look at the commercial side of the business, in particular, and frankly, the entire civil side of the business, a lot of investment has been made.

Speaker #3: Now is the time to optimize it, and we think that there are some great opportunities ahead. We're still early on, I'd say in the early innings of that cycle, so there's a lot more room to go.

Matthew Bromberg: Now is the time to optimize it, and we think that there are some great opportunities ahead. We're still early on, I'd say, in the early innings of that cycle, so there's a lot more room to go. That's quite an exciting time to see earnings growth there. On the defense segment, you've seen the positive results this quarter, and we'll continue to build sustainable, profitable long-term contracts and execute well on these various programs. I think that's as simple as that. I don't know, Matthew Bromberg, if you want to comment further?

Speaker #3: And so that's a, you know, quite an exciting time to see earnings growth there. On the defense side, you've seen the positive results this quarter.

Speaker #3: And we'll continue to build sort of sustainable, profitable long-term contracts and execute well on these various programs. But, you know, I think that's as simple as that.

Speaker #3: I don't know, Matt, if you want to comment further.

Speaker #1: Thanks, Cailin, and thanks for the question. You know, recognizing that I'm on the doorstep of the role later today, I have spent my entire career looking at complex global organizations and understanding how to drive efficiency, improve operations, maintain quality, and maintain safety.

Andrew Arnovitz: Thanks, Kaelin, and thanks for the question. Recognizing that I am on the doorstep of the role later today, I have spent my entire career looking at complex global organizations and understanding how to drive efficiency, improve operations, maintain quality, and maintain safety. From what I have seen, we have that opportunity to continue to do that at CAE Inc. As I get into the next 90 days and find out and discover where that is, we will come back and share that with you.

Speaker #1: And from what I've seen, we have the opportunity to continue to do that at CAE. As I get into the next 90 days and discover where that is, I'll come back and share that with you.

Speaker #3: Appreciate it. Thanks.

Matthew Bromberg: Appreciate it. Thanks.

Speaker #2: Thank you. And your next question comes from the line of Kevin Chang from CABC. Please go ahead.

Operator: Thank you. Your next question comes from the line of Kevin Chang from CABC. Please go ahead.

Speaker #6: Hi. Thanks for taking my question. And echo Fadi's comments there, Marc, congratulations on your upcoming retirement and welcome, Matt, to to CAE. Maybe as I look at the outlook you provided for fiscal 2026, it seems like you're facing some transient headwinds in civil.

Kevin Chang: Hi, thanks for taking my question and echo Fatty's comments there. Marc, congratulations on your upcoming retirement and welcome, Matt, to CAE Inc. Maybe, as I look at the outlook you provided for fiscal 2026, it seems like you're facing some, you know, transient headwinds in civil. Just wondering, as you think about utilization, maybe being a little bit weaker than you anticipated, does that change, you know, near-term CAPEX spending opportunities? Could you see upside to your CAPEX guidance this year in the sense that maybe there's an opportunity to push some of that spend, you know, further out, just as you look to better match near-term demand with supply, just given some of the transient headwinds you noted in the prepared remarks?

Speaker #6: Just wondering, as you think about utilization maybe being a little bit weaker than you anticipated, does that change near-term CapEx spending opportunities? Like, could you see upside to your CapEx guidance this year in the sense that maybe there's an opportunity to push some of that spend, you know, further out, just as you look to better match near-term demand with supply, just given some of the transient headwinds you noted in the prepared remarks?

Speaker #3: Yeah, Kevin, Cailin here, and again, good to hear your voice as well. Listen, there's some timing noise for sure around pilot hiring. This summer, but the big picture is that the earning potential can be a lot higher over time, and as I said, we're just at the beginning of that journey.

Matthew Bromberg: Yeah, Kevin, Kaelin here, and again, good to hear your voice as well. Listen, there is some timing noise for sure around pilot hiring this summer, but the big picture is that the earning potential can be a lot higher over time. As I said, we are just at the beginning of that journey. In terms of getting a bit more granular on capital, I will ask Constantino Malatesta to comment briefly.

Speaker #3: But in terms of getting a bit more granular on capital I'll ask Constantino to comment briefly.

Speaker #4: Yep. Good morning. Thanks for the question. Thanks, Cailin. So, effectively, we continue to expect CapEx to be slightly lower year-over-year in FY26, overall in line with our disciplined approach. I think that's going to be key: a disciplined approach to capital deployment.

Andrew Arnovitz: Yep. Good morning. Thanks for the question. Thanks, Kaelin Rovinescu. We continue to expect CAPEX to be slightly lower year over year in FY26, overall in line with our disciplined approach. I think that is going to be key, disciplined approach to capital deployment. When you look at it, civil CAPEX is lower year over year in Q1 by about $10 million already. I mentioned it in my remarks that 40% of the growth CAPEX this quarter was for one specific program in defense and security. We are being disciplined, making sure that we are not ahead of the market, and we are listening carefully and looking carefully to where we can find savings and push out CAPEX if necessary.

Speaker #4: When you look at it, civil CapEx is lower year over year in Q1 by about 10 million dollars already. You know, I mentioned it in my remarks, the 40 percent of the growth CapEx this quarter was for one specific program, and defense and security.

Speaker #4: So we are being disciplined, making sure that we're not ahead of the market, and we're listening carefully to and looking carefully to where we can find savings and push out CapEx if necessary.

Speaker #6: That's helpful. And maybe just maybe back to you as well. Just on the working capital, you mentioned, you know, typically seasonally Q1 is a bigger working capital drag, and it sounds like we'll reverse that.

Kevin Chang: That's helpful. Maybe back to you as well, just on the working capital. You mentioned, you know, typically seasonally Q1 is a bigger working capital drag, and it sounds like we'll reverse that. But in fiscal 2024 and 2025, working capital was on an absolute basis for the full year a tailwind. Is that something we can expect for fiscal 2026, or is it a more neutral working capital year for CAE Inc.?

Speaker #6: But in fiscal 24 and 25, you know, working capital was on an absolute basis for the full year a tailwind. Is that something we can expect for fiscal 2026, or is it a more neutral working capital year for CAE?

Speaker #4: Yeah, so definitely it is typical to see higher investment in non-cash working capital in the first half. It's not inconsistent with the seasonal profile of our business.

Andrew Arnovitz: Yeah, so definitely it is typical to see higher investment in non-cash working capital in the first half. It is not inconsistent with the seasonal profile of our business. We do expect a stronger cash generation profile in the second half and remain on track to deliver strong free cash flow for the year, targeting our conversion and adjusted net income 150%. That comes with a disciplined approach for non-cash working capital. Yes, we are aiming to have a more neutral approach to non-cash working capital this year.

Speaker #4: So we do expect a stronger cash generation profile in the second half, and remain on track to deliver strong free cash flow for the year.

Speaker #4: Targeting our conversion and adjusted net income of 150%. With that, comes a disciplined approach to non-cash working capital. Yes, we are aiming to have a more neutral approach to non-cash working capital this year.

Speaker #6: Perfect. I'll leave it there. Thank you very much.

Kevin Chang: Perfect. I will leave it at that. Thank you very much.

Speaker #2: Thank you. And your next question comes from the line of Cameron Dirksen from National Bank Financial. Please go ahead.

Operator: Thank you. Your next question comes from the line of Cameron Dirksen from National Bank Financial. Please go ahead.

Speaker #5: Yeah, thanks. Thanks very much. Good morning. And yeah, congratulations, Marc, on the retirement and welcome, Matt. Wanted to ask a question about, I guess, the civil outlook.

Kevin Chang: Yeah, thanks. Thanks very much. Good morning. Congratulations, Marc, on the retirement and welcome, Matt. I wanted to ask a question about the civil outlook. Obviously, some incremental softness.

Speaker #5: Obviously, some incremental softness that you've seen here. But it does sound like you're fairly confident that we'll see a better second half of the fiscal year for you.

Speaker 1: have seen here, but it does sound like you are fairly confident that we will see a better second half of the fiscal year for you. I guess, what indicators do you have that provide that visibility in the second half rebound, and I guess especially the airline pilot training part of the business? Is there anything that you are seeing specifically that could point to that?

Speaker #5: I guess, you know, what indicators do you have that provide that visibility in the second-half rebound in, especially, the airline pilot training part of the business?

Speaker #5: Is there anything that you're seeing specifically that could point to that?

Speaker #3: Yes. Cameron Cailin here and good to hear your voice too. So look, you know, as I said, this appears to have been a trough in pilot hiring.

Kaelin Rovinescu: Yes, Cameron Kehlen here, and good to hear your voice too. Look, as I said, this appears to have been a trough in pilot hiring. I think, as you know, and obviously I have lived this, when you hire pilots, there is a built-in lag before the training programs start. This is a natural built-in lag. We have not only seen what we believe to be the trough, and Marc Parent commented on that in his remarks, but we have also started to see some increased activity now, which trends well for the rest of the year. However, we also have seen some of the airlines that were more cautious in their announcements. We are using the data that we have, and I am going to ask Nick Leontidis to comment on what we are seeing in terms of commercial hirings, especially in the United States.

Speaker #3: And I think as you know, and obviously I've lived this, when you hire pilots, there's a built-in lag before the training programs start. So this is a natural built-in lag.

Speaker #3: We've not only seen what we believe to be the trough, and Marc commented on that in his remarks, but we've also started to see some increased activity now, which trends well for the rest of the year.

Kaelin Rovinescu: We are cautiously optimistic about the rest of the year. Nick?

Nick Leontidis: Yeah, thank you, Kaelin. A couple of things that I guess just to point to. One is, as we come out of August into September, we know our customers are going to resume hiring, and that is just through conversations and some discussions around access to capacity. So, hiring is definitely going to ramp up in the second half. The other thing to remember is that Boeing and Airbus are now delivering more normal levels of airplanes, and that has now gone on for a couple of months. So, we are not going to call it a victory yet, but those levels of deliveries are going to start to drive more demand for capacity as we go forward. As you know, Airbus has reaffirmed their guidance.

Nick Leontidis: Boeing is at 35 or 40 airplanes a month, and these are numbers that will drive more demand as a lot of our customers are taking airplanes. So, a combination of airplanes being ramped up and our customers starting to talk about capacity demands, I think we are pretty confident that we are going to see an improvement in the take-up of the training operation.

Speaker 1: Good to know. That's great color. Thanks very much. Appreciate the time.

I know that's that's great. Great color. Thanks very much. Appreciate the time.

Operator: Thank you. Your next question comes from the line of Conrad Gupta from Scotiabank. Please go ahead.

Thank you. And your next question comes from the line of corner Gupta, from Scotia Bank. Please go ahead.

Andrew Arnovitz: Thanks, operator. Good morning, everyone, and congrats to Marc Parent for an outstanding career as CEO, as well as congrats to Matthew Bromberg and Kaelin Rovinescu. Kaelin, nice to hear your voice too on the earnings calls now. My first question, I guess, goes to, I think some of the remarks that Kaelin, you, and Matthew made about how you want to tackle the operational excellence, enhance free cash flow profile, return on capital, et cetera. How do you see the executive compensation alignment should evolve over time as you execute on those priorities? Return on capital is obviously one of the metrics that you have been factoring in. Free cash and other metrics, do you see any room for some innovation there on the executive compensation side?

Thanks author. Good morning everyone and to mark for, for an outstanding career and C as well as congrats to Matt and Ken Ken nice to hear your voice too. On the, on the calls. Now, um, my first question, I guess, you know, goes to um, I think some of the remarks uh, that kale and you and Matt made about, you know, how you want to kind of tackle, uh, the operational efficiency, um, you know, enhance free cash profile written on Capital Etc. How do you, how do you see? You know, the, the executive compensation, uh, alignment should evolve over time as you execute on those priorities? I mean, you know, written on capital is obviously 1. 1 of the metrics that you've been kind of, uh, um, you know, factoring in, uh, free cash and other kind of metrics. Do you see any room for, uh, some Innovation there on the, on the executive proposition side?

Kaelin Rovinescu: Yeah, you know, we look at these. Thank you very much, Conrad, and good to hear your voice as well. We look at the various metrics, and we also compare the various drivers that other organizations have looked at. We have done a deep dive on the aerospace and defense. You know, there is this whole discussion whether Roche is the right measure to do it. We will continue to assess that. You know, I am not convinced of that. Again, this is early days for Matt. We need Matt to kind of get up to speed and sort of see what are the right drivers. But capital allocation is one of the main objectives of this new exercise, this new chapter, if I can say.

Yeah, you know, we we look at these. Uh, thank you, uh, uh, very much Conor and good to hear yours your voice as well. Um, we look at the various metrics and, and, uh, we also compared the, uh, various drivers that other organizations, uh, have looked at, uh, we've done a deep dive on the Aerospace and defense, you know, there's this whole discussion, whether Roi is the right, uh, is is the right measure to to, to do it. We'll continue to to us.

Kaelin Rovinescu: As we look to compare ourselves to best in class within the aerospace and defense industry, and recognizing that the two segments have got obviously different, you know, capital allocation bases and targets, it is clear that we see room for steady improvement. This is not a situation where you are going to have like an overnight dynamic that changes everything. This is room for steady improvement, and we are still extremely committed to both segments of the business, the aerospace and defense side. When you put all that together, that means that we will be looking at different capital allocation measures and measuring ourselves and comparing ourselves to best in class.

Assess that. And, um, you know, I'm not convinced of that. And again, this is early days for Matt. We need Matt to kind of get up to up, to speed and sort of see, what are the the right drivers? But Capital allocation, um, uh, is 1 of the, uh, main objectives of this new exercise, this new chapter, uh, if I can say. So as we look to compare ourselves, the Best in Class within the Aerospace and defense industry, and recognizing that, the 2 sections have got obviously different, uh, you know, Capital allocation bases and and and targets it it is.

We are still extremely committed to both segments uh, of the business the Aerospace and defense side. And so when you put all that together, that means that we will be looking at different Capital, allocation uh, uh measures and um, and and measuring ourselves and, and comparing ourselves to best-in-class.

Andrew Arnovitz: Okay, that is a fair comment. Kaelin, thank you so much for that. If I can quickly follow up on defense, the margin in defense for the first quarter was pretty solid, I would say like 8% plus. Usually, you have a highly pronounced seasonality and lumpiness in defense quarters. I think Marc, you mentioned about some of the weaker margin or lower margin contracts rolling over in the mix, et cetera. Can you speak to the mixed shifts between the legacy contracts and the non-legacy contracts and what kind of contributed to this margin? Does it give you even more confidence in the top end of the range that you have for the full year?

Okay, that's that's a fair comment. Ken, thank you so much for that. And then if I can quickly, follow up on defense, the margin and defense were first quarter was was pretty solid. I would say, like 8% plus, you know, usually you have a high pronounced seasonality and locking Us in defense, uh, quarters. Um, you know, I think, Mark, you mentioned about, um, you know, some of the beaker margin also, lower margin contracts rolling over and the mix Etc. Um, Can can you speak to, you know, the the mixed shifts between the Legacy contracts and the non-legacy contracts and like what kind of your contributed this margin? And you know, I mean does it give you even more confidence in in the top end of the range that we have for the full year?

Nick Leontidis: Yeah, thanks for the question. Look, I think the short answer here is we're executing exactly what we said we would. We're on plan. Actually, we're slightly ahead of plan, and I'm very, very happy with where we are. The plan we put in place a few quarters ago, as you very well know, with regards to the legacy contracts, we're right on plan and see no issue at all with being able to execute the remaining programs that are there. We're executing a strategy that we had to basically replace programs that are dilutive to our margin expectations, which those are quite nicely accretive to those margin expectations, which is, as you know, low double digits in defense, which again, we've said is more of a waypoint at a destination. We're on track to do that. We're very, very happy with what we're seeing.

Yeah, thanks for the question. Look, I I I think the short answer is we're, we're executing exactly what we said we would. We're on plan, actually, we're slightly ahead of plan, you know. And, and we're, I am very, very happy with where we are. I mean,

Nick Leontidis: We're very happy with regards to the order intake as well, as I mentioned, and the backlog growth. Look, I think it's just steady, very disciplined program execution here. I think in terms of revenue, we might see, as we've always seen, revenue being lumpy quarter over quarter, but that's just the nature of the beast as you execute programs. I think we're very confident. We're not changing our guidance, but we're very confident.

The plan we put in place a few quarters ago as you very well know with regards to uh the Legacy contracts. We're right on plan uh and see no issue at all with be able to execute the remaining programs that are there. We're executing a strategy that we had to basically replace you know, programs that are diluted to our margin expectations. Which those are quite nicely accretive to those margin expectations. Which is, as you know, the low double digits in in defense, which again, we've said is, is more of a waypoint to the destination. So we're on track to do that. We're very, very happy with what we're saying. We're very happy with regard to the order intake, as well, as I mentioned and the backlog growth. So look, I think it's just steady very disciplined program execution here. So, uh, I think that, uh, I think in terms of Revenue we might see as we've always

See.

You know uh Revenue being a lumpy quarter of a quarter but that's just the nature of the Beast as you execute programs, but I think we're very confident, we're not changing our guidance, but we're very confident.

Andrew Arnovitz: Okay, thanks, Marc, for the question. Thank you.

Okay. Well thanks Mark for the questions. Thank you.

Operator: Thank you. Your next question comes from the line of Benoit Paret from the Jordan. Please go ahead.

Matthew Bromberg: Yeah, good morning everyone, and congrats, Marc, for those 21 years, and welcome Kaelin and Matthew to the CAE Inc. team. I know, Matthew, it's early on in the role, but you know obviously quite well the U.S. defense market. I would be curious to have your view about how this market is different from other regions and what's your first impression of CAE Inc.'s positioning and potential for margin improvement, especially for the U.S. specifically?

Thank you. And your next question comes from the line of manual. Para, from the Jordan, please go ahead.

Yeah, good morning everyone and congrats Mark for those 21 years and welcome Ken and Matt to the C8.

Um, I know, Matt, it's early on in the role, but, you know, obviously quite well, the US defense Market, I would be curious to have your view, about how this Market is different from other regions, and what's your first impression of seas positioning and potential for margin Improvement. Especially for, uh, the US specifically

Marc Parent: Yeah, thanks, Benoit, and I appreciate the question and look forward to getting to know you. I think we are in a very unique period in defense. First, CAE Inc.'s role in mission safety and mission rehearsal, it transcends borders. We also have tremendous once-in-a-generational growth in defense, not only in the U.S., but in other parts of the world. I think CAE Inc. is well positioned to do several things. One, capitalize on those opportunities. Two, leverage the defense business across our commercial enterprise, as I mentioned earlier, from technology. Three, create scalable international solutions among our defense partners. I see huge opportunity, and I am excited to work to unlock that over the next few months.

Yeah. Thanks thanks Benoit. And appreciate the question and look forward to getting to know you uh I think we're in a very unique period in defense. First, you know, ca's role in Mission safety and Mission rehearsal at transcends Borders.

But we also have tremendous uh once in a generational growth and defense not only in the US but in other parts of the world and I think CE is well positioned to do a several things 1 capitalized on those opportunities.

Matthew Bromberg: Okay, that's great. When we look in Canada, obviously very bullish defense outlook with the intent to reach 5% of GDP. CAE Inc. is extremely well positioned with the Canadian FACT program, but also the future flip. Where do you see the greatest opportunities for CAE Inc. outside those two sizable programs?

2 leverage, a defense business across our commercial Enterprise. As I mentioned earlier from technology and 3 great scalable International Solutions among our defense Partners. So I see huge opportunity and I'm excited to work to unlock that over the next few months.

Okay, that that's great. And when we look um in Canada obviously very bullish defense Outlook with the intent to to reach 5% of GDP CE, extremely well positioned uh with the fact program but also the future flip. Uh, where do you see the greatest opportunities for uh CAE outside those 2 uh sizable programs?

Kaelin Rovinescu: Benoit, it's Kaelin here, and likewise, good to reconnect. Canada is a huge opportunity, of course, because Prime Minister Carney's announcements on increasing spend is frankly exponential. We have never seen that before in this country. There are many, many, many different areas, but one of the things that we believe, and certainly as the country takes on more responsibility in protecting its own sovereignty, it is where the data is maintained, where the training is maintained. If it buys fighter aircraft, who is it that is doing the training on those fighter aircraft? It is expected to be CAE Inc. As we look forward to programs in other countries, if Canada buys equipment from other countries, we would want to accompany the government on those initiatives.

Kaelin Rovinescu: I think that this is something that we look to leverage the opportunities for CAE Inc., not only directly in connection with the government of Canada, not only in relation to the government of Canada programs, but quite frankly international programs throughout. This is an extremely unique opportunity for us, and this is not something that is going to happen overnight because obviously defense programs take time to be approved. We have also raised the question of some urgency with government that there are opportunities to exercise the prerogatives that they have as a government to expedite programs and not go through normal procurement processes that can bog down. We see this as being a fairly exciting long-term growth opportunity as we get to this 5% of GDP spending over time.

Certainly as as the country takes on more responsibility and protecting uh its own sovereignty, uh it's where the data is maintained, where the training is maintained, if it buys fighter aircraft, who is it? That is doing the training on those fighter aircraft, it expected to be CAE, uh, as we look forward to programs in other countries. Uh, if Canada buys equipment from other countries, uh, we would want to a company, the government on those, on those initiatives, you know. And I think that this is something that we look to to leverage the opportunities for CA not only directly in connection with government of of Canada, uh, not only in relation to government of Canada, uh, uh, uh, uh, programs, but quite frankly International International programs, uh, throughout. And so, this is a

You know, this is an extremely unique opportunity, uh, for us and, and this is not something that is, uh, you know, going to happen overnight because obviously defense defense programs, take time to to be approved. Uh, We've also, you know, raised the question of some urgency, uh, with, uh, with government that there are opportunities to, to exercise, uh, uh, you know, these the prerogatives that they have as a government to expedite programs and not go through normal procurement uh, processes that can, you know, bog down. But we see this as uh as as being a a fairly exciting.

Uh long-term uh, growth opportunity as we get to, you know, this this 5% of GDP spending over time.

Matthew Bromberg: Great call. Thanks for the time.

Great caller. Thanks for the time.

Operator: Thank you. Your next question comes from the line of James McGaragall from RBC Capital Markets. Please go ahead.

Thank you. And your next question comes from the line of James. Mcgarel from RBC Capital markets, please go ahead.

Andrew Arnovitz: Yeah, thanks for having me on. Congrats, Marc, on a great career and Matt on the new role. I am sure it is an exciting time for you, but I just have one on the defense results here. The margin guidance implies mostly stable margins for the rest of the year, whereas last year margins stepped up as the year progressed. Anything to call out in Q1 that might have helped out margins here, or should we expect similar sequential trends in margin improvement that we saw in the prior fiscal year?

Hey uh thanks for having me on and congrats mark on a on a great career in Matt on the new role. I'm sure it's uh an exciting time for you but um I just have 1 on the the defense results here. Uh you know the margin guidance implies kind of mostly stable margins for the the the rest of the year where you know last year margins kind of stepped up as the year progressed. So you know anything to call out in q1 that might have helped out margins here or you know should be kind of uh expect similar sequential Trends in margin Improvement that we saw in the uh the prior fiscal year.

Nick Leontidis: Hi James, thanks for the question and good morning. So, we guide on an annual basis because effectively there's always potential for volatility in the margins. We did have a step up in the margins. It really is, as we remarked, some lower margin contracts falling off and some higher margin contracts being ramped up. So, it will be depending on the ramp up of other contracts, and we can see that change throughout the year, but that's why we guide on an annual basis because we're confident we're going to meet that and guidance is unchanged.

Hi James. Thanks for the question and good morning. So um uh we guide on an annual basis, uh, because effectively, there's always potential for volatility in in the emergence. Uh, we did have a step up uh, in the margins. It really is. As we, we remarked, uh, some lower margin contracts falling off and some higher margin contracts being ramped up. Uh, so it it will be depending on the ramp up of of other contracts and we can see that uh, um, change throughout the year. But that's why we got on the manual basis. Uh, because we we're confident we're going to meet that. And guidance is unchanged.

Change.

Andrew Arnovitz: Yeah, thanks for the call there. On the civil margin outlook and some of the utilization drop we saw in Q1, can you just walk me through the puts and takes on the margin outlook for the rest of the year? I guess, given the drop in utilization, the stable margins kind of implies you are working on some things operationally to drive an improvement in margins. Can you just kind of talk us through what those things are? Is the path we will be able to look at into fiscal 2027, as we kind of see utilization kind of normalize and pick back up? We would be kind of modeling for us kind of a step function improvement in margin as we look at longer term as utilization starts to improve back up to where it has trended historically. After that, I can turn the line over. Thank you.

Yeah, thanks for the caller there. And then on, either the Civil margin Outlook and, you know, that some of the, the, the utilization drop we saw in q1, can can you just walk me through the puts and takes on the margin Outlook but for the the rest of the year, you know, I guess, you know, the the given the drop in utilization. Uh, the stable margins kind of implies, you're working on some things uh operationally to to drive uh an improvement in margins. Can you just kind of talk us through what what those things are and then, you know, is to look at into fiscal 2027, you know, as we kind of see, um, you know, utilization kind of normalize and pick back up, should we be kind of modeling for, for a kind of a step function Improvement in margin? As we look at longer term. Uh, as utilization starts to improve back up to where it has turned into historically. And after that, I can turn the line over, thank you.

Nick Leontidis: Hi. So, I guess margin improvement in the second half obviously is going to come from utilization. We are going to have improvements in utilization for the rest of the year. The other thing is cost controls. I mean, like anything else, cost measures are always part of everyday life. For this particular period in the second half, we are making some assumptions around cost avoidance to be able to maintain these numbers.

Hi. Uh, so I guess margin Improvement in the second half, obviously is going to come from utilization. You know, we're going to have um, we're going to have improvements in utilization for the rest of the year. The other thing is, uh, cost cost controls. I mean, you know, like anything else. I mean cost measures are always part of uh part of everyday life. And so for this particular, for this particular period, in the second half, we are making some uh we're making some assumptions around cost uh cost. Um,

Uh, avoidance to be able to maintain these numbers.

Do you know?

Marc Parent: I just wanted to add that we had, you know, we had reflected back in May that the first half of this year will be similar to the first half of last year. That was a ramp up, meaning a ramp up in the second half of this quarter. Again, based on all the things that Nick Leontidis talked about, we are expecting, as usual, more deliveries back-ended and some of the efficiencies you are driving through to make sure that we deliver as we committed.

And some of the efficiencies you're driving through to make sure that, uh, we deliver as our commitment as we committed.

Andrew Arnovitz: Thank you.

Thank you.

Operator: Thank you. We have time for one last question, and that comes from the line of Team James from TD Cowan. Please go ahead.

Thank you and we have time for 1 last question and that comes from the line of Team. James from TD Cowen, please go ahead

Nick Leontidis: Great, thanks. Thanks very much. Best wishes for the future, Marc. It has been a real privilege watching your career and learning from you over the years. Welcome, Matt and Kaelin. I look forward to your insights and soaking up all I can on CAE's way forward. I have one question here. It was mentioned earlier in the call about the trend towards fleet operators and fractionals in the business aviation side. I know CAE is really well positioned for whatever way the wind blows in business aviation, but is there anything specifically the company can do or needs to do strategically to really take advantage of that trend towards fleet operators in business aviation?

Okay, thanks, uh, thanks very much. Um, best wishes for the future Mark. It's it's been a real prevalent privilege, watching your your career and learning from you over the years. Welcome, Matt. And Caitlin. I look forward to uh to your insights and and soaking up uh all I can on, on C's Way Forward. Um, I just 1 question here. Uh, it was mentioned earlier in the call about the the trend towards towards Fleet operators and fractional and the business Aviation side. I don't see he's, you know, really well positioned for whatever way the wind blows and business. Aviation, but is there anything

Specifically that company can do or needs to do strategically to really take advantage uh, of that Trend towards Fleet operators in business Aviation.

Operator: Well, I can start it off, Pim. Look, I think one of the big things I think we've already done is the acquisition of the remaining part of Simcom, which obviously gives us extended exclusivity with regards to the train and Flexjet, which is, as you know, one of the, I think, the second largest fleet operator fractional jet. So, we're very well exposed to that segment. And the fact that, because of the fact that we trained the majority of the airlines around the world, either in simulators or in our training centers, makes us obviously very fluent in executing airline type training, which is really, when you look at fractional owners, that's what they're looking for because they're operating, basically, their pilots are quasi-airline pilots. So, they're looking for that kind of training, which is different than your traditional business aircraft training, which is having smaller flight departments.

Well, I can start it off. Uh, Pam, look. I think one of the big things I think we've already done, right, is the acquisition of the remaining part of Simcom, which, you know, obviously gives us, uh, you know, extended, uh, exclusivity with regards to Train-Air Flex Shed, which is, as you know, one of the, I think, the second largest.

Operator: So, I think we're very well positioned and we have everything. And you look at our, I mentioned Flexjet, but you look across the board in terms of our fleet operators that we service. I just mentioned, for example, Air Sprint in Canada, very, very good customer. So, look, I'm quite optimistic that we'll continue to do very well as a result of that exposure, that fractional ownership, plus the preponderance of the larger cabin business jets that we cover.

You know, Fleet operator, fractional, uh, fractional jet. So we're very well exposed to that segment. And you know, the fact that because of the fact that we, we trained, you know, the majority of the airlines around the world, either in simulators or in, in, in our training centers, makes us obviously, very fluent in executing Airline type training, which is really when you look at fractional owners, that's what they're looking for. Because they're, they're operating, you know, basically they're Pilots are are Quasi airline pilots. So they're looking for that kind of training, which is to, which is different than, what your traditional business are aircraft training, uh, which is, you know, having smaller flight departments. So I think we're very well positioned and have, we have everything and you look at you, look at our Conte, I I mentioned Flex yet, but you look across the board in terms of our, our Fleet operators that we serve. As I just mentioned, for example, are Sprint in Canada, very, very good customer. So look,

I'm quite optimistic that we'll continue to be do very well as a result of that exposure, that fractional ship plus the preparers of, you know, the larger cabin business test that we cover.

Andrew Arnovitz: Thank you very much.

Thank you very much.

Kaelin Rovinescu: Operator, that is all the time we have for the call this morning. I want to thank all of our participants for joining in and remind you that the transcript of the call will be on CAE Inc.'s website later today. Thank you. Have a good day.

Operator: That's all the time we have.

Operator. That's all the time we have for the call this morning. I want to thank all of our participants for joining in and remind you that a transcript of the call will be on site later today. Thank you. Have a good day.

Operator: This brings to a close today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

And this brings to a close today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.