Q1 2027 CAE Inc Earnings Call

August 13, 2026

Operator 2: Good day, ladies and gentlemen. Welcome to CAE's Q1 and full year FY 2027 financial results and 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.

Operator: Good day, ladies and gentlemen. Welcome to CAE's Q1 and Full Year FY 2027 Financial Results and 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 #1: Good day, ladies and gentlemen. Welcome to CAE's first quarter and full year FY2027 financial results and conference call. As a reminder, all participants are in listen-only mode, and the conference is being recorded.

Speaker #1: After the presentation, there will be an opportunity for analysts to ask questions. To join the question queue, you may press star then 1 on your telephone keypad.

Speaker #1: Should you need assistance during the conference call, you may signal an operator by pressing star, then 0. I would now like to turn the conference over to Mr. Andrew Arnovitz.

Speaker #1: Please go ahead, Mr. Arnovitz.

Speaker #2: Good morning, everyone, and thank you for joining us today. Today's remarks, including management's outlook and answers to questions, contain forward-looking statements, which represent our expectations as of today, August 13, 2026, and accordingly are subject to change.

Andrew Arnovitz: Good morning, everyone, and thank you for joining us today. Today's remarks, including management's outlook and answers to questions, contain forward-looking statements which represent our expectations as of today, 13 August 2026, 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's annual MD&A and MD&A for the three months ended 30 June 2026, as well as CAE's press release dated 21 May 2026, disclosing transformation plan targets to fiscal 2030, all of which are available on our corporate website and in our filings with the Canadian Securities Administrators on SEDAR+ and the U.S. Securities and Exchange Commission on EDGAR.

Speaker #2: 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.

Speaker #2: A description of the risks, factors, and assumptions that may affect future results is contained in CAE's annual MD&A and MD&A for the three months ended June 30, 2026, as well as CAE's press release dated May 21, 2026, disclosing transformation plan targets to fiscal 2030, all of which are available in our corporate website and in our filings with the Canadian Securities Administrators on CDAR+.

Andrew Arnovitz: A description of the risks, factors, and assumptions that may affect future results is contained in CAE's annual MD&A and MD&A for the three months ended 30 June 2026, as well as CAE's press release dated 21 May 2026, disclosing transformation plan targets to fiscal 2030, all of which are available on our corporate website and in our filings with the Canadian Securities Administrators on SEDAR+ and the US Securities and Exchange Commission on EDGAR.

Speaker #2: And the US Securities and Exchange Commission on EDGAR. On the call with me this morning from CAE are Calin Rovinescu, Executive Chairman; Matthew Bromberg, the company's President and Chief Executive Officer; and Ryan McLeod, our Chief Financial Officer.

Andrew Arnovitz: On the call with me this morning from CAE are Calin Rovinescu, Executive Chairman; Matthew Bromberg, the company's President and Chief Executive Officer; and Ryan McLeod, our Chief Financial Officer. After formal remarks, we will open the call to questions from financial analysts. Let me now turn the call over to Calin.

Speaker #2: After the formal remarks, we'll open the call to questions from financial analysts. Let me now turn the call over to Calin.

Speaker #3: Good morning, everyone. Before Matt and Ryan take us through the Q1 results and discuss progress against the transformation plan, I'd like to briefly share a few observations.

Calin Rovinescu: Good morning, everyone. Before Matt and Ryan take us through the Q1 results and discuss progress against the transformation plan, I would like to briefly share a few observations. CAE's transformation plan is continuing at pace. As we announced with the year-end results, the work is centered on sharpening our portfolio, strengthening capital discipline, and enhancing operational and financial performance with several clear objectives. Increase long-term resilience, improve execution against plan, and support sustainable cash generation, profitability, and returns. We wanted to start some of the heavy lifting required by the transformation plan right away, so we chose not to wait for an investor day to launch it. The board receives regular updates on the plan, and we are encouraged by the progress being made across its multiple work streams. Fundamentally, I believe CAE's long-term growth prospects remain strong.

Speaker #3: CAE's transformation plan is continuing at pace. As we announced with the year-end results, the work is centered on sharpening our portfolio and strengthening capital discipline and enhancing operational and financial performance with several clear objectives.

Speaker #3: Increased long-term resilience, improved execution against plan, and support sustainable cash generation and profitability and returns. We wanted to start some of the heavy lifting required by the transformation plan right away, so we chose not to wait for an investor day to launch it.

Calin Rovinescu: Increase long-term resilience, improve execution against plan, and support sustainable cash generation, profitability, and returns. We wanted to start some of the heavy lifting required by the transformation plan right away, so we chose not to wait for an Investor Day to launch it. The board receives regular updates on the plan, and we are encouraged by the progress being made across its multiple work streams. Fundamentally, I believe CAE's long-term growth prospects remain strong.

Speaker #3: The board receives regular updates on the plan, and we're encouraged by the progress being made across its multiple workstreams. Fundamentally, I believe CAE's long-term growth prospects remain strong.

Speaker #3: Our Civil business continues to benefit from durable, long-term aviation demand growth, as expanding air travel and higher aircraft deliveries will continue to require more of CAE's training services and simulation products.

Calin Rovinescu: Our civil business continues to benefit from durable long-term aviation demand growth as expanding air travel and higher aircraft deliveries will continue to require more of CAE's training services and simulation products. In defense, CAE is benefiting from the generational upturn in defense spending happening around the world, especially in NATO countries, including, of course, here in Canada. Across the expanding defense ecosystem, we continue to see CAE's heritage, strategy, technology, and broad set of capabilities drive increased interest from governments and global OEMs, resulting in an expanded opportunity set. Overall, CAE has strong positions in two secular growth markets and an attractive long-term outlook supported by the idiosyncratic benefits of the transformation plan, improved free cash flow generation, higher returns on invested capital, and significant opportunities to invest accretively across the business and provide better returns to shareholders.

Speaker #3: In Defense, CAE is benefiting from the generational upturn in defense spending happening around the world, especially in NATO countries, including, of course, here in Canada.

Speaker #3: Across the expanding defense ecosystem, we continue to see CAE's heritage strategy, technology, and broad set of capabilities drive increased interest from governments and global OEMs resulting in an expanded opportunity set.

Calin Rovinescu: Across the expanding defense ecosystem, we continue to see CAE's heritage, strategy, technology, and broad set of capabilities drive increased interest from governments and global OEMs, resulting in an expanded opportunity set. Overall, CAE has strong positions in two secular growth markets and an attractive long-term outlook supported by the idiosyncratic benefits of the transformation plan, improved free cash flow generation, higher returns on invested capital, and significant opportunities to invest accretively across the business and provide better returns to shareholders.

Speaker #3: Overall, CAE has strong positions in two secular growth markets and an attractive long-term outlook, supported by the idiosyncratic benefits of the transformation plan, improved free cash flow generation, higher returns on invested capital, and significant opportunities to invest accretively across the business and provide better returns to shareholders.

Speaker #3: To support the execution of the company's long-term strategy, we are implementing a revised executive compensation framework that ensures incentives are aligned with our transformation goals, growth aspirations, and the outcomes that matter most to shareholders.

Calin Rovinescu: To support the execution of the company's long-term strategy, we are implementing a revised executive compensation framework that ensures incentives are aligned with transformation goals, growth aspirations, and outcomes that matter most to shareholders. Our short-term incentive program is now focused on free cash flow and adjusted segment operating income margin. Our long-term incentive program will center around adjusted return on invested capital and adjusted earnings per share to emphasize efficiency, profitability, growth, and long-term value creation. Additionally, as disclosed in the proxy circular, I announced my intention to transition to the role of non-executive chairman of the board effective 1 January 2027.

Speaker #3: Our short-term incentive program is now focused on free cash flow and adjusted segment operating income margin. Our long-term incentive program will center around adjusted return on invested capital and adjusted earnings per share, to profitability, growth, and long-term value creation.

Calin Rovinescu: Our long-term incentive program will center around adjusted return on invested capital and adjusted earnings per share to emphasize efficiency, profitability, growth, and long-term value creation. Additionally, as disclosed in the proxy circular, I announced my intention to transition to the role of non-executive chairman of the board effective 1 January 2027.

Speaker #3: Additionally, as disclosed in the proxy circular, I announced my intention to transition to the role of non-executive chairman of the board, effective January 1, 2027.

Speaker #3: This reflects our confidence in Matt and the rest of the leadership team and their ability to drive CAE's next chapter of growth and value creation, as well as the significant progress that the company has made in developing and beginning to execute the transformation plan and long-term strategy.

Calin Rovinescu: This reflects our confidence in Matt and the rest of the leadership team and their ability to drive CAE's next chapter of growth and value creation, as well as the significant progress that the company has made in developing and beginning to execute the transformation plan and long-term strategy. I look forward to continuing to support Matt and the leadership team in this evolution, while remaining involved in engagements with key stakeholder groups involving government partners, customers, and shareholders. Matt, over to you.

Speaker #3: I look forward to continuing to support Matt and the leadership team in this evolution, while remaining involved in engagements with key stakeholder groups—including government partners, customers, and shareholders.

Speaker #3: Matt, over to you.

Speaker #4: Thanks, Calin. And good morning, everyone. Overall, Q1 was a strong start to the year, with good progress across the transformation plan, continued improvement in our Defense segment, and Civil performance in line with expectations.

Matthew Bromberg: Thanks, Calin, and good morning, everyone. Overall, Q1 was a strong start to the year with good progress across the transformation plan, continued improvement in our Defense segment, and Civil performance in line with expectations. While only one quarter into the year, we feel very good about our initial progress, the full year, and how the transformation plan will strengthen CAE. By segment, Defense delivered a strong quarter of revenue growth and adjusted segment operating income margin expansion while growing our long-term pipeline of training and mission rehearsal opportunities. Civil performance was slightly down year over year, but the team is doing an excellent job managing a challenging macroeconomic backdrop while rationalizing the network. This morning, I'll provide an update on the progress we're making against our transformation plan and an update on key business developments across Civil and Defense.

Speaker #4: While only one quarter into the year, we feel very good about our initial progress, the full year, and how the transformation plan will strengthen CAE.

Speaker #4: By segment, Defense delivered a strong quarter of revenue growth and adjusted segment operating income margin expansion, while growing our long-term pipeline of training and mission rehearsal opportunities.

Matthew Bromberg: By segment, Defense delivered a strong quarter of revenue growth and adjusted segment operating income margin expansion while growing our long-term pipeline of training and mission rehearsal opportunities. Civil performance was slightly down year over year, but the team is doing an excellent job managing a challenging macroeconomic backdrop while rationalizing the network. This morning, I'll provide an update on the progress we're making against our transformation plan and an update on key business developments across Civil and Defense.

Speaker #4: Civil performance was slightly down year over year, but the team is doing an excellent job managing a challenging macroeconomic backdrop while rationalizing the network.

Speaker #4: This morning, I'll provide an update on the progress we're making against our transformation plan and an update on key business developments across civil and defense.

Speaker #4: As I've said before, fiscal 2027 is both an execution year and a reset year. The transformation plan focused on improving our internal cost structure and focus is necessary to improve our performance to streamline our portfolio and focus on where we can differentiate and win.

Matthew Bromberg: As I've said before, fiscal 2027 is both an execution year and a reset year. The transformation plan, focused on improving our internal cost structure and focus, is necessary to improve our performance, to streamline our portfolio, and focus on where we can differentiate and win. It'll strengthen our capital discipline by rightsizing our training network and footprint, and allow us to make key investments in internal systems in our factory and ERP, which are required to drive operational performance. As we do this, we are pivoting the culture to one centered on operations, continuous improvement, disciplined investment, and strong cash flow generation. This will allow CAE to profitably grow for years to come. The transformation plan is progressing well. The projects are progressing to plan, and we will see returns start to mature in fiscal 2028 and beyond.

Speaker #4: It'll strengthen our capital discipline, by right-sizing our training network and footprint, and allow us to make key investments in internal systems in our factory and ERP which are required to drive operational performance.

Speaker #4: As we do this, we are pivoting the culture to one centered on operations, continuous improvement, discipline investment, and strong cash flow generation. This will allow CAE to profitably grow for years to come.

Matthew Bromberg: As we do this, we are pivoting the culture to one centered on operations, continuous improvement, disciplined investment, and strong cash flow generation. This will allow CAE to profitably grow for years to come. The transformation plan is progressing well. The projects are progressing to plan, and we will see returns start to mature in fiscal 2028 and beyond.

Speaker #4: The transformation plan is progressing well, the projects are progressing to plan, and we will see returns start to mature in fiscal 2028 and beyond.

Speaker #4: We are committed to delivering the $125 million to $150 million of structural cost reduction by fiscal 2030. In terms of the $150 million in savings, roughly 50 percent of our savings will come from improved labor productivity, as we optimize our organizational and operating model, outsource non-core processes, leverage automation, improve systems and tools, and consolidate our global footprint.

Matthew Bromberg: We are committed to deliver the CAD 125 million to CAD 150 million of structural cost reduction by fiscal 2030. In terms of the CAD 150 million savings, roughly 50% of our savings will come from improved labor productivity as we optimize our organizational and operating model, outsource non-core processes, leverage automation, improve systems and tools, and consolidate our global footprint. Approximately 30% of the savings will come from reduced square footage. Including the portfolio actions, we are expecting square footage to decrease by almost 1.7 million square feet, which represents approximately 17% down from the end of fiscal year 2025. Finally, approximately 20% will come from early efforts at driving operational improvements, including our digital factory project, which will drive lean manufacturing to lower waste, improve quality, and streamline and automate processes. Another example is on our ERP landscape.

Speaker #4: Approximately 30 percent of the savings will come from reduced square footage, including the portfolio actions we are expecting square footage to decrease by almost 1.7 million square feet, which represents approximately 17 percent down from the end of fiscal year 2025.

Matthew Bromberg: Including the portfolio actions, we are expecting square footage to decrease by almost 1.7 million square feet, which represents approximately 17% down from the end of fiscal year 2025. Finally, approximately 20% will come from early efforts at driving operational improvements, including our digital factory project, which will drive lean manufacturing to lower waste, improve quality, and streamline and automate processes. Another example is on our ERP landscape.

Speaker #4: And finally, approximately 20 percent will come from early efforts at driving operational improvements, including our digital factory project, which will drive lean manufacturing to lower waste, improve quality, and streamline and automate processes.

Speaker #4: Another example is in our ERP landscape, where we're moving from five ERP systems to two, which will reduce our technical debt and reduce expenses.

Matthew Bromberg: We're moving from five ERP systems to two, which will reduce our technical debt and reduce expenses. As these work streams advance, we will continue to provide updates on our progress against the plans. Let me update you on some of the key projects and where we are. First, in focusing our portfolio, it consists of a strategic review of three businesses. The largest of the three, Flightscape, which represents about 5% of our revenues, is a high-quality business with a world-class platform. The review process is well underway with strong buyer interest. We remain confident that the strategic review process will result in a positive outcome for both Flightscape and CAE, and we'll update you at the appropriate time. The other reviews are also progressing well. In our Civil Training Network, the capacity rationalization is also progressing well. We remain committed to retire the 25 commercial simulators.

Speaker #4: As these workstreams advance, we will continue to provide updates on our progress against the plans. Let me update you on some of the key projects and where we are.

Speaker #4: First, in focusing our portfolio, it consists of a strategic review of three businesses: the largest of the three, FlightScape, which represents about 5 percent of our revenues, is a high-quality business with a world-class platform; the review process is well underway, with strong buyer interest; we remain confident that the strategic review process will result in a positive outcome for both FlightScape and CAE; and we'll update you at the appropriate time.

Matthew Bromberg: The review process is well underway with strong buyer interest. We remain confident that the strategic review process will result in a positive outcome for both Flightscape and CAE, and we'll update you at the appropriate time. The other reviews are also progressing well. In our Civil Training Network, the capacity rationalization is also progressing well. We remain committed to retire the 25 commercial simulators.

Speaker #4: The other reviews are also progressing well. In our civil training network, the capacity rationalization is also progressing well. We remain committed to retire the 25 commercial simulators, we now have more visibility and confidence as to the benefits of this project, there have been many questions about customer retention, and as I've said before, maintaining our customer intimacy is job one.

Matthew Bromberg: We now have more visibility and confidence as to the benefits of this project. There have been many questions about customer retention, and as I've said before, maintaining our customer intimacy is job one. Based on customer discussions to date, we expect to retain almost all of our customer contracts as we transition them to other CAE facilities. As of today, customer attrition will be less than 1% of our civil revenue. This is a testament to our customer-facing teams. Not only will we retain the majority of our contracts as we retire the 25 commercial simulators, we are also able to close between four and six of our civil training centers and remove the support infrastructure costs associated with those facilities. All in, we expect this work stream to lead to the removal of approximately 500,000 square feet, which is roughly 10% of our civil network capacity.

Speaker #4: Based on customer discussions to date, we expect to retain almost all of our customer contracts as we transition them to other CAE facilities, as of today, customer attrition will be less than 1 percent of our civil revenue.

Speaker #4: This is a testament to our customer-facing teams. Not only will we retain the majority of our contracts as we retire the 25 commercial simulators, we are also able to close between four and six of our civil training centers and remove the support infrastructure costs associated with those facilities. All in, we expect this workstream to lead to the removal of approximately 500,000 square feet—which is roughly 10 percent of our civil network capacity. This will not only improve the utilization rate of our network, it'll also improve our civil margins, and these savings are included in our $150 million target.

Matthew Bromberg: Not only will we retain the majority of our contracts as we retire the 25 commercial simulators, we are also able to close between four and six of our civil training centers and remove the support infrastructure costs associated with those facilities. All in, we expect this work stream to lead to the removal of approximately 500,000 square feet, which is roughly 10% of our civil network capacity.

Matthew Bromberg: This will not only improve the utilization rate of our network, it'll also improve our civil margins, and these savings are included in our CAD 150 million target. Going forward, we'll be more disciplined about incremental capacity and ensure that we consider regional options before adding square feet and devices. Overall, I continue to be very pleased with the progress we are making across all key transformation work streams. While there is significant work ahead, the actions we are taking are, in real-time, reshaping how CAE operates, how we allocate capital, and how we position ourselves to create long-term sustainable shareholder value. We continue to raise the bar across capital allocation decisions, commercial proposals, and investment evaluations, ensuring that we establish the underlying discipline required to drive accelerated growth and ensure we drive higher returns and higher free cash flow over time.

Speaker #4: Going forward, we'll be more disciplined about incremental capacity, and ensure that we consider regional options before adding square feet and devices. Overall, I continue to be very pleased with the progress we are making across all key transformation workstreams, and while there is significant work ahead, the actions we are taking are in real time reshaping how CAE operates, how we allocate capital, and how we position ourselves to create long-term, sustainable shareholder value.

Matthew Bromberg: While there is significant work ahead, the actions we are taking are, in real-time, reshaping how CAE operates, how we allocate capital, and how we position ourselves to create long-term sustainable shareholder value. We continue to raise the bar across capital allocation decisions, commercial proposals, and investment evaluations, ensuring that we establish the underlying discipline required to drive accelerated growth and ensure we drive higher returns and higher free cash flow over time.

Speaker #4: We continue to raise the bar across capital allocation decisions, commercial proposals, and investment evaluations, ensuring that we establish the underlying discipline required to drive accelerated growth and ensure we deliver higher returns and higher free cash flow over time.

Speaker #4: In addition to the advancements we're making across our transformation, what I'm increasingly bullish about is the evolving set of growth opportunities. As we transform how the business operates, we are remaining focused on driving growth across our end markets. Now, let's look at some of the key business developments in the quarter.

Matthew Bromberg: In addition to the advancements we're making across our transformation, what I'm increasingly bullish about is the evolving set of growth opportunities we are developing. As we transform how the business operates, we are remaining focused on driving growth across our end markets. Now let's look at some of the key business developments in the quarter. We recently attended the Farnborough Airshow, where we had meaningful engagements with customers, partners, governments, and suppliers. The show was indicative of the strong demand outlook across our civil and defense markets. On the civil side, Boeing and Airbus released their 20-year commercial market outlooks, which called for air traffic growth of approximately 4% annually and the delivery of more than 40,000 new aircraft and a near doubling of the global installed service fleet.

Speaker #4: We recently attended the Farnborough Air Show, where we had meaningful engagements with customers, partners, governments, and suppliers, the show was indicative of the strong demand outlook across our civil and defense markets.

Matthew Bromberg: The show was indicative of the strong demand outlook across our civil and defense markets. On the civil side, Boeing and Airbus released their 20-year commercial market outlooks, which called for air traffic growth of approximately 4% annually and the delivery of more than 40,000 new aircraft and a near doubling of the global installed service fleet.

Speaker #4: On the civil side, Boeing and Airbus released their 20-year commercial market outlooks, which called for air traffic growth of approximately 4 percent annually, and the delivery of more than 40,000 new aircraft at a near doubling of the global installed service fleet.

Speaker #4: These long-term secular trends drive stability, visibility, and confidence in the long-term demand outlook for trained pilots and, by extension, CAE's training and simulation products and services, for many, many years to come.

Matthew Bromberg: These long-term secular trends drive stability, visibility, and confidence in the long-term demand outlook for trained pilots and, by extension, CAE's training and simulation products and services for many, many years to come. As an example of CAE's ability to position ourselves to grow in commercial aviation markets and alongside partners that are seeing meaningful expansion is our 15-year training agreement with WestJet, which was finalized in the quarter. With nearly 200 aircraft in service and an order book of more than 100 aircraft for delivery into the 2030s, WestJet is positioned to realize continued growth in their capacity and network in Western Canada and beyond.

Speaker #4: As an example of CAE's ability to position ourselves to grow in commercial aviation markets, and alongside partners that are seeing meaningful expansion, is our 15-year training agreement with WestJet, which was finalized in the quarter.

Matthew Bromberg: As an example of CAE's ability to position ourselves to grow in commercial aviation markets and alongside partners that are seeing meaningful expansion is our 15-year training agreement with WestJet, which was finalized in the quarter. With nearly 200 aircraft in service and an order book of more than 100 aircraft for delivery into the 2030s, WestJet is positioned to realize continued growth in their capacity and network in Western Canada and beyond.

Speaker #4: With nearly 200 aircraft in service, and an order book of more than 100 aircraft for delivery into the 2030s, WestJet is positioned to realize continued growth in their capacity and network in Western Canada and beyond.

Speaker #4: Slated to open in 2028, the Alberta Training Center of Excellence for Aviation and Aerospace will house eight full-flight simulators with capacity for expansion, and means that aspiring pilots and aviation professionals will no longer need to leave the province for advanced aviation training.

Matthew Bromberg: Slated to open in 2028, the Alberta Training Centre of Excellence for Aviation and Aerospace will house 8 full flight simulators with capacity for expansion and means that aspiring pilots and aviation professionals will no longer need to leave the province for advanced aviation training. The agreement meaningfully expands our relationship with WestJet and with Alberta, which is becoming increasingly important as we think about future strategic opportunities across Canada. Additionally, we announced a multi-year contract with Turkish Airlines to deliver 5 full flight simulators and 2 flight training devices with options for 2 additional full flight simulators. Turkey is one of Europe's most attractive aviation growth markets, with capacity expanding at high single-digit compounded growth rate over the last 15 years. It is led by a rapidly expanding international passenger volume and a growing backlog of aircraft deliveries.

Speaker #4: The agreement meaningfully expands our relationship with WestJet and with Alberta, which is becoming increasingly important as we think about future strategic opportunities across Canada.

Speaker #4: Additionally, we announced a multi-year contract with Turkish Airlines to deliver five full-flight simulators and two flight training devices, with options for two additional full-flight simulators. Turkey is one of Europe's most attractive aviation growth markets, with capacity expanding at a high single-digit compounded growth rate over the last 15 years.

Matthew Bromberg: Additionally, we announced a multi-year contract with Turkish Airlines to deliver 5 full flight simulators and 2 flight training devices with options for 2 additional full flight simulators. Turkey is one of Europe's most attractive aviation growth markets, with capacity expanding at high single-digit compounded growth rate over the last 15 years. It is led by a rapidly expanding international passenger volume and a growing backlog of aircraft deliveries.

Speaker #4: It's led by a rapidly expanding international passenger volume and a growing backlog of aircraft deliveries. Turkish Airlines is the largest airline in Turkey, and is expected to continue to grow significantly, the airline is targeting a fleet of over 800 aircraft in the 2030s, up from more than 500 today.

Matthew Bromberg: Turkish Airlines is the largest airline in Turkey and is expected to continue to grow significantly. The airline is targeting a fleet of over 800 aircraft in the 2030s, up from more than 500 today. Our agreement builds on a longstanding partnership of more than 20 years and supports Turkish Airlines' fleet and network expansion plans across Airbus and Boeing fleets. Shifting to the defense side, we have had several busy months of business development activity and have made a number of significant announcements that expand our long-term opportunity pipeline and enable us to capture growth opportunities in Canada, expand internationally across NATO and other partners, and meaningfully grow our addressable market by solidifying our position in large, growing domains such as naval and maritime activities. Here in Canada, there is a clear shift towards bolstering sovereign capability, advancing collaboration with industry, and fostering innovation to strengthen defense readiness.

Speaker #4: And our agreement builds on a long-standing partnership of more than 20 years, and supports Turkish Airlines' fleet and network expansion plans across Airbus and Boeing fleets.

Speaker #4: Shifting to the defense side, we've had several busy months of business development activity and have made a number of significant announcements that expand our long-term opportunity pipeline and enable us to capture growth opportunities in Canada, expand internationally across NATO and other partners, and meaningfully grow our addressable market by solidifying our position in large, growing domains such as naval and maritime activities.

Matthew Bromberg: Shifting to the defense side, we have had several busy months of business development activity and have made a number of significant announcements that expand our long-term opportunity pipeline and enable us to capture growth opportunities in Canada, expand internationally across NATO and other partners, and meaningfully grow our addressable market by solidifying our position in large, growing domains such as naval and maritime activities. Here in Canada, there is a clear shift towards bolstering sovereign capability, advancing collaboration with industry, and fostering innovation to strengthen defense readiness.

Speaker #4: Here in Canada, there's a clear shift towards bolstering sovereign capability, advancing collaboration with industry, and fostering innovation to strengthen defense readiness. Canada's defense strategy and related defense industrial strategy are rapidly advancing, and the country plans to spend approximately $500 billion on defense investment over the next decade.

Matthew Bromberg: Canada's defense strategy and its related defense industrial strategy is rapidly advancing, and the country plans to spend approximately CAD 500 billion on defense investment over the next decade. We believe that the country's defense modernization priorities represent a multi-decade opportunity for CAE as our capabilities and priorities align directly with the defense industrial strategy and where spending is going. We are continuing to work closely with the government of Canada to expand and create new Canadian franchise programs. We believe that we can successfully utilize our Canadian heritage and our expertise in training, mission readiness, and operations to support and deepen relationships with OEMs and platform providers, which embed mission-enabling synthetic environments and simulation at the earlier stages of OEM procurement and throughout the program lifecycle.

Speaker #4: We believe that the country's defense modernization priorities represent a multi-decade opportunity for CAE, as our capabilities and priorities align directly with the defense industrial strategy and we're spending is going.

Speaker #4: We are continuing to work closely with the government of Canada to expand and create new Canadian franchise programs, we believe that we can successfully utilize our Canadian heritage, and our expertise in training, mission readiness, and operations, to support and deepen relationships with OEMs and platform providers, which embed simulation at the earlier stages of OEM procurement, and throughout the program lifecycle.

Matthew Bromberg: We are continuing to work closely with the government of Canada to expand and create new Canadian franchise programs. We believe that we can successfully utilize our Canadian heritage and our expertise in training, mission readiness, and operations to support and deepen relationships with OEMs and platform providers, which embed mission-enabling synthetic environments and simulation at the earlier stages of OEM procurement and throughout the program lifecycle.

Speaker #4: Over time, this will enable CAE to expand our business in Canada, but also around the world, with key international partners including NATO, in particular NATO countries, where European defense spending will reach approximately $800 billion, annually, by 2030.

Matthew Bromberg: Over time, this will enable CAE to expand our business in Canada, but also around the world with key international partners, including NATO, in particular NATO countries, where European defense spending will reach approximately 800 billion EUR annually by 2030. I am extremely pleased with the progress we have made on this front since the start of the fiscal year. I am excited to share some of the important developments for our business that occurred. These include the M-346 partnership with Leonardo, the partnership with Saab on GlobalEye and Gripen, and the partnership with TKMS on the Canadian Patrol Submarine Project and broader maritime opportunities. All in all, over the long term, these opportunities enable international and domain expansion, establish new franchise programs for CAE, and represent more than CAD 5 billion of potential pipeline value. It is a subset of our overall defense pipeline.

Speaker #4: I'm extremely pleased with the progress we have made on this front since the start of the fiscal year. I'm excited to share some of the important developments for our business that have occurred.

Speaker #4: These include the M346 partnership with Leonardo, the partnership with Saab on global Iron Gripen, and the partnership with TKMS on the Canadian Patrol submarine program and broader maritime opportunities.

Matthew Bromberg: These include the M-346 partnership with Leonardo, the partnership with Saab on GlobalEye and Gripen, and the partnership with TKMS on the Canadian Patrol Submarine Project and broader maritime opportunities. All in all, over the long term, these opportunities enable international and domain expansion, establish new franchise programs for CAE, and represent more than CAD 5 billion of potential pipeline value. It is a subset of our overall defense pipeline.

Speaker #4: All in all, over the long term, these opportunities enable international and domain expansion, establish new franchise programs for CAE, and represent more than $5 billion of potential pipeline value.

Speaker #4: It's a subset of the Aurora Defense pipeline. For reference, our defense pipeline represents the collection of defense opportunities and potential future adjusted order intake that we're actively pursuing across customers, programs, and geographies.

Matthew Bromberg: For reference, our defense pipeline represents the collection of defense opportunities and potential future adjusted order intake that we are actively pursuing across customers, programs, and geographies. This pipeline, to be clear, spans from early proposals, qualification, and early submittals, and there is time for it to evolve for bids and final contract. The conversion rates and timing can vary depending on the specific opportunity and the country involved. But our total defense pipeline is growing meaningfully, and as our current defense-adjusted backlog is CAD 10.7 billion, this new pipeline represents a significant opportunity to grow that further in the years to come. Strategically, these new platforms are new franchises in new domains, in new countries that can span decades for CAE. Let me go into a little bit more detail. First, we announced the expansion of our collaboration with Leonardo around the next-generation M-346 Block 20 training ecosystem.

Speaker #4: This pipeline, to be clear, spans from early proposals, qualification, and early submittals, and there's time for it to evolve for bids and final contract.

Speaker #4: The conversion rates and timing can vary depending on the specific opportunity and the country involved. But our total defense pipeline is growing meaningfully, and as our current defense adjusted backlog is $10.7 billion, this new pipeline represents a significant opportunity to grow that further in the years to come.

Matthew Bromberg: But our total defense pipeline is growing meaningfully, and as our current defense-adjusted backlog is CAD 10.7 billion, this new pipeline represents a significant opportunity to grow that further in the years to come. Strategically, these new platforms are new franchises in new domains, in new countries that can span decades for CAE. Let me go into a little bit more detail. First, we announced the expansion of our collaboration with Leonardo around the next-generation M-346 Block 20 training ecosystem.

Speaker #4: And strategically, these new platforms are new franchises and new domains in new countries that can span decades for CAE. Let me go into a little bit more detail.

Speaker #4: First, we announced the expansion of our collaboration with Leonardo around the next generation M346 Block 20 training ecosystem. The M346 is one of the most advanced jet fighter training platforms in the world.

Matthew Bromberg: The M-346 is one of the most advanced jet fighter training platforms in the world. While the timing of future opportunities for this platform may be dependent on different decisions by customers such as Canada, this agreement should open significant opportunities over the coming years as it further expands our role in military pilot training and reinforces CAE's position as a trusted training and simulation partner to major defense OEMs. This includes developing training architectures to prepare pilots for increasingly networked, data-driven, and autonomous operational environments, including those associated with fifth and sixth-generation air operations. The partnership builds on the proven successes of the International Flight Training School in Sardinia, Italy, a joint venture between us and Leonardo and the Italian Air Force that brings together live flying, advanced simulation, and mission rehearsal capabilities and expands the spoke of collaboration into future integrated training capabilities across global campaigns.

Speaker #4: And while the timing of future opportunities for this platform may dependent on different decisions by customers, such as Canada, this agreement should open significant opportunities over the coming years, as it further expands our role in military pilot training, and reinforces CAE's position as a trusted training and simulation partner to major defense OEMs.

Speaker #4: This includes developing training architectures to prepare pilots for increasingly networked, data-driven, and autonomous operational environments, including those associated with fifth and sixth-generation air operations.

Matthew Bromberg: This includes developing training architectures to prepare pilots for increasingly networked, data-driven, and autonomous operational environments, including those associated with fifth and sixth-generation air operations. The partnership builds on the proven successes of the International Flight Training School in Sardinia, Italy, a joint venture between us and Leonardo and the Italian Air Force that brings together live flying, advanced simulation, and mission rehearsal capabilities and expands the spoke of collaboration into future integrated training capabilities across global campaigns.

Speaker #4: The partnership builds on the proven successes of the international flight training school in Sardinia, Italy, a joint venture between us and Leonardo, and the Italian Air Force, that brings together live flying, advanced simulation, and mission rehearsal capabilities, and expands the scope of collaboration into future integrated training capabilities across global campaigns.

Speaker #4: We also strengthened and solidified our partnership with Saab, announcing a teaming agreement to support Canada's Airborne Early Warning and Control program based on Saab's GlobalEye platform, and an MOU to collaborate on advanced training, simulation, and mission support for the Gripen fighter.

Matthew Bromberg: We also strengthened and solidified our partnership with Saab, announcing a teaming agreement to support Canada's airborne early warning and control program based on Saab's GlobalEye platform and an MOU to collaborate on advanced training, simulation, and mission support for the Gripen fighter. The GlobalEye agreement builds on our worldwide cooperation agreement established in November 2025, which positions CAE as Saab's preferred partner for training and simulation solutions across its airborne early warning and control platforms, and this is a global partnership. In addition to the Canada program, CAE sees significant international pipeline for GlobalEye opportunities with multiple countries and geographies interested in the program, overlapping where both Saab and CAE have capability and expertise in simulation, flight, and mission rehearsal.

Speaker #4: The GlobalEye agreement builds on our worldwide cooperation agreement established in November of 2025, which positions CAE as Saab's preferred partner for training and simulation solutions across its Airborne Early Warning and Control platforms, and this is a global partnership.

Speaker #4: In addition to the Canada program, CAE sees significant international pipeline for global eye opportunities, with multiple countries and geographies interested in the program, overlapping where both Saab and CAE have capability and expertise, in simulation, flight, and mission rehearsal.

Matthew Bromberg: In addition to the Canada program, CAE sees significant international pipeline for GlobalEye opportunities with multiple countries and geographies interested in the program, overlapping where both Saab and CAE have capability and expertise in simulation, flight, and mission rehearsal.

Speaker #4: For the Gripen, which is targeting an annual production of between 25 and 30 aircraft, a level that'll almost certainly double current capacity, our agreement enables CAE to support potential future fighter capability, including training, mission support, and sustainment in Canada and other international markets.

Matthew Bromberg: For the Gripen, which is targeting an annual production of between 25 and 30 aircraft, a level that will almost certainly double current capacity, our agreement enables CAE to support potential future fighter capability, including training, mission support, and sustainment in Canada and other international markets. Another example that I am particularly proud of is our partnership activity with TKMS to support the largest defense procurement program in Canada's history, the Canadian Patrol Submarine Project, or CPSP. This program is expected to reach approximately CAD 100 billion over its life cycle, and Canada has announced that TKMS and their Type 212CD submarine has been selected as the preferred supplier. As part of this program, CAE is positioned to deliver training operation, advanced simulation systems, digital and physical training infrastructure, and facility management, including long-term sustainment support.

Speaker #4: Another example that I'm particularly proud of is our partnership activity with TKMS to support the largest defense procurement program in Canada's history, the Canadian Patrol Submarine Project, or CPSP.

Speaker #4: This program is expected to reach approximately $100 billion over its lifecycle, and Canada has announced that TKMS and their 212 CD submarine has been selected as the preferred supplier.

Matthew Bromberg: This program is expected to reach approximately CAD 100 billion over its life cycle, and Canada has announced that TKMS and their Type 212CD submarine has been selected as the preferred supplier. As part of this program, CAE is positioned to deliver training operation, advanced simulation systems, digital and physical training infrastructure, and facility management, including long-term sustainment support.

Speaker #4: As part of this program, CAE is positioned to deliver training operation, advanced simulation systems, digital and physical training infrastructure, and facility management, including long-term sustainment support.

Speaker #4: Beyond the domestic Canadian submarine program, our partnership with TKMS also opens avenues for CAE to support international naval customers with advanced naval training, simulation, and mission readiness solutions for TKMS submarine and surface ship programs around the globe.

Matthew Bromberg: Beyond the domestic Canadian submarine program, our partnership with TKMS also opens avenues for CAE to support international naval customers with advanced naval training, simulation, and mission readiness solutions for TKMS submarine and surface ship programs around the globe. This further expands our pipeline, solidifies our position in the naval domain, and represents a potential long-term opportunity set that is in excess of the individual Canadian Patrol Submarine Project opportunity. As we look to the future and add domains, we are excited with the recently announced partnership with Shield AI to support their development of the CCA or Collaborative Combat Aircraft. Companies like Shield AI and their defense tech rely on the capability that CAE has to bring training, simulation, mission rehearsal capability to their advanced platforms. We are excited by this and other developments to come.

Speaker #4: This further expands our pipeline, solidifies our position in the naval domain, and represents a potential long-term opportunity set that is in excess of the individual Canadian Patrol Submarine Project opportunity.

Speaker #4: And as we look to the future, and add domains, we're excited with the recently announced partnership with Shield AI, to support their development of the CCA, our collaborative combat aircraft, companies like Shield AI, in their defense tech, rely on the capability that CAE has to bring training, simulation, mission rehearsal capability to their advanced platforms, we're excited by this and other developments to come.

Matthew Bromberg: As we look to the future and add domains, we are excited with the recently announced partnership with Shield AI to support their development of the CCA or Collaborative Combat Aircraft. Companies like Shield AI and their defense tech rely on the capability that CAE has to bring training, simulation, mission rehearsal capability to their advanced platforms. We are excited by this and other developments to come.

Speaker #4: Overall, the specific, exciting opportunities represent a subset of our current defense pipeline, and we believe they align directly with CAE's core competencies and support our long-term growth strategy.

Matthew Bromberg: Overall, these specific exciting opportunities represent a subset of our current defense pipeline, and we believe they align directly with CAE's core competencies and support our long-term growth strategy. As you can see, many exciting announcements across both the civil and defense landscape are painting a future of growth for years to come. With that, I will turn the call over to Ryan to discuss Q1 2027 financials and our fiscal 2027 outlook in more depth. When Ryan concludes his remarks, I will provide some closing thoughts. Ryan?

Speaker #4: As you can see, many exciting announcements across both the civil and defense landscape are painting a future of growth for years to come. With that, I'll turn the call over to Ryan to discuss Q1 2027 financials and our fiscal 2027 outlook in more depth.

Speaker #4: When Ryan concludes his remarks, I'll provide some closing thoughts. Ryan?

Speaker #2: Thank you, Matt. Good morning, everyone. As Matt noted, our first quarter results were consistent with our expectations, and are full year outlook. Overall, execution was solid, free cash flow performance was strong, and our transformation activities progressed as planned.

Ryan McLeod: Thank you, Matt, and good morning, everyone. As Matt noted, our first quarter results were consistent with our expectations and our full-year outlook. Overall, execution was solid, free cash flow performance was strong, and our transformation activities progressed as planned. Consistent with our fiscal 2027 outlook and the fiscal 2030 targets we outlined in May, we remain focused on successfully executing the transformation to reshape the business and improve its long-term performance while simultaneously building growth momentum in the core business. In Q1, as part of our transformation plan, we incurred CAD 48 million of expenses, of which CAD 12 million were non-cash charges. This brings total spending on the transformation program to CAD 133 million, of which CAD 71 million is non-cash. The overall program is tracking to plan, and we are still expecting total costs of CAD 200 million to CAD 250 million with approximately CAD 100 million in non-cash charges.

Speaker #2: Consistent with our fiscal 2027 outlook, and the fiscal 2030 targets we outlined in May, we remain focused on successfully executing the transformation to reshape the business, and improve its long-term performance, while simultaneously building growth momentum in the core business.

Speaker #2: In Q1, as part of our transformation plan, we incurred $48 million of expenses of which $12 million were non-cash charges. This brings total spending on the transformation program to $133 million, of which $71 million is non-cash.

Ryan McLeod: In Q1, as part of our transformation plan, we incurred CAD 48 million of expenses, of which CAD 12 million were non-cash charges. This brings total spending on the transformation program to CAD 133 million, of which CAD 71 million is non-cash. The overall program is tracking to plan, and we are still expecting total costs of CAD 200 million to CAD 250 million with approximately CAD 100 million in non-cash charges.

Speaker #2: The overall program is tracking to plan, and we are still expecting total costs of $200 million to $250 million, with approximately $100 million in non-cash charges.

Speaker #2: Since our last update, we advanced across several of our key workstreams, in Q1, including retiring an additional simulator from our network, bringing the total to six.

Ryan McLeod: Since our last update, we advanced across several of our key work streams in Q1, including retiring an additional simulator from our network, bringing the total to 6. We are tracking to our plan of having 13 to 15 simulators removed by the end of fiscal 2027 and remain on pace to retire approximately 10% of the commercial full flight simulator fleet. All in, the completion of these actions will enable CAE to close between 4 and 6 of our training centers. We anticipate closing one additional Civil training center by the end of this calendar year, which will bring the total to 2. As Matt discussed, we remain firmly on track for a fiscal 2030 target of CAD 125 million to CAD 150 million of transformation run rate savings. Turning to our results. In the first quarter, consolidated revenues of CAD 1.2 billion increased 6.8% year over year.

Speaker #2: We are tracking to our plan of having 13 to 15 simulators removed by the end of fiscal 2027, and remain on pace to retire approximately 10% of the commercial full-flight simulator fleet.

Speaker #2: All in, the completion of these actions will enable CAE to close between four and six of our training centers. We anticipate closing one additional civil training center by the end of this calendar year, which will bring the total to two.

Ryan McLeod: All in, the completion of these actions will enable CAE to close between 4 and 6 of our training centers. We anticipate closing one additional Civil training center by the end of this calendar year, which will bring the total to 2. As Matt discussed, we remain firmly on track for a fiscal 2030 target of CAD 125 million to CAD 150 million of transformation run rate savings. Turning to our results. In the first quarter, consolidated revenues of CAD 1.2 billion increased 6.8% year over year.

Speaker #2: As Matt discussed, we remain firmly on track for our fiscal 2030 target of $125 million to $150 million of transformation run rate savings. Turning to our results, in the first quarter, consolidated revenues of $1.2 billion increased 6.8% year over year.

Speaker #2: Adjusted segment operating income was $156.6 million, down 7.5% from $169.3 million in the first quarter last year, and adjusted EPS was $26 cents, compared to $26 cents a year ago.

Ryan McLeod: Adjusted segment operating income was CAD 156.6 million, down 7.5% from CAD 169.3 million in the first quarter last year, and adjusted EPS was CAD 0.26 compared to CAD 0.26 a year ago. Our adjusted segment operating income reflected strong performance in our business aviation training and Defense businesses, which was offset by higher costs related to credit charges, higher bid and proposal activities in our Defense business, higher spend related to specific transformation initiatives, and lower contributions from government R&D funding programs. Free cash flow was strong in the first quarter. We generated CAD 104 million of free cash flow in Q1 under our updated definition that includes all capital and intangible investments, whether for maintenance or growth with no exclusions. This compares to negative free cash flow of CAD 135 million in the first quarter of last year.

Speaker #2: Our adjusted segment operating income reflected strong performance in our business aviation training and defense businesses, which was offset by higher costs related to credit charges, higher bid and proposal activities in our defense business, higher spend related to specific transformation initiatives, and lower contributions from government R&D funding programs.

Speaker #2: Free cash flow was strong in the first quarter. We generated $104 million of free cash flow in Q1, under our updated definition that includes all capital and intangible investments, whether for exclusions.

Ryan McLeod: Free cash flow was strong in the first quarter. We generated CAD 104 million of free cash flow in Q1 under our updated definition that includes all capital and intangible investments, whether for maintenance or growth with no exclusions. This compares to negative free cash flow of CAD 135 million in the first quarter of last year.

Speaker #2: This compares to negative free cash flow, of $135 million, in the first quarter of last year. The improvement in free cash flow generation and conversion reflects some timing benefits, and our ongoing actions aimed at sharpening capital discipline, allocation, and performance.

Ryan McLeod: The improvement in free cash flow generation and conversion reflects some timing benefits and our ongoing actions aimed at sharpening capital discipline, allocation, and performance. Additionally, we continue to make cash investments in our transformation program and growing the business. We ended the quarter with net debt of CAD 2.6 billion and a net debt to adjusted EBITDA ratio of 2.27 times, in line with our long-term leverage target. In Q1, we repurchased 1.1 million shares for CAD 39 million under our NCIB program. With our improved cash and leverage performance, we have increased optionality to deploy cash towards incremental organic growth opportunities, or in their absence, return cash to shareholders. Our capital allocation commitment is to remain measured, disciplined, and transparent while ensuring that we maximize shareholder value and deliver on our plans. Turning to the segment results.

Speaker #2: Additionally, we continue to make cash investments in our transformation program and growing the business. We ended the quarter with net debt of $2.6 billion, and a net debt to adjusted EBITDA ratio of 2.27 times, in line with our long-term leverage target.

Speaker #2: In Q1, we repurchased 1.1 million shares for $39 million, under our NCIB program. With our improved cash and leverage performance, we have increased optionality to deploy cash towards incremental organic growth opportunities, or in their absence, return cash to shareholders.

Ryan McLeod: In Q1, we repurchased 1.1 million shares for CAD 39 million under our NCIB program. With our improved cash and leverage performance, we have increased optionality to deploy cash towards incremental organic growth opportunities, or in their absence, return cash to shareholders. Our capital allocation commitment is to remain measured, disciplined, and transparent while ensuring that we maximize shareholder value and deliver on our plans. Turning to the segment results.

Speaker #2: Our capital allocation commitment is to remain measured, disciplined, and transparent, while ensuring that we maximize shareholder value, and deliver on our plans. Turning to the segment results, in civil, first quarter revenues increased 5.6% year over year, to $641.6 million.

Ryan McLeod: In Civil, first quarter revenues increased 5.6% year over year to CAD 641.6 million. Adjusted segment operating income decreased 13.7% to CAD 106.1 million, resulting in a margin of 16.5%, down from 20.2% in Q1 of last year. The decrease in Civil adjusted segment operating income was as expected and was due to higher selling, general, and administrative expenses, driven in part by impacts from the conflict in the Middle East. Specific costs included credit-related charges on financial assets, a lower contribution from simulator sales, and lower profitability in our joint ventures in the Middle East. The decrease was partially offset by a higher contribution from business aviation training services. Civil training center utilization was 72.2%, up from 68.8% in the prior year period, and reflected improvements in both commercial and business aviation training. As a reminder, we have updated and standardized the definition of utilization across our network.

Speaker #2: Adjusted segment operating income decreased 13.7%, to $106.1 million, resulting in a margin of 16.5%, down from 20.2% in Q1 of last year. The decrease in civil adjusted segment operating income was as expected, and was due to higher selling general and administrative expenses, driven in part by impacts from the conflict in the Middle East.

Speaker #2: Specific costs included credit-related charges on financial assets, a lower contribution from simulator sales, and lower profitability in our joint ventures, in the Middle East.

Ryan McLeod: Specific costs included credit-related charges on financial assets, a lower contribution from simulator sales, and lower profitability in our joint ventures in the Middle East. The decrease was partially offset by a higher contribution from business aviation training services. Civil training center utilization was 72.2%, up from 68.8% in the prior year period, and reflected improvements in both commercial and business aviation training. As a reminder, we have updated and standardized the definition of utilization across our network.

Speaker #2: The decrease was partially offset by a higher contribution from business aviation training services. Civil training center utilization was 72.2%, up from 68.8% in the prior year period, and reflected improvements in both commercial and business aviation training.

Speaker #2: As a reminder, we have updated and standardized the definition of utilization across our network. This resulted in an approximate $200 basis point decline, in the comparative period percentage.

Ryan McLeod: This resulted in an approximate 200 basis point decline in the comparative period percentage. On the commercial side, we saw increased utilization in India, Europe, and the Americas, partially offset by weaker performance in the Middle East. Notably, in business aviation training, we were able to successfully offset some of the headwinds in our Middle Eastern operations by transferring the volume to other areas of our network and are working through other mitigation activities aimed at limiting the impact on our financial performance. In civil, we booked new orders worth CAD 838 million in the quarter, representing a book-to-sales ratio of 1.31 times, including the finalization of the WestJet order that Matt discussed. In defense, revenues increased 8.3% year over year to CAD 531.8 million, and adjusted segment operating income increased 9.1% to CAD 50.5 million in a 9.5% margin.

Speaker #2: On the commercial side, we saw increased utilization in India, Europe, and the Americas, partially offset by weaker performance in the Middle East. Notably, in business aviation training, we were able to successfully offset some of the headwinds in our Middle Eastern operations, by transferring the volume to other areas of our network, and are working through other mitigation activities, aimed at limiting the impact on our financial performance.

Ryan McLeod: In civil, we booked new orders worth CAD 838 million in the quarter, representing a book-to-sales ratio of 1.31 times, including the finalization of the WestJet order that Matt discussed. In defense, revenues increased 8.3% year over year to CAD 531.8 million, and adjusted segment operating income increased 9.1% to CAD 50.5 million in a 9.5% margin.

Speaker #2: In civil, we booked new orders worth $838 million in the quarter, representing a book-to-sales ratio of 1.31 times, including the finalization of the WestJet order that Matt discussed.

Speaker #2: In defense, revenues increased 8.3% year over year, to $531.8 million, and adjusted segment operating income increased 9.1%, to $50.5 million, and a 9.5% margin.

Speaker #2: This performance was driven by higher profitability and activity on our contracts in the US and Canada, as well as the realization of program efficiencies resulting in the completion of key program milestones, partially offset by higher selling, general, and administrative expenses related to increased bid and proposal activity as we pursue growth opportunities.

Ryan McLeod: This performance was driven by higher profitability and activity on our contracts in US and Canada, as well as the realization of program efficiencies resulting in the completion of key program milestones, partially offset by higher selling general and administrative expenses related to increased bid and proposal activity as we pursue growth opportunities. Our defense-adjusted backlog sits at CAD 10.7 billion with a pipeline of global opportunities meaningfully larger than our current adjusted order backlog. As we indicated when we introduced our fiscal 2027 outlook, we do not expect quarterly performance to progress in a perfectly linear fashion. The second quarter will reflect the impacts of seasonality, notably in our civil business. Overall, we are encouraged by our start to fiscal 2027 and remain focused on delivering on our plans for the year. The transformation program is progressing as expected.

Speaker #2: Our defense adjusted backlog sits at $10.7 billion, with a pipeline of global opportunities meaningfully larger, than our current adjusted order backlog. As we indicated when we introduced our fiscal 2027 outlook, we do not expect quarterly performance to progress in a perfectly linear fashion.

Ryan McLeod: As we indicated when we introduced our fiscal 2027 outlook, we do not expect quarterly performance to progress in a perfectly linear fashion. The second quarter will reflect the impacts of seasonality, notably in our civil business. Overall, we are encouraged by our start to fiscal 2027 and remain focused on delivering on our plans for the year. The transformation program is progressing as expected.

Speaker #2: The second quarter will reflect the impacts of seasonality, notably in our civil business. Overall, we're encouraged by our start to fiscal 2027 and remain focused on delivering on our plans for the year.

Speaker #2: The transformation program is progressing as expected, our businesses are executing well against their plans, and we've made no changes to the fiscal 2027 outlook, or fiscal 2030 targets that we issued in May.

Ryan McLeod: Our businesses are executing well against their plans, and we have made no changes to the fiscal 2027 outlook or fiscal 2030 targets that we issued in May. We remain well-positioned to achieve our goals. The work is well underway towards positioning CAE for stronger earnings growth, improved levels of profitability, higher free cash flow conversion, and better returns on invested capital. With that, I will turn the call back to Matt.

Speaker #2: We remain well-positioned to achieve our goals. The work, as well underway, towards positioning CAE for a stronger earnings growth, improved levels of profitability, higher free cash flow conversion, and better returns on invested capital.

Speaker #2: With that, I'll turn the call back to Matt.

Speaker #1: Thanks, Ryan. 2027 is a transformational year, and we are making rapid progress. We are building on CAE's iconic franchise and strong customer relationships. While we are simplifying our portfolio around core businesses, while we are rationalizing our network capacity to improve utilization and margins, and while we align a worldwide team on performance and cash flow generation, as we progress, we are pivoting to growth in our core areas, and future opportunities across the defense tech ecosystem, which is increasingly exciting, including prospects in synthetic environments, autonomy, and multi-domain.

Matthew Bromberg: Thanks, Ryan. 2027 is a transformational year, and we are making rapid progress. We are building on CAE's iconic franchise and strong customer relationships while we are simplifying our portfolio around core businesses, while we are rationalizing our network capacity to improve utilization and margins, and while we align a worldwide team on performance and cash flow generation. As we progress, we are pivoting to growth in our core areas and future opportunities across the defense tech ecosystem, which is increasingly exciting, including prospects in synthetic environments, autonomy, and multi-domain. We remain committed to our fiscal 2027 outlook and to our fiscal 2030 targets of reducing CAD 125 million to CAD 150 million of structural cost while driving CAE to CAD 950 million to CAD 1 billion of adjusted segment operating income. We are seeing early indications of growth.

Matthew Bromberg: As we progress, we are pivoting to growth in our core areas and future opportunities across the defense tech ecosystem, which is increasingly exciting, including prospects in synthetic environments, autonomy, and multi-domain. We remain committed to our fiscal 2027 outlook and to our fiscal 2030 targets of reducing CAD 125 million to CAD 150 million of structural cost while driving CAE to CAD 950 million to CAD 1 billion of adjusted segment operating income. We are seeing early indications of growth.

Speaker #1: We remain committed to our fiscal 2027 outlook, and to our fiscal 2030 targets of reducing $125 million to $150 million of structural cost, while driving CAE to $950 million to $1 billion of adjusted segment operating income.

Speaker #1: We are seeing early indications of growth. The Alberta Training Center is an example where we will invest in regions that are expanding and need capacity.

Matthew Bromberg: The Alberta Training Centre is an example where we will invest in regions that are expanding and need capacity. Our partnerships with Leonardo, Saab, TKMS, Airbus, Boeing, Bombardier, Embraer, and Shield AI continue to indicate the strength and value that CAE brings to the table with some of the world's leading platform companies and emerging defense tech startups. Our worldwide footprint gives us the opportunity to invest centrally but grow locally to support sovereign defense needs in over 40 countries. As we transform, we are evolving the culture from one that focused mostly on top-line growth at the expense of our balance sheet margins and returns to a team that is acting with discipline, focus, and leveraging balance scorecards to deliver what shareholders expect.

Speaker #1: Our partnerships with Leonardo, Saab, TKMS, Airbus, Boeing, Bombardier, Embraer, and Shield AI continue to indicate the strength and value that CAE brings to the table, with some of the world's leading platform companies, and emerging defense tech startups.

Speaker #1: Our worldwide footprint gives us the opportunity to invest centrally, but grow locally, to support sovereign defense needs in over 40 countries. As we transform, we are evolving the culture from one that focused mostly on top-line growth at the expense of our balance sheet, margins, and returns, to a team that is acting with discipline, focus, and leveraging balanced scorecards to deliver what shareholders expect.

Matthew Bromberg: Our worldwide footprint gives us the opportunity to invest centrally but grow locally to support sovereign defense needs in over 40 countries. As we transform, we are evolving the culture from one that focused mostly on top-line growth at the expense of our balance sheet margins and returns to a team that is acting with discipline, focus, and leveraging balance scorecards to deliver what shareholders expect.

Speaker #1: We have the right strategy, and the right team, and we are aligned around a clear plan, motivated by updated incentives to act with speed and purpose.

Matthew Bromberg: We have the right strategy and the right team, and we are aligned around a clear plan motivated by updated incentives to act with speed and purpose. We have great businesses and attractive end markets, a rich heritage, exceptional people, differentiated technologies, and trusted customer relationships. As we deliver on our transformation commitments, CAE's next phase will be defined by accelerating our growth. Thank you for your continued support, and we look forward to updating you on our progress next quarter. With that, we would be happy to take your questions.

Speaker #1: We have great businesses and attractive end markets, a rich heritage, exceptional people, differentiated technologies, and trusted customer relationships. As we deliver on our transformation commitments, CAE's next phase will be defined by accelerating our growth.

Speaker #1: Thank you for your continued support, and we look forward to updating you on our progress next quarter. With that, we'd be happy to take your questions.

Speaker #3: Thank you, Matt. Operator will now open the lines to financial analysts.

Ryan McLeod: Thank you, Matt. Operator will now open the lines to financial analysts.

Andrew Arnovitz: Thank you, Matt. Operator will now open the lines to financial analysts.

Speaker #4: We'll now begin the question-and-answer session. To join the question queue, you may press star, then 1 on your telephone keypad. You will hear a tone acknowledging your request.

Operator 2: We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. Your first question comes from Konark Gupta with Scotiabank. Please go ahead.

Operator: We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. Your first question comes from Konark Gupta with Scotiabank. Please go ahead.

Speaker #4: If you are using a speakerphone, please pick up your handset before pressing any keys. And to withdraw your question, please press star, then 2.

Speaker #4: Your first question comes from Konark Gupta. With Scotiabank, please go ahead.

Speaker #5: Thanks, and good morning, everyone. My first question is on the civil margins. I understand that they met expectations you had, but can you just explain some of the transitory costs during the quarter, especially the credit-related charges and the transformation-related inefficiencies you saw in civil and how sustainable these are during the quarters coming up?

Konark Gupta: Thanks, and good morning, everyone. My first question is on the Civil margins. I understand they met expectations you had. But can you just explain some of the transitory costs during the quarter, especially the credit-related charges and the transformation-related inefficiencies you saw in Civil, and how sustainable these are during the quarters coming up?

Speaker #1: Yeah, good morning, Konark. Let me start and then turn it over to Ryan. In the civil business, it's really driven two-thirds by what's going on in the Middle East.

Speaker #1: Yeah, good morning, Konark. Let me start and then turn it over to Ryan. In the Civil business, it's really driven two-thirds by what's going on in the Middle East. Happy that we're able to work with a lot of our airlines to reroute their training, to put them in other facilities.

Matthew Bromberg: Yeah. Good morning, Konark. Let me start and then turn over to Ryan. In the Civil business, it is really driven two-thirds by what is going on in the Middle East. So we said we are happy that we are able to work with a lot of our airlines to reroute their training, to put them in other facilities. But that has a cost as we move their training centers and sometimes instructors to other facilities. So while we capture the revenue, the cost is a little higher. That is temporary. Then, yes, the Middle East is causing disruption in fuel prices around the world, and that is affecting some of our customers. So two-thirds of the impact is Middle East-driven, and we are mitigating it, and we view it as temporary. The other third is related to some heightened costs that I will turn to Ryan now to give you a little detail on.

Speaker #1: So we've said we're

Speaker #1: So we've said we're And we

Speaker #1: a cost, as we move their training centers and sometimes instructors to other facilities. And so while we capture the revenue, the cost is a little higher.

Speaker #1: That's temporary. And then, yes, the Middle East is causing disruption in fuel prices around the world, and that's affecting some of our customers. So two-thirds of the impact is Middle East-driven, and we're mitigating it, and we view it as temporary.

Matthew Bromberg: Then, yes, the Middle East is causing disruption in fuel prices around the world, and that is affecting some of our customers. So two-thirds of the impact is Middle East-driven, and we are mitigating it, and we view it as temporary. The other third is related to some heightened costs that I will turn to Ryan now to give you a little detail on.

Speaker #1: The other third is related to some heightened costs that I'll turn to Ryan now to give you a little detail on.

Speaker #6: Yeah, thanks, Matt. So the other items, we talked about this leading into the quarter. So with the transformation, there's some discrete investments that we're making in the

Speaker #6: Yeah, thanks, Matt. So the other items, we talked about this leading into the quarter. So with the transformation, there's some discrete investments that we're making in the business that are going to serve the business long-term and be margin-accretive over time.

Ryan McLeod: Yeah. Thanks, Matt. The other items, we talked about this leading into the quarter. So with the transformation, there are some discrete investments that we are making in the business that are going to serve the business long-term and be margin accretive over time. We had also talked about lower government funding in our R&D program. So that is really the other third. But as we said in the prepared remarks, really pleased with performance in the Civil business. Business aviation had good growth in the quarter. Utilization has trended in the right direction. So overall, we are very pleased.

Speaker #6: program. So that's really the other third, but as we said in the prepared remarks, we're really pleased with the performance in the civil business.

Speaker #6: Business aviation had good growth in the quarter; utilizations trended in the right direction. So, overall, we're very pleased.

Speaker #5: Again, thanks for that color. It is good to see, I guess, with Calin at the helm as Exec Chair and a new executive compensation structure in place.

Konark Gupta: Again, thanks for the color. It is good to see, I guess, with Calin at the helm and as Executive Chair, new executive compensation structure in place. I am pretty interested in the ROIC. I think you guys have pivoted from ROCE to ROIC now. Any guideposts you guys are looking at for the next few years in terms of how ROIC should be and what is the right ROIC level for CAE?

Speaker #5: I'm pretty interested in the ROIC. I think you guys have pivoted from ROCe to ROIC now. Any guideposts you guys are looking at for the next few years in terms of how ROIC should be and what's the right ROIC level for government funding in our R&D CAE?

Speaker #6: Yeah, Connor, so I'll start. So we haven't put out targets on this, and a couple comments. First, this is primarily been an internal driver of how we look at investment and projects.

Ryan McLeod: Yeah, Konark, I will start. We haven't put out targets on this, and a couple comments. First, this has primarily been an internal driver of how we look at investment and projects. If you look at the calculation based on our external numbers, you won't see a lot of difference. It's really how we're measuring and driving projects internally, and it was important to have that alignment. And it really is focused more on cash on cash returns. The other comment I will make is we're going to get towards the high single digits. We will approach low double digits. But it's really going to be the pace of change as we start to see the benefits from the transformation program, where you're going to see the benefit in our ROIC.

Speaker #6: When we look at the if you look at the calculation based on our external numbers, you won't see a lot of difference. It's really how we're measuring and driving projects internally.

Speaker #6: And so it was important to have that alignment, and it really is focused more on cash-on-cash returns. The other comment I'll make is we're going to get towards the high single digits.

Ryan McLeod: And it really is focused more on cash on cash returns. The other comment I will make is we're going to get towards the high single digits. We will approach low double digits. But it's really going to be the pace of change as we start to see the benefits from the transformation program, where you're going to see the benefit in our ROIC.

Speaker #6: We'll approach low double digits. pace of change as we start to see the benefits from the transformation program, where you're going to see the benefit in our ROIC.

Matthew Bromberg: Konark, it's Calin here. Yeah, and thanks for that comment. Look, I think as you know, I spoke with a lot of investors and with all the analysts in the earlier days of my appointment, and this is one of the recurring themes that we have been hearing, is that a greater focus on ROIC and how we compare ourselves to organizations that are best in class or better in class than CAE was. And this cash on cash return dynamic that Ryan just indicated was a big driver of that. And so we're sort of looking to upscale, I would say, the way we are dealing with these long, with these LTIP, these long-term incentive programs. And we think that these are much better indicators and will drive better behavior as well.

Calin Rovinescu: Konark, it's Calin here. Yeah, and thanks for that comment. Look, I think as you know, I spoke with a lot of investors and with all the analysts in the earlier days of my appointment, and this is one of the recurring themes that we have been hearing, is that a greater focus on ROIC and how we compare ourselves to organizations that are best in class or better in class than CAE was.

Speaker #2: Konark, it's Calin here. Yeah, and thanks for that comment. Look, I think, as you know, I spoke with a lot of investors and with all the analysts in the earlier days of my appointment, and this is one of the recurring themes that we had been hearing, is that a greater focus on ROIC and how we compare ourselves to organizations that are best in class or better in class than CAE was.

Speaker #2: And this cash-on-cash return dynamic that Ryan just indicated is a bit was a big driver of that. And so we're sort of looking to upscale, I would say, the way we are dealing with these long with these sort of LTIP, these long-term incentive programs.

Calin Rovinescu: And this cash on cash return dynamic that Ryan just indicated was a big driver of that. And so we're sort of looking to upscale, I would say, the way we are dealing with these long, with these LTIP, these long-term incentive programs. And we think that these are much better indicators and will drive better behavior as well.

Speaker #2: And we think that these are much better indicators, and we'll drive better behavior as well.

Konark Gupta: Great. No, thanks for the color, Calin and Ryan. Appreciate the time. Thanks.

Speaker #5: Great. Thanks for the color, Calin, and Ryan. Appreciate the time. Thanks.

Speaker #4: Your next question comes from Darryl Yang from Stafel. Please go ahead.

Operator 2: Your next question comes from Daryl Young from Stifel. Please go ahead.

Operator: Your next question comes from Daryl Young from Stifel. Please go ahead.

Daryl Young: Hey, good morning, everyone. Wanted to ask on the defense business and the CAD 5 billion pipeline is obviously very impressive, but I am just wondering if the mix of training versus product development coming down the pipeline is, if there is any skew there, and I guess how we should think about the product development risk for some of these new mega project opportunities. I am thinking specifically things like the Canadian Patrol Submarine Project opportunity with TKMS. I do not think you have worked with that partner before, so how should we think about the product development risk, I guess?

Speaker #5: Hey, good morning, everyone. Wanted to ask on the defense business and the $5 billion pipeline is obviously very impressive, but I'm just wondering if the mix of training versus product development coming down the pipeline is if there's any skew there.

Speaker #5: And I guess how we should think about the product development risk for some of these new mega-project opportunities. And I'm thinking specifically things like the Canadian submarine opportunity with TKMS, just I don't think you've worked with that partner before.

Speaker #5: So how should we think about the product development risk, I guess?

Speaker #1: Yeah, good morning. Thanks for the question. Two parts, really. The first is, how do we think about the pipeline going forward, and what's the mix?

Matthew Bromberg: Yeah, good morning. Thanks for the question. Two parts, really. The first is, how do we think about the pipeline going forward, and what is the mix? We feel good about these partnerships. If you have been tracking, we selected a partnership with the Leonardo M-346, and that is the platform chosen by Canada to be its next training platform. We have a partnership with Saab on GlobalEye. That is also the platform that Canada and NATO has selected to support their upcoming needs. Then obviously, the partnership with TKMS leverages a decision on Canada for that platform as well. What is special about these arrangements is we will do the NRE once. We will do it with the OEM in collaboration, and then we will use that to develop training centers.

Speaker #1: So we feel good about these partnerships. If you've been tracking, we selected a partnership with the Leonardo M346, and that's the platform chosen by Canada to be its next training platform.

Speaker #1: We have a partnership with Saab on Global Eye. That's also the platform that Canada and NATO have selected to support their upcoming needs. And then, obviously, the partnership with TKMS leverages a decision on Canada for that platform as well.

Matthew Bromberg: We have a partnership with Saab on GlobalEye. That is also the platform that Canada and NATO has selected to support their upcoming needs. Then obviously, the partnership with TKMS leverages a decision on Canada for that platform as well. What is special about these arrangements is we will do the NRE once. We will do it with the OEM in collaboration, and then we will use that to develop training centers.

Speaker #1: What's special about these arrangements is we will do the NRE once. We will do it with the OEM in collaboration, and then we'll use that to develop training centers.

Speaker #1: That's very different from many of the activities that have occurred over the past decade, where it was done at a sovereign level, and the development costs were unique to each particular country.

Matthew Bromberg: That is very different than many of the activities that occurred over the past decade, where it was done at a sovereign level and the development costs were unique to each particular country. There will be configuration and customization, but these NATO programs will have a lot of commonality, and that is part of the strategy. Do an upfront engineering and development program, which has inherent development risks, but it is one that we are well-suited to manage, and then use that as a basis, and then we reproduce the training centers where they are needed around the world. So that is why we view the NRE as acceptable. It is going to be a far less percentage of the overall program than in other programs in the past. Then if you ask me about the mix, it is going to be depending on the installation.

Speaker #1: They'll be configuration and customization, but these NATO programs will have a lot of commonality. And that's part of the strategy, do an upfront engineering and development program, which has inherent development risks, but it's one that we're well suited to manage.

Speaker #1: And then use that as a basis, and then we reproduce the training centers where they're needed around the world. So that's why we view the NRE as acceptable.

Matthew Bromberg: So that is why we view the NRE as acceptable. It is going to be a far less percentage of the overall program than in other programs in the past. Then if you ask me about the mix, it is going to be depending on the installation. It is going to be more services, training services than product, because we will develop these training centers and then put them in place and operate them.

Speaker #1: It's going to be a far less percentage of the overall program than in other programs in the past. And then, if you ask if you ask me about the mix, it's going to be depending on the installation, it is going to be more services, training services, than product, because we'll develop these training centers and then put them in place and operate them.

Matthew Bromberg: It is going to be more services, training services than product, because we will develop these training centers and then put them in place and operate them.

Speaker #5: Got it. That's great, Connor. Thanks. And then one other around capital allocation that's a two-part. So the flight scape, the commentary you gave around the strategic review progressing well, sounds like you're seeing bids that are acceptable valuation.

Daryl Young: Got it. That's great, Colin. Thanks. One other around capital allocation that's two-part. The Flightscape, the commentary you gave around the strategic review progressing well, sounds like you're seeing bids that are acceptable valuation to you. But the proceeds of a potential transaction there, would that be something you could immediately turn around and buy back on the NCIB, or will the NCIB be more programmatic or opportunistic, I guess?

Speaker #5: To you, but the proceeds of a potential transaction there, would that be something you could immediately turn around and buy back on the NCIB, or will the NCIB be more programmatic or opportunistic, I guess?

Speaker #1: Yeah, no, thanks for the question. First, it's early in the process. We're seeing strong buyer interest, and that makes us excited about where we are in the strategic review.

Matthew Bromberg: Yeah. No, thanks for the question. First, it's early in the process. We're seeing strong buyer interest, and that makes us excited about where we are in the strategic review. That process is underway, and we'll inform everyone about the results at the appropriate time in the future. In terms of the proceeds, it's too early to predict exactly what they'll be, but in large part, we think the proceeds will fund the transformation at a minimum, and that is a great return on capital. Anything we do to fund the transformation is going to increase immediately shareholder value. As we've said, our average return is 2 to 3 years. After that, we'll pursue other capital allocation decisions in the same disciplined approach that we've been talking about.

Speaker #1: And that process is underway, and we'll inform everyone about the results at the appropriate time in the future. In terms of the proceeds, it's too early to predict exactly what they'll be, but in large part, we think the proceeds will fund the transformation.

Speaker #1: At a minimum. And that is a great return on capital. Anything we do to fund the transformation is going to increase immediately shareholder is two to three years.

Matthew Bromberg: Anything we do to fund the transformation is going to increase immediately shareholder value. As we've said, our average return is 2 to 3 years. After that, we'll pursue other capital allocation decisions in the same disciplined approach that we've been talking about.

Speaker #1: After that, we'll pursue other capital allocation decisions in the same disciplined approach that we've been talking about.

Speaker #2: Yeah, it's Calin here. And as you know, as we've said previously, people have asked about the reinstating of a dividend and this sort of thing.

Calin Rovinescu: Yeah. It's Calin here, and as you know, as we've said previously, people have asked about the reinstating of a dividend and this sort of thing. We haven't made any announcement on that. We haven't made any decision on that. But obviously, once we get into a healthier dynamic, the leverage ratio is at the level we've said. We get additional proceeds coming in. We will assess all of these capital allocation decisions then and look to deploy it in the best fashion. But as Matt says, the transformation is the first order of business here.

Speaker #2: We haven't made any announcement on that. We're not we haven't made any decision on that. But obviously, once we get into a healthier dynamic, the leverage ratio is at the level we've said.

Speaker #2: We get additional proceeds coming in. We will assess all of these capital allocation decisions then. And look to deploy it in the best fashion.

Speaker #2: But as Matt says, the transformation is the first order of business here.

Speaker #5: Got it. That's great. I'll jump back in the queue. Thanks very much.

Daryl Young: Got it. That's great. I'll jump back in the queue. Thanks very much.

Speaker #4: Your next question comes from Cameron Larkson with National Bank. Please go ahead.

Operator 2: Your next question comes from Cameron Doerksen with National Bank. Please go ahead.

Operator: Your next question comes from Cameron Doerksen with National Bank. Please go ahead.

Speaker #1: Yeah, thanks. Good morning. I guess a question on the.

Cameron Doerksen: Yeah, thanks. Good morning. I guess a question on the optimization and the network. I mean, it's very good to see that the attrition on revenue from moving customers' contracts is going to be very minimal. So that's good to see. I guess the question I have is around pricing. I know this is one of the things you've been also focused on is maybe upgrading the quality of revenue with some of the customer contracts that you have. Can you update us, I guess, on any progress you're making there and I guess the reception from customers on future contract renewals on perhaps having to pay a little higher price than what they've been paying?

Speaker #5: The optimization and the network. I mean, it's very good to see that the attrition on revenue from moving customers' contracts is going to be very minimal.

Speaker #5: So that's good to see. I guess the question I have is around pricing. I know this is one of the things you've also been focused on, which is maybe upgrading the quality of revenue with some of the customer contracts that you have.

Cameron Doerksen: I know this is one of the things you've been also focused on is maybe upgrading the quality of revenue with some of the customer contracts that you have. Can you update us, I guess, on any progress you're making there and I guess the reception from customers on future contract renewals on perhaps having to pay a little higher price than what they've been paying?

Speaker #5: Can you update us, I guess, on any progress you're making there, and, I guess, the reception from customers on future contract renewals, on perhaps having to pay a little higher price than what they've been paying?

Speaker #1: Yeah, look, I appreciate the question. It's early, to be fair. And airlines are sophisticated buyers, and airlines around the world are struggling with fuel prices and traffic disruptions.

Matthew Bromberg: Yeah, look, I appreciate the question. It's early to be fair, and airlines are sophisticated buyers, and airlines around the world are struggling with fuel prices and traffic disruptions, and these are our key partners. We're going to work cautiously through this. But the counter side of that is we want to get the right economic value for our products and services around the world. The approach has been disciplined. We're starting with our aftermarket products and services, which is a small portion of our civil business, and putting in the discipline, the vocabulary, the tools to price that effectively. We'll start to see the potential benefits of that as we close out the year. We then move to our product side for the same evaluation and improvement, and then obviously from there to our business and commercial training network.

Speaker #1: And these are our key partners. So we're going to work cautiously through this. But the counterside to that is we want to get the right economic value for our products and services around the world.

Speaker #1: The approach has been disciplined. We're starting with our aftermarket products and services, which is a small portion of our civil business, and putting in the discipline, the vocabulary, the tools to price that effectively.

Matthew Bromberg: We're starting with our aftermarket products and services, which is a small portion of our civil business, and putting in the discipline, the vocabulary, the tools to price that effectively. We'll start to see the potential benefits of that as we close out the year. We then move to our product side for the same evaluation and improvement, and then obviously from there to our business and commercial training network.

Speaker #1: And we'll start to see the potential benefits of that as we close out the year. We then move to our product side for the same evaluation and improvement.

Speaker #1: And then, obviously, from there to our business and commercial training network. So it's still early. To look at how we price and how we go to market, ensure we're getting the right economic value.

Matthew Bromberg: It's still early to look at how we price and how we go to market, ensure we're getting the right economic value. We have 600, 700 different contracts out there with airlines of various time spans, and then we go to market transactionally with many of our business pilots. So it's a fairly complex landscape, and layer on top of that, joint ventures and pricing agreements that are already in place and they have to burn off. We're working it diligently. It's a key strategic focus of it, and when we get more mature about it, we'll be able to articulate what we see as a benefit, but we do see it as an opportunity.

Speaker #1: We have six, seven hundred different contracts out there with airlines of various time spans, and then we go to market transactionally with many of our business pilots.

Speaker #1: So it's a fairly complex landscape. And layer on top of that, joint ventures and pricing agreements that are already in place, and they have to burn off.

Speaker #1: So we're working it diligently. It's a key strategic focus of it. And when we get more mature about it, we'll be articulate what we see as a benefit.

Speaker #1: But we do see it as an opportunity.

Speaker #5: Okay, no, that's great. I'll leave it at one question. Appreciate the time.

Cameron Doerksen: Okay. No, that's great. I'll leave it at one question. Appreciate the time.

Speaker #4: Your next question comes from Sheila Kailu, with Jeffries. Please go ahead.

Operator 2: Your next question comes from Sheila Kahyaoglu with Jefferies. Please go ahead.

Operator: Your next question comes from Sheila Kahyaoglu with Jefferies. Please go ahead.

Speaker #6: Good morning, guys, and thank you so much for the time. Maybe I wanted to ask two questions on civil, if possible. On just the revenue outlook, strong start to the year, but the guidance suggests flat to slightly down.

Sheila Kahyaoglu: Good morning, guys, and thank you so much for the time. Maybe I wanted to ask two questions on civil, if possible. On just the revenue outlook. Strong start to the year, but the guidance suggests flat to slightly down. I guess even with some of the headwinds like the product business, Middle East, and of course, the transformation, I guess, how do we think about the remainder of that business from a civil and business aviation, market perspective for the rest of the year?

Speaker #6: I guess even with some of the headwinds, like the product business, Middle East, and of course, the transformation, I guess how do we think about the remainder of that business from a civil and business aviation market perspective for the rest of the year?

Speaker #1: Yeah, thanks, Sheila, for the question. If you look at the civil market, through one quarter or one month, it often appears discombobulated. It can be difficult to understand what's going on.

Matthew Bromberg: Thanks, Sheila, for the question. If you look at the civil market through one quarter or one month, it often appears discombobulated. It can be difficult to understand what's going on. If we step back from it, we still see a long-term growth trajectory of 4%, which we think is a very attractive market, and we are the market leader in there. We started this year, as you know, with a very light order intake last year. So the number of full-flight sims that we had orders last year that'll deliver this year is down. Layer on top of it, the Middle East impact, which wasn't anticipated a year ago and we're mitigating, and now we're going into our summer seasonality. So we're being cautious on the outlook here, given all those moving pieces.

Speaker #1: If we step back from it, we still see a long-term growth trajectory of 4%, which we think is a very attractive market, and we are the market leader in there.

Speaker #1: We started this year, as you know, with a very light order intake last year. So, the number of full flight sims that we had orders for last year, that are delivered this year, is down.

Matthew Bromberg: We started this year, as you know, with a very light order intake last year. So the number of full-flight sims that we had orders last year that'll deliver this year is down. Layer on top of it, the Middle East impact, which wasn't anticipated a year ago and we're mitigating, and now we're going into our summer seasonality. So we're being cautious on the outlook here, given all those moving pieces.

Speaker #1: Layer on top of it, the Middle East impact, which wasn't anticipated a year ago, and we're mitigating. And now we're going into our summer seasonality.

Speaker #1: So we're being cautious on the outlook here, given all those moving pieces. But again, if you step away from this quarter or the next couple of quarters, the long-term outlook of the industry is strong.

Matthew Bromberg: But again, if you step away from this quarter or the next couple of quarters, the long-term outlook of the industry is strong, it is incredibly resilient, and we are well-positioned with our product sales and our training network to continue to grow.

Speaker #1: It's incredibly resilient. And we're well positioned with our product sales and our training network to continue to grow.

Sheila Kahyaoglu: That is super helpful. I guess if I could ask on the margins as a follow-up, the color was super helpful on Middle East being two-thirds of the impact on reallocation. I guess, how do we think about pricing with your civil customers? How is that going? Because the airlines are seeing big pricing benefits. Is there some of that, especially given less than 1% attrition as you move simulators around?

Speaker #6: That's super helpful. And I guess if I could ask on the margins as a follow-up, the color was super helpful on Middle East being two-thirds of the impact on relocation.

Speaker #6: But I guess how do we think about pricing with your civil customers? How's that going? Because the airlines are seeing big pricing benefits. Is there some of that, especially given less than one percent attrition, as you move simulators around?

Speaker #1: Yeah, I think, in terms of, Sheila, there's probably two answers to your question. In terms of moving customers and maintaining them as we go through the network rationalization, each time we assess the decision, it's going to be incrementally beneficial to us.

Matthew Bromberg: Yeah, Sheila, there is probably two answers to your question. In terms of moving customers and maintaining them as we go through the network rationalization, each time we assess the decision, it is going to be incrementally beneficial to us. That is why we are going through the rationalization exercise. Each contract, each customer is approached with a unique solution, but we have to make sure it is incrementally better. This is about driving improved productivity and improved margin, and that is why we are going through this exercise. It is hundreds of customers across the four to six sites and all the training centers. The intent is to make incremental margin as well as drive utilization.

Speaker #1: That's why we're going through the rationalization exercise. And so each contract, each customer is approached with a unique solution, but we have to make sure it's incrementally better.

Speaker #1: This is about driving improved productivity and improved margin. That's why we're going through this exercise. It's hundreds of customers across the four to six sites and all the training centers.

Matthew Bromberg: This is about driving improved productivity and improved margin, and that is why we are going through this exercise. It is hundreds of customers across the four to six sites and all the training centers. The intent is to make incremental margin as well as drive utilization. I think the other part of your question would go back to the earlier comment about we are approaching pricing diligently across portfolio, recognizing airlines are in a challenging year, and we work with them on a one-off basis there as well.

Speaker #1: So the intent is to make incremental margin as well as drive utilization. And I think the other part of your question would go back to the earlier comment about we're approaching pricing diligently across portfolio, recognizing airlines are in a challenging year, and we work with them on a one-off basis there as well.

Matthew Bromberg: I think the other part of your question would go back to the earlier comment about we are approaching pricing diligently across portfolio, recognizing airlines are in a challenging year, and we work with them on a one-off basis there as well.

Speaker #6: Great. Thank you so much.

Sheila Kahyaoglu: Great. Thank you so much.

Speaker #4: Your next question comes from Team James with TD. Please go ahead.

Operator 2: Your next question comes from Tim James with TD. Please go ahead.

Operator: Your next question comes from Tim James with TD. Please go ahead.

Speaker #5: Thanks very much. Good morning. Just want to return to the Middle East and the impact that conflict there is having on the business. Obviously, it sounds like it's created some unexpected headwinds or at least some that maybe carrying on further in the fiscal year.

Tim James: Thanks very much. Good morning. Just want to return to the Middle East and the impact that conflict there is having on the business. Obviously, it sounds like it has created some unexpected headwinds, or at least some that may be carrying on further in the fiscal year. Has there been some unexpected positives in other parts of the business that offset that Middle East impact and that allows you to kind of maintain your full-year guidance? Or is the Middle East conflict impact just not material enough to kind of bump you off your expected guidance range?

Speaker #5: Has there been some unexpected positives in other parts of the business that offset that Middle East impact and that allows you to kind of maintain your full-year guidance?

Speaker #5: Or is the Middle East conflict impact just not material enough to kind of bump you off your expected guidance range?

Speaker #1: Yeah, I appreciate the question. We anticipated at least a half year of impact from the Middle East, and we're seeing it. It's difficult to predict exactly when the Middle East issue will fully subside.

Matthew Bromberg: Yeah, I appreciate the question. We anticipated at least a H1 of impact in the Middle East, and we are seeing it. It is difficult to predict exactly when the Middle East issue will fully subside, and then there will be a tail of activity as fuel prices and other things manage their way through the system. It is a long cycle business. We are seeing training reroute to other parts of the network. It is one of the advantages of having a worldwide network. We can support our customers anywhere. Initially, that is having some incremental costs associated with the movement, but we have mitigation procedures in place and it is working. I do not see incremental headwind in the year. I do see us being cautious as we go through the seasonality of the Middle East effects, which will take another quarter or two to subside.

Speaker #1: And then there will be a tail of activity as fuel prices and other things make their way through the system. It's a long-cycle business.

Speaker #1: So we are seeing training rerouted to other parts of the network. It's one of the advantages of having a worldwide network—we can support our customers anywhere.

Matthew Bromberg: We can support our customers anywhere. Initially, that is having some incremental costs associated with the movement, but we have mitigation procedures in place and it is working. I do not see incremental headwind in the year. I do see us being cautious as we go through the seasonality of the Middle East effects, which will take another quarter or two to subside. We don't see incremental risk in the year. We're mitigating it appropriately.

Speaker #1: Initially, that's having some incremental costs associated with the movement, but we have mitigation procedures in place, and it's working. So I don't see incremental headwind.

Speaker #1: In the year, I do see us being cautious as we go through the seasonality of the Middle East effects, which will take another quarter or two to subside.

Speaker #1: But we don't see incremental risk in the year. We're mitigating it appropriately.

Matthew Bromberg: We don't see incremental risk in the year. We're mitigating it appropriately.

Speaker #5: Okay, great. Thank you. And then just one follow-up question. I want to tie it back into an earlier question about your backlog and your pipeline in defense.

Tim James: Okay, great. Thank you. Just one follow-up question. I want to tie it back into an earlier question about your backlog and your pipeline in defense. Correct me if I'm wrong, Matt, but I think you suggested training is the real powerhouse behind that backlog strength. Can you provide any insights as we think about longer-term margins and the difference between products, business, and equipment in defense versus training opportunities? Just what the differences are at a high level between the margin profile and those two revenue streams.

Speaker #5: Correct me if I'm wrong, Matt, but I think you suggested training is the real powerhouse behind that backlog strength. Can you provide any insights as we think about longer-term margins and the difference between products, business, and equipment in defense versus training opportunities?

Speaker #5: Just what the differences are at a high level between the margin profile and those two revenue streams?

Speaker #1: Yeah, it's a great question. So a healthy defense business will operate, as I've said many times before, in that low-teens margin. And that's where we're driving.

Matthew Bromberg: Yeah, it's a great question. So, a healthy defense business will operate, as I've said many times before, in that low teens margin, and that's where we're driving. If you peel the layers back on why we weren't there, and we've talked about it, we were undertaking contracts that were lower margin, staffing contracts that we're no longer pursuing, and we're going to have a nice solid mix of product and service contracts going forward. The additional conservative approach is that we're going to try and leverage the development cost, which is where the risk occurs for any defense company. Development programs are inherently risky. That we're going to minimize incremental development costs and focus on developing large service revenue base going forward. So that's the mix that we're looking at. That's why I feel good about the contract trajectory that we have.

Speaker #1: If you peel the layers back on why we weren't there—and we've talked about it—we were undertaking contracts that were lower margin, staffing contracts that we're no longer pursuing.

Speaker #1: And we're going to have a nice, solid mix of product and service contracts going forward. And so, the additional conservative approach is that we're going to try and leverage the development costs, which is where the risk occurs for any defense company.

Matthew Bromberg: The additional conservative approach is that we're going to try and leverage the development cost, which is where the risk occurs for any defense company. Development programs are inherently risky. That we're going to minimize incremental development costs and focus on developing large service revenue base going forward. So that's the mix that we're looking at. That's why I feel good about the contract trajectory that we have. These pipeline of opportunities are definitely consistent with our long-term plan. So it's a really good position to be in, and we're going to continue to drive these things to contract.

Speaker #1: Development programs are inherently risky. That we're going to minimize incremental development costs and focus on developing large service revenue base going forward. So that's the mix that we're looking at.

Speaker #1: That's why I feel good about the contract trajectory that we have. And these pipelines of opportunities are definitely consistent with our long-term plans. So it's a really good position to be in, and we're going to continue to drive these things to contract.

Matthew Bromberg: These pipeline of opportunities are definitely consistent with our long-term plan. So it's a really good position to be in, and we're going to continue to drive these things to contract.

Tim James: Great. Thank you.

Speaker #5: Great. Thank you.

Speaker #4: Next question comes from Christine Luag from Morgan Stanley. Please go ahead.

Operator 2: Next question comes from Christine Laug from Morgan Stanley. Please go ahead.

Operator: Next question comes from Christine Laug from Morgan Stanley. Please go ahead.

Speaker #6: Hey, good morning, everyone. I want to dive in a little bit on civil as you go through this transitory period. I was wondering, can you provide more detail regarding your expectations for customer retention during this transition, also for your customers?

Christine Laug: Hey, good morning, everyone. I want to dive in a little bit on Civil as you go through this transitory period. I was wondering, can you provide more detail regarding your expectations for customer retention during this transition. Also for your customers, what are the key factors that could cause them to switch. Are there significant number of alternatives that they could go to, and how are those initial conversations going. I appreciate the question. Thank you. As I mentioned before, as we take out 10% of our capacity, we are going to retain more than 99% of our contracts. The attrition is less than 1% at the Civil level. We feel very, very good about that. But it is an airline-by-airline discussion involving where they operate, the regional capacity we have that is near, and what arrangement we make to work with them. There are alternatives out there.

Kristine Liwag: Hey, good morning, everyone. I want to dive in a little bit on Civil as you go through this transitory period. I was wondering, can you provide more detail regarding your expectations for customer retention during this transition. Also for your customers, what are the key factors that could cause them to switch. Are there significant number of alternatives that they could go to, and how are those initial conversations going.

Speaker #6: What are the key factors that could cause them to switch? Are there significant number of alternatives that they could go to? And how are those initial conversations going?

Speaker #1: No, look, I appreciate the question. Thank you. So as I mentioned before, as we take out 10% of our capacity, we're going to retain more than 99% of our contracts.

Matthew Bromberg: I appreciate the question. Thank you. As I mentioned before, as we take out 10% of our capacity, we are going to retain more than 99% of our contracts. The attrition is less than 1% at the Civil level. We feel very, very good about that. But it is an airline-by-airline discussion involving where they operate, the regional capacity we have that is near, and what arrangement we make to work with them. There are alternatives out there.

Speaker #1: The attrition is less than 1% at the civil level. We feel very, very good about that. But it is an airline-by-airline discussion. Involving where they operate, the regional capacity we have that's near, and what arrangement we make to work with them.

Speaker #1: There are alternatives out there. There's no other provider with a network as capable, as widespread, and as professional as ours. And we're going to leverage that to ensure we provide the right solution.

Matthew Bromberg: There is no other provider with a network as capable, as widespread, and as professional as ours, and we are going to leverage that to ensure we provide the right solution. But it is a competitive industry, and there are small players out there that provide training on a one-off basis, and we are being very diligent about handling our customer relationship. That intimacy is job one. The conversations are going well. That is why we are able to characterize attrition to be less than 1% of our overall revenue base, but we got to continue to work to earn their trust every day.

Speaker #1: But it's a competitive industry. And there are small players out there that provide training on a one-off basis. And so we're being very diligent about handling our customer relationships.

Speaker #1: That intimacy is job one. So the conversations are going well. That's why we're able to characterize attrition to be less than 1% of our overall revenue base.

Speaker #1: But we got to continue to work to earn their trust every day.

Speaker #6: Great, super helpful. And for that 99% confidence, is that now back with long-term agreements signed with these customers? How should we think about the risks related to that?

Christine Laug: Great. Super helpful. For that 99% confidence, is that now backed with long-term agreements signed with these customers? How should we think about the risks related to that?

Kristine Liwag: Great. Super helpful. For that 99% confidence, is that now backed with long-term agreements signed with these customers? How should we think about the risks related to that?

Matthew Bromberg: Yeah. Most of our contracts with customers, it is a mix of joint ventures with some airlines, term agreements, master service agreements, others, and long terms. So it varies significantly, and that is why from a company perspective, our job is to maintain and earn that trust every single day and continue to provide the best full flight simulators with the best technical devices and the best instructors and the best courseware. So we never take a contract for granted. Every day, we are there to earn and re-earn our customer trust.

Speaker #1: Yeah, most of our contracts with customers, it's a mix. Joint ventures with some airlines, term agreements, master service agreements with others, and long-terms. So it varies significantly.

Speaker #1: And that's why from a company perspective, our job is to maintain and earn that trust every single day. And continue to provide the best full-flight simulators, with the best technical devices and the best instructors and the best courseware.

Speaker #1: So we never take a contract for granted. Every day, we're there to earn and re-earn our customers' trust.

Speaker #6: Thank you very much.

Christine Laug: Thank you very much.

Kristine Liwag: Thank you very much.

Speaker #4: Next question comes from Krista Friesen with CIBC. Please go ahead.

Operator 2: Next question comes from Krista Friesen with CIBC. Please go ahead.

Operator: Next question comes from Krista Friesen with CIBC. Please go ahead.

Speaker #6: Hi, thanks for taking my question. Just one on the Defense side. You talked about higher bid proposal costs in the quarter. Just wondering how we should think about that for the remainder of 2027, and when you think that could subside.

Krista Friesen: Hi. Thanks for taking my question. Just one on the defense side. You talked about higher bid proposal costs in the quarter. Just wondering how we should think about that for the remainder of 2027, and when do you think that could subside? Thank you.

Speaker #6: Thank you.

Speaker #5: Yeah, good morning, Krista. This is Ryan. So I think we're going to continue to see some of that through to balance of the year.

Ryan McLeod: Yeah. Good morning, Krista. This is Ryan. I think we are going to continue to see some of that through the balance of the year. As Matt talked about in his remarks, there is a very healthy pipeline of opportunities, and this is a key growth area for the business. We do expect to see that spend continue through to most of the balance of the year.

Speaker #5: There's as Matt talked about in his remarks, there's a very healthy pipeline of opportunities. And this is a key growth area for the business.

Speaker #5: So we do expect to see that spend continue through to most of the balance of the year.

Speaker #6: Thank you. And then maybe if you can just speak to obviously, you've announced a lot of partnerships on the defense side recently. Are there a lot of other large partnerships that you're targeting at this point, or are you pretty happy with where you sit right now?

Krista Friesen: Thank you. Then maybe if you can just speak to, obviously, you have announced a lot of partnerships on the defense side recently. Are there a lot of other large partnerships that you are targeting at this point, or are you pretty happy with where you sit right now? Thank you.

Speaker #6: Thank you.

Speaker #1: Yeah, thanks for the question. The answer is yes. We're targeting many other partnerships. We're really feeling to be in a unique position where the largest independent defense training company in the world.

Matthew Bromberg: Yeah. Thanks for the question. The answer is yes, we are targeting many other partnerships. We are really feeling to be in a unique position. We are the largest independent defense training company in the world. We have strong relationships in 40 countries, and in particular, NATO. Clearly, we are going to operate with haste here in Canada, where we have a fantastic position as a sovereign training provider, and we are going to try and leverage all these decisions that Canada makes to provide incremental capability for Canada and Canada's allies. But we have conversations underway with virtually every OEM around the world and many countries for sovereign solutions. We are just getting started.

Speaker #1: We have strong relationships in 40 countries and in particular, NATO. Clearly, we're going to operate with haste here in Canada, where we have a fantastic position as a sovereign training provider.

Matthew Bromberg: Clearly, we are going to operate with haste here in Canada, where we have a fantastic position as a sovereign training provider, and we are going to try and leverage all these decisions that Canada makes to provide incremental capability for Canada and Canada's allies. But we have conversations underway with virtually every OEM around the world and many countries for sovereign solutions. We are just getting started.

Speaker #1: And we're going to try and leverage all these decisions that Canada makes to provide incremental capability for Canada and Canada's allies. But we have conversations underway with virtually every OEM around the world and many countries for sovereign solutions.

Speaker #1: So we're just getting started.

Speaker #6: Thank you. Appreciate the color. I'll jump back in the queue.

Krista Friesen: Thank you. Appreciate the color. I'll jump back in the queue.

Speaker #4: Once again, if you have a question, please press star, then one on your telephone keypad. Your next question comes from Andrew Steinhardt with Bank of America Canada.

Operator 2: Once again, if you have a question, please press star then 1 on your telephone keypad. Your next question comes from Andrew Steinhart with Bank of America Canada. Please go ahead.

Operator: Once again, if you have a question, please press star then 1 on your telephone keypad. Your next question comes from Andrew Steinhart with Bank of America Canada. Please go ahead.

Speaker #4: Please go ahead.

Speaker #5: Hi, good morning. This is Andrew on for Ron. Thanks for taking my questions. Just to piggybacking off the last question on Shield AI partnership, obviously, it's early, but I was wondering if you could just talk a little bit about what that work has looked like so far and how will that build as TCA actually progresses here?

Andrew Steinhart: Hi. Good morning. This is Andrew on for Ron. Thanks for taking my questions. Just piggybacking off the last question on the Shield AI partnership. Obviously, it's early, but I was wondering if you could just talk a little bit about what that work has looked like so far and how will that build as CCA actually progresses here?

Andrew Steinhardt: Hi. Good morning. This is Andrew on for Ron. Thanks for taking my questions. Just piggybacking off the last question on the Shield AI partnership. Obviously, it's early, but I was wondering if you could just talk a little bit about what that work has looked like so far and how will that build as CCA actually progresses here?

Speaker #1: Yeah, thanks for the question. So Shield AI has positioned itself as a very interesting provider of AI or autonomy solutions in the defense ecosystem, trying to work across a variety of platforms.

Matthew Bromberg: Yeah. Thanks for the question. Shield AI has positioned itself as a very interesting provider of AI or autonomy solutions in the defense ecosystem, trying to work across a variety of platforms. That autonomy solution, that algorithm needs to be trained, and it needs to be able to work in a synthetic environment, and it needs to work side by side with humans, and that's where we come in. They have the algorithm, but we come in to help them provide that training ecosystem that surrounds it, so that not only does the algorithm operate the way Shield AI intends, but we can get humans that'll inevitably work with it to operate as well. It is because of the CCA platform that we're working on, but we're excited with the partnership with Shield that could expand beyond that.

Speaker #1: And that autonomy solution, that algorithm needs to be trained and it needs to be able to work in a synthetic environment, and it needs to work side by side with humans.

Speaker #1: And that's where we come in. So they have the algorithm, but we come in to help them provide that training ecosystem that surrounds it so that not only does the algorithm operate the way Shield AI intends, but we can get humans that will inevitably work with it to operate as well.

Matthew Bromberg: They have the algorithm, but we come in to help them provide that training ecosystem that surrounds it, so that not only does the algorithm operate the way Shield AI intends, but we can get humans that'll inevitably work with it to operate as well. It is because of the CCA platform that we're working on, but we're excited with the partnership with Shield that could expand beyond that.

Speaker #1: So, it is because of the CCA platform that we're working on, but we're excited with the partnership with Shield that could expand beyond that.

Speaker #1: These systems that are going that are being built in the defense ecosystem are increasingly complex. And for operators to understand how to work with them, whether they're side by side as a CCA or remote, as remote piloted vehicle or a drone, is where the future lies.

Matthew Bromberg: These systems that are being built in the defense ecosystem are increasingly complex, and for operators to understand how to work with them, whether they are side by side as a CCA or remote, as a remote piloted vehicle or a drone, is where the future lies, and it is something we have been doing for the past 15 years. We have fantastic relationships with companies like General Atomics, and we provide that training ecosystem today, and we are excited with the partnership of Shield AI. As they continue to drive their algorithm, we will provide the training ecosystem with them.

Speaker #1: And it's something we've been doing for the past 15 years. We have fantastic relationships with companies like General Atomics, and we provide that training ecosystem today.

Speaker #1: And we're excited with the partnership of Shield as they continue to drive their algorithm. We'll provide the training ecosystem with them.

Speaker #5: Gotcha. I appreciate that color. And I guess just a follow-up. What portion of that $5 billion pipeline is related to CCA or other types of drones, I guess?

Andrew Steinhart: Got you. I appreciate that color. I guess just a follow-up. What portion of that CAD 5 billion pipeline is related to CCA or other types of drones, I guess?

Andrew Steinhardt: Got you. I appreciate that color. I guess just a follow-up. What portion of that CAD 5 billion pipeline is related to CCA or other types of drones, I guess?

Speaker #1: Yeah, very small portion of the $5 billion. The $5 billion that I articulated is driven mostly by the Leonardo, the Saab Global Eye, and the TKMS Maritime Submarine pipeline, as we get more granular on other partnership opportunities or sovereign, then we'll start to articulate more fidelity around the pipeline.

Matthew Bromberg: A very small portion of the CAD 5 billion. The CAD 5 billion that I articulated is driven mostly by the Leonardo, the Saab GlobalEye, and the TKMS maritime submarine pipeline. As we get more granular on other partnership opportunities or sovereign, then we will start to articulate more fidelity around the pipeline. The CAD 5 billion is a conservative pipeline estimate around primarily those programs.

Speaker #1: But the $5 billion is a conservative pipeline estimate around primarily those programs.

Speaker #5: Got it. Thank you very much.

Andrew Steinhart: Got it. Thank you very much.

Andrew Steinhardt: Got it. Thank you very much.

Speaker #4: We have no further questions. Mr. Arnovitz?

Operator 2: We have no further questions. Mr. Arnovitz?

Operator: We have no further questions. Mr. Arnovitz?

Speaker #3: Operator, thank you very much. I want to thank all of the participants on the call this morning and remind you that a transcript of the call and the Q&A can be found later on CAE's website.

Andrew Arnovitz: Operator, thank you very much. I want to thank all of the participants on the call this morning and remind you that a transcript of the call and the Q&A can be found later on CAE's website. The team and I are, of course, at your disposal should you have any follow-up questions, please do reach out. Thanks very much. Have a great day.

Speaker #3: The team and I are, of course, at your disposal should you have any follow-up questions. Please do reach out. Thanks very much. Have a great day.

Operator 2: This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant 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.