Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- CAE Inc (CAE, Financial) booked nearly $1.2 billion in total orders this quarter, contributing to a record $17 billion in adjusted backlog.
- The company delivered eight full-flight simulators to customers during the quarter, indicating strong operational performance.
- Business aviation training saw year-over-year growth, supported by new training centers like the one in Savannah, Georgia.
- Defense segment booked orders worth $422 million, increasing the adjusted backlog to $10.4 billion from $8.4 billion in Q1 last year.
- Net finance expense decreased to $49.5 million from $53.1 million in the first quarter last year, reflecting better financial management.
Negative Points
- Commercial aviation training utilization was down 3 percentage points year-over-year, with notable declines in the Americas and Europe.
- Adjusted segment operating income for Civil was down 11% to $106.4 million compared to the first quarter last year.
- The company incurred restructuring, integration, and acquisition costs of $25.6 million during the quarter.
- Net cash from operating activities was negative $12.9 million, although an improvement from negative $49.3 million in the first quarter of fiscal 2024.
- Free cash flow remained negative at $25.3 million, despite being better than the negative $110.3 million in the first quarter last year.
Q & A Highlights
CAE Inc (CAE) Q1 2025 Earnings Call Highlights
Q: How much visibility do you have into the growth in the back half of the year, given the Civil guidance of 10%?
A: Marc Parent, President and CEO: We have high visibility on several factors. We expect a stronger second half due to business aviation performance, simulator deliveries, cost optimization efforts, and a stronger profit contribution from our software business. We also anticipate some recovery in initial training in the Americas, driven by improvements in narrow-body aircraft deliveries.
Q: Can you provide more insight into the opportunities to improve efficiency as you streamline operations across CAE's five segments?
A: Nick Leontidis, COO: We have removed layers of overhead in Defense and streamlined support functions and corporate costs. We are also focusing on doing things one way between Civil and Defense, supporting each other in programs with commonality, which will drive further improvements in results.
Q: What factors will drive the second half margins in Civil, and is there a new run rate we should think about?
A: Marc Parent, President and CEO: The margin improvement will come from a combination of factors, including pilot training recovery, cost savings from business simplification, and higher profitability from software business. We expect margins to trend higher based on revenue growth and operational efficiencies.
Q: Can you provide an update on the legacy contracts in Defense and the timing for rolling them off?
A: Marc Parent, President and CEO: We have high visibility on the legacy contracts, and everything is on schedule. We expect to exit two of the eight identified contracts soon, with the rest rolling off over the next few quarters. This progress supports our margin improvement expectations.
Q: Is there an opportunity to redeploy training assets to Asia and the Middle East, given the strong demand there?
A: Marc Parent, President and CEO: We always consider moving assets to meet demand, and this is factored into our outlook. We are seeing strong activity in regions like Asia, which supports our overall business performance.
Q: Does the restructuring and cost savings change the long-term margin profile for Civil and Defense?
A: Marc Parent, President and CEO: The cost savings will help our bottom line performance, and we expect margin improvements based on volume growth and operational efficiencies.
Q: Can you provide more detail on the business aviation training market and the progress of new training centers?
A: Marc Parent, President and CEO: Our new training centers, such as those in Las Vegas, Orlando, and Savannah, are ramping up nicely. The level of activity remains high, and we continue to see strong demand and bookings in business aviation training.
Q: How much of your guide for the second half of the year is already booked, and what are the downside risks?
A: Marc Parent, President and CEO: We have high visibility on simulator deliveries and business aviation bookings. The downside risk lies in the resumption of pilot hiring in the Americas, which is based on aircraft delivery schedules. We are managing our own destiny through cost savings and conservative outlooks.
Q: What remains to be done in the software business, and what kind of growth should we expect?
A: Marc Parent, President and CEO: We are still in the process of converting to SaaS, with a growing pipeline and strong order intake. We expect significant top and bottom-line growth post-implementation, with a timeline of 18-24 months for full conversion.
Q: Are there any impacts from the Canadian government's budget cuts on CAE's defense contracts?
A: Marc Parent, President and CEO: We have not seen any delays in Canadian defense contracts. In fact, we see acceleration and increased resources towards defense, with significant contracts like the FAcT program and training for the P-8 aircraft.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
