CAE, Inc. Q1 FY2025 earnings call

• Civil Market Dynamics: Healthy demand in civil market solutions with softness in commercial aviation training in some regions. Booked $771M in orders worldwide with a strong 1.31 book-to-sales ratio, and revenue 9% higher y-o-y. Strong order activity in JVs with ~$103M in training service orders. - Defense Progress: Financial performance in line with expectations on the path to margin improvement. Booked $422M in orders for a 0.87 times book-to-sales ratio, with a $10.4B Defense-adjusted backlog, including share of Canada's Future aircrew training program. - Software Conversion: Ongoing SaaS conversion in Flight Operations Services, expecting stronger profit contribution, especially in Q4. - Cost Optimization: Incurred $25.6M in restructuring, integration, and acquisition costs, with ~$20M additional expected in Q2, aiming for $20M annual run rate cost savings by end of next fiscal year.

Civil: First quarter revenue was up 9% to $587.6 million, with adjusted segment operating income down 11% to $106.4 million, resulting in a margin of 18.1%. Booked $771 million in orders with a 1.31 times book-to-sales ratio, and revenue was 9% higher than Q1 of last year. Defense: Revenue was up 3% to $484.9 million, while adjusted segment operating income was up 14% to $27.8 million, giving an adjusted segment operating income margin of 5.7%. Booked orders for $422 million with a 0.87 times book-to-sales ratio, resulting in a $10.4 billion Defense-adjusted backlog.

• Civil: Expect approximately 10% annual adjusted segment operating income growth in fiscal 2025, with an annual adjusted segment operating income margin between 22% and 23%, driven by business aviation, simulator deliveries, cost optimization, and expected recovery in initial training. - Defense: Expect low to mid-single-digit revenue growth, with Defense segment operating income margin to increase to the 6% to 7% range, weighted to the second half, leveraging secular growth in defense.

• Civil Aviation: Softness in commercial aviation training in certain regions due to aircraft supply constraints, pilot hiring pauses, and extended summer flying season in Europe. - Software Conversion: Continued heavy lifting in SaaS conversion, potential delays in transitioning from on-premise to SaaS. - Geopolitical: Impact of geopolitical tensions on defense budgets and training program timelines.

Q: Insight into Civil growth visibility and commercial aviation recovery A: Marc mentioned second half strength from business aviation, simulator deliveries, cost optimization, and expected recovery in initial training in Americas.

Q: Efficiency improvements in CAE's segments A: Nick discussed removing management layers, streamlining support functions, and leveraging synergies across segments.

Q: Defense margin rebound and legacy contracts A: Marc stated defense margins are on track, with visibility on legacy contracts and progress in rolling them off.

Q: Software business progress and growth A: Marc noted ongoing SaaS conversion, growing pipeline, and strong order intake indicating future growth.

Q: Business aviation training centers ramping up A: Marc updated on successful ramping of training centers in Las Vegas, Orlando, Savannah, with strong demand.