CAE Inc. Q3 FY2025 earnings call

• Board Changes: Announced appointment of four new directors, including Kaylin Rovinescu as Chair, with retirements of four directors. - Financial Performance: Generated record $410 million in free cash flow, $2.2 billion in new orders, and a record adjusted backlog of $20.3 billion. - Civil Segment: Finalized purchase of increased stake in SIMCOM joint venture, extended training agreement with FlexJet; booked $1.5 billion in orders with a 2x book-to-sales ratio, ended quarter with $8.8 billion total Civil adjusted backlog. - Defense Segment: Performance tracked ahead of expectations, $707 million in defense orders, 1.5x book-to-sales ratio, record $11.5 billion in defense-adjusted backlog. - Awards: Recognized as Canada's Top 100 Employers for third consecutive year and Forbes Canada's Best Employers for 2025.

In Civil, third quarter revenue grew 21% year-over-year to $752.6 million, while adjusted segment operating income was $250.8 million, resulting in a 20% margin. This excludes a net measurement gain of $72.6 million on the SIMCOM transaction. Defense revenue remained stable at $470.8 million, while adjusted segment operating income increased 88% to $39.2 million, delivering an 8.3% margin, thanks to strong execution from the team and lower net R&D expenses. Legacy contracts contributed around seven basis points of margin dilution. Without this impact, the adjusted segment operating income margin for defense would have been 9%.

• Civil: Annual civil-adjusted segment operating income growth modestly below previous outlook (~10%), Civil segment operating income margin modestly below 22%-23% range. - Defense: Expect high single-digit percentage revenue growth per year, defense-adjusted segment operating income margin modestly above 6%-7% range, moving to low-double-digit margin.

• Tariffs: Monitoring potential impact, but short-term not material. - OEM Delays: Impact on pilot hiring and training demand in Americas. - Government Shutdowns/Continuing Resolutions: Short-term disruptions to defense contracts.

Q: On CapEx targets reduction, was it more a function of delays and demands in certain areas, or just more prudent?

A: Marc Parent said it's prudent to align capacity with demand; Constantino Malatesta added it's a disciplined approach to capital allocation.

Q: How is your training utilization trending in the Americas versus Europe and Asia?

A: Marc Parent noted Americas had 7% passenger traffic growth but slightly lower training utilization due to lower pilot hiring; Europe/Middle East had 5% growth with corresponding utilization increase; India had 7% growth.

Q: On the impact from potential tariffs, can you just discuss a little bit how you're positioned to react?

A: Marc Parent said monitoring closely, no material short-term impact expected, but would adapt if tariffs lasting longer; relatively few sales to U.S. customers this year due to OEM delays.

Q: On the board changes, are there any specific governance variable items?

A: Marc Parent said it's a function of ongoing board renewal, with new Chairman Calin Rovinescu bringing strong background, facilitating transition and future board leadership.

Q: On simulator deliveries and exit margin rate for fiscal Q4, what's the outlook?

A: Nick Leontidis said no change to guidance, some simulator deliveries may be in next fiscal year; Constantino Malatesta noted products being higher proportion of revenue mix affecting margin outlook.