CAE Inc. Q2 FY2026 earnings call

• Calin Rovinescu mentioned Q2 was a solid quarter and discussed the transformation plan focus on sharpening portfolio, disciplined capital management, and improved performance through operational excellence.
• Matthew Bromberg highlighted CAE's strong business with strategic advantages, and outlined the transformation plan including aligning organization and leadership, focusing on portfolio, capital discipline, and performance. Organizational changes include Nick Leontidis retiring, Civil business consolidated under Alexandre Prevost, Defense consolidated from 3 P&Ls to 2, and Juan Araujo joining as SVP Operations. Current operations in Civil are in line with expectations with seasonality and softness in commercial training, while Defense has steady margin improvement and double-digit growth.

In the Civil segment, Q2 revenue was $670 million, a 5% year-over-year growth, while adjusted segment operating income decreased 6% to $108.7 million, resulting in a margin of 16.2%. Training center utilization was 64%, down from 70% in the prior year, and 12 full-flight simulators were delivered. In the Defense segment, Q2 revenue grew 14% year-over-year to $566.6 million, with adjusted segment operating income increasing 41% to $46.6 million, delivering an 8.2% margin, driven by higher activity on new higher-margin program awards and the ramp-up of recently awarded contracts in the U.S. and Canada.

• Total capital expenditures in fiscal 2026 are expected to be lower than last year, with a roughly 10% year-over-year decrease, reflecting a 25% reduction in Civil spending and remaining investments focused on market-driven growth.
• Continue to expect reaching 2.5x net debt to adjusted EBITDA by the end of the fiscal year.
• Civil performance expected to be roughly in line with prior year, while Defense maintains full year outlook.

Q: Fadi Chamoun with BMO Capital Markets asked about how the threshold approved capital has changed and the potential for return on invested capital to reach double-digit levels.

A: Matthew Bromberg responded that they are evaluating prior investments, using lenses of current network optimization and market conditions for capital approval, and that returning to double-digit ROIC is the top focus and will be unpacked in the next few months.

Q: Krista Friesen with CIBC asked about unexpected surprises and initial changes.

A: Matthew Bromberg said there have been positive surprises like high energy and entrepreneurial focus across the organization, and the depth of technology as opportunities to unlock.

Q: Konark Gupta with Scotiabank asked about CapEx reduction and leverage ratio.

A: Constantino Malatesta said CapEx reduction is due to 25% reduction in Civil CapEx and 40% of growth CapEx for FSTSS program, and Matthew Bromberg stated focus is on continuing to delever and ensuring investments meet return thresholds.

Q: Benoit Poirier with Desjardins asked about capital employed in Civil and training opportunity for Bond Aviation.

A: Matthew Bromberg discussed evaluating capital allocation going forward and Nick Leontidis mentioned Bond Aviation will be trained as a customer.

Q: Kristine Liwag with Morgan Stanley asked about new ROIC threshold.

A: Matthew Bromberg said they are working on it and guidance will come out with 2027 financial outlook.

Q: Cameron Doerksen with National Bank asked about margin and free cash flow improvement timeline.

A: Matthew Bromberg said initiatives will be refined and guidance on 2027 will be provided.

Q: Matthew Lee with Canaccord Genuity asked about Civil simulator orders and margin.

A: Matthew Bromberg discussed long-term fundamentals and Constantino Malatesta mentioned lower deliveries and utilization will ramp up.

Q: Anthony Valentini with Goldman Sachs asked about ROIC target.

A: Matthew Bromberg said they will be more diligent in future simulator placement based on higher return thresholds.

Q: Jordan Lyonnais with Bank of America asked about Defense growth and contract protection.

A: Matthew Bromberg discussed CAE's flexibility and Constantino Malatesta talked about higher product revenue margins in Defense due to new contracts.

Q: James McGarragle with RBC asked about CapEx guide and growth.

A: Matthew Bromberg said they will determine appropriate CapEx level and provide 2027 guidance.