Release Date: November 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- CAE Inc (CAE, Financial) achieved strong demand for civil and defense market solutions, securing nearly $3 billion in total orders this quarter.
- The company's adjusted backlog reached a record $18 billion, up over 50% compared to the previous year.
- In civil aviation, CAE Inc (CAE) delivered 18 full flight simulators and experienced year-over-year growth in business aviation training and commercial training in Asia Pacific.
- Defense performance showed significant backlog growth and margin enhancements, with a record $11.4 billion in defense adjusted backlog, up approximately 94% year over year.
- The restructuring program was completed, with expected annual run-rate cost savings of approximately $20 million by the end of the next fiscal year.
Negative Points
- OEM aircraft supply disruptions impacted US pilot hiring, leading to lower training demand than expected under normal conditions.
- Commercial aviation training utilization was approximately 3 percentage points lower than last year on average.
- The quarterly adjusted EPS was $0.24, a decrease from $0.26 in the second quarter last year.
- Net finance expense increased to $52.9 million, up from $49.5 million in the preceding quarter and $47.1 million in the second quarter last year.
- Free cash flow decreased to $140 million compared to $147.4 million in the second quarter last year, mainly due to a lower contribution in noncash working capital.
Q & A Highlights
Q: How does CAE plan to bridge the gap to achieve double-digit EBIT margins in the defense segment, considering the current 7% SOI margins excluding legacy contracts?
A: Marc Parent, President and CEO, explained that the growth will be driven by retiring legacy contract risks and replacing them with higher-margin contracts. The company is on track with this strategy, as evidenced by the growth in their backlog. The focus remains on strong execution and securing transformative backlog growth, such as the $1.7 billion contract awarded in Q2.
Q: What factors are driving the expected civil segment inflection in the second half of the fiscal year?
A: Marc Parent highlighted several factors, including improvements in Airbus deliveries, a modest uptick in US pilot hiring, and strong activity in Asia Pacific. Additionally, the contribution from the SIMCOM acquisition and better performance from flight services are expected to drive higher margins. Nick Leontidis, COO, added that training business utilization is expected to be higher, with Q4 historically being the strongest quarter.
Q: Is the full flight simulator delivery target still in the 50% range for this year, and what is the outlook on supply chain issues affecting aircraft deliveries?
A: Marc Parent confirmed that the target remains over 50 deliveries this year. He acknowledged the challenges in aircraft deliveries but noted that the situation is improving, with Boeing's strike resolved and engine grounding issues easing. CAE is managing costs and CapEx to align with demand, and the company remains optimistic about the long-term demand for simulators.
Q: How should we interpret the civil segment's book-to-bill ratio and the revised CapEx guidance?
A: Marc Parent stated that the civil book-to-bill ratio remains strong, indicating growth despite higher revenue levels. The CapEx guidance was adjusted to reflect agility in investment processes, ensuring alignment with market demand. The company focuses on deploying simulators based on customer needs, maintaining discipline in capital deployment.
Q: What is driving the expected improvement in defense margins in Q3 and Q4, and is there seasonality in the defense business?
A: The improvement is driven by cost savings, better execution, and new business wins, such as the Canadian Future Aircrew Training program. The defense segment is expected to see gradual margin improvement, with Q4 typically being stronger. The company is confident in achieving its margin guidance for the year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
