CAE, Inc. Q2 FY2025 earnings call

• Marc Parent highlighted the company's strong financial position and solid market growth, noting CAE is in a good place despite challenges in commercial aviation. - Second quarter results reflected strong demand for civil and defense solutions, with nearly $3 billion in total orders and a record adjusted backlog of $18 billion. - Civil delivered 18 full flight simulators, with growth in business aviation training and simulator products. - Defense saw growth and margin enhancements, including securing a $1.7 billion award under Canada's Future Aircrew Training program. - Restructuring and integration costs were incurred, but the restructuring program was completed, and annual run rate cost savings of ~$20 million are expected by the end of next fiscal year.

In the Civil segment, second quarter revenue grew 12% year-over-year to $640.7 million, while adjusted segmented operating income rose 1% to $115.9 million, resulting in an 18.1% margin. 18 full flight simulators were delivered, and the civil adjusted backlog reached a record $6.7 billion, up 13% year-over-year. In the Defense segment, revenue rose 4% to $495.9 million, while adjusted segmented operating income rose 55% to $33.1 million, delivering a 6.7% margin. The defense adjusted backlog was a record $11.4 billion, up approximately 94% year-over-year.

• Civil: Expect approximately 10% annual growth in adjusted segment's operating income for fiscal 2025, with an annual civil adjusted segment operating income margin between 22% and 23%. - Defense: Anticipates low to mid-single-digit revenue growth and defense adjusted segment operating income margin to increase to the 6% to 7% range. - SIMCOM investment is expected to be accretive to both earnings and free cash flow in the first full year going forward.

• OEM aircraft supply disruptions, which impacted US pilot hiring and commercial aviation training utilization. - Temporary nature of supply issues, although Airbus and Boeing have a combined order backlog of nearly 15,000 aircraft. - Potential impact of US administration changes, including risks related to tariffs.

Q: Kevin Chiang asks about defense margins excluding legacy contracts and bridging to double-digit margins.

A: Marc Parent mentions retiring legacy contract risk and replacing with higher margin contracts; Constantino Malatesta adds strong execution and a strong defense pipeline.

Q: Sheila Kahyaoglu inquires about civil inflection for the second half and SIMCOM flight operations software.

A: Marc Parent discusses improving impacts from Airbus GTF grounding, modest uptick in US pilot hiring, and SIMCOM contribution; Nick Leontidis mentions higher training utilization in the second half.

Q: Fadi Chamoun asks about full flight simulator delivery target and supply chain issues.

A: Marc Parent and Nick Leontidis state they're still aiming for over 50 deliveries, supply issues are temporary with a large aircraft backlog, and opportunities in Asia-Pacific.

Q: James McGarragle asks about book-to-bill and CapEx guide.

A: Marc Parent and Nick Leontidis note civil book-to-bill ratio is still above one, and CapEx guide adjusted due to agility in investment process.

Q: Matthew Lee asks about SIMCOM stake acquisition and other consolidation opportunities.

A: Marc Parent and Nick Leontidis discuss excitement about SIMCOM acquisition, its high margin, and potential for other consolidation opportunities.

Q: Cameron Doerksen asks about US administration impact and defense legacy contracts.

A: Marc Parent mentions monitoring US administration impact, no significant forecasted impact; Nick Leontidis states progress on retiring legacy contracts.

Q: Tim James asks about network SEU growth and commercial training impact.

A: Nick Leontidis says network SEU growth is both commercial and business jet focused, and commercial training challenges are volume-related.

Q: Jordan Lyonnais asks about civil margins and software sales.

A: Nick Leontidis mentions software sales percentage is small, and integration of software business is complete.

Q: Noah Poponak asks about defense backlog growth and revenue flow.

A: Marc Parent and Nick Leontidis discuss defense backlog growth from contracts like Canada's FAcT, ramping up revenue over years with different margin profiles.