• Free Cash Flow: Record $410 million in Q3.
• New Orders: $2.2 billion in Q3, leading to a record adjusted backlog of $20.3 billion.
• Civil Orders: $1.5 billion, with a 2 times book-to-sales ratio.
• Civil Revenue: $752.6 million, up 21% year-over-year.
• Civil Adjusted Backlog: $8.8 billion, up 44% year-over-year.
• Defense Orders: $707 million, with a book-to-sales ratio of 1.50 times.
• Defense Adjusted Backlog: $11.5 billion, up 104% year-over-year.
• Consolidated Revenue: $1.22 billion, up 12% year-over-year.
• Adjusted Segment Operating Income: $190 million, up 31% year-over-year.
• Adjusted EPS: $0.29, compared to $0.24 in the previous year.
• Net Finance Expense: $56.6 million, up from $52.4 million in the previous year.
• Income Tax Expense: $34.8 million, with an effective tax rate of 17%.
• Net Cash from Operating Activities: $424.6 million, up from $220.8 million in the previous year.
• Capital Expenditures: $97.6 million, with 80% invested in growth.
• Net Debt: Approximately $3.4 billion, with a net debt to adjusted EBITDA of 3.36 times.

• Warning! GuruFocus has detected 6 Warning Signs with CAE.

Release Date: February 14, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• CAE Inc (NYSE:CAE) reported a record $410 million in free cash flow for the third quarter.
• The company secured $2.2 billion in new orders, resulting in a record adjusted backlog of $20.3 billion.
• Civil aviation segment saw a 21% year-over-year revenue growth, with a record $8.8 billion total civil adjusted backlog.
• Defense segment achieved a book-to-sales ratio of 1.50 times, contributing to a record $11.5 billion in Defense adjusted backlog.
• Strong cash flow performance with net cash from operating activities reaching $424.6 million, significantly higher than the previous year.

Negative Points

• Some softness in commercial aviation training in the Americas due to ongoing aircraft supply chain challenges.
• Pilot hiring remained modest in the Americas, affecting training center utilization.
• Higher finance expenses due to increased lease liabilities and additional borrowings for the SIMCOM transaction.
• Annual Civil adjusted segment operating income growth is expected to be modestly below previous outlook due to delayed aircraft deliveries.
• Net debt to adjusted EBITDA remains relatively high at 3.36 times, though expected to decrease by fiscal year-end.

Q & A Highlights

Q: Was the reduction in CapEx targets due to delays in demand or a more prudent approach? A: Marc Parent, President and CEO, explained that it was a prudent decision, aligning capacity with demand. Constantino Malatesta, Interim CFO, added that it reflects a disciplined approach to capital allocation and cash management, alongside strong free cash flow generation.

Q: How is training utilization trending in the Americas versus Europe and Asia? A: Marc Parent noted that commercial flight activity drives training utilization. In the Americas, utilization was slightly down due to lower pilot hiring. In contrast, Europe and Asia saw increased utilization, with passenger traffic up 5% and 7%, respectively.

Q: How is CAE positioned to react to potential tariffs, and have customers shifted their decision-making due to tariffs? A: Marc Parent stated that CAE does not expect a material short-term impact from tariffs. The company is monitoring the situation closely and is prepared to adapt if tariffs become more lasting. CAE's revenue is largely generated from services delivered in-country, mitigating tariff impacts.

Q: Can you discuss the defense results and margin expectations for the future? A: Marc Parent highlighted strong execution and risk reduction in defense, with margins expected to continue expanding. Constantino Malatesta noted an 8.3% margin performance, with improvements due to process changes and team execution. Nick Leontidis, COO, expressed confidence in maintaining or exceeding current performance levels.

Q: What are the implications of the Board changes, and how should we think about organic growth in the civil aviation market? A: Marc Parent explained that Board changes are part of ongoing renewal and succession planning. Regarding civil aviation, he noted that while US pilot hiring is currently a drag, the market is expected to recover with OEM aircraft deliveries. Business aviation remains strong, with significant growth opportunities.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.