Earning Date, Transcript Summary & Report

Employer Recognition and Culture: CAE has been recognized as one of Canada's top 100 employers for the third consecutive year and has earned a spot on Forbes Canada's Best Employers List for 2025, reflecting a strong and empowering company culture.

Record Free Cash Flow: The company generated a record $410 million in free cash flow during the third quarter, indicating strong operational performance and cash management.

Record New Orders: CAE secured $2.2 billion in new orders, leading to a record adjusted backlog of $20.3 billion, showcasing robust demand for its services.

Civil Segment Performance: In the Civil segment, CAE booked $1.5 billion in orders, achieving a 2x book-to-sales ratio and a 21% increase in revenue compared to the same quarter last year.

Record Civil Backlog Growth: The total Civil adjusted backlog reached a record $8.8 billion, up 44% year over year, indicating strong future revenue potential.

Flight Simulator Demand Surge: The company delivered 20 full flight simulators in the quarter, a significant increase from previous periods, demonstrating strong product demand.

Defense Orders and Backlog Growth: In Defense, CAE recorded $700 million in orders, achieving a book-to-sales ratio of 1.5x and a record $11.5 billion in defense adjusted backlog, up 104% year over year.

Defense Operating Income Surge: The adjusted segment operating income for Defense increased by 88% to $39.2 million, reflecting strong execution and improved backlog quality.

Record Operating Cash Flow: CAE's net cash from operating activities was a record $424.6 million, compared to $220.8 million in the same quarter last year, highlighting improved cash flow generation.

Strong Free Cash Flow: The company expects to generate strong free cash flow for the year with a conversion of adjusted net income exceeding 150%, up from a previous target of approximately 100%.

Strategic Defense Partnership: CAE's strategic partnership with the Government of Canada for the Future Fighter Lead in Training Program positions the company for long-term growth in defense training solutions.

Commercial Aviation Training Challenges: - The company experienced softness in commercial aviation training in The Americas, with pilot hiring remaining modest and some airline customers deferring training bookings due to ongoing short-term aircraft supply chain challenges.

Adjusted Operating Income Outlook: - The expected annual civil adjusted segment operating income growth is now projected to be modestly below the previous outlook of approximately 10%.

Civil Segment Margin Update: - The annual Civil segment operating income margin is expected to be modestly below the previously expected range of 22% to 23%.

Delayed Aircraft Deliveries Impact Training: - The company noted that the ramp-up of commercial aircraft deliveries is taking longer than expected, impacting initial training demand for newly hired pilots.

Increased Finance Expenses: - There was a higher level of finance expense this quarter, amounting to $56.6 million, which is up from $52.9 million in the preceding quarter and $52.4 million in the same quarter last year, primarily due to higher lease liabilities and additional borrowings.

Increased Finance Expense: - The company expects net finance expense for the year to be approximately $10 million higher than last year, indicating increased financial pressure.

Tax Rate Discrepancy: - The adjusted effective income tax rate was 29%, which is higher than the expected run rate effective income tax rate of 25%.

Defense Business Variability: - The company acknowledged that the defense business is inherently lumpy quarter to quarter, which can lead to variability in performance and results.

Tariff Risk Monitoring: - There is a risk of potential tariffs impacting the business, although the company does not expect a material impact in the short term; however, they are monitoring the situation closely.

Cautious Capital Management: - The company has not purchased any additional shares under its NCIB due to a focus on deleveraging and capital allocation, indicating a cautious approach to capital management.