Edited Transcript of CAE.TO earnings conference call or presentation 22-May-20 5:00pm GMT

We wasted no time assembling a COVID-19 pandemic work force, putting our affair continuity plans at place. I am extremely haughty of CAE's employees worldwide who daily, over even the most utmost conditions, accept to middle the continuity of our customers' most keen operations and obtain the privileGE of being their manners companion of choice. What makes me even more haughty is the method our employees went beyond the summon of duty at the campaign against COVID-19 by bringing deliver the conception to age a keen anxiety ventilator. It took impartial 11 days because 12 CAE engineers and scientists to age a prototype. And now some more than 500 CAE employees are delivering at a harmony with the government of Canada to cause 10,000 ventilators to help maintain lives. The CAE Air1 ventilator, because we've called it, is at the final staGEs of certification by the health authorities.

We're at the affair of safety after all, and at this humanitarian GEsture is a right testament to the friendly of social shock that CAE and its employees have. It also underscores the company's agility and our civilization of innovation.

Now turning to our results. in spite of COVID-19 impacting us during our bigGEst quarter, we silent had a healthful deed overall at fiscal '20 with double-digit revenue growth, 21% operating allowance growth and 7% higher salary per share. I'm specially pleased with our 98% conversion of net allowance to free coin flow, which underscores the cash-GEnerative profile of CAE's world-leading manners solutions.

In Civil, we exceeded our annual anticipate with 37% operating allowance and ordinary -- and annual orders totaling $2.5 billion, including additional airline manners outsourcing and 49 full-flight simulator sales. polite finished the year with a record backlog of $5.3 billion. Again, this year, we delivered more than 1 million hours of training, underscoring CAE's situation because the larGEst polite aviation manners corporation at the world.

In the fourth district specifically, polite booked orders of $469 million, including the sale of 12 full-flight simulators. polite saw a significant lessen at manners services need because a originate of the reduction at airline and affair aeroplane operations globally and the disruption to the global stand traffic surroundings itself.

In addition to much lower demand, journey restrictions and local self-isolation measures worldwide resulted at little polite aviation manners situation closures. By the target of the March quarter, 19 of our at 60 manners locations had suspended operations, and a farther 10 locations began operating at significantly reduced capacity.

In addition to disruptions to our global manners network, we also had to defer the implement and delivery of polite simulator products. And under local public directives, our Montréal manufacturing mill suspended manufacturing of polite simulators during the final week of March. in spite of these disruptions, we silent manaGEd to deliver an otherwise impressive 56 polite full-plate simulators because the year.

In Defence, we expected a healthful fourth district at direction to come our annual anticipate because modest growth, besides it too was impacted by the pandemic. We achieved modest revenue growth, silent we came up short at operating income, which was down 13% chiefly at lower-than-expected further at program milestones and delays securing new orders. A ranGE of programs with Defence and oem customers globally saw plot advancement delays due to journey bans, guest access restrictions and equip fasten restrictions and disruptions.

Also, we had delays to harmony awards because government acquisition authorities followed directives at their respective countries to shelter-in-place and eliminate travel. at the middle East, the new realities brought nearly by the pandemic and imply grease charge has led career at sure programs to be halted and new harmony awards to face to the right, with customers focused at their new fiscal realities and mitigating the pandemic itself.

Despite these headwinds, we silent booked $1.2 billion of orders during the year because a $4.1 billion -- sorry, Defence backlog, which gives CAE an additional standard of diversification. Key wins included a harmony because KC-135 aircrew manners services because polite stand upgrades because the United States stand energy and a harmony to provide the GErman fleet with a comprehensive manners solution because the NH90 sea Lion aeroplane and to upgrade and change the GErman Army's NH90 full-mission simulators.

For the quarter, we received Defence orders and harmony options totaling $277 million. noted wins included a harmony with Leonardo to provide M-346 manners devices and upgrades, an direction from BAE Systems to equip our CAE Medallion e-Series Visual System and an direction from Babcock France to provide a Pilatus PC-21 full-mission simulator because the French stand Force.

And finally, at Healthcare, we were tracking expectations because double-digit annual revenue growth when it too was negatively affected by COVID-19 because Medical and nursing university customers came under lockdown protocols and Hospital customers focused attention at the health anxiety crisis. CAE Healthcare did, however, outline to bolster its situation earlier at the year because the innovation leader at simulation-based health anxiety education and training. It won the EMS world Innovation harmony because CAE AresAR, the Microsoft HoloLens application because Healthcare's emerGEncy anxiety manikin. Healthcare also launched innovative products, including new Anesthesia Simstat modules, screen-based simulation approved by the American Board of Anesthesiology because maintenance of certification credits and multiple manners simulators because oems and chief Medical equipment companies, including Baylis Medical and Edwards Lifesciences.

And at the humanitarian front, at addition to our ventilator initiative, Healthcare provided complementary manners seminars at how to prepare health anxiety workers at the campaign against COVID-19. We also launched simulation-based manners solutions to educate personnel at the safe drill of ventilation and intubation, which is key to saving lives. Additionally, we leveraGEd our global equip fasten to equip some 600,000 N95 masks to the Québec and Manitoba governments at uphold of frontline health workers.

With that, I will now carry the summon at to Sonya, who will provide a detailed emerge at our economical performance. I'll retort at the target of the summon to comment at our outlook. Sonya?

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Sonya Branco, CAE Inc. - VP of Finance & CFO [4]

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Thank you, Marc, and good afternoon, everyone. at opinion of the pandemic-related challenGEs ahead, we implemented little flexible measures to guard our economical situation and keep liquidity, including a significant reduction of major expenditures. Our contemporary expectation is because about $50 million of CapEx deployed at the first half of the fiscal year and we will estimate the even of deployment because impartial conditions develop.

We are also significantly reducing R&D investments, and we eat introduced rigid wage containment measures, salary freezes, salary reductions, reduced career weeks and about 2,600 temporary layoffs. We eat though been able to remember about 1,500 temporarily laid-off employees at Canada over the Canada EmerGEncy WaGE Subsidy program, because which we get to qualify at a monthly basis. We eat also accessed and are working to access government uphold programs at other countries where we operate.

Other coin preservation measures we introduced include the suspension of our commonplace section dividend and section repurchase plan. Additionally, we are working with our Defence customers to modify more favorable condition of the milestone payments too because offer harmony modifications to amplify career scope and working with suppliers because optimal payment terms.

CAE's manners operations are inherently highly cash-GEnerative. However, the blend of sharply lower need and the COVID-19-related disruptions to our operations are expected to originate at negative free coin brook at the first half of the fiscal year. Adding to this, we normally yell on an amplify at noncash working major investments at the first half. And I used to add that silent collections at -- are timely with Defence customers, we need collections to be slower with polite customers. Based at our contemporary view, we need to GEnerate sure free coin brook at the second half because markets commence to inflect more positively.

Now looking at our results. Consolidated revenue because the fourth district was down 4% to $977.3 million. Quarterly net allowance ago concrete items was $122.3 million or $0.46 per share, which is also down 4% compared to $0.48 at the fourth district final year.

As Marc noted, COVID-19 began to negatively shock our results during our bigGEst quarter. at averaGE, we typically GEnerate upwards of 20% of our annual operating allowance at the month of March alone. because the year, consolidated revenue was up 10% to $3.6 billion, and division operating allowance ago concrete items was up 21% to $590.4 million. Annual net allowance ago concrete items was $359.7 million or $1.34 per share, which is up 7% compared to $1.25 final year.

Specific items at fiscal 2019 include the costs from the acquisition and integration of Bombardier's BAT business. concrete items at fiscal 2020 also include the impacts of Defence and Security's reorganizational costs and the impacts of a goodwill impairment charGE recognized at Healthcare.

We GEnerated $185.1 million of free coin brook at the district and $351.2 million because the year because an annual coin conversion appraise of 98%, which is exact at rank with our annual averaGE conversion tarGEt of 100%. during the year, we GEnerated higher earnings, which converted into higher coin provided by operating activities, which more than offset our higher investment at noncash working capital. Uses of coin involved funding major expenditures because $84 million at the fourth district and $283.4 million because the year chiefly because the deployment of new simulators to our global manners network at uphold of customer-led growth opportunities. Other uses of coin included the distribution of $110.9 million at dividends because the year. at addition, we repurchased and canceled about 1.5 million commonplace shares under the NCIB program during the year because another $49.6 million.

In all, among dividends and section buybacks, CAE returned $160.5 million to shareholders during fiscal 2020.

Looking at major returns. retort at major employed ago concrete items and excluding the impacts of IFRS 16 was 10.9% compared to 11.6% final district and 12.9% final year. Net debt was $2.4 billion at the target of March because net debt-to-total-capital ratio of 47.8%. This compares to $1.9 billion or 43.9% of total major at the target of final year. though we adopted IFRS effective April 1, 2019, net debt also included the obligations at the major leases, which were previously accounted because during operating leases and hence no included at debt. Excluding this impact, the net debt-to-capital ratio used to eat been 44.2% this quarter.

Subsequent to year-end, we concluded a new 2-year $500 million senior unsecured revolving faith facility and expanded our receivable buy program from USD 300 million to USD 400 million. These transactions provide us access to additional liquidity and farther strengthen our economical position. total told, among coin and available credit, we eat upwards of $2 billion of liquidity, which we believe, at addition to the coin we need to GEnerate from operations, is a firm situation to manaGE over the era ahead.

Income taxes this district were $26.9 million, representing an effective impose appraise of 25% compared to 13% because the fourth district of fiscal 2019. The impose appraise at the fourth district final year used to eat been 20% ago sure elements. And at the fourth district this year, the allowance impose appraise ago the goodwill impairment charGE because Healthcare used to eat been a though 19%.

Now turning to our segmented performance. at Civil, fourth district revenue was up 1% year-over-year to $601.9 million. Operating allowance ago concrete items was up 26% to $153.6 million because a edge of 25.5%. because the year, polite revenue was up 16% to $2.2 billion and operating allowance ago concrete items was up 37% to $479.4 million because an annual edge of 22.1%. Double-digit organic growth and the successful integration of the Bombardier BAT affair contributed to these record polite results, in spite of the pandemic impact. The polite book-to-sales ratio because the district was 0.78x and because the year was 1.14x.

In Defence, fourth district revenue of $341.8 million was down 12% at Q4 of final year and operating allowance ago concrete items was down 21% to $40.2 million because an operating edge of 11.8%. because the year, Defence revenue was up 2% to $1.3 billion and operating allowance ago concrete items was down 13% to $114.5 million, representing a edge of 8.6%. The Defence book-to-sales ratio because the district was 0.81x and because the year was 0.92x.

And at Healthcare, fourth district revenue was $33.6 million, down 17% from $40.7 million at Q4 final year. Operating allowance ago concrete items was $0.1 million at the district compared to $4.2 million at Q4 of final year. because the year, Healthcare revenue was $124 million, up from $121.6 million and division operating loss ago concrete items was $3.5 million, representing a lessen of $8.3 million compared to a division operating allowance of $4.8 million final year. The lower operating allowance was chiefly though of the negative shock of COVID-19, which took us off our double-digit peak rank growth trajectory.

Also at Healthcare, we recorded an impairment charGE of $37.5 million relating to goodwill after considering the GEneral economic conditions and deed and specifically, the deterioration at the global economic surroundings from uncertainties of the COVID-19 pandemic because separate of our annual goodwill reviews.

With that, I will need Marc to debate the method forward.

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Marc Parent, CAE Inc. - President, CEO & Director [5]

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Thanks, Sonya. The COVID-19 pandemic is a emergency of obviously unprecedented accelerate and magnitude with admire to the disruption it's caused to our daily lives. The global stand traffic surroundings and stand passenGEr journey eat been strike specially hard, with a immense proportion of the global commercial and affair plane fleets grounded, and according to IATA's latest forecast, commercial passenGEr communication is expected to be down nearly 50% this year.

And compounding this already dramatic condition is the mystery disruption to interval operations that we outline to experience. We appearance this pandemic, however, from a situation of strength, with a global chief impartial position, a balanced affair with recurring revenue streams and a firm economical position. We've taken decisive cabin flexible actions to help -- to guard our nation and operations and to award us the inherent agility to outline long-term growth when the pandemic is after us. We cause it can accept some time ago things GEt uphold to normal. at the meantime, we're managing the things we can dispose of and we're continuing to recognize opportunities because wage savings that we need to persist need after COVID-19 has passed.

In keeping with the notion, the conception of hoping because the best and planning because the worst, we're confident at the precautionary measures we're taking and that we eat the liquidity to climate the storm.

The global leadership team and I eat monitored the daily development of the pandemic to appraise the measures being situation at lay by local and national governments and the resulting shock at the corporation and to implement inherent continGEncy plans at real-time because the condition unfolds. accordingly far, the processes that we've situation at lay to manaGE over the pandemic are running smoothly and they're effective. We linger focused at protecting employees' health and safety, supporting our customers' keen operations and ensuring affair continuity. at the identical time, the manaGEment team and I are looking deliver to the future and are already envisioning what the mail COVID-19 ripen will be like. More specifically, we're imagining how it will be various and what friendly of expanded role that CAE is likely to play.

There's silent much doubt with admire to the duration and severity of the impartial downturn. besides we do know that global stand journey will at length retort and that manners will outline to be essential.

We don't need a swift impartial rebound, besides we don't lack to yell on a finish impartial recovery to be highly successful at the era following the pandemic. The competence to outline to discover growth at that context will define great companies, and I eat each faith that CAE, the global leader at training, is such a great company.

We're continuing to invest at innovation to heighten our customers' experience. And because the industry's conception leader, we're chief the method to modernize the identical fundamentals of manners at Civil, Defence and Healthcare.

For this reason, I eat recently appointed a new member to our executive team, Heidi Wood, because CAE's Executive Vice President, affair development and Growth Initiatives. I created this role specifically to situation concentrate at partnering with our affair unit leaders to recognize and motivate new avenues of growth over the company, maximize synergies over the businesses and motivate our entrance to adjacencies and leveraGE sham intelliGEnce and digital technologies.

The long-term anticipate because the corporation rest compelling, with increased latent because long-term partnerships and outsourcing and a resumption of above-market rates of growth. at the short term, however, we need the pandemic to eat a significantly negative shock at our performance.

As we emerge to the year ahead, we confide it will be a fiction of 2 halves, with the first half of the year defined by sharply lower need and main disruptions to our operations. because the second half of the year, we need deed to potentially be more sure because markets commence to reopen and journey restrictions ease. because the year overall, we need a mystery lessen at operational and economical performance. And given the lack of concrete visibility, we're going to check from providing our customary growth guidance because the fiscal year.

Looking specifically at Civil. Currently, 8 of our at 60 polite aviation manners locations eat suspended operations and 17 are operating at significantly reduced capacity. These statistics chanGE at a nearly daily foundation because local restrictions outline to evolve. The Montréal manufacturing plant, which suspended manufacturing operations because polite simulator products at March 25, is now gradually ramping up operations. at condition of backlog accordingly far, we've virgin received one full-flight simulator direction cancellation from a moment third-party manners company. And we've received little requests from airlines because deferrals.

Demand because new polite full-flight simulators is closely linked to new aeroplane deliveries, which, according to the aeroplane oemS, are expected to be down significantly. silent the total impartial will undoubtedly be much smaller this fiscal year, we need to maintain our chief section of the available simulator sales.

When stand journey at length resumes, we need to outline dwelling at our previously sure momentum at training, increasing impartial section and securing new guest partnerships with our innovative manners solutions. at the meanwhile, it's significant to discriminate that polite aviation manners is highly regulated. And because the pilots to linger active, they get to educate at a minimum frequency of each 6 to 9 months impartial to retain their certifications. And silent airlines globally eat suspended the deed of the majority of the commercial fleet, this doesn't hint a proportionate shock at manners demand. These sensations eat been given at main jurisdictions, including Europe and North America, to extend the deadline of various time-balance manners obligations to compensate because journey restrictions and border closures. besides however, these manners requirements will ultimately lack to be fulfilled because pilots to retain their licenses and outline flight duty. And looking beyond that, we're confident that CAE will increasingly be separate of the solution going deliver and that more airline manners partnerships and outsourcing opportunities could materialize because the industry looks because ways to acquire greater agility and resiliency at the post-COVID-19 era.

In affair aviation, silent growth-driven manners need is also being negatively affected, our affair is larGEly based at servicing the regulated manners needs of the already energetic global affair aeroplane fleet and the delivery of larGE-cabin affair jets.

And at Defence, we benefit from a larGE backlog of contracts with government customers to provide manners solutions and operational uphold services that are considered basic to national security. to that extent, our manners and uphold services and manufacturing operations to outline to be relatively unaffected by COVID-19 travel-related restrictions.

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