CAE Q1 2026 Earnings Report

CAE EPS Results

• Actual EPS: $0.15
• Consensus EPS: $0.15
• Beat/Miss: Met Expectations
• One Year Ago EPS: $0.21

CAE Revenue Results

• Actual Revenue: $806.92 million
• Expected Revenue: $1.12 billion
• Beat/Miss: Missed by -$310.03 million
• YoY Revenue Growth: N/A

CAE Announcement Details

• Quarter: Q1 2026
• Date: 8/12/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, August 13, 2025
• Conference Call Time: 8:00AM ET

CAE (NYSE:CAE)., together with its subsidiaries, provides simulation training and critical operations support solutions in Canada, the United States, the United Kingdom, Europe, Asia, the Oceania, Africa, and Rest of the Americas. It operates through two segments, Civil Aviation; and Defense and Security. The Civil Aviation segment offers training solutions for flight, cabin, maintenance, and ground personnel in commercial, business, and helicopter aviation; a range of flight simulation training devices; and ab initio pilot training and crew sourcing services, as well as aircraft flight operations solutions. The Defense and Security segment operates as a training and simulation provider that delivers platform-independent solutions to enable and enhance force readiness and security for defense forces, original equipment manufacturers (OEMs), government agencies, and public safety organizations. The company was formerly known as CAE Industries Ltd. and changed its name to CAE Inc. in 1993. CAE Inc. was incorporated in 1947 and is headquartered in Saint-Laurent, Canada.

CAE Q1 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: CAE’s executive chairman will prioritize balance sheet deleveraging, free cash flow conversion improvements and opportunistic share buybacks with potential dividend reinstatement to enhance shareholder value.
• Neutral Sentiment: The company reported Q1 adjusted EPS of $0.21, $1.1 billion in order intake and ended with a net debt to adjusted EBITDA of 2.75×, targeting 2.5× by fiscal year-end.
• Negative Sentiment: Civil training saw a pilot hiring trough with utilization down to 71% and lower simulator orders, though management expects a commercial training rebound in H2.
• Positive Sentiment: Defense segment delivered significant year-over-year margin expansion, $611 million in Q1 orders and a backlog of $11 billion, backed by a robust $6 billion pipeline.
• Positive Sentiment: Incoming CEO Matt Bromberg, with extensive aerospace and defense transformation experience, will focus on operational excellence, disciplined capital allocation and leveraging synergies across the business.

Presentation

[Operator]

Good day, ladies and gentlemen. Welcome to the CAE First Quarter Financial Results for Fiscal Year twenty twenty six Conference Call. As a reminder, all participants are in a listen only mode and the conference is being recorded. After the presentation, there will be an opportunity for analysts to ask questions. I would now like to turn the conference over to Mr. Andrew Arnovitz. Please go ahead, Mr. Arnovitz.

[Andrew Arnovitz, SVP - IR & Enterprise Risk Management at CAE]

Good morning, everyone, and thank you for joining us today. Before we begin, I'd like to remind you that today's remarks, including management's outlook and answers to questions, contain forward looking statements. These forward looking statements represent our expectations as of today, 08/13/2025, and accordingly are subject to change. Such statements are based on assumptions that may not materialize and are subject to risks and uncertainties. Actual results may differ materially and listeners are cautioned not to place undue reliance on these forward looking statements.

[Andrew Arnovitz, SVP - IR & Enterprise Risk Management at CAE]

A description of the risks, factors and assumptions that may affect future results is contained in SEE's annual MD and A and MD and A for the three months ended 06/30/2025, available on our corporate website and in our filings with the Canadian Securities Administrators on SEDAR plus and at the U. S. Securities and Exchange Commission on EDGAR. On the call with me this morning from CE are Caelin Rovenescu, the company's Chairman Marc Perrin, President and Chief Executive Officer Matthew Bromberg, incoming President and Chief Executive Officer and Constantino Malatesta, our Interim Chief Financial Officer. Nick Lientides, Chief Operating Officer, is on hand for the question period.

[Andrew Arnovitz, SVP - IR & Enterprise Risk Management at CAE]

After formal remarks, we'll open the call to questions from financial analysts. Let me now turn the call over to Calin.

[Calin Rovinescu, Chairman - Management Board at CAE]

Thank you, Andrew, and good morning, everyone. Since being appointed Chairman of CAE earlier this year, I've had the chance to connect with a number of our long term investors, many of whom I've known through my years at Air Canada. While this is my first time addressing the broader investment community in this role, I want to share why I was compelled to accept the chairman position and more recently to take on expanded responsibilities as executive chairman. My relationship with CAE goes back many years. As president and CEO of Air Canada, I saw firsthand the value CAE brought as a trusted partner in building and sustaining a world class training organization, particularly through our co located training centers in Toronto and Vancouver.

[Calin Rovinescu, Chairman - Management Board at CAE]

Earlier in my career, during my time in law and as a managing partner at Steichman Elliott, I also had a connection to CAE through one of its original investors and longtime chairman, Fraser Elliott, cofounder of that firm that bore his name. And as an investor, I've been a longtime supporter of the company's mission and potential. It's both an honor and a privilege to now take on an active role as executive chairman. I've reoriented my professional commitments to dedicate the time required to support Matt and help guide CAE's long term direction. In addition to board duties, I'll work closely with him on strategy, operational excellence, and capital allocation with a clear focus on enhancing the customer experience, improving free cash flow conversion, and driving stronger returns on invested capital.

[Calin Rovinescu, Chairman - Management Board at CAE]

A key priority will be deleveraging the balance sheet, not merely as a financial objective, but as a means to enhance shareholder value and strengthen CAE's long term resilience. The company made solid progress last fiscal year and we're targeting a net debt to adjusted EBITDA ratio of approximately 2.5x by fiscal year end. I see that as a waypoint, not the final destination, as I believe we can go further in reinforcing our financial position. At the same time, we continue to give thoughtful consideration to the potential timing and form of shareholder returns, including dividends and share repurchases. We have a buyback program in place to be used opportunistically and at the appropriate time we may also consider reinstating a dividend.

[Calin Rovinescu, Chairman - Management Board at CAE]

As executive chairman, I'll also engage regularly with key stakeholders, including investors and government leaders. With defense spending accelerating across NATO toward 5% of GDP, along with initiatives like the EU's rearm strategy and renewed momentum in Canada, I intend to play an active role in positioning CAE as a strategic partner. This includes sustained engagement with federal and provincial governments, particularly in Quebec, where CAE is a longstanding anchor company. Our goal is to ensure CAE is recognized not only for its critical training and simulation capabilities but also for the broader economic value we deliver through high quality jobs, exportable IP and technology leadership. As defense procurement and policy frameworks continue to evolve, we remain committed to close alignment and active participation.

[Calin Rovinescu, Chairman - Management Board at CAE]

As you all know, today marks an important milestone for CAE as Matt Bromberg formally succeeds Marc Perrin and steps into the role of chief executive officer following our AGM. I want to acknowledge Marc for his outstanding leadership and enduring contribution to CAE. Over his twenty one years with the company, including sixteen as CEO, Mark guided CAE through a period of tremendous transformation and growth. Under his stewardship, CAE became the global leader in civil aviation and defense training and simulation that it is today. Perhaps most importantly, Mark is widely credited with instilling a deeply customer centric culture across the organization that continues to define the way CAE's more than 13,000 employees around the world serve our partners and stakeholders each day.

[Calin Rovinescu, Chairman - Management Board at CAE]

Mark has earned a deep respect within the global aerospace industry, and his impact extends far beyond CAE. His vision, passion, and unwavering commitment to excellence have helped shape the future of aviation training globally. On behalf of the board and the entire CAE team, I want to thank Mark for his legacy that will continue to inspire us as we build upon his accomplishments. It's also my pleasure to formally mark the beginning of Matt's tenure as chief executive officer as he steps into this important leadership role at CAE. I had the privilege of leading the board's CEO selection process, and I'll speak briefly to the qualities and experience that led us to the clear conclusion that Matt is the right person to lead CAE into its next era as the company builds on nearly eight decades of leadership and innovation.

[Calin Rovinescu, Chairman - Management Board at CAE]

His appointment follows a comprehensive and highly competitive international search. Given the distinctiveness of CAE's business, we sought a leader with a strong record of value creation in either aerospace or defense, and in Matt's case we found both. We also prioritized candidates with experience managing complex, large scale global operations, and most recently Matt led global operations at Northrop Grumman where he drove significant enterprise wide cost and performance transformations. Prior to that, he served as president of military engines at Raytheon and earlier as president of commercial aftermarket at Pratt and Whitney. Matt brings a rare combination of strategic insight, operational depth, and leadership acumen.

[Calin Rovinescu, Chairman - Management Board at CAE]

He is, as one would expect of an MIT trained engineer with a business degree, intellectually rigorous. But equally important, he brings a high degree of emotional intelligence. His track record of leadership in world class aerospace and defense organizations, combined with that important balance of IQ and EQ, makes him exceptionally well suited to carry forward CAE's unique culture, which we believe is one of our most important differentiators. Equally important to the board was Matt's full commitment to CAE's identity as a proudly Quebec headquartered global company. Matt and his family are relocating to Montreal, which we view as essential.

[Calin Rovinescu, Chairman - Management Board at CAE]

He has also begun taking French lessons, a reflection of his respect for our local roots and commitment to leading CAE in a way that is fully aligned with our values and culture. On behalf of the board and the broader CAE community, I want to formally welcome Matt as he begins this important new phase with us. As Matt, the management team and I begin to assess CAE's forward plans, I'm highly optimistic about the next three to five year period. We're building on the strong foundation established under Mark's leadership and are now well positioned to unlock the next level of performance and value creation. With a refreshed board, new CEO and an even sharper focus on financial and operational priorities, we see a clear path to delivering stronger returns.

[Calin Rovinescu, Chairman - Management Board at CAE]

These internal drivers, combined with favorable long term market dynamics, support what we believe is a compelling and durable investment thesis. In civil, the long term fundamentals remain particularly strong despite some timing noise around pilot hiring this summer. The two major aircraft OEMs currently hold a record combined backlog of more than 17,500 aircraft and both forecast that the global in service fleet will nearly double over the next twenty years. CAE also estimates that approximately 300,000 new pilots will be needed globally over the next decade to support this growth and offset retirements. These structural drivers point to a sustained runway for growth in commercial pilot training and in earnings.

[Calin Rovinescu, Chairman - Management Board at CAE]

In business aviation, the long term outlook remains quite positive as well, supported by strong aircraft OEM backlogs, an expanding population of high net worth individuals and a shift towards fractional ownership models. We are in the early stages of a generational upcycle in defense, driven by rising geopolitical tensions and a surge in spending across NATO, the EU, and Canada. This is fueling sustained demand for advanced training and simulation. This is an area where CAE's global reach, technical capabilities, and trusted customer relationships position us to lead. The Canadian government's renewed emphasis on aerospace and sovereign industrial capacity further reinforces the durability of this demand.

[Calin Rovinescu, Chairman - Management Board at CAE]

As allied nations work to rebuild critical capabilities, CAE's alignment with national priorities, from mission readiness to supply chain resilience, supports our conviction in the long term growth opportunity ahead. Importantly, our growing defense business provides a predictable revenue stream and adds balance to CAE's portfolio, offering meaningful upside in a sustained upcycle and complementing the secular growth we continue to see in civil aviation. Looking ahead, our priorities are disciplined execution, greater operating leverage, and translating earnings into robust and sustainable cash generation to support future investment and shareholder returns. With strong market tailwinds, a focused leadership team, and a reinforced internal foundation, I believe we're well positioned to deliver meaningful long term value to our shareholders. Now turning to the first quarter performance.

[Calin Rovinescu, Chairman - Management Board at CAE]

Overall, we had a solid start to the year amid a backdrop of heightened economic uncertainty. We delivered adjusted earnings per share of $0.21 and secured $1,100,000,000 of adjusted order intake. Defense delivered strong year over year growth in adjusted segment operating income and margin expansion driven by improved execution and disciplined program management. In civil, performance was mixed with continued strength in business aviation offset, as I said, by some near term softness in commercial training and pilot hiring consistent with the outlook we provided. I'll now turn it over to Mark and Constantino to walk you through the results in more detail.

[Marc Parent, President & CEO at CAE]

Thank you, Kaelin, for your very kind words. Let me start with a few highlights from the quarter. In civil, we delivered solid results supported by the essential nature of our services and the durability of our recurring training business. As indicated last quarter, we continue to make take a measured view of the first half of this year in light of macroeconomic uncertainty and ongoing aircraft supply constraints. In q one, we saw an extension of the temporary pause in pilot hiring and a more cautious approach from commercial airlines, particularly in The US, where we believe hiring reached a trough with just 55 pilots hired in June by the 13 largest airlines.

[Marc Parent, President & CEO at CAE]

Similar dynamics were observed in other regions, and these factors contributed to lower utilization and fewer full flight simulator orders in the quarter. By contrast, market conditions for business aviation, which accounts for about half of Civil's profit, remained strong throughout the period. Training center utilization came in at 71%, down from 76% in the prior year period, consistent with the short term softness in commercial training we experienced last year. We also delivered eight full flight simulators, which is the same number that we delivered last year. And while the early part of the year was shaped by micro macroeconomic uncertainty, we're beginning to see encouraging signs of stabilization along with improvements in aircraft supply chains that are bringing greater clarity to airline hiring and fleet planning.

[Marc Parent, President & CEO at CAE]

The recovery in demand for commercial training solutions is really a matter of when, not if, and we continue to expect a positive inflection in the second half of the fiscal year. On the order front, we secured $511,000,000 of business, including five full flight simulators for a book to sales ratio of 0.84 times and 1.27 times on a trailing twelve month basis. We ended the quarter with $8,400,000,000 of total Civil adjusted backlog, which is up notably 27% year over year. During the quarter, we announced the expansion of our commercial Embraer E2 training offering with the deployment of the first full flight simulator to support the growing e two fleet across Europe, The Middle East, and Africa. Since quarter end, we also announced the e two pilot training will be delivered in Montreal, further supporting Porter Airlines' expanding fleet and enhancing the efficiency of their pilot training program.

[Marc Parent, President & CEO at CAE]

In business aviation, we were pleased to open our first dedicated training center in Central Europe located in Vienna, which welcomed its first customer in April. The state of the art business aviation training center, an 800 8,000 square foot facility, offers an elevated training experience and reflects our continued commitment to supporting customers closer to where they operate. A Gulfstream g five fifty full flight simulator is already in service, and new Pilatus PC 24 full flight simulator will be added in the 2026. The center will ultimately feature up to nine full flight simulators, including Europe's first Bombardier Global 7,500, a Global Vision, Embraer Phenom a 100 300, and a Bombardier Challenger 3,500. And in airline operations, we're proud to have rebranded our suite of solutions under a new name, Flitescape powered by CAE.

[Marc Parent, President & CEO at CAE]

Flitescape is a data driven platform that delivers real time insights to help airlines enhance operational performance. It empowers operations control center teams to anticipate disruptions, adapt quickly to changing conditions, and optimize costs even in the most complex time sensitive scenarios. During the quarter, we signed a long term agreement with Allegiant, which will leverage Flitescape to transform its operational intelligence and drive improved performance. CAE has a proven track record of leveraging technology to drive innovation and improve the effectiveness of our training solutions. Last fall, we became the first to develop an immersive pilot training app for Apple Vision Pro, enabling pilots to complete key training activities remotely, enhancing efficiency, scalability, and training outcomes.

[Marc Parent, President & CEO at CAE]

Apple selected CAE as a flagship use case for Vision Pro in aviation, and Apple's CEO, Tim Cook, and the CFO highlighted us on their latest earnings call. They recognize how our adapt adoption of spatial computing will improve pilot readiness and drive more productive simulator training. Turning to defense. We had a particularly strong quarter driven by solid program execution across the board and improving product mix program mix, I should say. Adjusted segment operating income and margin grew significantly year over year, reflecting better program performance and the successful completion of lower margin contracts.

[Marc Parent, President & CEO at CAE]

We recorded a total of $611,000,000 in defense orders, achieving a book to sales ratio of 1.25 times, contributing to $11,000,000,000 in defense adjusted backlog, up 7% year over year. Over the last twelve months, the defense books to sales ratio stood at 2.08 times. The pipeline continues to be robust with some $6,000,000,000 of orders pending customer decisions. In defense, we continue to win strategically important contracts that really reflect the breadth of our training and mission support capabilities. During the quarter, we secured a continuation of flight training services for the United States Air Force on the KC-one 135 tanker aircraft as well as an extension of our management role in the simulator common architecture requirements and standards program for the United States Air Force.

[Marc Parent, President & CEO at CAE]

SCARS is a centralized open systems architecture initiative that supports US Air Force platform simulators and the joint synthetic environment, underscoring CAE's leadership in enterprise training solutions. For the US Army, we signed an agreement with GDIT under the Flight School Training Support Services contract or FTSS, providing simulation capabilities and training support for rotary wing pilot instruction at Fort Novacel, Alabama. In operational support solutions, we announced a collaboration with Sikorsky to deliver CAE's magnetic anomaly detection extended roll system for the US Navy and the Royal Australian Navy MH 60 r Seahawk helicopters. Built by CAE and integrated by Sikorsky, this compact removable sensor detects magnetic anomalies caused by submarines, providing a powerful new antisubmarine warfare capability for MH sixty r operators. In Canada, we signed an additional amendment under the FACT program, bringing the total value of subcontracts awarded to CAE under the Skyline joint venture to approximately $2,000,000,000.

[Marc Parent, President & CEO at CAE]

This is aligned with our strategy to transition the defense adjusted backlog towards more accretive long term contracts. Since the end of the quarter, we were also awarded a contract by the Italian Air Force to deliver a Block V Predator Mission Trainer Plus or PMT plus for the m q nine a Reaper. Developed in partnership with General Atomics, our PMT plus is the most advanced simulator for the Reaper platform, offering a highly immersive training environment that accelerates readiness and reduces the need for live aircraft time during pilot and sensor operator training. These wins underscore the impact of the improvements we've made across the defense business. Through stronger execution and disciplined program delivery, we are seeing tangible results, both in our operational performance and in growing customer confidence.

[Marc Parent, President & CEO at CAE]

This progress reflects the focus and hard work of our teams to turn strategy into results and improve profitability. Before I close, I'd like to shift gears. As many of you know, today is my last day as CEO of CAE, and I wanna take a moment to reflect on what these twenty one years have meant to me. It's really been the honor of my professional life to lead this company for the past sixteen years. When I joined in 02/2005, CA was a very different business, and we've gone through multiple transformations since then, expanding into new markets.

[Marc Parent, President & CEO at CAE]

And today, we are the global leader in aviation defense training. But what I'm most proud of us is our culture. From the very beginning, I believe that if we take of our take care of our people and our customers, the results will follow. And that's what we built together at CAE, a company that leads with purpose, and a company where people take pride in the mission, our noble mission, where safety, innovation, and customer partnerships aren't slogans, but they're part of who we are. They're part of our DNA.

[Marc Parent, President & CEO at CAE]

And none of this would have been possible without the incredible team at CAE. And I wanna thank our instructors, our engineers, our technicians, our support staff, and everyone in between for their dedication, their grit, their passion, and their belief in what we do. As I've often remarked, without the employees of we are merely a collection of billings, without, you know, 13,000 people who bring CAE to life. I know much have been asked of you over the past decade and a half, all of our employees listening to me, and I'm extremely proud of all that you have accomplished to make Sea the global leader that we are today. I'm equally grateful to our exceptional civil aviation and defense customers around the world.

[Marc Parent, President & CEO at CAE]

We exist to make the world safer, and it's been a true honor to serve as your trusted partner and to help you prepare for the moments that matter most. I also wanted to thank the board and our investors for their trust over the years. And, of course, I wanna thank Calin warmly and welcome Matt as he officially steps into the CEO role today. I had the opportunity to work closely with Matt over the past couple of months, and I can say without hesitation that he brings the right mix of leadership, operational discipline, and vision to take CA forward, and I am honored that he has been chosen to replace me. I'm confident in the team, confident in the company, and incredibly grateful for the opportunity to have served as c e CAE's CEO, which has really have been the privilege of my life.

[Marc Parent, President & CEO at CAE]

With that, I'll turn it over to Dino for some additional financial details.

[Constantino Malatesta, Interim CFO at CAE]

Thank you, Mark. Good morning, everyone. Consolidated revenue of $1,100,000,000 was 2% higher compared to the first quarter last year, while adjusted segment operating income was $147,800,000 up 10% compared to $134,200,000 in the first quarter last year. Our quarterly adjusted EPS was $0.21 in line with the first quarter last year. Net finance expense this quarter amounted to $54,600,000 up from $49,500,000 in the first quarter last year, mainly because of additional lease financing costs related to the recently opened training centers in our global network in support of growth.

[Constantino Malatesta, Interim CFO at CAE]

We also have additional financing costs associated with the consolidation of the SimCom joint venture in the in business aviation, which took place in Q3 last year. The increase was partially offset by lower finance expense on long term debt on a lower level of borrowings during the period, in line with our ongoing deleveraging undertakings. Income tax expense this quarter was $19,000,000 for an effective tax rate of 24%. The adjusted effective income tax rate was also 24%, which is the basis for the adjusted EPS. We continue to expect a run rate effective income tax rate of 25%, considering the income anticipated from various jurisdictions and the impact from global minimum tax legislative changes.

[Constantino Malatesta, Interim CFO at CAE]

Net cash from operating activities this quarter was negative $15,300,000 compared to negative $12,900,000 in the 2025. Free cash flow was negative $36,200,000 compared to negative $25,300,000 in the first quarter last year. The decrease was mainly due to a higher investment in noncash working capital, partially offset by higher net income adjusted for noncash items and higher dividends received from equity accounted investees. With continued expected reversals in noncash working capital investments and our outlook for operations, we expect to generate strong free cash flow in the year with a conversion of adjusted net income of approximately 150%. Capital expenditures totaled a $106,900,000 this quarter with approximately 75% invested in growth.

[Constantino Malatesta, Interim CFO at CAE]

Approximately 40% of the growth capital expenditures this quarter were for simulators deployed to the FSTSS program in support of US army helicopter training in Alabama. We remain highly focused on capital efficiency. And notwithstanding this contract specific investment opportunity in defense, we continue to expect total CapEx in fiscal twenty twenty six to be modestly lower than in fiscal twenty twenty five. This will be concentrated mainly on organic growth investments in simulator capacity to be deployed to CAE's global network of aviation training centers, which are backed by multiyear customer contracts. Our net debt position at the end of the quarter was approximately $3,200,000,000 for a net debt to adjusted EBITDA of 2.75 times at the end of the quarter. As Kalen indicated, we remain committed to further strengthening our financial position and continue to expect to reach 2.5 times net debt to adjusted EBITDA by the end of the fiscal year. Now turning to our segmented performance. In civil, first quarter revenue grew 3% year over year to $607,700,000 while adjusted operating income rose 1% to a $107,600,000, resulting in a 17.7% margin. The approximate 40 basis point decrease in the civil margin reflects lower utilization in commercial training and some differences in product solution mix this quarter.

[Constantino Malatesta, Interim CFO at CAE]

Looking ahead for Civil, we continue to take a measured view of the first half given commercial market dynamics, while also factoring the usual seasonal impact on our second quarter from busy summer travel period when pilots are flying. We now expect annual adjusted segment operating income to grow in the mid single digit percentage range at the lower end of our prior outlook with annual segment operating income margin remaining stable year over year. The expected weighting of Civil's results toward the second half is consistent with prior fiscal years, supported by usual seasonality, proving market dynamics, and macroeconomic conditions. Adding to our confidence is a recent increase in activity with our US airline customers. In defense, revenue remained stable at $490,900,000, while adjusted segment operating income increased 45% to $40,200,000 delivering an 8.2% margin, thanks to higher profitability and activity on our North American programs.

[Constantino Malatesta, Interim CFO at CAE]

Legacy contracts remain on track with costs and schedules well managed, and there's no change to our annual outlook for defense. With that, I will turn the call over to Matt.

[Matthew Bromberg, President, CEO & Director at CAE]

Thank you, Dino, and good morning, everyone. I also wanna thank Mark and Kaelin for the kind words and the entire CAE team for a warm, warm welcome. Let me start by saying what an honor it is to be joining CAE and to be stepping into the role of CEO later today. It is a privilege to follow Mark, whose leadership over the past two decades has shaped the CAE we know today. I'm also grateful to have had the opportunity to work closely with him in the recent weeks, which has helped ensure both continuity and a smooth handoff.

[Matthew Bromberg, President, CEO & Director at CAE]

Although my appointment becomes official following today's annual general meeting, I've already had a valuable introduction to CAE through time spent with our people and our customers and other key stakeholders. One of my first experiences was attending the Paris Air Show last month along with the team. It was an intensive and energizing start. And I can say without hesitation, after attending air shows for more than twenty five years, I have never seen a company so consistently respected. Every conversation spoke to CA's professionalism, technical leadership, safety mindset and culture, and a deep, deep commitment to customer success.

[Matthew Bromberg, President, CEO & Director at CAE]

In these early weeks, I've been extremely impressed by the caliber of CAE's people, the strength of our technology, and the depth of our customer relationships. This is a fantastic a fantastic organization with tremendous potential to build upon past successes. It is clear to me that we have a world class team, which is an excellent place to start. Over the next ninety days, I will take a pragmatic approach to evaluating the business, both operationally and strategically. My focus will be on understanding where we can further improve efficiency, sharpen execution, and unlock synergies across our balanced portfolio.

[Matthew Bromberg, President, CEO & Director at CAE]

I value what makes CAE distinctive, especially its strong culture. And as I look to the future, I intend to protect what's core while building on our strengths. While it would take time to fully assess and quantify the scale of the opportunities ahead, my initial impressions are that there is real potential to strengthen free cash flow and improve returns on invested capital. This can be achieved not only through enhanced operational excellence, but also through disciplined, data driven capital allocation. This work will be thoughtful, collaborative, and grounded in a clear objective, creating long term value for our shareholders.

[Matthew Bromberg, President, CEO & Director at CAE]

While CAE is best known for its leadership in civil aviation, our defense technologies are increasingly seen as mission critical. We help military forces train more safely, more effectively, and with a level of realism that is essential in today's environment. Having spent a fair part of my career in and around defense, including service as a US Navy submarine officer, I understand how vital it is to be fully prepared before a mission ever begins. That's exactly what CAE enables, and it is why I believe we're uniquely positioned to grow our impact as a strategic partner of choice in defense. I see real potential to leverage our advanced defense technologies more broadly across CAE's portfolio, including in commercial aviation.

[Matthew Bromberg, President, CEO & Director at CAE]

At the same time, we can drive greater efficiency by applying commercial best practices within our defense business. This cross pollination of innovation and efficiency can unlock new value, enhance customer outcomes and support higher returns. As we focus on efficiency, we will relentlessly maintain our commitment to our customers, to quality and to safety. Before I turn the call back to Andrew, I want to take a moment to speak directly to our investors and analysts. I know many of you have long standing relationships with Kaelin and Andrew, and I've benefited from their insights about what matters to you.

[Matthew Bromberg, President, CEO & Director at CAE]

I look forward to building those relationships over time. And once I'm fully up to speed, I'll welcome the opportunity to engage with you directly. In the meantime, thank you again for the warm welcome. I'm excited to be here, focused on the work ahead and confident that we can achieve good growth and a great future together. Andrew, back to you.

[Andrew Arnovitz, SVP - IR & Enterprise Risk Management at CAE]

Thanks, Matt. Operator, we'll now open the lines to questions from financial analysts.

[Operator]

Thank Thank you. And your first question comes from the line of Fadi Chamoun from BMO Capital Markets. Please go ahead.

[Fadi Chamoun, Research Analyst at BMO Capital Markets]

Okay. Good morning. First, I want to say congrats to Mark on the retirement and outstanding career. You know, my question may be to Caitlin and Matt, but you both referenced, I think, the press release quote, operational focus excellence, you know, focus on the operational efficiency side of of of of the story. And, you know, maybe it seems also logical after significant growth and the buildup that happened in the last decade that there's kinda road for optimization here.

[Fadi Chamoun, Research Analyst at BMO Capital Markets]

I I just wanted to see if you have even high level thoughts. I know it's kind of early days here in this transition, but if you have any high level thoughts of where exactly you see the opportunities in terms of improving the margin, improving the cash flow conversion that you talked about.

[Calin Rovinescu, Chairman - Management Board at CAE]

Right. Thanks. Good morning, Fadi. Kaelin here. And it's good to hear your voice again.

[Calin Rovinescu, Chairman - Management Board at CAE]

Two things. One, as has been referenced in these remarks, CAE has invested significantly over the last period of time in building up capability. That investment has started to pay dividends based on the earnings that we're seeing, but we think there's much more potential there. So that obviously requires an opportunity to leverage those investments, and that may result in some additional focus on cost, how it is we can best optimize. And from my vantage point, as you know, and I referenced as well this in my remarks, that's actually within Matt's wheelhouse in terms of operational excellence.

[Calin Rovinescu, Chairman - Management Board at CAE]

And so it's simple formula of saying when we look at the commercial side of the business, in particular, and frankly, entire civil side of the business, a lot of investment has been made. Now is the time to optimize it, and we think that there are some great opportunities ahead. We're still early on, I'd say in the early innings of that cycle, so there's a lot more room to go. And so that's quite an exciting time to see earnings growth there. On the defense side, you've seen the positive results this quarter, and we'll continue to build sort of sustainable, profitable long term contracts and execute well on these various programs.

[Calin Rovinescu, Chairman - Management Board at CAE]

But, you know, I think that's as simple as that. I don't know, Matt, if you want to comment further.

[Matthew Bromberg, President, CEO & Director at CAE]

Look, thanks, Kaelin, and thanks for the question. You know, recognizing that I'm on the doorstep of the role later today, I have spent my entire career looking at complex global organizations and understanding how to drive efficiency, improve operations, maintain quality, and maintain safety. And from what I've seen, we have that opportunity to continue to do that CAE. And as I get into the next ninety days and find out and discover where that is, we'll come back and share that with you.

[Fadi Chamoun, Research Analyst at BMO Capital Markets]

Appreciate it. Thanks.

[Operator]

Thank you. And your next question comes from the line of Kevin Chan from CIBC. Please go ahead.

[Kevin Chiang, Director - Institutional Equity Research at CIBC World Markets]

Hi. Thanks for taking my question. And echo Fadi's comments there, Mark. Congratulations on your upcoming retirement and welcome Matt to CAE. Maybe as I look at the outlook you provided for fiscal twenty twenty six, it seems like you're facing some transient headwinds in Civil.

[Kevin Chiang, Director - Institutional Equity Research at CIBC World Markets]

Just wondering as you think about utilization maybe being a little bit weaker than you anticipated, does that change near term CapEx spending opportunities? Like could you see upside to your CapEx guidance this year in the sense that maybe there's an opportunity to push some of that spend further out just as you look to better match near term demand with supply just given some of the transient headwinds you noted in the prepared remarks?

[Calin Rovinescu, Chairman - Management Board at CAE]

Kevin, Kalin here, and again, to hear your voice as well. Listen, there's some timing noise for sure around pilot hiring this summer, but the big picture is that the the earning potential can be a lot higher over time. And as I said, we're just at the beginning of that journey. But in terms of getting a bit more granular on capital, I'll ask Constantino to comment briefly.

[Constantino Malatesta, Interim CFO at CAE]

Yep. Good morning. Thanks for the question. Thanks, Kaelin. Effectively, we continue to expect CapEx to be slightly lower year over year in FY twenty six, overall in line with our disciplined approach, I think that's going to be key disciplined approach to capital deployment.

[Constantino Malatesta, Interim CFO at CAE]

When you look at it, civil CapEx is lower year over year in q one by about $10,000,000 already. You know, I've mentioned it in my remarks, the 40% of the growth CapEx this quarter was for one specific program in in defense and security. So we are being disciplined, making sure that we're not ahead of the market, and and and we're we're listening, carefully to, and looking carefully to where, where we can find savings and and push out CapEx if necessary.

[Kevin Chiang, Director - Institutional Equity Research at CIBC World Markets]

That's helpful. And maybe just I think maybe back to you as well. Just on the working capital, you mentioned typically seasonally Q1 is a bigger working capital drag and it sounds like we'll reverse that. But in fiscal twenty twenty four and 2025, working capital was, on an absolute basis for the full year, a tailwind. Is that something we can expect for fiscal twenty twenty six?

[Kevin Chiang, Director - Institutional Equity Research at CIBC World Markets]

Or is it a more neutral working capital year for CAE?

[Constantino Malatesta, Interim CFO at CAE]

Yes. So definitely, it is typical to see higher investment in noncash working capital in the first half. It's not inconsistent with the seasonal profile of our business. So we do expect a stronger cash generation profile in the second half and remain on track to deliver strong free cash flow for the year, targeting our conversion and adjusted net income of 150%. With that, that comes with disciplined approach on noncash working capital.

[Constantino Malatesta, Interim CFO at CAE]

And, yes, we are aiming to have a more neutral approach, to noncash working capital this year.

[Kevin Chiang, Director - Institutional Equity Research at CIBC World Markets]

Perfect. I'll leave it there. Thank you very much.

[Operator]

Thank you. And your next question comes from the line of Cameron Durkin from National Bank Financial. Please go ahead.

[Cameron Doerksen, Research Analyst at National Bank Financial]

Yes, thanks very much. Good morning. And yes, congratulations, Mark, on the retirement, and welcome, Matt. I wanted to ask a question about, I guess, the Civil outlook. Obviously, some incremental softness that you've seen here, but it did sound like you're fairly confident that we'll see a better second half of the fiscal year for you.

[Cameron Doerksen, Research Analyst at National Bank Financial]

I guess, what indicators do you have that provide that visibility in the in the second half rebound in in the especially the the airline pilot training part of the business? Is there anything that you're seeing specifically that could point to that?

[Calin Rovinescu, Chairman - Management Board at CAE]

Yes. Cameron Cameron, Kalen here, and and good to hear your voice too. So look, as I said, this appears to have been a trough in pilot hiring. And I think as you know, and obviously I've lived this, when you hire pilots, there is a built in lag before the training programs start. So this is a natural built in lag.

[Calin Rovinescu, Chairman - Management Board at CAE]

We've not only seen what we believe to be the trough, and Mark commented on that in his remarks, but we've also started to see some increased activity now, which trends well for the rest of the year. However, we also have seen some of the airlines that were more cautious in their announcements. And so we're using the data that we have, and I'm gonna ask Nick to comment what we're seeing on the you know, in terms of commercial hirings, especially in The United States. But we are cautiously optimistic about the rest of the year. Nick?

[Nick Leontidis, COO at CAE]

Yeah. Thank you, Kaelin. Yeah. I guess a couple of things that I guess just to point to. One is, you know, as we come out of August into September, we know our customers are gonna resume hiring, and that's just through conversations and some discussions around access to capacity.

[Nick Leontidis, COO at CAE]

So, you know, hiring is definitely gonna ramp up in the second, in the second half. Other The thing to remember is that, you know, Boeing and Airbus are now delivering more normal levels of airplanes, and, and that's now gone on for a couple of months. So, you know, it's not you know, we're not gonna call it a victory yet, but those levels of deliveries are gonna start to drive more demand for capacity as as we go forward. As you know, Airbus has reaffirmed their guidance. Boeing is at 35 or 40 airplanes a month, and these are numbers that will drive more demand as a lot of our customers are taking airplanes.

[Nick Leontidis, COO at CAE]

So combination of airplanes, being ramped up and our customers starting to starting to talk about capacity demands, think, we're we're pretty confident that we've got we've got we're going to see an improvement in the take up of the training operation.

[Cameron Doerksen, Research Analyst at National Bank Financial]

Good. No, that's great color. Thanks very much. Appreciate the time.

[Operator]

Thank you. And your next question comes from the line of Konark Gupta from Scotiabank. Please go ahead.

[Konark Gupta, Equity Research Analyst at Scotiabank]

Thanks, operator. Good morning, everyone, and congrats to Mark for an outstanding career He as well as congrats to Matt and and Kailin. Kailin, nice to hear your voice too on the on the end of the calls now. My first question, I guess, you know, goes to, I think I think some of the remarks that Kailin, you, and Matt made about, you know, how you wanna kind of tackle the operational efficiency, you know, enhance free cash profile, return on capital, etcetera. How do you how do you see, you know, the the executive compensation alignment should evolve over time as you execute on those priorities?

[Konark Gupta, Equity Research Analyst at Scotiabank]

I mean, you know, return on capital is obviously one one of the metrics that you've been kind of, you know, factoring in, free cash and other kind of metrics. Did you see any room for some innovation there on the on the executive compensation side?

[Calin Rovinescu, Chairman - Management Board at CAE]

Yeah. You know, we we look at these thank you very much, Konark, and good to hear yours your voice as well. We look at the various metrics, and we also compare the various drivers that other organizations have looked at. We've done a deep dive on the aerospace and defense. There's this whole discussion whether ROACE is the right measure to do it.

[Calin Rovinescu, Chairman - Management Board at CAE]

We'll continue to assess that. I'm not convinced of that. Again, this is early days for Matt. We need Matt to kind of get up to speed and sort of see what are the right drivers. But capital allocation is one of the main objectives of this new exercise, this new chapter, if I can say.

[Calin Rovinescu, Chairman - Management Board at CAE]

So as we look to compare ourselves to best in class within the aerospace and defense industry, and recognizing that the two segments have got obviously different capital allocation bases and targets, it's clear that we see room for steady improvement. This is not a situation where you're going to have an overnight dynamic that changes everything. This is room for steady improvement, and we are still extremely committed to both segments of the business, the aerospace and defense side. So when you put all that together, that means that we will be looking at different capital allocation measures and measuring ourselves and comparing ourselves to best in class.

[Konark Gupta, Equity Research Analyst at Scotiabank]

No. That's a fair comment, Kevin. Thank you so much for that. And then if I can quickly follow-up on defense. The margin in defense for first quarter was pretty solid, would say, like 8% plus.

[Konark Gupta, Equity Research Analyst at Scotiabank]

Usually, you have a high pronounced seasonality and lock in it in defense quarters. I think, Mark, you mentioned about some of the weaker margin, also lower margin contracts rolling over in the mix, etcetera. You speak to the mix shifts between the legacy contracts and the nonlegacy contracts and, like, what kind of, you know, contributed this margin? And, you know, I mean, does it give you even more confidence in in the top end of the range that got for the full year?

[Marc Parent, President & CEO at CAE]

Yeah. Yeah. Thanks for the question. Look. I I I think the short answer here is we're exec we're executing exactly what we said we would.

[Marc Parent, President & CEO at CAE]

We're on plan. Actually, we're slightly ahead of plan, you know, and and we're I'm very, very happy with where we are. I mean, the plan we put in place a few quarters ago, as you very well know, with regards to the legacy contracts, we're right on plan and see no issue at all with being able to execute the remaining programs that are there. We're executing a strategy that we had to basically report replace, you know, programs that are dilutive to our margin expectations, which those are quite nicely accretive to those margin expectations, which is, as you know, low low double digits in in defense, which, again, we've said is is more of a waypoint at a destination. So we're on track to do that.

[Marc Parent, President & CEO at CAE]

We're very, very happy with what we're seeing. We're very happy with regards to the order intake as well, as I mentioned, and the backlog growth. So look, I think it's just steady, very disciplined program execution here. So I think that but they in terms of revenue, you might see, as we've always see, you know, revenue being lumpy quarter over quarter, but that's just the nature of the beast as you execute programs. But I think we're very confident. We're not changing our guidance, but we're very confident.

[Operator]

And your next question comes from the line of Benoit Poirier from Desjardins. Please go ahead.

[Benoit Poirier, VP & Industrial Products analyst at Desjardins Securities]

Yes. Good morning, everyone, and congrats, Mark, for those twenty one years, and welcome, Callon and Matt, to the CA team. I know Matt, it's on in the role, but you know, obviously, quite well The US defense market. I would be curious to have your view about how this market is different from other regions, and what's your first impression of CAE's positioning and potential for margin improvement, especially for The US specifically?

[Matthew Bromberg, President, CEO & Director at CAE]

Yeah. Thanks, thanks, Benoit, and appreciate the question and look forward to getting to know you. I think we're in a very unique period in defense. First, you know, CAE's role in mission safety and mission rehearsal, it transcends borders. But we also have tremendous once in a generational growth in defense, not only in The US, but in other parts of the world.

[Matthew Bromberg, President, CEO & Director at CAE]

And I think CE is well positioned to do several things. One, capitalize on those opportunities. Two, leverage the defense business across our commercial enterprise, as I mentioned earlier, from technology. And three, create scalable international solutions among our defense partners. So I see huge opportunity and I'm excited to work to unlock that over the next few months.

[Benoit Poirier, VP & Industrial Products analyst at Desjardins Securities]

Okay. That that's great. And when we look in Canada, obviously, very bullish defense outlook with the intent to to reach 5% of GDP, see extremely well positioned with the FACT program, but also the future flip. Where do you see the greatest opportunities for CEE outside those two sizable programs?

[Calin Rovinescu, Chairman - Management Board at CAE]

Benoit, it's Kalin here, and likewise, good to reconnect. You know, Canada is a huge opportunity, of course, because we're prime minister Carney's announcements on increasing spend is frankly exponential. We've never seen that before in this country. So there are many, many, many different areas. But one of the things that we believe, and certainly as the country takes on more responsibility in protecting its own sovereignty, it's where the data is maintained, where the training is maintained.

[Calin Rovinescu, Chairman - Management Board at CAE]

If it buys fighter aircraft, who is it that is doing the training on those fighter aircraft? It's expected to be CAE. As we look forward to programs in other countries, if Canada buys equipment from other countries, we would want to accompany the government on those on those initiatives, you know. And I think that this is something that we look to leverage the opportunities for CAE not only directly in connection with government of Canada, not only in relation to government of Canada programs, but quite frankly, programs throughout. And so is an extremely unique opportunity for us, and and this is not something that is, you know, going to happen overnight because obviously defense defense programs take time to to be approved.

[Calin Rovinescu, Chairman - Management Board at CAE]

We've also, you know, raised the question of some urgency with with government that there are opportunities to to exercise, you know, the the prerogatives that they have as a government to expedite programs and not go through normal procurement processes that can, bog down. But we see this as being a fairly exciting long term growth opportunity as we get to this 5% of GDP spending over time.

[Benoit Poirier, VP & Industrial Products analyst at Desjardins Securities]

Great color. Thanks for the time.

[Operator]

Thank you. And your next question comes from the line of James McGarrigle from RBC Capital Markets. Please go ahead.

[James McGarragle, Analyst at RBC Capital Markets]

Hey. Thanks for having me on, and congrats, Mark, on a on a great career, Matt, on the new role. I'm sure it's an exciting time for you, but I just have have one on the the defense results here. You know, the margin guidance implies kinda mostly stable margins for the the the rest of the year, whereas, you know, last year, margins kinda stepped up as the the year progressed. So, you know, anything to call out in q one that might have helped out margins here, or, you know, should we kind of expect similar sequential trends in margin improvement that we saw in the the the prior fiscal year?

[Constantino Malatesta, Interim CFO at CAE]

Hi, James. Thanks for the question. Good morning. So we guide on an annual basis, because effectively, there's always potential for volatility in in the margins. We did have a step up in the margins.

[Constantino Malatesta, Interim CFO at CAE]

It really is, as we remarked, some lower margin contracts falling off and some higher margin contracts being ramped up. So it will be depending on the ramp up of other contracts, and we can see that, change throughout the year. But that's why we guide on an annual basis, because we we're confident we're gonna meet that, and guidance is unchanged.

[James McGarragle, Analyst at RBC Capital Markets]

Yeah. Thanks for the color there. And then on the the the civil margin outlook and, you know, the some of the the the utilization drop we saw in q one. Can can you just walk me through the puts and takes on the margin outlook for for the the rest of the year? You know, I I guess, you know, the given the drop in utilization, the stable margins kind of implies you're working on some things operationally to to drive, an improvement in margins.

[James McGarragle, Analyst at RBC Capital Markets]

Can you just kinda talk us through what what those things are? And then, you know, after we be able to look out into to fiscal twenty twenty seven, you know, as we kinda see, you know, utilization to kinda normalize and pick back up, we'd be kinda modeling for for us as kind of a step function improvement in margin as we look out longer term, as utilization starts to improve back up to where it has trended historically. And after that, I can turn the line over. Thank you.

[Nick Leontidis, COO at CAE]

Hi. So I guess margin improvement in the second half, obviously, is going to come from utilization. We're going to have improvements in utilization for the rest of the year. The other thing is cost controls. I like anything else, I mean, measures are always part of everyday life.

[Nick Leontidis, COO at CAE]

And so for this particular period in the second half, we are making some assumptions around cost avoidance to be able to maintain these numbers. Do you know?

[Constantino Malatesta, Interim CFO at CAE]

I just wanted to add that we had reflected back in May that the first half of this year will be similar to the first half of last year. And so that was a ramp up, meaning a ramp up in the second half of this quarter, and, again, based on all the things that Nick talked about. So, you know, we are expecting, as usual, more deliveries back ended and and some of the efficiencies you're driving through to make sure that, deliver as our commit as we committed.

[James McGarragle, Analyst at RBC Capital Markets]

Thank you.

[Operator]

Thank you. And we have time for one last question, and that comes from the line of Tim James from TD Cowen. Please go ahead.

[Tim James, MD, Head of FICC Technology at TD Securities]

Okay. Thanks very much. Best wishes for the future, Mark. It's been a real privilege watching your career and learning from you over the years. Welcome, Matt and Kaelin.

[Tim James, MD, Head of FICC Technology at TD Securities]

I look forward to your insights and soaking up all I can on CAE's way forward. Just one question here. It was mentioned earlier in the call about the trend towards fleet operators and fractionals in the business aviation side. I don't see really well positioned for whatever way the wind blows in business aviation. But is there anything specifically company can do or needs to do strategically to really take advantage of that trend towards fleet operators in business aviation?

[Marc Parent, President & CEO at CAE]

Well, I can start it off, Tim. Look, think one of the big things I think we've already done, right, is the acquisition of the the remaining part of SimComm, which, you know, obviously gives us, you know, extended exclusivity with regards to to train a Flexjet, which is, as you know, one of the I think the second largest, you know, fleet operator fractional fractional jets. So we're very well exposed to that segment. And, you know, the fact that because of the fact that we we trained, you know, the majority of the airlines around the world, either in simulators or in in in our training centers makes us obviously very fluid in executing airline type training, which is really when you look at fractional owners, that's what they're looking for because they're they're operating you know, base their pilots are are quasi airline pilots, so they're looking for that kind of training, which is which is different than with your traditional business air aircraft training, which is, you know, having smaller flight departments. So I think we're very well positioned, and then we have everything and you look at you look at our con I I mentioned Flexjet, but you look across the board in terms of our our fleet operators that we service.

[Marc Parent, President & CEO at CAE]

I just mentioned, for example, AirSpring Canada, very, very good customer. So look. I'm I'm quite optimistic that we'll continue to be do very well as a result of that exposure, that fractional ownership, plus the preponderance of, you know, the larger cabin business jets that we cover.

[Tim James, MD, Head of FICC Technology at TD Securities]

Thank you very much.

[Andrew Arnovitz, SVP - IR & Enterprise Risk Management at CAE]

Operator, that's all the time we have for the call this morning. I want to thank all of our participants for joining in and remind you that a transcript of the call will be on CAE's website later today. Thank you. Have a good day.

[Operator]

This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.

Participants

Executives

• Andrew Arnovitz, SVP - IR & Enterprise Risk Management
• Calin Rovinescu, Chairman - Management Board
• Marc Parent, President & CEO
• Constantino Malatesta, Interim CFO
• Matthew Bromberg, President, CEO & Director
• Nick Leontidis, COO

Analysts

• Fadi Chamoun, Research Analyst at BMO Capital Markets
• Kevin Chiang, Director - Institutional Equity Research at CIBC World Markets
• Cameron Doerksen, Research Analyst at National Bank Financial
• Konark Gupta, Equity Research Analyst at Scotiabank
• Benoit Poirier, VP & Industrial Products analyst at Desjardins Securities
• James McGarragle, Analyst at RBC Capital Markets
• Tim James, MD, Head of FICC Technology at TD Securities