CAE Q4 Earnings Call Highlights

Key Points

• CAE reported higher fourth-quarter and full-year revenue, but profitability fell as weaker civil training demand, Middle East-related disruption and transformation costs weighed on results.
• Management called fiscal 2027 a “reset year” and said the company is pushing a broad restructuring plan aimed at improving margins, cash flow and returns by fiscal 2030.
• The Defense business remained a bright spot, with solid revenue growth and a strong pipeline, while Civil faces softer orders and a planned network rationalization that includes simulator and training center cuts.

CAE NYSE: CAE reported higher fourth-quarter and full-year revenue for fiscal 2026, but management said weaker civil aviation training conditions, disruption tied to the Middle East conflict and transformation-related costs weighed on profitability and will continue to affect the company’s near-term outlook.

On the company’s earnings call, President and Chief Executive Officer Matthew Bromberg described fiscal 2027 as a “reset year” as CAE moves ahead with a broad restructuring plan aimed at improving margins, cash generation and returns by fiscal 2030. Executive Chairman Calin Rovinescu said the company has undergone significant leadership and organizational changes over the past year, including new heads of its Civil and Defense businesses and a simplified reporting structure.

“The focus now is all about execution, balancing growth with improved efficiency, discipline, and returns,” Rovinescu said.

Fourth-quarter revenue rises, profit declines

Chief Financial Officer Ryan McLeod said consolidated fourth-quarter revenue was CAD 1.3 billion, up 4% from a year earlier. Adjusted segment operating income fell to CAD 211.8 million from CAD 258.8 million, and adjusted earnings per share were CAD 0.42.

For the full year, revenue rose 4% to CAD 4.9 billion. Adjusted segment operating income declined 3% to CAD 710.7 million, while adjusted EPS was CAD 1.20.

McLeod attributed the lower operating income primarily to softer civil training performance, including the impact of Middle East disruptions on CAE’s regional business. He also cited several discrete items, including higher credit-related charges, lower government grant contributions, higher research and development costs, and a difficult comparison with the prior year, which included a gain on an asset sale. Improved Defense performance partly offset those pressures.

Under CAE’s updated free cash flow definition, which includes all capital and intangible investments, the company generated CAD 473.8 million in free cash flow in fiscal 2026, representing a conversion rate of about 123%. McLeod said that compared with an average conversion rate of less than 50% from fiscal 2022 through fiscal 2025, reflecting early actions to sharpen capital allocation and working capital management.

Civil aviation faces softer market and network changes

In Civil, fourth-quarter revenue rose 3% year over year to CAD 746.7 million, while adjusted segment operating income declined to CAD 152.4 million. For the full year, Civil revenue was CAD 2.7 billion, with adjusted segment operating income of CAD 510.5 million and a margin of 18.6%.

Bromberg said the Civil segment remains supported by long-term growth in air travel, fleet expansion and training demand, but he acknowledged that fiscal 2026 product orders were weak. The segment’s full-year book-to-sales ratio was 0.96, and management said lower full-flight simulator order intake will weigh on fiscal 2027.

CAE also said it is moving ahead with a rationalization of its civil training network. Bromberg said the company plans to remove about 10% of its commercial full-flight simulators, relocate and optimize more than 12 additional simulators, and close four to six training centers. To date, CAE has retired five devices and closed one training center. Across fiscal 2027, the company expects to retire eight to 10 additional devices and remove more than 300,000 square feet from its global footprint.

Bromberg said customer discussions are underway as CAE repositions its network, adding that the company expects to retain most customers but has factored some attrition into its outlook.

Defense growth remains a bright spot

CAE’s Defense & Security segment delivered stronger growth. Fourth-quarter Defense revenue rose 6% to CAD 580 million, with adjusted segment operating income of CAD 59.4 million and a margin of 10.2%. Full-year Defense revenue increased 9% to CAD 2.2 billion, while adjusted segment operating income was CAD 200.2 million, for a margin of 9.2%.

Bromberg said the segment benefited from strong demand, improved execution, program timing and mix. He said CAE sees a robust pipeline of defense opportunities, including several programs with potential contract values above CAD 1 billion in Canada and across NATO.

Management pointed to rising defense budgets, modernization priorities and demand for mission readiness as favorable long-term drivers. Bromberg noted Canada’s commitment to approximately CAD 82 billion in defense spending over the next five years and its longer-term ambition to reach roughly 5% of GDP by 2035.

CAE also highlighted its partnership activity, including a team agreement with TKMS to pursue the Canadian Patrol Submarine Project and its ongoing International Flight Training School partnership with Leonardo in Italy.

Transformation plan targets CAD 125 million to CAD 150 million in savings

CAE’s transformation plan is expected to generate CAD 125 million to CAD 150 million in annual run-rate savings by fiscal 2030. McLeod said the total one-time cost of the program is expected to be CAD 200 million to CAD 250 million, including approximately CAD 100 million of non-cash costs. The company incurred CAD 84 million of expenses in fiscal 2026, including CAD 59 million of non-cash charges, and expects most of the remaining expenses in fiscal 2027.

McLeod said the savings are already identified, with roughly half expected from labor productivity, about one-third from footprint efficiencies and the balance from other operational improvements.

Bromberg said CAE is evaluating strategic alternatives for Flightscape, which he described as a high-quality but non-core business. Flightscape represents 4% to 5% of CAE’s revenue and the bulk of the 8% of revenue the company previously identified as non-core. McLeod said the assets being considered for divestiture have margins below the company average, though he said the decision is based on broader strategic and capital allocation considerations.

Fiscal 2027 outlook and 2030 targets

For fiscal 2027, CAE expects consolidated revenue to grow at a low single-digit rate. Civil revenue is expected to be flat to slightly down, while Defense revenue is expected to grow at a mid-single-digit rate. Under its updated definition, CAE expects adjusted segment operating income margin of 14.6% to 15.1%, adjusted EPS of CAD 1.21 to CAD 1.28, and free cash flow conversion of 85% to 95%.

Management said fiscal 2027 will include headwinds from transformation investments, including ERP and factory modernization, civil network inefficiencies during consolidation, Middle East-related disruption and the absence of assumed benefits from specific government R&D programs. McLeod said such programs benefited adjusted segment operating income by about CAD 11 million in fiscal 2026 and CAD 34 million in fiscal 2025.

Looking to fiscal 2030, CAE is targeting mid-single-digit organic revenue growth and CAD 950 million to CAD 1 billion in adjusted segment operating income under its updated definition. The company is also targeting cumulative free cash flow conversion of 100% over the four-year period ending in fiscal 2030.

Bromberg said more than half of the anticipated performance improvement is expected to come from transformation initiatives already identified and underway, with the remainder supported by volume growth and operating leverage.

“Our objective is to build a company that consistently delivers on its commitments and is recognized as a reliable compounder of long-term shareholder value,” Bromberg said.

About CAE NYSE: CAE

CAE Inc is a global leader in training and simulation technologies, headquartered in Montréal, Canada. The company specializes in the design and manufacture of high-fidelity flight simulators and training systems for civil aviation, defense and security, and healthcare markets. Leveraging advanced software and hardware integration, CAE delivers comprehensive training solutions that address pilot proficiency, mission readiness and patient safety across a wide range of platforms.

In civil aviation, CAE partners with major airlines, aircraft manufacturers and flight schools to provide pilot training services, courseware development and crew scheduling solutions.

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