CAE Inc.

Ladies and gentlemen, welcome to the CAE fourth quarter conference call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Mr. Andrew Arnovitz. Please go ahead.

Thank you. Good afternoon, 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 for FY22 and answers to questions contained forward-looking statements. These forward-looking statements represent our expectations as of today, May 19, 2021, 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. A description of the risks, factors, and assumptions that may affect future results is contained in CEE's annual MD&A, available on our corporate website. and in our filings with the Canadian Securities Administrators on CDAR and the U.S. Securities and Exchange Commission on EDGAR. On the call with me this afternoon are Marc Perron, CCE's President and Chief Executive Officer, and Sonia Branco, our Chief Financial Officer. After remarks from Marc and Sonia, we'll take questions from financial analysts and institutional investors. Following the conclusion of that Q&A period, we'll open the call to questions from members of the media. Let me now turn the call over to Mark.

Thank you, Andrew, and good afternoon to everyone joining us on the call. Before getting into our results, I'll first share some of my reflections on how we've been managing through the maelstrom of COVID-19 and where I believe CA is now situated some 14 months later. Sonia will provide details about our financial performance and the restructuring program that we have underway, and then I'll come back at the end of the presentation to comment on our outlook. Looking back on the fiscal year, CAE demonstrated tremendous mettle and resiliency in confronting the challenges of COVID-19 in highly innovative ways and without ever skipping a beat in terms of the critical support that we provide to customers worldwide. At the same time as we rapidly learned to adapt to a new normal, we leaned in and fundamentally strengthened the company for the future. We took extraordinary steps to protect CAE our employees and our customers. And I'm extremely proud of our performance and the nobility in which all of us at CA rose up under such exceptional circumstances. We also secured our future by harnessing our one CA culture and seized on several strategic growth opportunities drawn from expanded pipeline. We made important progress through the year to significantly enhance CA's position for future growth. The added financial flexibility from our capital raises has enabled a succession of five highly strategic acquisitions that we announced over the course of the last six months. We expanded our ability to address the civil training market by acquiring Flight Simulation Company in Europe and True Simulation and Training Canada in North America. And we accelerated our expansion into software-enabled civil aviation services with our acquisition of Merlot and RB Group, The latter two helped to solidify our industrial technology leadership and further expand our already large, addressable market. We also announced a major opportunity in defense with our definitive agreement to acquire L3 Harris' military training business, which will significantly accelerate our defense growth strategy and align us more closely with national defense priorities. We expect to close the acquisition in the second half of the calendar year. Over the course of the year, we also accomplished a lot organically and internally to strengthen our position. We launched new digitally enabled products and business processes, put a comprehensive program in place to structurally lower our cost base, and we bolstered key talent. The combination of these recent initiatives gives us greater potential than ever for higher growth and profitability in the years ahead. Turning to the results. Up against the sharp challenges of COVID-19, I'm especially pleased with what we've been able to deliver in the fiscal year. In the face of the biggest ever shock in the history of civil aviation and major disruptions across the defense and healthcare markets, CE rebounded to quarterly profitability and positive free cash flow after only our first quarter when the brunt of the pandemic hit us. We believed early on that the year was going to be characterized as a tale of two halves, and the second half was indeed stronger, and the positive momentum of our recovery has continued throughout the year and into this latest fourth quarter. On a consolidated basis, we generated 22 cents absolute earnings per share in a quarter and 47 cents adjusted EPS for the year. Order intake was $928 million for the quarter and $2.7 billion for the year, giving us a solid backlog of $8.2 billion. This, to me, is strikingly positive when considering that global air travel dropped by approximately 90% at the peak of the crisis and hundreds of millions of dollars in expected defense contracts slipped into next year or beyond. With the measures that we implemented and the resiliency inherent to our business, we also generated strong annual free cash flow of $347 million. This, in of itself, makes an important statement about CAE as a sustainable growth company. In addition to the positive investment attributes, including secular tailwinds and a cash-generative profile, CAE has also proven, once again, to be a safe port in a storm. Now turning to some of the segment highlights. In civil, average training center utilization continued to edge higher reaching 55% in the fourth quarter, and we saw sequentially higher adjusted segment operating income margins. We delivered 14 full-flight simulators in a quarter, and despite market and logistical challenges, we delivered 36 full-flight simulators for the year in the civil business. We also continued to win new orders with $386 million booked in the quarter and annual orders totaling $1.3 billion, including comprehensive long-term training agreements with airlines, cargo operators, and business jet operators worldwide, and 11 full-flight simulator sales the year. Civil finished this year with a backlog of $4.3 billion. In defense, orders of $370 million in the quarter gave us a book-to-sales ratio above 1.1 for the first time in the last five quarters. And even with significant expected orders moving out of the fiscal year, defense order bookings reached $1.1 billion for a $3.9 billion defense backlog. Despite having to contend with COVID-19 headwinds defense, especially in international markets, We stabilize the business and make excellent progress to position it for future profitable growth. During the year, we secured all of our foundational re-competes, and we won significant new competitions in our core market and expanded our position in digital immersion, operational support, and security. CE's mission is to lead at the frontier of digital immersion with high-tech training and operational support solutions to make the world a safer place. And a prime example of that is how we're positioning defense for the future and bringing our mission to fruition. An example of that being a recent win of a flagship program in the United States called the United States Special Operations Command, or USSOCOM, to lead the integration and architecture development efforts for the Special Operations Forces Global Situational Awareness Initiative. I really want to underscore the significance of two defense of our fiscal 21 wins, and in particular this U.S. SOCOM program, and I'll comment more on them in my outlook. Turning finally to healthcare, we completed deliveries of the CAE Air One ventilators during the quarter, and we reached record-level quarterly revenue even before the contribution from ventilators. Our ventilator initiative was an important humanitarian effort that had the added benefits of generating incremental cash flow and providing employment during a time of crisis. And the speed and effectiveness which we developed and delivered the CAIR-1 is a testament to the unique combination of CA's agility, our deep subject matter expertise in healthcare, and the vast industrial and technological capabilities of the company. During the year, healthcare continued to bolster its position as the innovation leader in simulation-based healthcare education and training through the launch of new AI-enhanced training tools and digital management solutions in support of our customers' training needs during the COVID-19 pandemic. We also launched CA SimEquip, simulated medical equipment, and we continue to develop transformative digital training solutions for OEMs and leading medical device companies, including Edwards Life Sciences and Cordis, a Cardinal Health company. With that, I'll turn the call over to Sonia, who will provide a detailed look at our financial performance. I'll return at the end of the call to comment on our outlook. Sonia?

Thank you, Mark, and good afternoon, everyone. We continue to see good sequential performance improvements in the fourth quarter. Consolidated revenue of $894.3 million was up 7% compared to the third quarter and is 8% lower compared to the fourth quarter last year. Adjusted segment operating income was $106.2 million compared to $97.2 million in Q3 and $193.9 million last year. Quarterly adjusted net income was $63.2 million or 22 cents per share compared to 22 cents in Q3 and 46 cents in the fourth quarter last year. For the year, consolidated revenue was down 18% to $3 billion and adjusted segment operating income was down 52% to $280.6 million. Annual adjusted net income was $127.1 million, or $0.47 per share, which is down 65% compared to $1.34 last year. Our disclosure this quarter provides the impact of the Canadian Emergency Wage Subsidy and other COVID-19 government support programs. We have highlighted the impact on some key metrics. During the period, we carried higher employee costs than we would otherwise have been carrying as amounts received from the COVID-19 government support programs either flowed through directly to employees according to the objective of the subsidy program and the way that they were designed in certain countries, or the amounts were offset by the increased costs we incurred in revoking some of our initial cost-saving measures, including eliminating salary reductions and bringing back employees who were previously placed on furloughs or reduced work weeks. As such, we have been operating with higher expenses than we would have in the absence of dues. And so the impacts of the government support program are almost entirely neutralized. Our global training operations are especially cash generative in nature. Net cash provided by operating activities was $174.6 million for the quarter compared to $246.3 million in the fourth quarter last year. And for the year, we generated $366.6 million from operating activities compared to $545.1 million last year. We had a strong free cash flow in the quarter of $170.6 million and $346.8 million for the year, which compares to $351.2 million last year. We continue to target an average conversion of net incomes of free cash flow of 100%. Uses of cash involve funding capital expenditures for $50.5 million in the fourth quarter and $107.6 million for the year, in line with our total capex of approximately $100 million for the year. Our growth capex is directly linked to our opportunities to invest incremental capital with attractive returns and free cash flows. With our current view of attractive market-led expansion investment opportunities, we expect total capital expenditures to more than double in fiscal year 2022 versus the prior year. Income tax recovery this quarter was $3.2 million, representing a negative effective tax rate of 21% compared to an effective tax rate of 25% for the fourth quarter of fiscal 2020. Tax rate was low because of the restriction costs we incurred this quarter. Excluding the effect of these elements, the income tax rate would have been 16% this quarter and 19% for the year. Net debt was $1.4 billion at the end of March for a net debt to total capital ratio of 30.7%. This compares to $2.4 billion or 47.8% of total capital at the end of last year. Net debt to adjusted EBITDA was 2.38 times at the end of this quarter All told, between cash and available credit, we have approximately $2.7 billion of available liquidity. TA's liquidity was further enhanced with completion in March of a marketed cross-border public offering of common shares for gross proceeds of $358.5 million. As at March 31, 2021, we had a higher cash balance on hand from our recent equity issuances, and these proceeds will be used to fund the proposed L3Harris military training business acquisition and other potential growth investments in our pipeline. On the restructuring front, we are continuing to make good progress. The program is enabling CAE to best serve the market by optimizing our global asset base and footprint, adapting our global workforce, and adjusting our business to correspond with the expected level of demand and structural efficiencies that will be enduring. While maintaining our presence in all markets, we've made excellent progress consolidating our global footprint for greater efficiency and to better serve our customers. In the UK, we have consolidated five locations into three. In Europe, we are in the process of consolidating 17 training locations into 13, in addition to optimizing 13 remaining locations. And in South America, we are moving from six to four locations. We began executing our restructuring program in the second quarter, and as at the end of March, we have incurred a total of $124.0 million of restructuring, integration, and acquisition expenses for the entire year. In fiscal year 22, we expect to incur approximately $50 million in additional restructuring expenses related to this approximate $170 million program. We continue to expect to realize significant annual recurring cost savings, wrapping up to a run rate of approximately $65 to $70 million, by the end of the new fiscal year. Now turning to our segmented performance. In civil, fourth quarter revenue was down 6% compared to the preceding quarter and down 36% year over year to $388.2 million. I would note that revenue is generally not the most representative metric for civil given that there is no recognition of our share of revenue from the large number of joint ventures that we operate around the world. And in fact, part of the utilization increase that we saw in the quarter was the result of stronger performance in regions where we operate under joint ventures. Civil performance is better represented by adjusted segment operating income, which is up 7% sequentially and down 57% year over year to $66.6 million, for a margin of 17.2%. For the year, civil revenue was down 35% to $1.4 billion, and adjusted segment operating income was down 66% to $164.3 million, for an annual margin of 11.6%. The civil book-to-sales ratio for the quarter was 0.99 times and for the year is 0.89 times. In defense, fourth quarter revenue of $334.4 million was up 12% compared to the preceding quarter and down 2% over Q4 last year. And adjusted segment operating income was up 4% over the preceding third quarter and down 42% over last year to $23.2 million for an operating margin of 6.9%. For the year, defense revenue was down 9% to $1.2 billion, and the justice segment operating income was down 24% to $87 million, representing a margin of 7.1%. The defense book to sales ratio for the quarter was 1.11 times, and for the year was 0.91 times. And in healthcare, fourth quarter revenue was $171.7 million, of 42% from the preceding quarter and 411% from $33.6 million in Q4 last year. Adjusted segment operating income was $16.4 million in the quarter compared to $12.9 million in the preceding quarter and $100,000 in Q4 last year. For the year, healthcare revenue was $351.9 million, up from $124.5 million, and adjusted segment operating income was $29.3 million, representing an increase of $32.8 million compared to segment operating loss of $3.5 million last year. For comparative purposes, the CAE Air One Ventilators Contract with the Canadian government contributed $130 million to the fourth quarter revenue and $230.6 million for the year. With that, I will ask Mark to discuss the way forward.

Thanks, Sonia. As we look to the period ahead, I'm highly encouraged by all that we've done to reinforce CE's base over the last year and to expand our horizons for long-term sustainable growth. True to our vision to be the partner of choice, we exercise great agility and collaboration as one CE to quickly and effectively protect our employees and our customers which has engendered even greater loyalty and engagement. And like few other companies, throughout the turmoil, we executed a series of five highly strategic acquisitions, we raised equity, and fundamentally repositioned a company for the future, while at the same time launching new products, investing into new growth agencies, and structurally lowering our cost structure. CAE is indeed a unique company with a highly talented team, and a shared culture of innovation. I expect that we'll continue to make important strides to enhance CE's position for future growth. We're focused on the successful integration of our four civil acquisitions and our closing acquisition of the L3 Harris Military Training Business. We look forward to realizing the very significant potential of the combined businesses to better serve the needs of our customers. And at the same time, We've ensured that we continue to have the financial flexibility and the bandwidth to cultivate a large pipeline of sustainable growth opportunities, including the deployment of expansion capital in highly accretive and sustainable areas like training and to expand our reach and strengthen our position as an industrial technology leader. We're leaning in and focusing on the long term, bolstering our standing as the global market leader in our field through the application of advanced technologies and by expanding the aperture of our market reach. And we'll continue to invest in CE's capabilities to revolutionize our customers' training and critical operations and increase market share with digitally immersive solutions. In the short term, we continue to expect a trend positively, and there's little doubt that with all that we've done in recent months internally and externally to enhance our position, we'll see strong growth for CAE in the fiscal year 2022. The exact slope of CAE's recovery, the pre-pandemic levels and beyond, is dependent on the timing and the rate at which travel restrictions and quarantines can be safely lifted and normal activities resume in our end markets. The global rollout of vaccines to combat COVID-19 is highly encouraging, and I believe that the summer months will be very telling. This is especially the case, obviously, for civil, where we believe that there's considerable pent-up demand for air travel, and we're already seeing this manifest in regions like the United States, where domestic air travel is ramping up strongly. We're also highly encouraged by our prospects for renewed growth and profitability in defense, the extent of which in the current fiscal year will depend on, among other initiatives, to the potential and timing of closing of the L3 Harris military training business acquisition. Taking all of those variables into account, we expect to have greater clarity and be in a position to provide a more precise growth outlook for fiscal year 2022 when we report our first quarter results in August. And as we look further out, I'm more confident than ever before in CE's future. Our strategy and positioning are very well aligned with a post-COVID-19 business and geopolitical landscape with expected secular trends favorable for all three of our business segments. Greater willingness to outsource training by airlines, higher expected pilot demand, and strong growth in business and travel are enduring positives for the civil business. The paradigm shift from asymmetric to near-period threats and recognition of the sharply increased need for digitally immersion-based synthetic solutions in national defense are tailwinds that favor CE's defense business. And healthcare is poised to leverage opportunities presented by a growing awareness and appreciation of simulation and training to make healthcare safer. If we look specifically at civil, we continue to see training demand preceding the return to air travel as airline capacity increases. and the associated crews are prepared to reenter service. Domestic air travel is coming back faster, especially in reasons with a more advanced ramp-up of vaccinations, while cross-border and transcontinental operations are lagging as they're more tied to the easing of travel restrictions. In the United States, we currently have requests and indications that pilot hiring will resume in the next couple of quarters. and we're already hiring instructors in support of our regional aircraft customers. We expect to continue expanding our market share and securing new customer partnerships drawn from a large pipeline of airline prospects. We've made very good progress in last year having signed exclusive training agreements for supplemental training capacity on narrow-body aircraft with six customers including major airlines in the Americas and aircraft OEMs as well, which is often an initial step towards a more comprehensive outsourcing. We've also signed exclusive training agreements with six new startup airlines that have elected to bypass the in-source training model altogether. Our growth in commercial aviation training in fiscal year 2022 will come from these new partnerships, additional partnerships that we expect to conclude from our pipeline, and, of course, the general improvement in flight activities involving existing customers as restrictions ease. We also expect to see the benefits of the lower structural cost base that we've achieved as the recurring savings ramp up towards the end of the year. In business aviation training, flying activity has recovered much faster than commercial, And with levels of demand in the United States nearly back to 2019 levels, this bodes very well for training demand in this highly important segment of the civil training market. Civil full-flight simulator sales are driven by new aircraft deliveries, and while the total market remains small at present, we expect to maintain our leading share of available full-flight simulator sales. We still have the benefit of a large backlog of customer-funded full-flight simulator orders, and we expect to substantially deliver this backlog over the next couple of years, including upwards of 30 in fiscal year 2022. Over the last couple of years, we've been steadily unifying the digital flight operations ecosystem with the goal of delivering a holistic suite of solutions designed to improve operations and enhance the crew experience while further increasing our large addressable market in civil. Our vision began in 2018 with the acquisition of Pellicis, an aviation training courseware developer and publisher with one of the most comprehensive training and compliance systems in the industry. And we expanded on this vision with the launch of CA Rise, our predictive management and training visibility system. And in the period ahead, We're going to continue to expand our reach beyond pilot training solutions into the rapidly growing market for digitally enabled crew optimization services. The acquisitions of Merlot and RB Group are building blocks that allow CA to provide an end-to-end offering of crew performance software that extends from training through optimized crew operations and is unique in the industry. We're also positioning in the advanced air mobility market, which we believe will become another secular driver for pilot training and demand for CE's expertise in modeling and simulation. Last week, we announced that CE had been selected by Jaunt Air Mobility to lead the design and development of the Jaunt Aircraft Systems Integration Lab for the company's new all-electric vertical takeoff and landing aircraft, the Journey aircraft. By leveraging CE's extensive experience in high-fidelity simulation, we're going to work hand-in-hand with John to bring best-in-class simulation modeling to the aircraft development program from the inception of this program. In defense, at the same time as we stabilize the defense business in fiscal 21, we position the business for future profitable growth. And I'm encouraged by our new competitive wins and large pipeline of programs to specifically call upon SEA's expertise in the synthetic domain. Importantly, as I introduced in my opening comments, Defense won all of its foundational re-competes, including the U.S. Air Force KC-135 Air Crew Training Systems Contract, which also in this contract adds training support services for the Air National Guard Boom Operator Simulation Systems. We also secured a critical follow-on for the U.S. Navy T-44C instructional services. These wins underscored the strength of our recurring base of core programs in defense. And new fiscal 21 competitive wins in our core market add to that base, including the United States Army Advanced Helicopter Flight Training Services and the France-Germany C-130J Training Solutions. We also signed agreements with Boeing, to provide P8A training support services for the United Kingdom Royal Air Force and with General Atomics to continue the development of a comprehensive synthetic training system for the UK Protector remotely piloted aircraft program. The Protector is General Atomics' first major M29B sale, their next generation platform, which is expected to sell hundreds worldwide with CA providing its training support. We also expanded our position in the security market with an agreement for United States Customs and Border Protection Aircraft pilot training services, and we added to our customer base at our Alabama-based Dothan Training Center with the provision of training for the Irish Air Corps. Defense also expanded its position in digital immersion with notable wins, including the United States Air Force Advanced Battle Management System and the UK Single Synthetic Environment. The announcement earlier this week of our selection by the United States Special Operations Command for the Soft Global Situational Awareness Initiative is strategically noteworthy. After a highly competitive process, beginning with over 100 companies, including some of the largest defense OEMs and Silicon Valley entrants, CAE was awarded a U.S. $135 million contract to deliver the scalable next-generation mission command system that unifies the Special Operations Forces enterprise through the creation of an integrated common operational picture. Called the Mission Command Systems Common Operational Picture, or MCS-COP, this system will deliver enhanced global situational awareness to the U.S. special operators around the world. C's digital ecosystem solution leverages our world-class modeling simulation expertise beyond training by integrating data analytics, artificial intelligence, and digital immersion technologies into a synthetic environment to create a powerful tool for analysis, planning, and decision support. This technology is a critical enabler for United States and allied forces to successfully train and operate across all five battle space domains, a mandate that's laid out in the U.S. National Defense Strategy. Our priorities in defense are focused on the long-term investing in our leading position as a training and mission support partner with leading-edge capabilities in digital immersion. We're also enhancing our position by laying the groundwork to strategically team with major OEMs on next generation platforms. And with our expertise in integration of live, virtual, and constructive training, along with capabilities to address missions and operations support, we believe that we will make significant inroads in the broader defense market in the years ahead. Defense is well-positioned to capture business around the world, accelerated with the expanded capability and customer set following the expected close of the L3 Harris military training acquisition. And lastly, in health care, we're capitalizing on a greater market appreciation of the benefits of health care simulation training to improve safety and to help save lives. I continue to be encouraged by what our new team has been able to do, and I look forward to gaining sustainable scale with our innovative solutions to make health care safer. Health care has been and continues to be an important dimension of CE's social profile, And CE has recently spearheaded the Industry for Vaccination Coalition by gathering support for companies and their CEOs across Canada. The goal of the coalition was to accelerate mass vaccination through the private sector at no cost to governments to restart the economy as soon as possible. CE converted 12,000 square feet of conference rooms into a world-class operational vaccination center, which opened on April 26th. In addition to the critical role it serves in the ramp-up of vaccinations in Quebec, it's really a great example of CE's corporate citizenship and a source of great pride for all of us at CE. In summary, a year and two months after the pandemic began, the investment thesis for CE is more compelling than ever. And I strongly believe that we'll achieve new heights in growth and profitability in years ahead, as we bring to fruition our recent acquisitions, our new digital products, our expansion investments, our bolstered leadership, and our operational efficiencies. And with that, thank you for your attention. We're now ready to answer your questions.

Thank you, Mark. Operator, we'll now open the lines to members of the financial community.

Thank you. If you would like to register a question or comment, please press the 1 followed by the 4 on your telephone number. you will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. One moment, please. The first question comes from Fadi Shamoon of BMO. Please go ahead.

Okay, thank you. Good afternoon, everyone. A couple of questions. A couple of questions. First on... the capex, you're indicating more than doubling versus 100 million. First, can you kind of give us a framework? Like, is this something based on what you have in the pipeline? If you can narrow down that kind of guidance a little bit, is it something in like 200 to 250 million? And more importantly, where are you seeing these opportunities to deploy more capital? I mean, looking at your utilization rate, which is more of a consolidated number, it looks like you have a lot of room to grow into, but I'm just curious where these opportunities to grow are showing up.

If you don't mind, some of that I'm going to be a bit circumspect because of competitive reasons, but I think broadly where we feel confident in that CapEx number is because we're seeing the opportunities that we've had with conversations with customers, both on commercial and business aircraft, where we can deploy asset simulators either to, if you like, I talked about overflow agreements on commercial aircraft. So you might not have seen a complete outsourcing, but you've seen a lot. What we've seen, though, is we've secured, as I said in the remarks, a number of agreements with airlines that if we deploy the capital, we can basically get overflow agreements that can be converted to long-term training contracts, especially on narrow-body aircraft. At the same time, in business aviation, we see quite an attractive opportunity in a number of locations to deploy business aviation assets. And, of course, both of those generate some of the best returns. This growth capex that... He has 20, 30% incremental return on capital employed after a very short amount of time. So we'll invest in those every day of the week.

And if I just add, you know, so in the review and the continual review of our capacity, we absolutely redeploy assets first and foremost before issuing new CapEx. But opportunities, like Mark mentioned, they vary by platforms, right? So the overall utilization metrics is probably not the best. And so where we see demand in our pipeline and secured, like Mark said, it drives nicely accreted returns, 23% range within the first few years of deployment. So essentially that leads us to the guidance, which essentially we'll set at about... more than double this year's capex.

Okay. My second question is on the restructuring and the cost savings associated with it. How much of the savings have you realized in 21? And I'm just curious if you have a way for us to think about how those savings play out into 2022.

you're saying like by the end of the year the exit rate would be 65 to 70 million of cost savings so what what would you expect in terms of contribution for the year overall from those cost savings yeah so so as we said it's going to ramp up during the year we started to see some some savings uh but i think it's really going to start kicking in in fy 22 and ramping up to like you said uh around 65 to 70 a million dollars by the end of the year so this will be more back-ended into the second half. And we're really kind of progressing quite well. As I mentioned in my remarks, we're essentially completed in the U.K., going from five training centers to three, and closed out some centers and so on. So that's savings that will kick in, you know, as of now and so on. Some elements in Europe are still underway and South America. But essentially, what we'll see is a ramp up quarter to quarter with a heavier preponderance in second half as we kind of finalize some of these and reaching about $65 to $70 million by the end of the year.

Okay, thank you.

Thank you. The next question comes from Konrak Gupta of Scotia Capital. Please go ahead.

Good afternoon, and thanks for taking my question. So maybe the first one on civil, I wanted to ask you, revenue and SOI excluding government support were softer than what you saw in Q3, despite utilization rate and similar deliveries increasing sequentially. I guess joint venture accounting obviously creates some noise here, but can you share any color on SOI decline sequentially, including perhaps any impact of asset relocation as you restructure or any kind of revenue mix on simulators, pricing, as well as product services mix? Thank you.

I can start it off. I think revenue is never a perfect metric in the civil business, or actually in all of our business, but certainly in a quarter. But I think what you're seeing, part of it, you know, in terms of the sequential revenue story, and it's a nuance in our business that, you know, nearly 50%, of our business there, our account as JVs, which doesn't show up on revenue. So the majority of the JVs that we have happen to be outside of the Americas. And that's what we've seen in this quarter relative to previously is where we've seen the biggest sequential pickup in trends. So again, you're not seeing that revenue pickup. You are seeing it in the SOI, but you're not seeing it. So that's one stolity there. At the same time, it's So you talked about all the moves that we're making in terms of achieving your restructuring benefits. A lot of that involves moving simulators around, and we're taking advantage of the period that we're in where obviously training is at lower levels than it would be in a steady state. So we're taking that opportunity to move those simulators around, so you're not going to see any revenue from those at the same time. And frankly, there's a mix as well. There always is, but there's a mix in this quarter. But do you want to add anything to it?

Yeah, so to speak to the utilization, it did climb from 50% to 55%. And we saw some improvement in the Americas. But a lot of the progression was in certain regions where we do have more joint ventures, like the Middle East. So what this did is contributed to the SOI growth. And just to... Just to kind of correct you or clarify, there was sequential FOI growth of 7% quarter over quarter. And that's why we usually indicate as this is the best metric on the civil side because it captures everything. So that increase in joint ventures translated in quarterly pickup in FOI. And that's also one of the elements that's driving the margin improvement. On the revenue side, like Mark mentioned, a bit of disturbance because we did take the opportunity and the advantage to relocate a lot of these simulators so that we can finalize certain regions like the UK and so on and progress on the savings. And so that disturbed the revenue for a bit, but ultimately we saw the contributions flow through on SOI with that sequential increase to 66 million from 62 million. And on the margin, that joint venture was a bit of a driver because it has the SOI without the revenue. And also on the product side, we did have a good margin mix on the deliveries that we had in the quarter.

Thank you. I was actually referring to the SOI decline excluding the government support programs. But I guess, as you pointed out before on the call, there's also kind of costs associated with the COVID, right? So that might make sense.

Yeah, yeah. So on that front, Connor, just to, you know, I guess it's a new element. It's not necessarily new. We've been disclosing the government support program since the beginning of the fiscal year. The update this quarter is that we've added new non-GAAP measures to kind of reflect the impact, I guess, to give it more visibility and to incorporate some new reporting guidances and so on. But what we look at is the adjusted SOI because this metrics, So it shows the contribution benefits, but doesn't show the adjustments to the heightened operating costs that we've incurred, which is essentially neutralizing all the government programs. So we should look at it on the adjusted SOI basis, and on that basis, it grew quarter over quarter.

Let me just pile on to that, because I see the confusion there. I think it's a very important quarter that when we look at the profitability of the civil business, with all the noise that is there, The number that we use to manage the business is that 17.2% adjusted SOM margin. And that's up, you know, versus 50, it was 50% in Q3. That's really what we're looking at to manage the business. And going forward, there's going to be less of this noise because users won't be there. So I think, I mean, you can use that as the benchmark to measure our progress going forward.

That makes perfect sense. Thank you for clarifying. And my second question is on free cash flow. So I think the commentary you made and the disclosures was free cash flow conversion continues to be 100% almost on net income this year. Now, conversion was obviously significantly higher last year because the capex was down. But how should we think about free cash flow generation ability this year compared to pre-pandemic levels? And if you can comment on the capex to Farid's question, how much should we expect for growth capex versus maintenance capex in your guidance?

Yeah, for the total capex, I think we'll stick to the guidance that we provided that overall it'll be more than double this year's in total. And I think you can use past trends to kind of split out maintenance and capex. I think those will hold true. In terms of free cash flow, I think, you know, in this very tumultuous year, we've really demonstrated how cash-generative this business is, even at very low levels of activity. And so, ultimately, we've always targeted in the past 100% conversion of free cash flow, and we'll do so again for FY22.

That's all my questions. Thank you.

Thank you. The next question comes from Noah Poppenark of Goldman Sachs. Please go ahead.

Noah Poppenark Hi. Good afternoon, everyone.

Good afternoon.

Hi. Just to make sure I have the new or additional disclosure around the margins correct, Mark, would you expect the civil segment margin, the 17.2 you were just referring to, would you expect to see continued sequential improvement from here from that level, even as the, uh, government support programs, uh, roll out.

I think on the SSL wide level, definitely we would expect continued growth in that number, uh, just because we're going to throw in, we're going to be throwing more revenue of quasi fixed assets. I mean, the only thing I'll say there is you've got to watch, uh, I mean, we're in a funny kind of market, you know, obviously because of, uh, of COVID, but typically what you would see in the summer months is you see, you know, when airlines are flying more, they're not training as much, so you see seasonal effects. That'll probably be less pronounced this year, but, you know, on a run rate basis, definitely as your volume increases in the next few quarters, you're going to see SOI pick up from the volume of activity, from the restructuring activities that we put forward, so there's no doubt about that.

Yeah, so, you know, on a On a financial basis, the government programs and the heightened operating expenses essentially neutralize. And so minimal financial impact on a net basis for the year. And so the adjusted SOI is really the basis on which we're providing the guidance and so on. And so ultimately what this program allowed us to do is keep employees on through the worst of the pandemic. And where volume of activity has returned, we have the employees to operate and serve our customers. And where it hasn't, we've made the required reduction. And so, you know, the growth or the guidance that we're giving is on these adjusted metrics. Now, the margin can fluctuate based on mix, but that's the base.

Right. So, Sonia, what you're saying is it's not just that, you know, you have the government programs and then you also have just other cost and disruption factors and that we should adjust for one but not the other. What you're saying is there's costs in the system that you otherwise would have been able to manage that you're just not managing because you have the government support, and so we should think of those as neutralizing.

Female Speaker Correct.

Male Speaker Okay. Could you elaborate on what you saw in the utilization rate within civil by large commercial aerospace versus business jet, and maybe a little bit more about geography?

Yeah, business aircraft is doing pretty good. As I said, in the U.S., in terms of flying activity, it's pretty much back to COVID-19 levels, which is quite astounding, which is really, yeah, prior to going back to 2019. So, You can expect that that's resulting in some pretty good training activity in our civil training center. It's a bit slower in Europe because of all the continuing lockdowns in Europe. Many people have less ability to fly. But even that is recovered faster than you see in commercial aviation. Sorry, yeah, in commercial aviation, just slower than the United States. If I go around in commercial aviation, it's You know, we're a worldwide business, so your question, I think, is apropos, because really the big pickup for us will be when the big pickup occurs, you know, throughout the world. But what we're seeing regionally is, like, in the United States on commercial aircraft, we're actually starting to see utilization match pre-pandemic levels. We're actually adding capacity, and we're hiring structures to support wet training, but a lot of airlines and our flight school, classes are now looking to resume in really full force this summer. And, you know, with the voluntary furloughs that occurred over the past year in the United States, you know, the airlines are seeing a higher need for future pilots as they really need to eventually replace everyone that's left and they can no longer be called back. We're seeing, you know, we talked about this training bubble before and We're starting to see that, but it depends on which geography you're in. In countries where we saw a sudden halt in operations and training, we're seeing the spikes in our training center utilization as the airlines rush to get their pilots current again. A good example of that was recently in Colombia where we were working really hard. I tell you, we're above 100% in our training center to support specifically Avianca that decided to get all their pilots current again. And obviously it depends on the timing, but, you know, we're going to see this happen, to me, across most of the locations where there was pretty drastic lockdowns. Again, going regionally, you see India, our utilization, notwithstanding the drastic situation that you see, which is horrific in terms of, you know, the deaths coming from COVID-19, the utilization in February was over 90%. just as the domestic market was making recovery. Obviously, that slowed down, you know, for good reason. And if I could go around the world, but you're really... If you were to basically look at where the remaining lockdowns are, where you have travel restrictions, then basically you're seeing a subdued level of training activity. And where you're not, like in the United States, you're seeing people return to travel... quite hardly, and I'm very encouraged by that, and I think that will show up in our numbers over the next few quarters, no doubt about that.

So, Mark, it sounds like if you were able to disaggregate that 55 in training related to domestic U.S. or something, a region and type of flying like that that's strong, the utilization rate for you is pretty much back to pre-pandemic, and it's just that the utilization rate in Domestic places that still have a lockdown or related to cross-border is still, you know, below the 55.

Pretty much, pretty much, because, again, the other factor to look at is that really what's picked up is narrow-body domestic travel. And, again, that's what's picked up in the United States. So your statement you just said I would agree with. What's still pretty slow is wide-body, you know, oceanic. because, again, of the restrictions, and I think that will be slower. But I think the statement you made is correct. Okay. Thank you.

Thank you. The next question comes from Tim James of TD Securities. Please go ahead.

Thanks. Good afternoon. Thank you for taking my call. Just my first question, Mark, you kind of touched on earlier in your commentary about some of the kind of opportunities for commercial airlines that may be looking to outsource training, and that's always been kind of an opportunity for CA. I'm just wondering if you can kind of update us on, you know, now as we kind of come out of the pandemic, any kind of areas where you see more regional opportunities or, you know, maybe just the way customers are thinking about this and if the pandemic has influenced their thinking, if it's really going to kind of accelerate some of that outsource and just any additional color.

I think I've seen the same thing that I've talked about previously before. There's much more conversations. We're still at a state where the majority of the world, barring, like I said, perhaps the United States, are still really dealing with, you know, severe restrictions. They look at the situation in Canada. I don't need to describe that to you because you live here. But the fact is airlines in a large part of the world are still really trying to figure out what their fleet mix is going to be. So if you don't know what your fleet mix is going to be, a number of narrow bodies versus wide bodies, the kind of routes that you'll be flying, it's pretty difficult to really decide on you know, what you can outsource. You know, the old adage is, I've used this example before, we don't outsource a mess. And because either one or two things are going to happen. Either you're going to pay too much or us at CE, you know, we're not going to make a good deal because, you know, we don't have a good basis on which to base an outsourcing agreement. But I think that I take comfort by the fact, as I mentioned earlier, that perversely, COVID-19 has been a great time to start an airline for a number of reasons that I don't need to highlight. So we secured contracts with six startup airlines that are going straight to basically to the position that, of course, we project is to say, why would you start a training operation when we can provide a turnkey solution for you? So for six of those startup airlines, that's what we're doing. And at the same time, we've deployed... training in our various centers and in customer centers with simulators with long-term overflow contracts, whereas before, and that's really airlines saying, hey, I'm not going to invest necessarily in the asset, but I'm going to sign a contract with you because I really don't know what I want to flex it. I don't know what the demand is necessarily going to be, but I need to maintain that optionality so they can seize the upside in the market. And that's attractive because that always is the genesis for outsourcing. Because our business model, and I think you've followed us for a long time, you've seen it, it's always to enter into a relationship, whether it be a simulator, whether it be running their training center, doing some training overflow, and more and more expanding our relationship, expanding our wallets shared with customers. I felt very good about that. Again, lots of conversations, but I'm a patient man, but I'm confident that that patience will pay off.

Okay, that's helpful. Thank you. And then just my second question, I'm thinking about kind of the upcoming fiscal year and some of the acquisitions, well, I guess in particular one or two acquisitions that you've made in the civil space and the new simulators that you've got in the network, is there a need to or will you be continuing to kind of relocate move simulators around this year? And am I correct in thinking it's kind of a good time to be doing that because utilization is still relatively low, whereas if you were sort of running flat out, it would be a bit more disruptive? Or are you kind of at the point now where you feel pretty good with the location of sims throughout the network?

We've been doing that. A big part of our restructuring program is exactly that, Tim. As I mentioned, we've done a lot of that in the fourth quarter. We're going to do some more, but I think that's going to calm down. That's where really you're going to see a lot of the restructuring savings come from. because we're taking advantage of exactly the fact that there's reduced level of activity to be able to do those moves so you don't have to do it in a steady state. So absolutely right.

Great. Thank you.

Thank you. The next question comes from Cameron Dorkson of National Bank Financial. Please go ahead.

Thanks. Good afternoon. Just really one question for me, and it's I guess around the foreign exchange and the fact that we've seen the Canadian dollar strengthen a fair bit here in the last few months. I guess in the past, this has been kind of a net negative from, I guess, a revenue growth perspective. But, Sonia, maybe you can sort of remind us of the FX impact on CAE and whether that's changed from where it was a couple of years ago, and also if you have any sort of sensitivity around FX changes and what that means to either operating income or to EPS.

Yeah, so you're right. It is a bit of a hindrance, largely as a result of the translation. And so, you know, obviously it really depends on where the revenues are earned and so on, so the sensitivity evolves. But ultimately, you know, what I use as a rule of thumb is one cent on the USD CAD the whole year is about $2.5 million. That's why I am back.

Okay, so $2.5 million. Okay. Just on translation. So in training centers especially, I guess the revenue and the costs would generally be aligned.

That's right. So margins would be similar, but the translation would come into a lower Canadian dollar equivalent.

Got it. Perfect. That's all I had. Thanks very much.

Thank you. The next question comes from Kevin Chang of CIBC. Please go ahead.

Thanks for taking my question. Maybe just a clarification question. Mark, you talked about what you're seeing from a utilization perspective by market, and a lot of it is being driven by, I guess, the level of openness those respective economies have. But wondering, as Some countries look at how quickly demand has improved or air traffic demand has improved in short order. And looking at the U.S., I think we're seeing a pretty strong rebound here. Are you seeing airlines in markets that are more locked down potentially accelerating their training efforts to maybe prevent any bottlenecks? If they think that their own domestic air traffic trends could experience a similar surge like the U.S. airlines have seen the past few months here, or are they waiting for more clarity before making that type of training decision?

It depends. It depends. I think I was making, I was highlighting in the question from Noah, it's exactly, you know, we've seen that, like, for example, in South America, I was using the example that Avianca really, really decided to get all their pilots trained, so We had a bubble there where we were operating north of 100% in our training center in Colombia. And so that's an example here. Right now, if you look at some of the countries, Chile is in full lockdown. Brazil, no surprise, still battling very high cases. So we're going to see. So necessarily the flying activity isn't there. We're seeing airlines hunkering down. But that will come back. When that comes back, I would fully expect that we're going to see similar kind of story that we saw in Colombia. Asia-Pacific, you know, many countries have, if you just read the newspapers, right, that many countries have pulled back on opening up the green channels that they had due to what's happening in India. Malaysia declared a nationwide lockdown again. So if you look at our utilization numbers overall, you can well imagine that we're a key partner to AirAsia, which is, you know, the Southwest Airlines, if you like, of Southeast Asia. And so you can well imagine that if Malaysia is locked down, then, you know, we're not doing too much there. I talked about India, what's happening. We have been high in India. That's coming back down. So not surprisingly, you know, I don't think – I think it's a pretty mixed situation over there. In Europe, you know, we've seen – Basically, it's a day-by-day situation, and I was encouraged to see some opening up recently that they're choreographing, that they're allowing some tourist travel within Europe right now, so that's a very good positive. We see, I could go around, I could go on and on, but you see Portugal's possibly lifting as early as May 17th, but until those lifts happen, it'll need to be slow, and I think airlines have been cautious in terms of their training activity. But then you go to other areas, like, for example, Japan, where Japan Airlines has never missed a beat. That training center is operating at very high levels because they've taken the tact that they're going to take, basically, the opportunity throughout is to maintain their pilots fully trained. Overall, I think if you look at our business in aggregate, I think what we've said before is look at the IATA growth. We're not getting ahead of the IATA growth. growth path that's predicted. But having said that, you know, I'm very encouraged by the level of flying activity that I see in the United States. And I think that will be reflected. I don't think anybody is going to take flying for granted anymore. No, that's a fair comment and great color.

And maybe just a clarification point. Within healthcare, the CAE AR1 ventilator, you've completed the delivery's in the fiscal fourth quarter. Is there a reason why you can't sell that to other governments or other hospitals? Is there a reason why this is kind of a non-recurring revenue stream, or is this something you can actively sell to other companies this year?

Well, I think what you're seeing there is our discipline. We remain focused to what we're good at, And what you saw specifically with the example of ventilator is what you're seeing is what CE can do. And I always point it that way. You take the fantastic subject matter expertise that we have in healthcare where we understand everything to do with the training for intubation and everything to do with the use of ventilators. So we were able to seize that opportunity subject matter expertise, and considering the crisis that existed at the time for the use of ventilators, marry that up with the core competencies at CE of systems engineering software, global sourcing that we have, and put that all together and produce it in an absolute record of time. Not only produce them at high rate, but invent them, because there was no ventilators available, and there was obviously no parts available, so we went from scratch. So you saw an example of what we can do So with regards to your question about moving forward, we took a conscious decision, basically say that, well, if we look at the market going forward, yeah, we could do that, and maybe we could get some sales. But I think, you know, with what's happened in the pandemic, a lot of people now produce a lot of ventilators, including typical producers of ventilators across the world. OEMs have produced ventilators. And at the moment, I think there's a glut overall. I mean... Obviously, there's some shortages in key areas like, for example, tragically in India, for example. But what you're seeing is overall there's going to be a lot more ventilators on a steady state than is actually required. And going forward, do we really want to be competing against established players producing ventilators? And we'd like to know. What we'd rather do, though, is to, again, using our subject matter expertise to partner with those companies in producing simulation-based training associated with that, and really that, we think, is a much better way forward.

I appreciate the call there, and kudos on opening up the vaccination center in Quebec. Thank you.

Thank you. Thank you. The next question comes from Benoit Poirier of Desjardins. Please go ahead.

Yes, good afternoon, everyone. Just for defense, when we look at the adjusted operating margin reached 2% or 6.9 with government subsidies, which is down from almost 12% a year ago, while revenue were only down 2%. So could you maybe provide some color on what drove the decline and how should we expect defense margins to recover from these levels?

I think the first number, just the same as we talked about with the margins, civil there, they used 17.2 in civil. I think use the higher number, the best number you should be looking at, because, again, for the reasons that we talked about, the costs that are being offset by the government program. So we talked about before those issues. They haven't changed really in a while. The fact is, if you look at the fact that our book-to-bill has been below one for the last five quarters, which has changed this quarter, by the way, in a quite nice way. And I can expect that to continue. So you take the lack of orders, particularly product orders, because they tend to be higher margin, number one. And the fact is, you're eating off your margins. You're eating off your backlog. So as you eat off your backlog, you still have a lot of costs. So in the end of the day, you have to be absorbed. That's number one. The other thing is, Our mix has changed over the past few years to more service contracts. They tend to be lower margin. We have had a host of COVID-related issues in defense, particularly internationally. The U.S. has been less affected, but having said that, it has been affected. And I'll just give you an example I've quoted before. It's like our Tampa Training Center, which trains C-130 crews, A large part of the customers that come to that Tampa Training Center are overseas customers. And because of that, that tends to be a higher margin operation for that reason. But the customers haven't been able to show up because they haven't been able to travel. So that's been quite a bit of a headwind all year. But internationally, you know, what's happened is we've really had issues in regards to basically access to customers, access to facilities due to lockdowns overall. So all of those factors explain where we're at. Going forward, I mean, the COVID-related issues themselves are abating. We still have some, like access to customers in the Middle East, for example, is still difficult. So programs are still difficult, and we are basically executing those programs as we speak. But again, I'm very encouraged by... A couple of things. Number one is the orders that we're signing, the volume of those orders that we're signing, we're getting back on the positive. The fact that, again, what I should have said at the outset is, and I mentioned in my remarks, we have about 800 million of orders that we expected to sign in the past year and going into this year that have literally been pushed to the right because we've had, literally, they've been delayed largely due to COVID-19. Because although defense forces themselves, there is obviously an essential service, they've kept operational. But large cases that people that would support, you know, putting orders, contracts in place, just haven't been there or certainly not enforced, and that's caused the delays. That's going to catch up over the next few quarters. At the same time, we've used the opportunity during this COVID crisis to make the investments necessary. broadly as a company to make sure that we come out of this as a COVID winner. That includes operational efficiencies in defense. Some of that is captured in a restructuring service, the restructuring that you see. So that part of that 65 to 70 million will be reflected in the defense. So I guess long answer to show that margins should be going up and I fully expect us to get north of, you know, at least in the low double digits before too long. Okay, that's really great confidence. And of course, everything gets increased when we do the L3 acquisition, L3 Harris acquisition, because on a typical basis, they were operating at a higher margin than we are with a concentration of more products than services and a much stickier kind of backlog because of progress they have, so that'll improve things as well.

Yeah. And with respect to defense, how much visibility do you have for fiscal 22? I mean, what is already in the backlog to meet your growth ambition? And following L3, what would be the breakdown between equipment and services in terms of mix for defense?

Yeah. I think we haven't provided much visibility on what we see this year for good reason. It's not that we don't have visibility of our existing programs in defense, but it's really in terms of when we expect the closing of the L3 Harris acquisition will occur. I think I would point to the fact that the book to bill this quarter, 1.1, I think that basically starts to tell you that we're getting good coverage of order intake to revenue to what we really need. So in terms of... Well, actually, in fact, when I looked at the numbers, we actually have, going into the year, the highest percentage backlog, the percentage of revenue to fulfill their year, we have the highest percent in our backlog already than I've seen in recent history. If you know what I mean, the coverage.

Yeah, okay. That's great. Yep. Thank you very much.

Thank you.

The next question comes from Ron Epstein, Bank of America, Maryland. Please go ahead.

Hey, good afternoon, guys. Maybe changing gears just a little bit here. There's been a lot of focus lately on urban air mobility. And the market has been supportive of many of the different companies developing these vehicles. But maybe one of the long tentpoles is who are going to fly these things? So my question to you is, have you been approached at or are you in conversations with any of the urban air mobility companies or the companies that want to operate those vehicles on a strategy around training pilots, at least for the time period before those things go autonomous, which might be quite some time?

Oh, absolutely, absolutely. I personally believe that this is going to be definitely a good part of the market in the future. Your guess as to when that happens is as good as mine, but I certainly believe there's some estimates that are out there that in terms of pilots probably needing about in the nature of our 60,000 pilots by 2030. For us, we're very much involved in that space. I can tell you they have these specialized meetings of everybody who's in the industry, including all of these companies that are producing these various eVTOL devices. I was at the last one, which is just prior to COVID, that was in Dallas. It was called Texas Up. So I can tell you I was visiting myself just last week with one very strong contender, Beta Aviation. I was with their CEO and their team in Burlington, Vermont, just last week. And very impressed with what they're doing. We're partnering with them going forward. And just we announced that we're doing this with Jaunt, as I mentioned in my remarks earlier. I won't go through all of them because some of them are competitively sensitive. They don't want us to talk about it, but you can rest assured that we're involved with pretty much the whole ecosystem right now. As usual, we would take our role that we want to be, if you like, OEM agnostic, so we want to be able to serve the industry. We serve them not only in training pilots, but also help them in actual design and certification of the aircraft, which we're doing, as I mentioned earlier, the contract that we signed with John, is for helping them do, if you like to call it in industry parlance, the iron bird with software in the loop. So basically where you can fly the vehicle using software way before you ever fly the real aircraft and you prove out all the software interfaces and you can actually certify components of the design using, well flying it if you like, virtually. So Again, we're very much part of that because I think it's going to be part of the future. It's an exciting part. I can tell you that being an aviation geek my whole life, I mean, this is where aviation was in the 30s where you have a whole bunch of people developing aircraft. It's like the Wild West out there. It's quite exciting. But we'll be part of it.

Great. Thank you.

Thank you, operator. I think that's all the time that we have today for investors. Before we open the lines to the media, Marc will say a few words in French. So Marc, it's your turn.

Yes, thank you, Andrew. I just wanted to say, before I can answer the question, how proud I am of the role that the CAE has played in vaccination in businesses. You saw the announcement made by the government, with the Minister of Health, who was here on March 19th, in our offices at CAE, and the 23 vaccination stations at the company, which have been confirmed since. CAE was really the first vaccination station at the company, which was opened on April 26th. And in just three weeks, we vaccinated approximately 7,500 people. Our vaccination center is very well run now. What I wanted to announce is that, and I'm very happy to say that, from next Monday, the vaccination center will be open to the general population. So, it's visible to everyone on the vaccination site of Antique Santé. And for me, our commitment to this initiative It shows the importance that we give to our role and our social impact because, as we say, we are not the only ones. The 23 vaccination points, all costs are generated by the companies. We do it for the purpose of accelerating vaccination, to give a respite to the public health system and to be able to return to normal as soon as possible. We are very happy to see that thanks to vaccination, that's what we see in Quebec.

Thank you. Via the phone line, you may press the 1 followed by the 4 to register a question or comment. Once again, that is the 1-4. The first question comes from André Allard of Les Halles-du-Québec. The floor is yours. Please go ahead.

Yes. Hello, Mr. Parent. I want to congratulate the entire CAE team for their leadership in the vaccination of the company. It's a great initiative. As a fan of aviation and aeronautics, I'm happy to see that it's a sector company that leads this initiative. Thank you, Eric. Now, I just want to confirm with you something that I read this morning. I just want to make sure that I understood well. You mentioned that in the defense sector, CAE a remporté tous ses nouveaux appels d'or durant l'exercice. Est-ce que c'est exact? Si c'est le cas, comment vous expliquez ça? Est-ce que c'est juste que vous êtes trop meilleur, trop bon par rapport à vos compétiteurs?

Non, ce que je disais, c'est qu'on a remporté, j'utilisais le terme en anglais, foundational recompete, c'est qu'on a gagné tous les contrats où on exécutait des programmes d'entraînement de pilote which are obviously contracts that are on several years, and it's very important, obviously, for the revenue and profit each year. And we had a number of these programs that came to an end this year. Okay. So, an example, it's the CAC 635, where we train all the pilots of the U.S. Air Force, the Air National Guard, in 15 bases, who are in the United States and a little bit around the world. This contract was coming to an end, and there was an offer. We competed with several companies, and we won. And in addition, not only did we win the contract, but it was bona fide by not only the training of the pilots, but the training of the personnel who rehabilitate the planes, the boom operator. So that's an example. The other example that I mentioned is where we train the pilots for the US Navy, for the T-44, which was ultimately a military King Air, and we won that too. So all these programs that have been reintroduced this year, we all won them. And it's very important, obviously, because what it does is solidify our base. And in addition to that, we won the contracts below that, so it's good for the future. Okay.

Maintenant, je vais vous amener un petit peu dans le futur, parce que la Commission européenne, l'Agence européenne d'aéronautique, a débuté l'étude pour possiblement réduire, voire éliminer, la nécessité d'avoir des simulateurs niveau D, ou ce qu'on appelle communément des FFS, full-movement simulators to possibly go more with FTDs, so simulators without movement, because there is a big question about the use of having simulators with movement versus an FTD. I wanted to know if in five or six years from now, it would be more necessary to have full-motion simulators for pilot training. What would be the impact on the company? And have you begun to evaluate Comment vous pouvez éviter ou diminuer le risque face à ça?

Bien, écoutez, moi, ce que je dirais, c'est que je suis dans l'industrie depuis longtemps. Je suis pilote moi-même. Je m'entraîne sur les simulateurs moi-même parce que j'ai une licence de pilote de ligne. Je ne vois pas du tout de défis pour notre business par rapport à ça. Je ne le vois pas non plus comme chose qui va arriver. De toute façon, même si ça l'arrivait... I think you can imagine that the money we make is not on the electric or electronic V1s that make the movement of the user. We also differentiate, and it hasn't been yesterday, it's been a long time, it's the fidelity of the simulation. The fidelity of the simulation, whether you use a full motion or not, it has to be there. je ne vois pas les autoréglementations, les unis, quoi que ce soit, sur, puis même si c'est le contraire, sur comment sophistiquer que la simulation, elle est. C'est sur ça qu'on compétitionne, puis on est vraiment, tu sais, comme dire, les meilleurs dans le monde dans ce sens-là. Ça ne m'inquiète pas du tout, personne. Je ne vois pas du tout un impact sur notre business.

De toute façon, corrigez-moi si je me trompe, mais And the simulator is an element of this solution.

to put in charge our marketing team. That's exactly it. When I joined CAE, about 80% of the turnover came from the sale of flight simulators. Obviously, when I talk about the situation now, I have to place myself before COVID, because COVID affects our business, but in the short term. But today, we're about... 20% of our business comes from the sale of simulators to the company. And it's not because the number has decreased. When I was at 80%, the 20% now, it's even more simulators than we had when we had 80%. The difference, as you say, is that now we have complete training solutions. And it's really there that we think, even if we are, that we will continue to be the leader in the sale of simulators to the world.

Okay, well, thank you very much. It allows me to understand, in the end, that despite the evolution of things, it should have gone more towards FTD. You are still able to keep a good part of your business record. That's what I understand.

We are a company that is really in the soul, in our DNA. We are innovators. There is nothing that lasts forever. We live forever. We will continue to do that.

Okay. Thank you very much. I will let the others ask questions. Thank you. Thank you everyone.

Thank you to our participants. Operator, I think that's all the time we have for this afternoon. I know we went a bit longer than we usually do, but a big quarter and certainly lots of great questions. I want to thank all participants from the investment community and members of the media. And I would remind participants that a transcript of today's call can be found on CEE's website as well as a link to the replay. Thank you very much.

Thank you. This does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you and have a good day.