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spk_0: the german and welcome to the see first quarter conference call for the advice or this cause being recorded i know like to turn the meeting over to mr andrew aren't of it you may not proceed metro it
spk_1: good afternoon everyone in thank you for joining us today before we begin i'd like to remind you that today's remarks including management outlook for f y twenty one answers questions he came forward looking statements these forward looking statements represent our expectations as of today are just the twelve twenty twenty and accordingly are subject team such statements are based on assumptions that may not materialize and are subject to risks and uncertainties actual results may differ materially and listeners a caution not place undue reliance on these forward looking statements a description of the risk factors and assumptions that may affect future results is contain and feed annual and dna available on our corporate website and an art filings with the canadian security to ministers are seat are and the us securities exchange commission on edgar on the call me this afternoon i'm not gonna sees president and chief executive officer and don't your branco our chief financial officer
spk_2: after remarks from mark and sonia will take questions from financial analysts and institutional investors following the conclusion of that you and a period will open mccall the question from members of the media let me now turn to call over to mark
spk_3: i you and your a good afternoon everyone on joining us on a call or first discuss some a highlight for the quarter and then sonia will rigidity get he killed financials i'll come back again to talk about our outlook
spk_2: but has been shed over the last five months about the colbert nike pandemic and the profound ways it's changed our daily lives both personally and professionally and the word unprecedented has since become synonymous with the crisis
spk_1: no doubt the rapid onset and pervasiveness of economic and social impact with the pandemic or act like nothing we've ever seen before
spk_2: the impact on our employees and customers has certainly presented us with some very significant challenges it's been a couple moments however that were truly put it a test and throughout throughout all of it i continue to be very proud of that respond to this that see a it it's employees who been adapting rapidly this new reality by embracing new challenges mitigating risk and innovating you wait the best server customers as your partner of choice as we came to expect in early march this year the full brunt of the pandemic would indeed it is hard during our first quarter manifested by sharply lower demand and major disruptions to our global operations right at the start we acted quickly to ensure the health and safety of our employees and customers by taking expensive measures and we safeguarded the company's financial position and liquidity she has shown considerable agility and resiliency amid the most challenging conditions are company has ever faced
spk_3: in the first quarter we managed to significantly mitigate or are inevitable inevitable operating loss position to near break even on an a basis will improve their free cash flow performance compared to last year a critically we maintain our resiliency what a solid financial base
spk_2: despite the challenging environment we book four hundred and seventy million dollars of orders and a quarter for point seventy six book the sales ratio and we ended ended the order what has followed eight point six billion dollar backlog looking specifically at civil despite the major operations hurdles presented by mandatory temperate the temporary facility closures including our training centers and main manufacturing say and extensive travel restrictions we managed to deliver to full flight simulators the airline customers than a quarter and we averaged thirty three percent utilization of our training network with more than half of our global train network either either close temporarily or at reduced operations utilization reached a low point around the twenty percent rain during the quarter since then we've in average twenty three live fish and right to upwards of forty percent as our facilities reopen and flight was resumed some of their critical training activity we also can the borders with civil signing training solutions contract valued at one hundred ninety four million dollars including a contract or near bush a three twenty four like them later to china express a for your training agreement with alitalia a five year train grim was with while most air other five twenty five you're trading agreement were locked her business aviation partner association and add to your business amish be a trainee agreement would air hamburg on the only m front we also called to the five year training agreement with boeing to support boys ebony show pilot development program we've been adapting quickly to new realities by introducing new virtual service offering to support our customers as a response the border restrictions including remote support for the installation acceptance and qualification or the simulators we also recently obtained ebay and other civil aviation authority approval for virtual praying and certain of our plate training organization and we developed remote instructor operating station solutions for live and struck her interactions during training session
spk_3: as a product of our ongoing digital innovation initiatives we live instructor lead online courses for aviation maintenance training and sea air fight a new digital community platform that provide training and career resources the pilot which i would encourage you to visit as air five got arrow
spk_2: in defence and healthcare the pandemic has also cause significant disruption which have hampered customer demand and our ability to deliver our products and services notwithstanding the challenging environment and defence the defence book orders for two hundred one million dollars including contract to provide a nice the airport would upgrade and enhancements the both the casey one thirty five and thirty one thirty eight aircrew train system program and to continue priding providing a range of in service support solution for the royalty rated airforce to see if eighteen aircraft other notable contract including providing airbus defense faith support for the development of you and up weight training capabilities for germany's eurofighter program we offer was given an order to continue providing maintenance the support services for the royal navy's merlin helicopter trading system and in health care we put our full went into designing developing a brain to market the a air one ventilator
spk_3: we didn't have any to liberate from the product line and a quarter but we did he curses startup expensive and we've only a we were only going to see delivered really ramp up from the ten thousand units order by government canada
spk_2: in the second half of the fiscal you in response to the urgent needs of our customers with provided complimentary training seminars and how to prepare health care workers in the fight against core with nike what well for lot simulate the based training solutions both web and hardware based to trained personnel in the safe practice the ventilation and it's base which is key to saving live and released that covert nineteen or to sell training sweet your provide hands on foundational training for position additionally as institutions began begin to reopen and offer remote in a remote education we provide a you tube train on how to implement this just learning but are solutions such as the distance learning for nursing course
spk_4: with that are now turn to call over sonia or provided you can look at our financial performance and richer at the other called comment on our out so yeah thank you mark and good afternoon everyone it wasn't need an extremely challenging quarter but with all the measures that we put in place in early april to safeguard our financial position and to ensure liquidity by reducing costs and preserving cash we helped narrow the pandemic operational impacts and we maintained or resiliency with a solid financial they are net that position at the end the quarter or was two point four billion dollars for net debt the capital ratio fifty point seven percent of things considered i am pleased that remained stable where i'm at that position actually point four billion dollars or forty seven point eight percent of total capital at the end of last year and on an adjusted net that the either top basis we ended the quarter whatever asia three point o por time which is that point eight points compared to the end of the last fiscal year oh string our financial resources during the quarter we concluded it you two year five hundred million dollars in your unsecured revolving credit facility and expanded our receivables purchase program by a hundred million dollars us the different accents provided us with access to additional liquidity and further strengthened our financial position all told between cash available credit we continue to have upwards of two billion dollars of liquidity which we believe in addition to the cash we expect to generate from operation is enough to manage to the period ahead the market situation has evolved rapidly and reflecting the current impact on our business and the time anticipated for recovery and are and market be recorded non operational costs of one hundred and eight point two million dollars during the first quarter twenty twenty one relating mainly impairment charge it abruptly plant and equipment dependable out that for certain financial assets as a result of the continued negative impact the that nineteen pandemic and since the end the quarter we announced that we are taking additional measures to best serve the market by optimizing our global asset base and footprint adapting our global workforce and adjusting her business to correspond with the affected lower level of demand for certain of our products and services these measures including introduction and acceleration of new digitally enhanced processes such as remote installations and certifications and work from home practice as a result we expect to record restructuring expenses of approximately one hundred million dollars over the next twelve months consisting mainly a real estate costs asset relocation and other direct costs related to the my vision of our footprint and boy termination benefits actions will include the consolidation of some of our facilities were overlap currently exists for the weekend the efficiencies of operating from larger centers and we will also be relocating several training efforts to optimize utilization will have faith in that that optimization costs are expected to account for approximately seventy percent of the total restructuring expect taken together these measures are expected to enable see a to emerge from the current period from a position of strength and we expect the fully realized cost reductions of approximately fifty million dollars annually starting in our fiscal year twenty twenty two now turning to our operational performance and other highlights than the quarter consolidated revenue with five hundred and fifty point five million dollars down thirty three percent compared to eight hundred and twenty five point six million dollars in the first quarter last year and segment operating loss before specific items with two point one million dollars compared with segment operating income of one hundred and thirteen point three million dollars last year considering the extreme severity of the pandemics impact on our ability to operate in the fourth quarter and year break even operating performances true testament to the resiliency a faith that the model quarterly that last the for specific items with thirty point three million dollars or negative eleven cents per share with compares to twenty four sense that we reported in the first quarter last year also of note we received approximately fifty six million dollars and growth governments wage subsidies from several of our local jurisdictions during the quarter of which approximately forty four million dollars was credited to income substantially all of this amount either food directly to employees according to the way the subsidy programs were designed and certain countries or the it mount are offset by the increased costs we incurred in bring back from twenty five hundred employees who were previously played on furlough are reduced work week i would underscored that we brought back the them play that the same time of implementing our cost saving measures and enough and the wage subsidies were applied as intended as a substitute for initial cost saving measures taken and to alleviate some of the impact on a affected employees now looking at cash flow cash from operating activities before changes the noncash working capital with positive thirty six point nine million dollars for the quarter compared to one hundred and thirty seven point eight million dollars in the first quarter last year for casual with negative nine two point seven million dollars in the quarter which is an improvement over the negative one hundred and two point one million dollar freak out shh low result last year the increase results mainly from a lower investment a non cash working capital lower dividend paid and lower maintenance capital expenditure partially offset by a decrease in cash provided by putting activity we continue to expect be casual to be negative for the first half the fiscal year developing from a cute impact of the pandemic on the band an operation and feed my higher level investment in non cash working capital account we also country to expect to generate positive free cash flow in the second half of the for you return on capital employed before specific items with eight percent with quarter compared to ten point seven percent last quarter and eleven point nine percent last year and compact recovery the footer with thirty five point four million dollars representing an effective tax rate of twenty four percent compared to seventeen percent for the first quarter last you the tax rate with higher due to the impact of impairment charges partially offset by the change in the mix with income from various jurisdiction going the affect the impairment the income tax rate would have been twenty percent that quarter now looking at our segmented performer and seven first quarter revenue was down forty eight percent year over year to two hundred and forty eight million dollars as a result of a significantly lower than usual training your libation and the suspension of manufacturing and disruption of installation of deliveries of simulators products to our customers worldwide to the government mandated travel ban border restrictions locked them recalled and self isolation measure civil operating off before specific items with seem point two million dollars on the other a friend to will put the fails ratio for the quarter with point seven eight time and for trailing twelve month period it with one point o two time and defend first quarter revenue of two hundred and eight eighty point two million dollars with down thirteen percent over to one last year as a covert pandemic continue to contribute to the live in the execution of programs from backlog and in order and it while operating income from specific items was up fifteen percent to seventeen point three million dollars for an operating margin of six point two reset the fence but the sales race over the higher the score a point of entry time and it was point nine four times for the last twelve months lastly and healthcare the first quarter revenue was twenty two point three million dollars down nineteen percent from twenty seven point five million dollars and you want to bless your segment operating loss with three point two million dollars compared to a lot of two point eight million dollars and you one last year
spk_5: that have the operating losses attributed to the therapist for a new ventilator contract which had not contribute to get the correct new in the quarter with that i walk markets got the way forward
spk_2: thanks sonia
spk_3: at the outset of a pandemic we face to essential questions as it relates to a business
spk_2: how long with a crisis watched and i'll bad with it get with the benefited from perspective or last five months a positive uses that we believe the worst the pandemic impact than see made out made id be behind however the pace of recoveries unlikely to be linear or quick and will most certainly be dictated by the progression of pandemic and the rate at which travel restrictions and warranties and safety be lifted and economic activity improve gabler or transportation rear passenger trouble were specially hard hit with i add up currently forecast commercial passenger traffic to be down fifty to sixty percent this year and a recovery to take three years before getting back to pre core with low we continue to view the current fiscal year the tale to to have with the first half of the new year marked by lower demand and disruptions or the second half to potentially began to inflict more positively the timing of marked recovery remains unclear or confident in long term fundamentals of the market research and we know this too shall pass looking ahead were plenty see a future or a position of resilience and strength we've have global leading market position recurring revenue streams attractive and markets in the civil defense and hell
spk_6: fair as well as a solid financial position
spk_2: his civil as the global fleet eventually resume serves weeks back to continue building on our previously positive momentum increasing market share in securing you customer partnership with are innovative training and operational solutions
spk_7: we're currently in advance discussions with a number of airline customers to potentially do more for them
spk_2: i believe the current context would lead to more airline twenty outsourcing opportunities as industry look for ways to gain greater agility a resiliency in the fourth call with nike there it business aviation which represents a substantial part of our civil business the man is driven largely from addressing a regulated training needs of the already active global business aircraft fleet and the delivery of large cabin businesses from this perspective we continue to believe this segment of the market will fare better that commercial and the downturn the will also likely recover faster the man for civil full flight simulators as closely linked two work you are deliveries and while the toll market for simulators expect to be success success the smaller is clear we that can maintain your leading fear of the available for plate similar yourself
spk_8: we have the benefit of a large backlog of customer funded full plate similar or is low and several for flight is delayed delivery for backlog shouldn't indeed be delayed but the risk of cancellation remains low and we expect this is especially delivers a backlog over the next couple of years
spk_2: in defence
spk_3: we also benefit from a large backlog of contract with government customers to provide training solutions that mission support services that are considered essential to national security
spk_2: this week we announced that dan gelston will become see a new group president defense the security transitioning from high you would she's easy be business development growth initiative who currently serves as interim group president dan brings a wealth of experience is a proven leader with more than twenty years of experience for the us military intelligence community and the global defense industry a will be joining us on august twenty fourth and based out of a washington dc off in the current fiscal year colvin nike related issues are slowing defenses progress toward for well mcdonalds or work and backlog a cooling for some are more complex program the pandemic a thoughtful it delays and contracts awards globally and the structural effects of low oil prices at further impacted the rate of expected contract award in the middle east more recently the acceleration you call the cases in the in the united states has impacted our ability to deliver train service to some of certain of our fight although defense continues to be hampered by call the nineteen it is you're twenty one the long term outlook for defense continue to be for group supported by a large addressable market for innovative solutions and the realization that benefits of our new leadership despite the near term headwinds ward maintaining our leading position as the training and missions support partner thanks to are leading edge people believe in translating a physical world into the synthetic world's worst spending beyond training to become a leader in digital immersion and with our expertise in a and waste of life virtually constructed twenty we believe that will make attractive inroads into that market in the years ahead and in health care our purpose mission and passion is to make health care safer we believe the significant changes brought about by this pandemic will result in a bigger role for he learning and healthcare simulation a train
spk_3: looking for the secular shifts ahead appear promising we continue to believe fee healthcare is well positioned to capitalize on this change the appreciation of the benefits of healthcare simulation the train to put safety at the helped save lives not only during a healthcare crisis but offered during more know what time
spk_2: and when it's innovative products demonstrated to develop agilely he healthcare will be get it our expectations the of health care will become a more mature part of the company over the longer term we have a deeply rooted culture of innovation and a proven ability to adapt quickly to dynamic market conditions this year one villager we just developing health care is a testament a testament to see the julian innovation we rapidly applied the full gamut of our technical capabilities in response to the crisis and our fuel the new opportunities globally and design manufacture and sale of like having ventilator
spk_3: tough times require new thinking and a prop all of our market we've adapted are offering by introducing new ways to leverage virtual reality and distance learning technology to serve our customers critically he is a high technology company providing solutions that the leading edge of digital immersion
spk_2: our extended l will remain highly compelling with potential for compound rope and superior returns over the long term he employs are most valuable assets are imbued with a culture the innovation empowerment excellence and integrity and we've back to emerge the pandemic even better position
spk_3: our restructuring pull them is expected feel approximately fifty million dollars of annual recurring cost saving starting in fiscal year twenty twenty two from initiatives including the introduction and acceleration of new digitally enhanced processes and the optimization of our goal as the basement footprints
spk_9: at the same time wiki keeping up the pace of our investment and focus on technological innovation to reimagine the customers experience and broaden our aperture to revolutionize training and operation or solution
spk_2: as our core and marcus recover the new normal that emerges could present novel challenges for customers we believe certain friends will arise in greater force post cool with nike such as he learning remote work and even greater imperative on safety and he accelerated digital transformation and virtualization of the physical world see his court capabilities align very well with the future need and we fully intend to use the current period to further strengthen our technological expertise and expand the aperture of how and what we bring to market we're leaning forward to capture more organic growth by leveraging are leading edge understanding of man to complex machine interfaces and we continue to serve our leadership in attractive marcus with long term secular kill it
spk_3: already think excellent customer receptivity toward recent to use it new technology development in here machine learning enabled data analytics remote delivery virtual reality of method reality and will be driving forward to excel on these new friends now more than ever
spk_10: to conclude were effectively managing the things we control within this unprecedented environment and were decidedly focused on the future and i expect we'll be ultimately stronger port with that i think you pay attention that would already answered questions
spk_1: thank you mark
spk_0: operator will now want to open the line to financial analysts and usual investors for questions certainly thank you and was going to have reminder to register for questioning the for one provider for on your telephone your own three tom prompter ignacia requests for question has been asked to call us creation of the one for by the three one moment please her first question
spk_11: i will get our first question of light on friday sherman would be a more capital markets current ahead k thank you good afternoon the pipe and for a couple of questions on the cash flow of maybe some yeah so if i look at your
spk_4: cash flow from operation before working capital you stand up more than cobbler to your cat facts and development costs is quarter can we infer from that that be civil aviation segment will also positive before working capital with cool i think that a fella i think care glad that you're highlighted despite the fact that more than half our training facilities are closed are are reduced capacity and active and manufacturing was closed for more than half the quarter overall free cash flow as improved and as you point out cash from op although although much less or cash for months before working capital although much lower than last year it was so positive so that desert overall despite the challenges the cash father the the poor working capital and and this applies to each other segments are including are several overall and are training network so you know fight living through one of the of challenging quarters in in our history i think it's a great demonstration of the resiliency and the cash generative model of fee that are cash from op's was positive and it's quarter now of course when that the noncash working cap some of that is a bit a slowdown in in and payment that we're managing to or you know with with some of our airline customers but a lot of it was still the impact of the usual seasonality that we see so if you take a look at the at the working capital account i'm a lot of the investment was on accounts payable five and that's really a reflection that we see every year of the higher production level than activities and cute for which then pull through and the first quarter bad at left or revenue and obviously i'm very much exacerbated in this in that quarter with the the fall on the revenue side so yet see your point
spk_11: overall see cash from opera operations before work and cat positive and that in all segments including our training okay know it's impressive that you can because and minutes
spk_4: before working out for i guess in a quarter were utilization are in the last thirty percent but do you do expect working capital to to be key to to become a neutral reboots back and the nine months coming like how are you can of think about that for the balance of the year yeah and into your point fatty fill in a way i think it's impressive there's a delay and keep it also reflects a lot of that the measures we put in place on and cost containment and leavers to preserve cash and so that all all contributed to to the positive cash position in terms of working capital you know to the first have usually a is is seasonality will try some investment and and then some reversal in the second half you know and especially i think that will be reinforced with kind of the second half inflection positive on free cash flow so so i expect
spk_11: on the free cash flow five continue to be negative in the first ab positive in the second half and some of that would also like fact come from working capital as well okay i just want to be king or defecation good tesco guidance
spk_4: three guys for guidance that not include the empire like the cash and comes the restructuring and planned that your mouth or or not it and that included a dog that we haven't court yes it does so we've incorporated the cash impact of the restructuring and as i mentioned and my my remarks a will will will execute this all throughout the next year
spk_12: the until the cash profiling will will follow some of that execution
spk_4: i'm and so
spk_11: and and so it will but it has it is incorporated in the free cash flow okay and a based on all of the said you just told me and you know given expectation that kinda thing should get
spk_13: better in the next six to nine months as business aviation market cannot recover than the aviation my ear want to cover i'm thinking each one plus each to cash flow you're saying positive id and then i mean to be negative and positive we should
spk_4: the arrive at some outcome that is generally neutron to bother informed about of a forty year old at all i've reacted birth both has a look up to an outcome
spk_11: and we we haven't provided guidance for the full year a lot of variable still ah but the fact that we haven't guided strongly either way negative or positive kind of emperor and first and for as with what you're thinking it okay one one no one of the question quickly mean you you talk a lot about the just a vision of the model and would the opportunities said probably come out of crisis like this he is there a way for us to think about how much of the train aimed at is conducted is not necessarily need to be conducted at the center at the training center itself like you don't need a simulator to do it it's a classroom gonna training how much of that kind of training happened to be platinum that could potentially move into an online
spk_3: i'm a model and a permanent way going forward and may be optimized this whole training
spk_2: the pollution further and we go in the next few years i'll take that fatty i think that we don't have a number of words but that does he take an initial course for example on a to fly an aircraft typically you might span of a look for business aircraft with a maze pay three three four weeks with the trade center and you're you're doing probably the equal that two and a half weeks of that sitting in a classroom that that just the ballpark okay to have it depends by aircraft the rest you're you're doing seventy rice and a simulator
spk_3: an actual be a decade give you some idea but when we when we talk about the restructuring savings that we have and and achieving permanent cost reductions going forward the fifty know we talk about
spk_2: the summer that is basically take advantage of somewhat you just talked about it'll be blurred did you do you things virtually during a pandemic and that the same time we've been we've been investing quite substantially digital or the last couple years and know we announced our project did did so talented though member of one of that billion dollar investment rv a couple years ago we we did lodge montreal that by the way it is why he that it estimated why would you turn ourselves around and go virtual little rain overnight because the ability to do that but but now go a poor school that everything's gone virtual okay or evolve i shouldn't say that but the world is obviously going berserk but definitely it digitization five multiplied maybe just exaggerate
spk_14: for we increase tenfold so the investments that we make hear the process is liberating digital is gonna have substantial impact
spk_15: odd how we deploy training in the classroom specifically how we deliver simulators as well so all these things that were going after getting permanent savings that's that's where you didn't see it
spk_0: the thank you
spk_16: thank you very much get our next question on the line from the line of doug taylor with canaccord genuity florida
spk_4: thanks good afternoon one more question on the cash flow guidance
spk_17: just like to understand whether year guidance is contingent on utilization rate for the civil aviation business moving materially higher than the forty percent that they've been they've that you mention their at tab presently or if you can achieve that same positive free cash flow with forty percent
spk_4: the thread about a year for example
spk_16: advocates bit too early to take care of that predictions on the level the allied nations that we we do expect the ramp up to be flow were than we thought and so we fact it and into to our free cash prediction at said we do expect some sort of luck
spk_1: inflection in the second half to drive a better performance than the second half and that will be the driver of a free cash flow improvement okay the the utilization i mean during the summer months usually is is a bit slower given the demand for powder just wondering if that is the at all a factor this year or of that whole seasonality thing can be completely thrown in the trash for this year when we look at utilization in july august vs you know the phone winter
spk_18: i'm sorry mister first point where i gotta i gotta i gotta go there were so doctors normally some seasonality to the training the man the way to think about it is when you know pilot in various regions are very busy flying that less busy on the ground and the training centers training so in europe or
spk_4: example the summer months are usually quieter in terms of of training demand in they'll planned out there you know their annual recurrent their recruit training according to the the demands of the flight schedules but to your to your second point everything is is out of whack in this environment and mean having had the kind of operational disruption that we saw
spk_19: the through the first quarter and the demand shock your we got down utilization level than average in the network in the twenty present range that that unheard of
spk_16: yeah i suspect i go ahead it had a bit more color on kind of from the assumptions gonna underpinning the second half
spk_2: we do expect some recovery but i'll tell a higher level of deliberate as you saw only call a to delivery is that this quarter
spk_20: until we do expect that deliveries to be very second half way that as well but that that will drive on the cash flow performance
spk_16: okay and damn
spk_21: oh one more question on the on the civil side the i mean who i wonder if you could provide an update on venus what some of the regulatory bodies are doing with respect to relaxing the training requirements which i mean certainly was a factor early in this covert pandemic i mean how i would you say that back to normal across your geography is or is that
spk_14: how do you expect that to continue to evolve over time
spk_0: know what i have heard much about it at all and that that you're literally three months so at the that that was a one off that would literally to cater for the fact that you know people that are couldn't get to the training centers because the border restrictions things like that or i think that one off situation behind it
spk_22: and helpful i'll leave it there thank you for take my questions
spk_23: thank you
spk_9: thank you very much
spk_2: our next question on the line from the line or kevin chang with shabby see go right ahead hi thanks for taking my question it a try to dig into the to the utilization rate where we sit here today to forty percent is a way to think about what i would front across your your your key regions not asia north america and europe and then if i just put that between business a commercial training it is a way to take over a difference in utilization between the two or was it up pretty static around forty percent
spk_4: i think you're fine this got a little bit more than the
spk_24: then civil or then that commercial
spk_25: the the as a as an overall number the a dick or i wouldn't read get you know big differences across the world that let me just go to look of my notes here but
spk_4: ah in indiana i do have more detail by yourself i have a diverse the did and what we're saying is that started chanting better than than commercial comparing wherever quarter or and in terms of
spk_2: in terms of region i think what we're seeing the hardest hit is is really in an artist and in europe in that's what we're seeing our asia still you know impacted by
spk_22: doing brazilian that really a europe is whether the heart of them that yeah and no and of north america really good training in north america tedious lead the way from that point of view
spk_26: the within less impact their borders really as you saw the wrap up the like this is it was really good that with really affected a lot of the opening of or
spk_4: and so for example dubai open up recently so ill have been save yashin business aviation activity will have will pick up quite substantially in there because for example customers the far east can't get to the north america because there's restrictions and you know they can we can start their train demands of the aircraft too much as just one example don't have thought that but that's very helpful color or the secondly for me just just ah the restructuring just wonder what impact of any that has on on the simulators deployed in your own that markets does this restructuring result in in in a shrinking of that network as as made you get rid of in a simulated i might be tied to aircraft that that it's been a significant decline in demand as as airlines adjusted old flee just as wonder how that number trends as you go to this restructuring
spk_24: yeah so still wow i think what i mean it with the consolidation of them facility
spk_27: you know where we have overlap not by no means or we exiting any market or really consolidating a great larger center drive more efficiencies
spk_4: another part of that restructuring included relocation of assets
spk_28: oh between training centers and then matching them up a cropper geography the better align to where to demand is and optimizing you like patient a part of that there will be some ah
spk_24: a massive with excess capacity there will be sidelined and and ultimately
spk_22: sideline the until volume come back so week facts about in the about twenty twenty units of have that will be relocated across the network i'm in total and or around twenty
spk_29: ultimately and less than that that would be much less than that that would be reduced
spk_2: coker but the top four olympics last one for me just see be following on some of the the previous questions rather the increase in virtual training and i appreciate the notes that sucks because some of the coffee there
spk_22: but wanted to to do so that impacted needed a cat the the relative capital intensity of civil moving forward in old in the sense that it might reduce the footprint you might need or would you pick up with in all the training that has to be introduced size to to flow a number of pilots like if it is is or capital see these associated with the increase of virtual
spk_30: trading or or or desert that are that does that not impact or that that line item
spk_0: what i think it would impact the pressure a big that the air they're just benefits but offers benefit from customers as well right if they have to spend less time at twenty sitters a very big it'll cost him his for them
spk_31: because they don't travel as much be out of a line of a long shoulders benefits on both sides that get cat says that there will be some capital savings as well as i wouldn't call it a first order effect but it definitely will affect thing
spk_32: i think that's it for me thank you for taking my questions and busted look for the remainder beer
spk_2: have you i'm personally turn next question on the line and from come and sherwood national bank financial right ahead thanks a good afternoon know your question on the i get the defense segment you've got to new leadership are coming in there are more can one if you can maybe talk a bit about what your his priorities are going to be or i guess maybe what is marching orders are for the defense segment of there's anything different that you want to do there and
spk_1: key priorities well i think that we prefer not very happy to have down on board as at midfield very strong credentials and track record
spk_29: in the defense industry and the job that is done
spk_3: the as well as it in the us military intelligence committee so i think god is picking up the battle from hyde you would is that a great job over the last few months at civilizing our defenses as and stay and and the lane laying up after a rope wrongful for me it's all about executed growth look at you've heard me when you talk a lot about
spk_2: but that and yeah i think look this i think this year twenty one one it's a transition year for defense a lot going on yet a we're as we will will go back and everything we said that i get just one i just give you one data point right now because of the impact of resurgent call they did not states that are activity at our at our training center good night florida or she would thirty days where we train primarily we have our customers
spk_1: is it was his his work is harder hit now that it was back in the in march and april so give you an idea so but to me at the party school
spk_3: there's group are can lead to it
spk_31: very very sizable market with talk about that many times and every season find that he and his makeup is a goal oriented individual as solid tracker used to working by the way in the in the kind of construct a that we are is you know as in that have a special security agreements and selling it for it to for example us market so i think we're going to were i think that for me is
spk_33: talbot growth go beyond this year because this year's about stabilizing what web and the of him in jail because it's a tough year but
spk_3: weekend growing
spk_2: okay know that that that's great and image second question for me just on the you're you're you're shooting over to civil you mentioned that you're in some perhaps advanced discussions with some airlines about potential i would outsourcing opportunities it it was it something you think you can execute on the you this fiscal year and and you know what your willingness to deploy capital
spk_31: into any of those opportunities
spk_34: i yeah i think we definitely and the go
spk_0: figure summer was up to the this year look at i don't the whole the pet the of and that customers spend ten on signing the contract but korea i think there's the we have they a very compelling solution to bring to bear especially in these times so i do think we'll see we'll see the after the word advance cousin what a number
spk_35: her of customers are like talked about and yeah what will deploy capital as as as we've done that we demonstrated look past two years will we get boy catholic and are trained our work is very creative and and relatively fast so we're quite happy about that bill course it's are corbyn we know it well so yeah absolutely will seize upon those up to that the weakest patricia great that at all for me thanks very much
spk_2: as you
spk_3: and you get her next question on the line there's some corner cooked i was quarterback red head with a question
spk_35: thanks and good afternoon
spk_36: so to beat the bat a dad cause here are just on the utilization if i go back to your comments back in may at the you are suggesting that twenty percent and ten april at the low point and then twenty five to thirty percent in may so if i do the math or perhaps you might have been in the mid forty percent range in june to get
spk_4: the thirty two percent for the full quarter supposed is that map correct and have you seen that and with forty percent sustain and the first forty days of this current quarter
spk_28: well we as if we averaged about thirty three percent of looser in a quarter and were in the forties said look if pretty much in line with with the growth of the the fleet i mean the correlation between the globe blood you think the fleet of aircraft flying around in the world today and look at the increase i think you're fine
spk_36: a very high degree of correlation between that the fleet activity and yeah and the level he realizes training center which you might expect because of course to regulated market so i'm never come as about that what i would santa clara
spk_35: okay thanks my for that and then the just trying to reconcile the numbers us if i look at the training center utilization as well as similar to deliveries and que one they were both down more than fifty percent was his last year but the revenue was down only forty forty eight percent so just trying to understand the makes it seems like it's coming from because he vision as you said the
spk_4: lotion was better and wish we'd probably do not seen the you'd nation numbers is a anything to the mix and revenue that should have driven revenue better than you ladies and then that deliveries not really i think there's so many different elements of the civil portfolio i think care if you forty eight percent down on revenue and and the about half on on more than half on on the the live nation to pretty much a line and we kind of feet a similar level of reduction across the board on the perfectly oh i am how and the skates on the and on the backlog side so obviously the auto activity was serve recently okay i guess compared to where the revenue boss but the there was some adjustments in the backlog that kind of lead to a i think a decent decline in the back luck and you can help us understand the nature of those backlog adjustments income so beat amount or on nature offer me because nations that are just months
spk_35: no no cancellations are on any friends so no cancellations included in that and that adjustment number it is it is larger than usual and and one
spk_4: i don't let there is a meaningful negative effect elements are more now hundred million dollars the million dollar created quite a bit censor the march and and we always revalue the bad the backlog to the current effect so so quite a large impact on fx and the remaining really reflect the impact of the training requirements and demand that we see from customers
spk_37: who'd gone through they're planning and their process of realigning operations on their feet
spk_0: and and working with that though that captures the summer that revised training demand in the near future
spk_38: great and last one core me on the working capital side so be the electorate he seems to have gone up she guanciale are you building and the white tailed in anticipation of any last minute orders all that inventory balances entirely for the contractual them in here in the second half
spk_39: yes or no there are no investments and white dogs were actually being quite a rigorous and frugal on on inventory management that's part of our cash preservation and not as working cap
spk_40: management matter what you see there is really reflection of the fact that we only delivered to simulators and the quarter and so you're you're building up your working a profit in anticipation of of delivery for the rest of the year
spk_2: but that doesn't want to thank you
spk_1: you very much more get our next question on the line from dark out with tfl right have a question
spk_2: a marked as they can the question when the on the topic of virtual training do you think longer term that you get a fair google and approvals around not having to come into your center do think that lowers the bar for competition and bring them out down thinking longer term and get it ability on you to increase pricing power
spk_14: in this vein
spk_0: no i don't see it i i i really don't
spk_41: i think it i'd i'd i think it makes you stronger to be very frank with you and lead people to have to the training center to do it for pixilated training and to the extent that it'll with the out with the tool time we can provide to be able to do it virtually that makes his and and using all of our our
spk_42: relations sweet that we can make in birch seamless for them
spk_2: i think you basically the stronger better as so i would be i would have the reverse the conclusion thanks
spk_3: thank you very much
spk_1: forget her next question on the line from the line have been or party with there's a bank capital markets a redhead yeah good afternoon everyone looking at simulator delivery i understand that year the to one was pretty normal with only two but when we look at the last two years you deliver sixty eight and he says delivery so how should we be thinking and siskel twenty one and fiscal twenty two
spk_43: given the other the current market conditions
spk_2: i will go into fiscal twenty two i think i would tell you that are something as will deliver about thirty five to forty this year very much geared towards the back half because the you know you will prefer obvious reasons we're delivering all of the world and some places where and we're delivering to
spk_42: large know still have restrictions on you know how we can get there so so i like that thirty five forty for this year
spk_2: that can really much in the back half and i am not getting into the next year what they'd that have to go for okay and market i bet were really made i'll that that that we did say in our in our earlier remarks that you know we have a large backlog beard is funded by customers that we expect to substantially deliver over the next couple years
spk_42: it is just that is a large backlog and while we can't at this point precise what those delivery numbers would look like into the next fiscal year i think you could infer that you know there is a large backlog there and as things these up we will substantially deliver it so if you're sensing of whether there's a
spk_11: sort of a cliff impending
spk_3: i would i wouldn't i wouldn't think that
spk_2: no that's what are the fact that we have there's a large backlog that provide say you know a level of support for a business quite a while okay and it was in civil what are you seeing in terms of divan for training services and second up in the context of the training bubble that you talked about in into on
spk_4: well i think we're glad we we we made certain assumptions i would tell you that very very fluid we airlines are in large cases are predicting their training the man month by month literally so we think cause for a customers we have made certain assumptions are we got the but predictions for cash for this year i don't think we made outlandish assumptions with the guard with that bubble will be logically size herself to be able to see the opportunity he like good i did situation is very fluid as a fatal it's hard to predict you know how and when that will happen okay and if we go on defense the acted bid the proposal increase substantially from three point six billion in queue for to about five billion so could you talk about the reasons behind the be increased and also from a margin that point the what we we we she'd seen fiscal twenty one i give you in the depicts between those services and the equipment
spk_28: well i think that the what what of tell you i think the size the backlog our side you must a business proposal going up we been we haven't stopped on that front were still writing proposals than that that he could his business now what you what you see is a couple things right that a first call of beating on larger contracts with
spk_42: the believe be able to do that at the same time you know the award have made a fast so you that that you know it did the ones that we would have liked that already have the order hand is still in the business proposal hope so that that's more than the negative part look in terms of margin i think want to stay have made like
spk_44: ah yeah son funny comment on that but no be guided or on that one are you on it yet to as mike mentioned a think we will continue to see ah
spk_4: the short term that while fashion throughout the year on on execution of contract and advancement the as as the you know travel restrictions and in lockdown continue to sell were can ever for seeing this
spk_45: as a the changes in year
spk_4: you know growth beyond but a bit of a transition year and and the you know if the margin will be impacted by the level the level of advancement on these programs because of you know they're mostly product programs for their highly
spk_46: contributors to to the ethel margin disproportionately cell and also an order and a spade feel so we've seen delays due for you on on on order and take special on the product side
spk_36: and and so that that's contributing as well so as if that continues to the impact that i think at it will continue to see a bit of of
spk_42: impacts our on defense throughout the year
spk_4: okay and what would be the mix between the equipment and services the in que one love specifically for defense and are you expecting a big shift toward the acute you in the second a sunny not necessarily in the sec on the second half we we do see some shit
spk_47: it's an interpreter
spk_4: support kind of like a stronger second half and this quarter it was in the thirties which with which it much lower than usual
spk_48: okay that's right okay and last question for me i would respect to government subsidies what should we expect in terms of
spk_41: subsidies and a cheat you and maybe the sick enough
spk_49: isaac hard to say because that some of these program
spk_0: the criteria keep
spk_26: or gets gets updated you know where were operating in three different countries and and are these these measures to him and these measures are
spk_50: we are really
spk_2: shifting in every country are the most important one it's here in canada of course the up for the most part certain locations like europe up etc
spk_51: these these subsidies are are strict voters that to employ that have been furloughed are impacted at a salon on a canadian side he really will depend on the on a eligibility criteria that we were eligible and this crit a in the quarter and so we continue to monitor on whether we will continue to be our
spk_2: trouble
spk_3: in in in the kind of the coming months
spk_2: okay perfect thank you very much for the phone
spk_3: welcome welcome
spk_2: i can emerge from oregon answer might reminder to ask any questions or comments a dusty to one for on your telephone keypad get on a crush on the line from tim jeans with to the securities current head thanks good afternoon i'm a big question you from mark the the press release stated see is a coin did you universe technologies to forgive differentiate
spk_3: solutions and and address a wider range of customer need i'm swimming you could please expand on what that wider range of needs could could include
spk_1: i guess i won't get in it too much right now i am but the you tube you might think about look at the end is again that a day
spk_3: at the he's a technological power
spk_2: and we've demonstrated talked about that him i know that we demonstrated spades how we can bring that he had covered the bear in an extremely short amount of time into developments certification each a similar you know this would not turn a ventilator and i keep coming back to that because is the quintessential example of what can be done this is not
spk_3: it's simple device the life single a certified the highest levels of health canada not a watered down the pandemic require a real requirement for use on was critically ill patients in and i see you said a you're using pure actually so the fact that were able to do that
spk_2: if you're not a bill to prince the new design and completely build it and now producing ten thousand units for the governor to canada his testimony to the technological capabilities of this company and the culture of which we doing so you think about how that can be translated if you're in by the way we demonstrated that in the ventilator but if you think about what we what we are we've always been a technology company will we get were trip where our focus has been on the world of training in a in our a core markets and that we will continue to excel at that but he is to think about a ventilator a ventilator is not a train device now it is a the we combine it with a whole twenty sweet in fact we could
spk_3: basically ill or the expertise that we have to be of the subject matter is pretty that we need to be the develop came from the fact that will try the experts so
spk_2: there's a lot more we could do with that technological capability in canada for example just as a for instance if he and i think canada walked into this it to this crisis with no indigenous capability to be able to do ventilators in canada that's why i yell at private out three canadian companies be able to use to do so
spk_9: now i don't think canada ever want to get flatfooted again
spk_2: in that kind of situation so a talk about self sufficiency just the fact that you know canada canada by buys makes us on the ammunition for for for full or weapons that's because it can source that anywhere else or well was because if after that was his shirt a mercy wartime that like situation they don't want to have to re
spk_3: lie on somebody else for bullets well now that that kind of think he has been turned to medical equipment obviously we hear a lot about it personal protective equipment that i think so
spk_2: if we have this competitive with and we do believe it's competitive by away right out of the box
spk_52: rate of a on you might think that and we're it seriously looking at that can we can you provide provided that type of the corvette not only candidate that that's just one example like i think of a whole sources of example are brought in hiding hide heidi would as good as i head of
spk_36: my level executive vp a business developed a new girl opportunities and i think what's important here as i brought her in before this pandemic ever or was a yellow that as seen the light of day because we've we've we have been thinking for a while that there's a lot of errors that we can leverage
spk_50: or technological capably but now push push push push kobe that in the civil aviation market that know what all of the you know we're not going there it'll be pollyanna think that's gonna come back in time soon but we think a lot of things that we can do to better at be able to go go
spk_36: role within the will obviously we do things like kept a war outsourcing up to grow the france growth civil but paper take the technological capabilities that we have recording very large capabilities in digital and leverage that into other areas not necessarily new markets markets where it
spk_50: in but deepening our share of wallet where customers and that's right in line what would we do because we always feel a great embedded in our vision of the company is partner of choice and that's what we do we get into you know what our customers we don't we like yeah we'll try to sell you a similar you're try to sell you twenty or will supply you as a more poorly
spk_2: we get in a with the into into a relationship a we stay connected because of our focus on the lighting a customer a providing you don't technological based solutions that enabled them to answer some rose critical needs that they have so that's for we're talking about all at all
spk_1: watch what i think apple watch arsenal was a few corners and watch stuff will do but started going to put the best that we're going to put the best that down i think we should do that and i think that we're very good at agile and if you've heard of pair of the term i like is that in that of well use in silicon valley and and place like that it is about fail fast try things use agile methodology and fail fast pass them on your customers yes some customer feedback as you see if they were he to get traction that's the kind of things we do long answer now lot of specifics with has what i give right now okay thanks mark my next question and wouldn't you could talk about that portion of civil equipment revenue that isn't just a big ticket for flight simulators approximately how the how significant is that portion of civil equipment revenue relative to the flight simulator sales and and isn't more or less stable
spk_53: hundred no current conditions or or conditions of weakness
spk_50: because it's easier to meet milestones deliver the product it's not impeded by travel restrictions etc
spk_29: i pick what we would call the aftermarket pdf catch services that are think we've ever find the breakdown that yeah
spk_54: tip we we don't actually break that out that i would say that it's you know it's a fairly significant part of the business we do
spk_3: you know in in civil if mainly driven by regulation
spk_50: so that it to say and know whenever you know aircraft is updated usually every couple years aircraft systems stimulators need to be updated and then there are regular maintenance items as well and simulator will run day in and day out for twenty five years or more so he could imagine that you're there are things that have to be updated just over you were and others that he to be updated by virtue of regulation so typically on a simulator that will sell will generate a a million and a half to two million dollars pdf revenue or updates and upgrade over it's lifespan on it in the install base and is it fair to say that that
spk_2: the aftermarket revenue sources is more stable during times like this than just the and rate sale and to agree on a flight simulators i assume it going know i think i think it affected as well
spk_55: it has everything at the airlines that has been affected by this place and that has been affected as well and travel with strict yeah you have restrictions you know within lot of cases to be able for us to deploy the solutions we have to travel and we it with the restrictions that we had we that we have been able to travel as well so i would make your services that that it
spk_1: the a baby a little bit more stable but i wouldn't say materially
spk_2: okay thank you have my last question just want to turn on the seven three seven maximum over the next couple years it's going to be
spk_29: sort of moving a little differently i think relative to lot of the commercial aircraft platforms given the challenges that it had in the past in sense for the timing of
spk_2: kind of them deliveries at this point in in training demand outlook for that platform and when you expected that could you know begin to positively impact financial results isn't as simple as kind of thinking about when
spk_50: the grounding is lifted and and deliveries of the aircraft resume that coincidentally serve your revenue will will ramp up
spk_1: but it most certainly and even before because the your the other three at kept trainer the aclu the head of time so i yeah i think we we were very very close to pulling the physically and in it's just began to with the certification efforts you to the the support of activity for as you really should training and and you could you would they
spk_0: just be doing that because we have the though the lion's share of all the civil years the dead that have sold on sept thirty seven max so we're we're very close to that story that we think that mornings married making a great headway with the certification stories i think we thought we'd lady fh with their newest proposed rulemaking what would a with a comment date that very soon so that that comey the ceo that you know things are cold and they have to get a certified or that certification the or cup this hurt by for for operations i think that should follow pretty quick i would think you'll have that boy for that but i think suffice to say that his son is that is restricted a is is
spk_56: lifted then the airlines will i'm sure we'll be taken the airplanes of that's an airline the airline the situation
spk_29: but we'll we'll use a fire
spk_56: michael area like ryanair saying is doubling in the take all his aircraft us but he said and they're a good customer so i would i'm sure that they're maintain your training on this sub thirty seven matches
spk_3: so i think will be a lot of depth with delivery of the are they a return to service of the bears fleet america
spk_2: great thank you very much
spk_56: operator i see we've gone over of the a lot of time of here so i think will conclude with you in a session for analysts and investors now and will open up the line to members of the media
spk_3: sermons once again as reminder for the our media on the phone to like to ask a question for for your pressing the one provider for on your top phone keypad and your entry tone project not requests what's going for the media is your one for for and courses or comments one more employees for our first question
spk_2: our get our first crush on the line from the media from our some or with orders go right ahead thanks are you seeing any increase in pilot training on widebody models like their boeing seven fifty seven due to the industry's demand for cargo fight oh well we did you see cargo going up for sure at the cargo carrier in are having a really high level of activity it as because of how much everything is online shopping with her you the big thing a as at school i think that that yeah we we are see more opportunities that in there in for a cargo carriers can you verify it all the train on the wide when you're hungry a the i can't really know and we look i will tell you we don't have a huge amount of white bodies in our training centers that more and we have some but it's more a narrow body please and what you see no with the more
spk_1: more airlines actually using even narrow body to carry have increased levels of cargo get the lion's share of even though they're dedicated cargo carriers a large line shared a cargo carrier in the belly of america so it may be less passengers but there's more cargo a lot of cases so i can't really would be which this said vic than that the are of and for last follow how much demand for pilot training in the united states or opportunity given the the retirements you just feed and potential for others in october
spk_57: i think of this the the the level of activity for trainee right now in north america as for is pretty good pretty high
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