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spk_0: the ladies and gentlemen welcome to do you see a first quarter conference call please be advised that this call is being recorded our know like to turn a meeting over to mr andrew aren't of it
spk_1: you may proceed most journalists
spk_2: thank you
spk_3: 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 outlook answers the questions contain forward looking statements forward looking statements represent our expectations as of today august ten twenty twenty two and accordingly are subject to change such statements are based on assumptions that not materialize not subject to risks and uncertainties actual results may differ materially lifters or coffee marketplace hundred reliable on his forward to the the description of the risk factors of assumptions that may affect future results is contained and cheese annual and dna billable on our corporate website and on our filings with the canadian years of those traitors emptied are and the us securities exchange commission on a guy on the called me this afternoon or marked are all these president and chief executive officer and so on your break our chief financial officer after the remarks from martin sonia will take questions from financial analyst institutional investors and following the conclusion of that que they period will open the call question remembers of the media that the answering the call over tomorrow
spk_4: i thank you andrew and good afternoon everyone joining a phone call
spk_0: we had a mix performance in the first quarter which civil delivering result in line with our view for strong annual growth and increase market share momentum the best results were disappointing however yeah coming in yeah very well short of our expectations of the shortfall was mainly due to an unanticipated discreet charges on toolbar legacy programs and had increased intensity of the defense sector wide headwinds that we're facing at this early stage of are more a year growth you earning that we'd already factored into our prior outlook that the second half of the fiscal year would be stronger than the first mainly because we're still working our way through the like effects were protracted period of less at one book one time book sell and it takes time for you programs awards to wrap up we also expected somebody
spk_4: the additional headwinds of the first half but they were significantly more acute that we thought they'd be
spk_0: that order activities the best indicator of our future growth and despite a challenging global environment for you see overall we secured over a billion dollars in orders or record to ten billion dollars backlog and one point one two book sales ratio
spk_5: in civil
spk_0: we may excellent progress converting are large opportunities pipeline into five hundred and twenty two million dollars of orders for a one point or nine times book the sales ratio now the goes long term training agreements what airlines a desert aircraft operators and eleven for flight simulator self notable training contracts for the quarter involved several exclusive trade agreements city the america's which adds a long list of exclusive training room it's a civil a fine and last year and a half with a vast majority major airlines and region this quarter the include a three year extension to a long term exclusive trade agreement with messer airline a five year exclusive training ridley united airlines a five year excuse for twenty agreement with jet blue and a ten year exclusive training agreement with another major north american airlines
spk_6: in the uk
spk_7: the civil expanded it's existing twelve year exclusive commercial aviation trade agreement with virgin atlantic to include the boy seventy seven platform now covering older it the aircraft platforms under the training exclusivity
spk_0: in business aviation civil concluded a pair of three year twenty agreements with tag aviation holding and the nato support and procurement agency civil year over year financial and operational performance was also strong and a quarter with double digit growth in training revenue in a just a segment operating income
spk_4: we delivered ten for flight simulators and in first quarter averaged twenty center utilization with seventy one percent i'm up from fifty six percent last year training demanded a america's continue to be stronger followed by a much improved your and still lagging asia pacific which were made at much lower level due to travel restrictions a business aviation training to ban continued to be robust reflecting a sustained high level of business aircraft flight activity how currently defense we booked orders for training and mission sports solutions valued at four hundred and eighty eight million dollars for a one point one eight times book the sell and although we were expecting some key orders that push rightward this quarter this represents a record level order and take for defense in a first quarter that we normally see some variability and quarterly defense results and so performances best evaluated an annual basis and to that point guard drilling twelve macbook the cells racial one point three one time is to be a very good indication of the trend in order moment
spk_0: we we continue to build on that momentum in in the quarter winning orders across all five that have a debate and in here domain we entered a contract with the netherlands ministry of defence to provide a train system in support of the nhk training program
spk_4: a lamb the us army synthetic training environment crush on shopping or did he attacked order to develop a soldier virtual trainer prototype with immersive capabilities that empower soldier like training at the point of deed meeting that is deployable
spk_0: in a see the been a partnership with lockheed martin
spk_4: we were awarded the device or contract on a royal canadian navy is a next generation for you his face we ordered a contract for the us air force research lab as part of the starfish initiative
spk_7: to develop prototype software that enables simulation of current and future kid to believe operating across a mole tiger mean environment
spk_0: and finally the cyber to me as part of a larger clean we secured a position on the approximately one billion dollars a c t three id i q contract vehicle while defenses order activity will generally positive and a quarter financial performance was clearly not the law incurred of twenty one point two million dollars was driven mainly by unanticipated charges on a legacy see any
spk_7: pope with the us navy and a legacy l three harris military trained classified us program
spk_4: the disc this these two discreet charges totaled twenty eight point nine million dollars in a quarter a result from a reassessment of cost estimate following discussions with our customers this path and do a reassessment are due in part from delays in and meeting customer requirements of scope and timing as well as a change in expectation for the expansion program requirement in a case of the us navy contract customer utilization trans have exceeded our instruments resulting in grow on of pics from price fixing a perfect price contract and our expectations for contract adjustments that extension at more favorable terms of change the program question is a chief of naval air training or she natural contract with contract contracted structural services or see provide classroom and simulator instructor at five naval air station to support primary intermediate and advanced pilot training for united states navy the second charge them from the classified us program that also structure gonna from fixed price basis involve the initial phases of a large long term opportunity
spk_0: the program is a complex national defense priority and our current work positions as well to capture significant future opportunities of a problem
spk_7: now given the nature of the work
spk_0: which is performed in close quarters cold with nike related staff shortages of cleared professional of have been highly disruptive to reprogram schedule
spk_4: in addition logistics and shipping costs which are significant put this contract increased or estimated cost to complete and after rebate fine review that programs critical schedule elements and deliver with the customer in june cost to complete were revised upwards and due to a critical nature of this program and a strategic long term value it holds for see we're working towards meeting our commitment to the for position defense for future work
spk_0: i'd add that while we're hopeful that the customer will work with us in the future for equitable adjustment that could help to offset some of the chargers taken this quarter at the moment we haven't included any of those in our expectations and also add that we have a clear understanding of the specific issues that resulted in your charges taken on both program
spk_4: and after thorough analysis we consider these provisions capture adequately expected cost overruns and i'm confident that there's no more negative surprises like this one here our backline
spk_7: and beyond the to program charges defense performance will kill bill or expectations for the quarter
spk_4: across the company we've been managing through labor supply chain challenges that a big consistent what will we observe in a broader economy however in defense these challenges or work you effect your wife staffing shortages lead to less visible work on cars bluff contract and inefficiencies another work supply chain challenges were also was severe than anticipated which pressured schedule
spk_0: well so experience delays on a few he orders were expecting comments work on in a quarter
spk_4: excluding the charges and impact of these additional challenges defense performers would have been more consistent with our expectations with a for year plan which also considers a more our elevated level of business proposal costs as we pursue several large awards during our pipeline
spk_8: finally in healthcare
spk_4: we continue to drive double digit revenue growth with are innovative solutions healthcare leadership team transition from hollywood during a quarter we're grateful for up for contribution wish a well the future endeavors
spk_0: health care is now being led on an interim basis by jeff evans who was formerly had a sales that has been instrumental in driving a business extended period of double digit growth
spk_4: now notable during a quarter health care of expanded it's strategic relationship with the mayo clinic college of medicine is fun
spk_0: finalizing a partnership for learning space center man the solution for males simulation sarah rochester rochester minnesota
spk_4: health care also increases presents invisible any us to effort supported by care that funding and mon help hospital system to address was rigid has increased demand for nurses with the one that of mobile training units with that on a curtain call over sonia provide additional details lot of and to perform our ten had the honor to call
spk_9: to comment on our old son it and can mark and good afternoon everyone consolidated revenue of nine hundred and thirty three point three million dollars or twenty four percent higher compared to the first quarter last year i guess the techland operating income with take point nine million dollars compared to nine point four million dollars last year and quarterly adjusted net income was seventeen point six million dollars or six cents per share compared to ninth and tenth and the first quarter last year that quarters result include twenty eight point nine million dollars an unfavorable contract profit adjustment and the pen which a creep to was seven percent negative effect impact we encourage restructuring integration and acquisition cost of twenty one point five million dollars during the quarter including sixteen million dollars related to the l three harris military training and air center acquisition free cash flow of negative one hundred and eighty two point four million dollars compared to negative one hundred forty seven point six million dollars in the first quarter last year the decree it was mainly due to lower caste provided by operating activity the decrease with partially offset by a lower investment in non cash working capital we usually see a high level of investment in non cash working capital accounts during the first half of the fiscal year and tend to pay a portion of these investments river in the second half growth and maintenance capital expenditures totaled seventy three point nine million dollars that quarter mainly for growth and specifically to add capacity to our global training network to deliver on the long term exclusive training contract in our backlog income tax the recovery the quarter with five hundred zero point five million dollar for a negative effective tax rate of sixteen percent compared to a positive effective tax rate of eighteen percent for the first quarter last year the income tax rate was impacted by restructuring integration and acquisition cost a quarter and excluding the cause the income tax rate that quarter with twenty one percent which is the rate we used to determine he adjusted net income of seventeen point six million dollars and adjust the dps of think that arnett that position at the end of a quarter with approximately three billion dollar her net debt to just that he but up a four point one time at the end the quarter the more elevated debt debt ratio this quarter reflect the impact of the to noncash charges in the fan we can pick it back at that you're just that he that the of bill heinz within the next fifteen month now turning to our segmented performance and civil first quarter revenue with four hundred and eighty point four million dollars versus four hundred thirty three point nine million dollars in the first quarter last year and i just a second operating income with up in point nine billion dollars of the first quarter last year to eighty six point six million dollar for a margin of eighteen percent are civil performance reflect the mix of higher training revenue and quarter of that by lower revenue from simulator delivery life cycle support services and a less favorable for programming we also conquered higher and he has the support our innovation pipeline in the fan the first quarter revenue of four hundred and thirteen point three million dollars with a forty three percent over you are my year due to the integration of the l three harrop military training into our financial adapted segment operating lot with twenty one point two million dollars for the quarter compared to the just a segment operating income of twenty three point seven million dollars in the first quarter lot year the last quarter was driven mainly by the aforementioned current contract profit adjustment and the march you challenges than we expected deming for theft and shortages supply chain pressured and lower order award use additional challenges had approximately twenty million dollar impact on adjusted segment operating income the alpha had higher a dna costs forbid than proposal that were approximately six million dollars greater than what we hadn't one last year the higher bid costs were affected as their link to our pursuit of larger opportunity pipeline but they were more impactful given the other defense headwind and in health care the first quarter revenue with thirty nine point six million dollars up from thirty one point six million dollars last year at just the segment operating lot with four point five million in the quarter compared to an income of five million into one of last year
spk_10: last year's results included a higher level of investment tax credit while this year we had a higher level of her a see any advantage to support grow with that i laughed mark the castaway phone
spk_4: they sonia
spk_0: had we look at a period ahead despite the pre the prevailing macro economic headwinds that added defense sector related challenges
spk_5: we continue to see a clear mocha your path to becoming a larger more resilient and more profitable see
spk_11: his civil
spk_0: or i'll look that right as ever we're the early stages or a bluff cycle with the a record barges with plenty of room to grow beyond that
spk_4: we've invested wolf organically and in organically to expand or treating that were globally leverage in our position as the world's largest civil aviation training company a greater desire by airlines to trust you with your critical training is digital operational ordered crew better it need a cute pile of the man and strong business jet traveled a man or injury positive underpinning a secular growth market
spk_0: now the unevenness this uneasiness of the global recovery likely to continue for some time but were ultimately an excellent position to benefit from the more per year cyclical market recovery and of currently underway
spk_4: we continue to expect wrong wrote the civil the fiscal year driven by high demand for pilot training as evidenced by robust full flight simulator sales and a of long term twenty agreements with security issue orders would virtually all major airlines in the americas
spk_12: we're poised to continue growing market share from expanded pipeline of civil training opportunities and i believe these successes provide a compelling blueprint of for what a broader global market recovery
spk_7: percy
spk_0: a defense and despite the additional challenges that we encountered a quarter the positive long term outlook that we share that are destroyed a julia's is unchanged
spk_4: we're on a malta your journey to become a bigger and more profitable and the first and more critically in that chain about winning orders
spk_0: our record order it take last year it for the first core confirm that were indeed on the right path to girls and critically the or is that we won over the last year and a half bear a profitability profile that's consistent with our long term view to returning to a low double digit part to the margin in defense for
spk_4: furthermore our record nine billion dollars of defense business proposal is result of bidding war and bidding larger and important element of or strategy involved strengthening our strategic relations would only am and the movement memorandum of understanding we signed last month with boeing is a great example of how the major yeah i was recognize she's unique expertise in training
spk_0: we agreed to expand our international p me as the player network to provide solutions of support both customer and regional development
spk_4: the external environment for defense remains largely favorable with some year term headwinds have become your work you that but we believe temporary current geopolitical events have galvanized national defense parties in a united states and across nato a week expect increase spending a specific part i
spk_0: nation on defense readiness to translate into additional avenues for see to support our defense customers the years ahead
spk_4: although somewhat counter intuitive the immediate priority on operational leaves is actually contributing to training program award delays in a short term and taking all these factors into consideration or lowering our expectations for defense flicker fiscal year to account for it to us programs her charges are we just kurd and to reflect the more to sector whitehead with that word out experiencing namely supply chain pressures labor shortages and floor defense contracting and
spk_7: wait previously indicated our expectation for back half way to performers in the best this is the year and and as we met through the effect of a protracted period of less than one time to fill and begin to ramp up new orders and the second half
spk_0: the additional defend headwind have made his waiting even more pronounced and with that them to largely continued to the next quarter and then gradually a big during the course of the fiscal year
spk_4: as a year progressive with back to be able to partially offset the the back through your internal contradictions and efficiency issues that are currently underway lf in healthcare the long term potential confused for become a more material and profitable business with see as against sharon healthcare simulation train market and continues to build on it double digit revenue growth mental
spk_0: percy overall we're reducing our i'll look for the current fiscal year to mid twenty percent consolidated adjustment segment operating income go from the mid thirties previously which largely get that reflects our revived expectation for defense
spk_4: we greatly enhanced our position and and expanded our address the market over the last couple years and i have complete confidence in our team's ability to maintain a strong order momentum and drive superior a sustainable growth and it profits over the long term broadly speaking the
spk_0: underlying trend lines of a martyr your progress are very much impact and like addition is she's like her will look is resolute
spk_13: as such we continue to target a three year earnings per share a compound growth rate in the mid twenty percent rate with that the think your attention and word out ready to as request
spk_0: thanks mark operator will now open the line recently that question thank you
spk_14: if you would like to registry question please post a wonderful war on your telephone you will hear a three thousand prompt or acknowledge your request a few question has been answered and you like to withdraw your registration please press to one fall by the three once again to registry question please post a one for on your telephone one moment please for the first question our first question comes from kevin tank with see i can see please proceed i think so thanks for taking my question and and good afternoon everybody people could begin to talk to some of the the teachers who gave in terms of what happened to defend the market sounds like you're confident that it you know the provisions you've taken only willing to these two contract but
spk_4: i guess nor historically we look at these type of issues in a lot of hundred and two people lot more systemic than non
spk_0: than just wanted to contract and they didn't give us a sense of the what why are confident that that the issues that you thought were isolated to the to contract with maybe what made me contracts unique
spk_4: in and was almost the standard get your backlog a baby and changes in your bidding process that might have occurred as a result of of maybe to serve this reevaluation yeah maybe i had taken it to part said kevin look i'll be the first one to tell you that the performance in and a quarter or certainly doesn't meet our expectations are my expectations for to test is as a whole and a lot of start with maybe the specific charges that we took them again i'm not happy with them and these were kelly's or surprises to as recurring june as a discreet customer lead events that cause that yeah cause us to recognize these but we read baseline both programs following the customary disgusted we are in june and ethically taking appropriate approach yeah go forward and in having to recognize the cars we took it
spk_7: they give you a little bit more color on them just that tell you that nearly you like feel pretty darn confident that it'll get isolate these programs because you would have you would imagine had just taken the step back a second when when you you get impacts such as we've seen here it forces a complete row
spk_4: if you have done everything in your portfolio you would have expected me to do that soldiers the get go back on the program three on the first one of the navy training contract for natural this is where you're a customer demand has really outpaced our expectations i mean we train utilize i said in remarks we we trained at five naval air station that one of the corporate christie corpus christi at the navy has been treated very rare higher high rate higher don't be very friendly hired and we'd be that and eluded a few years ago celebrity legacy contract now we have put we had put cost reduction measures in place to improve the profitability on that program but what happened now is your shrieking time to realize the benefit of because the contract it'll come to an end at the end of this fiscal year that yeah yeah well you know how could that be will what hat what happened years that we and we're very good reason to believe this we anticipated that the customers would have extended this protect contract at updated terms as as i said there's less nine months left new pair to perform it but yeah it is somewhat you don't care which was very surprisingly we have yet to get an r p week which frankly it as the hell is pretty counterintuitive given the very high costs for usage to date i'm flying really that a really really tried very hard now given a short period of performing we just have no roughly left to to take any a quote a kid to take account of any equitable adjustments any measures that we take it we do cottages done time so we have to take the charges now we haven't factored that you know these you know any extension of contract which hopefully tend to happen so that's one to stay tuned down but we have taken a benefit of it citing would take taken a conservative approach your now on the other contract on the class like contract that adventure this is really initial work on of i would tell your area of opportunity for us were of that really got impact on called with nike most recently
spk_0: yeah i get i don't like the costco for that program but i can tell you that i it because of you know what happier i was on fight on that program just yelled less than two weeks ago and i yell i i like to be able to look in the likes for the eyes of and of program managers of engineers of people workout program and i feel very confident about the rebates fine program and and i can promise you that this team is extremely dealers delegate and and will be even more so
spk_15: so it evaluations of the schedule and not only this program in all of our programs and he had i not just a valley out if i go back to this problem itself much to validate our cost of it estimates which we done but can make sure that we're positioning ourselves
spk_16: to capture the long term opportunity that this problem sets up on this program because it as i lay in intimated my rugby remarks
spk_7: the fall want to work on his contract is very large i've i'm talking an order of magnitude here with the potential were very attractive margins when it reached reaches of nature state
spk_4: a production so look i mean we yeah i'm not happy performance but look none of this to me changes are long term outlook for the defense business that we outline for example it invested study
spk_0: our orders that you seen have been outstanding
spk_4: we're tracking some very large opportunities in and but respected a short term quarterbacks that we have put a damper a very specific actions in place
spk_14: the are already to address the challenges on each of us each category would be mad power would be parts help eighty other factors affecting us i can tell you personally my thirty five years in aerospace industry having managed very large programme and that you're full aircraft to the aircraft developer programs i've seen is kind of thing before
spk_17: big work in introduces is very very specific challenges but i can tell you i'm all over the teams all over and a you're going to see as making progress in the marginal rates he the upcoming efforts as those efforts to take hold and ask what we reflected in our own
spk_14: that's not helpful color or maybe just like you just had an investor day
spk_4: call them all in the middle of a quarter little the previous quarter i guess i guess these issues were what weren't weren't at evident that are targeted to state the obvious when viewed from the a look at that point it's kind of guess at what point did you realize that you have to start taking issue
spk_0: late you late june that wouldn't happen and yes it did come as a surprise
spk_4: i don't like surprises you're like suppose we don't like supply and booker but the that's what happened and as a feather to the hill that money who has violated a marked the discreet charges they're non cash at one time in nature
spk_7: of we've rebate find every program in a portfolio we take it very specific actions on the rest of our programs
spk_4: so yeah i'm quite confident going forward but if i if i expanded look at in even and i'm sure the for one been following question might be that
spk_7: and i and i think we've invaded his remarks that even if you even if you take those two charges how this recharges the prophet of believe that the profitability of our defense business in the quarter is still very low and
spk_14: i think we expected that we expected i that we tell i didn't expect that much to be very frank with you we you would be back half
spk_0: so we hit the dirt what if it wasn't for that the the charge that we've taken here i think we largely could have probably maintained our our outlook but you know what we've had here
spk_18: your we just can't like and i like expand upon that well that awful lot only that that they keep to my question that
spk_19: or next question comes from fatty shovel with pm or please proceed
spk_18: yes thank you good afternoon i i guess i got a couple of question one
spk_20: is the
spk_18: the guidance for mid twenty percent you but grow if we're assuming civil still on track to be made thirty either growth it really implies a very strong performance than the defense and the next nine months like you would have to be going almost forty five percent growth and even in the phone from the mets nine month
spk_4: to basically be
spk_7: be a bm that mid twenty percent either performance for core of the year so i defy me too i'm i'm standing the thick of excluding the charges the underlying the the fuck with only two percent and you suggest that
spk_4: we know the headwind that kind of pressure that margin will continue at least into the second quarter well it will it'll gradually a big but which could initiate the in the second quarter neither said we see you know more of a substantial uplifting in the in the second app which is always been our or i'll look for but yellow get a don't pronounce my as they look i'm not get a break it down from sector standpoint thirty or we per
spk_0: obviously you did not do that you would expect
spk_7: i i think that when you have no issues that we had the quarter we are adopting a company wide effort on it's not it it'll we are taking actions that nominee not only affected defense business but that business or whole to maintain the per day the profitably growth profile that we've indicated now look at the feeling i'll tell you
spk_18: is that the like talked about somebody or although we don't really why with a really well in the quarter on earth and especially on defense orders i i think it was said in the path that not all orders are created equal and there's some orders with a we've really frankly totally expected to happen it you one that did not have enough someone always orders we have one them subsequently i can tell you as those turn into because
spk_21: more you know that one can talk about which converting to your revenue faster is products orders and therefore that when you take all of that into a the into into fact the a do up
spk_18: it gets federation you will get to the outlook that talked about okay
spk_22: you know maybe the follow up in your you have all with the ryan and very kind of fixed costs contract business and me in their defense i think the majority of your revenue that the picks conflict business remember you had with hopes up
spk_18: you know contract issues in the past why is there like
spk_23: what's different the top and
spk_18: gonna recently to kind of
spk_4: make me
spk_7: you know cause performance deviate so much from not function
spk_4: i get to get some explanation on the us navy contract
spk_0: the think they do anything changing and in and out
spk_4: being ordered or the risk profile that you're thinking of the contract with gonna increases the risk of margin in defense or is this is just a unique one time gonna events here no that i think i think you're right liquor personally you're absolutely right that we have seen as before it and a get all the time that hear a bit as the we have ever seen his body to the the back in one quarter know the have right and we haven't had a habit of running out of concern you see a problem like that and as i mentioned before that the her natural one which is part of the charge a very specific nature we and that because the contract being the not being renewed at the time that we thought it would we still think it would so that that's one factor just just they they give you an idea of you talked about the from fixed price about eighty percent of our contract about for a fixed price now that's a actually the yeah that the that's had much better picture than we were you know be when we were there before the all three harris transaction now and i wouldn't be overly perturbed by that number because remember there's a lot of service contract for their service contract were very rare i predict a billy and all of the others as i talked about hill again you get it event like guess it forces you i'm not saying that we weren't get
spk_0: monitoring program before but clearly eternal extra level of scrutiny that occurs when a program like this happen
spk_7: and it only where we look at the contract
spk_4: on the this the fixed price contract that we have for a year the classify program that i visited just a couple he still this is a very complex program and to be ill ill this we inherit his contract to the acquisition
spk_24: well three hours would i wish that this contract which is a development program had been bit differently as gentle as not a perfect picture the contract yes i wouldn't do like think we could have done a better job i think in hindsight of seen that the fact that we have usually
spk_0: yeah yeah literally over sixty yale very highly cleared personnel work on his contract that a that were off on it for like time in finding it very hard to replace them because they're cleared personnel could we have seen this thing better in hindsight i would tell you yes
spk_25: and i will tell you the barriers that we put in place for increased level of program manager or site at all levels of the company or there so it'll i'm i'm pretty confident get in terms of extra extra factors watched strange yeah i would tell you that what changes is that what you see am a that word on alone in this case you see across coffee industry labor shortages supply chain pressures contracting delays but and that impacted our results significantly we anticipate some of those they're worse than we thought now one of them is that is labor and and as labour doubt
spk_26: when i look at our labor hiring and last couple of months we have reversed the curve or actually that is a yeah actually come we're on the positive trend now so we have we have the labour we need to be able to see to the contract pretty assumptions that we've made sobibor stop their bay
spk_4: can appreciate it thank you our next question comes from cap cameron dirksen with national bank financial please proceed yeah thanks for much of a question on a healthcare business mean i appreciate it's still pretty small but this the negative just another a term that bitter revolving door on our leadership of that business so i'm just wondering if if you can maybe your talk about to change their why should investor think it is businesses now get be on track to ultimately getting to more consistent profitability well had a lot
spk_0: okay cavendish the i absolutely absolutely kill understand this is show be story what i would tell you it is the show me starts with six consecutive quarters of double digit revenue will now that has to translate into bottom line room
spk_7: it had it before it it's true because it is to be true that we've invested substantiate are in the
spk_0: in as the in a meeting meeting sales force to be able to go we get the result of we have how we tell you that change that we had a leadership of health care as gone very very well i'm not gonna comment although i will agree with you that we have had somewhat of a revolving door at the at a healthcare cannot believe that with you i can i can tell you that i'm very very happy with the performance of jeff heavens who's leading the
spk_4: the business at them at the moment he's acting as interim at the moment but i can tell them very satisfied with the one with so far and and the i would tell your jeffrey himself who's an eighteen year veteran of ge healthcare ever running large piano for g he is the architect of or the main architect has had a sales for the run up in revenue that you see
spk_9: i can tell you as well that we've taken see if he gets steps to improve the property broke profile by reducing costs in the in the business and and as you've heard me say before and continues to be true the profitability of the products that we have in health care are very good are very good we are suffering
spk_25: yeah and perhaps this is not surprisingly are suffering from inefficiencies because we have a high degree of pie apart shorter so what you have if if you're to go to our facility down in sarasota which i've been here quite a few times you with see basically he don't three quarters built products medical mannequins of for example a
spk_0: when we get the parts we complete then we take him out of storage will put the parks and we we catch them we we ship that you can imagine that to keep that causes a lot of inefficiencies over time it'll busy quality issues all kinds of issues that are you are not great for your profitably profile but i i'm quite confident that a lot of those are obese
spk_3: eating themselves and so i'm quite happy with that way forward and i think you'll see some progress new in the course the gum yeah i agree market agree coming out with that of unquote and of additional color on some drivers of the variability so there is some aren't a funding investment tax credit that go through health care as well with the rest with anything can be lumpy hello last year with that it was actually a tailwind this quarter of actually a headwind so in on the larger organization that doesn't have a lot of impact but on health care that much final appeal now these kind of variability
spk_4: have a larger impact on the quarter over quarter so it isn't everything that mark just just walk through there is we have to consider a little bit of a non routine variability coming from our indian batsmen tax credit okay great get pre pressure the additional information on old you get one question they him out and get our next question comes from connor cooped up with scotiabank please proceed thanks for taking the question so just want to follow up on the teach them next year so just she's trying to understand about how do these to adjusted contracts impact
spk_0: the margin mix for decent segment or the next three quarters as well as your long term outlook for double digit martin well i think the first thing i'll tell you is as as a new remarks that the although we bit of that way we'll play cough the rebate finding of the programs that we won get all the problems that we will that we've won a real time is certainly since we've had the organization and play hundred and gilson the profitably profile of that backlog supports you know our objective of load double digit barged into that that person would tell you i will tell you as well that we have a very firm have
spk_4: little on the the the inefficiencies and other new no impact that we had that effect the profitably of our business of will end up aimed at i'm talking that i pick it into programs charges to decide for one second i'm just saying the inherently low yeah percentage of the day profitably defense in this quarter just results from again the it inefficiencies that we had it all and labor on parts you know sometimes lead time some parts of doubled doubled and a cost themselves have a change and introduce the in all kinds of initiated if if if she sees that you would get on overtime
spk_7: things like that the again i would say that as you like that get a bit repeat myself that we had always anticipated that the first couple of quarters of this year in the fares would be challenging for somebody factors that we could see what what i would say is that were worse than we anticipated it took us longer to get
spk_4: back to higher clear personnel that we thought part short years the an impact is more than we thought but we have a pretty good handle on it and quite confident and that these factors as a effect of will have been in the second half so it again leading into defense contribution to the outlook that we've given
spk_27: oh the other factor i would say as well is if you look at the amount of business proposal money now our bid proposal cause this quarter are up very curious materially as we we track some very large opportunities in our bid pipeline and we talked about somebody is
spk_0: in our investor day now
spk_28: it's not very different from our internal expectations that we will bit higher but somebody programs you tell you a couple of be clean programs came at the same time in the quarter and we cannot afford not to bid up there are so large so that causes a disproportionate amount of busy proposal costs
spk_7: in in this quarter which you know is is not necessarily going to be the same as we go throughout the year and and you just against it
spk_13: hope you understand the quantum here expenses and bigger proposal
spk_4: roughly again doubled over last year and are or up you know pretty much the same thing this year but what you're seeing here is the pre work that were doing to capture the opportunities that down that did that danielson allied at our vs investor they were attacking it was harder and i think all of that answers your question as where we go on and defense that in terms of it's profitability looks great to appreciate the details and reference to mock finger
spk_29: next question comes from been was party with dish out there and from markets please proceed
spk_4: yeah thank you very much and a good afternoon everyone
spk_11: just to come back to l care given that favorable valuation for l care of thirty day them in light of beer the performance what would you consider that potentially divesting these assets and just searching for a new leader what what are the qualification that you're looking for
spk_0: in terms of the a new leader for healthcare
spk_13: well on pig the a year your second one is basically a leverage is going to the to go to drive the profit growth of our healthcare business going to get of basically make it a more get all high level contribution and a creative contribution to see his results that the minimum a minimum threshold for that
spk_7: and and as a said before i think so far as evans's demonstrate to me
spk_4: that that is the case so knowledge for war the on that front and look as i said before i am very confident in how healthcare system to see his overall purple and it's very much supports our noble vision and there's a substantial synergies across organization in terms of your facilities in terms of people against technologies whole is part of our portfolio
spk_0: have no will know is i thought about changing it
spk_7: okay than just looking at the civil if margin that came in below or expectation on the back of a higher you told we should raise and lower equipment deliveries were margins them to be lower so could could you provide the color on was putting pressure on march what are too small
spk_4: or equipment commercial business jeff and how how we should expect as civil margins due to bounce bucket throughout the year
spk_28: what luca i would tell you that your civil asserting that my affectations
spk_30: so i think as i said because for this many times before been away ready with it a repair business i would look at this quarter to quarter but having said that i'm very very bullish very satisfied of always see the civil business in the quarter and of course it the you know the indicators leave the outlook
spk_13: if you look at the orders you look at twenty utilization is seventy one percent seventy one percent their that is
spk_0: italy in prior to kobe wu said that's a pretty good utilization and we're seeing is he as if you look at their results you know and i'm sure you are you look at the results of what a fine tooth comb your seen that you know the the the the cost reductions translate into a result that we were already even if he use a
spk_3: you said i may be down for expectation the don't look at a quarter for quarter of cause utilization we said before is not a perfect measure you know you always have product make that as maybe less favorable a quarter this quarter we had hierarchy expenses to sports are of innovation like for example easy cause like we spoke by the it
spk_23: address today so in this corner it's read down the mix and i fully take it a my look at next quarter by be the other way around so look i'm i remain very from that this business is going to see related strong results in the future and our results
spk_0: it to me when i see supports that very bullish okay
spk_31: thanks for the color mark
spk_32: our next question comes from the lime of tim james of td securities please proceed with your question
spk_4: takes a good afternoon everyone
spk_33: because would it didn't change the discussion a little bit here
spk_27: although sticking with kind of the defend side of the business markets for if you could kind of update us on any evidence that you are seeing of growing demand for
spk_23: virtual military training over live urges new applications you know if in the in the simulation industry that support the secular growth story for were simulation based training and i'm thinking of aviation more specifically
spk_3: hello
spk_0: automate this is frank i can introduce the next question from ten james from tv securities
spk_23: yeah go ahead
spk_34: okay can you can you hear me okay mark
spk_7: yeah sorry don't know what happened to him i just got that radio times when with a lot like
spk_4: right weird and like legitimate okay i wouldn't my question so well it all play can do as well again here
spk_0: the i just want to i i'm i'm wondering if you can update us on
spk_4: any evidence you are seeing what american his most recent quarter maybe the last couple of quarters of a glowing demand for virtual military training relative to to lie or just new applications for for simulation in the technology that support you know that that secular growth story or simulation based training i'm thinking of mediation more specifically when you say aviation's was specifically at but you can use a ban on our demeanor well and i again military aviation training as opposed to some of the other sir of field the other other at the other domains that you you've gotten involved in recent years i'm just speaking specifically of of of aviation applications
spk_32: what do i will tell you that the
spk_35: the trend that we've seen increase use assimilation for training in the military computers and cookies who agrees for poor very real reasons that
spk_7: the that the what does a military do and he is and whether or not in operations as they train for operation that all that they do and took in order to be maintained radio and they need to do that and they need to do that in a in a in an environment where it costs are always initial cautionary aren't as usual
spk_23: there is still you know plenty of room to grow the use of simulation based training not only i would hey using poor flight to but to using new technologies i think maybe that's where you intimate a new which we aren't that thing and see if the air are deploying in some cases it's too late for example a are br as this example one at a contract that the we announced this this quarter with a go to that point where we were deploying eight
spk_0: we're actually developing using a r be r a deployable trainer for people to be able to train get a wooded area operations or even down to a local sheriff's office of you don't doing for example where they would have done a gunnery range for so rather than having it a full gunnery range would real gung for example
spk_7: then you can do it virtually and you can do it at the point at just one example there's plenty of that to go add some of the you know what i look at some at a very be a real opportunities that are you are by blood pipeline represent that i get i would point to do you at a large at the macro law
spk_4: will look at the bit pipeline the amount of bids that we out there that we have others increased quite substantially and the orders that you know are at the a five year high in terms of our yeah they've had look at our the book to bill it says i've been in the outer twelve month trailing yeah true bases which like they always look at that look at the twelve much really bases on our or they is the highest has been five years i think that's demonstrating where we're going here and growth for defense
spk_0: google hopeful thank you all questions just turning to the year center
spk_7: acquisition
spk_4: at the time the transaction it was indicated that your pre pandemic that was the a us hundred and fifty million dollar
spk_9: believe it was a annual revenue business and it would fifty five related it that dock us as well how should we think about kind of those or would we will be wildly off if we kind of thought about that businesses contributing a similar amount sort of today at this point if we think about
spk_36: the first quarter is there anything
spk_37: you know specifically different relative to kind of free pandemic is it is it simply lagging kind of as the rest of the commercial aviation business is relative to sort of pre pandemic a i'm just trying to get a bit of a sense for what the contribution isn't in the quarter know look around our alaska for if you want to tell you what the contribution is but i
spk_38: i would have percent we tell you the silver early in the integration were still were you know basically
spk_0: he'll either very early eighteenth or that but we're on track i feel very very comfortable they reaction up cause for specific they are i've i've it'll meetings whatever like the specific the most recent barbara they're very happy with he having to a doing his visit and and you could you yourself can tell him with read it every single day right about the
spk_39: yeah market inefficiencies are out there your gaze baggage hires buyers will care aircrew being in a right location would airplane that's all things that are software solutions are help our offer to help manage and optimized for grady efficiency at yale heaven cause that that's going to be and we're seeing
spk_40: and increase demand for you see in this field so i'm i'm very optimistic disregard the the against the into races on track and the everything that we've said in terms of how this business and contribute to see a to me is right on track
spk_4: other dad you know it for for the quarter thoughtful is not necessarily overly when that is significant that were working through the the integration on track with expected to ramp up nicely political year now the benchmark on pre pre kobe
spk_40: are indication of what business can do
spk_4: i'm at a bar recovery rate and before he then us adding to the investment and elevating them with are bundled they'll tell the ultimately as the recovery play that became were very concrete we can get to those numbers that even beat them as the recovery growth of the next couple years
spk_7: great thank you very much
spk_0: our next question comes from on know up on act with goldman sachs please proceed
spk_4: everyone
spk_7: hey
spk_4: the the to programs it's like a charging defense
spk_7: when when for those contracts really were under those programs or
spk_28: they were can't while their legacy contract they your we we took over one that the one that we call the classify program was signed the twenty eighteen are that that says senate sinatra a prior to us by emily we took over like contract will we acquired l three the said they that her contract with the legacy see a contract twenty mean annual temperature go and what actually cost war where where was the cost elderly
spk_14: well in the case of natural specifically as i said that this is this is a contract specifically with the customer his training and more than we did it on it's as simple as that okay and we had costs medications and other actions to make them with the
spk_4: it'll lessen the impact on you know that i would tell you miss bit miss bit at the time though i can tell you we don't be that way now you know we have complete it'll in the past couple years we've refined the it on the how we look at risk and name in a wee bit military progress with this is one specifically that
spk_0: because his situation where we were with the customer was huge it is is still utilizing those training as has had five bases at a much higher level the man that was anticipated the time of were really that's that's what we're facing here now again we put mitigating factors in to read actually have improved efficiency to prove that program and we fully expected that the contract the a we get an rfp to be able to stand that contract or to renew their contract cause it ends in in and about left and nine months now that as i said somewhat you're very surprisingly and
spk_4: counter intuitive because the fighters are using is so i you're basically we didn't get not only did we not get the the contract renewal but
spk_7: the idea i killed getting a bit cracking on if the i q number was change it which case basically what it says if we we had no additional period of performance it which for our cost reductions are other you know measure we put place to prove the prophet we'll that program
spk_13: yeah to take hold we just ran out of time so badly you have to recognize you know that the the last at that point and that's what happens now do i think that know that contract year will go for that the the dvd risk these the frank is gonna happen so to me the we haven't baked in any apply
spk_41: on that there but the against a to an hour
spk_7: the
spk_0: so if those two years are categorized as miss food
spk_4: what you're going to run because it's to that you don't be that way
spk_7: what percentage of the revenue base at this point is
spk_42: you know it's stage to possibly having been missed it
spk_3: well i would tell you that you know as as i said before when when you when you get something like did did this he a very specific action that i get i'm not going to say we weren't looking into program before course we were but get a week taken as a very yes see specific action including i would tell
spk_0: establishment of a centralized program measured organization that center of excellence if you will add you don't we this was always part of our l three harris merger immigration plan but you know we've accelerated to bolster it you know you're busy company progress company wide program excellent so we have read baseline and a you don't trigger that complete top down review of our portfolio you know on all of our programs and make sure that we have the right staffing the right contractual provisions and national visibility transparency and make sure we don't get surprised to get i've never going to say never okay but what i would tell you know is that
spk_43: it could the all the programs including the ones that would be the prior had been looked at to make sure that we have the right provisions and the rice costs and this this and or right assumptions that we don't get surprised that we put america that route that review is complete their that reviewers impressive though that
spk_4: review is complete
spk_7: and did i hear you correctly earlier on
spk_4: committing to a ten percent operating margin in this business in your for spokeswoman for or edgar that and grapple no no you didn't hear me say that idea to have you heard you heard me say and i believe that know if not our stand corrected that our target for this this this is low double digit returns adidas and that the if i look at the programs that we find out that in our backlog they support a double it that the support that cool that backlog supports that goal that we always have to execute them and that's where he that's where the badgers that we've taken
spk_43: an idiot or this headlights program management organizers for example gives me that confidence again had it gives a said before i seen this kind of thing before running major program
spk_44: yeah we you get he this kind of yellow impact it you just do things are slightly different and i will tell you got this and i feel very confident about the team in place defense the make it happen
spk_45: go okay thank you
spk_46: they give operator thank you i've we're now going to use the last minute or so that we have here unfortunately not a lot of time to open the call to members of the media there any question
spk_47: as a reminder to register a question to please press the one for
spk_0: we have a question from my allison lampre with reuters please proceed
spk_4: thanks guys mark you talked a bit about limited supply chain challenges need hard could you be a little bit more specific have you seen issues with shortages of chip and semiconductors
spk_43: ah yes we have the fact that's been especially acute the actually surprised the in our in our healthcare business and i say surprise the that's where we we have a highest concentration i take on wonder you know i did individual that again there are of chips which had a specific orders but we've seen it now i would tell you
spk_4: you that i think overall we magic pretty well so it's such as chips but the yeah it's really well with the across the board that lead times for parts have extended that in some cases are little more than double
spk_48: which basis and a federal issue the the impact with the parts themselves now being there at the time we need them is that he had obviously that's we have a habit to schedules so it or for us to maintain schedules you know we have to do all kinds of things like for example paying it's that a charges for a for for
spk_3: for parts we have the year old conduct way overtime we have conduct our sequence work with introduce all kinds of inefficiency so they they'll just stand there allison
spk_0: okay kerner
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