Transcript: CAE Q1 2027 Earnings Conference Call

CAE (TSX: CAE ) held its first-quarter earnings conference call on Thursday. Below is the complete transcript from the call. APIs provide real-time access to earnings call transcripts and financial data. Visit to learn more.

Access the full call at Summary CAE Inc. 6 million. The company is progressing well on its Transformation Plan aimed at improving operational efficiency, with a target of $125 to $150 million in cost reductions by fiscal 2030. The Civil segment faced challenges, particularly in the Middle East, but maintains strong customer retention and plans to rationalize its training network by retiring simulators and closing training centers.

The Defense segment showed revenue growth and margin expansion, benefiting from a strong pipeline of opportunities and strategic partnerships with major OEMs like Leonardo and Saab. CAE maintains its fiscal 2027 outlook and fiscal 2030 targets, with a focus on long-term growth through disciplined capital allocation and enhanced operational performance. Full Transcript OPERATOR (Operator) Good day, ladies and gentlemen. Welcome to CAE's first quarter and full year FY 2027 financial results and conference call.

As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity for analysts to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing zero.

I would now like to turn the conference over to Mr. Andrew Arnovitz. Please go ahead. Andrew Arnovitz, Investor Relations Good morning, everyone, and thank you for joining us today.

Today's remarks, including management's outlook and answers to questions, contain forward-looking statements which represent our expectations as of today, August 13, 2026, and accordingly are subject to change. Such statements are based on assumptions that may not materialize and are subject to risks and uncertainties. Actual results may differ materially, and listeners are cautioned not to place undue reliance on these forward-looking statements. S.

Securities and Exchange Commission on EDGAR. On the call with me this morning from CAE are Kaylin Romanescu, Executive Chairman; Matthew Bromberg, the company's President and Chief Executive Officer; and Ryan McLeod, our Chief Financial Officer. After formal remarks, we'll open the call to questions from financial analysts. Let me now turn the call over to Kaylin.

Kaylin Romanescu, Executive Chairman Good morning, everyone. Before Matt and Ryan take us through the Q1 results and discuss progress against the Transformation Plan, I'd like to briefly share a few observations. CAE's Transformation Plan is continuing at pace as we announced with the year-end results. The work is centered on sharpening our portfolio, strengthening capital discipline, and enhancing operational and financial performance, with several clear objectives: increase long-term resilience, improve execution against plan, and support sustainable cash generation, profitability, and returns.

We wanted to start some of the heavy lifting required by the Transformation Plan right away, so we chose not to wait for an investor day to launch it. The Board receives regular updates on the plan, and we're encouraged by the progress being made across its multiple workstreams. Fundamentally, I believe CAE's long-term growth prospects remain strong. Our Civil business continues to benefit from durable long-term aviation demand growth, as expanding air travel and higher aircraft deliveries will continue to require more of CAE's training services and simulation products.

In Defence, CAE is benefiting from a generational upturn in defence spending happening around the world, especially in NATO countries, including, of course, here in Canada. Across the expanding defence ecosystem, we continue to see CAE's heritage, strategy, technology, and broad set of capabilities drive increased interest from governments and global OEMs, resulting in an expanded opportunity set.

Overall, CAE has strong positions in two secular growth markets and an attractive long-term outlook supported by the idiosyncratic benefits of the Transformation Plan: improved free cash flow generation, higher returns on invested capital, and significant opportunities to invest accretively across the business and provide better returns to shareholders. To support the execution of the company's long-term strategy, we are implementing a revised executive compensation framework that ensures incentives are aligned with transformation goals, growth aspirations, and outcomes that matter most to shareholders.

Our short-term incentive program is now focused on free cash flow and adjusted segment operating income margin. Our long-term incentive program will center around adjusted return on invested capital and adjusted earnings per share to emphasize efficiency, profitability growth, and long-term value creation. Additionally, as disclosed in the Proxy Circular, I announced my intention to transition to the role of Non-Executive Chairman of the Board effective January 1, 2027.

This reflects our confidence in Matt and the rest of the leadership team and their ability to drive CAE's next chapter of growth and value creation, as well as the significant progress that the company has made in developing and beginning to execute the Transformation Plan and long-term strategy. I look forward to continuing to support Matt and the leadership team in this evolution while remaining involved in engagements with key stakeholder groups involving government partners, customers, and shareholders. Matt, over to you. Matthew Bromberg, President and Chief Executive Officer Thanks, Kaylin, and good morning, everyone.

Overall, Q1 was a strong start to the year with good progress across the Transformation Plan, continued improvement in our Defense segment, and Civil performance in line with expectations. While only one quarter into the year, we feel very good about our initial progress, the full year, and how the Transformation Plan will strengthen CAE by segment. Defense delivered a strong quarter of revenue growth and adjusted segment operating income margin expansion while growing our long-term pipeline of training and mission rehearsal opportunities.

Civil performance was slightly down year over year, but the team is doing an excellent job managing a challenging macroeconomic backdrop while rationalizing the network. This morning, I'll provide an update on the progress we're making against our Transformation Plan and an update on key business developments across Civil and Defense. As I said before, fiscal 2027 is both an execution year and a reset year. The Transformation Plan focused on improving our internal cost structure and focus is necessary to improve our performance, to streamline our portfolio, and focus on where we can differentiate and win.

It'll strengthen our capital discipline by rightsizing our training network and footprint and allow us to make key investments in internal systems in our factory and ERP, which are required to drive operational performance. As we do this, we are pivoting the culture to one centered on operations, continuous improvement, disciplined investment, and strong cash flow generation. This will allow CAE to properly grow for years to come. The Transformation Plan is progressing well.

The projects are progressing to plan and we will see returns start to mature in fiscal 2028 and beyond. We are committed to deliver the $125 million to $150 million of structural cost reduction by fiscal 2030. In terms of the $150 million savings, roughly 50% of our savings will come from improved labor productivity as we optimize our organizational and operating model, outsource non-core processes, leverage automation, improve systems and tools, and consolidate our global footprint. Approximately 30% of the savings will come from reduced square footage, including the portfolio actions.

7 million square feet, which represents approximately 17% down from the end of fiscal year 2025. And finally, approximately 20% will come from early efforts at driving operational improvements, including our digital factory project, which will drive lean manufacturing to lower waste, improve quality, and streamline and automate processes. Another example is in our ERP landscape. We are moving from five ERP systems to two, which will reduce our technical debt and reduce expenses.

As these work streams advance, we will continue to provide updates on our progress against the plans. Let me update you on some of the key projects and where we are, first in focusing our portfolio. It consists of a strategic review of three businesses. The largest of the three, Flightscape, which represents about 5% of our revenues, is a high-quality business with a world-class platform.

The review process is well underway with strong buyer interest. We remain confident that the strategic review process will result in a positive outcome for both Flightscape and CAE, and we'll update you at the appropriate time. The other reviews are also progressing well. In our Civil training network, the capacity rationalization is also progressing well.

We remain committed to retire the 25 commercial simulators. We now have more visibility and confidence as to the benefits of this project. There have been many questions about customer retention and, as I've said before, maintaining our customer intimacy is job one. Based on customer discussions to date, we expect to retain almost all of our customer contracts as we transition them to other CAE facilities.

As of today, customer attrition will be less than 1% of our Civil revenue. This is a testament to our customer-facing teams. Not only will we retain the majority of our contracts as we retire the 25 commercial simulators, we are also able to close between four and six of our Civil training centers and remove the support infrastructure costs associated with those facilities. All in, we expect this work stream to lead to the removal of approximately 500,000 square feet, which is roughly 10% of our Civil network capacity.

This will not only improve the utilization rate of our network, it will also improve our Civil margins, and these savings are included in our $150 million target. Going forward, we'll be more disciplined about incremental capacity and ensure that we consider regional options before adding square feet and devices. Overall, I continue to be very pleased with the progress we are making across all key transformation work streams, and while there is significant work ahead, the actions we are taking are, in real time, reshaping how CAE operates, how we allocate capital, and how we position ourselves to create long-term sustainable shareholder value.

We continue to raise the bar across capital allocation decisions, commercial proposals, and investment evaluations, ensuring that we establish the underlying discipline required to drive accelerated growth and ensure we drive higher returns and higher free cash flow over time. In addition to the advancements we're making across our transformation, what I'm increasingly bullish about is the evolving set of growth opportunities we are developing as we transform how the business operates. We are remaining focused on driving growth across our end markets. Now let's look at some of the key business developments in the quarter.

We recently attended the Farnborough Airshow, where we had meaningful engagements with customers, partners, governments, and suppliers. The show was indicative of the strong demand outlook across our Civil and Defense markets. On the Civil side, Boeing and Airbus released their 20-year commercial market outlooks, which called for air traffic growth of approximately 4% annually and the delivery of more than 40,000 new aircraft and a near doubling of the global installed service fleet.

These long-term secular trends drive stability, visibility, and confidence in the long-term demand outlook for trained pilots and, by extension, CAE's training and simulation products and services for many, many years to come. As an example of CAE's ability to position ourselves to grow in commercial aviation markets and alongside partners that are seeing meaningful expansion is our 15-year training agreement with WestJet, which was finalized in the quarter.

With nearly 200 aircraft in service and an order book of more than 100 aircraft for delivery into the 2030s, WestJet is positioned to realize continued growth in their capacity and network in Western Canada and beyond. Slated to open in 2028, the Alberta Training Center of Excellence for Aviation and Aerospace will house eight full-flight simulators with capacity for expansion and means that aspiring pilots and aviation professionals will no longer need to leave the province for advanced aviation training.

The agreement meaningfully expands our relationship with WestJet and with Alberta, which is becoming increasingly important as we think about future strategic opportunities across Canada. Additionally, we announced a multiyear contract with Turkish Airlines to deliver five full-flight simulators and two flight training devices, with options for two additional full-flight simulators. Turkey is one of Europe's most attractive aviation growth markets, with capacity expanding at a high single-digit compounded growth rate over the last 15 years. It's led by a rapidly expanding international passenger volume and a growing backlog of aircraft deliveries.

Turkish Airlines is the largest airline in Turkey and is expecting to continue to grow significantly. The airline is targeting a fleet of over 800 aircraft in the 2030s, up from more than 500 today, and our agreement builds on a long-standing partnership of more than 20 years and supports Turkish Airlines' fleet and network expansion plans across Airbus and Boeing fleets.

Shifting to the Defense side, we've had several busy months of business development activity and have made a number of significant announcements that expand our long-term opportunity pipeline and enable us to capture growth opportunities in Canada, expand internationally across NATO and other partners, and meaningfully grow our addressable market by solidifying our position in large, growing domains such as naval and maritime activities. Here in Canada, there's a clear shift towards bolstering sovereign capability, advancing collaboration with industry, and fostering innovation to strengthen defense readiness.

Canada's defense strategy, as related to defense industrial strategy, is rapidly advancing, and the country plans to spend approximately $500 billion on defense investment over the next decade. We believe that the country's defense modernization priorities represent a multi-decade opportunity for CAE, as our capabilities and priorities align directly with the defense industrial strategy and where spending is going to. We are continuing to work closely with the Government of Canada to expand and create new Canadian franchise programs.

We believe that we can successfully utilize our Canadian heritage and our expertise in training, mission readiness, and operations to support and deepen relationships with OEMs and platform providers, which embed mission-enabling synthetic environment and simulation at the earlier stages of OEM procurement and throughout the program lifecycle. Over time, this will enable CAE to expand our business in Canada but also around the world with key international partners, including NATO — in particular, NATO countries where European defense spending will reach approximately 800 billion euros annually by 2030.

I'm extremely pleased with the progress we have made on this front since the start of the fiscal year. I'm excited to share some of the important developments for our business that occurred. These include the M346 partnership with Leonardo, the partnership with Saab on GlobalEye and Gripen, and the partnership with TKMS on the Canadian Patrol Submarine Program and broader maritime opportunities. All in all, over the long term, these opportunities enable international and domain expansion, establish new franchise programs for CAE, and represent more than $5 billion of potential pipeline value.

It's a subset of our overall Defense pipeline. For reference, our Defense pipeline represents the collection of Defense opportunities and potential future adjusted order intake that we're actively pursuing across customers, programs, and geographies. This pipeline, to be clear, spans from early proposals, qualification, and early submittals, and there's time for it to evolve for bids and final contract. 7 billion, this new pipeline represents a significant opportunity to grow that further in the years to come.

And strategically, these new platforms are new franchises and new domains in new countries that can span decades for CAE. Let me go into a little bit more detail.