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CAE Inc. (CAE or the Company) today reported fourth quarter fiscal 2023 revenue of $1,256.5 million, compared with $955.0 million last year. Fourth quarter EPS was $0.31 compared to $0.17 last year. Adjusted EPS was $0.35 compared to $0.29 last year. Operating income this quarter was $186.6 million (14.9% of revenue(1)), compared to $93.3 million (9.8% of revenue) last year. Fourth quarter adjusted segment operating income was $201.9 million (16.1% of revenue(1)) compared to $142.7 million (14.9% of revenue) last year.
Annual fiscal 2023 revenue was $4.2 billion, compared to $3.4 billion last year. Annual diluted EPS was $0.70 compared to $0.45 in fiscal 2022. Adjusted EPS was $0.88 this year compared to $0.84 last year. Annual operating income was $474.0 million (11.3% of revenue), compared to $284.2 million (8.4% of revenue) last year. Adjusted segment operating income was $548.1 million (13.0% of revenue), up 23% compared to $444.5 million (13.2% of revenue) last year. All financial information is in Canadian dollars.
Summary of consolidated results
“CAE delivered an excellent performance in the fourth quarter with over 40 percent adjusted segment operating income growth, which led to 23 percent growth for the year as a whole. Testament to the quality of these results, we generated strong free cash flow, for a 1.2 times conversion of annual adjusted net income. We also expanded our global reach and secured future growth with a record $5.0 billion in annual orders, for a record $10.8 billion adjusted backlog,” said Marc Parent, CAE’s President and Chief Executive Officer. “Over the course of the year, we made significant progress to set the stage for a much larger future business and to transform our industry through digital technology innovation and thought leadership. In Civil, we launched several new training centres and deployed 23 full-flight simulators to our global network, in lockstep with the major customer outsourcing agreements we secured in the U.S., Europe and Australia, and increased pilot training demand across all segments of aviation. We also made excellent progress fielding the next generation of our Civil digital flight services solutions and the ongoing integration of AirCentre. Civil also delivered strong financial performance for the year, eclipsing prior peak annual adjusted segment operating income margins, even before passenger traffic returns to pre-pandemic levels in key regions. We booked a record $2.8 billion in annual Civil orders for a 1.30 times book-to-sales ratio, demonstrating the sustained high demand for our training and operational support solutions. In Defense, we made good progress toward increasing the scale and profitability of the business with a record $2.0 billion of annual orders for a 1.10 times book-to-sales ratio. We also continued to build a strong pipeline with some $9.3 billion of Defense bids and proposals outstanding. Our expanded capabilities are enabling us to gradually convert our Defense backlog with larger and more profitable programs, exemplified by our recent key training and simulation wins in support of U.S. Army and Air Force aviation. And in Healthcare, we gained share in the simulation market and continued to deliver double-digit revenue growth with our dynamic team and highly innovative solutions. As we look ahead, we are well on track to our targeted three-year (FY22-FY25) EPS compound growth rate in the mid-20% range. Our recent results and the expanded set of opportunities before us add to my conviction that we are on a clear path to an even bigger, stronger, and more profitable CAE in the future.”
Civil Aviation (Civil)
Fourth quarter Civil revenue was $661.4 million, up 53% compared to the same quarter last year. Operating income was $149.3 million (22.6% of revenue) compared to $58.1 million (13.4% of revenue) in the fourth quarter last year. Fourth quarter Civil adjusted segment operating income was $162.9 million (24.6% of revenue), compared to $96.3 million (22.3% of revenue) in the fourth quarter last year. In the fourth quarter, Civil training centre utilization was 78% and 17 full-flight simulators (FFSs) were delivered to customers.
Annual Civil revenue was $2,166.4 million, up 34% compared to last year. Annual operating income was $430.3 million (19.9% of revenue) compared to $224.1 million (13.9% of revenue) last year, and annual adjusted segment operating income was $485.3 million (22.4% of revenue) compared to $314.7 million (19.5% of revenue) last year. For the year, Civil training centre utilization was 72% and 46 FFSs were delivered to customers.
During the quarter, Civil signed training and operational support solutions contracts valued at $841.5 million. These included the sale of 19 FFSs and long-term training and digital flight services contracts, including a 5-year Pilot License cadet training agreement with Japan Airlines, a 3-year training agreement with Aerolineas Ejecutivas S.A. de C.V., and a 10-year flight next-gen crew and operations manager agreement with SkyWest Airlines. Civil also entered a joint venture with AEGEAN, Greece’s largest airline, to establish the first advanced flight training centre in Greece. The new centre will have capacity for up to seven full-flight simulators and is expected to begin pilot and cabin crew training by the end of 2023. It will be the most advanced flight training hub in Southeastern Europe powered by green energy. Since the end of the quarter, Civil inaugurated its Las Vegas business aviation training centre, with capacity for up to eight FFSs, and announced plans to expand its business aviation training network with a new Central European facility in Vienna, Austria, scheduled to open in the second half of calendar 2024.
For the year, Civil booked orders for a record $2.8 billion, underscoring CAE’s position as the partner of choice for airlines, business jet operators, aircraft OEMs and pilots worldwide. These included 62 FFS sales (vs. 48 in the prior fiscal year) and comprehensive, long-term training agreements with customers worldwide.
The Civil book-to-sales ratio was 1.27x for the quarter and 1.30x for the last 12 months. The Civil adjusted backlog at the end of the year was a record $5.7 billion, which is up 16% from the prior year period.
Summary of Civil Aviation results
Defense and Security (Defense)
Fourth quarter Defense revenue was $536.0 million, up 14% compared to the same quarter last year. Operating income was $29.0 million (5.4% of revenue) compared to $25.8 million (5.5% or revenue) in the fourth quarter last year. Fourth quarter Defense adjusted segment operating income was $30.5 million (5.7% of revenue), compared to $36.8 million (7.8% of revenue) in the fourth quarter last year.
Annual Defense revenue was $1,844.2 million, up 15% over last year. Annual operating income was $35.7 million (1.9% of revenue) compared to $56.0 million (3.5% of revenue) last year, and annual adjusted segment operating income was $53.1 million (2.9% of revenue), compared to $119.2 million (7.4% of revenue) last year.
During the quarter, Defense booked orders for $564.7 million, bringing the full-year total to a record $2.0 billion. New business agreements this quarter included a U.S. Navy Foreign Military Sale (FMS) to Korea for an MH-60R Tactical Operational Flight Trainer, and the extension and expansion of agreements with the U.S. Army for fixed-wing flight training and support services at the CAE Dothan Training Center, and the U.S. Air Force for Initial Flight Training at the CAE Pueblo Training Center. Defense was also awarded a contract for comprehensive training and support services under the Australian Defence Force ASIST program.
Since the end of the quarter, Defense was awarded a US$455 million contract to support Flight School Training Support Services (FSTSS) at Fort Novosel, Alabama (formerly Fort Rucker) with training and simulation solutions for initial entry-level and graduate-level rotary wing flight training. Under the terms of the 12-year contract, CAE will build and operate CAE-owned full-flight simulators for the CH-47F and UH-60M platforms to meet the U.S. Army Aviation Center of Excellence’s rotary wing simulation services requirements. Located at the U.S Army Aviation Center of Excellence, the FSTSS program represents the world’s largest helicopter simulation training program, replacing the former Flight School XXI program, which supported the training of approximately 3,900 Army aviators annually.
Also involving U.S. Army Aviation, the U.S. General Accountability Office upheld the selection of the Bell V-280 Valor for the U.S. Army’s Future Long Range Assault Aircraft (FLRAA), and as part of Team Valor, CAE is a key partner in the future provision of training and simulation solutions for this Next-Gen platform. Further leveraging its prominent flight training position in lower Alabama, Defense was competitively awarded the U.S. Air Force’s Rotary Wing, Introductory Flight Training (IFT-R) contract, worth a maximum value of US$110.6 million over the total contract term, to execute all Air Force initial Helicopter Flight Training. Under the IFT-R contract, CAE will provide a comprehensive training solution by leveraging its existing Dothan Training Center in Dothan, Alabama.
The Defense book-to-sales ratio was 1.05x for the quarter, marking the seventh consecutive quarter with a book-to-sales ratio above one. The book-to-sales ratio was 1.10x for the last 12 months. The Defense adjusted backlog at the end of the year was $5.1 billion. In addition, the Defense pipeline strengthened with some $9.3 billion of bids and proposals pending customer decisions.
Technology and innovation
CAE achieved a technology milestone during the quarter in its pursuit to revolutionize aviation training in Civil and Defense markets. A field study was conducted with the Japan Air Self-Defense Force (JASDF) to validate the potential for more effective training by leveraging CAE’s latest Virtual Reality and Artificial Intelligence-enabled Digital Solutions. The study revealed a near full grade of proficiency score improvement across all JASDF participants. The novel solution embedded CAE Rise, which was originally conceived for Civil aviation, to provide more effective training through real-time objective assessments. It also incorporated CAE’s patented biometric feedback technology, enabling instructors to modulate complexity based on students’ stress, engagement, and cognitive workload levels.
Additional financial highlights
CAE incurred restructuring, integration and acquisition costs of $15.3 million during the fourth quarter of fiscal 2023, relating mainly to the fiscal 2022 acquisition of Sabre’s AirCentre airline operations portfolio (AirCentre).
Net cash provided by operating activities was $180.6 million for the quarter compared to $206.8 million in the fourth quarter last year. Free cash flow was $172.0 million for the quarter compared to $187.6 million in the fourth quarter last year. For the year, net cash provided by operating activities was $408.4 million compared to $418.2 million last year and free cash flow was $335.7 million, compared to $341.5 million in the same period last year. The cash conversion rate(1) for fiscal year 2023 was 120%.
Income tax expense this quarter was $33.3 million, representing an effective tax rate of 25%, compared to an effective tax rate of 6% in the fourth quarter last year. The income tax rate was impacted by restructuring, integration and acquisition costs, and excluding these costs, as well as the cloud computing transition adjustment last year, the income tax rate used to determine adjusted net income and adjusted EPS was 24% this quarter as compared to 15% in the fourth quarter of last year.
Growth and maintenance capital expenditures(1) totaled $62.9 million this quarter and $268.8 million for the year, mainly in support of accretive growth opportunities to expand the Civil global aviation training network.
Net debt(1) at the end of the year was $3,032.5 million for a net debt-to-adjusted EBITDA(1) of 3.41 times. This compares to net debt of $3,073.0 million, for a net debt-to-adjusted EBITDA of 3.74 times at the end of the preceding quarter.
Net finance expense this quarter amounted to $51.4 million, compared to $48.8 million in the preceding quarter and $32.5 million in the fourth quarter last year. The increased finance expense relative to both prior periods mainly reflects the impact of higher interest rates on our variable rate debt instruments and an increased level of borrowing under credit facilities.
Adjusted return on capital employed (ROCE)(1) was 5.7% this quarter compared to 5.5% last quarter and 6.2% in the fourth quarter last year.
| (1) This press release includes non-IFRS financial measures, non-IFRS ratios, capital management measures and supplementary financial measures. These measures are not standardized financial measures prescribed under IFRS and therefore should not be confused with, or used as an alternative for, performance measures calculated according to IFRS. Furthermore, these measures should not be compared with similarly titled measures provided or used by other issuers. Refer to the Non-IFRS and other financial measures section of this press release for the definitions and a reconciliation of these measures to the most directly comparable measure under IFRS. |
Environmental, Social, and Governance (ESG)
This quarter, CAE finalized its five-year ESG roadmap and associated implementation plan, the details of which, along with additional information related to CAE’s ESG performance during fiscal 2023, will be released in the Company’s Annual Activity and Sustainability report at the end of June. This past February, CAE held an in-person Supply Chain Forum for its key strategic suppliers. A number of CAE’s executives and leaders were on hand to offer perspectives on CAE’s sustainability journey, share best practices, and engage in training sessions and workshops to elevate the proficiency level of the participants on carbon footprint and climate change. CAE’s decarbonization journey is linked to that of its suppliers and the Company is determined to collaborate with them for maximum impact. In the same vein, CAE joined the International Aerospace Environmental Group (IAEG), a group of aerospace and defence OEMs aimed at fostering sustainable growth of the industry through responsible practices. IAEG develops common standards for evaluating the ESG performance of industry suppliers. By participating in the IAEG, CAE will contribute to the harmonization of ESG requirements for suppliers across the aerospace and defence sector. CAE was also admitted to the Climate Group’s RE100, a collective of 400 global companies most committed to the use of renewable energy worldwide. CAE’s admission to this group is a further testament to the seriousness of its achievements and commitments toward renewable energy.
To learn more about CAE’s corporate sustainability roadmap and achievements, the report can be downloaded at https://www.cae.com/social-responsibility/.
Management outlook for fiscal year 2024
CAE has been carrying out a growth strategy to become a bigger, stronger, and more profitable company. Through accretive growth capital deployments and strong execution, its Civil segment, the largest within CAE, recently eclipsed 2019 profitability levels, even before a full recovery in passenger traffic in key regions, and it continues to experience strong growth momentum. The Company is well on track to its targeted three-year (FY22-FY25) EPS compound growth rate in the mid-20% range, which it expects to be driven by the ongoing strong Civil performance, the multi-year transformation underway in Defense, and higher scale and profitability in Healthcare. The realization of CAE’s growth strategy is expected to result in a significantly larger base of business, with a capital structure that affords ample flexibility to balance further investments in its future alongside capital returns for shareholders.
Management maintains its highly positive view of its growth potential over a multi-year period. While some macro-level headwinds persist in the general economy (geopolitics, inflation, financing costs), expected secular trends are highly favorable across all of CAE’s business segments. Greater desire by airlines to entrust CAE with their critical training and digital operational support and crew management needs, and higher expected pilot training demand in commercial and business aviation are enduring positives for the Civil business. Management believes the defence sector is in the early stages of an extended up-cycle driven by geopolitical tensions and increased commitments by governments to defence modernization and readiness. Tailwinds that favour CAE’s Defense business include the shift in national defence priorities to an increased focus on near-peer threats and the recognition of the increased need for the kinds of digital immersion-based synthetic solutions that draw from CAE’s expertise in commercial aviation simulation and training. Healthcare is poised to leverage opportunities presented by high demand for nurses and increased opportunities for medical simulation.
The Company expects Civil to continue growing at an above market rate, driven by the remaining stages of cyclical recovery in Asia and a sustained high level of demand for pilots and pilot training across all segments of civil aviation. In fiscal 2024, management expects low- to mid-teen percentage annual growth in Civil adjusted segment operating income, with margins in the current range, driven by higher training and customer FFS delivery volumes and the ongoing simulator deployments to expand CAE’s global training network. CAE’s Civil business is expected to experience a more typical seasonal pattern in fiscal 2024, with performance weighted more heavily to the second half of the year. In addition to continuing to grow its share of the aviation training market and expanding its position in digital flight services, Civil expects to maintain its leading share of FFS sales and to deliver approximately 50 FFSs for the year to customers worldwide, approximately three-quarters of which are slated for the second half.
CAE’s Defense segment is in the process of a multi-year transformation, which is expected to yield a substantially bigger and more profitable business. To date, Defense has transformed to become the world’s leading pure-play, platform independent, training and simulation business, providing solutions across all five domains. It is uniquely positioned to draw on CAE’s innovations in commercial aviation to transform training with the application of advanced analytics and leading-edge technologies. This is expected to bring increased potential to capture business around the world, accelerated by an expanded capability and customer set. Defense’s recent wins, record adjusted backlog, $9.3 billion pipeline of bids and proposals outstanding and trailing 12-month book-to-sales ratio of 1.10 times demonstrate that its transformation strategy is bearing fruit. Current geopolitical events have galvanized national defence priorities in the U.S. and across NATO, and management expects increased spending and specific prioritization on defence readiness to translate into additional opportunities for CAE in the years ahead.
In fiscal 2024, Defense expects to continue renewing its backlog with larger and more profitable programs, while simultaneously working its way through a critical mass of lower-margin legacy contracts. Management remains highly focused on execution, and for the fiscal year, it expects Defense to see continued year over year performance improvements on a quarterly basis, with a heavier weighting to the second half, consistent with its historical seasonality. External considerations that may bear influence on the near-term for Defense include order delays, which could potentially be a factor this year in light of U.S. government budget appropriation uncertainty. At the same time, Defense expects to see a further easing of the acute supply chain and labour challenges it had been facing over the last year. Over the long-term, CAE continues to expect superior Defense growth to be driven by the translation of its bid activity into higher-margin order intake and execution of contracts with sustainably higher profits.
In Healthcare, management sees potential to accelerate value creation as it gains share in the healthcare simulation and training market and continues to build on its top- and bottom-line growth momentum.
Total capital expenditures in fiscal 2024 are expected to be approximately $50 million higher than last fiscal year, mainly in support of a higher amount of market-led, accretive organic investments involving Civil aviation training network expansion, simulator deployments, and customer training outsourcings. The Company usually sees a higher investment in non-cash working capital accounts in the first half of the fiscal year, and as in previous years, management expects a portion of the non-cash working capital investment to reverse in the second half. The Company continues to target a 100% conversion of adjusted net income to free cash flow for the year. Consistent with its growth investment priorities and non-cash working capital assumptions for fiscal 2024, the Company expects a quarterly finance expense run rate of approximately $50 million — at least for the first half of the year. Management remains focused on making organic investments in lockstep with customer demand, integrating and ramping up recent investments and continuing to make progress deleveraging its balance sheet. CAE continues to expect net debt-to-adjusted EBITDA to decrease to a ratio of below three times by the middle of the fiscal year, at which time it expects to be in position to consider reinstating capital returns to shareholders. CAE expects its annual effective income tax rate to be approximately 22%.
Management’s outlook for fiscal year 2024 and the above targets and expectations constitute forward-looking statements within the meaning of applicable securities laws, and are based on a number of assumptions, including in relation to prevailing market conditions, macroeconomic and geopolitical factors, supply chains and labor markets. As the basis of its fiscal 2024 outlook, management assumes no further disruptions to the global economy, air traffic, CAE’s operations, and its ability to deliver products and services. Expectations are also subject to a number of risks and uncertainties and based on assumptions about customer receptivity to CAE’s training solutions and operational support solutions as well as material assumptions contained in this press release, quarterly Management’s Discussion and Analysis (MD&A) and in CAE’s fiscal 2023 MD&A, all available on our website (www.cae.com), SEDAR (www.sedar.com) and EDGAR (www.sec.gov). Please see the sections below entitled: “Caution concerning forward-looking statements”, “Material assumptions” and “Material risks”.
Detailed information
Readers are strongly advised to view a more detailed discussion of our results by segment in the MD&A and CAE’s consolidated financial statements for the year ended March 31, 2023, which are available on our website (www.cae.com), SEDAR (www.sedar.com) and EDGAR (www.sec.gov). Holders of CAE’s securities may also request a printed copy of the Company’s consolidated financial statements and MD&A free of charge by contacting Investor Relations (investor.relations@cae.com).
Conference call Q4 and full FY2023
Marc Parent, CAE President and CEO; Sonya Branco, Executive Vice President, Finance, and CFO; and Andrew Arnovitz, Senior Vice President, Investor Relations and Enterprise Risk Management, will conduct an earnings conference call today at 2:00 p.m. ET. The call is intended for analysts, institutional investors and the media. Participants can listen to the conference by dialing + 1 877 586 3392 or +1 416 981 9024. The conference call will also be audio webcast live at www.cae.com.
At CAE, we equip people in critical roles with the expertise and solutions to create a safer world. As a technology company, we digitalize the physical world, deploying software-based simulation training and critical operations support solutions. Above all else, we empower pilots, cabin crew, airlines, defence and security forces and healthcare practitioners to perform at their best every day and when the stakes are the highest. Around the globe, we’re everywhere customers need us to be with more than 13,000 employees in approximately 250 sites and training locations in over 40 countries. CAE represents more than 75 years of industry firsts—the highest-fidelity flight, mission and medical simulators and training programs powered by digital technologies. We embed sustainability in everything we do. Today and tomorrow, we’ll make sure our customers are ready for the moments that matter.
This press release was prepared and distributed by the CAE
