CAE Inc Press Release
- Revenue of $923.5 million up 13% vs. $816.3 million in prior year
- Segment operating income(1) of $154.9 million ($155.3 million before specific items(2)) up 37% vs. $113.0 million in prior year
- EPS of $0.37 vs. $0.29 in prior year
- Free cash flow(3) of $275.3 million up from $155.1 million in prior year
- Order intake(4) of $1,106.6 million for 1.20x book-to-sales(4) and $9.4 billion backlog(4)
- Company pledged to become carbon neutral by summer 2020
Montreal, Canada, February 7, 2020
CAE today reported revenue of $923.5 million for the third quarter of fiscal 2020, compared with $816.3 million in the third quarter last year. Third quarter net income attributable to equity holders was $97.7 million ($0.37 per share) compared to $77.6 million ($0.29 per share) last year. Net income before specific items(5) in the third quarter of fiscal 2020 was $98.0 million ($0.37 per share before specific items(6)).
Third quarter segment operating income was $154.9 million (16.8% of revenue) compared with $113.0 million (13.8% of revenue) in the third quarter of last year. Segment operating income before specific items in the third quarter of fiscal 2020 was $155.3 million (16.8% of revenue). All financial information is in Canadian dollars unless otherwise indicated.
“CAE had strong growth in the third quarter, with 13 percent higher revenue and 37 percent higher operating income, and we generated over $275 million of free cash flow. Customers continued to put their trust in CAE as their training partner of choice, awarding us $1.1 billion of orders for a $9.4 billion backlog,” said Marc Parent, CAE’s President and Chief Executive Officer. “Our performance was led by Civil with 42 percent operating income growth and continued good momentum with our innovative and comprehensive training solutions. In Defence, we had 32 percent operating income growth and we secured orders in excess of revenue by 1.11 times. Todd Probert recently joined CAE as its new Group President, Defence & Security and I am very pleased to welcome a leader of his calibre to our executive team. In Healthcare, we had double-digit revenue growth and we continued to bring highly innovative solutions to market to help make healthcare safer. As we look to the remainder of the fiscal year, our positive annual growth outlook for the Company remains unchanged.”Summary of consolidated results
| (amounts in millions, except operating margins and per share amounts) | Q3-2020 | Q3-2019 | Variance % | ||
|---|---|---|---|---|---|
| Revenue | $ | 923.5 | $ | 816.3 | 13% |
| Segment operating income (SOI) | $ | 154.9 | $ | 113.0 | 37% |
| Operating margins | % | 16.8 | % | 13.8 | |
| SOI before specific items | $ | 155.3 | $ | 113.0 | 37% |
| Operating margins before specific items | % | 16.8 | % | 13.8 | |
| Net income | $ | 99.8 | $ | 79.5 | 26% |
| Net income attributable to equity holders of the Company | $ | 97.7 | $ | 77.6 | 26% |
| Earnings per share (EPS) | $ | 0.37 | $ | 0.29 | 28% |
| Net income before specific items | $ | 98.0 | $ | 77.6 | 26% |
| EPS before specific items | $ | 0.37 | $ | 0.29 | 28% |
| Order intake | $ | 1,106.6 | $ | 882.1 | 25% |
| Total backlog | $ | 9,434.3 | $ | 8,964.6 | 5% |
Civil Aviation Training Solutions (Civil)
Third quarter Civil revenue was $558.1 million, up 22% compared to the same quarter last year. Segment operating income was $123.0 million (22.0% of revenue) compared to $87.2 million (19.0% of revenue) in the third quarter last year. Third quarter segment operating income before specific items was $123.4 million (22.1% of revenue), up 42% compared to the third quarter last year. During the quarter, Civil delivered 12 full-flight simulators (FFSs)(7) to customers and third quarter Civil training centre utilization(8) was 70%.
During the quarter, Civil signed training solutions contracts valued at $706.2 million, including a long-term pilot training agreement with JetSmart Airlines, and 17 FFSs, for 37 sales in the first nine months of the year. Since the beginning of January, Civil received orders for seven FFSs, including six for the Boeing B737MAX aircraft, bringing total current year-to-date FFS sales to 44.
To address the growing global demand for new pilots, during the quarter, Civil launched new Multi-Crew Pilot License programs with easyJet and Volotea and a new cadet pilot training program with Jazz Aviation and Seneca School of Aviation called Jazz Approach. In business aviation, Civil signed several business aviation pilot training contracts with business jet operators including JetSuite, Solairus Aviation, and TAG Aviation Holdings.
The Civil book-to-sales ratio was 1.27x for the quarter and 1.44x for the last 12 months. The Civil backlog at the end of the quarter was a record $5.3 billion.Summary of Civil Aviation Training Solutions results
| (amounts in millions, except operating margins, SEU, FFSs deployed and FFS deliveries) | Q3-2020 | Q3-2019 | Variance % | ||
|---|---|---|---|---|---|
| Revenue | $ | 558.1 | $ | 458.4 | 22% |
| Segment operating income | $ | 123.0 | $ | 87.2 | 41% |
| Operating margins | % | 22.0 | % | 19.0 | |
| SOI before specific items | $ | 123.4 | $ | 87.2 | 42% |
| Operating margins before specific items | % | 22.1 | % | 19.0 | |
| Order intake | $ | 706.2 | $ | 586.6 | 20% |
| Total backlog | $ | 5,263.0 | $ | 4,566.1 | 15% |
| Simulator equivalent unit (SEU)(9) | 252 | 219 | 15% | ||
| FFSs deployed(7) | 303 | 266 | 14% | ||
| FFS deliveries | 12 | 16 | (25%) |
Defence and Security (Defence)
Third quarter Defence revenue was $332.4 million, up 1% compared to the same quarter last year and segment operating income was $31.3 million (9.4% of revenue). Before reorganizational costs incurred this quarter, Defence segment operating income for the quarter would have been $33.2 million (10.0% of revenue), up 32% compared to the third quarter last year.
During the quarter, Defence booked orders for $367.4 million, including contracts to provide the German Navy with a comprehensive training solution for the NH90 Sea Lion helicopter and to upgrade and modify the German Army’s NH90 full-mission simulators. Other notable contracts include the next increment of a multi-year contract with the U.S. Air Force to provide comprehensive C-130H aircrew training services. Defence also received orders to continue providing long-term maintenance and support services for Rotorsim, a joint venture between CAE and Leonardo, and a contract for Abrams M1A2 tank maintenance trainers for the U.S. Army.
The Defence book-to-sales ratio was 1.11x for the quarter and 0.88x for the last 12 months (excluding contract options). The Defence backlog, including options and CAE’s interest in joint ventures, at the end of the quarter was $4.2 billion. The Defence pipeline remains strong with approximately $3.8 billion of bids and proposals pending customer decisions.
On January 20, 2020, CAE announced the appointment of Todd Probert as Group President, Defence & Security, effective January 27, 2020. He is based in Washington, DC and succeeds Gene Colabatistto, who retired from CAE in December 2019.Summary of Defence and Security results
| (amounts in millions, except operating margins) | Q3-2020 | Q3-2019 | Variance % | ||
|---|---|---|---|---|---|
| Revenue | $ | 332.4 | $ | 330.2 | 1% |
| Segment operating income | $ | 31.3 | $ | 25.2 | 24% |
| Operating margins | % | 9.4 | % | 7.6 | |
| Order intake | $ | 367.4 | $ | 267.8 | 37% |
| Total backlog | $ | 4,171.3 | $ | 4,398.5 | (5%) |
Healthcare
Third quarter Healthcare revenue was $33.0 million, up 19% compared to $27.7 million in the same quarter last year, and third quarter segment operating income was $0.6 million, stable compared to $0.6 million in the third quarter last year.
Healthcare, together with the American Society of Anesthesiologists, launched a new Anesthesia SimSTAT module, the final module in a series of interactive screen-based modules approved for Maintenance of Certification in Anesthesiology credits. As well, during the quarter, Healthcare developed custom training solutions for Edwards Lifesciences to enhance physician training, and it delivered a custom cardiovascular simulation application to Cardinal Health (Cordis). Healthcare was also awarded an EMS World Innovation Award for CAE AresAR, the Microsoft HoloLens application for our emergency care manikin that includes six augmented reality scenarios.Summary of Healthcare results
| (amounts in millions, except operating margins) | Q3-2020 | Q3-2019 | Variance % | ||
|---|---|---|---|---|---|
| Revenue | $ | 33.0 | $ | 27.7 | 19% |
| Segment operating income | $ | 0.6 | $ | 0.6 | —% |
| Operating margins | % | 1.8 | % | 2.2 |
Additional financial highlights
Free cash flow was $275.3 million for the quarter compared to $155.1 million in the third quarter last year. The increase in free cash flow results mainly from a lower investment in non-cash working capital and higher cash provided by operating activities. CAE usually sees a higher level of investment in non-cash working capital accounts during the first half of the fiscal year and it expects to see a significant portion of these investments reverse in the second half.
Income taxes this quarter were $18.4 million, representing an effective tax rate of 16%, compared to 15% for the third quarter last year. The tax rate was higher due to the impacts of tax audits in Canada last year, partially offset by a change in the mix of income from various jurisdictions.
Net finance expense this quarter was $36.7 million, $17.4 million higher than the third quarter of fiscal 2019, mainly from higher interest on long-term debt due to the issuance of unsecured senior notes since the fourth quarter of fiscal 2019 and higher interest on lease liabilities because of the adoption of IFRS 16.
Growth and maintenance capital expenditures(10) totaled $51.6 million this quarter.
Net debt(11) at the end of the quarter was $2,306.6 million for a net debt-to-capital ratio(12) of 48.5%. This compares to net debt of $2,442.8 million and a net debt-to-capital ratio of 51.0% at the end of the preceding quarter. Excluding the impacts of the adoption of IFRS 16, net debt would have been $2,021.2 million this quarter for a net debt-to-capital ratio of 44.9%.
Return on capital employed (ROCE)(13) was 11.4% this quarter compared to 11.7% in the third quarter last year, before specific items. Excluding the impacts of the adoption of IFRS 16, ROCE before specific items would have been 11.6% this quarter.
CAE will pay a dividend of 11 cents per share effective March 31, 2020 to shareholders of record at the close of business on March 13, 2020.
During the three months ended December 31, 2019, CAE repurchased and cancelled a total of 386,700 common shares under the Normal Course Issuer Bid (NCIB), at a weighted average price of $32.69 per common share, for a total consideration of $12.6 million. On February 7, 2020, CAE received approval from its Board of Directors for the renewal of its NCIB to purchase up to 5,321,474 of its issued and outstanding common shares (approximately 2% of its outstanding shares) during the period from February 25, 2020 to no later than February 24, 2021.Management outlook for fiscal year 2020
Management’s outlook for CAE in fiscal year 2020, as updated November 13, 2019, is unchanged. In Civil, the Company expects to continue building on its positive momentum in training, increasing market share and securing new customer partnerships with its innovative training solutions. Civil expects operating income growth closer to 30 percent based on year-to-date performance and a further increase in demand for its training solutions, including maintaining its leading share of FFS sales, and the successful integration of its recently acquired Bombardier BAT business, which is substantially complete. In Defence, the Company expects modest operating income growth for the year, reflecting the Defence group’s performance year-to-date, expected performance on programs in backlog, and the expected timing of new contract awards from a large pipeline. CAE continues to expect Healthcare to achieve double-digit growth for the year. Funding growth opportunities remains CAE’s top capital allocation priority and continues to be driven by and supportive of growing customer training outsourcings in its large core markets. The Company prioritizes market-led capital investments that offer sustainable and profitable growth and accretive returns and support its strategy to be the recognized worldwide training partner of choice. CAE continues to expect total annual capital expenditures to be approximately 10 to 15 percent higher, in fiscal 2020, primarily to keep pace with growing demand for training services from its existing customers and to secure new long-term customer contracts. Management’s expectations are based on the prevailing positive market conditions and customer receptivity to CAE’s training solutions as well as material assumptions contained in this press release, quarterly MD&A and in CAE’s fiscal year 2019 MD&A.Corporate Social Responsibility
CAE creates significant value for customers, shareholders, and its employees. CAE products and services contribute to improvements in aviation safety, ensure defence forces are mission-ready, and help make healthcare safer-a noble purpose that is a source of pride for CAE’s more than 10,000 employees worldwide. As the largest civil aviation training company in the world, and the only pure‑play aviation training company, it has an unwavering customer focus and commitment to innovation. Furthermore, CAE is committed to doing its share in the fight against climate change for the well-being of future generations. In November 2019, CAE announced its plan to become carbon neutral in summer 2020. This goal will be achieved by offsetting carbon emissions from the fuel used for all the live training flights of its academies, from energy consumption in its locations worldwide and from the business travel by air of all its employees. CAE will also work with the industry to progressively use electric aircraft for the live flight training in our academies. CAE will continue to invest to make its full-flight simulators more energy efficient, therefore allowing its customers worldwide to reduce their own footprint.
In support of CAE’s local community of Greater Montreal, the Company raised more than one million dollars in its 2019 CAE-Centraide (United Way) fundraising campaign. This record amount was collected through employee donations and a corporate donation. Since 2000, CAE and its employees have donated $12.6 million to Centraide of Greater Montreal. In addition to Centraide, CAE supports the communities in which it operates around the world through donations and sponsorships that mainly support causes in education, civil aviation, defence, security and healthcare.
To learn more about CAE’s corporate sustainability roadmap and achievements, refer to CAE’s FY19 Annual Activity and Corporate Social Responsibility Report.IFRS 16 – Leases
Effective April 1, 2019, CAE adopted IFRS 16 – Leases, which introduces a single lessee accounting model and eliminates the classification of leases as either operating or finance leases. The main impact of IFRS 16 to CAE is the recognition of a right-of-use asset and a lease liability for substantially all leases. This change results in a decrease of our operating lease expense and an increase of our finance and depreciation expenses. The financial results reported in the press release for the fiscal year ended March 31, 2019 do not reflect the accounting changes required by IFRS 16 as the Company adopted the standard using the modified retrospective application as of April 1, 2019. For more detailed information, including the expected impacts of the transition to IFRS 16, refer to Note 2 of the interim consolidated financial statements for the quarter ended December 31, 2019.Detailed information
Readers are strongly advised to view a more detailed discussion of our results by segment in the Management’s Discussion and Analysis (MD&A) and CAE’s consolidated financial statements which are posted on our website at www.cae.com/investors.