CAE Inc. (CAE) Earnings Call Transcript

Thank you very much, Mark. Now that the formal business of the meeting has been completed, I'd like to offer a few remarks on behalf of CAE's Board of Directors before inviting Matthew Bromberg to address shareholders. Let me begin with the Board's perspective on fiscal 2026 and the opportunities we see for CAE as we look ahead. Fiscal 2026 demanded discipline clarity of purpose and steady governance. CAE operated through evolving markets, geopolitical pressures and rapid technological change. Performance was solid despite softer conditions in civil aviation, while Defense & Security delivered improved performance, which further underscored its strategic importance at a time of sustained defense investment across key geographies. This reinforced the value of CAE's balanced portfolio and the advantages of operating in markets with compelling long-term fundamentals. Against this backdrop, the Board remained focused on its responsibility to oversee CAE with rigor sound judgment and a clear view to long-term value creation. We also continue to engage with shareholders whose perspectives help inform the Board's oversight and priorities. [Foreign Language] During this exercise, we have started the transformation plan, which has been announced after vote in favor. Now this work is both relevant and necessary. For the Board, the priority is to ensure that this transformation is guided by rigor by accountability and with a clear objective of value creation the long term, something sustainable for the shareholders while acting quickly and decisively to improve the use of capital and profitability. So 2026 fiscal has also shown the first year of Matt as CEO of CAE. Matt has brought to this organization determination some rigor and also decisive decisions. Key has shown a good understanding of CAE of its operational background and business opportunities that arise. So the Board has determined that his experience and leadership do correspond to the current needs of a strategic, clear strategic and rigorous execution of CAE taking into account the competitiveness of CAE. So why we're looking towards the future. The influence of shale is based on both sectors of activity. First of all, defense and safety with strong perspectives of growth then the civil aviation sector as we are a leader in today's market with the durable relations with our clients -- pillar of CAE and represents a meaningful long-term opportunity for growth. CAE is positioned to play an important role alongside its partners in supporting defense investment, accelerating innovation and strengthening capabilities for Canada and its allies. At the same time, Civil Aviation remains a core strength for CAE with durable long-term demand supported by its strong market position, deep customer relationships and enduring role in aviation safety and training. In fiscal 2027, the Board is fully aligned with management on accelerating execution with a continued focus on efficiency, discipline and returns. As CAE enters this next phase, Board renewal and governance effectiveness remains central to our oversight. The board continues to take a thoughtful and orderly approach to renewal, balancing continuity with the addition of skills and perspectives that will support CAE's future. In that spirit, I'd like to recognize Ayman Antoun as he concludes his service on the Board and thank him for his contributions, including his leadership as Chair of our recently constituted Technology Committee, Ayman brought thoughtful judgment, relevant experience and a strong commitment to CAE, and we're grateful for his contribution. As part of that same renewal process, I'm pleased to welcome Mr. Bruce Ross, Group Head, AI at RBC to the Board. Bruce brings deep expertise in technology, cybersecurity, strategic leadership and risk management, all of which are highly relevant to CAE's future and will further strengthen the Board's oversight as the company continues to evolve. Following the CEO selection process last year and Board renewal, I assume the expanded role of Executive Chairman to support the transition, engage with shareholders, government and other stakeholders and help evolve CAE's transformation plan and long-term strategy. With that work now well advanced and with our Board's full confidence in Matt, the leadership team and CAE's direction, I will revert to the role of Nonexecutive Chairman of the Board effective January 1, 2027. [Foreign Language] CAE now has a clear strategy, a strong leadership and a fully new Board of Directors focused on creating long-term value. To our shareholders thank you for your trust and continued support to all CAE employees around the world. I thank you for your dedication and commitment to our mission, our values and our strategy. Your work is essential to CAE's success and to trust our customers place on us every day. I have my pleasure to invite Matthew Bromberg, CAE's President and CEO, to address the meeting. The floor is yours.

Good afternoon, and thank you for joining us. Today, marks nearly 1 year since I stepped into the role of CAE's President and Chief Executive Officer. I took on this responsibility knowing the company had an exceptional foundation. And after a year, traveling, listening to our people, meeting our customers and visiting our operations around the world, this conviction has only been reinforced. CAE has 2 fantastic franchises and iconic civil aviation business and a defense and security business that the world needs now. And underpinning all of that is an exceptional team that continues to deliver through a period of significant change. [Interpreted] So I am proud to lead a company that was founded here in Montreal, built in Quebec and is now recognized around the world. This is a major strength for CAE. There are deep roots, a global reach and emission that matters. And it is on this foundation that we will build the next chapters of this company. Over the past year, we have laid the groundwork for CAE's future with the objective of making the company more focused, more disciplined and better positioned to grow. This future stems from 3 transformation priorities. First, our portfolio. We will invest where CAE is best positioned to differentiate, compete and win. To that end, we are simplifying the parts of our portfolio that no longer fit in our future. That involves reviewing 3 businesses, including Flightscape. The result will be a cleaner sharper CAE with our capital invested around businesses where we can lead. Second, our capital discipline. We are raising the bar on how we allocate capital across the company. This means being more rigorous about where we invest about how we evaluate returns about how we use our assets. In civil aviation for example, we are optimizing our training footprint by rationalizing capacity, improving utilization and concentrating activity where customer demand is the strongest. And third, performance. We are tightening execution across the business. We are building better systems. We are driving clear accountability, and we are implementing robust operational processes. We are investing in ourselves in areas like our Factory of the Future and in our ERP simplification project, our vision. Our vision is to make the most modern training devices in the most modern factory leveraging the most modern tools and the most modern processes. We are doing this because of the opportunity ahead. The transformation is expected to generate $125 million to $150 million in annual run rate savings by fiscal 2030. This will support our ambition to reach $950 million to $1 billion in adjusted segment operating income and performing at this level will give us the financial freedom to further invest in our people, our technology and in our customers. And this work is already well underway. Our teams are mobilized and engaged, and I am confident they are moving in the right direction. This confidence starts with our businesses. Our Civil Aviation business is the world-leading training organization, and we are making it stronger. The long-term fundamentals are compelling. 80% of the world's population has never flown in an aircraft. Airbus and Boeing are expected to deliver 40,000 new and replacement aircraft over the next decade. The world needs more safe, qualified aviation professionals and that is where CAE comes in. We have the global network, the customer trust and the technical depth to serve this demand. Over the past 60 days, I've spoken with roughly 50 airline leaders through industry events. The message was consistent. They say they see -- excuse me, the same future we do, and they are not changing course. Aviation is inherently resilient. The industry is strong, and this matters. That means we need to execute with discipline, stay close to our customers and keep building for the long term. CAE works in almost every country with almost every airline in the world, we understand their operations, we solve their problems. That trust is hard to replicate. It is unique, and we are not standing still. We continue to invest in the products and capabilities that will keep CAE ahead and position it for the future. Over the course of this year, we qualified the world's first Boeing 777-9 full-flight simulator and delivered simulators for [indiscernible] advanced air mobility platform. In addition, we opened a pilot training center in Mumbai and secured a new teaming agreement -- sorry, a new agreement with Turkish Airlines. And we announced here in Canada, the Alberta Training Center of Excellence in Calgary with WestJet as our partner. It is a cutting-edge aviation training facility. So you can see we continue to invest and this is why CAE leads. We are in today's fleets and on tomorrow's aircraft, and we are everywhere where the future of aviation is being built. In Defense and Security, our role is readiness. A platform only matters if people can operate it, maintain it and use it under pressure. CAE connects advanced systems with the people who must perform when the stakes are highest. The upside in defense is significant. Canada and Allied NATO countries are entering a new cycle of defense investment. That investment will require people to be ready. Over the next decade, NATO forces are expected to grow from roughly 6 million to almost 7.5 million men and women in uniform. When you factor in attrition, roughly 3 million people will need to be recruited, equipped and trained. And CAE is that training company. The defense market is moving at a scale we have not seen in decades. Canada has committed approximately $80 billion over 5 years to defense modernization. NATO allies are also moving towards a much higher level of investment. CAE enters this cycle with a substantial defense order book and a growing pipeline of opportunities across Canada, NATO and Allied markets, the potential is clear. Capturing this growth requires technology, scale and reach. CAE has all 3. As a training system integrator, we take complex platforms and help people learn how to use them safely and effectively. And as a defense platforms -- excuse me, and as defense platforms become more advanced and harder to operate, that role becomes more important. For example, a modern fighter aircraft can be 100x more complex than its commercial equivalent and repairing a fire pilot can cost as much as $25 million. Buying the platform is only the beginning. People and systems must be able to train, rehearse and operate together and that is what CAE enables. Across Defense & Security, our strategy is to partner early on new programs. It allows us to shape the training architecture and build relationships that can last for decades. That is why our partnerships with leading global defense OEMs matter. They give CAE the framework to connect devices, systems, software, courseware, synthetic environments and mission rehearsal into an integrated training solution that helps our forces prepare for increasingly complex missions. This is already taking place across air and maritime domains. In advanced pilot training, airborne surveillance, fighter platforms and naval programs, CAE is positioning itself where Allied forces will need deeper, more integrated readiness capability. Our goal is not only to provide the devices is to help the customers build the training ecosystems that supports operational readiness over the full life cycle. We see this in our expanding relationships with partners such as SAP Leonardo, TMS and Shield AI. These partnerships create franchise opportunities to build a defense pipeline that will drive long-term growth for decades to come. Stepping back, our 2 businesses reinforce each other. That is the real advantage. Across civil aviation and defense and security, we bring together commercial scale, recurring training expertise advanced technologies, mission readiness capability and deep customer relationships. These strengths help us innovate faster, improve efficiency and compete more effectively across the markets we serve. Looking forward, fiscal 2027 year is a year of execution and transformation. We know what we need to do. We need to strengthen the core. We need to be ready for opportunities ahead, and we need to bring more discipline, more speed and measurable progress across CAE. We will draw on what makes CAE exceptional, our customer trust, our technical depth our entrepreneurial drive and our team's shared commitment. Delivering starts with people, to our employees, thank you. You are carrying this transformation forward while delivering for your customers every day. That takes focus, resilience and commitment, and I do not take that for granted. To our customers and partners, thank you for your confidence, your trust matters and we will keep earning it every day through performance, reliability and delivery. And to our shareholders, thank you for your continued support as we build a stronger, higher-performing CAE. CAE prepares people to perform when it matters most. We help the world move safely. We prepare the men and women in uniform to protect it. That mission has never been more relevant. The future is bright. We have the world's leading civil aviation business, and it will continue to grow. In defense, our business is becoming more relevant every day in both we have what the world needs. Our time is now. [Foreign Language] In the world of action, CAE equals action.

Thank you so much for your attention. Great. Thank you very much, Matt, for that to address. It's an exciting time indeed. We'll now open the floor to questions from shareholders of record and proxy holders. For those attending in person, before asking your question, please proceed to a microphone, identify yourself as a shareholder or a proxy holder and state your name for the record. In the interest of time and to allow as many shareholders as possible to participate, we respectfully ask that all questions be kept brief. For those attending the meeting online, please submit your questions online, if not already done so. As noted earlier, you can select the messaging icon on the bottom of your screen and type your question or comment in English or in French in the chat box at the bottom left of your screen. And I think we'll start with a question in the room. I see there is one already online as well. So please go ahead.

My name is Anna Cristoforo and I am a shareholder. As the transformation progresses, how are employees responding to the changes. And secondly, what steps is management taking to maintain employee engagement and morale.

Excellent question. Thank you very much for that question. Matt?

Yes. Thank you for the question. As you said, transformation has changed and change is hard. And we have almost 12,000 employees and 250 sites in 40 countries around the world, and every 1 of them matters. So we are working around the clock to overcommunicate to be transparent and collaborative about where the projects are, what our time lines are, what the expected results are and what the challenges are and working through those one by one. And every time an employee has a question or issue or a concern, we're going to take it very seriously. Every employee is involved in this transformation, and it's about making the company stronger for the future. And we're already seeing to the second part of your question, the fruits of our labor. Our factory is starting to modernize. Our tools are being improved, and that's improving the day-to-day life of our employees. We're also starting to invest in our programs and products of the future, and that's going to set CAE up for decades to come. So the transformation is hard. The employees are engaged, and they see a bright future in front of us. Thank you.

Thank you. Samantha, are there any questions online?

Yes, I do see Mr. Chairman, that we have a question online from shareholder, James William Evans. And the question reads as follows: could you provide a few words of optimism for shareholders who have been waiting 6 years for the reinstatement of the dividend policy and dividend reinvestment plan.

That's a great question, and I appreciate it because it's an extremely important area that the Board has newly constituted is focusing on. Capital allocation is critical right now. And that's one of the reasons we've made as many changes as we have both at the Board level, at the executive level and why we put in place this transformation plan. Right now, we're in the environment where we control what we can control, and we build this transfer [indiscernible] returning cash to shareholders between the share buybacks, which, of course, we continue to do. And we'll continue to assess the appropriate time to consider reinstating a dividend. But of course, share buybacks are another form of returning capital to investors. And so I appreciate the question, and I hope you will read our communications in terms of the share buybacks that we are undertaking. And we're very, very mindful of both the need, the desire and how healthy it is for companies to return cash to their shareholders on a regular basis.

Thank you, Mr. Chairman. I do not see any other questions in the platform, and I'm looking around the room to see if there is another question for today.

Come on, guys, must have somewhat more questions.

[Foreign Language] No other questions on the platform.

[indiscernible] to see if there are any others online and anyone else in the room. If not, there will be an opportunity to speak with Matt and the members of the leadership team in a more informal basis in the time that follows this meeting.

[Foreign Language] I don't see any other questions.

I declare that the question period has ended. And this officially will, therefore, conclude the meeting. On behalf of CAE, thank you to everyone who participated, both online and in person. And until next year, we wish you, your families and your communities good health. The meeting is now terminated. Thank you.