Mr. Marc Parent reports

CAE REPORTS FIRST QUARTER FISCAL 2024 RESULTS

CAE Inc. had revenue of $1,054.4-million for the first quarter of fiscal 2024, compared with $933.3-million in the first quarter last year. First quarter diluted EPS (earnings per share) was 20 cents compared with one cent last year. Adjusted EPS in the first quarter was 24 cents compared with six cents last year.

Operating income this quarter was $130.1-million (12.3 per cent of revenue), compared with $39.4-million (4.2 per cent of revenue) last year. First quarter adjusted segment operating income was $145.1-million (13.8 per cent of revenue) compared with $60.9-million (6.5 per cent of revenue) last year.

"We are off to a strong start to the fiscal year with first quarter results driven by double-digit year over year growth in civil, continued strengthening and transformation in defence, and increased profitability in health care. We also further bolstered our financial position and are on track to meet our leverage target by mid fiscal year," said Marc Parent, CAE's president and chief executive officer. "We made excellent progress in the quarter to secure CAE's future with over $1-billion in total adjusted order intake, for a record $11.2-billion adjusted backlog. As partner of choice, we are addressing a greater share of our civil aviation customers' training and operational needs, as evidenced by our long-term training services agreements that now include nearly every major U.S. airline. We are also making excellent progress to transform defence as demonstrated by our recent large strategic program wins, including the selection of SkyAlyne as the preferred bidder for the future aircrew training program to provide next-generation pilot and aircrew training for the Royal Canadian Air Force. This represents a multibillion-dollar generational training opportunity for CAE, spanning the next quarter century. Our customers in each of our markets have a growing need for innovative training and operational support solutions to succeed in evermore complex environments. As we look to the period ahead, we continue to be highly encouraged by the secular tailwinds in all segments and the growth we expect by harnessing our global market and technology leadership and the power of One CAE."

Civil aviation (civil)

First quarter civil revenue was $540.3-million versus $480.4-million in the first quarter last year. Operating income was $105.6-million (19.5 per cent of revenue), compared with $75.4-million (15.7 per cent of revenue) in the same quarter last year. Adjusted segment operating income was $119-million (22.0 per cent of revenue), compared with $86.6-million (18.0 per cent of revenue) in the first quarter last year. During the quarter, civil delivered six full-flight simulators (FFSs) to customers and first quarter civil training centre utilization was 77 per cent.

During the quarter, civil signed training solutions contracts valued at $730.2-million, including a range of long-term commercial and business aviation training agreements and 22 FFS sales. During the recent Paris Air Show, civil also announced the signing of an agreement with Boeing, through which it will become an authorized training provider and the first to offer its competency-based training and assessment curriculum. Also, during the air show, CAE released its 2023 aviation talent forecast, which anticipates a global need for 1.3 million new aviation professionals to join the industry as pilots, aircraft maintenance technicians and cabin crew over the next 10 years to support the expected growth of the commercial and business aviation markets.

The civil book to sales ratio was 1.35 times for the quarter and 1.36 times for the last 12 months. The civil adjusted backlog at the end of the quarter was a record $5.8-billion.

Defence and security (defence)

First quarter defence revenue was $471.7-million versus $413.3-million in the first quarter last year. Operating income was $22.7-million (4.8 per cent of revenue), compared with a loss of $30.3-million in the same quarter last year. Adjusted segment operating income was $24.3-million (5.2 per cent of revenue), compared with a loss of $21.2-million in the first quarter last year.

Defence booked orders for $237.7-million and an additional $779-million of unfinanced contracts this quarter. Notable awards included a 12-year, $455-million (U.S.) contract to support flight school training support services (FSTSS) at Fort Novosel, Ala., with training and simulation solutions for initial entry-level and graduate-level rotary-wing flight training. Defence was also awarded a contract for the U.S. Air Force's (USAF) rotary-wing introductory flight training (IFT-R) contract, worth a maximum value of $110.6-million (U.S.) 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 centre in Dothan, Ala. Along with these two mission-critical contract awards in the air domain, defence was also awarded a contract in the land domain that is critical to the U.S. Army's mission, namely, phase II of the rapid prototyping effort supporting the soldier virtual trainer (SVT) program, which is intended to replace more than 800 legacy training systems. This program allows defence to continue the expansion of synthetic training environments to empower soldier-led training at the point of need. Internationally, defence was awarded a contract from the Commonwealth of Australia to continue supporting its Australian Defence Force aerospace simulator integrated support and training (ASIST) program.

Since the end of the quarter, defence continued to leverage its Dothan training centre and CAE's industry-leading business aviation training expertise to provide mission-critical solutions for the U.S. Army aviation customer. It was awarded a contract for simulation-based training for the U.S. Army's key next-generation airborne intelligence, surveillance and reconnaissance (ISR) system, the high-accuracy detection and exploitation system (HADES), which is based on the Bombardier Global 6500 business jet.

Also following the end of the quarter, SkyAlyne -- a partnership between CAE and KF Aerospace -- was identified by the government of Canada as its preferred bidder to manage the future aircrew training (FAcT) program for the Royal Canadian Air Force (RCAF). The FAcT contract represents a generational training opportunity and will cover all aspects of the required training and in-service support to train Canadian military pilots, air combat systems officers (ACSOs) and airborne electronic sensor operators (AES ops). This contract is anticipated to be awarded in 2024 and is expected to be CAE's largest to date.

The defence book to sales ratio was 0.50 times for the quarter and 0.94 times for the last 12 months (excluding unfinanced backlog totalling $779-million). The defence adjusted backlog, including unfinanced contract awards and CAE's interest in joint ventures, at the end of the quarter was a record $5.4-billion. The defence pipeline remains strong with approximately $8.8-billion of bids and proposals pending.

Health care

First quarter health care revenue was $42.4-million versus $39.6-million in the first quarter last year. Operating income was $1.8-million (4.2 per cent of revenue) compared with a loss of $5.7-million in the same quarter last year. Adjusted segment operating income was $1.8-million (4.2 per cent of revenue) compared with a loss of $4.5-million in the first quarter last year.

During the quarter, Healthcare had notable contract awards from Belmont University for its LearningSpace centre management solution for the Thomas F. Frist, Jr. College of Medicine in Nashville, Tennessee. Healthcare was also awarded a contract from the University of North Dakota for a multi-sim sale to outfit their Simulation in Motion mobile education system and announced the opening of the Louisiana Delta Community College simulation centre designed and outfitted by CAE. Internationally, Healthcare signed a multi-product sale to a simulation lab in India for prehospital, neonatology, pediatrics, obstetrics, gynecology and ultrasound procedures. As part of its Custom Industry Solutions, Healthcare entered an agreement with Abbott Laboratories to develop a training platform supporting a commercial pacemaker launch.

Additional financial highlights

CAE incurred restructuring, integration and acquisition costs of $15-million during the first quarter of fiscal 2024 relating mainly to the fiscal 2022 acquisition of Sabre's AirCentre airline operations portfolio.

Net cash used in operating activities was $49.3-million for the quarter, compared with $162.6-million in the first quarter last year. Free cash flow was negative $104.9-million for the quarter compared with negative $182.4-million in the first quarter last year. The increase was mainly due to higher cash provided by operating activities and a lower investment in non-cash working capital.

Income tax expense this quarter amounted to $8.2-million, representing an effective tax rate of 11 per cent, compared with an effective tax rate of negative 16 per cent for the first quarter last year. The adjusted effective tax rate, which is the income tax rate used to determine adjusted net income and adjusted EPS, was 13 per cent this quarter as compared with 21 per cent in the first quarter of last year. This quarter included a favourable impact to the income tax expense from the tax court decision related to the Strategic Aerospace and Defence Initiative (SADI) program, which was offset by a negative impact from higher interest expense related to the same matter.

Growth and maintenance capital expenditures totaled $90.6-million this quarter.

Net debt at the end of the quarter was $3,166.4-million for a net debt-to-adjusted EBITDA of 3.22 times. This compares to net debt of $3,032.5-million and a net debt-to-adjusted EBITDA of 3.41 times at the end of the preceding quarter. CAE closed a private offering of $400-million aggregate principal amount of 5.541 per cent Series 1 Senior Unsecured Notes, due June 12, 2028. CAE used the net proceeds of this offering to repay existing indebtedness and for other general corporate purposes.

Net finance expense this quarter amounted to $54.1-million, compared with $51.4-million in the preceding quarter and $36.2-million in the first 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 higher interest from the tax court decision related to the SADI program in the quarter.

Adjusted return on capital employed was 6.6 per cent this quarter compared with 5.7 per cent last quarter and 5.2 per cent in the first quarter last year.

Environmental, Social, and Governance (ESG)

During the quarter, CAE released its FY23 Global Annual Activity and Sustainability report, showcasing the Company's ongoing efforts to integrate environmental, social and economic considerations into its operations, and underscoring its dedication to long-term success and value creation for its stakeholders and society as a whole. This report marks the first year of its new 5-year ESG strategic roadmap and, as such, has been significantly restructured and enhanced to align with industry best practices and address stakeholder expectations. As the company's most comprehensive report to date, CAE expanded disclosures to more than 15 new material topics and performance metrics.

The document highlights CAE's journey towards environmental stewardship, social responsibility and sustainable business practices, including:

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. By participating in the IAEG, CAE will contribute to the harmonization of ESG requirements for suppliers across the aerospace and defence sector.

CAE was 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.

CAE expanded the breadth of its Scope 3 reporting beyond business air travel to additional major categories and continued the integration of sustainability criteria into its supply chain management processes.

For more information on how CAE supports the aviation industry's decarbonization journey and contributes to a more sustainable future for all, the report can be downloaded at https://www.cae.com/social-responsibility/.

Management outlook unchanged

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 per cent 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, with secular trends expected to be 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 continued cyclical recovery 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 annual margins in the range of fiscal 2023, as a function of 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 industry-leading training solutions in commercial aviation, and 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 strategic program wins, record $5.4 billion adjusted backlog and $8.8 billion pipeline of bids and proposals outstanding 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 growing 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 labor 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 per cent 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 average adjusted effective income tax rate for the remainder of the fiscal year to be approximately 22 per cent.

Management's outlook for fiscal 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 quarter ended June 30, 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 Q1 FY2024

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.

We seek Safe Harbor.