CAE : Fiscal 2022 Fourth Quarter Conference Call Question & Answer Session

CAE Inc. Fiscal 2022 Fourth Quarter Conference Call Question & Answer Session Wednesday, June 1, 2022 8:30 AM

C O R P O R A T E P A R T I C I P A N T S	Ron Epstein
Bank of America
Marc Parent	Kevin Evanminsky
President & Chief Executive Officer	Infinity Financial
Sonya Branco	Gerardo Ganem
Executive Vice President, Finance and CFO	HSBC
Andrew Arnovitz	Michael Goldie
Senior Vice President, Investor Relations & Enterprise	BMO
Risk Management	Elizabeth Grenfell
C O N F E R E N C E C A L L P A R T I C I P A N T S	Bank of America
Konark Gupta
Sai Aeja
Scotiabank
Bloomberg	Alex Guriev
Marco Albanesi
Navemar Cap
TD Securities	Derek Gut
Maura Amaya
Jarislowsky Fraser
TD Securities	Tim James
Julien Arsenault
TD Securities
La Presse	Shaha Khan
Jasroop Bains
Mackenzie
TD Securities	Micheal Kypreos
Harman Bassi
Desjardins Capital Mkts
Canaccord Genuity	Matthew Lee
Jossia Belisle
Canaccord Genuity
HSBC	Kristine Liwag
Anna Browning
Morgan Stanley
Axiom	Michael Lokuta
Elizabeth Barney
Private Investor
Beck, Mack & Oliver	David Mac J.
Richard Cattersall
Goldman Sachs
Heatherbridge Capital	Matt McConnell
Fadi Chamoun
Lord Abbett
BMO	Sarah Mckewan
Kevin Chiang
RBC
CIBC	Alexandre Melville
Dina DeGeer
Scotiabank
Mackenzie Investments	Renato Monzon
Cameron Doerksen
BMO
National Bank Financial

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CAE Inc. Fiscal 2022 Fourth Quarter Conference Call Question & Answer Session Wednesday, June 1, 2022 8:30 AM

Michael Nnamchi	Dan Slocum
Citigroup	Umpqua Bank
John Novak	Xavier Weisrock
CCL	Castil Finances
Luc Ouellet	Jeremy Einhorn
Scotia Capital	Datadog
Thomas Phillips	Ilyas Ibragimov
CIBC	Blueshift
Noah Poponak	Tarun Jodhvani
Goldman Sachs	S&P Global
Norman Rachkowan	Dennis Ly
Ten Squared Investments	Heathbridge Capital Management
Jay Rodrigues	Josh Cohen
Makaira	TFC
Ahmed Saheem	Rosa Vazquez
Addenda Cap	Artisan Partners
Trey Schorgl Ivy	Ithai Kenan
Macquarie	Lucid Capital
Rachel Smith	Katherine He
Aiera	Scotiabank
Walter Spracklin	Bradley Purcell
RBC Capital Markets	Goodnow Investment Group
Manisha Tandon	Gavin Parsons
Goldman Sachs	Goldman Sachs
Hany Tawfik	Gregory Chu
TD Bank	Mackenzie Investments
John Thomas	Vijaya Mohan Dasa
Bloomberg Financial	S&P Global Market Intelligence
Anthony Valentini	Randall Heck
Goldman Sachs	Goodnow Investment Group
Taimur Zahid	Tyler Wright
S&P Global	Scotiabank
Jessica Zhang	Vim Thasan
CIBC World Markets	Beutel Goodman Investment Counsel
Jatin Pahilajani	James Jaminal
Blackstone	FactSet
Alexander Blanco	Hence Orme
Titmus	PSP Investments

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CAE Inc. Fiscal 2022 Fourth Quarter Conference Call Question & Answer Session Wednesday, June 1, 2022 8:30 AM

Jason Holcomb	Aneel Stephen
Morgan Stanley	S&P Global Market Intelligence
Rachel Smith	Anthony Sotirhos
Aiera	Foresight global
Jon Cotchen	Juliana Faircloth
Federated Hermes	Tdam
Michael Sprung	Jason White
Sprung Investment Management Inc.	Artisan Partners
Vincent Forbes	Giles Evans
TD Securities	DSM Capital Partners
Anthony Del Vecchio	Andre Madrid
Mackenzie Investments	Bank of America
Gord O'Reilly	Lieke Rouwers
Fiera Capital	Lazard
Gabriel Tremblay	Patrick McKeegan
TD Securities	Franklin Templeton
Mike Schneider	Francis Poirier-Cloutier
Artisan Partners	Citi
Levon Barker	Jordan Herley
Cumberland Private Wealth Management	Hahn Capital Management, LLC
Lauree Wheatley	Samuel Cox
Galibier	Wellington
Will Huff	Francois Broquin
Sandler Capital	CDPQ
Alexander Hutton	Mike Moore
NBF	Goodnow
Jay Rodrigues	Mitchell McCartney
Makaira Partners	Franklin Templeton
Peter Jackson	Patrick Lauziere
Cumberland private wealth management	Fiera
Jordan Lyonnais	Michel Marceau
Bank of America	TD Securities
Dina DeGeer	Kevin Wosik
Mackenzie Investments	IA Clarington
Renato Monzon	William Yates
BMO Capital Markets	Blackstone
Garrett Inculet	Brett Larson
Summerhill	Janus Henderson

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CAE Inc. Fiscal 2022 Fourth Quarter Conference Call Question & Answer Session Wednesday, June 1, 2022 8:30 AM

Barry Da Silva

Cidel Asset Management

Colin McPherson

Jarislowsky Fraser

Edouard Ringuet

CDPQ

Julia Robertson

Delaney capital

Paul Mastrodicasa

RBC

Blair Brumley

Confluence Investment Management

Amir Ahmad 1832 AM

Steve Roy

Assante

Pawel Wroblewski

Clearbridge

Henry Bergen

Goodnow Investment Group

Sebastien Perron-Carle

Scotiabank

Azita Taravati

Citi

Rob Mills

Anson North Star

Q U E S T I O N A N D A N S W E R S E S S I O N

Andrew Arnovitz, SVP, IR & ERM

Thank you, Marc. Operator, we'll now be ready to take questions from analysts and institutional investors.

Operator

Our first question is from Kevin Chiang of CIBC. Please go ahead.

Kevin Chiang, CIBC

Good morning. Thanks for taking my questions. Let me just -- two for me. The first one on your -- I guess your recovered SOI margin target, you stuck to the 17%, which gives us a North Star as your revenues recovered here. But that number hasn't changed, I think, over the past few quarters here. Obviously, the inflationary environment has. And I'm just wondering, you know, how do you see those margins progressing here, given the current inflation environment?

Did the composition of that 17%, has that changed, or do you feel like maybe structuring efforts more than offset the inflationary pressures, or maybe pricing power helps with another lever? Just wondering how that 17% comes above in a higher inflationary environment here.

Marc Parent, President & Chief Executive Officer

It hasn't changed much, Kevin, yet although we're certainly not unaffected like anyone else with the inflationary environment. But, you know, we've taken steps to protect ourselves from that through various factors, and some of those you mentioned with is being able to pass on some of the costs on to price increases to offset. We relentlessly reduce our costs. That helps as well. We have built in, you know, measures in our contracts to be able to cater for that as well and in a kind of normalized fashion.

And I think in terms of the composition, it hasn't really changed. We were expecting higher peak margins in Civil. And, you know, we expect certainly to get within our planning horizon to low double digits margin in Defense. I think that composition hasn't really changed. That's still our North Star.

Kevin Chiang, CIBC

That's super helpful. And maybe just a second one for me. You know, a lot of headlines around the pilot shortage, especially in the U.S. and one of your partners, JetBlue, recently noted that one way they are combating this is leveraging, I guess, a Gateway program, which I believe you have a partnership with them. And believe they felt that focusing on onboarding cadets early was helping them get in front of the labor bottleneck.

And so, I'm wondering, you know, as other airlines facing pilot shortage issue, are you seeing increasing conversations around setting up Gateway programs with other U.S. airlines or global airlines, with the idea if you can kind of get the cadet in early that might help alleviate

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CAE Inc. Fiscal 2022 Fourth Quarter Conference Call Question & Answer Session Wednesday, June 1, 2022 8:30 AM

the pilot shortage, you know, as you kind of look down --		Konark Gupta, Scotiabank
look down the supply chain?		Good morning and thanks, everyone. Just wanted to kind
			of follow up on Kevin's question on the pilot shortage. Is
Marc Parent, President & Chief Executive Officer		there a way, Marc, to quantify the population of -- the
			current population of pilots going through training at this
Well, I think first off, we're very proud of the relationship		time versus what it was prior to the pandemic?
we have with JetBlue as well as other airlines in the		I'm just trying to get a sense of, you know, like if the pilot
United States and around the world with programs like
the Gateway program that we have with JetBlue. And		shortage is there, is it hurting the airlines from growing
yeah, we're seeing strong demand. As I mentioned in my		above and beyond the pandemic? Or is it a hurdle for
notes. The enrollment in our flight schools, particularly		them to get back to the fold, pre-pandemic
the one we have in Phoenix that caters for JetBlue,
amongst others -- American, for example -- seeing record		Marc Parent, President & Chief Executive Officer
order intake in terms of cadets.
So, look, we are basically seeing airlines being impacted		I think it's definitely a headwind right now, and I think
by pilots certainly in the United States strongly right now.		they're better positioned to be able to answer that
And we're doing everything that we can to be able to		question than I am. But it really depends on the airline,
support them with, you know, providing pilots through our		and you're really seeing that materialize itself mainly at
Parc Aviation business, for example, which we do. We		feeders, feeders to the main lines. Because largely, the
supply pilots, and that's seeing some strong demand.		main lines have been able to cater it, although they're
			seeing some of that hit as well, you know, some of our
We're also seeing, as I mentioned, the enrollment in our		major partners in the United States.
schools. And look, I think this is something that will		And definitely, I think we're seeing extraordinary level of
continue to be a factor. And the fact that airlines are in
great need of pilots, to me it means long-term business		demand right now, in the United States specifically --
for CAE as the largest provider of pilot training in the		we've talked about before -- which is benefiting our
world. Some we're going to continue to help our airline		market quite substantially. That's why you're seeing very
customers and expand those programs.		high levels of utilization in the United States specifically.
			It's a fact that we've been talking about it. And there's a
And, you know, our own focus, our own actually forecast		lot of, you know, Delta training being caused by the fact
on this is -- I think we've said before -- is that we estimate		that you're bringing on more pilots.
that over 264,000 new pilots are going to have to be		So, look, I think it's something that I don't think
created over the next 7 to 8 years to accommodate, you
know, the retirement that we've seen, the attrition that		structurally, it's going to affect the recovery overall of the
we've seen, as well as the new growth that's going to		market in any sustained fashion. But there's no doubt --
come across, just assuming kind of the growth that IATA		there's no doubt that it's having an effect right now. As I
is anticipating. So, look, I think we're going to have a lot		think I've said many times before, I think it's a great time
of business going forward on this.		to start a pilot career. I think we would have growth for
			years to come, and I think that's going to be a strong
			driver for our business at CAE. We're the largest trainer
Kevin Chiang, CIBC		of pilots in the world.
Excellent, thank you for taking my questions.
	Konark Gupta, Scotiabank
Operator		Right. No, makes sense, thanks for that.
Thank you. The next question comes Konark Gupta of
	Marc Parent, President & Chief Executive Officer
Scotiabank. Please go ahead.
			I mean, you see that by the way - you see that by the
			way just in the -- as I was mentioning in my notes, the
			strong demand that we've seen for full-flight simulators. I
			mean, all of last year we had 11 full-flight simulators
			sales. And in the past year that we just closed, we had
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