Financials unchanged from previously disclosed preliminary results MONTREAL, May 27, 2024 /CNW/ - (NYSE:CAE) (TSX:CAE) - CAE Inc. (CAE or the Company) today reported its financial report for the fiscal year ended March 31, 2024. Financial results are unchanged from preliminary data that CAE disclosed on May 21, 2024, including the re-baselining of the Defense & Security business along with Defense & Security impairments and unfavourable contract adjustments related to eight previously identified fixed-price legacy contracts (the Legacy Contracts). All financial information is in Canadian dollars. "Last week we acted decisively and took the necessary steps to provide a clear path to margin improvement in our Defense business, supported by compelling long-term secular trends for this segment," said Marc Parent, CAE's President and Chief Executive Officer. "As a result of the changes we have made, we have a more balanced risk profile going forward, and with Nick Leontidis as our new Chief Operating Officer (COO), we are well-positioned to further strengthen our execution capabilities and drive additional synergies between our Civil and Defense segments." As previously disclosed, in Civil, the larger of CAE's two businesses, record margins and orders position the Company well in the fiscal year ahead with expected low double-digit percentage Civil annual adjusted segment operating income growth and continued margin strengthening, with an annual adjusted segment operating income margin of approximately 23%. For Defense, CAE continues to expect fiscal 2025 revenue growth in the low- to mid-single-digit percentage range and annual Defense adjusted segment operating income margin in the 6- to 7-percent range. As announced separately today, the TSX has approved the re-establishment of CAE's normal course issuer bid (NCIB). The NCIB will commence on May 30, 2024 and end on May 29, 2025. The decision of the Board of Directors to re-establish the NCIB reflects CAE's current outlook and the cash generative nature of its highly recurring revenue business. CAE's Board of Directors will also continue to evaluate the possibility of reintroducing a shareholder dividend. Consolidated results Fourth quarter fiscal 2024 revenue was $1,126.3 million, compared with $1,197.4 million last year. Fourth quarter EPS from continuing operations was negative $1.58 compared to $0.29 last year. Adjusted EPS(1) was $0.12 ($0.37 excluding Legacy Contracts(1)) compared to $0.33 last year. Operating loss this quarter was $533.0 million, compared to an operating income of $178.3 million (14.9% of revenue(1)) last year. Fourth quarter adjusted segment operating income(1) was $125.7 million (11.2% of revenue(1)) ($216.0 million excluding Legacy Contracts(1), 19.2% of revenue(1)) compared to $193.4 million (16.2% of revenue) last year. Annual fiscal 2024 revenue was $4.3 billion, compared to $4.0 billion last year. Annual EPS from continuing operations was negative $1.02 compared to $0.69 in fiscal 2023. Annual adjusted EPS was $0.87 this year ($1.12 excluding Legacy Contracts) compared to $0.87 last year. Annual operating loss was $185.4 million, compared to an operating income of $466.0 million (11.6% of revenue) last year. Adjusted segment operating income was $549.7 million (12.8% of revenue) ($640.0 million excluding Legacy Contracts, 14.9% of revenue) compared to $538.4 million (13.4% of revenue) last year. Summary of consolidated results (amounts in millions, except per share amounts and net debt-to-EBITDA ratios) FY2024   FY2023   Variance % Q4-2024    Q4-2023    Variance % Revenue $ 4,282.8 4,010.6 7 % 1,126.3 1,197.4 (6 %) Operating (loss) income $ (185.4) 466.0 (140 %) (533.0) 178.3 (399 %) Adjusted segment operating income(1) $ 549.7 538.4 2 % 125.7 193.4 (35 %) As a % of revenue(1) % 12.8 13.4 11.2 16.2 Adjusted segment operating income excluding Legacy Contracts(1) $ 640.0 538.4 19 % 216.0 193.4 12 % As a % of revenue(1) % 14.9 13.4 19.2 16.2 Net (loss) income attributable to equity holders of the Company $ (325.3) 220.6 (247 %) (504.7) 93.6 (639 %) (Loss) earnings per share (EPS) $ (1.02) 0.69 (248 %) (1.58) 0.29 (645 %) Adjusted EPS(1) $ 0.87 0.87 — % 0.12 0.33 (64 %) Adjusted EPS excluding Legacy Contracts(1) $ 1.12 0.87 29 % 0.37 0.33 12 % Free cash flow(1) $ 418.2 333.1 26 % 191.1 147.6 29 % Cash conversion rate(1) % 151 121 Adjusted order intake(1) $ 4,937.4 4,856.4 2 % 1,550.5 1,406.2 10 % Adjusted backlog(1) $ 12,183.9 10,796.4 13 % Net debt-to-adjusted EBITDA(1) 3.17 3.49 Net debt-to-adjusted EBITDA excluding Legacy Contracts(1) 2.89 3.49 (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. Comparative figures have been reclassified to reflect discontinued operations. Civil Aviation (Civil) results During the quarter, Civil signed training and operational support solutions contracts valued at $832.1 million. These included the sale of 7 full-flight simulators (FFSs) and long-term training and digital flight services contracts. For the year, Civil booked orders for a record $3.0 billion, including 64 FFS sales (vs. 62 in the prior fiscal year) and comprehensive, long-term training agreements with customers worldwide. The Civil book-to-sales ratio was 1.19x for the quarter and 1.24x for the last 12 months. The Civil adjusted backlog at the end of the year was a record $6.4 billion, which is up 12% from the prior year period. Summary of Civil Aviation results (amounts in millions) FY2024    FY2023    Variance % Q4-2024    Q4-2023    Variance % Revenue $ 2,435.8 2,166.4 12 % 700.8 661.4 6 % Operating income $ 442.0 430.3 3 % 147.0 149.3 (2 %) Adjusted segment operating income $ 548.9 485.3 13 % 191.4 162.9 17 % As a % of revenue % 22.5 22.4 27.3 24.6 Adjusted order intake $ 3,025.5 2,827.1 7 % 832.1 841.5 (1 %) Adjusted backlog $ 6,440.4 5,730.8 12 % 6,440.4 5,730.8 12 % Supplementary non-financial information Simulator equivalent unit 272 257 6 % 279 265 5 % FFSs in CAE's network 343 324 6 % 343 324 6 % FFS deliveries 47 46 2 % 17 17 — % Utilization rate % 76 72 78 78 Defense and Security (Defense) results During the quarter, Defense booked orders for $718.4 million, bringing the full-year total to $1.9 billion. The Defense book-to-sales ratio was 1.69x for the quarter and 1.04x for the last 12 months. The Defense adjusted backlog at the end of the year was $5.7 billion. In addition, the Defense pipeline strengthened with some $9.6 billion of bids and proposals pending customer decisions. Summary of Defense and Security results (amounts in millions) FY2024   FY2023   Variance % Q4-2024   Q4-2023   Variance % Revenue $ 1,847.0 1,844.2 — % 425.5 536.0 (21 %) Operating (loss) income $ (627.4) 35.7 (1,857 %) (680.0) 29.0 (2,445 %) Adjusted segment operating income (loss) $ 0.8 53.1 (98 %) (65.7) 30.5 (315 %) As a % of revenue % — 2.9 — 5.7 Adjusted segment operating income excluding Legacy Contracts* $ 91.1 53.1 72 % 24.6 30.5 (19 %) As a % of revenue* % 4.8 2.9 5.1 5.7 Adjusted order intake $ 1,911.9 2,029.3 (6 %) 718.4 564.7 27 % Adjusted backlog $ 5,743.5 5,065.6 13 % 5,743.5 5,065.6 13 % * The adjusted segment operating income excluding Legacy Contracts reflects the overall impact of the accelerated risk recognition on Legacy Contracts of $90.3 million, consisting of a reduction in revenue of $54.3 million and cost of sales of $36.0 million recorded in the fourth quarter of fiscal 2024.  Additional information pertaining to Defense Legacy Contracts As previously disclosed, within Defense there are a number of fixed-price contracts which offer certain potential advantages and efficiencies but can also be negatively impacted by adverse changes to general economic conditions, including unforeseen supply chain disruptions, inflationary pressures, availability of labour; all contributing to execution difficulties. These risks can result in cost overruns and reduced profit margins or losses. While these risks can often be managed or mitigated, there are eight distinct legacy contracts entered into prior to the COVID-19 pandemic that are firm fixed price in structure, with little to no provision for cost escalation, and that have been more significantly impacted by these risks (the Legacy Contracts disclosed in the third quarter of fiscal 2024). Although only a small number of contracts, they have disproportionately impacted overall Defense profitability. The Legacy Contracts include one that was inherited with CAE's fiscal 2022 acquisition of L3Harris Technologies' Military Training business and have completion dates mainly within the Company's next two fiscal years https://www.cae.com/news-events/press-releases/cae-announces-re-baselining-of-its-defense-business-defense-impairments-accelerated-risk-recognition-on-legacy-contracts-and-appointment-of-nick-leontidis-as-coo. The impairments and accelerated risk recognition on Legacy Contracts resulting in unfavourable contract adjustments are expected to allow CAE to develop a new baseline for future profitability. In addition to the senior leadership changes at the business unit and corporate levels, CAE has continued to implement measures to further enhance risk management and execution over the past few years, including an increasingly disciplined and rigorous approach to the selection of bids and proposals and an enhanced focus on higher quality program pursuits. Additional financial details CAE incurred restructuring, integration and acquisition costs of $55.0 million during the fourth quarter of fiscal 2024, in connection with the previously announced restructuring program related to portfolio shaping actions including the sale of Healthcare and to the continued integration of the fiscal 2022 acquisition of Sabre's AirCentre airline operations portfolio (AirCentre). The restructuring program is related to portfolio shaping actions and to streamline CAE's operating model and portfolio, optimize its cost structure, and to create efficiencies. Total restructuring, integration and acquisition costs incurred since the start of the restructuring program this quarter amounted to $39.3 million, mainly related to severances and other employee related costs and the impairment of intangible assets related to the termination of certain product offerings within the Civil Aviation segment. CAE expects to record approximately $10 million of additional restructuring expenses over the next two quarters in light of the organizational and operational changes announced on May 21, 2024, to re-baseline the Defense business, further strengthen its execution capabilities, and drive additional synergies between CAE's Defense and Civil Aviation businesses. Net finance expense this quarter amounted to $52.4 million, compared to $52.4 million in the preceding quarter and $50.4 million in the fourth quarter last year. Income tax recovery this quarter was $80.6 million, representing an effective tax rate of 14%, compared to an effective tax rate of 24% in the fourth quarter last year. The adjusted effective tax rate(1), which is the income tax rate used to determine adjusted net income and adjusted EPS, was 47% this quarter compared to 23% in the fourth quarter of last year. The increase in the adjusted effective tax rate was mainly attributable to the derecognition of tax assets previously recorded in Europe partially offset by the change in the mix of income from various jurisdictions. Net income from discontinued operations was $20.5 million this quarter compared to $4.8 million in the fourth quarter of fiscal 2023. The increase compared to the fourth quarter of fiscal 2023 was mainly attributable to the after-tax gain on disposal of discontinued operations of $16.5 million in relation to the sale of the Healthcare business. Summary of results from discontinued operations FY2024 FY2023 Q4-2024 Q4-2023 Revenue $    131.7 $    192.7 $      14.8 $      59.1 Expenses 132.7 184.7 20.0 50.8 Operating (loss) income $      (1.0) $        8.0 $      (5.2) $        8.3 Finance expense 3.6 4.1 0.6 1.0 (Loss) earnings before income taxes $      (4.6) $        3.9 $      (5.8) $        7.3 Income tax (recovery) expense (9.4) 1.8 (9.8) 2.5 Net income from discontinued operations before after-tax gain on disposal $        4.8 $        2.1 $        4.0 $        4.8 After-tax gain on disposal of discontinued operations 16.5 — 16.5 — Net income from discontinued operations $      21.3 $        2.1 $      20.5 $        4.8 Net cash provided by operating activities was $215.2 million for the quarter compared to $180.6 million in the fourth quarter last year. Free cash flow(1) was $191.1 million for the quarter compared to $147.6 million in the fourth quarter last year. For the year, net cash provided by operating activities was $566.9 million compared to $408.4 million last year and free cash flow was $418.2 million, compared to $333.1 million in the same period last year. The cash conversion rate(1) for fiscal year 2024 was 151%. Growth and maintenance capital expenditures(1) totaled $91.7 million this quarter and $329.8 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 $2,914.2 million for a net debt-to-adjusted EBITDA(1) of 3.17 times (2.89 times excluding Legacy Contracts(1)). This compares to net debt of $3,085.4 million, for a net debt-to-adjusted EBITDA of 3.16 times at the end of the preceding quarter. Adjusted return on capital employed (ROCE)(1) was 5.9% this quarter compared to 7.0% last quarter and 5.8% in the fourth quarter last year. Adjusted ROCE includes the impact of $90.3 million in unfavourable Defense contract adjustments. (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. Sustainability This quarter, CAE submitted near-term (10 years) science-based reduction targets for validation by SBTi, an achievement that positions CAE on the net zero trajectory. Upon approval, these ambitious targets will guide our decarbonization journey organized around four value streams: aviation, sourcing, products and services, and buildings, which will help us transition from carbon neutrality to net zero emissions. Such an objective requires the mobilization of all our value chain which is why we introduced our new Supply Chain Management Program, CAE Resilient Together, designed to mutually reinforce both operational excellence and sustainability with our partners. Our carbon built-on approach extends to our business strategic planning and decision-making as we know that sustainability is a paramount long-term value driver. We have also contributed to raise awareness on the crucial role of sustainable aviation fuel via CAE Crew Training, for all business aviation pilots training with us. In addition, we remain strongly committed to creating social value and fostering an inclusive and diverse culture. Our efforts to strengthen relations with Indigenous Peoples in Canada and around the world have been recognized through our first certification as a Progressive Aboriginal Relations Bronze company. 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 2025 CAE confirms all of the 2025 guidance originally disclosed on May 21, 2024, including for Civil and Defense, for finance expense and tax expense, and for balanced capital allocation priorities and accretive growth investments. CAE reiterates that a tenet of its capital management priorities includes the maintenance of a solid financial position, and it expects to continue to bolster its balance sheet through ongoing deleveraging, commensurate with its investment grade profile. Management's outlook for fiscal year 2025 and the targets outlined in CAE's May 21, 2024 press release (https://www.cae.com/news-events/press-releases/cae-announces-re-baselining-of-its-defense-business-defense-impairments-accelerated-risk-recognition-on-legacy-contracts-and-appointment-of-nick-leontidis-as-coo) 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 2025 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 2024 MD&A, all available on our website (www.cae.com), SEDAR+ (www.SEDARplus.ca) 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, 2024, which are available on our website (www.cae.com), SEDAR+ (www.SEDARplus.ca) 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 Conference call Q4 and full FY2024 Marc Parent, CAE President and CEO; Sonya Branco, Executive Vice President and CFO, Finance; Nick Leontidis, COO; and Andrew Arnovitz, Senior Vice President, Investor Relations and Enterprise Risk Management, will conduct an earnings conference call tomorrow at 8:00 a.m. ET. The call is intended for analysts, institutional investors and the media. Participants can listen to the conference by dialing 1-844-763-8274 or +1-647-484-8814. The conference call will also be audio webcast live at www.cae.com. About CAE 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, maintenance technicians, airlines, business aviation operators and defence and security forces 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 approximately 13,000 employees in more than 240 sites and training locations in over 40 countries. CAE represents more than 75 years of industry firsts–the highest-fidelity flight and mission simulators as well as 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. Caution concerning limitations of summary earnings press release This summary earnings press release contains limited information meant to assist the reader in assessing CAE's performance, but it is not a suitable source of information for readers who are unfamiliar with CAE and is not in any way a substitute for the Company's financial statements, notes to the financial statements, and MD&A reports.  Caution concerning forward-looking statements This press release includes forward-looking statements about our activities, events and developments that we expect to or anticipate may occur in the future including, for example, statements about our vision, strategies, market trends and outlook, future revenues, earnings, cash flow growth, profit trends, growth capital spending, expansions and new initiatives, including initiatives that pertain to environmental, social and governance (ESG) matters, financial obligations, available liquidities, expected sales, general economic and political outlook, inflation trends, prospects and trends of an industry, expected annual recurring cost savings from operational excellence programs, our management of the supply chain, estimated addressable markets, demands for CAE's products and services, our access to capital resources, our financial position, the expected accretion in various financial metrics, the expected capital returns to shareholders, our business outlook, business opportunities, objectives, development, plans, growth strategies and other strategic priorities, and our competitive and leadership position in our markets, the expansion of our market shares, CAE's ability and preparedness to respond to demand for new technologies, the sustainability of our operations, our ability to retire the Legacy Contracts as expected and to manage and mitigate the risks associated therewith, the impact of the retirement of the Legacy Contracts, expected results from the re-baselining of the Defense business, management outlook for fiscal year 2025, the establishment of a NCIB program, the introduction of a shareholder dividend and other statements that are not historical facts. Since forward-looking statements and information relate to future events or future performance and reflect current expectations or beliefs regarding future events, they are typically identified by words such as "anticipate", "believe", "could", "estimate", "expect", "intend", "likely", "may", "plan", "seek", "should", "will", "strategy", "future" or the negative thereof or other variations thereon suggesting future outcomes or statements regarding an outlook. All such statements constitute "forward-looking statements" within the meaning of applicable Canadian securities legislation and "forward-looking statements" within the meaning of the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995. By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties associated with our business which may cause actual results in future periods to differ materially from results indicated in forward-looking statements. While these statements are based on management's expectations and assumptions regarding historical trends, current conditions and expected future developments, as well as other factors that we believe are reasonable and appropriate in the circumstances, readers are cautioned not to place undue reliance on these forward-looking statements as there is a risk that they may not be accurate. The forward-looking statements contained in this press release describe our expectations as of May 27, 2024 and, accordingly, are subject to change after such date. Except as required by law, we disclaim any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. The forward-looking information and statements contained in this press release are expressly qualified by this cautionary statement. In addition, statements that "we believe" and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this press release. While we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. ...