Good day, ladies and gentlemen. Welcome to the CAE third quarter conference call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Mr. Andrew Arnovitz. You may now proceed, Mr. Arnovitz. Good afternoon, everyone. Thanks for joining us on the call. Before we begin, I will remind you that today's remarks, including management's outlook and answers to questions, contain forward-looking statements. These forward-looking statements represent our expectations as of today, February the 14th, 2023, and accordingly are subject to change. Such statements are based on assumptions that may not materialize and are subject to risks and uncertainties. Actual results may differ materially, and listeners are cautioned not to place undue reliance on these forward-looking statements. The description of the risks, factors, and assumptions that may affect future results is contained in CAE's annual MD&A, available on our corporate website and in our filings with the Canadian Securities Administrators on SEDAR and the U.S. Securities and Exchange Commission on EDGAR. On the call with me this afternoon are Marc Parent, CAE's President and Chief Executive Officer, and Sonya Branco, our Chief Financial Officer. After remarks from Marc and Sonya, we'll open the call to questions from financial analysts. At the conclusion of that segment, we'll open the line to members of the media. Let me now turn the call over to Marc. Thank you, Andrew, and good afternoon to everyone joining us on the call. We had strong results in the third quarter, driven by Civil's double-digit growth, Defense sequential improvement, and Healthcare's increased profitability. We also ensured our path to future growth by securing over CAD 1.2 billion in total order intake for a record CAD 10.8 billion backlog and 1.22 times book-to-sales ratio. In Civil, we booked CAD 713 million of orders from a large opportunities pipeline, resulting in a 1.38 times book-to-sales ratio. This is especially noteworthy accomplishment considering this is on revenue that's 33% higher than last year. Orders include long-term commercial aviation training agreements with GOL Airlines and Mesa Airlines, and a multi-year business aviation training agreement with Delux Public Charter. We also made excellent progress with our flight operations software solutions, with notable agreements including a five year contract with Ethiopian Airlines for our next gen crew and operations managers solution suite. Since the end of the quarter, an agreement with Frontier Airlines for our next gen operation solutions. Demand for full-flight simulators continued to be strong with 14 sales in a quarter, bringing our year-to-date total to 43. Civil's financial and operational performance was also strong in the third quarter, with double-digit growth and near record margins. We delivered nine full-flight simulators in the quarter. Average training center utilization was 73%, up from 60% last year. Commercial aviation training demand continued to be strongest in the Americas, followed by seasonal uptick in Europe and in Asia, which has improved with the ongoing easing of travel restrictions in China. In business aviation, training demand continued to be robust throughout our network, reflecting a high level of pilot training to support business aircraft flight activity, which continues to exceed pre-pandemic levels. In Defense, the leading indicator of our progress towards a larger and more profitable business is order intake. This quarter, we booked orders across domains for training and mission support solutions valued at CAD 477 million for a 1.05 times book-to-sales ratio. This marks the sixth consecutive quarter that this ratio has been above one, resulting in a book-to-sales ratio of 1.25 times on a trailing twelve-month basis. Notable orders in the air domain include the provision of a flight training device and maintenance and logistics support for the Royal Canadian Air Force's CH-149 Cormorant search and rescue helicopter, the continuation of air crew training on the KC-135 Stratotanker and C-130 Hercules for United States Air Force, and international flight training device upgrades for the F-16 fighter jet and CH-53 heavy lift transport helicopter. In the land domain, we were awarded funding for our Joint Terminal Control Training Rehearsal System, which builds on the success of our previous funding awards for a new virtual training capability for soldiers to the U.S. Army on the Soldier Virtual Trainer Prototype contract. We also booked orders in the space and cyber domains, highlighted by the proliferation of CAE solutions for distributed network and cyber secure mission training via the U.S. Air Force SCARS program. Since the end of the quarter, we booked orders in the sea domain with our ongoing work with Lockheed Martin on the Canadian Surface Combatant Ship program. Defense also continued to build on its foundation of U.S. Army support with the successful competitive re-compete for the U.S. Army Aviation Fixed-Wing Flight Training program, which involves the provision of comprehensive initial and recurrent training for more than 600 U.S. Army and U.S. Air Force fixed-wing pilots annually at the CAE Dothan Training Center in Alabama. The approximate total value of the base contract and options is $250 million, with a period of performance through 2032. This was awarded to us with an effective date commencing in our fourth quarter and accordingly will be reflected in our next quarter order intake. Also involving U.S. Army Aviation, our prime partner on the U.S. Army's Future Vertical Lift, Bell Textron, was awarded the FLRAA program, which will field the V-280 Valor Tiltrotor to eventually replace the long-serving UH-60 Black Hawk helicopter. Pending protest resolution on this award, CAE will support Team Valor by delivering a range of training devices, solutions, and courseware for Bell's family of systems. We've continued to place a strong focus on our operations and asset optimization in the face of the ongoing macroeconomic challenges impacting the defense industry as well as the broader economy. As a result of these efforts, our financial performance for defense in the quarter improved sequentially and was largely in line with what we expected. With that, I'll turn the call over to Sonya, who will provide additional details about our financial performance. Sonya? Thank you, Marc, good afternoon, everyone. Consolidated revenue of CAD 1,020.3 million was 20% higher compared to the third quarter last year. Adjusted segment operating income was CAD 160.6 million compared to CAD 112.7 million in the third quarter last year. Quarterly adjusted EPS was CAD 0.28 compared to CAD 0.19 in the third quarter last year. Adjusted EPS this quarter includes an approximate CAD 0.02 positive impact as a result of gains on the reversal of impairment of non-financial assets following their repurposing and optimization. We incurred restructuring, integration, and acquisition costs of CAD 49 million during the quarter, relating mostly to the AirCentre acquisition. This also includes the CAD 9.8 million impairment reversal. Net cash provided by operating activities this quarter was $252.4 million compared to $138 million in the preceding quarter and $309.6 million in the third quarter of fiscal 2022. Free cash flow was $237.7 million compared to $108.4 million in the preceding quarter and $282.1 million in the third quarter last year. The sequential increase was mainly due to a lower investment in non-cash working capital and a higher cash provided by operating activities, while a decrease compared to the third quarter last year was mainly due to a higher investment in non-cash working capital, which was partially offset by higher cash provided by operating activities. Capital expenditures totaled $63.4 million this quarter, with approximately 75% invested in growth to specifically add capacity to our civil global training network to deliver on the long-term training contracts in our backlog. Income tax expense this quarter was $17.1 million for an effective tax rate of 18%. The income tax rate was impacted by restructuring integration and acquisition costs this quarter, and excluding these costs, the income tax rate was 19%. Our net debt position at the end of the quarter was approximately $3.1 billion for our net debt to adjusted EBITDA of 3.74x at the end of the quarter. This 43 basis points improvement from last quarter puts us solidly on track to meet our targeted leverage ratio of below 3x net debt to adjusted EBITDA by the middle of next year. Net finance expense this quarter amounted to CAD 48.8 million, which is up from CAD 41.3 million in the preceding quarter and CAD 34.5 million in the third quarter last year. Approximately 70% of our debt obligations are fixed rate, and the increased finance expense largely reflects the impact of higher interest rates on our variable rate debt instruments. For now, we're assuming a go-forward quarterly run rate for this expense in the range of the current quarter. Now turning to our segmented performance. In civil, third quarter revenue was up 33% to CAD 517.4 million compared to the third quarter last year, and adjusted segment operating income was up 58% to CAD 131.4 million versus the third quarter last year for a margin of 25.4%. Our strong year-over-year civil performance was mainly due to higher training in our network utilization and the integration of AirCentre into our results, which represented approximately 10% of civil revenue in the quarter. In defense, third quarter revenue of CAD 452.5 million was up 6% over Q3 last year. Adjusted segment operating income was CAD 25.4 million for the quarter, down from CAD 32 million in the third quarter last year. The revenue growth stems from FX translation and the higher level of activity on programs, while the lower adjusted segment operating income reflects higher costs associated with inflation, supply chain disruptions, and labor shortages. This was partially mitigated by reversal impairment on tangible assets following its repurposing and optimization, and cost reduction initiatives. In healthcare, third quarter revenue was $50.4 million CAD, up from $32.1 million CAD in Q3 last year, mainly due to the increased sales of patient simulators and center management solutions. Adjusted segment operating income was $3.8 million CAD in the quarter for an adjusted segment operating income margin of 7.5% compared to a loss of $2.7 million CAD in Q3 of last year. With that, I will ask Marc to discuss the way forward. Thanks, Sonya. The strength that we saw in the third quarter gives us additional confidence in both our fiscal 2023 outlook as well as our long-term targets. We're excited about civil's prospects as we build on our industry-leading position with the most innovative training and critical operations support solutions, and we expect to see significant growth during and beyond the ongoing global aviation market recovery. We anticipate continued strong growth in commercial aviation training as flight capacity rises to meet travel demand and as mobility restrictions abate in China, which remains a key driver for airlines mainly operating in Asia Pacific but also worldwide. In business aviation, flight activity has remained above pre-pandemic levels, and we continue to see strong demand for business aviation pilot training. We have been and will continue to deploy training capacity in lockstep with demand in this significant segment of the market. We continue to expect Civil's performance to be strongest in our fourth quarter, with a mix involving about twice as many full-flight simulator deliveries as in the third quarter, which gets us to our estimate of 45+ deliveries for the fiscal year. We also have more simulators coming online in our global training network, which makes for a larger base of revenue. We've done very well with full-flight simulator sales year-to-date, and we expect to maintain that momentum, winning our fair share. In Defense, despite the macroeconomic headwinds, order delays, and potential U.S. budget complexities, which are expected to extend into the next fiscal year, our continued sequential growth, along with positively trending bookings and backlog renewals, adds to our confidence in our multiyear view. Defense represents a secular growth market for CAE, and we believe the sector is in the early stages of an extended upcycle driven by geopolitical realities and increased commitments to defense modernization and readiness. We're now sustaining higher order intake, replenishing and renewing our backlog with new and more profitable defense contracts, and we expect this trend to continue and for defense to strengthen over a multiyear period to a low double-digit% segment operating income margin profile. We're bidding more, and we're bidding larger, with a pipeline of multiple hundred million dollar-plus programs and a number of $1 billion pro-trust programs we're bidding over the next three years. We're highly focused on execution, and as we look into the remainder of the current fiscal year, we expect further sequential improvements for defense in the fourth quarter. In healthcare, we're on a path to accelerate value creation by gaining share in the simulation and training market and driving top and bottom-line growth. We have a strong team. I expect to see their positive momentum to continue. Our capital allocation priorities are unchanged with a focus on organic investments that are made in lockstep with customer demand. We're on track to meeting our leverage target by the middle of next fiscal year, which at that time will further increase our financial flexibility. The CAE management and board of directors are also prioritizing returning capital to shareholders in a timely manner, which is a key aspect of our capital allocation strategy. In summary, the strength of our performance in the quarter and our current expectations for the balance of the year allows us to reiterate our outlook for mid 20% consolidated adjusted segment operating income growth for this fiscal year. We're also reiterating our long-term target of a three-year earnings per share compound growth rate in the mid 20% range. With that, I thank you for your attention, and we're now ready to answer your questions. Operator, we'll now take questions from financial analysts. Certainly. Thank you. Once again, on the phone, before we begin, to ask a question, you can press one followed by four on your telephone keypad. You'll hear the return prompt to acknowledge your request. If the question has been answered, to withdraw your request, you enter one followed by three. We'll now proceed with our first question on the line from Konark Gupta with Scotiabank. Please go right ahead with your question. Thank you, good afternoon, everyone. Just wanted to ask you on the civil side first, the margins are already back to the pre-pandemic levels here in the fiscal Q3. Are you expecting the margins to be nearing the peak, or would you expect further upside as Asia comes back? Look, Konark, I'd say, look, we always had... I look at this quarter, as I said in the remarks, we had a, you know, quite a favorable mix this quarter, and as I've said in the past, that could be an important factor to margins. I remember answering that question in Q1 when it was going the other way. If I look at, I mean, not specifically addressing your question, I'll get to it, but if you look at next quarter, we're gonna have a lot more full-flight simulator deliveries, which is gonna play a role in the margins because inherently, you know, product sales are, although profitable, they're not as profitable as training. you know, we're deploying a lot of training, we expect a lot of training in the fourth quarter. you can expect, you know, although we'll still see a very strong performance in civil, I wouldn't expect it to see, you know, a high margin in the fourth quarter. I would like to be surprised, I certainly don't expect it. long term, look, at the end of the day, as the market comes back, as you said, with Asia coming, you know, I'm quite encouraged by what I see in Asia Pacific, it's been the longest drag on recovery. We're continuing to see the positive effects in our travel recovery. We're seeing in terms of utilization our training centers. you know, it's gonna take some time. You know, as we saw in Europe and in Americas, it takes a while for it to pick up. I think we're several quarters away from it being fully back, in my opinion. Make no mistake, you know, when I look at, you know, fiscal 2025 and beyond, I think we're seeing the pieces here of a total recovery taking shape. As you factor that plus, you know, all the cost savings that you're seeing, you'll flow through our results. I think, you know, we can expect that, you know, margins continue to increase over the long term. Okay. That's a good clear market. If I can follow up. There was a recent announcement, I guess, by one of the, one of the U.S. airlines. Given they are struggling with pilot shortage, they're trying to reduce the number of hours required for pilots to train on turbine engine. What does that really mean for CAE? Well, look, I think I'll leave that to the regulators, but everybody's always focused on very much on safety. At the moment, I would tell you that We barely meet the demand that's out there, and we're in growth mode. To me, I don't, you know, I don't see that being a factor one way or another to results of CAE. Okay. Appreciate the call. Thank you. Thank you very much. We'll get to our next question on the line. It's from James McGarragle with RBC Capital Markets. Please go right ahead. Hey, everyone. I hope everyone is well, and congrats on the strong quarter. Thanks, James. Thank you. On the defense margins in the quarter and some of the long-term targets the team established at the investor day, are you able to help quantify the bridge between those two? I know supply chain's kind of unknown at this point and really anyone's guess as to when that improves. Are you able to talk to the items that you do have a line of sight into over the next few quarters, such as potentially certain low margin business rolling off, any high margin contracts upcoming or specific cost savings related to L3H cost synergies? Well, I think it's all of the above. look, as we said before, what we're doing here is we're basically doing very well on order intake. You could see, like, six consecutive quarters now of book-to-sales is higher than one. You have a trailing book-to-sales over the last 12 months of 1.25, which points to strong growth. the important thing about that is, you know, the team, you know, with Dan Gelston at the helm, is signing contracts that are accretive to a long-term goal. What you see us here is with these orders, it doesn't happen overnight. It depends if they're products or services. Products, you know, contributing to results faster. Those contracts, those new contracts are replacing contracts in our backlog. Some of them that are drag programs that have been very much impacted by the headwinds that we face in supply chain, as we said, as you mentioned, and on labor. In some cases, although we've done very well on order intake, you know, not all orders are created equal in terms of their timing. You know, but look, we have a pretty good line of sight of those factors. You know, as we go... That's what allows me to reaffirm, you know, not, you know, for Q4 for sure, and then having enough line of sight of how we're doing to, you know, in terms of abatement of those factors to give the optimism that I have for continuous sequential improvements all through next year along the way to our long-term target of double-digit growth, double-digit profitability. Appreciate that. Thanks for the color. I also wanted to ask a question on civil and the potential impact of a slowdown in Europe. I know pilot training is regulated and that, you know, insulated from macro to a certain extent. Can you talk to how your conversations with customers in Europe are evolving given some of the macro headwinds in the region and any steps your team is taking to prepare for a potential slowdown in that region? Thank you. Well, I think I would tell you is that, we're not seeing a slowdown from where we're at. Certainly in Europe, and in the Americas, definitely. We're seeing things pick up, as I mentioned on our previous question in Asia Pacific. At the moment, we're in growth mode, and we're forecasting being growth mode for at least the conceivable future. Obviously, you know, you know, when people talk about risk of recession in Europe, it certainly bears watching, particularly, you know, as results if it, you know, faced with a potential energy crisis, which really hasn't occurred, materialized. Look, we're watching it, but we're certainly not seeing it, and we're not forecasting it anytime soon, at least as a result of CAE. Okay. I appreciate the color, and I'll turn the line over. Thank you. We'll get to our next question on the line. It is from Kevin Chiang with CIBC. Go right ahead. Hey. Thanks, thanks for taking my question. Good afternoon, everybody. Maybe just on defense. In your outlook, you mentioned, you know, there's a little bit of uncertainty here with, you know, U.S. government budget appropriation issues. I'm just wondering, do you see that primarily impacting, I guess, the timing of awards being allocated, or does that also impact? Because I believe you're pursuing some cost recovery initiatives with the government on just given how inflation has played out here. Do these appropriation issues also impact the timing of some of those cost recovery initiatives for you? Look, I'd go on the second part of your question here on regards to, you know, that specific point. In the recent DoD budget, and I would tell you, we influenced this in no, not an insignificant way. Funding was granted specifically to address inflation. That's public. I can tell you, we're working with our customers, you know, to address the inflationary items that have been, and I've mentioned this on previous calls, that have definitely been a factor. That results in for us submitting requests for equitable adjustments or REAs, and we've submitted quite a bit, and it's early in the process. Well, I can tell you, we have received some small adjustments, nothing material, I would say. Going back to, you know, what I mentioned with regards to budgets being approved and disruptions there, to me is, look, we could see a prolonged, you know, continuing resolution environment defense. Look, that has a potential for delays to new program starts because if you're in that kind of environment, you can't have any new program starts. We're watching that. I would tell you that even with that factor, it may affect the exact timing, but it doesn't change my view with regards to sequential growth next year in defense. Okay. No, that's very helpful. Maybe, maybe my second question here, you know, you've alluded to, you know, the past couple of quarters, you know, looking to return cash to shareholders, and it sounds like, you know, you might be in a position to provide more details the next fiscal year. Is there a framework we should be thinking about? Like, are you looking at a targeted payout ratio on the dividend or, you know, in terms of buyback? You know, are you looking to return to what you were doing pre-pandemic? Is there any framework you can share with us, or is it still being contemplated at the board level still? Yeah, I think as we said, the first priority is really to delever. We saw really good progress in Q3, bringing down the leverage ratio by almost half a turn, and continue to be on track to the guidance. We believe we'll be in a better position to consider the return of capital to shareholders. I think it's too soon to speak about a framework or form at this point. Okay. No, that's helpful. Actually, just one last question from me. Just given the sequential increase in full flight simulator deliveries expected in the fiscal Q4, any risks around supply chain or all the, you know, the parts and things that you need to build and deliver those all, I guess, all in-house now and you're just kind of ready to deliver this stuff by quarter end year? You can never say zero risk because you never know what can hit you. All those simulators are at customer sites as we speak. They're built. Okay. It's not an issue. When you know, we're, you know, we're, as you know, we're pretty experienced at delivering and certifying full-flight simulators. I'm marking some factor that I would qualify almost as an act of God, I think pretty good on, you know, us getting those simulators certified. As I said, part shortages are no longer, you know, a factor when you consider there's about six weeks left in the year, right? No, that's super helpful. Thank you very much. I can grasp again. That's, by the way, I gotta shout that out. That's thanks to the shout out to the hundreds of people that we have working in customer sites around the world doing that as we speak. You know, I applaud them because they're the heroes making this happen. Thank you very much. We'll get to our next question on the line is from Cameron Doerksen with National Bank Financial. Go right ahead. noon. I wonder if you can just talk a little bit about the progress you're seeing with the AirCentre business. You know, you even, you sort of indicated a couple of new airline awards here. It sounds like you've got, you know, some kind of a new next gen solution there. Just sort of talk about what the investments required, what kind of progress you're making with customers on that new solution and, you know, where the business, I guess, has recovered to at this point Well, look, the business is doing exactly what we thought it would do, maybe even slightly ahead at this very moment. Very happy what's happening there. I also, and maybe I'll let Sonya after talk about, you know, where we are investments. I would say it's largely in line with what we had anticipated when we announced the acquisition. Look, I'm very excited about this. I'll talk about it because, you know, we talked about what our ambitions were for what is an adjacent market for us. This is playing out. This is playing out. You remember that we have an extremely large overlapping of customers between our training and simulator business and this flight services business. We're seeing, we're continuously very high receptivity of our traditional customers to us being in this market. It comes at a time that we're seeing as airlines ramp up capacity now, it's obviously very challenging times. You can see from recent evidence that airlines, you know, in many cases have really outgrown their technology infrastructure, and they need to reinvest. You know, you can be well assured that we're engaged with all of our customers, you know, to help them as they shape their technology needs of the future. You can be sure of that. I fully expect that we're going to be part of the solution going over time. It's not going to be a near-term P&L impact because, you know, at the moment, we're focused on integration. Remember, in this kind of business, it's kind of like, I'll use a term like an ERP. Implementations take extended periods of time, but once you have them, you have them for an extended period of time as well. Look, I'm very happy with the solution. The next-gen solution is all about Software as a Service versus legacy on-premises. We have a pipeline. That pipeline is growing. It's going to take time, but I'm very happy about how we're progressing here. I'll just add on the investment part. We, you know, to elaborate on Marc, you know, we're seeing the ramp up, we're seeing it flow through. That represents about 10% of Civil's revenue this quarter, so that's very good. In terms of investment, we never laid out the exact amount, but it's in the tens of millions, and has started since the acquisition, and is part of the investments that you see through the results. Okay. No, that's great color. If I could squeeze in a second one just quickly on the defense side. You know, now that Canada has formally signed a contract, for the F-35, can you update us on, I guess, what your expectation is for the training solution for that and, you know, how you think you're positioned for that? Well, I think we're well-positioned, obviously, because, I mean, that's what we do. We do it around the world every single day. We talked about the, for example, it's on an F-35, but we won another F-16 contract recently. You know, we know how to do this. We've done all the F-18 and majority of fighters out there in the world. I could tell you, I personally and members of my team are in discussions with all levels of government in Canada and with the customers in the United States. We've met with the F-35 Joint Program Office who provide management support for the F-35 program. You know, we're confident that they'd be highly receptive to a proposal by Canada to embed additional training and simulation capacity in Canada's domestic F-35 program. I was encouraged by the fact that when the Canadian government announced the F-35, they announced that, you know, simulation-based training will be done at the, you know, Canadian Forces Base Bagotville and Cold Lake. I think it's a natural for CAE to be involved here. Look, I think this is a generational, you know, moment for Canada's national security. You know, I think Canada's chosen well in terms of the fighter for men and women in uniform and for Canada's national sovereignty. Here, many Canadian jobs and Canadian innovation is at stake here. You know, you know, Canada needs to seize this opportunity of the investment we're making here. We can't afford to miss this unique opportunity to create and protect the next generation of aerospace jobs in Canada. That's CAE as well. We're part of that, and I fully expect us to be part of that. Okay, that's great. Thanks very much. Thank you. We'll get to our next question on the line. It's from Fadi Chamoun with BMO. Go right ahead. Good afternoon. Thanks for taking my question. Marc, if business aviation flight hours end up being down 5%, 10% this year because of the economy or in the next 12 months, I guess, is there levers within CAE based on kind of the recent acquisition you've done and your positioning on some of the program to continue to grow in that side of the business? Absolutely, Fadi. Look, the fleet is still growing. The amount of new pilot demand, you know, we have trouble meeting it now. I can tell you know I'm a pilot, I can see it myself. Our training centers, I won't exaggerate, we can't find a parking space seven days a week. I'm not overly concerned about a slight, you know, drop in the flight hours. I mean, we're seeing a very, very hot market for business aviation training. We're continuing to add capacity. Our Las Vegas training center has just come online. Is Singapore. Savannah will be online next year. We have a training center Orlando opening up with our JV partner, Directional Capital, which is our SIMCOM training center opening up in Orlando. I can tell you that, you know, we have demand spoken for coming into those training centers. I'm not too worried about that just, you know, drop in flight hours that could occur. Okay. That's great color. The second follow-up question is really on defense. I mean, we have six quarters now of expansion in terms of the order levels, and the outlook is positive for that to continue. When do we start to really experience this kind of demand momentum into the margin with a greater kind of influence? Is this more of a fiscal 2025 story or a fiscal 2024? Just trying to understand the trajectory of how these headwinds from supply chain and mix in the backlog kinda come off versus returning to a more normal margin in that segment. Well, look, it's going to be steady progress. That's what I see. The headwinds that we see, I mean, we're as you well imagine, we're not sitting on our hands, you know, not doing anything about it. We're doing something about it. It takes time. It takes time to hire people. It takes time for them in the defense sector to get the proper security clearances that we need for them to be able to execute on some of the programs we have. This is going to take several quarters to abate. It gets better every quarter. We know what parts we need on the contracts that we have. When you get new contracts, you need new parts. Okay? Now we get better at forecasting those things, but it's still an issue because, you know, the supply chain is not as fast as it once was. At the same time, you know, we're factoring potential delays in orders because of things like I talked about in the U.S. defense procurement. Make no mistake, I'm seeing steady improvements in our business in terms of we're managing it. I'm very happy with, you know, in terms of the execution of our programs and the level of contingency in those programs that we have, execute them well. As you know, there was a factor in Q1, and I mentioned that has not happened 17 years. I don't see that happening again, not with the rigor that we've put into it. Look, I expect full, you know, when you talk about when do we recover back to low double digits. Look, we're on that road, Fadi, and I think that you're gonna see that over the next two years to get into it. Okay. Great. Thank you. Thank you very much. We'll get to our next question on the line. It's from Tim James with TD Securities. Go right ahead. Thanks, good afternoon. Thank you for taking my questions. My first question, I guess I just want to return actually to that last topic, Marc. I'm just wondering if you could comment on or characterize any particular pinch points in the supply chain that, you know, are more problematic than others. Any sort of, you know, particular parts or aspects of the supply chain that are a little bit more problematic, and I'll open it up to either, you know, your civil business or your defense business. I think I'd start off by saying it hasn't really been a factor on our civil business, and mainly because we've done a good job over the years to design a product that, you know, is highly repeatable, highly standard. Our teams in global sourcing, for example, and operation, have done a very, very good job forecasting and being able to obtain those parts. I think that's been the case. In defense, look, I think the issue is I wouldn't say characterize any single part. It's basically longer lead times on many parts. That's what really is a factor here. Obviously, we've had issues, you know, like everybody else has on, you know, electronic parts, those kind of things. Today, it's really longer lead times, repeating myself, on inventory, many parts. What that cut does, it's not only the fact that you missed the part itself. It's the fact that in the meantime, you either can't progress on that contract, or you're having to do workarounds. Workarounds is inherently inefficient. You have to maybe people that are being idle or installations, you're having to work around them, therefore causing delays. All those things causes inefficiencies that weighs down on our margins. It has a, I would say, a double effect because traditionally, we are able to execute contracts and get ahead of ourselves to execute the programs faster and therefore generate efficiencies. We're in a contrary situation right now. The same effect with labor. You don't necessarily have the software engineers that you need because of some of the factors I talked about ago, the time to get them, basically, you know, certified with the right clearances they need. That is getting better because, you know, obviously demand in the high tech market for software engineers specifically has cooled. We are a bit of a benefit of that. We're seeing that. It's gonna take a few quarters for that to, you know, abate by, you know, to the extent that we get back to the margins that we have targeted in our long-term defense business. Okay. That's very helpful. Thank you. My second question, I'm just wondering if there are any areas of your civil business, either on the business aviation side or the commercial side, where you think, you know, pricing is particularly strong as we sit here today due to the, you know, the incredible sort of demand conditions and how quickly air travel has ramped up. Therefore, you know, pockets of pricing that could come under pressure, you know, when we get past this, you know, very strong ramp-up period. Do you think as some of the other areas that still remain weak, such as China, et cetera, maybe sort of make up for any of that potential moderation in pricing? Do you not see any kind of particularly strong pricing at this point? I think I'd start by saying that in our civil business, in large part, let's say the training business, it's long-term training contracts. That's our specific strategy, as you know. They'll typically have fixed percentage or, you know, CPI-based escalators that are built in. You know, that has a moderating effect going up and going down, right? You don't really see, you know, big spikes. We have been able to pass on some of the inflationary aspects that we've seen over time when contract renewals come up. Don't forget, our business, you know, our vision always has been, and it's the way we operate, is to delight our customers. The corollary to that is we don't gouge them when the market is going up, and they don't, you know, begrudge us a fair margin. I think all of that comes out to say that I'm quite comfortable in, you know, the outlook that I've given with regards to margins Civil going forward. Okay. Thank you very much. Thank you. We'll get to our next question on the line. It is from Benoit Poirier from Desjardins Capital Markets. Go right ahead. Hey, good afternoon, everyone. Just based on your comments on the recovery trajectory for defense margin, would it be fair to say that high single-digit next year might be a bit too optimistic and mid-single-digit would be more realistic? I'm not gonna get into specifics at this time, Benoit. I want to say, as I said, you know, we're working through the headwinds that we're gonna continue to see improvement going forward on a sequential basis, for sure. Okay, that's great. Looking at healthcare, capital employed was mostly flat versus last quarter. How should we expect capital employed to evolve or to be deployed going forward for healthcare? Do you see any opportunities to monetize these assets given their rich valuation and all the spin-off that we've seen recently, Marc? Well, look, I think in healthcare we're focused on translating the great top-line success that we're seeing. I mean, you look at the revenue this quarter which is historical, you know, it's translating into bottom line. I'm sure you've noticed that. We're quite happy with that. Six quarters in a row of, you know, pretty strong growth at the top line, two consecutive quarters positive S line. We have a great team. You know, I would say we have now Jeff Evans at the helm of the business. He's built a very strong team. No exaggeration, we have the strongest team we've ever had in healthcare, and they're hard charging, they're winning in the market, and that's what we're focused on. Healthcare is self-funding. That's the trajectory that we're on, Benoit. Okay, that's great. With respect to Asia Pacific, where are you in terms of recovery versus pre-pandemic level? Are you back to halfway through below or still above the? Well, I wouldn't say halfway through. Look, how would I characterize it? We're in the low 70% utilization in that region approximately right now. It does have seasonal variations. I'll give you some maybe data points. In terms of simulator deliveries or orders, typically, prior to the pandemic, we typically sell maybe six to eight full-flight simulators a year to China. Okay? I would say over the last couple of years, we've only sold two or three in total. That gives you an idea in terms of simulator sales. The more near-term recovery comes in training, and that mainly because we don't have any training centers in China, but it's, you know, all the training centers that we have in the region, of course, we have a lot of training centers in the region. The anchor customers that we train in those regions, a good proportion of their flights are in and out of China. As that recovers, you know, we see the utilization in our training centers ramp up. You know, I expect that to materialize over the next few quarters as the recovery takes hold. Okay. Thank you very much for the time. Thank you. We'll get to our next question on the line. It is from Matthew Lee with Canaccord Genuity. Please go right ahead. Hey, good afternoon and happy Valentine's Day. You know, on the civil side, when I think about new pilots coming through ab initio training, you know, is that a higher margin program and a margin benefit than usual annual pilot training then? Maybe you can quantify kind of the growth you're seeing ab initio, just given how many pilots need to be trained right now. It's actually a lower margin business than when we look at our mix, it's on the lower end. It's really the, you know, when we look at what that drives, it drives, you know, it's increasing capacity in our, in our training center network, and it's part of our offering to airlines, which is very important. You know, airlines are looking for pilots. They need pilots, and, you know, CAE has one of, I think, the largest network of pilot training centers in the world. Don't forget, we don't basically take people off the street. I mean, we only do it for airlines themselves. So it's an important part of the offering that we give the airline as a, as a complete solution. If I take it by itself, you know, it would be, you know, if you like, lower than the average margin that we get in our civil business. That's very helpful. On the defense side, you pointed out de-delayed orders coming to fruition as a potential margin driver. You know, are those contracts naturally high margin with more product in the mix, or is there another reason why those orders in particular are positive for margin? I would say that, I wouldn't say all because sometimes we'll go strategic, but the great majority of the contracts that we're signing and we're bidding today are accretive to our objective of low double-digit margins in our defense business. Okay. That's very helpful. I'll pass the line. Thank you. We'll get to our next question on the line from Fai Lee with Odlum Brown. Please go right ahead. Yeah, it's Fai here from Olam. Thanks. Marc, you mentioned that CAE has submitted a request for equitable adjustments, and I'm just wondering if you can comment on this process. For example, are there set deadlines for the customer to respond back to you? Is it a negotiated process? What happens if the customer says no? Do you have like an ability to appeal the decision? Well, it's case by case. It depends. What I mean by that is sometimes the Request for Equitable Adjustment, it may be submitted to the government itself and sometimes to an intermediary, which we contract with on behalf of the government. Again, case by case, we do have to, as you might expect, we do have to make our case and a lot of documentation related to that, but we have that documentation. We are putting those cases forward. There is no specific timeline for them to recovery. As I said, one thing that encourages me very much is, and as I said previously, we have a lot to do with it. Ourselves, our government affairs people in Washington did a very good job on this, that in the recent DoD budget, there is funding specifically granted to address inflation in the industry. You know, we're working with our customers and working, you know, to prepare, you know, our own claims with regards to that increased budget. But again, there's no timing on that, but I fully expect some of that will come to fruition. Okay. Would you describe the, you know, the requests or the responses being reasonable, or your conversations? Like, they haven't been unreasonable, have they? I don't think there's anybody being unreasonable. You have to make your case. We have made your case. You know, we have simulators that, you know, we're literally delivering across the country. In one contract, it's about 180 transport trucks with armed guards crossing in the United States that were bid when gas was $2 a gallon. We all know gas is not $2 a gallon anymore. You can just imagine that just on that basis alone, you say, let's be fair here. That's not exactly a 2% kind of natural growth in a contract. They're receptive to that kind of thing. Okay. My second question, back in Q1, one of the charges that you took was for a Navy contract. I believe it was a Sonata program that expired instead of being extended. If I remember correctly, you were hoping to have it recontracted on better terms. I'm just wondering, has that happened? Has it been recontracted on better terms, or are you still waiting? We're still waiting on that one. To me, we can't really talk about that. I mean, in the end of the day, it's a contract we've submitted the bid, and they haven't selected anybody yet as far as I know. Okay, great. Thank you. Thank you very much. We'll proceed to our next question on the line from Anthony Valentini with Goldman Sachs. Go right ahead. Hey, y'all. Thanks so much for taking my question. I'm on for Noah today. I'm looking at the utilization rates and 73% here in the quarter, comparing that back to pre-pandemic levels, and it looks like you guys are actually, you know, at or, you know, in some cases above, where you were. I'm curious in terms of, you know, how you guys think through, like, the capital allocation process of, you know, how high that number can go, right? Because I think there needs to be some sort of slack in the system. And when you get to that number, you know, whatever it is, how you think through, you know, putting new simulators into your network, if that makes sense. Well, look, the short answer is, as we said in our remarks, we deploy capital in lockstep with demand. You can well imagine because, you know, we're the market leader here and have been for a long time, both in simulators and simulator-based training. We know the market very well, and we know our customers very well, and we're in constant dialogue with them, both in the airline sector and the business aviation sector. We have a pretty good and informed idea of how much demand will be required. Remember, it's a regulated market. You know, you could just look at how many, you know, flights people expect to make, how many deliveries are coming out of the OEMs, you will be able to establish, you know, what is the demand requirement across the world, approximately. That's how we deploy. In terms of what is the practical capacity, look, I'll tell you, I was our training center in Minneapolis about three weeks ago, where our anchor customers are some of the largest regional carriers in the United States, like Endeavor, for example. I can tell you, our training centers there are operating above 100%. Teams are doing a great job. You know, when you talk about practical capacity, you can get up there, and you can sustain it when you need to. That's, believe you me, to support the training of regional carriers in the United States right now, they need us to be operating at that level. We can do it. There's elasticity there. Now, in practical reasons, you know, when we define 100% for airlines, getting a little bit detailed here, that's 6,000 hours a year, which is 16 hours a day. That's what we consider, you know, practical limit. Again, we're doing higher than that. There's slack. If the demand is there, you know, that's what we do. When we get to those kind of levels, well, guess what? In Minneapolis, you know, there was a bunch of, you know, good, nice tractor trailers or a backhoe was building two new simulator base in Minneapolis while I was there because, you know, clearly demand is there. We secure long-term contracts. We're not speculative on how we deploy that capital. Okay. Yeah. Great. That's super helpful. I'm curious how long the lead times are once you decide, you know, you need to add a simulator to a facility. How much time does it take for you guys to build that sim and then deliver it and it to be up and running? It depends on where it's going. That's the big factor. You know, typically, if we make a decision on an airline, a typical simulator, but it's probably one we've built before, typically between 12 and 14 months, I would say. Okay, helpful. Last one for me on defense, and you highlighted a Future Vertical Lift. I'm curious, and I'm sure you have, you know, hundreds, if not thousands of contracts, but where does that, you know, kind of rank in terms of the large programs that you have? Should we be thinking through that contract being negotiated, you know, in the old strategy or the new one, which is that, you know, kind of targeting these double-digit percentage margins? The new one. Does that answer the question? Yeah. Just how, in terms of rank, you know? Oh, sorry. Versus the other one. No, it's a large contract. You know, I said in the remarks that we have a lot of contracts that we're bidding in a $100 million range, that we have a lot of contracts in a $1 billion range over the next three years. This is one of the ones that qualifies in the second category of $1 billion, without getting specific. It's a large opportunity over time, it's not the only one, so it doesn't disproportionately affect, you know, my view on the fortunes we will have next year. It's important, but it's definitely not the only one. Awesome. Thank you so much for the time. Welcome. We'll get to our next question on the line. It's from Kristine Liwag from Morgan Stanley. Please go right ahead. Hey, good afternoon, everyone. Good afternoon. You know, I just want to follow up on pilot shortage and, like, the bigger picture. I mean, pre-COVID, you know, pilot shortage was already an issue, and then the mandatory retirements coming up in the U.S. will likely exacerbate the issue. I mean, when you look at the programs that your customers are undertaking, like the ab initio and things like that, how much of these actions solve, like, the bigger shortage problem? If not, you know, what should they be doing to support industry growth? Because it just seems like there's not enough urgency in terms of actions that they should be taking. Just want to get an idea of how much do you think that kind of solves of actions today. And if not, how do you think that gets resolved? I think it's gonna take time. It's gonna take investments. Also that pilots are not the only issue that's that you're facing in the industry right now. I mean, the issue, it's been exacerbated by the fact that, you know, the industry was extremely finely honed, you know, before the pandemic. We went back to, you know, we went back to gold, if you like. We've been gradually rebuilding that industry, every part of it. Pilots are one part of it, an important part. When we play in a very big way, We're doing our part by helping our customers. We've been deploying new demand in terms of flight school activity. We've been signing core contracts with them. We're operating our training centers, as mentioned on a previous answer at, you know, levels that are unheard of, at least certainly in the United States right now. Look, I think it's gonna take time. It's gonna take investment. That's why I think in terms of our business, I think it's going to be, you know, a good business for a period of time. I'm quite confident in next few years in civil aviation. Yeah. Thank you for the color. It just seems like there's no urgency, you know? If I could sneak a second one on- Oh, I would tell you. Uh-huh. Sorry to interrupt you. I would tell you that if you were talking with some of the airline CEOs that I talk to, you would feel that urgency, guarantee you. Sorry, go ahead, Kristine. Yeah. Great. If I could ask another one on M&A? You know, when you look at what you've acquired over the years, part of that was attributed to your success and some of your competitors basically ceding their territory back to you. If such opportunities exist out there, would you consider levering up the balance sheet even more today? I mean, Are there even any assets available for sale that you could consolidate like you've done in the past decade? If so, you know, to what leverage are you comfortable? Sonya won't let me. No, seriously. Seriously, you see, we're focused on deleveraging right now. We don't see any gaps in our portfolio. We did very well during the pandemic to play offense during the downturn. You know, I think you've seen that we've done quite a nice job of deleveraging in this quarter. I see that continuing along the path that we said that, you know, we'll get to a level of three. Look, we never pass up an opportunity that would be just too, you know, too, you know, good to pass. you know, I think we've done a good job, and we're focused on deleveraging right now, looking to, you know, start returning, you know, cash to shareholders and continue to, you know, the one priority is to continue to grow in lockstep with the demand, and that's largely inorganic. Great. Well, thank you, Marc. Thank you. Operator, that's all the time we have for financial analysts. I'd now ask you to open the queue to members of the media if there are any questions. Certainly. Once again, as a reminder for the media, if you'd like to ask a question, you may do so now by pressing the one by the four on your telephone keypad. Once again, it is the one, four for any questions or comments you may have. We do have a question queued up. It's from Stefan Roland, La Presse Canadienne. Please go right ahead. Oui bonjour monsieur Parent. Merci de prendre le temps de prendre mes questions. Je voulais vous poser une question sur le segment de la défense. De ce que je vois, bon les résultats s'améliorent depuis les difficultés de l'été dernier, puis aussi depuis le dernier trimestre. Je me demandais un peu si vous pouviez me donner un peu plus de détails sur quelles sont les actions que vous avez prises pour améliorer la situation puis en fait, qu'est-ce qui reste à faire? Quelle partie du travail il reste encore à faire? Merci de la question. La chose qui est, je pense, la plus importante, qui contribue à l'augmentation de nos résultats, c'est que depuis les 6 derniers quarts, donc disons les 24 derniers mois, on a 1 ratio de commandes à nos livraisons qui sont en haut de 1. Si on regarde juste dans les derniers 12 mois, on est à 1.25, donc disons 25% de plus de commandes qu'on a de ventes. Ce qui veut dire, ça, c'est qu'on est en train de non seulement grandir la business en termes de revenus, mais en même temps, ces nouveaux contrats-là qu'on signe, on les signe avec une marge de profit supérieure à ceux qu'on a dans notre carnet de commandes existant. C'est ça. À mesure qu'on exécute ces nouveaux contrats-là, qu'on remplace ceux qu'on a, ben ça contribue à l'augmentation des marges dans notre business de défense. Pis ça, c'est le facteur le plus important que je vous dirais. OK. Peut-être, vous en avez parlé un peu avec les analystes, mais au sujet de la vigueur de l'industrie aérienne, vous y avez fait mention à quelques reprises. Est-ce que vous pouvez me donner des exemples ou de la résilience de l'industrie en ce moment, qui vous font croire que l'industrie est résiliente en ce moment? Vous parlez dans le secteur de l'aviation civile en général? Oui, c'est ce que j'avais compris. Oui. Ce qu'on voit, je vais commencer par l'aviation d'affaires. L'aviation d'affaires, le business d'affaires, on voit une très forte demande en termes d'activité dans ce secteur-là, qui est très bon pour nous parce que nous, on est le, on a une business très très importante dans l'entraînement des pilotes d'aviation d'affaires. Les niveaux de vol, la demande de pilotes dans le secteur de l'aviation d'affaires est supérieure, considérablement supérieure comme le niveau que c'était avant la pandémie. Moi, je suis convaincu que ça va continuer dans le futur. Ça, c'est l'aviation d'affaires. Si on regarde maintenant les secteurs de l'aviation commerciale, les gens ont recommencé à voler beaucoup. On le voit d'ailleurs avec l'engouement qu'il y a pour le transport aérien. Ça, ça cause des problèmes quand on voit, disons, qu'il y a des tempêtes, des choses comme ça. On voit que l'industrie peine à pouvoir remplir la demande, mais on voit que les gens recommencent à voyager. L'activité commerciale est forte partout à travers le monde. On voit le, avec le secteur qui est en remontée, ça se traduit pour nous en un entraînement de pilote qui est de façon considérablement en hausse dernièrement. On n'est pas loin, on n'est encore pas aussi haut qu'on était avant la pandémie, mais vraiment, le seul endroit qui reste vraiment qui est vraiment que le niveau d'activité est plus bas qu'avant la pandémie, c'est en Asie. Ça, c'est vraiment la Chine. La Chine avec le fait que la Chine était fermée jusqu'à récemment. Maintenant, avec le relâchement de la politique zéro Covid en Chine, on voit que les vols recommencent à reprendre, ce qui va faire que l'industrie aérienne en Asie va remonter parce que la plupart des compagnies aériennes en Asie ont beaucoup de vols qui vont en Chine. Ça va se traduire à une activité accrue dans nos centres de formation. Tout ça, sont des facteurs qui font que moi, je suis très positif sur l'activité aérienne civile et donc notre business pour les années à venir. Une dernière question de mon côté. Vous avez bien parlé de la chaîne d'approvisionnement, donc ça va pour moi de ce côté-là. Au sujet de la rareté de la main-d'œuvre, est-ce que vous avez toujours des défis? Est-ce que c'est difficile de recruter en ce moment? On en a. C'est ça. On voit ça surtout, je vous dirais, dans nos activités militaires aux États-Unis, parce qu'il y a 2 facteurs. 1, il y a la rareté de la main-d'œuvre elle-même, qui sont des ingénieurs de logiciels, pour citer juste un exemple, mais il y a la complexité additionnelle du fait qu'ils ont besoin des classifications de sécurité élevées. Ça prend un temps qui est non négligeable à avoir. C'est ça, c'est le facteur qui contribue. À Montréal, écoute, on a encore, je vous dirais qu'on a encore beaucoup de postes ouverts, surtout pour le personnel technique. Même, je regarde 500 de plus à Montréal en ce moment. On a des bonnes universités à Montréal, on réussit à les remplir, mais c'est pas un facteur sur notre croissance en ce moment, ça pourrait le devenir si on continue pas à le faire, mais je l'entrevois pas. OK. Peut-être une question de suivi par rapport à ça. Dans le secteur manufacturier, certains, bon, les manufacturiers exportateurs du Québec s'inquiètent qu'à cause du manque de main-d'œuvre, on délocalise des activités ailleurs, pas pour des raisons de coût, mais de main-d'œuvre. Est-ce que c'est quelque chose que vous envisagez avec tous les postes qui sont ouverts à Montréal? Est-ce que c'est un défi pour vous? Non. Non, nous autres, on est très verticalement intégrés à CAE. C'est une stratégie qu'on a. Je suis très content de la main-d'œuvre qu'on a ici à Montréal et de nos fournisseurs au Québec. Pis je vois pas aucun changement. On réussit à avoir des nouveaux employés qui sortent des écoles techniques, pis on est très content des nouveaux employés qui travaillent chez nous. OK, parfait. Merci beaucoup de prendre les questions d'un investisseur. C'est très apprécié. Bonne journée. Plaisir. Merci. If there are no more questions from members of the media, I want to thank all participants, investors, and members of the media. Merci beaucoup d'assister à notre appel de conférence. I would like to remind everyone that a transcript of today's call will be posted later today on CAE's website. Thank you. Thank you very much. That concludes the call for today. We thank you for your participation. You may disconnect your lines. Have a good day.