Ladies and gentlemen. Welcome to the CAE First 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 proceed, Mr. Arnovitz.

Thank you. Good afternoon everyone, and thank you for joining us today. Before we begin, I’d like to 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, August 10, 2022, 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. A 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 the remarks from Marc and Sonya, we’ll take questions from financial analysts and institutional investors. And following the conclusion of that Q&A period, we’ll open the call to questions from 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 a mixed performance in the first quarter with Civil delivering results in line with our view for strong annual growth and increased market share momentum. Defense results were disappointing, coming in very well short of our expectations. The shortfall was mainly due to unanticipated discrete charges on two of our legacy programs and increased intensity of the defense sector-wide headwinds that we’re facing in this early stage of our multiyear growth journey. Now, we had already factored into our prior outlook that the second half of the fiscal year would be stronger than the first, mainly because we’re still working our way through the lag effects of a protracted period of less than one-time book-to-sales. It takes time for new program awards to ramp up. We also expect that some of the additional headwinds in the first half were significantly more acute than we thought they'd be. Now, order activity is the best indicator of our future growth. And despite a challenging global environment for CAE overall, we secured over $1 billion in orders for a record $10 billion backlog and a 1.12 book-to-sales ratio. In civil, we made excellent progress converting our large opportunities pipeline into $522 million of orders for a 1.09x book-to-sales ratio. This includes long-term training agreements with airlines and business aircraft operators and 11 full-flight simulator sales. Notable training contracts for the quarter involved several exclusive training agreements in the Americas, which adds to the long list of exclusive training agreements that Civil has signed in the last one and a half years with the vast majority of major airlines in the region. This quarter, they include a 3-year extension to a long-term exclusive training agreement with Mesa Airlines, a 5-year exclusive training agreement with United Airlines, a 5-year exclusive training agreement with JetBlue, and a 10-year exclusive training agreement with another major North American airline. In the U.K., Civil expanded its existing 12-year exclusive commercial aviation training agreement with Virgin Atlantic to include the Boeing 787 platform, now covering all their existing aircraft under the training exclusivity. In business aviation, Civil concluded a pair of 3-year training agreements with TAG Aviation Holdings and the NATO Support and Procurement Agency. Civil year-over-year financial and operational performance was also strong in the quarter with double-digit growth in training revenue and adjusted segment operating income. We delivered 10 full-flight simulators in the first quarter; average training center utilization was 71%, up from 56% last year. Training demand in the Americas continued to be strongest, followed by a much improved Europe, and is still lagging in Asia Pacific, which remained at a much lower level due to travel restrictions. In Business Aviation, training demand continued to be robust, reflecting a sustained high level of business aircraft flight activity. Now turning to defense. We booked orders for training and mission support solutions valued at $488 million for a 1.18x book-to-sales. Although we were expecting some key orders that pushed rightward this quarter, this represents a record level order intake for defense in the first quarter. Now we normally see some variability in quarterly defense results, and so performance is best evaluated on an annual basis. And to that point, our trailing 12-month book-to-sales ratio of 1.31x is to me a very good indication of the trend in order momentum. We continue to build on that momentum in the quarter, winning orders across all five battle space domains. In the air domain, we entered a contract with the Netherlands Ministry of Defense to provide a training system in support of the NH90 training program. In Land, the U.S. Army Synthetic Training Environment cross-functional team ordered CAE a task order to develop a soldier virtual trainer prototype with immersive capabilities that empower soldier-led training at the point of need. In the sea domain, in partnership with Lockheed Martin, we were awarded a design support contract on the Royal Canadian Navy’s next-generation frigates. In space, we were awarded a contract from the U.S. Air Force Research Lab as part of the Starfish initiative, to develop prototype software that enables simulation of current and future capabilities operating across a multi-domain environment. And finally, in the cyber domain, as part of a larger team, we secured a position on the approximately $1 billion ACT 3 IDIQ contract vehicle. While defense order activity was generally positive in the quarter, financial performance was clearly not. The loss incurred of $21.2 million was driven mainly by unanticipated charges on a legacy CAE training program with the U.S. Navy and a legacy L3 Harris military training classified U.S. program. These two discrete charges totaled $28.9 million in the quarter, a result of our reassessment of cost estimates following discussions with our customers this past June. The reassessments are due in part to delays in meeting customer requirements of scope and timing, as well as a change in expectation for the expansion of the program requirements. In the case of the U.S. Navy contract, customer utilization trends have exceeded our estimates, resulting in cost growth on a firm fixed-price contract, and our expectations for contract adjustments and extensions at more favorable terms have changed. The program in question is the Chief of Naval Air Training or Sinatra contract with contract instructional services, where CAE provides classroom and simulator instructors at five naval air stations to support primary, intermediate, and advanced pilot training for the United States Navy. The second charge stems from a classified U.S. program that's also structured on a firm fixed price basis and involves the initial phases of a large long-term opportunity. The program is a complex national defense priority, and our current work positions us well to capture significant future opportunities on that power. Given the nature of the work, which has been performed in close quarters, COVID-19 related staff shortages of cleared professionals have been highly disruptive to the program schedule. In addition, logistics and shipping costs, which are significant for this contract, increased our estimated cost to complete. After a re-baseline review of the program’s critical schedule elements and deliverables with the customer in June, the cost to complete was revised upward. Due to the critical nature of this program and the strategic long-term value it holds for CAE, we’re working towards meeting our commitments to the customer and positioning defense for future work. While we’re hopeful that the customer will work with us in the future for equitable adjustments that could help to offset some of the charges taken this quarter, at the moment, we haven’t included any of those in our expectations. I’d also add that we have a clear understanding of the specific issues that resulted in any charges taken on both programs. After thorough analysis, we consider these provisions capture adequately the expected cost overruns, and I’m confident that there are no more negative surprises like this one in our backlog. Beyond the two program charges, defense performance was still below our expectations for the quarter. Across the company, we’ve been managing through labor and supply chain challenges that have been consistent with what we observed in the broader economy. However, in defense, these challenges were more acute as sector-wide staffing shortages led to less billable work on cost-plus contracts and inefficiencies on other work. Supply chain challenges were also more severe than anticipated, which pressured schedules. We also experienced delays on a few key orders we were expecting to commence work on in the quarter. Excluding the charges and impact of these additional challenges, defense performance would have been more consistent with our expectations of the full year plan, which also takes into account a more elevated level of bidding and proposal costs as we pursue several large awards that are in our pipeline. Finally, in health care, we continue to drive double-digit revenue growth with our innovative solutions. The health care leadership team transitioned from Heidi Wood during the quarter. We’re grateful for her contribution and wish her well in her future endeavors. Health care is now being led on an interim basis by Jeff Evans, who is formerly head of sales and has been instrumental in driving the business's extended period of double-digit growth. Notably, during the quarter, health care expanded its strategic relationship with the Mayo Clinic College of Medicine and Science, finalizing a partnership for its learning-based center management solution for the Mayo simulation center in Rosseter, Minnesota. Healthcare also increased its presence and visibility in the U.S., efforts supported by Cares Act funding and Monhealth hospital system to address West Virginia’s increased demand for nurses with the deployment of mobile training units. With that, I’ll now turn the call over to Sonya, who will provide additional details about our financial performance. I’ll return at the end of the call to comment on our outlook.

Thank you, Marc, and good afternoon, everyone. Consolidated revenue of $933.3 million was 24% higher compared to the first quarter last year. Adjusted segment operating income was $60.9 million compared to $98.4 million last year. Quarterly adjusted net income was $17.6 million or $0.06 per share compared to $0.19 in the first quarter of last year. This quarter’s results include $28.9 million in unfavorable contract profit adjustments in defense, which accrues to a $0.07 negative EPS impact. We incurred restructuring, integration, and acquisition costs of $21.5 million during the quarter, including $16 million related to the L3 Harris military training and AirCentre acquisitions. Free cash flow was negative $182.4 million compared to negative $147.6 million in the first quarter last year. The decrease was mainly due to lower cash provided by operating activity. The decrease was partially offset by a lower investment in noncash working capital. We usually see a high level of investment in noncash working capital accounts during the first half of the fiscal year and tend to see a portion of these investments reversed in the second half. Growth and maintenance capital expenditures totaled $73.9 million this quarter, mainly for growth and specifically to add capacity to our global training network to deliver on the long-term exclusive training contracts in our backlog. Income tax recovery this quarter was $0.5 million for a negative effective tax rate of 16% compared to a positive effective tax rate of 18% for the first quarter last year. The income tax rate was impacted by restructuring, integration, and acquisition costs this quarter. Excluding these costs, the income tax rate this quarter was 21%, which is a rate we use to determine the adjusted net income of $17.6 million and adjusted EPS of $0.06. Our net debt position at the end of the quarter was approximately $3 billion for a net debt to adjusted EBITDA of 4.1x at the end of the quarter. The more elevated debt ratio this quarter reflects the impact of the two noncash charges in defense. We continue to expect net debt to adjusted EBITDA of below 3x within the next 15 months. Now turning to our segmented performance. In Civil, first quarter revenue was $480.4 million versus $432.9 million in the first quarter last year, and adjusted segment operating income was up $16.9 million from the first quarter last year to $86.6 million for a margin of 18%. Our civil performance reflects a mix of higher training revenue in the quarter, offset by lower revenue from simulator deliveries, life cycle support services, and a less favorable program mix. We also incurred higher R&D investments to support our innovation pipeline. In Defense, the first quarter revenue of $413.3 million was up 43% over Q1 last year due to the integration of the L3 Harris military training into our financials. Adjusted segment operating loss was $21.2 million for the quarter compared to an adjusted segment operating income of $23.7 million in the first quarter last year. The loss this quarter was driven mainly by the aforementioned contract profit adjustments and the more acute challenges than we expected stemming from staffing shortages, supply chain pressures, and slower order awards. These additional challenges had approximately $20 million impact on adjusted segment operating income. We also had higher SG&A costs for bids and proposals that were approximately $6 million greater than what we had in Q1 last year. The higher bid costs were expected as they’re linked to our pursuit of larger opportunities in our pipeline, but they were more impactful given the other defense headwinds. In Healthcare, the first quarter revenue was $39.6 million, up from $31.6 million last year. Adjusted segment operating loss was $4.5 million in the quarter compared to an income of $5 million in Q1 of last year. Last year’s results included a higher level of investment tax credits, while this year, we had a higher level of SG&A expenses to support growth. With that, I will ask Marc to discuss the way forward.

Thanks, Sonya. As we look to the period ahead, despite the prevailing macroeconomic headwinds and added defense sector-related challenges, we continue to see a clear multiyear path to becoming a larger, more resilient, and more profitable CAE. In civil, our outlook is as bright as ever. We’re in the early stages of an up-cycle with near-record margins and plenty of room to grow beyond that. We’ve invested both organically and inorganically to expand our training network globally, leveraging our position as the world’s largest civil aviation training company. A greater desire by airlines to trust us with their critical training and digital operational support and crew management needs, acute pilot demand, and strong business jet travel demand are enduring positive underpinnings of a secular growth market. Now, the unevenness of the global recovery is likely to continue for some time, but we’re ultimately in an excellent position to benefit from the multiyear cyclical market recovery that’s currently underway. We continue to expect strong growth in Civil this fiscal year, driven by high demand for pilot training as evidenced by robust full-flight simulator sales and exclusive long-term training agreements secured in recent quarters with virtually all major airlines in the Americas. We’re poised to continue growing market share from an expanded pipeline of civil training opportunities, and I believe these successes provide a compelling blueprint for what a broader global market recovery holds for CAE. In Defense, despite the additional challenges that we encountered in the quarter, the positive long-term outlook that we shared at our Investor Day in June is unchanged. We’re on a multiyear journey to become a bigger and more profitable business, and the first and more critical link in that chain involves winning orders. Our record order intake last year for the first quarter confirms that we’re indeed on the right path to growth, and critically, the orders that we won over the last 1.5 years bear a profitability profile that’s consistent with our long-term view of returning to a low double-digit margin in Defense. Furthermore, our record $9 billion of defense business proposals is the result of bidding more and bidding larger. An important element of our strategy involves strengthening our strategic relationships with OEMs, and the memorandum of understanding we signed last month with Boeing is a great example of how the major OEMs recognize CAE’s unique expertise in training. We agreed to expand our international teaming and supplier networks to provide solutions that support both customer and regional development. The external environment for defense remains largely favorable, with some near-term headwinds having become more acute but we believe they’re temporary. Current geopolitical events have galvanized national defense priorities in the United States and across NATO. We expect increased spending and specific prioritization on defense readiness to translate into additional avenues for seeds to support our defense customers in the years ahead. Although somewhat counterintuitive, the immediate priority on operational needs is actually contributing to training program award delays in the short term. Taking all these factors into consideration, we’re lowering our expectations for defense for the current fiscal year to account for the two U.S. program charges that we just incurred and to reflect the more acute sector-wide headwinds that we’re now experiencing, namely supply chain pressures, labor shortages, and a slower defense contracting environment. We had previously indicated our expectation for a back-half weighted performance in defense this fiscal year, and as we manage through the effects of a protracted period of less than one-time book sales and begin to ramp up new orders in the second half. The additional defense headwinds have made our weighting even more pronounced, and we expect them to largely continue into the next quarter and then gradually abate over the course of the fiscal year. As the year progresses, we expect to be able to partially offset these impacts through new internal cost reductions and efficiency initiatives that are currently underway. Lastly, in healthcare, the long-term potential continues for it to become a more material and profitable business within CAE as it gains share in the healthcare simulation and training market and continues to build on a double-digit revenue growth momentum. For CAE overall, we’re reducing our outlook for the current fiscal year to mid-20% consolidated adjusted segment operating income growth from the mid-30s previously, which largely reflects our revised expectations for defense. We’ve greatly enhanced our position and expanded our addressable market over the last couple of years, and I have complete confidence in our team’s ability to maintain strong order momentum and drive superior and sustainable growth in profits over the long term. Broadly speaking, the underlying trends of our multiyear progress are very much intact. My conviction in CAE’s long-term outlook is resolute. As stated, we continue to target a 3-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.

Thanks, Marc. Operator, we’ll now open the line to members of the investment community for their questions.

Our first question comes from Kevin Chiang with CIBC.

Maybe I could dig into some of the details you gave in terms of what happened in defense. Marc, it sounds like you’re confident that it’s the provisions you’ve taken only relate to these two contracts. But I guess, historically, when we look at these types of issues, a lot of times, it ends up being a lot more systemic than just one or two contracts. Maybe you can give us a sense of why you’re confident that the issues that you found are isolated to these two contracts. Maybe what makes these two contracts unique and why it’s not more systemic in your backlog? Any changes in your bidding process that might have occurred as a result of this revaluation?

Yes. Maybe I’ll take it in two parts, Kevin. Look, I’ll be the first one to tell you that the performance in the quarter certainly doesn’t meet our expectations for the defense business as a whole. I’ll start with maybe the specific charges that we took. Again, I’m not happy with them. These were surprises to us that occurred in June as discrete customer-led events that caused us to recognize these. We re-baseline both programs following the cautionary discussions we had in June. I think we’ve taken an appropriate approach going forward in having to recognize the charge that we took. To give you a little bit more color on them, I feel very confident we can isolate these programs. When you get impacts such as we’ve seen here, it forces a complete review of everything in your portfolio. You would expect me to do that. On the first one, on the Navy training contracts, Sinatra, the customer demand has really outpaced our expectations. We train at five naval air stations, and the Navy has been training at a very, very high rate, higher than we did at this years ago. It’s a legacy contract. We have put cost reduction measures in place to improve the profitability of that program, but at this point, we have very good reason to believe this. We anticipated that the customer would extend this particular contract at updated terms. As I said, there’s less than nine months left in the performance period. However, somewhat surprisingly, we had yet to get an RFP, which, given the very high customer usage to date, was very counterintuitive. The shortened performance period left us with no runway left to take account of any equitable adjustments or measures to reduce cost. So we had to take the charges. There’s also the classified contract that I mentioned, which is really initial work on an area of opportunity that we got impacted by COVID-19 most recently. I don’t like the cost growth on that program, but I was on-site on that program just less than two weeks ago. I like to look in the eyes of program managers and engineers. I feel confident about the rebaseline program. Our team is extremely diligent and will be even more so in evaluating the schedule. I’m not happy with the performance, but none of this changes our long-term outlook for the defense business that we outlined at the Investor Day. Our outstanding orders are tracking on very large opportunities. I can assure you we’re making progress in the margin rates in the coming efforts as those efforts take hold, and that’s what we reflected in our outlook.

And maybe just, you just had an Investor Day call in the middle of the quarter. At that point, did you realize you’d have to start taking these provisions?

Late June. That’s when it happened. And yes, it did come as a surprise. I don’t like surprises. We don’t like surprises. But that’s what happened. The discrete charges are noncash or onetime in nature. We’ve re-baselined every program in our portfolio. We’ve taken specific actions on the rest of our programs. I’m quite confident going forward. Even if you take those two charges out, the profitability of our defense business in the quarter is still very low. We’d tell you it did exceed our expectations, but it will be back half loaded. But even without those, we could probably have maintained our outlook.

I guess I got a couple of questions. One is the guidance for mid-20% EBIT growth. If we assume Civil is still on track for mid-30% EBIT growth, that implies a very strong performance in defense in the next nine months. You would have to be doing almost 45% growth in EBIT in defense in the next nine months to achieve that mid-20% EBIT performance for the year. Just to make sure I'm understanding this, because excluding the charges, the underlying profitability in Defense was only 2%, and you seem to suggest that the headwind pressure will continue at least into the next quarter?

Yes, and it will gradually abate. As I said, we see more substantial uplift in the second half, that has always been our outlook. I’m not going to break it down from a sector standpoint, Fadi. We purposely did not do that. You would expect when you have issues like we had in the quarter that we are taking company-wide actions on this. Not just affecting defense, but the business overall to maintain our profitable growth profile indicated in our outlook. The higher bid and proposal costs this quarter were mainly linked to our larger opportunities in our bid pipeline, and we’ve seen that not all orders were expected to happen in Q1. Some were won subsequently. Some programs convert into revenue faster. When you take all that into account, it makes sense.

I just wanted to follow up on the defense mix here. Just trying to understand, Marc, how do these two adjusted contracts impact the margin mix for the Defense segment over the next three quarters, as well as your long-term outlook for double-digit margin?

I’ll tell you that we’re quite confident that the rebaseline of our programs supports our objective of low double-digit margin defense. We have a firm handle on the inefficiencies affecting our profitability across everything, including labor, parts delays, and other factors over time. We knew that we would see challenges in the first couple of quarters of the year in defense. The impact on hiring cleared personnel took longer, but we have a trend now. Due to our established bid and proposal processes, they also contributed to our costs this quarter, but the outlook for defense remains bright.

Just to come back to Healthcare. Given the favorable valuation for health care companies these days, would you consider potentially divesting these assets, or searching for a new leader? What are the qualifications you’re looking for in terms of a new leader for health care?

A leader is essentially one who will drive the profitable growth of our healthcare business and contribute positively to CAE’s results. I think Jeff Evans is demonstrating to me that he can deliver the results we’re seeking. I am very confident in how healthcare fits into CAE’s overall portfolio. There are substantial synergies across our organization, including facilities, people, and technology, so the idea of divesting is not something we’re considering.

I’ll just add, for the quarter, it wasn’t necessarily overly significant, but we’re working through the integration on track, and we expect it to ramp up nicely through the fiscal year. The benchmarks on pre-COVID indicate what this business can do if we optimize our services to their full potential.

The two programs that took a charge in defense. When were those contracts written, when did those programs start?

They’re legacy contracts. The classified program was signed in 2018. We took over that contract when we acquired L3. The Sinatra contract is also a legacy contract in 2018.

What actually caused the cost overrun?

In the case of Sinatra specifically, the customer was training more than we bid. We faced some cost growth mitigating factors and actions to lessen that impact. We don’t bid that way now. We’ve refined how we manage risks and bid military programs over the past couple of years, but the volume of utilization exceeded our anticipated demand, and we had to recognize the loss at that point. Our team is all over this issue, and we’ve taken proactive steps to ensure we have the right measures in place to avoid similar situations in the future.

Great. So operator, that’s all the time we have for today. I want to thank all of our participants for joining us on the call and remind you that a transcript will be available on CAE’s website. Thank you.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.