Earnings Call Transcript - CAE Q2 2023

Operator, Operator

Good day, ladies and gentlemen. Welcome to the CAE Second Quarter Conference Call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Andrew Arnovitz. Please go ahead.

Andrew Arnovitz, Vice President, Investor Relations

Good afternoon everyone, and thanks 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, November 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 US 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 Marc and Sonya's remarks, we’ll open the call for questions from financial analysts. At the conclusion of that segment, we’ll open the lines to members of the media. Let me now turn the call over to Marc.

Marc Parent, President and CEO

Thank you, Andrew, and good afternoon to everyone joining us on the call. We had strong performance in the second quarter, led by double-digit growth in Civil and sequentially better results in Defense. We also delivered another quarter of double-digit revenue growth in Healthcare with higher profitability. We continued to secure CAE’s future with nearly $1.3 billion in total orders for a record $10.6 billion adjusted backlog and a book-to-sales ratio of 1.30 times. In Civil, we made excellent progress, converting our large opportunities pipeline into $751 million of orders, resulting in a book-to-sales ratio of 1.48 times. This is especially impressive considering that revenue is 40% higher than last year. Orders include long-term training agreements with airlines and business aircraft operators, including a new 15-year pilot training and operations agreement with Qantas, one of the world’s most renowned airlines, and like CAE, a name synonymous with safety. We also secured training agreements with Virgin Australia, JetSmart Airlines, DHL Air UK, and American Airlines. Demand for full-flight simulators was robust with 18 sales in the quarter. We’ve sold another five full-flight simulators, bringing our total year-to-date tally to 29. Since the end of the quarter, we’ve sold another five full-flight simulators, for a total of 34 sales since the start of the fiscal year. Civil’s financial and operational performance was strong in the second quarter, with double-digit growth across all metrics. We delivered 10 full-flight simulators in the quarter, and average training centre utilization was 66%, up from 53% last year. This reflects the air traffic recovery in select regions and a measure of summer seasonality. Commercial aviation training demand in the Americas continued to be very strong, while Europe was seasonally lower on a sequential basis. In Asia, the reopening of Japan has been a positive catalyst, but the region overall remained well below pre-pandemic levels due to the ongoing 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 has shown signs of stabilization at approximately 20% above pre-pandemic levels. In defense, the earliest signs of our progress towards a larger and more profitable business are order intake, and testament to that, this past quarter marks another step in the right direction. We booked orders for training and mission support solutions valued at $500 million for a book-to-sales ratio of 1.13 times, marking the fifth consecutive quarter that this ratio has been above one and situating us with a book-to-sales ratio of 1.33 times on a trailing twelve-month basis. Without sustaining higher order intake, replenishing our backlog with new and more profitable defense contracts is crucial. Our defense quarters reflect our capabilities across all five battle space domains. In the air domain, we signed a contract with Piaggio Aerospace for the P180 Avanti full flight simulator for the Italian Air Force. We also expanded our relationship with Lockheed Martin for system trainers and modifications evolving C-130 platforms. A key tenet of our strategy is to develop strategic relationships with platform OEMs. These agreements, in addition to our recently announced MoU with Boeing for global collaboration, are notable signs of progress. In the land domain, we expanded our capabilities with a prototype development award under the US Army Soldier Virtual Trainer contract. A component of the synthetic training environment at the Soldier Virtual Trainer contract, or SVT, continues the expansion of synthetic training environments with a platform to empower soldier-led training. Defense also won a contract in the sea domain with the platforms and system training contracts to support the Royal Australian Navy, a program strategically significant in the context of Australia's modernization priorities amidst geopolitical tensions in the Indo-Pacific region. Under a five-year agreement, we'll be supporting the future training transformation of Royal Australian Navy Mariners across four platforms On Site, In Port. We're leveraging our experience training marines worldwide, including the US Navy on multiple naval aircraft platforms, bridge training for the littoral combat ship and the US Army Maritime Integrated Training System. In the space and cyber domains, we received additional awards from our key space and missile defense customer, along with cyber technology updates on our core platforms and systems from various customers within the US Department of Defense. Our unique combination of experience, digital technology, and subject matter expertise also provided new opportunity this quarter with strategic customers for prototype development. These include an authorization from the Air Force Research Lab to develop and demonstrate innovative, mission-effective unmanned air vehicle capability to assist with man-unmanned teaming, along with the aviation mission planning prototype for a sensitive customer. Both US national defense priorities and leverage capabilities across CAE's business units were addressed. Our financial performance for defense in the quarter improved sequentially consistent with our expectations. This performance results from our heightened operational focus in the face of the challenges that we highlighted last quarter, namely the prevailing supply chain and labor headwinds and order delays, all of which are pervasive across the defense sector and broader economy. With that, I'll now turn the call over to Sonya, who will provide additional details about our financial performance.

Sonya Branco, CFO

Thanks, Marc, and good afternoon, everyone. Consolidated revenue of $993.2 million was 22% higher compared to the second quarter last year. Adjusted segment operating income was $124.7 million compared to $90.7 million in the second quarter last year. Quarterly adjusted net income was $61.5 million, or $0.19 per share, compared to $0.17 in the second quarter last year. We incurred restructuring, integration, and acquisition costs of $22.6 million during the quarter, relating mostly to the L3Harris Military Training and AirCentre acquisitions. Net cash provided by operating activities this quarter was $138 million, compared to $30.9 million in the second quarter of fiscal 2022. Free cash flow was $108.4 million compared to $19.4 million in the second quarter last year. The increase was mainly due to higher cash provided by operating activities and lower investment in non-cash working capital. CAE usually sees a higher level of investment in non-cash working capital accounts during the first half of the year and tends to see a portion of these investments reverse in the second half. Capital expenditures totaled $68.6 million this quarter, with approximately 80% invested in growth, specifically to 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 $14.5 million for an effective tax rate of 24%, which is higher than our annual outlook of 22%, which remains our expectation going forward. Our net debt position at the end of the quarter was approximately $3.2 billion, for a net debt-to-adjusted EBITDA of 4.17 times at the end of the quarter. We continue to expect net debt-to-adjusted EBITDA of below three times by the middle of next fiscal year. Now turning to our segmented performance. In Civil, second quarter revenue was up 40% to $507.2 million compared to the second quarter last year, and adjusted segment operating income was up 60% to $104.4 million versus the second quarter last year, for a margin of 20.6%. Our stronger year-over-year Civil performance was mainly due to higher training network utilization and simulator deliveries. We also integrated into our results the AirCentre results, which represented approximately 7% of Civil revenue in the quarter. In Defense, second quarter revenue of $442.4 million was up 6% over Q2 last year. Adjusted segment operating income was $18.4 million for the quarter, down from $26.7 million in the second quarter last year. The revenue growth stems from a higher level of activity on programs, while the lower adjusted segment operating income reflects higher costs associated with supply chain and labor shortages, partially mitigated by our cost reduction initiatives. In Healthcare, second quarter revenue was $43.6 million, up from $34.9 million in Q2 last year, mainly due to increased sales of patient simulators. Adjusted segment operating income was $1.9 million in the quarter compared to a loss of $1.3 million in Q2 of last year. With that, I will ask Marc to discuss the way forward.

Marc Parent, President and CEO

Thanks, Sonya. The strength we saw during the second quarter gives us the confidence to reaffirm both our fiscal 2023 outlook and our long-term targets. Our outlook for Civil remains strong, with its industry-leading positioning enabling us to grow significantly through the commercial aviation market recovery and beyond. Over the last two years, we expanded our reach and capabilities to better serve our customers, while significantly improving our cost structure. We expect the rate of Civil’s commercial aviation training recovery to continue to be driven in large part by the eventual easing of remaining travel restrictions, especially in Asia, where China remains a large component of any global recovery scenario. A potential reopening in China would also be expected to lead to further recovery in full-flight simulator sales. On the macroeconomic front, we’re watching the global energy situation closely, particularly in Europe with respect to operating costs, which have already increased across our network, and the potential for impacts on travel demand. In business aviation, the consensus view at the recent NBAA conference was highly positive, and we continue to see strong demand for pilot training. In response to market demand, we have new training capacity coming online, including our new business aviation training centre in Las Vegas, which opened last month, and Singapore, which begins operations this month. For the second half of the fiscal year, we expect Civil to grow faster than it did in the first half and to be weighted more to the fourth quarter. We expect to deliver a higher number of full-flight simulators in the fourth quarter and to have a higher number of simulators, or SEUs, come online in our training network. In addition to continuing to grow our share of the aviation training market and expanding our position in digital flight services, we expect Civil to maintain its leading share of full-flight simulator sales and to deliver more than 45 full-flight simulators to customers worldwide. This is up from our previous outlook for 40. In Defense, our sequential growth, paired with the significant bookings and improved backlog we are experiencing, gives us confidence for stronger near-term performance. In the last two years, Defense has become the world's leading, pure-play, platform agnostic training and simulation business. We’re well positioned to address larger, more profitable, and more comprehensive programs across all five battlespace domains. We’re closely aligned with national defense priorities focused on near-peer threats and the increased need for digital, immersion-based synthetic solutions. We’re uniquely positioned in this regard, being able to draw directly from CAE’s innovations in the commercial aviation simulation and training market. Defense represents a secular growth market for CAE, as the sector is in the early stages of what we believe will be an extended up-cycle, driven by geopolitical realities and increased commitments to defense modernization and readiness. The earliest indications of our success have been orders, which lead us to build a more profitable backlog. We’re bidding more and we’re bidding larger, and what I see ahead is highly encouraging with a pipeline of multiple $100 million-plus programs and a number of $1 billion-plus programs that we’re bidding over the next three years. As we replenish our backlog, we expect Defense will strengthen in the next couple of years to a low double-digit percentage adjusted segment operating income margin profile. Currently, active bids and proposals awaiting customer decisions stand at approximately $8 billion, which is nearly double the amount outstanding three years ago. Looking to the remainder of the fiscal year for Defense, we expect the current widespread macroeconomic headwinds, including supply chain and labor challenges, to persist for some time and that order delays will continue to be a factor. We’re focused on execution, and we’re confident in our expected stronger second half performance, which we expect to be substantially weighted to the fourth quarter. Underlying this view is our expectation for select delayed program awards to come to fruition and that we’ll be able to execute on programs in backlog. We also expect to partially mitigate these headwinds with internal cost reductions and efficiencies, which are ramping up toward the end of the fiscal year. In Healthcare, we see potential for more value creation as it gains share in the healthcare simulation and training market and continues to build on its growth momentum and increased profitability. In terms of our capital allocation priorities, we’ve concluded a heavier than usual inorganic growth investment cycle, which spanned the last two years as we seized opportunities in a disrupted market to enable CAE to become a bigger, stronger, and more profitable company for the future. We’re now concentrating on organic investments that are made in lockstep with customer demand. We’re also focused on reducing leverage, and as Sonya indicated, we’re confident our net debt-to-adjusted-EBITDA ratio will decrease to below three times by the middle of next fiscal year, which at that time will further increase our financial flexibility. CAE’s management and Board of Directors are also focused on reinstating and prioritizing the return of capital to shareholders on a timely basis, which is a cornerstone of our main capital allocation priorities. In summary, the overall strength that we saw in the quarter and our current expectations for the balance of the year allow us to reaffirm our outlook for mid-20% consolidated adjusted segment operating income growth this fiscal year and to maintain our long-term target of a three-year EPS compound growth rate in the mid-20% range. With that, I thank you for your attention. We’re now ready to answer your questions.

Andrew Arnovitz, Vice President, Investor Relations

Thank you, Marc. Operator, we'd now be pleased to take questions from financial analysts.

Operator, Operator

Thank you. Your first question comes from Kevin Chiang of CIBC. Please go ahead.

Kevin Chiang, Analyst

Thank you, operator. I appreciate the opportunity to ask my question. My first inquiry is regarding a recent memo issued by the US Department of Defense to contractors concerning equitable adjustments for cost overruns due to unprecedented inflation. I understand that CAE has applied for some of these adjustments to mitigate the impact of prior inflation. Could you please provide an update on this matter? Specifically, I would like to know if my understanding is correct and the current status of those adjustments. Additionally, are we beginning to see some of these adjustments reflected in the most recent quarter or possibly in the latter half of this fiscal year?

Marc Parent, President and CEO

I can confirm that there is significant effort in this area, Kevin, including our direct representation to lawmakers in the US capital and collaborative efforts with industry associations. Letters have been sent out, and I anticipate action to take place, though I can't specify when. I've consistently maintained that we expect some level of mitigation regarding the cost overruns we've experienced. While we haven't realized any major benefits from that yet, I fully expect that we will see some in the future.

Kevin Chiang, Analyst

Okay. That's helpful. And just my second question. On the last quarterly call, you provided a lot of detail on the problem contracts that resulted in the write-down, one of them with the legacy CAE defense contract. And I think one of the issues was that the expected renewal of that contract was maybe not coming in as fast as originally anticipated, which drove some of that write-down? Just any update there in terms of the bidding process for that and maybe your confidence in being awarded the renewal?

Marc Parent, President and CEO

Well, I would tell you that the RFP is out, and we are bidding on it. The nature of the contract has changed. I think it's a lot more attractive in terms of the specifications. So, look, we'll see. I think we have a very attractive bid; we're the incumbent, so I have high hopes. But we’ll be very prudent in that regard.

Kevin Chiang, Analyst

Okay.

Marc Parent, President and CEO

One thing I'll tell you, which is very testament to what I was saying about the changing nature of this particular contract and others, is that it takes what that contract looks like. It's changed from being the lowest price factory-assembled contract that we saw initially to a contract based more on best value, which plays very well to our strength, meaning not just around cost. The way we bid it considers the terms that are in the contract, which includes specific banding around utilization rates. So the risk that we saw in that contract, where we basically bid at a certain level of utilization and the amount the customer actually used was much higher, we wouldn't have that risk anymore. That's been completely taken out of the risk profile of the contract.

Kevin Chiang, Analyst

That's good. I'll leave it there. Thank you very much.

Marc Parent, President and CEO

Thank you.

Operator, Operator

Thank you. The next question comes from Fadi Chamoun of BMO. Please, go ahead.

Fadi Chamoun, Analyst

Thank you. Good afternoon. Just one quick clarification first. Did I hear you mention that in Civil, you expect the growth in the second half to exceed the growth in the first half from an EBIT perspective? Is that the guidance?

Marc Parent, President and CEO

Yes, it is, Fadi.

Fadi Chamoun, Analyst

Okay. So that's quite stronger than what you're expecting, maybe at the beginning of the year. What's driving that specifically in aviation? I mean, you've had some decent amount of orders year-to-date, and it looks like sequentially in the second quarter, we've had a big jump, more than seasonal. Like, is the Asian market coming back a little bit stronger? Is there an area that surprised you on the positive side? I'm just curious about the performance.

Marc Parent, President and CEO

No, I would like to apologize for interrupting you, Fadi. Generally, our consolidated outlook for the second half indicates it's slightly steeper than usual. Specifically regarding Civil, we are not yet in a typical environment. As I mentioned in the call, China has not fully reopened, which is limiting our progress there. However, in the second half, we are benefiting from the simulator orders we have signed this year. We have received an impressive number of orders, and we are pleased to see them translating into deliveries, especially in the fourth quarter. I have good visibility on that. Additionally, we are increasing the capital we've already invested in simulators for both commercial and business aircraft training networks. As I noted in my remarks, this is evident in recent months with the opening of our new Las Vegas business aviation training center and the upcoming launch of our Singapore business aviation training center. All of these factors, combined with strong order intake, show that our order intake continues to be robust with 1.8 times both sales and revenues that are 40% higher year-over-year. This all points to the growth that you are observing.

Fadi Chamoun, Analyst

Okay. Great. One question on the defense side, if I may. We get a lot of these kinds of questions from investors: Are there in the backlog other contracts like this CAE legacy contract that you had last quarter where you're still expecting renewal? Maybe contracts that are not performing to your expectations and you're still expecting renewal, or is this all behind us at this point?

Marc Parent, President and CEO

If you're referring to the charges, and I think you are, that we recognized in the first quarter, I really see those as unique and one-off in nature. They're not typical of the risk profile of our business. As you know very well, I've been with the business for 17 years, and it's the first time that I've seen charges like that affect our P&L in a quarter like this. It's not that we don't manage programs that are on watch; we've landed hundreds of programs with varying margins, but we manage them well. Events like these prompt us to go back and enhance the level of scrutiny, and of course, we've done that. However, I don't see any similar risk in our backlog programs at this time. To give you some more color, in terms of conditions of contracts that we’re bidding on these days, I was giving the example of Senate and the discipline that we're applying to those bids gives me a lot of confidence in our current leadership team and the expected margins as we execute on those contracts.

Fadi Chamoun, Analyst

Okay. Thank you.

Marc Parent, President and CEO

Thank you.

Operator, Operator

The next question comes from James McGarragle, RBC. Please go ahead.

James McGarragle, Analyst

Hi, everyone. Thanks for taking my question. I had a quick question on the increase in the defense backlog and some of the new contracts you're bidding on. Do you have any protection for potential supply chain issues on those new contracts? I think supply chain is very uncertain regarding when things are going to improve. If supply chain issues were to persist for another year or two, could we see any risk to margins with those contracts that you're bidding on, or is there some protection being built into those new agreements that you're working through right now?

Marc Parent, President and CEO

You can be sure that the contracts we're bidding on now take into account the situation we face, including the continued high inflation levels. The customers, by and large, are understanding of that reality. In one contract that I reviewed the other day, typically, you'd see fuel being a cost element. However, with fuel prices having escalated and their unpredictability, the customer actually prefers we bid without incorporating that cost into our proposals, which allows us to neutralize those costs completely. What you see is a shift in contracts from the lowest price wins to best value contracts within the US Defense Department. I'm confident that the programs we're securing will maintain profitability levels that support our objectives for low double-digit profitability, and I believe we will execute them at that margin profile.

James McGarragle, Analyst

I appreciate that. And my next question is on the civil business and the recovery there. Is it true that the recovery is predicated on returning to pre-pandemic travel? I know you don't operate in China, but your Asia business is affected by what goes on in that country. How has China’s Zero COVID policy affected your recovery? How are you managing through that uncertainty going forward?

Marc Parent, President and CEO

I think I would start by saying that when you look at the margins we are printing right now in Civil, without China and the Asia market being fully back, we're back to margins that are near pre-pandemic levels at around 21%. This demonstrates the substantial cost savings we've taken out of our network. As the recovery progresses, we fully expect further margin enhancement in that regard. Specifically, concerning your question about China: Historically, we have had a high market share of selling simulators in China. I expect that will continue, but the market is currently quite low, as no one is selling many simulators there now. As I see how else the situation in China affects us, a lot of the flights to and from China directly impact our training activity in our Asia Pacific training centers. This is where a lot of recovery is currently lagging.

James McGarragle, Analyst

I appreciate it, and I'll turn the line over. Thank you very much.

Operator, Operator

Thank you. The next question comes from Konark Gupta of Scotiabank. Please go ahead.

Konark Gupta, Analyst

Thank you, operator, and good afternoon everyone. I wanted to first understand the defense SOI for the second quarter, which was $18 million, still down below the typical levels seen before last quarter. I recognize there are supply chain and labor issues, along with some order delays, but would you say that even without those issues, the contract adjustments made in fiscal Q1 would still impact this new margin level for fiscal Q2? Additionally, how do you anticipate the defense SOI will increase from $18 million in Q2 to significantly higher figures in Q3 and Q4?

Marc Parent, President and CEO

Our Q2 performance was as we expected it to be, as I stated it would be on the last call, sequentially ahead of the last quarter, of course adjusted for the discrete charges we saw in Q1. Look, we're not alone in this. Like our peers, we continue to feel the very real labor and supply challenges across the industry. I think we're managing them well. However, we also see select award delays in order intake. We're continuing to work through these challenges, especially with regard to labor and supply chains. We foresee these challenges abating by year-end. That's where you're seeing the momentum plus specific orders that we have high visibility on, giving us confidence to ramp up defense numbers and profitability in the third and particularly in the fourth quarter. One thing that you'll be excited about is the strong order intake, which continues to be robust, showing five quarters of book-to-bill higher than one with a trailing twelve-month book-to-bill at higher than 1.3, which points to strong expected performance in the future.

Konark Gupta, Analyst

Okay. That's helpful, Marc. Thanks so much. And then one more for perhaps for Sonya. I think in your comments, you mentioned that you want to reinstate shareholder returns. So that leads to a two-part question: Does that mean dividends or buybacks? Would you have to wait until the leverage ratio goes down below three times before reinstating those?

Sonya Branco, CFO

As we mentioned, our first priority is to de-lever. We continue to be on track to bring our net debt to adjusted EBITDA down below three times by mid next fiscal year. We believe we’ll be in a position to consider returning capital to shareholders thereafter. So, it's too soon to speak to the form, but once we reach a normalized balance sheet and financial flexibility, we'll turn to returning capital to shareholders.

Konark Gupta, Analyst

Okay. Thanks, Sonya.

Operator, Operator

Thank you. The next question comes from Kristine Liwag of Morgan Stanley. Please go ahead.

Kristine Liwag, Analyst

Hey. Good afternoon everyone.

Marc Parent, President and CEO

Hello Kristine.

Kristine Liwag, Analyst

Hey, Marc, maybe circling back on defense, you've highlighted some of the puts and takes there. But can you provide a more detailed bridge on how you get from 4% margin where the business is today to the high single digit or potentially low-double digit margin at some point? How much of this margin expansion is due to lower margin contracts rolling off, better execution, or improved volumes to absorb some overhead? Any more detail would be appreciated because it seems like there are a lot of moving pieces in terms of that recovery.

Marc Parent, President and CEO

Well, the components are exactly what you said. If you look at our business, we've experienced five quarters of book-to-bill higher than one, while prior to that, we were running out of backlog inherently inefficient. COVID affected us as well. We are working through labor supply chain challenges affecting our industry and I think we're managing them well. The key factor will be rolling off contracts that are lower profitability and replacing them with contracts we've won—going back to order intake. The orders we’re winning are accretive to our objectives for low double-digit operating income. I said to keep watching order intake— it’s the one to watch because order intake is strong. We're bidding more and larger. We now have outstanding business proposals totaling around $8 billion, which is a significant increase. All these factors will contribute to the bridge you're looking for.

Kristine Liwag, Analyst

I see. And then Marc, would you quantify how much of that lower margin defense revenues rolling off this year to help us with modeling?

Marc Parent, President and CEO

We can't be that specific at this time. Sonya, have anything you would like to add?

Sonya Branco, CFO

No.

Marc Parent, President and CEO

No. I think we have to leave it to what we've already shared.

Kristine Liwag, Analyst

Great. Thank you, Marc. Thank you, Sonya.

Operator, Operator

Thank you. The next question comes from Anthony Valentini of Goldman Sachs. Please go ahead.

Anthony Valentini, Analyst

Hey, guys. This is Anthony on behalf of Noah. How are you?

Marc Parent, President and CEO

Hello. Good. Thank you, Anthony.

Anthony Valentini, Analyst

I just wanted to focus on the Civil segment for a second. If I'm looking at the metrics correctly here, it looks like the simulator deliveries were flat quarter-over-quarter. Utilization was down, and there are fewer simulators in the network, yet revenues were up 6% sequentially. So, can you help me bridge that?

Marc Parent, President and CEO

Maybe Sonya could give you some additional color, but margins and utilization aren't perfectly correlated, and you see a lot of mix as not all simulator orders carry the same weight. They can fluctuate based on the airlines' supplied data. Sonya, do you want to expand on that?

Sonya Branco, CFO

Yes, absolutely. Despite the deliveries being flat, I think product mix was favorable even more so in this quarter, and mix matters in terms of the training as well. There was less seasonality on the business jet side than the commercial side, which helps the margin. You spoke about the simulators in the network: while the absolute number was lower because we did a bit of a rationalization, the simulators active for revenue generation actually went up quarter-to-quarter.

Anthony Valentini, Analyst

Okay, that's helpful. And in terms of the mix, can you comment on the amount of deliveries that are wide-body versus narrow-body?

Marc Parent, President and CEO

We don't actually break out that data. However, we don't have that data available, so I can't provide you a specific breakdown.

Sonya Branco, CFO

Yes. We don’t necessarily break it out, but you can assume that it's mostly narrow-bodies.

Anthony Valentini, Analyst

Great. Thank you so much.

Operator, Operator

Thank you. The next question comes from an unidentified analyst. Please go ahead.

Unidentified Analyst, Analyst

Hi, thank you for taking the question. Maybe just on the announcement with Qantas and Virgin. Do you expect further outsourcing of training across the airline industry considering they're facing higher costs in other parts of their business?

Marc Parent, President and CEO

Yes, I think this is a continued good time for outsourcing, as we have predicted. It's a natural evolution of the business. We've created the only real global third-party way to provide training, and we're the largest training network in the world, training over one million hours annually. We've provided significant synergy and benefits to airlines, and I continue to see more opportunities out there. We announced the big contracts with Qantas, but there are many more overflow training contracts that we will pursue, and when we do that, we secure long-term contracts good for the future. I foresee continued outsourcing as a trend going forward.

Unidentified Analyst, Analyst

Perfect. Thank you. That's great color. And maybe just on the fixed-price contracts. I know Boeing at their Investor Day mentioned they no longer have an appetite for fixed-price programs. What is your opinion on this trend in the aerospace industry moving forward?

Marc Parent, President and CEO

I can only comment about our own bidding strategy, and we bid on contracts that fit our strategy and capabilities, many of which are fixed firm price contracts. We have a solid track record of executing on such contracts over multiple years. Despite what occurred in one specific case last quarter, I am confident about our ability to execute fixed firm price contracts going forward. The market in the US is currently shifting towards best value contracts, which is very positive for CAE as it allows for differentiation. The government wants to create an environment where risks are well managed. As I have mentioned, we are shifting how we manage specific costs, our strategy supports us in bidding effectively with confidence.

Unidentified Analyst, Analyst

Thank you. I appreciate it.

Operator, Operator

Thank you. The next question comes from an unidentified analyst. Please go ahead.

Unidentified Analyst, Analyst

Hi, thank you. I would like to clarify the civil utilization rate. The sequential decline noted last quarter is not 66%. Is this decline due to seasonality, COVID, or other factors?

Marc Parent, President and CEO

Mainly seasonality.

Unidentified Analyst, Analyst

Seasonality. Okay. And in terms of the longer-term projection for the utilization rate, I think prior to COVID it was around the mid-70 range. Do you expect to reach that kind of level longer term, or do you foresee it to be higher or lower?

Marc Parent, President and CEO

I don't see a reason why we wouldn't get back to those numbers. Currently, we are operating in the US at much higher levels. Historically, the reason I mentioned business aircraft is that usage tends to be lower, as we don't conduct training as frequently. Lower utilization doesn't affect our overall revenue, nevertheless.

Unidentified Analyst, Analyst

Great. Okay. Thank you.

Andrew Arnovitz, Vice President, Investor Relations

Operator, I want to thank members of the investment community for their questions. Now, we’d like to open the line to members of the media for any questions.

Operator, Operator

The first question comes from Stephen. Please go ahead.

Unidentified Analyst, Analyst

Thank you to the members of the investment community for your questions. We would now like to invite members of the media to ask any questions. The first question comes from Stephen. Please go ahead.

Operator, Operator

That was our final question. I'll turn the call back over to our hosts for any closing remarks.

Andrew Arnovitz, Vice President, Investor Relations

Thank you, operator, and thanks to everyone for joining us on the call today. I’d like to remind you that a transcript of today's call will be located on CAE's website for future reference. With that, I wish everyone a good afternoon.

Operator, Operator

Thank you. This does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you and have a good day.