CAE, Inc. (CAE) Misses Q3 EPS by 3c, Revenues Beat

CAE, Inc. (NYSE: CAE) reported Q3 EPS of $0.22, $0.03 worse than the analyst estimate of $0.25. Revenue for the quarter came in at $832.4 million versus the consensus estimate of $611.18 million.

• Revenue of $832.4 million up 18% vs. second quarter and down 10% vs. third quarter last year
• EPS of $0.18 ($0.22 before specific items(1)) vs. negative $0.02 ($0.13 before specific items) in the second quarter and $0.37 ($0.37 before specific items) in the third quarter last year
• Operating profit(2) of $82.9 million vs. $28.2 million in the second quarter and $154.9 million in the third quarter last year
• Segment operating income before specific items(3) of $97.2 million vs. $79.3 million in the second quarter and $157.2 million in the third quarter last year
• Net cash provided by operating activities of $234.8 million vs. $45.6 million in the second quarter and $322.1 million in the third quarter last year
• Positive free cash flow(4) of $224.0 million vs. $44.9 million in the second quarter and $275.3 million in the third quarter last year
• Issued $495.3 million in common equity and announced three acquisitions: Flight Simulation Company B.V., TRU Simulation + Training Canada Inc., and Merlot Aero Limited

"CAE's performance continued to strengthen sequentially in the third quarter, demonstrated by 69% higher earnings per share and a near five-fold increase in free cash flow to $224.0 million, underscoring the resiliency of our business," said Marc Parent, CAE's President and Chief Executive Officer. "We are managing well through a challenging period and making important progress to significantly enhance CAE's position for future growth. We bolstered our financial resources with the issuance of $495 million of common equity and we strengthened and expanded our market position with a succession of three acquisitions."

On CAE's outlook, Marc Parent added, "The pandemic continues to be a global reality and the resumption of CAE's recovery remains highly dependent on the timing and rate at which travel restrictions and quarantines can eventually be safely lifted and normal activities resume in our end markets. Looking beyond, given our recent investments and future potential opportunities to deploy growth capital, we are confident CAE will emerge from this period in a position of even greater strength."

Management outlook for fiscal year 2021 largely unchanged

Consolidated outlook CAE is a high technology solutions company at the leading edge in digital immersion. The extended-term outlook for the Company remains compelling, and it expects to emerge from the COVID-19 pandemic even better positioned as a result of several initiatives to strengthen its internal position during the current period.

In the short-term; however, the Company expects the COVID-19 pandemic to continue to have a significant negative impact on its performance relative to pre-pandemic levels. COVID-19 remains a global reality and the resumption of CAE's recovery remains highly dependent on the timing and rate at which travel restrictions and quarantines can eventually be safely lifted and normal activities resume in our end markets. The Company continues to expect to generate positive free cash flow for the year and expects total capital expenditures of approximately $100 million for the fiscal year.

Having recently bolstered its liquidity position with a $495.3 million common share issuance and announced three acquisitions in its core markets, the Company intends to continue to capitalize on future opportunities to deploy growth capital to further strengthen its position with increased market reach and an expanded range of capabilities.

Civil outlook In Civil, the regulated requirements for aviation training serve as a key demand driver, which is expected to continue mitigating some of the negative impacts of the civil aviation market downturn. The Company expects to continue building on its positive momentum in training, increasing market share and securing new customer partnerships with its innovative training and operational solutions. The Company believes more airline training partnership and outsourcing opportunities should materialize for CAE as the industry looks for ways to gain greater agility and resiliency in the post-COVID-19 era. For Civil overall, the Company expects to see a relatively stable performance in the fourth quarter compared to the current quarterly results. The global roll-out of vaccines to combat COVID-19 is indeed encouraging; however, renewed quarantine measures and border restrictions to contain the spread of the virus have contributed to expectations for a potentially more protracted recovery period for commercial air travel, particularly for cross-border and transcontinental operations. In business aviation, which represents a substantial portion of CAE's Civil business, the Company continues to expect a more rapid market recovery than in commercial aviation. Demand for Civil full-flight simulators is closely linked to new aircraft deliveries, and while the total market is expected to be substantially smaller this fiscal year, Civil expects to maintain its leading share of the available FFS sales and currently expects to deliver approximately 35 FFSs (previously indicated range of 35 to 40) to customers worldwide this fiscal year. CAE benefits from a large backlog of customer funded FFS orders, and while some deliveries have been delayed, the Company expects to substantially deliver this backlog over the next couple of years.

Defence outlook In Defence, the Company also benefits from a large backlog of contracts with government customers to provide training and operational support solutions that are considered essential to national security. In addition, Defence is making progress toward addressing both the training and mission support market segments with digitally immersive solutions, as evidenced by awards to support the U.S. Special Operations Command, the UK Strategic Command, and its selection to demonstrate its prototype for a synthetic training environment training simulation management tool in support of the Army Futures Command. Defence also expects to make more progress penetrating the security sector as demonstrated by its recent win to provide United States Customs and Border Protection with Aircraft Pilot Training Services. In the current fiscal year, COVID-19-related issues have slowed Defence's progress toward program milestones on work in backlog and have impacted training operations. The pandemic has also led to delays in contract awards globally. While Defence faces a challenging environment in fiscal year 2021, the long-term outlook continues to be for growth, supported by a large addressable market for training and operational support, and the realization of the benefits of its innovative digitally immersive solutions, new leadership, the ramp up of its reinvigorated growth strategy, and its strengthened organization.

Healthcare outlook CAE believes Healthcare is well positioned to experience a change in the appreciation of the importance, relevancy and benefits of healthcare simulation and training to help save lives.

Management's expectations are based on the prevailing market conditions, the timing and degree of easing of global COVID-19-related mobility restrictions, and customer receptivity to CAE's training and operational support solutions as well as material assumptions contained in this press release, quarterly MD&A and in CAE's fiscal year 2020 MD&A.

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