CAE reports fourth quarter and full fiscal year 2020 results

From CAE Inc

  • Strong annual performance despite COVID-19 impact in Q4
  • Annual revenue up 10% to $3.6 billion
  • Annual segment operating income(1) of $537.1 million ($590.4 million before specific items(2)) up 12% vs. $480.6 million in prior year (up 21% vs. $487.4 million before specific items)
  • Annual EPS of $1.16 ($1.34 before specific items(3)) vs. $1.23 (up 7% vs. $1.25 before specific items) in prior year
  • Q4 revenue down 4% to $977.3 million
  • Q4 segment operating income of $146.5 million ($193.9 million before specific items) down 14% vs. $170.4 million in prior year (up 9% vs. $177.2 million before specific items)
  • Q4 EPS of $0.29 ($0.46 before specific items) vs. $0.46 ($0.48 before specific items) in prior year
  • $3.8 billion annual order intake(4), including 49 Civil FFSs, and $9.5 billion order backlog(4)
  • Annual free cash flow(5) of $351.2 million for 98% cash conversion(6)
  • CAE Air1 ventilator in final stages of certification by health authorities

MONTREAL, May 22, 2020 /CNW Telbec/ – (NYSE: CAE) (TSX: CAE) – CAE today reported strong annual performance despite the COVID-19 impact during its fourth quarter of fiscal year 2020. Annual revenue was $3.6 billion, up 10% over the prior year. Annual segment operating income was $537.1 million compared to $480.6 million in fiscal year 2019. Annual segment operating income before specific items was $590.4 million, up 21% compared to $487.4 million in the prior year. Annual net income attributable to equity holders was $311.4 million ($1.16 per share) compared to $330.0 million ($1.23 per share) in fiscal year 2019. Net income before specific items(7) was $359.7 million ($1.34 per share) this year, compared to $335.2 million ($1.25 per share) last year, which represents a 7% EPS increase over the same period last year.

Fourth quarter fiscal 2020 revenue was $977.3 million, down 4% from the fourth quarter last year. Fourth quarter net income attributable to equity holders was $78.4 million ($0.29 per share) compared to $122.3 million ($0.46 per share) last year. Net income before specific items in the fourth quarter was $122.3 million ($0.46 per share), compared to $127.5 million ($0.48 per share) last year. All financial information is in Canadian dollars.

Summary of consolidated results

(amounts in millions, except operating margins and per share amounts)FY2020FY2019Variance %Q4-2020Q4-2019Variance %
Revenue$3,623.23,304.110%977.31,022.0(4%)
Segment operating income (SOI)$537.1480.612%146.5170.4(14%)
Operating margins%14.814.515.016.7
SOI before specific items$590.4487.421%193.9177.29%
Operating margins%16.314.819.817.3
Net income$318.9340.1(6%)81.1125.4(35%)
Net income attributable to equity holders of the Company$311.4330.0(6%)78.4122.3(36%)
)Earnings per share (EPS)$1.161.23(6%)0.290.46(37%)
Net income before specific items$359.7335.27%122.3127.5(4%)
EPS before specific items$1.341.257%0.460.48(4%)
Order intake$3,821.63,971.4(4%)778.81,414.4(45%)
Total backlog$9,458.19,494.9—%9,458.19,494.9—%
Specific items include the impacts of the integration of Bombardier’s Business Aviation Training Business (BBAT) in fiscal 2019. In fiscal 2020, specific items also include the impacts of Defence and Security’s reorganizational costs and the impact of a $37.5 million goodwill impairment charge recognized in Healthcare.

“While leading CAE toward what would have been another record year, the COVID-19 pandemic hit us in our fourth quarter. Our first response was to ensure the health and safety of our employees and customers, and this continues to be our top priority. I am extremely proud of CAE’s employees worldwide, who daily, through even the most extreme conditions, take to heart the continuity of our customers’ critical operations, and earn the privilege of being their training partner of choice,” said Marc Parent, CAE’s President and Chief Executive Officer. “Our employees went beyond the call of duty in the fight against COVID-19 by bringing forward the idea to develop a critical care ventilator. It took just 11 days for 12 CAE engineers and scientists to develop a prototype, and now more than 500 of our employees are delivering on a contract with the Government of Canada to manufacture 10,000 ventilators to help save lives. The CAE Air1 ventilator is in the final stages of certification by health authorities. This is a true testament to the social impact CAE and its employees have, and it underscores the Company’s culture of innovation.”

Marc Parent added, “Turning to our results, notwithstanding the impact of COVID-19 headwinds on what is typically our best quarter of the year, we achieved strong performance overall in fiscal 2020, with double-digit revenue growth, 21% operating income growth, and 7% higher earnings per share. I am especially pleased with our 98% conversion of net income to free cash flow, which underscores the cash-generative profile of CAE’s world-leading training solutions. In Civil, we exceeded our annual outlook with 37% higher operating income, and annual orders totaling $2.5 billion, including additional airline training outsourcings and 49 full-flight simulator sales. In Defence, we anticipated a strong fourth quarter to reach our annual outlook for modest growth. While we achieved this on revenue, we came up short on operating income which was down 13%, mainly on lower than expected progress on program milestones and delays in securing new orders in the face of the COVID-19 pandemic. We booked $1.2 billion of defence orders during the year, for a $4.1 billion Defence backlog, which provides CAE with a good measure of diversification. And in Healthcare, we were on track for double-digit annual revenue growth until the last quarter, where it too was negatively affected by COVID-19, as medical and nursing school customers went into lockdowns, and hospital customers focused their attention on the healthcare crisis.”

The COVID-19 pandemic is a crisis of unprecedented speed and magnitude with respect to the disruption it has caused to daily life. The global air transportation environment and air passenger travel have been especially impacted, and CAE has seen a material disruption to its operations. CAE has implemented several flexible measures to protect the Company’s financial position and preserve liquidity, including the reduction of capital expenditures and R&D investments in fiscal 2021, strict cost containment measures, salary freezes, salary reductions, reduced work weeks and temporary layoffs, as well as a suspension of the common share dividend and share repurchase plan. CAE is a global leader, and the long-term outlook for the Company remains highly compelling, with increased potential for long-term partnerships and outsourcings, and the resumption of above-market rates of growth. In the short-term; however, the Company expects the pandemic to have a significantly negative impact on performance.

Marc Parent on CAE’s outlook, “As we look to the fiscal year ahead, we believe it will be a tale of two halves, with the first-half of the year marked by sharply lower demand and major disruptions to our operations, and the second-half, slightly more positive as markets potentially begin to reopen and travel restrictions ease. For the year overall, we expect a material decrease in operational and financial performance. Much uncertainty persists with respect to the duration and severity of the market downturn, and while COVID-19 may not have been foreseeable, our business is resilient by design. We entered this pandemic from a position of strength, with a global leading market position, a balanced business with recurring revenue streams, and a solid financial position. We have taken decisive yet flexible actions to help protect our people and operations over the short-term and to give us the necessary agility to resume long-term growth when global air travel eventually returns. We realize that it may be some time before things get back to normal, and based on our scenario analysis, we have the liquidity to weather the storm with upwards of $2 billion in cash and available credit. CAE is a highly innovative company with over seven decades of industry firsts under its belt. At the same time as we manage through the pandemic, we are focused on the future, and I expect we will ultimately be stronger for it.”

Civil Aviation Training Solutions (Civil)
The COVID-19 pandemic began to negatively impact Civil training revenues during the last quarter, with significantly lower than usual training utilization, especially in March, resulting from lower customer demand and government restrictions including travel bans, border restrictions, lockdown protocols and self-isolation measures that forced temporary closures and disruptions to Civil operations worldwide. During the month of March 2020, approximately one-third of Civil training locations worldwide suspended operations, and several of those remaining open, operated at significantly reduced capacity. In addition to the disruptions to Civil’s training centre network, Civil was also required to suspend the installation and delivery of simulator products to its customers worldwide.

Fourth quarter Civil revenue was $601.9 million, which is stable compared to the same quarter last year, and segment operating income was $151.5 million (25.2% of revenue) compared to $115.5 million (19.5% of revenue) in the fourth quarter last year. Fourth quarter Civil segment operating income before specific items was $153.6 million (25.5% of revenue), up 26% compared to the fourth quarter last year. Fourth quarter Civil training centre utilization(8) was 67%.

Annual Civil revenue was $2.2 billion, up 16% compared to last year, and segment operating income was $473.3 million (21.8% of revenue). Annual segment operating income before specific items was $479.4 million (22.1% of revenue) this year and $351.1 million (18.7% of revenue) last year, representing a 37% increase. Annual Civil training centre utilization was 70%.

During the quarter, Civil signed training solutions contracts valued at $468.6 million, including long-term training services agreements and the sale of 12 full-flight simulators (FFSs). For the year, Civil booked orders for $2.5 billion, demonstrating CAE’s continued momentum as the training partner of choice for airlines, business jet operators and pilots worldwide. These included 49 FFS sales and comprehensive, long-term training agreements with airlines including LATAM, JetSmart Airlines, and Sunwing Airlines. In business aviation, Civil won long-term training contracts with customers worldwide, including TAG Aviation Holdings, JetSuite, Solairus Aviation, and Flightworks Inc.

The Civil book-to-sales(4) ratio was 0.78x for the quarter and 1.14x for the last 12 months. The Civil backlog at the end of the year was a record $5.3 billion, which is up 6% from the prior year period.

Summary of Civil Aviation Training Solutions results

(amounts in millions except operating margins, SEU and FFSs deployed)FY2020FY2019Variance %Q4-2020Q4-2019Variance %
Revenue$2,167.51,875.816%601.9593.41%
Segment operating income$473.3344.337%151.5115.531%
Operating margins%21.818.425.219.5
SOI before specific items$479.4351.137%153.6122.326%
Operating margins%22.118.725.520.6
Order intake$2,471.52,769.9(11%)468.61,108.7(58%)
Total backlog$5,341.35,039.66%5,341.35,039.66%
SEU(9)24721813%25022412%
FFSs deployed(10)3062867%3062867%
FFS deliveries5658(3%)2125(16%)

Defence and Security (Defence)
The COVID-19 pandemic contributed to delays in the execution of programs from backlog and in order intake. A range of Defence programs involving government and OEM customers globally experienced delays due to travel bans, border restrictions, client access restrictions and supply chain disruptions. While some of the required progress and acceptance testing continued with virtual meetings and remote work procedures, delays impacted the attainment of key program milestones. In addition, there have been delays in the award of new contracts, as government acquisition authorities follow directives in their respective countries to shelter-in-place and eliminate travel. These delays impacted Defence order intake during the fourth quarter.

Fourth quarter Defence revenue was $341.8 million, down 12% compared to the same quarter last year and segment operating income was $32.4 million (9.5% of revenue) compared to $50.7 million (13.1% of revenue) in the fourth quarter last year. Fourth quarter Defence segment operating income before specific items was $40.2 million (11.8% of revenue), down 21% compared to the fourth quarter last year. Annual Defence revenue was $1,331.2 million, up 2% over last year, and annual segment operating income was $104.8 million (7.9% of revenue). Annual segment operating income before specific items was $114.5 million (8.6% of revenue), down 13% compared to last year.

During the quarter, Defence booked orders for $276.6 million. Notable wins include a contract with Leonardo to provide M346 training devices and upgrades, with BAE Systems to provide the CAE Medallion MR e-Series visual system to undisclosed customers, and with Babcock France to provide an additional Pilatus PC-21 full-mission simulator to support pilot training for the French Air Force.

For the year, Defence booked $1.2 billion in orders including a contract with Lockheed Martin to support the design and manufacture of additional C-130J simulators and training devices for the U.S. Air Force and U.S. Marine Corps. Defence also won contracts to continue providing KC-135 aircrew training services as well as perform a range of simulator upgrades and modifications on KC-135 training devices for the U.S. Air Force, and a contract with the NATO Support and Procurement Agency to provide the German Navy with a comprehensive training solution for the NH90 Sea Lion helicopter.

The Defence book-to-sales ratio was 0.81x for the quarter and 0.92x for the last 12 months (excluding contract options that extend beyond the initial funded year of these contracts). The Defence backlog, including options and CAE’s interest in joint ventures, at the end of the year was $4.1 billion.

Summary of Defence and Security results

(amounts in millions except operating margins)FY2020FY2019Variance %Q4-2020Q4-2019Variance %
Revenue$1,331.21,306.72%341.8387.9(12%)
Segment operating income$104.8131.5(20%)32.450.7(36%)
Operating margins%7.910.19.513.1
SOI before specific items$114.5131.5(13%)40.250.7(21%)
Operating margins%8.610.111.813.1
Order intake1,225.61,079.913%276.6265.04%
Total backlog$4,116.84,455.3(8%)4,116.84,455.3(8%)

Healthcare
In Healthcare, much of the market for simulation products are medical and nursing schools that have come under lockdown protocols, which negatively affected Healthcare’s ability to conclude contracts and to deliver on existing orders. The pandemic began to affect market demand in Asia early in the fourth quarter of fiscal 2020 and then later as border restrictions were implemented in March, in Europe and North America. In the hospital market customers are currently focused on managing the acute operational demands of the healthcare crisis rather than addressing their usual training needs. As a result of a precipitous drop in activity in the fourth quarter, the year-over-year, double-digit revenue growth rate that Healthcare was previously tracking, was not sustained for the year as a whole.

Fourth quarter Healthcare revenue was $33.6 million, down 17% compared to the same quarter last year, and fourth quarter segment operating loss was $37.4 million, compared to a segment operating income of $4.2 million (10.3% of revenue) in the fourth quarter last year. Fourth quarter segment operating income before specific items was $0.1 million (0.3% of revenue). Annual Healthcare revenue was $124.5 million compared to $121.6 million last year, and annual segment operating income loss was $41.0 million, compared to a segment operating income of $4.8 million (3.9% of revenue) last year. Annual segment operating loss before specific items was $3.5 million.

After considering general economic conditions and the deterioration in the global economic environment from the uncertainties of the COVID-19 pandemic, CAE recorded an impairment charge of $37.5 million relating to goodwill acquired in previous business acquisitions in Healthcare.

During the year, CAE Healthcare bolstered its position as the innovation leader in simulation-based healthcare education and training. It won the EMS World Innovation Award for CAE AresAR, the Microsoft HoloLens application for Healthcare’s emergency care manikin. Healthcare also launched innovative products including the Vimedix 3.0 ultrasound simulator; Anesthesia SimSTAT PACU and Labour Delivery modules, screen-based simulation approved by the American Board of Anesthesiology for maintenance of certification credits; and multiple custom simulators for OEMs and leading medical device companies including Baylis Medical and Edwards Lifesciences.

To help in the fight against COVID-19, subsequent to the end of the quarter, CAE Healthcare provided complimentary training seminars on how to prepare healthcare workers in the fight against COVID-19. It launched simulation-based training solutions, both web- and hardware-based, to train personnel in the safe practice of ventilation and intubation, which is key to saving lives. Additionally, CAE leveraged its global supply chain to source scarce N95 masks for humanitarian purposes in support of front-line health workers. To date, CAE has secured some 600,000 N95 masks for the governments of Quebec and Manitoba, doing its part to help keep healthcare-workers safe. As a testament to CAE’s innovation, engineering integration capabilities and subject matter expertise, the Company was selected by the Government of Canada, and is currently under contract, to design, manufacture and supply 10,000 ventilators to help save lives of COVID-19 patients. The CAE Air1 ventilator is in the final stages of certification by health authorities.

Summary of Healthcare results

(amounts in millions except operating margins)FY2020FY2019Variance %Q4-2020Q4-2019Variance %
Revenue$124.5121.62%33.640.7(17%)
Segment operating (loss) income$(41.0)4.8(954%)(37.4)4.2(990%)
Operating margins%3.910.3
SOI before specific items$(3.5)4.8(173%)0.14.2(98%)
Operating margins%3.90.310.3