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

Good afternoon, everyone and thank you for joining us today. Before we begin, I would like to remind you that today’s remarks, including management’s outlook for fiscal year ‘18 and answers to questions, contain forward-looking statements. These forward-looking statements represent our expectations as of today, May 31, 2017 and accordingly, are subject to change. Such statements are based on assumptions that may not materialize or 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, in our filings with the Canadian Securities Administrators on SEDAR and on the U.S. Securities and Exchange Commission website. On the call with me this afternoon are Marc Parent, CAE’s President and Chief Executive Officer; and Sonya Branco, our Chief Financial Officer. After remarks from Marc and Sonya, we will take questions from financial analysts and institutional investors. Following the conclusion of that Q&A period, we will open the lines to questions to members of the media. Let me now turn the call over to Marc.

Thank you, Andrew and good afternoon to everyone joining us on the call. I will first discuss some highlights of the quarter and the year and then Sonya will review the detailed financials. I will come back at the end of the presentation to comment on our outlook. We had strong results overall in the fourth quarter and for the fiscal year as a whole and I am very pleased with the progress we continued to make with our training strategy. Our customers responded positively to our innovative solutions, leading to higher utilization in our training center network and a $3.2 billion order intake for the year. This gave us a record $7.5 billion backlog, which enhances visibility and augments the recurring nature of CAE’s business. Also for the year, we grew net income by 21% and we generated 32% higher free cash flow, all-in-all, a very good performance. Looking specifically at Civil, we booked $481 million of orders during the quarter for training solutions and 17 full-flight simulators for customers, including Shanghai Eastern Flight Training, Donghai Airlines, Korean Air, Ethiopian Airlines and Airbus. For the year, Civil had a record $1.7 billion in orders, which is testament to CAE’s position as the training partner of choice. Orders included a total of 50 full-flight simulators and a range of comprehensive long-term training agreements with airlines, including Vietnam Airlines and Jet Airways. In business aviation, Civil won long-term training contracts with a diverse range of customers, including two large aircraft services and charter companies based in Europe. Overall, for the year, Civil grew segment operating income by 15% and filled its training centers to 76% utilization. Turning to Defence. During the quarter, we booked orders for $239 million and received another $233 million in contract options. Notable wins included training systems…

Thank you, Marc and good afternoon everyone. Consolidated revenue for the fourth quarter was up 2% to $734.7 million and quarterly net income before specific items of $15 million was $82.4 million or $0.31 per share, representing an EPS increase of 15% over the same period last year. Specific items included the remaining restructuring integration and acquisition costs related to the purchase of the Lockheed Martin commercial flight training. For the year, consolidated revenue was up 8% to $2.7 billion and annual net income before specific items was $278.4 million or $1.03 per share. Year-over-year, CAE grew earnings per share by 20%. There were some timing differences in the quarter with respect to the recognition of revenue on our standardized commercial simulators. This resulted in deferral of approximately $0.01 of earnings per share in the fourth quarter and for the full year this amounted to approximately $0.03 of EPS. A reconciliation of these timing differences can be found under additional financial highlights in this morning’s press release. We had a very good free cash flow performance in the quarter at $160.4 million and for the year overall, free cash flow was up 32% to $327.9 million. This represents a cash conversion rate of 118%. We had a lower investment in non-cash working capital in Q4 as we normally expect in CAE’s second half and we had an increase in cash provided by continuing operating activities. Uses of cash involved funding capital expenditures for $73.6 million in the fourth quarter and $222.9 million for the year, mainly in the support of growth. This includes a higher than usual investment in Defence this year, specifically for the U.S. Army Fixed-Wing training program. We expect lower capital intensity in fiscal 2018 with total capital expenditures in the range of $150 million, commensurate with…

Thanks Sonya. This year, CAE is celebrating its 70th anniversary. And over the last 7 decades, the CAE brand has evolved to become synonymous with training and with innovation. As we look to the year ahead, we expect to see continued good growth as we pursue our vision to be the recognized global training partner of choice. In Civil, pilot training demand is fundamentally driven by the regulations governing the flight crews who operate the global in-service fleet of commercial and business aircraft. So far in 2017, we have seen continued high rates of commercial passenger traffic, which serves as a catalyst to expand the in-service fleet. In business aviation, the market is stable and we are continuing to find growth in support of the existing in-service fleet. Commercial aircraft deliveries are a driver for full flight simulator sales and there too, we see positive signs with commercial aircraft OEMs still delivering aircraft at high rates. Over the last couple of decades, CAE has established itself as a thought leader in aviation training and that we are now bringing to market some of the most innovative and comprehensive solutions that we believe will enable us to unlock a greater portion of the overall $3.5 billion Civil aviation training markets. For the year ahead, we expect Civil to generate low double-digit percentage operating income growth as we continue to earn a greater share of wallet in training and we maintain our leadership in simulator sales. In Defence, governments around the world are placing a high priority on mission readiness and the intrinsic benefits of simulation based training. These factors are driving a greater need for training and we believe that CAE is very well positioned to grow its share as a training systems integrator. Last year, we saw a steady progression…

Thank you, Marc. Operator, we will now take questions from financial analysts and institutional investors.

Thank you. [Operator Instructions] And we will get to our first question on the line from Benoit Poirier with Desjardins Capital Markets. Please go ahead.

Hey, good afternoon gentlemen.

Hi.

Yes. So I was wondering if you could provide more details about the upcoming cash deployment opportunities and kind of the free cash flow conversion you would expect to achieve in fiscal ‘18, obviously a very strong performance towards the end of the year?

Thank you. Maybe I will let Sonya comment on the latter part. But our capital allocation priorities haven’t changed and we don’t expect them to change. I mean our priority, we have three and the first one remains – the number one priority is growth and we see opportunities. And yes, we generated good cash and we would expect that performance to continue. And the – but we see – I would say as we said in the past, we kind of keep our powder dry to seize opportunities when we see them. And for us, it’s about growing. We are deploying CapEx. As we have talked about it in our outlook and those investments are generating increasingly nice accretive returns. And as well, we look for opportunities where we can continue to grow our installed base by converting airlines to – where we can outsource – where they can outsource training. So those are the kind of opportunities we look for. So that’s – and in business aircraft as well, we see opportunities to deploy a – more simulators, where we have some accretive opportunities in our network. So, number one priority remains growth. Second, I think we will use it to continue to maintain our good financial position, I think which we have achieved. And thirdly, we are going to continue our pattern of returning cash to shareholders and I think we have demonstrated quite a bit this year and I’ll turn it over to you, Sonya.

Thank you. Benoit, on your question on free cash flow, I agree, good performance for the year of $320 million of free cash flow and that’s driven largely on good cash generations from earnings and also reversal on non-cash working cap for the year. And that was driven by good advancement on collection of advanced deposits on contracts and continued focus on collections and speed of collecting AR. And that turned into a reversal of non-cash working cap for the year. Going forward, I don’t necessarily see that non-cash working capital will continue to reverse, because as we grow the company, as we grow the business that will also come mainly from the services side largely from the services side and that model is essentially earning the service and then billing afterwards. So that requires a bit of non-cash working capital investment. So for free cash flow overall, we typically target a conversion of about 100% of earnings, but it can fluctuate a little lower or higher as we saw this year, but we will target typically that range.

Okay, that is very good color, Sonya. And with respect to your kind of the target for fiscal ‘18, I was wondering if you assume any gains on disposal kind of reversal of royalty obligation and maybe any color about other restructuring charges to be taken in fiscal ‘18?

So we will start with the restructuring charges. So the program, both for the acquisition and our process improvement plan, were completed and are complete. So there is no further restructuring going forward. In terms of gains, there was in the year or in the quarter, a gain on disposal of some assets that we saw in our results. And the way that we see this is typically really we are in the business of selling simulators and sometimes we sell it from our network and that could be for various reasons, speed, competition, etcetera. And for accounting purposes, this will show up as a disposal rather than sale of inventory. So we really consider that normal course operations. Regardless, there were some one-time costs that were absorbed in the quarter such as reorganization costs and expenses in our flight training organization as we changed around some locations and certain non-recurring administrative costs that were related to that. So, if we net these elements out, the gain and the cost, it comes to a little less than $1 million. So really kind of nets out completely. On the royalties, your third element, this is a one-time benefit that we recorded or gained that we recorded last year and that was one of the elements that was included in Defence and that we normalized out last year. And this is really non-recurring in nature and we don’t see that not this year or going forward.

Okay. And maybe last one for me. If we look on the Civil side, any color on how many simulators would you expect in terms of booking for fiscal ‘18? And also, if you could comment about the growth of utilization rate for your training network, we noted that it was up 1% year-over-year, while the growth expected in the first three quarters was more around kind of 4%, 5%. So, just wondering if the growth in utilization rate has slowed down a bit?

Okay, Benoit. I will answer your fifth and sixth question. Don’t worry as long as the other people don’t mind. No, look a good question. So look, I think in terms of simulators, look, the market hasn’t really changed. I mean, the production rates are what they are. And so I would give the same answer I gave at the beginning of last year with our horizon that we have, we are going to maintain our leadership of the market. So I’d tell you that we would be in the more than 40 range as we were at the beginning of last year. We will update that as we go along, but I think that’s a good number to start. I mean, last year even, we had a good year, I think second best in our history. There was a couple of volume orders in there, where people buying multiyear. So that always helps. It’s not to say there might not be again this year. But at the moment, I will stick with about the 40. And with regards to utilization, I think look there is room to grow. I think we have very good utilization in our network. There is room to grow within that. And I think it’s not just the only metric as you know. And really what you have got to look at as well as think about our strategy is to convert more and more of our utilization to whet by doing the training ourselves. And in business aircraft well, that’s all whet, but because all the training is done by us, but in commercial, I mean, the large majority of the training that we do is still dry. So I think there is – within even the existing utilization numbers, there is room to grow revenue across the same assets.

I see. Okay, thank you very much for the time.

Thank you.

And we will get to our next question on the line from Steve Arthur with RBC. Please go ahead.

Great. Thank you. Just to follow-up on the Defence business, good discussion about the Defence pipeline and order flow. Just want to ask quickly about the margins in that business, the patterns the past 2 years turning a little bit lower. Based on your current backlog and the recent awards, how would you expect those margins to be trending in the next – in the coming years, a little lower still or maybe higher given the capital that you’ve been deploying there?

No, I think look, we are still – you can see we are in the 12 range. We talked about 12, 13. It’s been trending a little bit lower, more in the 12 range mainly because we are getting more service kind of work, but it’s a good thing because those tend to be very large orders that are recurring and go on for many years, which gives us excellent visibility. So, that’s one of the reasons you see that, Steve. But I think – so I don’t expect that margin profile to change much. But I mean, that’s reflected in the outlook that we have for both in the top and bottom line into mid to high single-digits in terms of growth on Defence.

Thank you.

Thank you. Mr. Arthur, do you have another question? We will proceed to our next question then on the line from the line of Tim James from TD Securities. Please go ahead.

Thank you. Good afternoon. Just wondering if you could discuss the modified NFTC contract terms and revenue? In the $300 million contract amount that was disclosed, just wondering if that represents incremental annual revenue to the existing contract. Is there a component of the revenue stream that is training related, which is just kind of continues relative to kind of historical precedent and then an uptick related to equipment delivery and over what sort of time period?

I will let Sonya go and I don’t know all the details, but I can tell you that it is incremental revenue, because – and I think it dovetails with the second half of your question. There was additional new simulators in there in that contract. So, it’s not just the extent of the program. Sonya, you want to comment more on it?

So, yes additional simulators and also the additional several years to the contract. I don’t have the ending year here yet, but we can get back to you on that.

I think we commented on that. And we had a press release that clearly describes what it was at the time.

Yes.

Yes. I was just trying to understand if the training component of that contract is consistent from the old contract to the modified contract. And if the kind of the dollar amounts that were disclosed, just how much of that relates to equipment, which is incremental revenue for CAE and how much of it relates to training, which would just be, as I say, continuation of the existing revenue stream?

So it definitely is incremental. And my recollection mainly on the product side, because we are selling new simulators as part of that.

Okay, okay. Thank you. Then just more of a quick sort of housekeeping question, Sonya. The amortization expense for the Civil segment dropped fairly significantly in the third – sorry in the fourth quarter relative to the third quarter of fiscal ‘17. Just wondering if you could explain why that change occurred?

I think that was the natural evolution of certain intangibles and long-term assets that came to full amortization. So, there was a bit of a drop off in the last quarter, yes.

And so the fourth quarter is a better run rate to think about on a go-forward basis?

Well, we continue to add to our network and build on our R&D and development costs, so that will add to the base but – and so you will have some drop offs and some increases. So I would say maybe not at that level, a little bit higher.

Right. Sorry, I should clarify. When I say at this run rate, I mean this run rate relative to the assets that are being amortized, I guess obviously, as the asset base grows, that will grow in line with the assets more or less?

Yes.

Okay. Thank you very much.

Thank you.

And we will get to our next question on the line from Cameron Doerksen with National Bank Financial. Please go ahead.

Yes. Thanks. Good afternoon. Just I guess a question on the Civil simulator network, I guess what I am just sort of trying to understand is where the incremental upside here might be on utilization and I guess just overall profitability, can you maybe just discuss where maybe you are still seeing some underperformance in your Civil training network, where eventually that may start to pick up and I guess sort of related to that, are you seeing any incremental improvement in demand for business aircraft training?

I don’t think – well, maybe I think in terms of business aircraft training, I think the markets as we said, it’s relatively flat. I mean there is pockets of I will say up and down throughout the world, but we are doing pretty good in that market. And mainly, it’s a question of us really harvesting the existing market and gaining share in the market we have and we have done pretty well. And we have been improving our offer to and as testimony by a couple of pretty significant orders that we have had this year with some sizable aircraft, big fleet operators in Europe specifically and business aircraft operators, a lot of aircraft like as I mentioned, big fleet operators, the fact that we train airlines and we are so good at that, experienced at that gives us a leg up. So I think that’s a market, I think we could still see some upside on in business aircraft. I don’t call it underperforming. I just consider that we can continue to do well in this market. And across the world, I think look it’s what I – in terms of the commercial aircraft, it’s really for us to continue to support our customers that are growing and there are high, very high utilization of aircraft because of revenue pass-through kilometers are high. They continue to be high. So there is room for us to continue to fill the existing simulator centers that we have. So as I mentioned, we don’t think we have reached – we certainly not at full capacity everywhere even though that the utilization is high. So as I said, there is room to grow within the existing network and there is room to add more revenue even at the same levels of utilization by converting some of that dry training, where we just lease the simulator to not only getting the revenue from the lease, but actually conducting the training ourselves. And that’s – and as I mentioned, there is a pretty – there is a very large portion of the market that is currently that we are addressing in commercial aviation that’s still dry. So there is a lot of opportunity there. So for us, it continues to – continue to hone our skills and our capabilities at training, which are world renowned as testimonied by the outsourcing successes we had. You will think AirAsia, think of Japan Airlines a couple of years ago, which outsourced all of their training to us and continue to look at those opportunities and that’s what we are doing.

Okay. Safe to say I know it’s relatively small for you within the overall network, but safe to say that the helicopter market is still pretty soft?

Yes, it is soft. I mean we – the market hasn’t changed really. And – but we make money with the centers that we have because we have adapted to the market and obviously, we are not investing in the market at the levels they are today because deliveries are so very weak right now and the utilization of the helicopters is certainly low.

Okay. Thanks very much.

Thank you. We will get to our next question on the line from the line of Turan Quettawala with Scotiabank. Please go ahead.

Yes. Thank you. Good afternoon. I guess for my first question, I was wondering if you could comment a little bit on what potential risks you see either on the upside or the downside, I guess I could either hamper your efforts to make your guidance or help you to beat in 2018?

Some of this is execution. I think we have won a lot of – I would just qualify it’s risk, risk and more risk within the range that we have provided. If you look I think we have got not a wide range, but I think some range we will be talking about in Defence, for example, from mid to the high single-digit growth. And really the issue there is as a result of the speed at which we will be able to ramp up this program to one – as you have seen quite a number of pretty large contracts in the past few months. So for us, we have been hiring significantly and it’s really us being able to achieve certainly the higher ends of our outlook is us being successful at being able to wrap those up. And as well, at the same time is we have a large bid pipeline out there. In fact, actually the good news is that even with the large amount of orders that we have had last six month, we still have over $4 billion in proposals in the hands of our global customers. So part of the risk is although that’s very high, as we have demonstrated many times in the past, we don’t have a say in when they actually award those contracts. We feel good about winning them. So some of them have to be won in the year ahead for us to achieve and we feel pretty good about that because the customer needs the product or the service. But it’s as usual, you have got to continue to win orders, but now we feel good about it. The good news again both Civil and the Defence is we have a very good backlog, I mean the record backlog gives us a ton of visibility to anchor the outlook that we have.

That’s great color. Thank you very much Marc. And I guess for the next question I was wondering if you could comment a little bit on the Healthcare business, if I look at the SOI from that business, it’s basically been flat since 2014 and I know we have had some issues here, I guess in terms of the revenue for the last year or so, but could you comment on whether there is a point here where you would want to call it quits on that business?

Well look, as we would call it quits, I mean you would be the first to know if we don’t, but I feel I am very confident about Healthcare. We are fully committed to it. And as we said in our call, I think its look, I think we haven’t achieved the outlook and as I said we are not happy with that. I am not happy with that. But the reality is as much as we like to control everything, we don’t. And some of that business that we were very sure about, well, guess what, they moved out of the year. They came in just at the beginning of this year, which would have made the difference and we would have those, we would have made our outlook. But the bottom line is I feel very comfortable because of some of the color that given in our outlook. We have taken a very, very deep look at this market this year and because we have been at it for a number of years here. So we question the assumptions that we have and the results of our work gives us very strong confidence that there is a market out there and there is a market that we can – an existing market that we can serve. And we have launched, we are actually launching new products. If you were to go to our website, I mean now it’s new products that we are launching right now that go after where the highest pool of value is in the existing market. And at the same time, products that we are coming out with such as these mixed reality simulators, we are coming out with that we did with Microsoft HoloLens, I mean that’s attracting a huge amount of interest from medical device OEMs, for example. And so I have high hopes for this business. And for us, it’s full steam ahead.

Thank you very much.

Operator, we will now open the lines to members of the media.

Thank you very much. And now we will proceed with the Q&A for the press and media. [Operator Instructions] And we will get our first question from the media from Ross Marowits from The Canadian Press. Please go ahead.

Hi. First, I wanted to ask you with this trade battle between Boeing and Bombardier, do you see any risk to any opportunities in the U.S. from Delta or other potential buyers? And also because the Canadian government has sort of questioned whether it will take Super Hornets?

Well, frankly, I think it’s not really an issue for us and it’s an issue for the government, but I mean, to me, it’s a commercial issue between Boeing and the Canadian government, which really I couldn’t comment on. Both are very good customers. And so I really can’t comment on that. You probably know as much as I do on that.

You have no exposure to the Delta order or to Super Hornets?

Well, I mean, what we do on the – well, look, I think with regards to the fighters, I think we can perform on any platform that’s chosen by the government and work with any OEM. I mean, we work with all OEMs and we have good relationships with all of them. So, it’s really up to the Canadian governments to make up their decision. And on the CCB’s aircraft, great aircraft with the partners on training and I think we are partners we believe in the aircraft and it will succeed. No, go ahead.

But if there is some delay or problem with the delivery of planes to Delta, would that pose a problem for you?

No. In the sense that I can’t comment with regards to what will happen with or without Delta, and frankly, we haven’t announced anything with Delta one way or another so far. So, the answer is there is no impact to us with regards to that specific question.

Okay. And the second thing is I am wondering with the pressure from the U.S. by NATO members to increase their Defence spending, what impact or opportunities do you see with that going forward?

I think we have commented on that before in the outlook. I mean, the fact that Defence budgets are increasing or set to increase both in the United States and in allied countries, because not only the pressures to reach 2%, but just because of the threats that are there around the world I think increasing budgets are good news overall for us, because it necessitates new aircraft, new helicopter upgrades to existing ones and overall what it means is more training. So, more training and we obviously are very well-positioned to capture our fair share in training that arises as a result of these increasing budgets.

Are you more optimistic on that given the recent comments by the President?

Not anymore than I was before. I think that this has been – that has been the fore ever since we have talked about this in the last couple of calls. I think news I think recently is the Canadian government has announced that they are going to be increasing over time their expenditures as a percentage of GDP and that’s obviously good news as the Canadian supplier in this business.

Thank you.

Thank you very much. Mr. Arnovitz, we have no further questions from the press and media. I will turn it back to you.

Alright. Thank you very much. I want to thank all participants from members of the investment and financial analyst community as well as members of the media for joining us on the call today and I would remind you the transcript of today’s call can be found on CAE’s website at cae.com. Thank you.

Thanks, everyone. And ladies and gentlemen, that does conclude the conference call for today. We thank you for participation and ask that you disconnect your lines. Have a good day, everyone.