CAE Inc (CAE) 2017 Q1 法說會逐字稿

Ladies and gentlemen, welcome to the CAE first-quarter conference call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Mr. Andrew Arnovitz. You may now proceed, Mr. Arnovitz.

Good afternoon, everyone, and thank you for joining us today.

Before we begin, I'd like to remind you that today's remarks, including management's outlook for FY17 and answers to questions, contain forward-looking statements. These forward-looking statements represent our expectations as of today, August 10, 2016 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 risk factors and assumptions that may affect future results is contained in CAE's annual MD&A, available on our corporate website, and on our filings with the Canadian Securities Administrators on SEDAR, at www.sedar.com, and the US Securities and Exchange Commission on EDGAR, at www.sec.gov.

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. And following the conclusion of that Q&A period, we will open the call to questions from members of the media. Let me now turn the call over to Marc.

Thank you, Andrew, and good afternoon to everyone joining us on the call. We had a good performance in the first quarter and we continued to make progress with our long-term growth strategy to be the training partner of choice for our customers. We had double-digit top and bottom line growth this quarter in both Civil and Defence segments.

For CAE overall, revenue increased by 17%, or CAD95 million, compared to the first quarter last year and operating profit grew by 21%, or CAD15.5 million. We booked CAD703 million in orders, which even on significantly higher revenue translated to a book-to-sales ratio of 1.08 times. Orders this quarter also contributed to our reaching a new record CAD6.5 billion backlog, which gives us enhanced visibility.

Looking specifically at each of our business segments, during the quarter Civil generated low double digit operating income growth on higher training center utilization, supporting our outlook for the year. Demand for commercial full flight simulators was also in line, with nine orders announced during the quarter, and training services activity continued to be strong. We renewed a long-term services contract with Asiana Airlines and we entered new long-term agreements with Vietnam Airlines and Jet Airways for pilot training services.

We also extended an existing cadet training program with Shenzhen Airlines for the creation of more pilots than originally scoped when the relationship began. Total Civil Training Solutions orders for the quarter were CAD397 million, for a book-to-sales ratio of 1.07 times. The ratio for the last 12 months was 1.22 times; and at the end of June, our Civil backlog was CAD3.2 billion.

In Defence, we also had double digit revenue and segment operating income growth during the quarter. Orders of CAD283 million maintained the Defence backlog at a healthy CAD3.3 billion and yielded a book-to-sales ratio of 1.1 times.

We won Training Solutions contracts, including a training systems integration program to provide a comprehensive naval training center for the UAE Navy and another to provide the UAE Joint Aviation Command with a suite of helicopter simulators and training devices. The diversity of these programs underscore our ability to lead comprehensive training service integrator programs in both naval and air domains. Also during the quarter, we began construction of a new training center in Dothan, Alabama for the US Army Fixed Wing training program, which we expect to become operational by the end of the fiscal year.

In the United Kingdom, we were awarded a contract to provide rotary wing ground-based training system for the UK military flying training system. This, combined with our ongoing effort on the fixed wing portion of this comprehensive program, means that the majority of the UK's next generation aviators will train with the benefit of CAE's technology.

And in Healthcare, financial performance was lower in the first quarter. We attribute this to the timing of orders we expect to materialize this fiscal year from our pipeline. During the quarter, we sold a range of our patient, ultrasound, and interventional simulators, and we expanded our market reach with an agreement with Simulaids to distribute our Blue Phantom ultrasound products in the United States. And drawing on CAE's engineering expertise, we won an order for a customized simulator solution to enable an OEM to train practitioners in the use of a new medical device.

With that, I'll now turn the call over to Sonya, who will provide you a detailed look at our financial performance, and I'll return at the end of the call to comment on our outlook. Sonya?

Thank you, Marc, and good afternoon, everyone. Consolidated revenue for the first quarter was CAD651.6 million, and quarterly net income before specific items of CAD2.2 million was CAD70.9 million, or CAD0.26 per share. Specific items this quarter involve mainly the restructuring, integration and acquisition costs of Lockheed Martin Commercial Flight Training, or LMCFT, which we purchased this past May.

We benefited this quarter from an income tax recovery of CAD100,000, representing an effective tax rate of nil, compared to 18% for the first quarter last year. The lower tax rate was mainly due to the recognition of deferred tax assets in Brazil which were generated as a result of timing differences from the fluctuation in the real. The second main driver for the lower tax rate was a change in the mix of income from our various jurisdictions. If not for the deferred tax assets, the income tax rate this quarter would have been 14%.

While we typically see a higher investment in working capital accounts at the outset of the fiscal year, we improved efficiency this quarter with lower investments in non-cash working capital accounts compared to last year. More specifically, we had higher deposits on contracts and improved collections. In addition to greater worker capital efficiency, we saw an increase in cash provided by continuing operating activities, which also contributed to the CAD76.7 million improvement in free cash flow over the first quarter last year. Uses of cash during the quarter included funding growth and maintenance capital expenditures for CAD54.7 million, which is in line with our outlook and includes our investment in the US Army Fixed Wing program.

In terms of the balance sheet, we used cash to repay CAD74 million of debt which came due in June. And in support of current shareholder returns, we distributed CAD19 million in dividends and repurchased and canceled 1.2 million common shares under the NCIB program for another CAD18.5 million.

On the investment front, our integration of LMCFT is proceeding well. It gives us useful assets, facilities, an expanded install base, and a talented workforce. We concluded the transaction this quarter for a total consideration paid, net of the cash remaining in the business, of CAD10.9 million. We factored into our investment another CAD15 million to CAD20 million after tax for acquisition, restructuring and integration costs. So all told, this bolt-on acquisition will amount to investment of about CAD25 million to CAD30 million.

Our financial position continues to be strong in the quarter. Net debt was CAD880.3 million at the end of June, for a net debt to total capital ratio of 31.6%. And return on capital was 11.5% in the quarter, up from 10.2% last year.

We discussed last quarter that we would begin recognizing revenue upon completion for certain standardized simulators commencing this fiscal year. To the extent this impacts reported performance and to facilitate comparability, we said we would provide a reference on a quarterly basis to illustrate how much profit would have otherwise been recognized if not for this change. Given this is only our first quarter, the impact was minimal, as expected. This will become more meaningful as we make progress building these simulators throughout the year, with an expected impact averaging between nil and up to CAD0.02 EPS per quarter.

Now turning briefly to our segmented performance highlights. Civil revenue increased 11% over Q1 last year to reach CAD372 million and Civil operating income increased 12%, to CAD63.8 million, for a margin of 17.2%. The double-digit top and bottom line growth was mainly driven by higher utilization in our training centers, which reached 79% for the quarter.

In Defence, revenue grew by 31% over Q1 last year to CAD257 million, while operating income grew by 20%, to CAD28.4 million, for an operating margin of 11%. And finally in Healthcare, the first quarter revenue was CAD22.7 million, compared to CAD23.9 million in Q1 last year, while segment operating loss was CAD100,000, compared to segment operating income of CAD600,000 in Q1 of last year. With that, I will ask Marc to set the way forward.

Thank you, Sonya. Before I comment on the way forward, I'd like to reiterate my comments from this morning about CAE's dividend. This marks the sixth consecutive year that CAE has increased the dividend, which will become CAD0.08 per quarter effective September 30, 2016.

The decision to increase the dividend underscores the Board's and management's confidence in CAE's outlook for long-term sustainable growth, and it also demonstrates our commitment to enhancing shareholder returns, one of our three capital allocation priorities. Taken together, CAE's dividend and NCIB will see more than CAD100 million of cash returns to shareholders this fiscal year.

As for the near term, our outlook for the balance of the year remains unchanged and we continue to expect growth in all of our business segments, primarily led by Civil. In Civil, we're continuing to capture share in the overall CAD3.3 billion annual civil training market with our innovative solutions. We offer the most comprehensive training solutions, ranging from cadet to captain, which provides not only better value for training but also the possibility of better training. Our next generation training system is currently being validated with longstanding customer Air Asia and is one of the many ways we're continuing to innovate to enhance our offering and to give our training partners reason to do more of their training with CAE.

The Civil business is driven primarily by the global active commercial fleet and passenger traffic growth, and despite some moderation in air travel in recent months, it continues to track the global average historical rate of about 5%. In business aviation, lower aircraft deliveries are a factor to watch, but what's most important for us is the level of activity of the existing business aircraft fleet, which overall has remained relatively stable. This dictates how many active pilots will need training on an ongoing basis. And taken together, we continue to expect higher demand for training this year to translate into higher annual utilization of our civil training network. And as a result, we continue to expect Civil operating income to grow at low double digit rate for the year as a whole.

In Defence, we're demonstrating our ability to pursue and win large scale comprehensive programs involving complex training systems integration. Bid activity remains strong, with more than CAD3.5 million of bids and proposals currently submitted and pending with customers. Our Defence customers are increasingly demanding highly sophisticated systems that combine the use of simulation-based training with live training, and CAE is in a prime position to compete for and win this kind of business. We continue to expect modest growth this fiscal year in the Defence segment.

And finally in Healthcare, we got off to a slow start in Q1, but our pipeline supports our confidence and our outlook for double digit growth this fiscal year. We're continuing our drive for a much larger business over the long term. With that, I thank you for your attention and we're now ready to answer your questions.

Thank you, Marc. Operator, we would now be pleased to take questions from analysts and institutional investors.

(Operator instructions)

Our first question comes from the line of Steve Arthur with RBC Capital Markets.

Thank you very much. Just wanted to ask about, at the risk of oversimplifying, ask for a bit more color on the relationship between the Civil utilization rate and Civil margins. The 79% utilization reported this quarter, obviously a very strong number, haven't seen that for several years. And I do realize there's many moving parts that go into that. But an overall 79%, I would have thought maybe Civil margin is higher than 17.2%. Is there some rule of thumb we should look at for the relationship between utilization and margins or some more specific way to think about that?

I guess the answer, I think, Steve, it's not a perfect metric. Mix matters a lot. We had, this specific quarter, we had higher proportion higher growth of dry training to wet training, although both increased. So that tends to, for a higher level utilization, you get -- if you like less margin per unit of utilization, that's one of the answers. There's others specifically. I'll let Sonya go through it. But we had less product revenue this quarter. And we also had a few hits on the commercial, the Civil margin this quarter. I think maybe you can [spiff] more color on that, Sonya.

Sure. As you know, the portfolio of Civil business has varying levels of margin. So the mix matters, as Marc just said, is a higher proportion of dry than wet this quarter. And there was also a couple of drags on the margin this quarter, namely the contribution of LMCFT acquisition, which we just added on, was at a lower margin. And there was a higher-than-normal bad debt expense that we had to take on one of our clients that filed for bankruptcy in the helicopter offshore industry. And so if we take these into account, really the Civil margin would have been closer to about 18% for the quarter.

But generally, Steve, I think higher utilization, all things being equal, will, as we've always said, will drive higher income, higher margins. And you could see, we still, although the margin being what it is, you still wind up in line with our outlook of low digit absolute SOI growth for the quarter.

And I guess over time, the trend towards more wet will continue, presumably the LMCFT business will be less of a drag, and hopefully, bad debt expense, as well?

That's our plan.

That's right.

Okay. Thank you very much.

And I think the other thing, as well, is that it's hard to look at such a correlation just on a three-month basis. I think it's probably going to be better to look at this over 12 months.

And our next question comes from the line of Cameron Doerksen with National Bank Financial.

Good afternoon. Just a question on the Healthcare segment. You sound fairly confident that you're going to be able to reach the targets that you've got on revenue for Healthcare. But it does imply a 15% to 20% year-over-year increase in revenue in the coming quarters, which is a pretty significant increase. I'm just wondering what gives you the confidence that you're going to get the orders in the remainder of the year that gets you to that double-digit-plus type revenue growth.

Well, you can imagine, we have some pretty detailed reviews on the business at all levels, and to be able to support our outlook, to be credible in our outlook of what we're saying. And when we look at the factors, the factors why we're kind of low this quarter, there some element of seasonality with our customer that we're finding out in the first quarter that's very apparent. There's some timing of orders, things that just slipped out of the quarter, which might have expected to hit for a matter of days. They go to the next quarter and that affects things, when you're talking about this level of volume.

And when we look at the rest of the year, the dynamics of the market hasn't changed. We know the customers pretty well that buy these products. There's a replacement cycle on these products. We get money from warranty revenue.

So taking all of these factors together, we feel pretty good about the outlook that we've given for the year. And the gross margins for these products are very good. So when you look at the SOI being just slightly negative or neutral this quarter, you're really talking about because of the fact that revenue did not increase. Our SG&A is higher because we continue to anticipate a much bigger market.

Okay. If I could squeeze in one quickly on tax rate. What's your expectation for the tax rate for the rest of the year?

Yes. Hello, Cameron. It's Sonya. In the quarter, there was some distortion at a 0% tax rate. And that was driven by some deferred tax assets that had to book in Brazil. So once normalized, the impact is about 14%, and that was driven by the mix of where we earned the income.

Now the tax rate does tend to fluctuate from quarter to quarter. It's 14% this quarter. Last quarter, it was 24%. And what we've given as an indication in the past is really that for the year, it's best to look at it as a whole for the year of 22% to 23%, and actually probably closer to 22% as a tax rate to use.

Okay. Thank you.

Our next question comes from the line of Benoit Poirier with Desjardins Capital Markets.

Given your comments about the little bit better working capital used in Q1, just wondering whether we should expect a slightly stronger free cash flow for the year? You were looking for a small consumption in working cap in FY17, but now could we see some positive movement in the working cap?

You're right, a good performance in the quarter with good order intake. We've got some secured deposits on the contracts and we continue to improve DSOs and collections. Now we still do see for the year an investment in non-cash working cap. And what's driving that is the growth in the business, so we are growing the top line. And most of that growth will be coming from the services business, and so therefore that requires some investment in non-cash working cap. So we'll hold on our outlook for some investment in non-cash working cap.

Now when we go to free cash flow, we generally target about 100% conversion on earnings, and that can very from year to year, sometimes, a little bit lower, sometimes, a little bit higher. But that's generally what we target of 100% conversion.

Okay. Perfect. And just with respect to your EBIT margin in Defence, you were down versus last year, just wondering if you could provide more color and whether you're confident with the 12% number that you've been talking about?

The backlog still supports the outlook that we've given of 12% to 13%, in terms of the backlog, the products we have or the contracts that we have in backlog generally supports what we've been saying about 12 % to 13% in terms of margin. A mix between products and services in the quarter will affect things. You can see that the fact is revenue growth was higher in the quarter. If you have a higher growth in revenue off a lower margin contract, and overall, even though the absolute number is well in line, we have good increase in year over year absolute SOI growth in Defence, but it does yield that 11% margin.

Okay. Perfect. Thank you for the time.

You're welcome.

Our next question comes from the line of Fadi Chamoun with BMO Capital Markets.

Good afternoon. I want to go back to the margin discussion a little bit. Because you've added almost CAD100 million of revenues this quarter. But that translated into a CAD10 million increase in EBIT. The incremental margin doesn't seem to be as high as we would have expected. I know there's a number of things, the acquisitions you've made may have distorted that a little bit. But can you talk us through why is the incremental contribution that low?

Well, Fadi, we do see the higher utilization filtering through into the contribution, but it does matter what type of dry versus wet proportion, because not each hour of utilization is created equal. There's a higher contribution in terms of wet versus dry, and a lot of the growth in this quarter in that utilization rate came on dry revenues, and so that affected the proportion of the margin. That, in addition to those elements of drag, resulted in the 17.2% margin of the quarter.

Okay. And on the military side, the increase in revenue was about CAD60 million, probably it's CAD20 million, CAD25 million, I think, from the Bombardier military acquisition that you've done. But the EBIT, absolute EBIT was up just about CAD4.5 million. Is there a mix of contract that we should be thinking about there, or is that the nature of the backlog that you have right now?

As Marc mentioned, we have backlog that gives us visibility on the guidance that we've provided, 12% to 13%. So the growth, you're right, came partly from the NFDC program that we acquired last year, which we continue to grow, and that accounted for almost half of the growth. And what we've seen in the quarter is a higher proportion of services, and services tend to be at a lower margin. And so that put some pressure on the margin. But as we see the proportion of products and services mix vary from quarter to quarter, then we'll see the changes in the margins follow that.

Okay. That's helpful. Thank you.

Our next question comes from the line of Turan Quettawala with Scotiabank.

Good afternoon. I want to touch upon quickly here on the SOI growth in Defence and maybe your guidance on that. So you had, obviously, some pretty decent growth here, looking at the total SOI on the Defence business. You're still keeping your guidance at modest growth. I know modest can be not exactly a clear target there. But in terms of the numbers, it would still suggest a little bit of a decline as we go forward into the second half of the year. Am I reading that correctly or is there some upside to your guidance?

No, we maintain the same outlook that we have, as we said in the press release, Turan.

Okay. So that implies that the numbers have to go down in the second half of the year on a year-over-year basis?

I think it depends what's your assumption on modest growth. And I'm not trying to be cute here, but I think that modest growth continues to be, and I wouldn't necessarily assume a decline.

Okay. Thank you. That's helpful.

And some of it is how much contracts that we can actually execute in the backlog. We win the contract. We've got some pretty good orders. As you saw, book-to-bill has been good last quarter. So it really becomes, at some point, without sounding to be cagey, is how quickly can you actually execute on those contracts, because those contracts tend to be [a percent], well, they'll all be percentage of completion accounting.

So depending on when you can actually, for example, finish the non-recurring effort of developing the engineering, which tends to drive a lot of revenue or income out of that, then when can you get the parts? And then when you get the parts, you can start booking revenue. So at this point, we saw that in this quarter, we were able to execute some contracts which was the result of that. But in the programs we've just won, there will be a period of time we'll be doing mainly non-recurring effort, which tends to be, you won't derive as much revenue from it. So that's why it's a little bit hard for me to be more precise than that at this point. So we're maintaining our outlook.

Fair enough. So is it fair to assume then that there was some revenue that got pulled forward here into Q1?

No, it's just mix, it's just timing. I think I've always said for many, many times that it's particularly military contracts that tend to be larger in size than in typical civil contracts. So there's more potential to be lumpy from quarter to quarter, and it's better to look at this on a year as a whole.

Perfect. That's very helpful. Thank you for taking my question.

You're welcome.

Our next question comes from the line of Ronald Epstein with Bank of America Merrill Lynch.

Good afternoon, guys. Maybe a couple quick questions. When we think about the Defence business, is it possible for you to walk through or give a little more color on some of the defense programs that might be on the horizon, so things we could look out for that are potential wins for you guys?

We don't tend to do that, Ron, in terms of general outlook, for obvious reasons. But the type of contract we go after is training services integration contracts. We find that, like for example, that we just won with the US Army fixed-wing contract. We'll go after that kind of contract in a big way, because it allows us, obviously, to get a mix of products and services, which allows us to come with a solution that differentiates more.

If you look at overall, we have CAD3.5 billion of business proposal out there to be selected. So I think that puts us in a good place. Sometimes we're clearer on who we're partnering with. Like for example, on the T100 program, we're partnered with Aermacchi and Raytheon. Clearly C130, anything to do with C130, JAP8, those contracts we're partnered with, respectively, with Lockheed and Boeing, in those cases. But specifically barring, except the one I just mentioned on the T100, we tend not to be very clear on it, for competitive reasons.

I don't know if you can give any more clarity on this, but on the T100 program itself, what is your position on that? I think the Raytheon bid is pretty intriguing. So what are you providing in that bid?

We're ground-based training, basically. Ground-based training.

All right. Then maybe two more quick ones, if I can. Can you characterize any changes, if any, there might not be any, that you've seen in the biz-jet market? We've seen an acceleration of weakness in the large cabin biz jets. Have you seen that at all in the pilot training?

Well, pilots tend to want to maintain their license. So it takes a while, typically, before you'll see a significant drop in utilization, especially on large cabin, before pilots want to lose their type ratings.

We have seen some reductions in certain markets, but overall we're maintaining the level of activity that we've seen. We have done well on our large-cabin jets. We continue to do pretty well. It's really a question of the activity level for us. I know as I said in the call that the level of deliveries, what we sense from what we're getting from the OEMs is in book-to-bills, slightly below 1, but it hasn't really translated into a big difference for us in utilization, when I look at the whole world and a mix between what we predominantly do, which is a mix of large- and medium-cabin biz-jet training.

Okay. And then maybe one last big picture question again, while I've got you. In this post-Brexit and unfortunately increased terroristic world in Europe, have you seen any impact on pilot training in Europe? Does that impact that yet or at all?

Nope. We haven't seen people dial down pilot training. In new pilots, we haven't seen it. Not yet, anyway.

Okay. That's great. Thanks a lot.

Our next question comes from the line of Konark Gupta with Macquarie.

Thank you and good afternoon, gentlemen. My question is on balance sheet, first. Can you please talk about some of the capital deployment opportunities in front of you, including potential acquisitions or maybe more buybacks, given the leverage ratio is very conservative versus your long-term targets?

I'll start with the latter end. I think our policy at the moment, approved by the Board, is that we're continuing with the NSIB and we're mainly going to use it for dilution. That's the plan we have in place. And you saw what we just did with the dividends for the sixth year in a row, which means that if you look at the kind of returns, that is, we're returning about CAD100 million of cash returns to shareholders this year.

We think that's pretty good. And it's in line, it gives you a yield and a pay-out ratio in terms of dividend which is kind of in line, pretty much, with what we have been doing. And we don't want a specific set policy on that. But clearly, you can see what we've done over the past few years and I think you would see a pattern.

But our priority remains growth. We have done acquisitions on the smaller side, as you've seen. We acquired the NFTC contract from Bombardier last year at a fair price, and I think we've been growing that contract. We're very happy with that contract. Same thing with Lockheed Martin Commercial Flight Training, which we concluded this past quarter. So if we have the opportunity to do things like that, we would do that, but I don't see any big acquisitions on the horizon right now.

In terms of our capital, it's largely going to be market led. And what I mean by market led is in terms of adding simulators to our existing training centers in Civil, which has been and will probably continue to be the lion's share of the CapEx we deploy, barring one specific contract in the military which has to do with the CAD100 million that we're spending this year on the US Army fixed-wing contract, the Civil CapEx is really driven to support the growth of our existing customers, where we have partnerships, joint ventures, specific business aircraft where we see a good return, because it's an underserved market, either on that aircraft or that geography. And I think we've demonstrated, or we have certainly shown that in the past, the investments that we've made in the past couple years, for sure, are more immediately or more quickly accretive to return on invested capital.

So those are the kind of priorities that we're going to keep doing. And I think Sonya will want to keep our level of leverage within the bounds that we've set. And we're at the lower end of that bound right now, so we feel pretty good. So we're keeping our options open. And finally, I would say that if we see opportunities to -- acquisitions of training centers or taking over assets from a customer that would like to outsource their training center, and it makes sense to us, that's the kind of deal we'd be going after, but it would be very value oriented.

And how about the healthcare market, Marc? Do you see any potential for synergies by acquisition in that segment?

Synergies on what, sorry?

On the healthcare side. Would you acquire something there like you did METI before?

Oh, I see. We might. I wouldn't consider anything big. If we would see some specific product lines or client distribution channels, we look at those every so often. But there is a proliferation of different players in this market. And I do agree with you that I think there would be a consolidation play to be had. But frankly, because it is a fragmented market, of which we are certainly at the leadership position, but frankly, values are very high. And we think we can achieve the same thing organically.

Okay. Thank you for that. Quickly, on the Civil side, Marc, the entire airline industry right now is facing high industry capacity, and some airlines, notably in the US, have become more cautious on capacity growth and they are trimming capacity, as we speak. And I think some OEMs are also curtailing production on, call it, white cabin commercial jets. So do you see any early signs of impact on demand for training or simulators because of those adjustments?

No, we don't. We tend to take a long-term view of this, but even the short term supports our outlook. When we look at the next 10 years, even if we assume that the market is going to grow at commercial aviation training or just capacity to grow at 4% or 5%, which has been growing faster than that, but if we assume 4% to 5% growth over the next 10 years, that's still going to support a minimum of 25,000 new pilots, 25,000 a year, just to keep up the pace and keep up with level of retirements. And it's not like they can extend the amount of retirements anymore. They've done that once already in the United States. There's only one time you can do that. So when we look at that, we see an expanding market.

And at the same time, in the training market, we're playing in a much larger market than just selling simulators. And although we're the largest player, we think we have a lot of headroom, because we think we have about 25% market share in a $3.3 billion training services market. As we said in the AGM speech this morning, I think there's potential for us to continue to grow market share in an expanding market itself.

I see. Thanks for the color, Marc. Thank you.

Operator, I will now take the opportunity to use the time remaining to open the lines to members of the media and conclude the session with investors and financial analysts. If you would please open the line to questions from members of the media.

Certainly.

(Operator Instructions)

Operator, if there are no questions from members of the media, I think we'll conclude the call. I want to thank all participants for joining us this afternoon and remind you that a transcript of today's call will be made available on CAE's website, at cae.com; and of course, the Management Team and myself are available one-on-one to answer any of your questions which may not have been answered during the call. Thank you very much.

Thank you. Ladies and gentlemen, that does conclude the conference call for today. We thank you all for your participation and ask that you please disconnect your lines.