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 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 fiscal year 2020 and answers to questions, contain forward looking statements. These forward looking statements represent our expectations as of today, November 13, 2019, 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 and A available on our corporate website and our filings with the Canadian Securities Administrators on SEDAR and with the U. S. Securities and Exchange Commission on EDGAR. On the call with me this afternoon are Mark Powell, CAE's President and Chief Executive Officer and Sonia Branco, our Chief Financial Officer. After remarks from Mark and Sonia, we will take questions from financial analysts and institutional investors.
And following the conclusion of that Q and A period, we'll open the lines to calls from members of the media. Let me now turn the call over to Mark.
Thank you, Andrew, and good afternoon to everyone joining us on the call. I'll first discuss some of the highlights of the quarter and then Sonja will review the detailed financials. I'll come back at the end to talk about our outlook. CAE had good growth in the 2nd quarter with revenue up 21%, segment operating income up 28% and we secured nearly $1,000,000,000 of orders or a 1.11 times book to sales ratio. Sea's total backlog at the end of the quarter was $9,200,000,000 Our performance continued to be led by Civil, which delivered very strong operating income growth, higher margins and continue to have strong order intake.
The integration of the Bombardier Business Aircraft Training acquisition has gone very well and is substantially complete. And we're continuing to win the confidence of our airline and business jets customers with our expanded and highly innovative training solutions. Defense performance improved from last quarter. However, it reflects continued delays of orders for our higher margin defense products and the timing of program milestones on contracts that we're currently working on from backlog. These are largely timing issues and I'm encouraged by the one point zero eight times book to sales ratio for the quarter, which gives confidence to our view of a stronger second half in defense.
And in healthcare, our expanded sales force secured a higher level of interest in our latest products, which we'll begin delivering over the next few quarters. Looking more closely at Civil, we booked $603,000,000 of orders in Q2, including new long term training agreements with Sunwing Airlines, Loganair and Flightworks. We also sold 11 full flight simulators during the quarter for a total of 20 for the first half of the year. To address the global demand for new pilots, we launched a new cadet pilot training program to train more than 700 new professional pilots over the next 10 years for Southwest Airlines Destination 225 program. And just this week, we signed a long term exclusive training agreement with Easyjet to train more than 1,000 new Easyjet cadet pilots under a multi crew pilot license program.
Also involving EZ Jet, we inaugurated new training facilities during the quarter in Gatwick, Manchester and Milan in support of our comprehensive 10 year training agreement. In Business Aviation, we entered a strategic Directional is one of the largest Directional is one of the largest, fastest growing and most innovative corporate aviation service companies globally. And in connection with this agreement, just last week, we concluded the acquisition of a 50% stake in SymCom Holdings. Overall training center utilization was 69 percent this quarter on our network of nearly 300 full flight simulators. Airlines train a bit less during the busy summer travel months and we've used usual seasonality to perform some similar updates and relocations coincident with the opening of our new 3 training centers during the quarter.
The utilization rate also reflects the effect of some of our recently added capacity that's just beginning now to ramp up. In defense, we booked orders for $362,000,000 including KC-one hundred and thirty five aircrew training services and simulator upgrades for the U. S. Air Force and additional fixed wing flight training and support services for the US Army at the CAE Dothan Training Center. We also received orders to upgrade the US Navy's MH-sixty Seahawk helicopter simulators and to provide aircrew training on the Navy's T-44C aircraft.
Other notable orders include a contract with Boeing to provide upgrades on P-8A simulators, a contract to upgrade the German Eurofighter and Tornado aircraft simulator and a contract for Abrams Tank Maintenance Trainers for the United States Army. As well to further bolster our position in the United States, we entered a strategic collaboration with Leonardo to offer integrated helicopter training solutions together. And in Healthcare, we continue to pursue larger segments of the Health care simulation market with our expanded sales force. In line with our strategy to expand our reach within hospitals, we've entered into an agreement with Premier, a leading healthcare improvement company aligned with approximately 4,000 U. S.
Hospitals and health systems. We also launched new products including Vimix 3.0 ultrasound simulator and together with the American Society of Anesthesiologists, we launched a new anesthesia SimStat module, which is latest in a series of interactive screen based courses approved for maintenance of certification in anesthesiology credits. With that, I'll now turn the call over to Sonia, who will provide a detailed look at our financial performance. I'll return at the end of the call to comment on our outlook. Sonia?
Thank you, Mark, and good afternoon, everyone. Consolidated revenue for the Q2 was $896,800,000 up 21% compared to $743,800,000 in the Q2 last year and segment operating income before specific items was $126,000,000 up 28 percent from $98,700,000 last year. Quarterly net income before specific items was $74,700,000 or $0.28 per share, which is 22% higher than the $0.23 we reported in the Q2 last year. Net finance expense for the Q2 was $34,300,000 up from $19,900,000 in the Q2 of the fiscal 2019. We had higher interest resulting from the long term debt that we issued at the end of last year, higher interest on lease liabilities because of IFRS 16 as well as higher investment in non cash working capital in the first half of the year.
Income taxes this quarter was 15 $500,000 representing an effective tax rate of 17%, which is down from 19% for the Q2 last year. The lower tax rate was mainly due to a change in the mix of income from various jurisdictions. Free cash flow was negative $7,100,000 in the quarter compared to positive $137,700,000 last year. Cash provided by operating activities increased compared to Q2 last year, while free cash flow decreased mainly from a higher investment in non cash working capital accounts. Most of the increase is timing related as we usually see a higher investment in non cash working accounts in the first half.
This increase reflects the timing of cash flows involving accounts payable and contract liability. It also reflects higher inventory from recent strategic investments in simulator advanced builds to preempt customer demand that we anticipate for certain simulator products. As in previous years, we expect a significant portion of the non cash working capital investments to reverse in the second half. Uses of cash in Q2 included funding capital expenditures for $58,800,000 mainly for growth and specifically to add capacity to our global training network to deliver on the long term exclusive training contracts in our backlog. We continue to expect total capital expenditures for the year to be about 10% to 15% higher than in prior year.
Other uses of cash include the distribution of 28 point $4,000,000 in cash dividends and we used another $18,200,000 to repurchase stock at a weighted average price of $34.06 per common share under the NCIB program. Our financial position continued to be solid with a net debt of $2,400,000,000 at the end of the quarter for a net debt to capital ratio of 51%. This reflects the issuance of the unsecured senior notes for the Bombardier Back Business acquisition and the higher uses of cash to fund working capital in the first half of the year. Since we adopted IFRS 16 effective April 1, 2019, net debt now also includes obligations under lease contracts, which were previously accounted for as operating leases and therefore not included in debt. Excluding this impact, the net debt to capital ratio would have been 47.5% this quarter.
We continue to expect to be at the lower end of our target leverage range, which is 35% to 45% on a pre IFRS basis within the next 18 to 30 months. Return on capital employed before specific items and excluding the impacts of IFRS 16 was 11.7% this quarter compared to 12% last quarter and 12.8% last year. As we ramp up the large Bombardier VAC business acquisition and our other growth investments, we expect to reach 13% return on capital employed by fiscal year 2022. Now looking at our segmented performance. In Civil, we had strong double digit organic growth in the Q2.
And in addition, we benefited from the integration of the Bombardier Business Aircraft Training business, which also performed very well. 2nd quarter revenue was up 35% year over year to $529,900,000 on 18 full flight simulator deliveries and continued strong demand for our training services with our extended capacity. Operating income before specific items was up 60% to $101,400,000 for a margin of 19.1%. On the order front, the civil book to sales ratio for the quarter was 1.14 times and for the trailing 12 month period, it was 1.45 times. In defense, 2nd quarter revenue of $336,500,000 was up 5% over Q2 last year, while operating income was down 24% to 26,000,000 dollars for an operating margin of 7.7%.
In Defense, product margins are typically higher than services and while we did see a more balanced mix compared to last quarter, it was still more weighted to services. The lower segment operating income in the Q2 also reflects delays on product orders that we expect to conclude this year as well as timing related factors related to reaching program milestones on some of the product contracts in our backlog. These include our execution on R and D program and external factors, including customer inputs and the readiness of their training facilities. The defense book to sales ratio was higher this quarter at 1.08x and was 0.81x for the last 12 months. Lastly, in Health Care, 2nd quarter revenue of $30,400,000 was stable compared to Q2 last year and segment operating loss was $1,400,000 in the quarter compared to segment operating income of $1,300,000 in Q2.
We had a higher investment in SG and A to support our larger future business and we also had some higher expenses related to launch of new products. With that, I'll ask Mark to discuss the weight forward.
Thanks, Sonya. We continue to see good momentum with our training strategy, which is supported by secular growth trends across all of our markets, which underpins CA's investment thesis. In Civil, the market fundamentals for Commercial Aviation remain supportive with continued long term passenger traffic growth and expanding global in service fleet of aircraft and specific to our business, a significant need to attract and create new pilots to meet long term demand. Sea is the world leader in civil aviation training and is a brand that's become synonymous with training and increasingly with pilots. We're maintaining very good momentum in a large addressable market.
And as we look ahead, we expect to see more airline outsourcing opportunities materialize from a large pipeline of long term training partnerships. We expect another good year for full flight simulator sales and to maintain our leading share of the market. In Business Aviation, we significantly bolster our position with the successful integration of Bombardier's Business Aviation Training and with our recent strategic partnership with Directional Aviation Capital. In this market segment, Sea's business is driven mainly by the ongoing training requirements that involve the already in service fleet of business aircraft globally. We also expect to benefit from demand for training involving the entry into service of major large cabin business jets.
For Civil overall, we expect to perform a bit better than our original outlook, now with operating income growth closer to 30% for the year on strong demand for our training solutions as underscored by a 1.4x trailing book to sales ratio and a continued high ratio going forward, even on a growing revenue base. In defense, we continue to expect a stronger second half, which is a view supported by a healthy book to sales ratio in the quarter and a robust pipeline. Our revised outlook for modest growth for the year takes into account our progress year to date and our current expectations for reaching milestones on programs in backlog. We also expect to conclude several more contracts in the remainder of the year. And although we don't control the timing of government decision making, I take confidence in knowing that we've already been down selected for most of them.
Our long term prospects in the large addressable defense market remains positive and I'm encouraged by approximately $4,000,000,000 of defense proposals we've already written that are currently in the hands of customers pending decisions. Finally, as previously announced with news of Gene Colavatisto's upcoming retirement, we're actively in the process of recruiting a new group president who will be responsible for our defense growth strategy and execution in our global markets. And lastly, in healthcare, I'm encouraged by the potential for CE to leverage our leadership in aviation training and make healthcare safer. We're positioning the business to leverage the growing opportunities with hospitals, which now have major incentives in the United States specifically to address preventable medical errors and they see simulation as a logical way to ensure their practitioners are adequately trained in procedures. The increased imperative on patient safety recently highlighted in no small way by the World Health Organization initiating the world's 1st patient safety date is just one important factor that gives me confidence in the long term prospects for CEE in this market.
We're continuing to roll out the most innovative products in the market and with our strength in front end organization and new team in place, we continue to expect double digit percentage growth this year. In summary, our overall outlook for CAE this fiscal year is largely unchanged. We expected higher growth in Civil, offsetting the lower expected growth in Defense. We benefit from a strong position in secular tailwinds in each of our core markets and we look forward to superior top and bottom line growth in the years ahead. With that, I thank you for your attention and we're now ready to answer your questions.
Thanks, Mark. Operator, we'd now like to open the lines to members of the financial community.
Thank Our first question coming from the line of Konark Gupta with Scotiabank. Please proceed with your question.
Hi, this is Amina, Konark Gupta's Associates. I do have a question on the Defense segment. You revised the guidance, which implies a strong EBITDA growth in the second half. Do you expect growth to be skewed in the Q3 or the Q4? As well, should revenue growth accelerate at the same time as delayed orders materialize in the second half?
Well, I think that we're guiding on the outlook for the growth of the business in line with what we've talked about in the remarks. And yes, we expect a stronger Q3 and Q4 in that in providing more in Q4 than Q3. But overall, we expect a much stronger second half as you would expect to be able to, as you said, achieve the modest growth that we highlighted in our outlook for sure.
I do have a question on working capital. Do you expect a reversal in working capital in the Q3? And are there any other one timers this year that wouldn't drag on to working capital changes next year?
So as we see historically, there's usually an investment, a higher level investment in the first half of the year of non cash working capital accounts. And usually we see a partial reversal in the second half and that's no different this year. We don't really call it out on a quarterly basis. We look at this on an annual basis. And a lot of that investment was higher than last year, driving in part by timing, impact on accounts payable and contract liability.
But in addition, we called out higher deliberate investment in inventory. Some of it is work in progress inventory and that's inventory that's tagged to customer orders and deliveries, which is in line with our view on expected deliveries, which is higher in the second half. But we've also invested deliberately on some pre build, so some white tails to address expected demand. Most of these are 7 37 MAX simulators. And when the situation and timing of better product deliveries clarifies, we are positioned to address that customer demand.
Thank you. Can you hear me now?
Yes.
Sorry. I do have a question on the Civil segment. What is the cadence for the simulator deliveries for the next two quarters? And do you expect EBITDA growth in the second half to be driven by joint ventures? Or can we expect material margin expansion to take place in the first half that took place in the first half?
Well, I'll just start with deliveries. I think we don't expect the market drivers to be different with regards to simulator sales, which are basically the strong catalyst is delivery of aircraft out of the OEMs. And as you know, we're standing at the only maybe if you like anomaly in this market right now is the delayed deliveries of 737 MAXs. Whether or not, I think there is no reason to expect that the market will be different and we're not seeing that. We're seeing that simulator orders in line with, as I said, delivery of aircraft.
That is for us anyway. Do you want to add anything?
On your question on EBITDA, ultimately our revised I think our revised outlook speaks to our view on operating income that was a little higher than what our previous outlook and with operating income growth coming in closer to 30%.
Thank you. Our next question coming from the line of Kevin Chiang with CIBC. Please proceed with your question.
Hi, this is Krista on for Kevin. If I could just go back to defense, you're calling for a strong second half. I'm just wondering how this plays into 2021. I know you're not providing guidance, but any reason not to expect growth rate in defense to return to a normalized level?
Well, I think I don't think we've already called out normalized level to be specific. We call that an outlook every year. But yes, we continue good growth on in defense because of just because of market fundamentals and our position to market and the demand for our services and probably most importantly on the pipeline of opportunities that we see. As I mentioned, we have about $4,000,000,000 of proposals that we've submitted to customers already. So those, as I would say, we don't control the pen of decision makers as to when they decide.
But I think that a lot of them will materialize in the next few months. So that gives me confidence in our own prospects in the market. And when you look as well at the market itself, market itself is growing and we continue to expect to exceed the organic market growth over the longer term in defense.
Great. Thanks. And if I could also just ask another one. With the addition of Bombardier's business aviation training assets and the strategic partnership with Directional, how does that shift the mix of wet hours and dry hours versus what we've seen historically?
Well, I don't have the numbers based on it, but no, I don't think we do. But clearly, Bombardier is essentially all wet. So clearly, it will increase the amount of wet hours we do. Yes, business aviation represents about a third of
our civil activity, Christa. It's all wet. And of the commercial activity that we do about probably about a third of it is wet and growing.
Perfect. Thank you. And then if I could just ask one on healthcare. Margins have been impacted by elevated costs related to growth and launching new products. When do you think you'll lap these costs and should we expect this for the remainder of fiscal 2020?
Well, I think we expect it to reverse. It was continued to increase this year as testimony by our outlook for double digit growth. Obviously, that implies a strong second half and that's what we see in front of us.
Perfect. Thank you.
Thank you. Our next question coming from the line of Benoit Poirier with Desjardins Capital Markets. Please proceed with your question.
Yes. Good afternoon, everyone. Could you provide more color with respect to the Civil guidance that has been revised upward on what are the main drivers for the guidance increase?
Well, I think it's performance year to date, Benoit, and orders going forward. If you look at, as I mentioned, just in terms of orders and the trailing book to bill is 1.45 on top of quite exceptional revenue growth. So even though we're growing a lot, we're continuing to fill the pipeline quite substantially. And so that's so we know what capacity we have. We're not capacity limited.
So we can see that we're going to be able to generate more business and the associated profit in the second half. That's a large part. The other part is that we've been very happy with the integration of our Bombardier business, but I think we're honestly firing on all cylinders there. And so we feel confident in the second half with regards to that business. So that's really where we're coming from to be able to constantly increase that outlook.
Okay. That's perfect, Mark. And are you confident to still deliver a similar number of full flight simulators this year comparable to last year, which was around 58, Mark?
Is that like delivery is now going on?
Yes, yes, yes.
Yes. So what we see is that it will be higher in the second half as it was last year, probably in the 50s. And that's been incorporated into our outlook and our outlook of closer to 30% operating income growth year over year.
Okay, perfect. And could you provide an update on the 7 37 MAX, whether you have more color on the upcoming training requirement and the impact so far we've seen for CAE?
Not really. We don't have any more because the I mean the aircraft has returned to service. So I think we don't know nor does anybody else exactly what the training requirements will be. I think it's in terms of our position that we're committing to support our operators and to support Boeing and support the regulators to the extent that we that they want our support in all jurisdictions. So our assumptions that there obviously is going to be a lot of pent up demand when those airplanes start flying and that emphasizes a number of white tails that we've created to be able to secure that demand and also sales continue to do well of the MAX layers and deliveries go well.
I mean, so far this year, if you look at maybe remind me of the numbers we delivered.
So, 5 orders to date and delivered 9 deliveries to date on the 7 37 MAX and expect a similar number in the second half as well.
And if you look at, we've sold 48 737 MAXs so far and that's the majority of market share. So hopefully the airplane will fly again relative in the near future, but we're well positioned when that happens.
Okay. That's great color, Marc. And with respect to the utilization rate, the 3% decline year over year, is it fair to say that it was mostly driven by the acquisition of Bath that typically where business jet utilization is typically lower given the nature of the business, Mark?
That's certainly part of it. And there's a normal seasonality, as you know. But I mean, even if you look at last year, 72%, some of it is what you said, business aircraft for sure, because we they all train in midnight hours. However, I was caution that we don't assume them to do when we estimate a utilization, we don't necessarily assume full utilization like that on a business aircraft. A lot of it has to do as well with remember, we opened up 3 new train centers at Milan, Manchester, Gatwick.
So we relocated a bunch of simulators and updated. We take the advantage of the summer months, updates, simulators and while we're doing that, either in transit or an update, they're not earning revenue and they're not they're part of that utilization. So and some of it, there's 37 pilot train deferrals. So all of that, I think, gives you the 69%, which to me is not surprising with everything we've done this quarter.
Okay. That's perfect. And last one for me, Sanyan, in terms of working cap, you expect a good reversal in the second half. But in terms of working capital usage for fiscal 2020, could you provide maybe a range or what kind of dollars we could expect for the full year in fiscal 2020, Sonya?
Well, we're saying is we expect a significant part of that to reverse in the second half. So that will be as we kind of continue to optimize non cash working capital, convert some of that inventory investment in the second half. But we will have some investment. 1, some of that inventory won't necessarily convert completely before March 31st, but also as we continue to see strong growth on the services side, that services model drives the investment in AR, which is usual because the services get billed and collected after the services are rendered. So while long as delicate in the range, but it's a
Our next Our next question coming from the line of Fadi Chamoun with BMO Capital Markets. Please proceed with your question.
Yes, hi. Thank you for taking my question. Maybe first on quickly on Directional Aviation. Can you offer up kind of how you think about the contribution you would expect from this once you close it? Is it kind of consistent with what we would be attributing kind of ROIC for this business like a low double digit ROIC basically on that $85,000,000 Is that a fair way to think about it?
Well, I'd start by saying maybe it's slightly accretive. We expect to be slightly accretive in the next 12 months as we open up our new training center and we start populating with simulators as we go through the integration. And, Deutsch, do you want to add?
Yes. I think that it really begins to take a lot year 2, year 3 and beyond. The biggest value in that FADI is really the 15 year exclusive with Directional which is a really large fleet in aggregate with all its affiliates of 175 business jet aircraft. So it's almost like a really large airline outsourcing. So for us, the returns really begin to take whole year 2, 3 and beyond.
First full year will be sort of modestly accretive.
Okay. And is there any contribution assumed for this year from Directional?
Well, it's very small. It's already in the near 30% outlook that we provided.
Okay. My second question on defense. I mean, I can appreciate the lumpiness quarter over quarter and these kind of things. But if I take a kind of look at the last few years in defense, the you've had a very strong improvement in revenue as you've deployed over $300,000,000 of capital in that division. But the incrementals have been kind of in the low single digit, both in terms of ROIC and margin.
Can you offer up of insights into what's really kind of driving this? Is it all mix? And whether there is an opportunity that can improve over the next couple of years, I guess, if these are programs that are in early ramp up stage?
I think maybe I'll just high level that definitely, I think what you've seen in a large on a macro level is increasingly a shift to services. And the product services mix has changed, and that's caused a lot of that shift to lower margins overall. Now going forward, I would tell you that we stick to and argue that we should be able to deliver in 11%, 12% range. That would be our expectations for the longer term. And that's in terms of accretive to the overall returns of CE.
So certainly not dilutive and contributing to value creation. That's our position and that's the way we're bidding in the market. Swamy, do you want to add anything to that?
Yes, it really is a reflection and a transition between the products and services mix. But as you grow the size, scope on services and drive the product programs, it will drive higher margins and contribution on return.
Okay, great. And maybe one last question. Are you prepared to share how many white tails have you built for MAX or?
Well, I think we
will We will share the number. We think that's competitively sensitive, but maybe
No, I was going to say the same. So not no.
Okay. Thank you.
Thank you. Our next question coming from the line of Cameron Doerksen with National Bank Financial. Please proceed with your question.
Yes, thanks. Good afternoon. Just as a follow-up on the 7 37 MAX and the Whitetails. I mean, I guess, maybe I'm reading too much into this, but the fact that you've maybe built some Whitetail 7 37 MAX sims, is that suggestive that maybe airlines are telling you that they might have a requirement for new SIMs as opposed to using their existing 737NG SIMs?
Well, I think what do you want to say, Biren? Well, look, I'll tell you, I think it's prudent to say that you have both 737 MAX operators and a lot of airplanes sitting on the ground right now, and they're going to have to come up to speed with regards to pilot training and you just don't ramp that overnight, okay. So we want to be there being able to support all of the demand And the long term prospects of this aircraft are very good, but Boeing has got a very strong backlog of aircraft. This will get fixed in the shorter term. So we want to be ready and we're taking assumptions with regards to what training happens in what jurisdiction.
But I think we have no crystal ball anymore than you do. Anyway, that we would share and we would share our assumptions on what training will be done. But no, customers aren't guiding us one way or another. I think the our experience though is that airlines rarely do just what the minimum that the regulars will ask them. So we fully expect that as it already happened, some air even should the training requirements be exactly the same as before, I fully expect that some airlines, a lot of airlines will move beyond that because they'll want to have dedicated 7 37 MAX simulators for their own reasons.
So we'll be ready for that.
Okay. No, that's great. And just secondly, just on M and A, I mean, you've done a couple of acquisitions here in the last 12 months just in the Business Aviation Training segment. I'm just wondering if there is anything else out there that you maybe you feel underrepresented either civil or defense that that could be an M and A opportunity?
Well, the way that we look at M and A, it's really focusing on training, outsourcing and partnerships and whether they become organic opportunities like Easyjet Outsourcing or M and A like this recent SIMCOM transaction really develops with that partnership. So we continue to focus on outsourcing and continue to have a good pipeline of conversations with airlines and partners. And if there are any other strategic opportunities that enable expanded market access, technology capabilities or client programs. We keep an eye out for these and all this kind of a value buyer if there is something that is of interest.
Okay. Thank you.
Thank you.
Thank you.
Picking up on Cameron's last question, I would also add that even though it's hard to pick out in our defense results to date, I would tell you that we're quite happy with the acquisition we've done in defense last year in the Topseeker world. I think that's performing quite nicely and a lot of the revenue growth you see a good portion is actually coming from that business. So So we feel good about that.
Thank you. Our next question coming from the line of Ronald Epstein with Bank of America Merrill Lynch. Please proceed with your question.
Hey, good afternoon, guys. It's Christine Lilach.
Hi, Christine. Hi, Christine.
Hi, Christine.
For the 7 37 MAX, since the aircraft hasn't been recertified yet, how does the timing work for when you get the final software package from Boeing and when you can deliver your first full flight simulator?
Look, I think it will be very it will probably be coincidence. I think we're working in a lot of step with Boeing and I'm quite confident as soon as the software loads that we need to be able to upgrade the SIMMIR come from Boeing. And we're as I mentioned, we're in lockstep with them. And I don't expect any delay with regards to having to update SIMs from that standpoint.
And in fact, we've delivered 9 MAX so far in the first half of the year. So even what we're delivering currently will have to be updated with the new aircraft system load.
A lot of that is software, software which can get pretty fast.
I see. And for the simulator advanced builds that you're doing right now, how many of those already have basically indication from your customers that they will order it versus a speculative build on your part?
Yes. I think when we say white tails, it means that it's not attributed, it's not tied to our customer. So we're building them and they wind up either in our training centers, so we can serve the market making as I said for customers buying 737 MAX or offers and in our training network or we'll have airlines buying their simulators and we'll deliver to them. But when we talk about white sales, we mean they have been attributed at this moment.
I think so not even a soft indication of interest. So it's all purely speculative to confirm.
It isn't that unusual for us to do some advanced building, especially on high volume platforms like the A320 or the for the MAX. But here, yes, we are making some call in terms of there being a pent up demand, given the fact that the aircraft has been out of commission for as long as it has been and the deliveries as well. So that's what we see. So it's not a particularly bold measure on our part. We think it's just smart preempting the demand that we expect.
That's helpful. And maybe switching gears to healthcare. Mark, can you walk us through what you need to achieve for healthcare to be profitable in the long term?
Well, I think it's a question of revenue, revenue growth. It's not a I've said this before, but it's not a question of the profitability of our products and services. They're actually very profitable. In fact, more profitable on a unit basis than probably certainly a lot of the products that we have in the rest of our business. The issue is volume.
We need to grow the business and that's why you see us investing in new products and investing in sales force, SG and A, which is mainly sales force and I would say a stronger team and we started with Rekha Ranganathan who is a seasoned executive from the healthcare sector. We're now growing the team, the leadership team and that's part of what we're doing as we're seeing reflecting new costs. There's been a change in our strategy with the new team in place, which is really going after the hospital business. You look at value based care in the United States, that is driving as we said in our remarks, that is driving hospitals to be able to have to invest more into training to make sure that they reduce the amount of medical errors that are happening as a result of, if you like, less than perfect training. And that's we demonstrate that space in aviation industry.
And as I've said many times before, the Healthcare industry at large is looking to Aviation as the model as they look at this. So that's really where we're at. And when we look at the certainly short term, rest of the year, we certainly expect that based on the orders we've gotten today, I mean, we don't monitor, we don't report out the size of the business book to bill in the Healthcare business. But I can tell you already in this quarter, we're seeing if we support backlog, we'd be showing a backlog that's increasing. Now it's not all delivering for a number of reasons.
The time to basically complete an order on the hospital sector is a bit longer than it is in our traditional teaching hospitals, for example. So that's reflected. But having said all that, I feel confident in the growth outlook that we've set on top and bottom line, double digit growth this year, implying a stronger second half and certainly a stronger a larger business going forward or else we wouldn't be in this business.
Sure. And I don't want
to hold you to some sort of
long term guidance, but I kind of just want to get a perspective from how you think about this business. If do you think this business will be a $100,000,000 revenue business on a quarterly basis in the next 2, 3 years? And then also I'm just understanding the size that this could be. And then at what point do you have a threshold in which you decide to sell it and walk away from healthcare?
Well, we're on the last part, we're committed to the business. And so, I'm not going to comment that we're sticking to it, but as we've done in any business, so you saw it mining a few years ago, but if we feel that there's going to be a it's not going to be the market opportunity we expect or that we think it's going to take too long. Then we'll reevaluate our options in that regard, but that's certainly not our thinking at this moment. And so, in the end of the day right now, I'm not going to be able I'm not going to commit to in terms of any kind of certainly quarterly revenue targets at this moment. I can tell you that we won't be satisfied until this business is substantially ordered is now in concert with our expectations of the market.
I'm certainly not bloody minded about it though.
We have been very
confident in this market and I think that we're very confident that there's a societal need here and we're the ones that are best positioned to be there to support the increase in patient safety.
Great. Thank you for the color, Mark.
Thank you.
Thank you. Our next question is a follow-up question coming from the line of Fadi Chamoun with BMO Capital Markets. Please proceed with your question.
Yes, thanks for squeezing me in again. Sonya, on the working capital, if I look at the $300,000,000 working capital investment so far this year, half of it is declining kind of liabilities and payables and half is kind of from the asset side, including inventories. And what's the driver behind this liability and payables decline? Just trying to understand how much of that really comes back in the back half of the year?
Yes. So on the inventory, we spoke about that, but it's a combination of what's work in progress and that's inventory that's pegged to customers. And as we build the simulators to deliver in the back half as well as the white tails that we've invested in preemptive for demand that we see. Now on accounts payable side, it's really a question of timing on different types of payments. So there is some annual payments that get paid in the first half of the year that are higher than last year and then some new payments that are larger related to kind of interest and so on new profiling.
So that get paid out in the first half of the year and there is always a bit of variation that's driven by the shift in volume whereas the the second half usually has a higher volume than the first half. So it kind of contributes to that investment in the first half. So all to say that it's a slightly higher investment but we do expect a substantial part of all of that coming from payable of the inventory and liabilities, probably around kind of call it 3 quarters of that to reverse in the second half of the year.
Okay. That's helpful. Thanks.
Operator, we'll now conclude the session with investors and open the line to members of the media should there be any questions.
Thank you. We do have a question coming from the line of Ross Merrowitz with the Canadian Press. Please proceed with your question.
Yes, hi. I'm wondering if you could talk a little bit about what the impact both financial and otherwise has been on CAE from the MAX issues and the grounding?
Well, I think it's mainly in terms of the impact, it hasn't been really consequential to date in our numbers. In terms of deliveries of our suppliers are continuing. We've delivered a number of them this year already in line with our expectations. We fully expect to deliver actually the number total is 19 that we delivered to date. So we fully expect to continue to deliver this year because airlines will need them in the as the MAX comes back.
So I don't so the impact hasn't been, as I mentioned, consequential to see results. And we don't expect them to be based on on what is expected to be the return to service date, not probably what you read in public regards in terms of when that aircraft will start flying again. So I think that's what basically that's kind of what I characterize it.
And I guess the flip side to that or addition is what impact will are you expecting you build some White House, so what impact are you expecting once it resumes?
Well, I think I should have said actually because we repeated in the repeat what we said during the analyst question. I mean, one impact obviously is working capital because we have these simulators that we built that are white tails, which means that they're sitting in work in process inventory. And what will happen is when the airplanes start to deliver and start entering service back into or re flying with airline, obviously some of those will deliver because we fully expect people to order some and we will be in a position to put those simulators to our training network and expect that extra capacity to be useful to make sure that the airplane regains service, flying status quickly as the need to retrain, a lot of pads come before.
And all of them will require software updates?
Well, the simulators that are done certainly will have to be as is always the case, will have to be representative of the aircraft. So whatever the final configuration of the aircraft, we will be supplying that those changes by the manufacturer and we'll incorporate them. So every simulator will have to represent the final configuration. So yes, we'll have to update them all. But as I said, I wouldn't expect because have been updating as we go along, I wouldn't expect that to be a long process.
Okay. Thank you.
You're welcome.
Thank you. Our next question coming from the line of Julien Arsenault with La Price. Please proceed with your question.
Operator, that's all the time we have for the call today. I want to thank members of the media and of course members of the investment community for joining us this afternoon. A transcript of today's call will be made available later today on CAE's website. Thank you very much.
Thank you. That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.