Good day, 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.
Thank you, Julie. 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 2018 and questions to answers, contain forward-looking statements. These forward-looking statements represent our expectations as of today, August 10, 2017, 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, 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 in our filings with the Canadian Securities Administrators on SEDAR and the U.S. Securities and Exchange Commission.
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 call to questions from members of the media. Let me now turn the call over to Marc.
Thank you, Andrew, good afternoon to everyone joining us on the call. I'll first discuss some highlights of the quarter, Sonya will review the detailed financials. I'll come back at the end of the presentation to talk about the new strategic developments we announced earlier today, I'll conclude with some comments about the way forward. Our progress to date in all three segments continues to support our full-year outlook for growth and profitability. The civil business showed very good momentum in the first quarter, with strong top and bottom-line growth on good utilization in our training centers. In defense, although we didn't grow the bottom line in the quarter, I'm satisfied with our progress in view of our full-year plan.
Defense can be lumpy on a quarterly basis. In the first quarter, we are beginning to ramp up a number of new development programs for backlog. Overall for CAE in the quarter, we grew operating profit by 10% compared with last year, and we continued to enjoy strong demand from customers to our innovative training solutions. In civil, we booked CAD 400 million in orders, including eight full flight simulators and several long-term training agreements with airlines and business aircraft operators. For the quarter, civil grew segment operating income by 15% and filled its training centers to 78% utilization. In defense, we booked orders for CAD 262 million, including a training systems integration contract with the UAE on the Predator XP.
Other notable wins include an in-service support contract for Canada's Fixed-Wing Search and Rescue training program and contracts involving C-130J fuselage trainers for the U.S. Air Force and U.S. Marine Corps. We're also very proud that the first cohort of U.S. Army students went through the new initial entry fixed-wing course at our Alabama training center and successfully graduated to become Army fixed-wing aviators. Finally, in healthcare, we had higher expenses in Q1 related to the ramp-up of an expanded sales force and the launch of an important new simulator, CAE Juno, which begins delivery in the second quarter. We specifically designed Juno for nursing education, which represents the largest addressable market in the healthcare education market. With that, I'll now turn the call over to Sonya, who'll provide a detailed look at our financial performance. 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 CAD 698.9 million, and quarterly net income was CAD 63.8 million, or CAD 0.24 per share. This compares to CAD 0.26 per share in the first quarter last year, which is before specific items and includes the recognition of a deferred tax item. There were still some timing differences this first quarter with respect to the recognition of revenue on our standardized commercial simulators. This resulted in a deferral of approximately CAD 0.03 of earnings per share. For the year as a whole, we expect these timing differences to be relatively neutral as we deliver more of the standardized products. Income taxes this quarter were CAD 14.6 million, representing an effective tax rate of 18% compared to nil for the first quarter last year. Excluding the deferred tax item, the comparable tax rate last year would have been 14%.
Free cash flow was typical of CAE's first half of the fiscal year, as we usually have a higher level investment in non-cash working capital during this period. First quarter free cash flow from continuing operations was negative CAD 37.9 million, compared to positive CAD 15.5 million last year. As in previous years, we expect a portion of the non-cash working capital investment to reverse in the second half. Uses of cash in Q1 included funding capital expenditures for CAD 49.1 million, mainly for growth, and we distributed CAD 21 million in cash dividends. We used another CAD 2.7 million to buy back stock under the NCIB program. Now looking at our segmented performance. In Civil, we maintained a strong growth in Q1, with revenue up 11% year-over-year to CAD 411.8 million, and operating income up 15% to CAD 73.1 million for a margin of 17.8%.
Before the deferral impact on the recognition of standardized products, Civil revenue and operating income would have been CAD 452 million and CAD 83.7 million respectively, for a margin of 18.5%. On the order front, the Civil book-to-sales ratio for the quarter was 0.97 times, and for the trailing 12-month period, it was 1.07 times. Civil backlog at the end of the quarter was CAD 3.2 billion. In Defense, the first quarter revenue was up 2% over Q1 last year to CAD 263.2 million, while operating income was down 7% to CAD 26.3 million for an operating margin of 10%. The quarterly variability we often see in Defense is driven by product service mix and the timing on reaching certain program milestones. In the first quarter, profitability was impacted by the kickoff of a number of new programs, one late in the last fiscal year, which involves R&D expenses as part of their startup.
To name a few, these included the Canadian Fixed-Wing Search and Rescue training program, the UAE Naval Training Center, and training systems for the Predator XP and Predator Guardian UAVs. As well, the business units faced an additional headwind this quarter in the form of higher SG&A expenses. Specifically, the share-based payment expense was CAD 17.5 million compared to CAD 8.7 million last year. The increase was driven by the sharp appreciation of CAE's shares and the mark-to-market fair value revaluation of our existing long-term share-based payment plans. Approximately 40% of this total expense was allocated to Defense. The Defense book-to-sales was one time for the quarter and 1.31 times for the last 12 months. Defense backlog at the end of the quarter was CAD 4.1 billion. Finally, in Healthcare, first quarter revenue was CAD 23.9 million compared to CAD 22.7 million in Q1 last year.
Healthcare segment operating loss was CAD 1.6 million in the quarter compared to a loss of CAD 100,000 last year. The loss in the quarter results from higher initial expenses associated with the expansion of our sales force and the development and launch of our new product, CAE Juno. With that, I will ask Marc to discuss the way forward.
Thanks, Sonya. Our outlook for growth this year remains unchanged, and I continue to be encouraged by the positive response that we get from customers to CAE's innovative solutions. Underscoring our confidence in the way forward, CAE's board of directors approved this morning a CAD 0.01 increase to our quarterly dividend, which becomes CAD 0.09 per share effective September 29th. This marks our seventh dividend increase in the last seven years. In Civil, pilot training demand continues to be well supported by high rates of commercial passenger traffic and continued stable aircraft utilization in business aviation. This past June at the Paris Air Show, CAE released its first ever CAE Pilot Demand Outlook, our 10-year forecast for global pilot demand. A compelling takeaway from this report is the need for 255,000 new airline pilots over the next 10 years.
Another important consideration highly relevant for airlines and CAE is that half the pilots who will fly the world's commercial aircraft in 10 years' time haven't yet started to train. These dynamics underscore the considerable value of our comprehensive cadet-to-captain solutions. CAE's broad global offering enables unmatched flexibility to adapt and evolve our solutions to fit our customers' needs. To that point, I'm very pleased with the new strategic developments we announced this morning involving airlines in Asia. We signed a memorandum of understanding with Singapore Airlines to establish a joint venture to be operated out of the Singapore Airlines training center near Changi Airport. This marks an important evolution in our relationship with one of the world's premier carriers.
Once underway, the joint venture will serve the training needs for Singapore Airlines and SIA Group subsidiaries, Singapore Airlines Cargo, SilkAir, and Scoot, as well as other operators in the ASEAN region. We also concluded a transaction with China Southern Airlines, whereby China Southern has acquired our share of the Zhuhai Flight Training Center, or ZFTC, for $96 million US. The evolution of this relationship means that CAE now has the flexibility to address the broader market in China and the ASEAN region as well. As part of this transaction, China Southern will outsource to CAE third-party airline training being conducted at ZFTC. In addition, we'll continue to serve China Southern as their partner for training service and support, ab initio pilot training, and for their simulation equipment needs.
Also, in response to reports by the media, we confirmed today that CAE and AirAsia are in advanced discussions to negotiate a sale and purchase agreement for CAE to buy AirAsia's 50% share of the Asian Aviation Centre of Excellence joint venture or AACE. Our relationship with AirAsia began in 2004, and once a definitive agreement is reached, it would expand with an exclusive contract to fully outsource the fulfillment of all AirAsia Group's training requirements including current and future affiliates in support of all the aircraft types that it operates for an extended period. What these developments have in common is that they serve to align our capital with our strategic priorities. They also closely correspond with our investment criteria for accreted growth in support of CAE's 13% return on capital target within the next two to four years.
Once completed, these transactions will offer us enhanced flexibility to further strengthen our position in China and the ASEAN region, which are the fastest-growing commercial airline markets in the world. These are indeed exciting times for CAE and our civil business as we look to grow our share of the large global aviation training market. Our outlook for the year remains unchanged, and we continue to expect civil to generate low double-digit % operating income growth as we earn a greater share of wallet in training and maintain our leadership in simulator sales. In defense, we have a solid backlog, and we expect to continue winning our fair share of programs from an active bid pipeline of over CAD 3.6 billion. The market is supported by the positive fundamentals of increased defense spending and an emphasis on mission readiness, which is a fundamental driver for training.
We're very well positioned to continue growing our share in the large training systems integration market with our unique comprehensive training solutions. Our outlook for mid to high single-digit growth in defense this year on both top and bottom line remains unchanged, we continue to be bullish about CAE's long-term prospects in this market. Finally, in healthcare, we're focusing on some of the largest value pools in the market, like simulation-based education and training for nursing. We continue to expect healthcare to resume growth this year on higher sales from our pipeline and the launch of new products, which will put us on a course for long-term double-digit growth. As we've said before, the key to our success here is higher volume.
With innovative new products like CAE Juno that we launched this quarter and our expanded sales force, we're confident we can access a larger share of the market. In summary, we're experiencing a high level of activity in all segments of our business, and we're on a course to deliver on our outlook for the year. With that, I thank you for your attention, and we're now ready to answer your questions.
Thank you, Marc.
Thank you.
Operator, we'll now take questions from investors and financial analysts.
Thank you, sir. Ladies and gentlemen, if you would like to register a question, please press the one followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. If you are using a speakerphone, please lift your handset before entering your request. One moment please for the first question. Our first question comes on the line of Turan Quettawala with Scotiabank. You may proceed with your question.
Yes, good afternoon. Thank you for taking my question. I had a quick one about, I guess, can you talk a little bit about what the incremental capital would be required for some of these new relationships with AirAsia buyout as well as with Singapore Airlines?
Hi, Turan. One of those transactions with AirAsia is still very much an active deal. I think you'd understand that we wouldn't want to comment. Other than, as we said, they are in line with the criteria that we set for ourselves for accreted return and a target of 13% of return on capital over the medium term. With Singapore Airlines, we are at the MoU stage, but the expectation on the investment will be about CAD 20 million-CAD 25 million by each of the partners. In our case, we'd be contributing assets.
Okay. That's helpful. Thank you. I guess, I know you talked about the return-
That is, I wouldn't expect this to be a matter of new capital, but rather kind of portfolio shaping. I would look at it that way.
No, understood. You have the CAD 96 million from the Zhuhai, right?
That's right.
Okay. I guess, would you be booking a gain on that Zhuhai sale?
There will be a gain on divestiture. We are finalizing that to get an extent of the gain with all the post-closing adjustments. So we'll be finalizing that and reporting it out in Q2.
Great. Okay. Maybe if I just ask one more in terms of, is this China Southern, is this sort of a one-off, or are you seeing more airlines looking at maybe taking it back in-house?
No. It's not. To me, look, I think just look at what we're happening is three deals together, Turan. Look at, for example, AirAsia. What you see, I've had this conversation directly with the CEO, Tony Fernandes at AirAsia. I think it's very positive when you look at it what they're doing there, and of course, we're still at the MoU stage, but I think they and he has already been pretty vocal on this, is they're so confident in the training that's being provided by CAE, the joint venture, that not only do they now have a high-quality training operation for all of AirAsia and its affiliates and affiliates to come, but they have an opportunity, if you like, to monetize the value that they've created. For us, this is a nice story. In exchange, I think that we're looking at an expanded contract.
We get short on details right now because we haven't finalized it, but I see this as a good story. Both of these deals together and to a certain extent, Singapore Airlines, I think the thing to remember of this is that it gives us now, if you like, unfettered access to the markets in ASEAN and in China, where we had exclusivity agreements with both of those airlines. I think this is a good news story. In fact, I'm very happy with it.
Okay. Thank you very much, Marc. That's helpful.
Our next question comes from the line of Cameron Doerksen with National Bank Financial. You may proceed with your question.
Thanks. Thanks very much. I just wanted to follow on with the questions on the, I guess, portfolio readjustment in Asia. Just firstly on the AirAsia. I know, again, it's still not a done deal, but can you just describe how this would be an expansion beyond just you taking the 50% you don't own? Is it the fact that you're not doing all of the training currently in that operation for AirAsia, and this would be basically expansion to all of their pilot training?
I think that we are currently already doing their training. The training is outsourced. We're not doing all the training for all its affiliates, and that will become part of the deal. You will know that AirAsia is one of the airlines that's expanding the most in the world, actually, and they're going to be taking a lot of airplanes over the next few years. Between the growth of AirAsia itself and the fact now that even though we will be continuing to doing AirAsia's training because they have full confidence in us, and we have such a fantastic relationship built since 2004, that we'll have a long-term training contract for them and their affiliates. I should point out that in their case, it's not only flight crews, it's maintenance technicians, it's flight attendants.
It's actually even manager training that we do there. We now have access to all the other airlines in the region that since now it's only CAE, in some cases, it's maybe slightly more attractive for them to come train with us, and we don't have any exclusivity in the region that we've had in the past. Clearly, you would expect this to be growth.
Okay. Maybe just secondly, I guess, just on the sale of the China Southern JV. You've mentioned that it helps you maybe address the China market more broadly. Can you just maybe explain how that is the case? Were you restricted in pursuing other airlines in China, and do you think you have to have a physical presence in China to address some of the pilot training demand there?
I think that we serve the training market in China, for example, center in Hong Kong. I think to go reflect on the whole story is we've built a great operation, a very successful operation with China Southern called ZFTC. We're very happy. I think this deal is win-win. In the case, this was our first joint venture in training. We changed our strategy over the years, especially in the last three years, where we're very focused on training. As we said in the press release, I think China Southern wants to focus on training as they want to just concentrate on their own operation. They're not interested in running this as a profit operation, to make profit, if you like. We will continue to deliver the third-party training as part of the agreement in the excess capacity China Southern.
Clearly, I don't want to say too much, but clearly we did have an exclusivity. Again, it was the first one in China. We did have an exclusivity. Now we don't. Clearly, China is a big market, and it will be one of the largest markets, if not the largest market in the world. You would expect that we will want to, yeah, at some point set up shop there. I would consider that very highly likely before too long.
Okay. Very good. Thanks very much.
Our next question comes from the line of Fadi Chamoun with BMO Capital Markets. You may proceed with your question.
Yes. Good afternoon. I want to go back to this Asian strategic changes there. Is it fair to say that CAE approached those two JVs with the Zhuhai one and AirAsia one to change the structure because you wanted to open the market and remove that exclusivity? Is that how we approach this?
No, we have an ongoing dialogue with these airlines over the years. In the case, there were specific events. In the case of AirAsia, I think the fact of the matter is that the CEO, I guess the airline itself, wants to monetize assets that they have had. I think they've done it with other parts of their portfolio. I think their travel agency programs they've done. Here, again, I'm just quoting the straight conversation I had with Tony Fernandes, it's in their case that they wanted. They saw an opportunity to monetize the value that we both have created together in this training center. For us we get a very highly valued asset and we get a long-term training agreement out of this with China Southern. Sorry, with AirAsia.
In the case of China Southern, we had a point in our relationship that in our joint venture where basically we're coming in to a 15-year point in a relationship. We had the conversation, do we continue as we go or not? I think that joint ventures, in the end, you'll know it's really how are the interests of the parties aligned? Are you strategically aligned? As I mentioned, this was our first training joint venture that we had. It was set up, the first one in CAE's portfolio. At the time, we were a products company, and it's been very highly successful. We've created, to quote the CEO or President of China Southern, a very highly successful pilot training facility. It's been a great outlet for CAE products. We've sold all of the simulators that are in that training center.
Going forward, I think the interest of China Southern and ours are going the way that our strategy is. China Southern wants to concentrate on its training as a cost center, whereas we want to run a profit-making operation as of course, as we do in the rest of the business. It was a good time to go our respective ways in that sense. At the same time, it's an evolution of the relationship. As I said, we're going to sell excess capacity at ZFTC. We're going to continue to be their partner for ab initio pilot training and equipment and support. Again, I think it's great win-win for both parties.
Okay, great. It also means that those two airlines, AirAsia and China Southern, are basically not really interested in participating in the profit of the JV, since they want to run their training as a. We've in the past thought that this is like a big selling point when you approach an airline to outsource their training. Is that not the case for-
It continues to be. I think it continues to be a strong selling point. I just emphasize the fact that we're just doing it with Singapore Airlines, who's one of the premier carriers in the world. I would disagree with you in the case of AirAsia or just point out that they're monetizing their asset. They're taking the value that is being created not only now but in the future. They're monetizing that value now. I think at the same time, they continue to retain the same service that they have with us, which is the training that we provide. We get a long-term contract. To me, that sets a great precedent for our business.
Yes. Thanks for that color, but one more quick one for Sonya. The Zhuhai is probably a negative in terms of the contribution from Zhuhai going away and then AirAsia, I guess, positive. Is all of this big sort of a wash as far as the guidance goes for this year, or?
Yes, it is. We're maintaining our outlook. Now, there is a positive contribution from Zhuhai that would go away. With these deals upcoming, they would relatively offset.
Okay.
If you're looking for color, we'll give you exact numbers. Out of Zhuhai, it was a dry lease operation that we ran. If we take just that dry lease operation, no consideration for sales of simulators, which I remind you will now consolidate at 100% instead of 50%. If you take just the training operation on a run rate basis, it's CAD 0.04 a share. For this year's half year, you consume that CAD 0.02 a share is lost from that. Clearly, if we're maintaining our outlook, we think it's going to be made up.
Okay, great. Thank you very much.
Ladies and gentlemen, as a reminder to register for a question, please press the one followed by the four. Our next question comes from the line of Benoit Poirier from Desjardins Capital Markets. You may proceed with your question.
Thank you very much. Good afternoon. Just to come back on the previous discussion, I was wondering if those discussions are mostly with emerging markets, or do you see a trend across airlines outside of Asian markets?
I don't think the dynamics have changed. The discussions are very opportune for airlines that don't have the infrastructure, or have never created the infrastructure, or we started with them from the beginning. Their carriers are taking on a lot of aircraft. I don't think the dynamics have changed much.
Okay, perfect. With respect to the proceeds that you're going to be received, the $96 million, do you intend to place those proceeds in the coming year, or it will take some time before you use them?
Well, we'd expect to be using a portion of those proceeds in the upcoming AirAsia transaction. To the point that we're essentially a portfolio shaping in our view.
Okay. Those transaction would expect they will be closing in Q2. Is that fair?
The Zhuhai divestiture closed today as of August 10th, we're ongoing in discussions with AirAsia.
Okay, perfect. Now if we look at Healthcare, obviously margins were below expectation. Just wondering about the implication of the simulator Juno implementation. How should we be thinking about the margins going forward? Just wondering if this particular simulator has lower margin or it's basically a ramping up volume that gives you confidence that margins will rebound.
No, I think it's exactly that, Benoit. The simulator, we're not anticipating it has low margin. What you're seeing mainly in the quarter is all the costs associated with the development ramp up and launch of Juno, which together, just those costs alone, if you want, is about CAD 1.7 million. Yeah, the key here, as I said in my preamble, it's all about volume here. The products in Healthcare by themselves, there's not a product in there that doesn't have a good gross margin, and Juno is no exception right off the bat. If we can be halfway successful in our ambitions of selling more, which we very much believe that we will because the market is there, we've increased, we've got great product for the market, been very well received, and we've got the sales force to do it, and we're ready to produce it.
That's where the expansion in revenue and earnings will come from.
Okay. When you say that you remain confident to grow Healthcare, are you talking both in terms of top line and operating income for the year, Marc?
Well, per our outlook.
Yeah, for the outlook for healthcare, yes?
Yeah. Which means both.
Okay, perfect. Last one for me, there's a lot of discussion around M&A activity between UTC, Rockwell Collins. Any thoughts, Marc, on how this could impact CAE and valuation multiples?
Well, you'd be better placed to tell me about that. I don't see it. I don't see the effects just right now. I mean, they play their game, we play ours.
Okay, perfect. Thanks for the time.
Our next question comes from the line of Chris Murray with AltaCorp Capital. You may proceed with your question.
Thanks, folks. Just maybe cleaning up a couple other housekeeping questions. Sonya, can you just walk us through the calculation of the stock-based comp? It would've been something I would've thought there would've been a quarterly accrual for, if you can just explain why we had such a big jump in the quarter, that'd be great.
Sure. You're right, there is a quarterly accrual, and that's what's driving that expense. The expense was due to really the sharp appreciation in the share price, and the speed of that appreciation. In just one quarter, there was a significant appreciation. You have that basket of all the existing plans, which includes many years of outstanding units and plans, which were revalued all in one quarter, to mark to market with the updated share price. What this does is it resulted in an usually higher expense in just one quarter, and resulted in year-over-year, CAD 9 million headwind to both business units.
Okay. Should we think about, if we look at the magnitude of change between, I guess, the end of March and the end of June, that CAD 9 million would be the sensitivity based on the change in stock price. Should we just be starting to bake that into your SG&A comp? Is that the right way to think about it?
There's various variables to that compensation, Share price is one of them. That's not the only one, I don't think that would be an absolutely best measure. While it would be indicative, I don't think you can do just a straight up regression on that.
Okay, fair enough. Marc, maybe another question, a little more longer term strategically. Boeing came out towards the end of July and talked about the fact that it wanted to make a significant move into developing its own avionics suite, and as part of that, driving more aftermarket. One of the things certainly that's always been great, Boeing's been at times a competitor, at times a customer, at times a supplier. It's always interesting to see how this one evolves, but do you foresee any longer term impacts from their decision to essentially take over the cockpit, in its entirety?
No, I think the impact would, if any, would be more towards the manufacturer of those type of equipment.
Yeah, I guess I'm just thinking about does that give them a leg up in future simulator design or avionics or almost shut you out of markets as they design their own stuff, as they try to build more aftermarket support and services?
No, I wouldn't think so. I mean, look, the fact as you mentioned is Boeing is both a competitor and a partner, and we are a very good supplier. For example, we provide all of the simulators for them for the P-8 Poseidon aircraft, which is a militarized 737. No, I don't see that dynamic changing long term.
Okay, great. Thank you folks.
Thank you. Operator, we'll conclude the Q&A session for investors at this point. If there are any other participants on the line who have more questions, I'll be available after the call. At this point, I would like to open the line to members of the media, should there be any questions there.
Thank you once again, ladies and gentlemen. As a reminder, to register for a question, please press the one followed by the four. Our next question comes from the line of Peter Dijkmeyer with IHS Markit. You may proceed with your question.
Yes, good afternoon. I'm wondering if we could drill down a bit into the defense items. In particular, I'm wondering about if we could get an update on what's happening on your naval training facility that you guys are setting up, I believe, in Qatar, and whether or not you see that as a platform to develop further opportunities in the naval sector, and whether this is a material thing that we should be thinking about when looking at your overall defense numbers going forward.
I think we've made no secret that I think we have capabilities beyond air. I think it is an important contract that we had with the Qatar Navy. It builds on a contract that we delivered last year for the Swedish Navy. Yeah, we are bidding to provide training capacity, both in the equipment and in services to navies around the world, because we see it as a good market. For example, here in Canada, the Canadian military is going to be upgrading its fleets over the next few years. I think clearly we would want to put ourselves forward. By the way, I think you had a mistake, and I repeat it's not Qatar, it's the UAE Navy.
Pardon me.
Yeah. I think naval, it's in our portfolio, and it's something that we definitely have capabilities that just carry over from our air experience, both in products and services. I think we provide a lot of value, and that's what we were able to bring forward for the Navy in the UAE, and I think that'll continue going forward.
How is that going in the UAE? What stage are we at right now? Is that center operational?
No, we just won the contract recently. We're in the startup phases. One of the programs that Sonya talked about with regards we're in the heavy R&D phase right now.
Okay. Thank you.
Operator, if there are no more questions from members of the media, we'll conclude the call at this point. I want to thank all participants, investors, and media for taking the time to be with us this afternoon. I'd remind you that a transcript of today's call is available on CAE's website at cae.com.
Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.