Kevin Chiang • CIBC World Markets

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Interim CFO Constantino Malatesta confirmed that CAE still expects total CapEx to be modestly lower year-over-year, reflecting a disciplined approach to spending. Regarding working capital, he stated that while Q1 saw a typical seasonal investment, the company is aiming for a more neutral working capital impact for the full year and remains on track for its 150% free cash flow conversion target.

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President and CEO Marc Parent stated that the company is taking a measured approach due to a cautious tone from airlines and some recent softness, expecting a stronger second half. He confirmed training demand remains resilient but simulator deliveries will be lower in H1. COO Nick Leontidis added that while pilot hiring is improving, it hasn't returned to prior year levels, and lopsided aircraft deliveries from OEMs have created temporary slack in the training system.

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CEO Marc Parent and COO Nick Leontidis characterized the Flexjet order as 'extremely positive,' confirming it will necessitate investment in new simulator capacity which is justified by a newly reset 15-year exclusive training agreement. Regarding defense spending, Mr. Parent stated that CAE's business is driven by military readiness needs, not overall budget levels, and that long-term contracts provide significant stability against short-term political shifts.

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CEO Marc Parent stated that while cost savings will benefit the bottom line, he would not update long-term guidance at this time. CFO Sonya Branco clarified that legacy contract revenue is not disclosed but their dilutive impact was 0.2% in the quarter. She confirmed the FAcT program is 'highly accretive' and aligns with the company's target margin profile for new Defense business.

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Executive VP & CFO Luke Pelosi explained that current EPR outperformance is due to transitional volumes, allowing a faster ramp to the target EBITDA, while Founder, Chairman, President & CEO Patrick Dovigi noted future upside opportunities remain. Pelosi also confirmed that the corporate function is built out, and the company expects to drive meaningful operating leverage on that cost line as revenue grows.

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Executive Luke Pelosi clarified that the EPR volume benefit will not be perfectly ratable but will provide tailwinds throughout the year. While declining to update full-year guidance until Q2, he acknowledged the strong start positions the company to potentially exceed its previous guidance range, though he cautioned that FX remains a headwind.

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Executive Luke Pelosi explained that H1 2025 margins benefit significantly from the Michigan divestiture, which adds about 65 basis points in Q1, offsetting seasonal weakness. He also noted that commodity price comps are actually a slight lift in Q1 year-over-year. Regarding U.S. growth, Pelosi highlighted that U.S. volumes increased 360 basis points sequentially from Q3 to Q4, driven by the anniversary of volume shedding initiatives and strong participation in hurricane cleanup efforts.

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CFO Luke Pelosi explained that the Canadian solid waste business had more room for price improvement and is benefiting from new recycling and EPR investments. In contrast, the U.S. business has seen more intentional volume shedding from acquired contracts. CEO Patrick Dovigi clarified that a sale of the ES segment would be for the entire portfolio 'on block,' with the minor potential exception of the soil remediation business.

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CFO David Saperstein confirmed that while costs are being taken out, the company is also strategically investing in service, such as staffing appropriately to reduce missed pickups. He clarified that the Q3 guidance assumes normal seasonality applied to the current operational run-rate, meaning any further gains from self-help initiatives would be additive to that forecast.

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Executive Alain Bedard responded that reaching that EPS level will take time, as TForce Freight remains a significant drag on performance due to persistently low volumes. He highlighted the TForce Freight segment's $30 million year-over-year decline in Q4 operating income as an example of the scale of the challenge, indicating that a substantial amount of work is still required before that earnings level can be achieved.

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CEO Alain Bedard attributed the P&C improvement to new leadership correcting earlier missteps, with a focus on cost control in a competitive market. He strongly agreed that the compensation structure for the U.S. LTL sales team and terminal managers will likely be reviewed and updated in 2025 to better align incentives with the critical mission of increasing freight per stop and improving service metrics.

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EVP & CMO John Brooks stated that CPKC's auto franchise is in a good position with production facilities running and low inventories supporting volumes. He highlighted the 6,000 acres of available land across the network for development and co-location, which the company is actively marketing to OEMs and supportive industries to facilitate potential supply chain shifts.

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EVP and CMO John Brooks noted that, counterintuitively, the recent tariff uncertainty has caused a narrowing of differentials as U.S. customers explore alternatives. He also mentioned that this environment has spurred new opportunities for rail movements from Canada directly to Mexico. He concluded that the market has been slightly hurt by the uncertainty, and the company will adapt its strategy once the final tariff structures are clear.

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EVP and CFO Devina Rankin explained the yield variance was due to business mix, particularly weather-related weakness in temporary industrial roll-off, though trends improved in March and April. Executive Rafael Carrasco clarified that the healthcare revenue decline was primarily from the divestiture of Spain and Portugal operations, noting the core regulated medical waste business volumes were actually up slightly.

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Rafael Carrasco, head of WM Healthcare Solutions, stated they are still assessing the customer overlap but see a large opportunity, similar to their successful National Accounts business. EVP and COO John Morris clarified that residential shedding can be lumpy but the 3-3.5% annual rate is expected to continue. President and CEO Jim Fish added that this is achieved by re-bidding unprofitable contracts at acceptable margins upon renewal, not by terminating them.

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EVP & CFO Devina Rankin described the Canadian review as a typical process and expressed confidence in receiving clearance in Q4. EVP & COO John Morris addressed maintenance costs, explaining that while new automated trucks are individually more complex, they drive down the total cost of operation per unit, which is the key metric. He noted a 40 basis point improvement in M&R costs in the quarter, aided by more consistent truck deliveries.

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CFO Brian DelGhiaccio reiterated the long-term annual margin expansion target for Environmental Solutions of 75-100 basis points. CEO Jon Vander Ark stated that tariffs would have a minimal impact in 2025, with 2026 being 'TBD.' He noted they are proactively working with suppliers to specify and mitigate any potential tariff-related surcharges.

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CEO Jon Vander Ark stated the California regulatory changes have not slowed their EV deployment, which is driven by customer demand and incentives. He also noted no direct impact from immigration policy on their workforce and sees mortgage rates, not labor supply, as the primary driver for the construction market.

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CEO Jon Vander Ark explained that while the M&A commitment is strong, the timing has an ebb and flow, with the full-year total likely closer to $300 million versus the initial $500 million outlook. He expressed confidence in the EV strategy, highlighting the importance of system-wide planning (infrastructure, incentives) and the game-changing nature of the new Oshkosh vehicle that meets productivity requirements without sacrificing payload.

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