L3Harris Technologies, Inc. (LHX) Earnings Call Transcript & Summary

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

Good morning, everyone, and thank you for joining us. Before we begin, I'd like to remind you that this morning's remarks contain forward-looking statements, including, without limitation, as it relates to our proposed acquisition of the L3Harris Technologies Military Training business as well as certain expectations with respect to the same. These forward-looking statements represent our expectations as of today, March 1, 2021, 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. Please refer to Slides 1 through 3 of our investor presentation, which can be downloaded on our website for a detailed description of the cautions and risk factors pertaining to the proposed acquisition and related forward-looking statements. On the call with me this morning are Marc Parent, CAE's President and Chief Executive Officer; Sonya Branco, our Chief Financial Officer; and Dan Gelston, Group President, Defense & Security. After remarks from Marc and Sonya, we'll take questions from financial analysts and institutional investors. And following the conclusion of that Q&A period, we'll open the call to questions from members of the media. Please link to the investor presentation that we have prepared for your reference. You may wish to use it to follow along with the remarks. It's available on the Investors section of CAE's website or by clicking the link in this morning's press release. Let me now turn the call over to Marc.

Thanks, Andrew. And thank you to everyone for joining us on short notice for this morning's call. It's an exciting day here at CAE. This morning, we announced that we've concluded a definitive agreement to acquire L3Harris Technologies Military training business for USD 1.05 billion. This transaction is the logical next step for CAE, as we expand our core military training business in the United States, add breadth and expertise in mission and operational support, and significantly broaden our position in training and simulation across multi-domain operations. The proposed acquisition represents a unique opportunity for us to accelerate our defense and security growth strategy and effectively double the size of our U.S. defense credits. We've known L3Harris Military Training intimately for decades. And to say the least, we're extremely pleased to now have the opportunity to add this world-class business to ours. It's highly complementary to our existing core military training business, and it will significantly broaden our presence in the United States. And related, it further enhances the alignment of our defense business with the priorities defined by the U.S. National Defense strategy. The acquisition will give us new customers, valuable experience on new platforms and a broader expertise that we'll use to address all 5 operational domains: space, air, land, sea and cyber with our training and operational support solutions. With this acquisition, we also gained a talented workforce and the benefit of highly complementary cultures with a mutual focus on innovation at the very frontier of digital immersion. Sonya will review the financial highlights in detail. But at a high level, we expect to realize significant cost synergies with the acquisition and to achieve low teens percentage accretion to earnings per share in the first full year post-closing. Now a little bit more about the business. L3Harris Military Training is headquartered in Arlington, Texas, with more than 1,600 employees, approximately 80% of whom possess secret clearances or higher. And much like CAE, they are a leading full-service training provider with comprehensive training solutions across multiple domains. They're a leader in live and virtual aircrew training with, for example, Doss Aviation as the sole provider of initial flight training services to the United States Air Force. In the realm of fighter jets, they provide nearly all F-16 simulators currently in use and 100% of the high-fidelity F/A-18 simulators for the United States Navy. These are enduring platforms essential not just to the U.S., but for international allies as well. In Rotary wing, they're a leader in advanced helicopter training systems and their capabilities and platform experience are an excellent complement with our own. In that domain, they're one of the training system partners for the United States Army's Flight School XXI, which is the largest helicopter simulation program in the world, training 1,200 new student pilots a year. L3Harris military training also brings a wealth of experience, providing training systems for bomber aircraft, including as the prime contractor on the B-2 Training System for the U.S. Air Force's iconic Stealth Bomber. A big part of what underlies our decision to take this action now involves CAE's reinvigorated defense growth strategy, which centers on aligning our business more closely with the priorities associated with the national defense strategy in the United States. The global threat environment has shifted materially from asymmetric warfare, specifically counterterrorism involving non-state actors, to near peer threat. This brings with it the added complexities of having to plan and train for scenarios that involve the integration of multiple domains at once, which is something that's generally either too costly or just not feasible to do outside of a virtual environment. This paradigm shift, combined with highly focused defense budget priorities that are driving a greater move from live to virtual training, mean that we'll see an increasing demand for simulation-based training and the use of synthetic environments across multi-domain operations. This has created significant opportunity for CAE in the United States and around the world as NATO and Allied Nations also adapt to these new realities. The acquisition of the L3Harris Military Training business brings scale, capability and a breadth of experience that supports our strategy and further positions CAE as a leader in providing digitally immersive solutions for training and operational support. With it, we solidify our position in air domain, we augment our position in land and sea. And critically, we further strengthened our ability to provide solutions involving multi-domain operations. The acquisition also gives us a leg up on our imperative to develop strategic partnerships on next-generation platforms with a potential tie into NGAD, or the Next Generation Air Dominance, fighter and the B-21 bomber. The high clearance level of our combined workforce will be a key enabler to positioning on such strategic next-generation platforms. The combination of capabilities and program incumbency between CAE and L3Harris Military Training means that we have an even broader scope for teaming opportunities. And the access we gained to Department of Defense Labs and DARPA should enable us to expand our addressable market. L3Harris Military Training's position on ground-based strategic deterrent and the Air Force's SCARS program, or Simulator Common Architecture Requirements and Standards, provide a very good entry point for us in the space and cyber domain. And lastly, we have a strategic imperative to target larger opportunities, and the acquisition serves to significantly augment the comprehensiveness of our offering for major programs. The acquisition of L3Harris Military Training brings additional balance between CAE's major end markets. And from a geographic standpoint, it gives us more exposure to the United States. There's also a high degree of complementarity in critical domains between our combined entities. CAE has extensive training solutions experience on platforms involving rotary wing and aeromobility aircraft and the addition of L3Harris' Military Training business brings significant experience in the development and delivery of training systems for fighter and bomber aircraft, armory, rotary wing platforms, submarine, and remotely piloted aircraft. As an example, CAE is a provider of fixed-wing and advanced helicopter flight training to the U.S. Army. And as previously mentioned, Doss Aviation expands CAE's live flight training portfolio as a provider of initial flight training to the U.S. Air Force. In summary, L3Harris Military Training is an excellent complement for CAE's Defense & Security in terms of platforms, capabilities and programmed death. With that, I'll now turn the call over to Sonya to take us through the transaction summary.

Thanks, Marc. I'll go through some of the key financial highlights of the transaction, including our capital structure to fund the deal, and then I'll talk a bit about our capital allocation priorities and how this transaction aligns well with them. The transaction is based on an agreed purchase price of USD 1.05 billion, which represents approximately 10x estimated adjusted 2020 EBITDA of the L3Harris Military Training business. Taking into consideration our estimate of annual run rate cost synergies in the order of $35 million to $45 million, the multiple before synergies is about 13.5x. The transaction is also expected to be immediately accretive to the defense and security operating profit and EBITDA margins on operational efficiencies. With revenues of approximately USD 500 million, L3Harris Military Training brings both scale and capabilities to CAE. We expect the acquisition to be low-teens percentage accretive to EPS in the first full year post-closing. And I would note that we also expect growth from new business opportunities arising from the broadened scope and capabilities the acquisition is expected to provide us, which would naturally be incremental. The cornerstone of the funding for the transaction involves USD 550 million private placement investment by way of subscription receipts with the Caisse de dépôt et placement du Québec, a Canada-based global institutional investor, and by GIC Private Limited, one of the world's largest sovereign wealth funds with an established global network. We are extremely pleased to expand our existing relationships with these 2 key CAE shareholders, and we are especially grateful for their work to evaluate CAE's investment thesis and the merits of this highly significant transaction. While the private placements and other currently available liquidities provide sufficient funds to close the acquisition, we may, subject to market and other conditions, also opportunistically undertake the issuance of additional equity and/or debt financing. With this transaction and funding profile, we continue to have an investment-grade profile and the capacity to consider our pipeline of future potential growth investment opportunities. As for closing of the transaction, we anticipate being able to do so in the second half of calendar 2021, subject to the customary regulatory approvals. As I mentioned, we're expecting significant cost synergies to reach a range of $35 million to $45 million annually by the end of the second year following closing of the acquisition, and we expect those synergies to come from 3 main areas, including cost reductions from asset optimization, efficiencies in production costs and supply chain and by rationalizing stand-alone functional support costs. We estimate onetime costs approximately equal to 1 year savings in order to achieve these synergies. And again, our valuation assumptions do not include the significant upside potential we expect in terms of the combined entity having a bigger addressable market in areas involving multi-domain operations and the larger opportunities pipeline this presents. I'm quite proud of our track record at CAE of successfully executing and integrating acquisitions. And in the case of L3Harris’ Military Training, our company's largest ever acquisition, I take confidence in our intimate understanding of the business and its operations and our focus on executing our detailed integration road map. Our capital allocations continue to be primarily focused on investing in superior and sustainable growth opportunities, balanced with maintaining a strong financial position. We invest organically to expand capacity to serve our customers' growing needs, to maintain our competitive position through technological innovation and to expand our aperture to pursue a greater addressable market. We also invest to pursue customer outsourcing, and we make acquisitions when we see opportunities to enhance CAE's global offering and, again, increase market addressability. In the current period of major market disruption, we have seen a greater potential for CAE to seize on such opportunities that would bolster CAE's ability to better serve our markets and to position the company to emerge from the current period in a position of even greater strength. We've had a great success acquiring and integrating several businesses to help support our overall growth efforts. These have included the 3 bolt-on acquisitions we've concluded since last November in the civil aviation market. FSC and TRU Simulation + Training Canada come under the category of capacity holders, but we saw value-based opportunities to expand our ability to address our customers' training and support solution needs in commercial aviation. The third company, merlot.aero, based in New Zealand, is a highly innovative software solutions company that gives us additional capabilities to expand our addressable market and address our customers' needs, recruit management and optimization solutions. All 3 represent excellent opportunities for CAE and align very closely with our strategic priorities in civil, and we continue to cultivate a pipeline of potential opportunities involving our customer outsourcing, capacity holders and new capabilities. With that, I will turn the call back over to Marc.

Thanks, Sonya. The acquisition of L3Harris’ Military Training demonstrates our continued focus on bolstering expanding our positions in the markets that we serve. In March, another logical step on the path that we've been on to make accretive growth investments with the goal of ensuring that we emerge from the current period of market disruption strongly and well prepared to meet the growing demands of our customers. Defense market fundamentals support growth and growth of adoption of virtual-based training and mission rehearsal solutions and the need for synthetic environments to prepare defense forces for the complexities of multi-domain operations. The acquisition is highly complementary and strategic and gives us an even stronger platform upon which to accelerate our defense growth strategy. L3Harris’ Military Training brings highly complementary capabilities and technologies, and we expect the transaction to further bolster CAE's position as a platform-agnostic training systems integrator by solidifying our training simulation leadership in the air domain, complementing our land and naval training solutions and enhancing our training and simulation capabilities in space and cyber. We know the business well. We have a clear plan for cost synergies that we believe we can achieve, and we have a detailed road map for integration. I'm also highly encouraged by the potential I see in combining these 2 great entities and what we can bring to bear in terms of additional capabilities and even more comprehensive solutions with the goal of enhancing growth in the defense and security market. In summary, this is a great opportunity for significant value creation for all CAE stakeholders. With that, Sonya, Dan, Andrew and I are ready to take your questions.

Operator, we would be happy please to take questions from analysts and institutional investors. [Operator Instructions]

[Operator Instructions] Our first question comes from the line of Kevin Chiang with CIBC.

I guess, for my one question. I want to congrats on this announcement this morning. When I look at the margin profile of the acquired assets versus your own legacy defense business, it seems like you see a line of path to roughly 20% EBITDA margin, including the synergies that compares relative to what I'll say is like a 12% to 13% EBITDA margin within your legacy defense. So I'm wondering as you bolster these -- as you bolt these 2 together, what opportunities do you see improving the legacy margin profile? And I saw the synergies you've highlighted. Just wondering how you see the revenue opportunities there? How does this help your legacy business improve profitability, which I know has been a focus of the organization as well?

Well, I think I'll start it off and maybe Sonya can just pick up. Look, I think we're very happy with the profitability profile of business that we're acquiring and definitely it's accretive to D&S' margins. And if you look at the difference between it, first of all, with their business, in this context with pandemic, because they're largely based in the United States, a large -- the bulk of the business comes to the United States, it's been less affected by the disruption associated with travel restrictions, for example, which has affected us. So that immediately is something that's beneficial. The other side is -- but the product services mix is very different. I mean we've enhanced our services profile in the last few years. Inherently, that provides growth at lower margins. The profile of L3Harris is more skewed by 80% products versus services. And the last thing I would point out is the fact that the majority of their business is conducted in the secret, top secret realm. And most of the -- in fact, the great majority of employees are clear to the highest security levels, which means their programs tend to be a lot more sticky, a lot of incumbency for a long time, and that leads to a better margin profile as well. So for all those combinations, those reasons, that's why definitely that will be accretive to our margins overall almost immediately. Do you want to add anything, Sonya?

Well, I think very compelling from a financial business, first and foremost, strategic acquisition and really accelerates our strategy, our growth strategy on the D&S side. I think, I believe, compelling accretion with low teens on EPS. And as Marc mentioned, immediately accretive on EBIT and EBITDA margin coming from the mix profile of the acquisition, Marc just spoke to it, a higher level of product mix on enduring platforms and a higher proportion of higher clearance work, which typically drives higher margin. Now that will contribute to our margin immediately. And then it's further accelerated by the synergies that we see. And the synergies are compelling because of the compatibility and the complementary of this business. And it really speaks to the uniqueness of the opportunity and the strategic and operational fit within CAE. So this isn't simply a play on SG&A and so on. There are multiple layers that will work on the synergies for both combined entities, starting with scale, natural benefits of bustling our scale in the U.S., optimizing our footprint, procurement strategy and really kind of some of the vertical integration that we can leverage on CAE. So this is value to CAE customer -- on our customers, will drive EBITDA margins and we believe that there's even upside value here from all the incremental business opportunities from expanded scope capabilities that we have not included in the numbers and will drive even further.

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

Just maybe just a question on your best estimate for what pro forma leverage will look like for CAE once this deal closes. And I guess associated with that, I mean, what's your, I guess, comfort level or ability to continue to do additional acquisitions to deploy into any sort of opportunities in the civil side, which may come up in the next 12 to 18 months?

I could just kick it off with the latter part there, Cameron. If you look at the way we finance this, we financed this in such a way to give us maximum flexibility and is by no means going to affect negatively our ability to continue to pursue opportunities that we might see in the market. We're still going to carry on with our goal of making sure that we take opportunities of the current period to make sure that we come out of this pandemic period stronger and more, being able to provide even better products and service for our customers and value to shareholders. But maybe for the first part, I'll turn it over to you, Sonya?

Yes, absolutely. So first of all, I am quite pleased to have deepened our relationship with CDPQ and GIC by way of the private placements. These are 2 very sophisticated, long-term investors and appreciate the load of confidence on the transaction and the strategy. And one of the reasons that we chose the funding this way was really to maximize the financial flexibility, optimize the financing for this transaction, of course, but ensuring the maximum financial flexibility and provide the capacity to continue to invest in our accretive growth opportunities. So we've been proactive, as we've seen in recent quarters, to seize on opportunities arising from all of this disruption in the market, and we will continue to cultivate that pipeline, and all as part of the long-term strategy to better serve our customers and markets and to emerge from this period even stronger. And as we've laid out on our capital allocation priorities, we balance that investment with a sound financial position, prudent balance sheet management. And ultimately, this funding strategy is consistent with our investment-grade profile, while allowing for maximum flexibility.

And our next question comes from the line of Doug Taylor with Canaccord Genuity.

I'll echo the congratulations on the transaction. I'm wondering if you could speak through the regulatory hurdles required to close this deal in a little bit more detail. I know you've got a privileged position with the U.S. Defense apparatus already. But do you see any specific regulatory hurdles, in particular, as obstacles, closing this transaction?

No, Doug, we don't. Look, we've -- you could imagine that we've looked at that point in some detail before embarking a program of this size. But no, we don't see it. And maybe just to add a little bit of color on the situation in the United States, maybe just I'll turn it over to Dan Gelston, who is the leader of the business, to just talk about that part specifically. Dan?

Certainly. Thanks, Marc. Doug, yes, we've looked at this for the past few months, actually. And obviously, I have to make it through the Council on Foreign Investment in the U.S., CFIUS, as well as Antitrust and then DCSA, which will specifically look at the security requirements. They're a "foreign parent" acquiring a U.S. subsidiary that does classified business within the United States. We don't see any major issues here. Let me take on the Antitrust first. The top 5 companies in our markets account for a little less than 30% of the overall market. And in the United States, even post close, we are still second in this top 5 ranking against one of the major OEMs and less than 10% of the overall market share. So we don't see a major issue with Antitrust. When it comes to the classified nature, what is referred to as FOCI Mitigation, we have something called a Special Security Agreement in place, or an SSA, much like a BAE Systems. We've been able to score a superior rating, the highest rating possible, for the last half decade in our yearly DCSA audits. And a real highlight is last year, we won the Cogswell award, which means we're top 1% of over 13,000 classified programs at companies in the United States. So based on the superior rating and particularly the Cogswell award and having an SSA Board chaired by General Doug Brown, former commander of Special Operations Command, we're highly confident that we'll be able to move through the regulatory process without major obstacles.

I think it's fair to say, Dan, that in the United States, we are seen the same level as a U.S. company, right?

That is correct. With the FOCI Mitigation in place and the Special Security Agreement, there is no difference between us and a U.S. Defense contractor.

We now have a question from the line of Fadi Chamoun with BMO Capital Markets.

Okay. Maybe just for the question, is there a backlog coming with this business? If you can disclose what that backlog? The second, on the kind of growth opportunity here, like you talked about how it gives you more kind of a market to compete in the U.S. and the opportunity that you see in that virtual -- the move from live training to virtual training, and now you've got broader and more capabilities. We've traditionally saw that this business being kind of mid-to-high single digit maybe revenue growth over the medium term. Is that still the right way to think about this business? Is there an opportunity for that to be a little bit stronger in the next 3 to 5 years as a result of the added capabilities?

I mean, I'll kick it off, Fadi. Look, this definitely is a nicely -- it's a nicely growth business. I won't get ahead of myself too much right now. But for sure, it's in line with the growth profile that we've talked about before. Maybe just a bit of background to your question of backlog. Basically, go back to the rationale for this deal. I think it's important to note that it was a very highly competitive deal. We moved quickly and precisely to secure it, and we secured because, as we talked about, that's a highly strategic priority that has exactly the right products, the right services and, very important, at the right time. And with the addition of Dan Gelston, as our defense leader with the right leader in place and the right team. And I'll be -- we haven't done much in defense. And I've been very, very picky of what we buy in defense. And we've been patient waiting for the right one. And obviously, we're -- I'm responsible to deploy capital correctly for shareholders. So we -- you can imagine we run this through very strict standards. When I look at a deal like this, what I insist, like in any deal, is that before we move forward, really, what I want to see is visibility, predictability and profitability. And if you look at U.S. Defense budget, because what's important here is, well, one of the things that's very important is we're doubling the size of our military business in the United States. And the U.S. Defense budgets are very highly visible. The government publishes their budget every year. It's in their plan for the next several years ahead. The Defense customer tells you years ahead through their national defense priorities what they're going to be looking in products and services, the capabilities that they need. So to me, that's excellent visibility. There is no better visibility. And the military training budgets, they don't go up and down every year. They're not as volatile. They're not responsive to economic swings, like a lot of other markets. So to me, the defense training market is very appealing because it's very predictable. And lastly, the customer in the United States specifically is very fair, is transparent. And when you perform to their rigorous standards, and we have as testimony by some of the awards we've had, including the ones that Dan was referring to us receiving a Cogswell award, if you perform you -- and of course, we perform because that's our standards that we demand of ourselves, you can deliver profitability. And it's for this reason that I am very confident the deal is very good for our customers, good for the brave men and women in uniform and it gets us to the world-class standards -- delivering world-class standards. And the deal is very good for our shareholders. What I'd tell you with regards to the backlog is they have incumbency, very long incumbency on pretty much every program that we talked about in our remarks. That's really what it should look like in terms of thinking about a backlog profile. Anything, Sonya, you would like to add? No?

No, you've covered all, Marc.

And our next question comes from the line of Konark Gupta with Scotia Capital.

Congrats on the deal. So maybe if I missed, did you suggest what percentage of your targeted synergies are embedded in the low-teen percent EPS accretion in year 1? And then my question is, can you talk about the non-U.S. revenue exposure for L3Harris’ business you're acquiring, and any platforms you can give examples for?

Maybe to just start, Dan, do you want to answer the question with regard to the international business profile of L3Harris?

Certainly. The revenue profile, as it stands now, is 83% U.S., 17% international, with the majority of that international actually FMS programs, foreign military sales programs. They're on platforms that Marc has touched on, particularly international support of the F-16 as well as international support of things like remotely piloted aircraft. So we're very excited about this going forward. Revenue synergy as L3Harris’ really does not have a significant international footprint where CAE does, the ability to access a rather large infrastructure around the world with hundreds of personnel in the U.K., hundreds in Europe, hundreds in Middle East, hundreds in Asia, for instance, really will give us an ability to bring their products and services to the world.

Thanks, Dan. And if -- I'll address your other question, Konark. So as you see like very compelling financials, immediately accretive to EPS and that double-digit EPS in the first year post-closing includes synergies. Now, not the full run rate because we will still be ramping up. And as I said in my remarks, it takes about 2 years to get to that $35 million to $45 million of run rate synergies. So I would encourage you to think about that over the 24 months, but the low teens accretion will include some of those synergies, but not in the full ramp-up. So good opportunity to keep ramping up on the growth side. I'll also add that it's accretive to free cash flow with strong and stable free cash flow dynamics as we see usually in the defense business with backlog and contracts. And that will just add on to CAE's cash-generative operating profile and ultimately contributes also to the strengthening of the return on capital profile for CAE's pathway to double-digit returns. So a bit of an impact on -- from intangibles in the near term, but strong EPS accretion and frankly, even stronger cash EPS accretion will contribute to the positive trajectory on returns.

Our next question comes from the line of Jean-Francois Lavoie with Desjardins.

Yes. Congrats for the acquisition. We talked a lot about the degree of complementarity with your training business in this acquisition. So I'm sorry, if I missed it, but I was wondering if you could quantify the impact that this transaction could have on your defense total addressable market? And what would be the market share that you're aiming to capture with these 2 business together in the mid-to-long term?

Okay. Maybe I'll just kick it off and hand it over to Dan. But I think that really, when you look at the size of what we're doing here, we're doubling our defense business in the United States. And that gives us a very strong critical mass and, of course, the largest defense market in the world. So that in itself is very exciting in terms of growth potential. But really, what it does as well, because of the complementary nature of the products and services that CAE does and L3Harris does, just as an example, we're a leader in the cargo, aircraft, transport aircraft and tankers; they are a leader in terms of bombers and fighters. So just using that example, we cover pretty much all the platforms in the United States Air Force. On the Navy, for example, we have -- both have mutual capabilities on surface ships and they bring to us a subservice -- a submarine capability, just a couple of examples. So really, when you look at the size of the critical mass that we have, there's no exaggeration here that there is no program in the United States or opportunity that we can't go after. We can go after the largest programs and shaping solutions for a defense customer. And this is a great solution for the United States Defense Department. It's going to bring huge capabilities to them. Dan, do you want to pick that up?

Yes. That's spot on, Marc, incredibly complementary and, in particular, giving us critical mass at the magical $1 billion yearly revenue number to take on major opportunities, major training, systems integrator opportunities in the United States. The overall DoD training and simulation budget is approximately $14 billion, $14.5 billion a year. And we see that remaining steady even with the potential decrease in the overall budget due to that paradigm shift in strategy that Marc mentioned earlier on. Post -- immediate close, we expect ourselves to be #2 in the market of the top 5, as I said. The top 5 taking up about 30% of the overall market share, still a little less than 10% or 9%. The #1 major OEM is at 13%. Obviously, we have some very aggressive revenue synergy targets over the next 4 years. And while I can't predict the future, I certainly don't like being #2, I'd prefer to be #1. So I guess I could leave it at that.

And congrats again for the transaction.

Thank you.

Thank you.

And we now have a question from the line of Tim James with TD Securities.

Congratulations on what looks like a great partnership here. I just wanted to ask a quick question again on the margin profile, thinking about the 2 businesses. And I apologize if you already touched on this. I know there was a question earlier about the margins. But I'm just wondering if the L3Harris business was impacted negatively last year in terms of its margin profile, the way CAE's was, due really to the disruption from the pandemic?

I can start there. A bit, but not as much as us, for the reason I talked about because of the fact that largely -- the great majority of their business is in the United States itself. Obviously, not affected as much to the extent that we are, by travel restrictions, border closures, that kind of thing. The fact that the products and services mix is highly geared, about 80% of products, which inherently have higher margins. And the fact that their business is largely classified programs and they have clear personnel working on those programs. So yes, some effect, for sure, but not nowhere near as much as us because for the reasons that I talked about. And I think a key to the question maybe as well as synergies. And maybe just touch on it picking up on the last question there in terms of us getting those synergies. As Dan said, there's a lot of synergies there. But I think what's important, we're very confident in achieving those synergies. And the reason for that, number one, is we're buying a business that's squarely in our core. We have a very experienced team. This is why this is the right time to do this and perhaps not an accident that we have Dan Gelston at the helm, who has a very successful track record on achieving acquisitions of this size, integration of businesses of this size and in the United States in SSA, special security agreement, businesses like us. So we're very confident in our ability to successfully integrate this business and get those margins. And as well, we're basically -- we're getting employees, again, that their core is training. And now their -- the business that they're joining right from the CEO down talks training every single day. So the cultures are hugely aligned. When you put those 2 together, I see really nice things about margins, and I see very nice things about growth. So to that point, I very much look forward to welcoming the L3Harris’ team to CAE.

Thank you. And there appears to be no further questions from the analysts at this time, Mr. Arnovitz.

Okay, operator. We'll now use the time remaining and open the call to members of the media. Yes. Operator, I think that that's all the time we have for this morning. In any event, I want to thank all participants for joining us this morning on the call, especially on such a short notice. And I would remind you that a copy of the discussion, the transcript can be found on CAE's website as well as the accompanying presentation.

Thank you. And that does conclude the conference call for today. We thank you all for your participation, and ask that you please disconnect your lines. Thank you once again. Have a great day, everyone.