So basically, the cost will be what the cost will be. So yes, I think we are basically — we’re impacted by the same thing that a lot of our legacy peers are across the industry, and I think we’re taking the same kind of actions.
Anthony Valentini: As a follow-up there, Sonya, you had mentioned 200 basis basically like a drag from these challenged programs and then another 100 basis points of like the overhead absorption. So if I just kind of use those numbers, that implies something like a 7.5% margin, what’s remaining that’s going to drive this business to get to those double-digit percentages that you guys have historically talked about?
Sonya Branco: As I mentioned, it’s really the ramp-up of the new contracts that we’ve signed and especially those transformational ones. They’re large in size, accretive, and they will have a meaningful impact on the margin as they ramp up. They’re really nominal right now in terms of our revenues. And so as those ramp up, they’ll have a more meaningful impact.
Operator: Our next question comes from Jordan Leone [ph] with Bank of America.
Unidentified Analyst: So just hopefully, a final one on Defense margins. With the double-digit target, how confident are you in that time line being 2025 where you start to see that accretion from new contracts if we still continue to operate under a continuing resolution for this year? How much downside risk do you guys look at if we go through a sequestration?
Marc Parent: Let me just start it off. Look, again, as I said, what we’re talking about this quarter is no different than we’ve been talking about certainly in the previous quarter where we moved — we’ve already admitted moved things out. What we’re giving today is more precision, specific on these legacy contracts to give you an idea of what this represents by itself and also to give you a feeling that we’re quite confident in the core of this business. This is a strong business that we’re working through these legacy contracts. So if I try to maybe give you a little bit more color specific to the question, there continues to be two pieces here. The growth in the core business, which I feel is very strong and which is influenced by the ramp-up in the transformative new business that we’ve talked about the 20% growth in the backlog that we’ve had in the last couple of years.
At the same time, as the retirement of these legacy contracts, which drag against the overall margin. So we clearly see, as we said even before that there’s going to be an inflation where these two curves meet. And what we still predict is that’s going to happen in the latter half of next year. There’s no change there. But I think a — I think maybe we’re giving you a little bit more precision is actual drag impact in this quarter and introducing the fact that this isn’t going to be linear. There’s going to be variability because of the specific actions that we are taking to retire risk or depending on the timing of the requirement at risk. And our efforts to retire them as quick as possible is going to affect that. But the trend line driving inflection is — the one we’ve been talking to is very much intact.
Operator: Our next question comes from Fai Lee with Odlum Brown.
Fai Lee: Marc, your three year EPS compound gross rate target hasn’t changed from the mid-20% range. And I know you don’t really want to talk about the 2025 guidance since you haven’t provided it, but that target implies pretty strong growth next fiscal year. And I’m just wondering to get a sense of how you see that target right now in terms of whether it’s a stretch or do you think you’re pretty confident that you’ll achieve it. Can you just maybe comment around that?
Marc Parent: Well, look, I’m going to turn it over to Sonya and to answer that question, I think a little bit a while ago, but look, it’s going to — the bottom line is just — we’re not ready to give that guys right now. We give it at the same time we hear it’s going to be next quarter. But — and clearly, it’s going to be some dependency on the timing of the risk retirement defense and the pace of new programs are ramping up that when we actually sign these generation contracts such as the one fact that I talked about. At the same time, the outlook for Civil remains very robust. You just saw the order intake that we signed this quarter on top of 1.3 — over 1.3, up to 20% growth in our revenue. So I’ll let that be factored. Anything you want to add this on?
Sonya Branco: No, you covered it, and we’ll provide more insight in Q4 like we usually do.
Fai Lee: And just another question on the defense outlook, and it basically sounds like relative to your expectations and your outlook going forward, nothing really changed from the previous quarter, yet you’ve provided additional guidance. The market is reacting very negatively — or additional — sorry, information on the legacy contract market is reacting very negatively around that. What’s your thoughts around how the market is interpreting that additional information?
Marc Parent: Well, long ago stopped predicting that one. Obviously this run our business. And just — I know to repeat everything I said, but I feel very confident about that we have a business in Defense. I’ll just go with to the point. This is not a business that’s broken. This is a business that’s growing with contracts that are going to be accretive to the margin expectations we have. We have a lot of backlog. And my experience in all my career, the one thing you want to have is backlog because you have backlog — as long as your backlog is profitable and it is profitable. It’s profitable the aims that we have. We’re attacking very specific contracts here that are all very similar, although the contracts themselves are different, they all point to the same kind of thing, pre-covid, fixed firm price.
And we’re attacking with laser focus with dedicated tire teams, while at the same time not keep getting — keep our eye off the ball of the hundreds of other contracts that we executed defense at any given time, make sure we continue to execute those on plan, which we fully expect to do. So with all that, that basically forms my confidence in the defense business, albeit we are where we are.
Operator: There are no more questions at this time.
Andrew Arnovitz: Operator, thank you. Given that we’re on the hour, I’d like now to open the lines to members of the media should there be anyone with questions for Marc or Sonya.
Operator: [Operator Instructions] We have a question from Stephane Rolland from La Presse Canadienne.
Stephane Rolland: [Foreign Language]
Marc Parent: [Foreign Language]
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Marc Parent: [Foreign Language]
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Marc Parent: [Foreign Language]
Stephane Rolland: [Foreign Language]
Sonya Branco : [Foreign Language]
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Sonya Branco : [Foreign Language]
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Andrew Arnovitz: Operator, if that’s all the questions we have. I want to close the call here and thank all participants on today’s call and remind you that a transcript will be available shortly on CAE’s website [Foreign Language]
Operator: 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. Thank you.
