Q2 2022 Bombardier Inc Earnings Call
This conference is being recorded so it calls the homes that don't go as you see.
Please standby your meeting is about to begin good morning, ladies and gentlemen, and welcome to the Bon VAALCO <unk> second quarter 2022 earnings Conference call. Please be advised that this call is being recorded at this time I'd like to turn the discussion over to you Mr. Foster, especially the Loeffler Vice President S. P a day and invest.
Relations for bone Bouchie. Please go ahead, Mr. Vishay Leftish.
Good morning, everyone and welcome to all of these earnings call for the second quarter ended June 32022.
I wish to remind you that during the course of this call we may make projections or other forward looking statements regarding future events or the financial performance of the Corporation.
There are risks that actual events or results may differ materially from these statements.
For additional information on forward looking statements and underlying assumptions please refer to the MD&A.
I am making this cautionary statement on behalf of each speaker on this call.
With me today is our president and Chief Executive Officer.
And our executive Vice President and Chief Financial Officer, Bart Dymovsky to review, our operations and financial results for the second quarter 2022.
I would now like to turn over the discussion to ASIC.
Hello, Mr <unk>.
This bolus, who gave you at Tcf.
Good morning, everyone and I hope you're safe.
And rest of the summer.
Bombardier.
Certainly.
The second quarter.
We have been proactive in strengthening our balance sheet and accelerating our debt reduction.
We are executing our plan meeting our commitments and further demonstrated our industry leadership with the show stopping launch of the global 8000 business jet.
In parallel with strong demand for business aviation as carried through and our team has converted a portion of these two grew our backlog significantly.
If I can sum up our margin performance in the second quarter with a few words, they would be confidence predictability and resilience.
I'm also delighted to see our ability to execute our plan was externally recognized most notably with Moody's upgrading our credit rating.
I am, particularly proud of this achievement, especially when you look at how Bombardier is performing in the context of the current economy backdrop.
On today's call, we will indeed touch on the macroeconomic context as well as supply chain pressure, but I would first like to talk about our most significant performance indicators.
When I look at our solid performance on free cash flow.
Clearly demonstrated that we have set the right foundation to be a cash positive business and deliver on our commitments.
To date, we are raising full guidance on free cash flow.
Greater than $515 million.
I am proud to say that our ability to execute on our initiatives to grow margins and deleverage our key contributor to solidifying our overall position.
This past quarter saw us continue our margin expansion and reach in adjusted EBIT.
$201 million.
This is a 41% better year over year.
Our adjusted liquidity position also stand strong at $1 8 billion.
We've been well placed to talk to you, reducing our debt as well as proactively reducing the cost of our debt.
<unk> will cover our success on these two fronts in greater detail shortly.
I would like to pay the team for their tireless efforts on this front.
Turning now to demand and the market.
Q2 unique book to Bill of one eight and backlog increased to $14 7 billion really tells you a lot in terms of demand remaining at very healthy levels.
The backlog number itself is impressive.
He is also one of the Lps business aviation backlog, we have seen in terms of customer type mix when.
When we look at operational predictability that healthy backlog is where it starts but also gives us great confidence in raising our cash guidance as well as reconfirming delivery and earnings figures for the year.
Looking at industry metrics that shape the men they remain healthy across the board, we see co ceiling high flight powers very low used aircraft inventory with younger aircraft being scooped up very quickly and finally improved price.
<unk>.
In this quarter, when we've observed slowdown or stabilization in the regions.
We have turned our focus to other areas to continue driving the business.
Interest and utilization around the world come to you to outperform pre pandemic levels.
Demand for business Aviation continues to grow two new members of the flying public with every passing month of airport and flight schedule disruption business travel becomes a more appealing option.
Utilization is also continuing to accelerate our services revenue.
<unk> grew 22% versus Q2 last year generating a healthy $369 million of top line revenue, which totaled $1 6 billion for the quarter.
We see a steady and stable growth path for services as the major facility inspection come online the.
The first of which I was able to personally inaugurate, although last day of Q2 in Singapore, where we have quadrupled our footprint and now operates the largest OEM old service facility in the Asia Pacific region.
We are in the process of ramping up expansions in London.
England as well as Miami, Florida to has to this we will also inaugurated our Melbourne, Australia facility this year.
This worldwide expansion of our service facilities allows us to bring more of our jet home.
This is the most effective way to China are up quality OEM parts to our installed base of jets.
We have been executing on this journey for many years and have proven and has a proven track record.
Our goal to reach $2 billion in annual aftermarket revenue by 2025 is fully on track, we do face what I would call a cross win on supply chain.
With business indicators and demand still driving in a positive direction.
Supply chain pressure is contributing to keeping delivery ramp up at a conservative and steady space in light what are in line with our 2025 projections.
The key to managing these cross wins is maintaining agility and consistent execution.
As Bart and I have repeated we have built a plan that is not dependent on significant value upside as we needed to confidently and proactively deal with any macroeconomic fluctuation.
Our current product lineup beyond being exceptionally designed and reliable fits and the most stable categories.
Our results to date in 2022 as demonstrated that we can perform underscored by our stable deliveries expanding margins and exceptional cash generation.
That said dealing with supply chain pressure pressure is a new normal.
Having deployed additional personnel early on was a successful strategy.
Its continuously helps us identify risks.
This mindset and proactive approach started as early as 2020.
Right at the start of the pandemic, we secured many small to work packages that were at risk and brought them to our team.
Today, we are benefiting from that decision through production predictability and it has also helped create 500 new jobs within Bombardier.
Yes.
Over the last few months, we have been very active in continuing that approach and assessing where it makes sense to repatriate or consolidate smaller work packages or parts to ensure our production line can operate as efficiently as possible.
This is a testament to the skilled teams we have that can contribute to securing our deliveries while ensuring we take steps to keep any additional action, we take within our working budget for the year.
Overall, managing the supply chain pressure does require continuous focus and attention to date, we have been successful, but we'll come to you. The work very actively at various tier of suppliers.
In terms of burning down any risk, we will not hesitate to act when needed.
This is very different economies landscape the previous cycles like 2029 2009 for example.
With demand for business aviation remaining.
And production rates, having been largely reset we believe we are in a good place to have a LTE balance of pricing and demand going forward.
I can only emphasize again that we are taking a predictable approach focusing on the steady increase we have begun.
Key to this is having the right products as the market evolves and our product strategy is progressing fully to plan.
The challenge for 3500 aircrafts will begin deliveries through the back end of the third quarter and we have secured the <unk> certification during the second quarter. This program is well on track and customer are enjoying the aircrafts the elevated experience both from a cabin design perspective as well.
Well as the sustainable material options.
Our attention is turning to the global 8000 certification campaign, as we announced that ebay's, we as successfully tested the aircraft's beyond the phone barrier.
This helps pave the path to certify a maximum operating speed of Mach zero point, 94, which will make the global 8000, the fastest business jet on the market.
Combined with the platform's exceptional low speed handling it is truly it is truly full non compromise package.
Response from the market as nothing short of tremendous.
I am personally receive a lot of positive feedback on our strategy to offer the performance and instrument to global 7500 customers as retrofits.
All in all the reshape <unk> team delivered another solid quarter.
We stand well placed with services infrastructure expansion.
Well receive product roadmap and positive financial performance that is putting our debt reduction strategy ahead of flat.
On that note I will now turn the call over to Bart to go deeper into our financial performance and balance sheet.
Thank you, Eric and good morning, everyone Q.
Q2 has been another outstanding quarter for Bombardier our balance sheet continues to improve ahead of plan and we find ourselves in an even stronger financial position than when we started the year.
Our team remains focused on delivering our strategic plan.
And the benefits of executing on our strategies are becoming clearer with every quarter that goes by.
So let me begin by touching on some of the highlights.
First we delivered our fifth consecutive quarter of positive free cash flow with a $340 million results in Q2, bringing our year to date free cash flow generation to $514 million.
With demand indicators, such as flight hours and pre owned inventory levels remaining very strong we are in an excellent position entering the second half of the year and have raised our full year free cash flow guidance to greater than $515 million from our original guidance of greater than $50 million.
From a liquidity perspective, we ended the quarter with a strong.
Strong cash on hand balance of $1 4 billion.
Maintaining the same level of cash as at the end of March and Thats inclusive of the successful execution of our $350 million tender offer.
When combining our Q2 tender with actions taken earlier this year, we have reduced our debt by $773 million since the start of 2022.
Which will reduce cash interest by almost $60 million on an annualized basis.
Debt reduction remains our top priority.
We have clearly demonstrated in the first half of this year.
Our work so far leaves us with only $510 million of debt maturing in December 2024.
We will continue to be opportunistic in the debt markets and expect to allocate excess liquidity towards further debt repayment.
If we continue to look to deliver on our plan, we should see our credit metrics and ratings improve.
As was the case in July with Moody's rating upgrade into the <unk> category on our senior unsecured notes.
Operationally, we continue to build our backlog, which now stands at $14 7 billion, having grown $1 2 billion sequentially on the back of a one eight times unit's book to Bill.
This also marks a 37% year over year increase.
The backlog is high quality.
It is well diversified across platforms and customer types.
It does not include speculative orders.
And the orders we have are supported by meaningful deposits and cancellation penalties.
To summarize it as a much stronger backlog than ever before and is a key part of making our business more predictable and resilient.
We also expanded our first half EBITDA margins by 380 basis points year over year by delivering on our strategic priorities.
It is important to note that even though demand has been stronger than we had planned for much of the progress. We have made in terms of improving our financial performance is the result of executing on the things that we control.
Independent of the demand environment Bombardier is on a very meaningful earnings growth trajectory as we execute on our strategic priorities, namely on maturing the contribution of the global 7500 executing on our cost reduction plan and growing our aftermarket business.
All of our earnings growth initiatives are right on track.
And when coupled with our commitment to reduce debt. This means that Bombardier is now structurally cash generative even in a normalized one four book to Bill environment.
This is an outstanding start for 2022.
The accomplishments I just mentioned are only a few of the steps we have taken to improve our financial performance and predictability.
Looking ahead I am equally optimistic that we will continue to deliver and exceed our commitments.
So with that let's move on to our Q2 results.
Free cash flow was the standout metric with $341 million of cash generation in the quarter.
Advanced levels increased by approximately $330 million versus Q1, as a result of higher progress payments as well as new order intake, which was partly offset by an increase in inventory levels of approximately $150 million.
From a year over year standpoint, we can really see the benefit of our deleveraging efforts as quarterly cash interest for Q2 was reduced by $51 million to $186 million versus $237 million last year.
Our revenues for the quarter stood at $1 6 billion, resulting from 28 aircraft deliveries and $359 million and aftermarket revenues.
Our manufacturing revenues.
2% lower year over year due to one less delivery, which was entirely in line with our expectations and production schedules.
Meanwhile, our aftermarket revenues saw a 22% growth year over year from $295 million last year to $359 million this year.
This is supported by growth of flight hours as well as execution of our strategy to gain market share and demonstrates continued progress towards our $2 billion aftermarket revenue objective by 2025.
From a profitability standpoint, our adjusted EBITDA was $201 million, representing a 41% improvement year over year.
Given the relatively flat revenues. This means that we saw significant margin expansion as adjusted EBITDA margins Rose 350 basis points from nine 4% in Q2 of last year to 12, 9% this quarter <unk>.
Adjusted EBIT also significantly increased year over year and stood at $103 million.
Looking ahead to the second half of the year, we are well positioned to meet or beat our full year guidance.
Fast on free cash flow, we have increased our guidance to greater than $515 million, which implies a positive second half of the year.
For our other metrics, we are reaffirming our existing 2022 full year guidance.
To that point.
We continue to expect deliveries of greater than 120 aircraft for the full year.
Supply chain has been difficult and as Eric mentioned the actions we have taken since last year have allowed us to proactively manage many issues.
We are nonetheless, not immune to supplier challenges and we'll continue to monitor and manage this diligently.
We continue to expect deliveries in Q3 to be relatively flat year over year, followed by strong output in Q4.
With delivery is on track and our aftermarket continuing to be strong we are well positioned to deliver greater than $6 5 billion in revenues and convert this to greater than $825 million of EBITDA.
At Q3, we expect EBITDA margins to be fairly stable when compared to Q2.
So in conclusion Q2 was another remarkable quarter for Bombardier.
Core performance continues to improve year on year, and we are in an excellent position to continue delivering on our commitments.
This is not by chance our management team has been hard at work executing on the things that we control and we are very confident that we will continue to produce strong results.
With that thank you very much and let me turn it back over to Francis to begin the Q&A.
Yes.
Thanks, Mark I'd like to remind you that Bombardier Investor Relations team is available following the call and in the coming days to answer any questions you may have.
With that we'll open it up for questions. Operator. Please go ahead.
Thank you we will now take questions from the telephone lines. If you have a question and you are using a speaker phone. Please lift your handset before making your selection. If you have a question. Please press star one on your devices keypad to cancel the question. Please press Star two please press star one at this time, if you have a question there'll be a brief pause.
All participants register thank you for your patience.
And your first question is from Tim James from TD Securities. Please go ahead.
Thank you good morning, everyone.
I'm just wondering if we could you could talk a little bit about the.
The strength in demand and just comment on any sort of geographic particular strength youre seeing or by customer type fractionals.
Carter's private individuals that take the context.
I can certainly do that thanks for the question.
Actually the remain.
The demand on the markets and our Q2 did remain extremely well balance clearly led by the U S.
The U S has been clearly leading the charge for the last two years, but also if you look at.
The percentage also we've seen Europe also improving quite a bit.
Despite the geopolitical tension right now we've seen good order intake from Europe .
And the good news is that APAC is coming back apacs was slow for the last two years, mainly driven by.
The quarantine situation that they had and some main city like think about Singapore as an example, none of it to reopen.
We've seen good level of activity in that region and also the flight hours are going up and up and they are back and even better than pre pandemic levels. So so this is why we're talking about.
The leading indicators are heading in the right direction as far as the fleet operator.
Clearly extremely strong demand one of the big upside in flight hours comes from the fleet operator.
The fleet operator of being.
Extremely busy.
As we explained before a lot of people that used to fly first class, one and airlines move to our industry and our flying private jet.
Not all buying their own jet, but a lot of them are going to the fleet operator.
So we've seen a heavy trend there.
And clearly today I think the fleet operator.
Our and demand for more airplanes.
So their business is at.
<unk> has been growing significantly and the demand remains extremely strong with the fleet operator.
Great. Thank you very much and then just a quick follow up question here I guess for Bart.
Obviously free cash flow was outstanding here in the quarter.
If my simple math is correct and I just want your confirmation on this I mean, even if you'd had a book to bill of just one times in the quarter your free cash still would've been up.
Difficult one year over year and still positive in the second quarter, if I got that correct.
Yeah, Tim you have.
Thanks for the question I think in my in my comments there I did mentioned that we now believe it actually very very confident that we've reached a structural position with our business having broader cost down.
Growing our EBITDA and revenues were at a one times book to Bill will be positively cash generative going forward.
Great. Thank you very much.
Thanks, Tim.
Thank you. The next question is from Ben What party from Vishal Bank capital markets. Please go ahead.
Yes, good morning, everyone and congratulations.
The free cash flow performance.
Thank you Eduardo can come back on that.
Yes, just to come back on the previous question about the.
Please operator I was wondering if you could provide more color about whether the aircraft's interests was driven by the widespread belief the airports around the world. This summer.
Just wondering if those new customers through the business jet.
More color about how sticky they are whether they are here to stay going forward.
Okay.
The answer to your question by the way is absolutely.
This has been going on I would say since the beginning of the pandemic.
As you May have heard me say that the pandemic was probably an accelerator.
Often said that.
We're supposed to maybe happen over seven to 10 years that happened in <unk>.
So the pandemic was clearly an accelerator for people moving towards private jet.
And Theres been study actually that were done actually at the beginning of the pandemic, even pre pandemic that theres still a lot of potential out there of people that can afford flying on a private jet we're not at the time. So now we've seen an acceleration of these people moving towards private aviation.
And as I said briefly earlier.
Previous question, it's been an accelerator and these people are not all buying their own jet, but they are buying some are some are but a lot of people are buying fleet, operator hours or cars or whatever the formula is.
And it's been great for us because Bombardier is actually extremely well position with pretty much all the fleet operator, I think thanks to the reliability of our airplane the cost efficiency of our airplanes and of course, the quality of our cabin. So so when you put all this together we become.
Pretty good choice.
For the fleet, operator, which the airplane is well appreciated by their customer, but we've seen clearly in acceleration and.
Amazing growing due to this situation at airport and airline.
That's great color and maybe just a quick follow up for Bart with respect to Moody's. The recently disclosed the factors that could lead to a potential upgrade including a leverage ratio below six times. So could you talk maybe about the visibility you have maybe the timing to get there.
Below six times and any color about the potential interest savings that could come on the back of a rating upgrade.
Thanks.
Yes, thanks for that.
So there is a little bit to unpack there but.
First I would just say that our main focus for all of our excess free cash flow generation is going to be that debt repayment.
In the near and medium term so.
You've seen us as we've generated cash beyond our needs that we've been consistent in doing that and having paid another.
$773 million of notes off this year I think we're I think we're proving ourselves on that front.
In terms of next steps.
We are sitting with significant cash on the balance sheet today $1 4 billion.
As we become more and more confidence.
In our financial performance as we've been able to.
Structure are progress payments from our.
The aircraft that we sold to basically be able to finance.
But working capital needs as we construct our aircraft are fully financed them or intra quarter cash flow needs have shrunk to very minimal levels.
Remember that.
Last year, they were quite significant at times and that is not the case for us anymore. So that gives us higher confidence that we could perhaps free up some of that cash to continue to pay down debt I can't give you exact timing.
On that but just know that it will be.
Our focus going forward over the coming months and years.
Okay. That's great color. Thank you very much thank.
Thank you Ben Locke spinoff.
Thank you. The next question is from Stephen Trent from Citi. Please go ahead.
Good morning, gentlemen, and thanks very much for taking my question.
Appreciate the color on the free cash flow you said, it's very helpful and I know you've been.
Spinning off.
Assets in recent years.
Are there any.
Any possibility that you guys would consider.
Acquiring asset someplace.
It would help the company too.
Obtain a critical supplier given Europe , what's going on with the global supply chain.
Yes.
Very good question.
Steven and we will remain.
Vigilant on whatever opportunities may arise or secure supply chain I said earlier.
In my script that.
We will do whatever it takes to make sure that we stay on track that we deliver on our commitment and it may involve.
Actually considering some some of it of course as Bart said the priority for us is to reimburse debt, but actually it's always the capital allocation discussion is always going on a continuous basis. So priority is clearly to reduce the debt.
Under the same time, if other unfortunate.
Arise and they make sense for us, we're not talking about anything significant here, but.
Where it makes sense, we will definitely consider.
Okay I will leave it there are many thanks gentlemen.
Many thanks. Thank you thank you Steven.
Thank you. The next question is from Robert Stallard from vertical research. Please go ahead.
Thanks, so much good morning.
Good morning.
I have a couple of questions for you if I may.
First of all in terms of delivery slots when's. The next one currently available for the challenge or the Globals and then secondly on the supply chain you. Eric you mentioned that there can be some challenges here I was wondering if you could highlight any areas of particular tightness and whether you see any sort of material risk to that new aircraft delivery target for the year.
Okay. Yeah. Thank you so great question here.
Clearly when we look around right now.
And I know I won't comment specifically the timing on every program, but I think overall you can think about about two years. When you look at our dollar of backlog and the revenue. We're generating so you can make the math and the good news for us, it's pretty well spread across the board, it's not like one program.
Driving the backlog every single program is contributing by about the same land so.
I guess you can you can make your own judgment on this but we are pretty healthy in terms of backlog so and as you know we've already said that.
We almost provide a bit of guidance for next year talking about a 15% to 20% rate increase. So this takes into account the length of the backlog. We may want to have but also the supply chain constraint that you know are well known and across the board. So we've been extremely meticulous and planning in detail every.
<unk>.
The ramp up taking into account that.
We don't want to have too much backlog are not enough backlog.
And we are managing a range here of minimum and maximum but on top of it we are taking great note of what the.
The strain on the supply chains are today, so to your second question between now and year end.
We feel that that's why that's the reason why we are reiterating our greater than 120 and the greater than 120 takes into account some of the risk. We have ahead of us mainly driven by engine right now so.
We are being careful but.
The guidance, we're providing greater than 100, when it takes those risks into account.
That's great. Thank you very much.
Thank you.
Thank you. The next question is from Chris Murray.
From APB capital markets. Please go ahead.
Yes, thanks folks, maybe a little bit different looking at the aftermarket business.
Certainly as Youre seeing the growth developing there.
I'm just wondering if you could talk a little bit about how you're seeing the margin profile evolve as it's really tracking as you expect or are you guys, having to perhaps <unk> stent.
Some new some new business into these facilities as you get started off with them.
Great question, Chris Thank you.
Clearly we had a very detailed plan that we've put together two years ago and the team has done an amazing job in services right now to execute exactly what that plan.
It was so we don't have any surprises any gap there is always some pretty small variation to our planned thats normal, but we are tracking extremely well.
With.
Revenue on our own pace.
The benefits from the new facility also are materializing like fairly quickly.
Pretty much gradually over 18 months when when they started the operation so.
And we've made the market's inauguration in Singapore. The demand was there we quadrupled the size of that facility that we built in 2013 opened in 2013, so so great.
<unk> progress there.
We are gaining market share on a regular basis. So our market share is going up the business is growing and we believe that the 2025 today. There is no reason to believe that we will not achieve them. So we're on track to achieve the plan.
Okay. That's helpful. Thanks, and then just one follow up for me just on the global 7500, how many deliveries were in the quarter.
So can you just repeat your question I missed that.
For the global 7500, <unk>, how many aircraft to deliver in the quarter.
We're not too specific but we've mentioned about 40 per year and we are exactly in line with that right. Now so we've been pretty much delivering like a clock. So youre talking about nine to 10 to 12 airplane in a quarter, depending on which quarter, but on average you can think about 10 roughly.
Okay. Thank you that's helpful. Thank you.
Thank you. The next question is from Asahi Shimbun from BMO capital markets. Please go ahead.
Yes, good morning, and congrats on the strong results.
I wanted to talk.
On the supply chain side, obviously the biggest one.
This is on delivering on the backlog that you have grown nicely but.
If I look at the second half of the year, you're delivering at a rate of 140 year annualized.
<unk>.
Right metric to think about the <unk>.
<unk> been able to deliver that kind of.
Delivery rate going forward or.
Would that not be the case, yes.
Yes.
I think right now.
The way to look at it first of all.
It's why we're reiterating the $1 20 for this year, we talked about 15% to 20 improvement for next year and so far we are.
On track to do that there is some tension in some area and the supply chain.
Mainly I would see at tier two tier three and sometimes tier four supplier, which we are monitoring very proactively working also with the major OEM on engine to do so.
But I think the pace. We're in right now is pretty much in line with what we've been <unk> taken before and we remain debt.
Still believe that it's achievable.
Okay, and a follow up on that.
Are the margins or the inflationary cost pressure that you experienced maybe as a result of the supply chain.
The challenging your margin targets at this point I mean, it sounds like it's under control but.
Can you kind of confirm what you are seeing on that front and how you been able to kind of manage some of those pressures with pricing or productivity.
Maybe the first thing I would say that is we are fairly well protected on inflation on our contract for new airplanes. So that's that's one and we have a little bit of exposure, but at the same time as you know.
The pricing of our airplane.
It has improved significantly so so so far we.
We're definitely okay there.
And the same thing in the services group, where we have maybe less protection on the contracts, but we've been able to improve our pricing. According to the inflation that we've seen ourselves so overall.
We're comfortable with our plan, there and where we stand.
Great I appreciate it thank you thank.
Thank you Patty.
Thank you. The next question is from Kevin Chiang from CIBC. Please go ahead.
Hey, good morning, Congrats on a very strong free cash flow first half of the year here.
If I could ask just on some of the working capital movements.
Book to Bill was a nice tailwind, but I also noticed that.
Payable.
It was a nice tailwind and I think if I look back over here.
In recent history.
Not only our business jet OEM.
Feels like sequentially, we typically see a draw on working capital from this line item I'm just wondering if there's something there from a working capital management perspective is that the seasonality change.
Perfect.
Okay.
One item.
Yes, hi, Kevin its part here and good morning, Thanks for the question.
Working capital.
In the past, particularly when the company did not have a deep backlog was more challenging because within a quarter, we'd be using more of our own cash resources to.
Two to manage and the width right, so with with a full and deep backlog now and with a change in the way we've been working to contract progress payments.
Throughout the cycle of building the aircraft, we're now in a place where essentially program deposits and progress payments from customers are fully fully funding our working capital needs.
So that puts us in a position, where our working capital and our cash on hand.
Remained very very stable throughout the quarter, it's actually become quite de Minimis.
Cash that we need within any particular quarter and with a backlog of 18 to 24 months plus depending on which type of aircraft. We're talking about we're in a great place to be able to sustain that going forward. So we're not anticipating.
A large working capital.
A variability going forward in fact quite the opposite we believe we are in a position now where it'll be b and remained very stable.
Moving forward from here.
That's great color and obviously, great working capital management there maybe.
Maybe just turning to services.
Great Great revenue source for us.
So making investments there.
Stuck around $360 million give or take of revenue per quarter, and I thought I'd be interested in doing maybe how much of that is being impacted by some of the supply chain issues getting parts of their maintenance and labor.
That matter.
What you've seen in the last three quarters kind of hovering around that 60.
$60 million in revenue.
The answer to your question Kevin is yes, it has been impacted the revenue.
<unk> they are amazingly good.
Could have done better if parts would have been available and so we have a bit of a backlog of parts, we could sell and ship tomorrow. If we would have them in our hands, but.
So, but despite that the number has been pretty good but yes to answer. Your question. There is there is there was a sort of an impact here.
Okay. That's great clarification. Thank you guys on a good first half of the year.
Thank you Amit thanks.
Thank you. The next question is from Kamran Jackson from National Bank Financial. Please go ahead.
Thanks, very much good morning, just a couple of clarification questions on the on the guidance just firstly on the free cash flow I don't want to take anything away from what you've done here in the first half which has been very very strong.
But.
Look at the second half of the year sort of implies maybe modestly positive I am just wondering what your assumption is around I guess the order activity in the second half of the year that gets you to your full year free cash flow guidance.
I think I think I'm, Ron that's a good great question. Thank you.
Clearly.
No.
We are sending a message here with greater than $5 15, $5 15, as what we've been able to achieve year to date.
Because of some unpredictability on supply chain. That's why we've kept our guidance were comfortable with the guidance. We provided on the other metrics, but we wanted to say greater there is a few risks ahead. So I think we'll be in a better place. When we talk about our Q3 result, because pretty much all of the parts will be although there.
Roof here and we can build the airplane. So we still have a few things to work out but.
It's heading in the right direction. So that's why we were prudent and.
And I have guided for greater than $5 15, and maintaining our our view on the other metrics.
Ken It's Bart here, if I could maybe just build on Eric's response, the other thing I would just emphasize is that.
While we are projecting positive free cash flow in the back half of the year.
As we mentioned I think as both of US mentioned earlier, if we're at a book to Bill of one and we've been somewhere between one and 152 and a half for a while now we still expect to be positive on a free cash flow basis, which is a completely different position for Bombardier now and one that we're very very proud of and it puts us.
Our strong position in almost any kind of market environment going forward to produce free cash flow.
That's very helpful. And then maybe it's the same answer here for my other clarification, just on I guess the EBITDA.
Look at the second half of the year the guidance sort of implies maybe a flat maybe slightly.
Slightly lower EBITDA margin and Youre going to have higher aircraft deliveries. So is there anything other than I guess, maybe conservatism here that would imply that maybe there's a bit of margin pressure in the second half of the year, even on even on higher deliveries.
I think we are.
We are consistent with our approach and we will remain conservative moving forward.
I think thats the thing you need to note.
Im saying it takes into account some of the potential risk we have but if there is don't materialize then that's why we're talking about greater than.
Very good no that's excellent thanks very much thank you.
Yes.
Thank you. The next question is from Walter <unk> from RBC capital markets. Please go ahead.
Yes, thanks, very much and congrats again.
On the quarter.
Yes.
Looking at your pricing and.
You mentioned pricing is strong.
But unlike many companies whose pricing the impact of their pricing change can be felt pretty quickly.
Your delivery times, obviously are much longer than many other companies and therefore.
Is it safe to say that the benefit from your higher pricing.
Still yet to be fully realized.
Given that a lot of the deliveries you are making now would have been priced pre pandemic and therefore could we see a much larger price increase on our delivered product.
Further into the future and can you quantify if that's correct how.
What is the lead time or lag benefit that youre going to expect to see in pricing going forward.
Okay.
I think that's a great question.
This is something of course, we are discussing here on a regular basis, but.
Yes.
I would say that the airplanes, we're delivering today most of them were sold post pandemic.
We still have a few but our backlog was extremely low two years ago. When we enter into the pandemic, we've been growing that backlog significantly. So I think it's reflective of some of these pricing improvement, but at the same time as I mentioned earlier, we also have pressure on the inflation.
On parts and on a few things. Despite the fact that we are extremely well protected for the maturity of those but there is some pressure there for sure.
If you if you move forward I mentioned.
You may want to think about almost two years ahead of US right now that we're selling so if youre selling two years ahead do you need to take into account that there'll be some inflation and of course the pricing is defined accordingly, so we don't feel any pressure right now in terms of.
Trying to sell and having another three year another year to the backlog. We're selling we are extremely disciplined we are expecting a certain pricing which will.
It will be in line with the expected inflation that we do foresee moving forward. So that's how we're thinking about it Walter.
Okay, that's great color and my second question here is on the macro landscape and obviously a lot of trepidation out there around the.
Upcoming recession large cabin long range jets have held in much better.
During recession than their smaller cabin counterparts, I guess my question is kind of twofold.
Covid COVID-19 impacts.
Okay.
A further improve that historical trend, where the demand youre seeing right now might be hurt structural not fully impacted by cyclical cyclical event.
And related to that as well as the strong demand you're getting now, allowing you to adjust terms in terms of the level of deposits and the speed in which they come in such that it reduces the risk of cancellation should we go into an economic downturn.
We are extremely pleased with the quality of the backlog we have today.
They are mainly individuals.
I think pricing is good.
These are you know we're extremely disciplined about making sure that there is.
Considerable decision to be made by the buyer if they would end up canceling.
That's why we believe that our backlog despite not just its a long backlog, but it's a pretty good quality and loan backlog, we have in our <unk> study that.
And that's what makes us believe that if there is a downside in the economy.
We are in a great position to be able to absorb.
It's different.
It will fluctuation that we may foresee moving forward.
But at the same time, we feel that we will not observe like major cancellation and things like that so the quality of the backlog for multi year gives us strong visibility on the revenue.
Through a couple of years actually.
Okay. That's great color appreciate the time Eric.
Thank you Missy.
Thank you. The next question is from Noah <unk> from Goldman Sachs. Please go ahead.
Hi, good morning, everybody.
Good morning.
Eric maybe just staying there.
And maybe just get more of your thoughts on how you want to manage supply and demand here.
The backlog has now.
Increased over $1 billion three quarters in a row.
Have customers wait too long.
But this is still cyclical and discretionary to some degree and so are you.
Just trying to maintain that two to two and a half years of production in the backlog or no.
Are you assuming this two $5 billion order pace.
<unk>, 2030% at some point into the.
$1 7 billion eight until you tried to take the production revenue to that or.
How scientific can you get I guess.
It's kind of an interesting interesting riddle to solve them and can even do that or do you. Just have to you have customers telling you. When they are on an airplane and you just have to deliver to that.
Yeah.
I think its great question Noah.
Clearly we are discussing this on a daily if not to see our Lee here.
About how we manage the demand and the offer we are giving I really like the fact that we have almost two but we have two years ahead of us.
And I think you know the rate increase that we're talking about for next year are reflective of keeping that backlog.
I think it's been proven in the last quarter that despite you have.
That much of a backlog sales activity remained very strong so but there is a limit that at I think three years it could become problematic for people to buy an airplane and wait for three years. So so we have and we go program by program.
Depending where the large cabin theres a bit more patience in waiting two to three years, but on the smaller jets the medium segment.
We're trying to be a little bit lower than that so, but I think our.
Great production rate increase right now.
Thinking of 15% to 20% higher than this year for next year are reflective of how we see.
The backlog growing but.
As Bart said earlier, you know with a book to Bill of one moving forward would be would be great because we would pretty much reserved.
What we have here and and Thats how were thinking about this.
Okay.
How much.
Does the services business contribute to the backlog.
Let me double check that towards a primarily newbuild.
Let's see.
Yeah.
$2 billion roughly so.
Our team is seeing about 2 billion here okay.
Squares up two years that you've referred to a little better.
Although it still implies.
Something higher but.
I'll circle back to that part.
Bart.
<unk> free cash flow positive and will be advanced payments line item be positive.
So we don't.
No we don't project forward free cash flow, but by.
By saying greater than $516 million for.
The second half of the year, we're implying certainly that we.
We expect to be a positive free cash flow can't break it down quarter by quarter, but.
Just based on on a book to Bill of <unk>.
Up one and if you think about the kind of order activity and market. We're in right now if it stays as healthy as it's been certainly we'd be positive free cash flow.
Appreciate it that's a little bit of a silly question in some ways, but the Genesis. There is just to the prior question that the $5 15 implies basically exactly breakeven for the back half and then historically.
<unk> been pretty <unk> loaded just wanted to basically make sure that there isn't some unique working capital line item that we all can't forecast that makes it negative in the third quarter.
Not modeled correctly there was some surprise on that front, especially I mean, what I was trying to make sure.
Yes, Theres nothing theres, nothing strange that we're forecasting or different really than the way we've been performing over the past number of quarters.
Working capital has remained pretty pretty stable through the quarters and we would expect the same in in Q3.
Perfect. Okay. Thank you.
Operator, we have time for one last question.
And the last question will be from Connor group <unk> from Scotiabank. Please go ahead.
Thanks, and good morning, everyone and thanks for squeezing me in here.
So my question is just on the balance sheet.
So <unk> been partially redeeming the debt maturing over the next few years I guess, what are some of the considerations but.
And fully repaying the remaining 2024 and 2025 maturities, what's this refinancing them in this interest rate environment.
Yes, great question corner so.
Youll probably have noted.
As we've been.
Do it undertaking tenders that we've been concentrating on the 24 and 'twenty five maturities, we did buy some of the 2027.
They were quite deeply discounted so that allowed us to.
By more bonds per dollar spent so as we've said we will continue to be opportunistic in the market and I think thats a good example.
Keeping to our work.
You should expect us to continue to focus on on the nearer term maturities.
Got just over $500 million left on the 20 fours.
Assuming we continue to pay down debt here.
It will be in a position where likely be in a position where our next maturity won't be until 'twenty five.
That's a considerable amount of debt, though between the 24th and 20 fives. So our expectation today, just on our using our own conservative.
Forecast of the future for cash flow generation, and I would say conservative because thats, how we plan.
We would need to refinance some of that debt, but pay off a bunch of it as well so I can't get into more detail than that other than to give you a kind of the general guidance of how we see things.
That's great color. Thanks, so much and then I also noticed.
In your disclosure.
The adjusted net debt is already at four and a half billion dollar, but just I think what you guys were implying.
In 2025, so congrats on that but my question is do you see a high likelihood of coming in much below three times net debt to EBITDA in 2025, assuming you.
The one and a half.
Yes, so great question so.
When when Eric.
Laid out the strategy for the company and we came to the market in March of last year.
Upon our if we put that target out there that we wanted to get down to three times.
That number was driven by the plan itself was not an overly aspirational number it was here's the plant if we execute on this plan. This is where we will get to and it will put our balance sheet are really really good place.
But it's certainly not the end game for US we would see ourselves wanting to achieve a lower debt to EBITDA multiple on that and if we certainly continue on the pace we're on.
That will be the case for sure.
No that's great Congrats again.
Okay. Thank you Connor.
Thank you. This will conclude the question and answer session I will turn the call back over to Eric Martel.
So thank you again to everyone for joining us today. So as you can appreciate Bombardier continues to execute on its commitments and deliver a solid performance.
I am proud of the results for the first half of 2022, and even prouder of the team behind them, raising our cash guidance and reaffirming our other metrics simply does not happen in today's macroeconomic context without <unk>.
That is focused on execution and agility, we have excellent line of sight on the months ahead of us and we will carryforward, our execution mindset as we move through the third and fourth quarter.
Before we sign off I want.
Wanted to wish everyone, a safe and restful summer holiday. Thank you all.
Yes.
Thank you. The conference has now ended please disconnect your lines at this time and we thank you for your participation.
Okay.
Okay.
This conference is no longer being recorded.
<unk> please.
Hi.
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