Q1 2022 Bombardier Inc Earnings Call
Now some of them, yes, we lapped a silty duckenfield they'd be touched super Super premium to be honest I tell them to go get it because that stuff and you wouldn't feel that that's healthy.
This conference is being recorded so it's gonna stay home if they don't go as you see.
Please standby your meeting is about to begin.
Ladies and gentlemen, and welcome to the Bon <unk> first 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 Squishy flesh Vice President S. P N D and Investor Relations for bone biopsy. Please go ahead.
Yes.
Good morning, everyone and welcome to <unk> earnings call for the first quarter ended March 31 2022.
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 M. D N a I'm, making this cautionary statement on behalf of each speaker on this call.
With me today is our president and Chief Executive Officer, Eric Myself, and our executive Vice President and Chief Financial Officer by the Mosquito to review our operations and financial results for the first quarter of 2022.
I'd now like to turn over the discussion to ASIC.
Hello, Mr. Cooper says boy, who gave you ought to see a good.
Good morning, everyone and we're happy to have you join us today.
I am delighted to share details about our strong start to the year.
I I level I can say that I'm very proud of the team's resilience as well as our ability to execute and deliver on commitments we.
We certainly continue to monitor factors that are straining the global economy or supply chains Barton I will discuss this throughout the call, but business aviation fundamentals are strong and we remain optimistic.
How about our ability to perform.
The first quarter you showed that the foundation that we have put in place is solid and we are progressing well towards our 2025 objectives I have spoken a lot about backlog has something that is key to being a predictable company in Q1 that backlog.
<unk> grew by $1 $3 billion to $13 five billions.
Our unit book to Bill was two five for the quarter that is a testament to the strength of our product portfolio as well as our sales team's ability to be responsive all around the world.
We certainly I've seen this past year that economy recovery does not happen in a consistent way across all geographies, we have a global presence with solid roots in every region that capability enabled bombardier to adapt quickly and seize the opportunity where they arise.
This helps offset markets that are suffering due to geopolitical tensions.
Despite the situation with Russia, and Ukraine, we continue to see strong demand and activities worldwide, including Europe .
The United States continue to be the most significant market for our business, which is why it is important for us to have a strong presence a strong presence there.
This was behind our thinking when establishing Wichita as our U S headquarters we indeed.
To grow our Bombardier defense theme as well as services, but no matter through which customer lens you look the United States is a key market.
And we are committed to growing talent, creating job and serving civil and military requirement to the best of our ability.
Overall in Q1, we kept it there lies on the strong markets wherever they presented themselves when we reset Bombardier to focus specifically on business Jets. The goal was to build a predictable cost base. So that when we see short or long term market upswings.
We can measure a smooth course correction and not have to make short term trade off on volume or price.
That plan is well on track.
With first quarter, adjusted EBITDA, reaching $167 million, which is a 36% improvement year over year.
This is not by chance, it's Oh, we've planted communicated at our recent Investor day, and then execute it.
On the global 7500, we celebrated the delivery of aircraft for 102 Vista Jeb this past quarter.
We continue to have excellent line of sight in terms of upcoming deliveries and the margin that we'll generate in line with our plan.
In the field. The aircraft itself is simply exceptional and culture used to set a new standard for our large business jet with unmatched performance.
On services, we have fully optimize our network and are now moving toward our additional capacity coming online.
The first step change this year came in Singapore, where we now have the keys to a site that is four times bigger than the original site.
Next we are operationalized expansions in London, and the United Kingdom than in Florida, where our new Miami Service Center is taking shape and.
In between these two Evans will also be opening a brand new facility in Melbourne, Australia.
We are placing a lot of focus on supporting our customer close to their own basis.
With all this traction we are seeing the top and bottom line results. We plan for when it comes to the aftermarket.
The team generated $361 million in revenue in Q1, which is a 34% more than Q1 2021 it.
It is important to note that $361 billion of service revenue also sets a new bar at Bombardier for a single quarter when it comes to serving business jet.
Perhaps the most important metric to underscore the company's performance in Q1 is free cash flow.
Our 173 million positive cash flow performance is $578 million better than last year over the same timeframe.
Needless to say managing our debt proactively has given us flexibility we have maintained our commitment to prioritize debt reduction demonstrated in March as demonstrated in March when we completed a $400 million of debt repayment.
This focus as helped us lower carrying cost.
<unk> already contributed to the free cash upside.
This was a significant contributor and was rounded out by order intake progress payment from aircraft already in our backlog service growth and overall margin expansion.
In short we are in good position to run the business and allocate capital to where it is strategically most beneficial.
Keeping a balance between debt repayment and product investment is something I am keeping a close eye on.
As we mentioned at Investor Day, we are targeting $600 million of capital flexibility and we are well on our way to building a company that has the ability to do to de lever.
And to make strategic moves when the time is right.
I will leave the remaining details regarding our maturity runways and repayment for Bart to cover in detail.
Now returning to free cash flow I do want to emphasize that if you look at the first quarter's performance again, our free cash flow guidance for 2022 of greater than 50 million, we are clearly tracking well to our free cash flow guidance for 2022.
We are opting to take a few months to measure the impact of the current global geopolitical and market context to carefully assess the through size of any potential upside we will look to reassess our free cash flow guidance later this year.
With regards to the various risk when it comes to selling and delivering airplanes. We are indeed seeing limited exposure in terms of meeting our plan.
The team has successfully shifted to areas where demand is strong.
Business jet utilization as remain at the above 2019 levels, we began to see last year.
The good news is that the sign are beginning to 0.2 through step change for our industry versus a limited post pandemic bump.
What's more encouraging is that the aggregate volumes are outperforming previous years with some areas.
Experiencing fluctuation slower development or full lockdowns.
For example, when we look at Bombardier specific flying we saw a 20% overall rise in hours in March alone versus 2021.
Despite limiting flying due to restrictions related to the war in Ukraine, as well as the bulk of flying stuff in China due to the pandemic.
Fly chain will remain very actively on our radar.
We have been very proactive on this front and we continue to deploy our people to the field to assess the situation firsthand.
This has been a successful formula and allowed us to overcome potential hurdles through planning.
As the pressure continues we will maintain vigilance, we are a waiver.
<unk> in our delivery profile.
With the backlog where it is currently at a lot of what we need to make the plan is within our control. One thing is for sure. The challenger 3500 is already shaping up to be a top performer as where its predecessor.
We are excited and on track for deliveries this year and smoothly managing the transition from the challenger 350.
The plane as already secured I profiled a red dot a word that speaks to the quality of our designers are design have set the standard for a long time and I am delighted they continue to be recognized on the biggest stages.
Overall, our plan is on track for 2022.
We have a strong momentum in T surging markets and our product continue to set Bombardier apart.
I'm now delighted to turn the call over to Bart to provide some more color on where we stand with our strong start of the year Mark.
Thank you, Eric and good morning, everyone.
Let me open by saying I'm very pleased with the strong results. We released this morning.
To summarize the strategies, we launched last year are paying off and they're effective beginning to compound. Thanks.
Thanks to this we have started the year with a strong first quarter and see a clear path to achieving both our 2022 guidance as well as our 2025 objectives.
Some of the highlights of the first quarter included positive free cash flow generation of $173 million growing our backlog by $1 3 billion.
Year over year, EBITDA margin expansion of 420 basis points.
A 34% year over year increase in our aftermarket revenues.
Reaching our targeted unit costs on the global 7500 program and securing an incremental $30 million of annual cash interest savings by repaying $400 million of debt.
Overall, our strategic priorities are progressing well.
On the global 7500 margins are expanding rapidly year over year, mainly as a result of delivering on our 20% unit cost reduction between the 50 and 100 aircrafts.
Looking ahead, there is still meaningful margin expansion to come on this aircraft and we remain on track to more than double its EBITDA contribution by 2025 compared to 21.
Our cost reduction plan is also well on track to produce $115 million of incremental savings this year, bringing our total recurring savings to $250 million. When we include the portion that already materialized in 'twenty one.
Our aftermarket business revenues increased by 34% year on year.
Outpacing the growth in flight hours over the same period.
Our expansion plan is on track with our Singapore, and London facilities now starting to ramp up and construction on our sites in Miami in Melbourne on schedule to come into service later this year.
Lastly, we are ahead of plan in terms of debt reduction.
Overall, our gross debt has reduced by $3 4 billion since the start of last year.
And annual cash interest costs have come down by more than $250 million.
I am very pleased with our progress to date and as we continue to generate free cash flow in excess of our needs we plan to put it towards debt reduction.
With that let's move on to our Q1 results, which continued to build on our strong performance from last year.
First total revenues for the quarter reached $1 2 billion as a result of 21 aircraft deliveries and $361 million and aftermarket revenues.
At manufacturing, we delivered five fewer aircraft year over year, resulting in approximately $182 million lower revenues as compared to the same period last year.
The 21 deliveries, including nine global 7500 aircraft were in line with our expectations and reflect our production schedule as we prepare to transition our production over from the Challenger 350 to the challenge of 3500 and ramp up Global 50, 560 500 deliveries Les.
For this year.
As Eric mentioned this quarter also marked the end of production for our Learjet platform.
As the final three aircrafts came off the Assembly line.
Our aftermarket business continues to grow with revenues at $361 million up by $92 million year over year.
This improvement is the result of growing market share and strong fleet flight activity.
Moving to earnings total adjusted EBITDA was $167 million, representing a 36% improvement year over year.
Our adjusted EBITDA margin of 13, 4% has significantly expanded versus Q1 of last year adjusted.
Adjusted EBIT stood at $73 million for an adjusted EBIT margin of five 9%.
The main drivers of our margin expansion are consistent with our strategic priorities as we saw higher aftermarket contributions margin expansion of our global 7500 and continued progress on our cost structure.
Moving to free cash flow, we saw cash generation of $173 million in the quarter, which was better than originally planned.
This cash generation is the result of strong earnings reduced interest expense and positive net working capital where inventory buildup and a decrease in our payables were more than offset by an approximately $500 million increase in customer advances.
Our backlog was bolstered by a two five times unit book to Bill and now stands at 13 5 billion, an increase of $1 3 billion since the start of the year.
Bombardier has clearly demonstrated its ability to consistently generate positive free cash flow.
Having now done so for four consecutive quarters.
As we continue to build earnings reduced interest costs maintain a strong backlog and manage working capital. It is clear that we have meaningful cash generation potential ahead of us.
Moving to our full year outlook, our strong performance in the first quarter of this year has put us in a great place to meet our 'twenty two guidance.
Clearly we are ahead of plan on free cash flow at this early stage of the year.
We will continue to focus on executing the things that we control as we monitor the current geopolitical and market context.
Our full year expectations for Capex remains in the $200 million to $300 million range and our ramp are planned to ramp up inventories to support higher 23 deliveries is also unchanged.
Looking to our other metrics now.
We continue to expect deliveries of more than 120 aircraft for the full year supply.
Supply chain remains a key monitoring item, but we have been very proactive since last year and have good visibility on the materials, we need to meet our delivery targets we.
We expect deliveries in Q2, and Q3 to be relatively flat year over year, followed by a strong output in Q4.
From an EBITDA standpoint, we are on track to meet our 'twenty two guidance of greater than $825 million.
Our strategic pillars will continue to progress we have clear visibility on customer pricing given our sold out 2022 production.
And most material costs are already locked in.
Our aftermarket business performed extremely well in Q1, but we will continue to monitor if the conflict in Ukraine, and resulting sanctions to begin to impact sleep flight hours as.
As of now we do not see major signs of slowdowns.
Consolidated EBITDA will continue to improve in Q2, but EBITA margins may slightly retract as the growth in deliveries will change our revenue mix towards new aircraft.
To conclude we have started the year on strong footing and are confident in maintaining our performance. Despite the current volatility.
Longer term plan, we shared in February remains on track as we continue to focus on becoming a more predictable and profitable business Aviation company.
With that thank you very much and let me turn it back over to Francis to begin the Q&A.
Thanks, Bart and I'd like to remind you that the Bombardier Investor Relations team is available following the call and in the coming days to answer any questions you may have.
With that we will open it up for questions operator.
Thank you we will now take questions from the telephone line. If you have a question and Youre using a speakerphone. Please pick up your handset before making your selection. If you have a question. Please press star one on your devices keypad to cancel a question. Please press star two please press star one at this time, if you have a question there'll be a brief pause.
Participants register Thank you for your patience.
And the first question is from <unk> Gupta from Scotiabank. Please go ahead.
Thanks, operator, and good morning, everyone and congrats on a good quarter here.
So maybe my first question actually the only question at this point.
Free cash flow box.
If I look back historically at least in the last couple of decades, or so I don't think that somebody has put out positive free cash flow in Q1.
And I understand that the order activity was pretty strong, but what I want to try to understand this.
Where you are or where the businesses with respect to the leverage right now and.
The production rate that sector.
What is what is it a good book to Bill ratio.
To kind of suggest that.
The free cash flow, though not a negative in the seasonally weaker quarters like Q1 Q2.
<unk>.
It had not been a two five times unit book to Bill ratio and was something like one times book to Bill ratio would you still have I have had a positive free cash flow or it would be back to seasonality.
Yeah, Yes, good question Connor.
Good morning.
Let me just reiterate a couple of things. So first we are ahead of plan this year on free cash flow.
I did mention that we had very strong working capital performance.
The $2 five book to Bill certainly helped we did have.
Headwinds, though as we're using more inventory as we ramp up production. So it's fairly balanced I think if we see ourselves moving forward with a book to bill of one or better.
A place, where we're probably closer to breakeven on free cash flow in Q1, because it tends to be a lower delivery quarter.
So hopefully that helps answer the question.
Thank you.
Okay. Thank you Connor.
Thank you. The next question is from Ben <unk> from Deutsche Bank Capital markets. Please go ahead.
Good morning, everyone and congratulations for the good results.
Looking at the after market revenues, obviously strong performance up 34%.
Would you provide some color on whether this growth should further accelerate given the opening of new location and maybe if you could provide an update on the openings of new service centers. This year that would be great.
Perfect.
Morning <unk>.
So.
Thanks for attending clearly you'll know we're extremely happy that this has been something we've been working on since day one.
In terms of growing and that's part of our plan and growing the revenue line of our service Center I think our strategy is very clear we are executing on it and I think on top of it you know what clearly is helpful. Right. Now is the fact that the airplanes are flying.
We said, 2024% depending on what month Youre looking at in the first quarter. If you compare to prepay that make number at the same period. So.
I would say on does the stars are clearly aligned for us we've put that capability in place we have the parts we've grown our inventory on parts last year in anticipation of that market demand coming up and growing this year. So we have the capacity on the parts side.
But we also have the capacity.
On the service center side with the expansion you know and I just mentioned earlier, we we've we've just quadruple the size of our facility in Singapore that we built it like few years ago.
Actually are going to get start we're starting to ramp up in London as we speak.
We have Florida in Australia coming into service mid this year.
And again the market momentum is accelerating things right now so clearly it's been exactly how it's being planned the market is of course, helping us to accelerate that growth, but I think that we saw that coming and we've put in place the infrastructure either having the parts available in the parts inventory available.
Or having the service center in place and shaping up.
Okay, that's great color with respect to your pre owned aircraft. Fortunately equal could you discuss about the contribution that we've seen so far, especially given the favorable market environment for free in home.
I would say we have had we are extremely pleased you know we launched a program.
Sometime last year the team executed extremely well in the first year now that this business is growing for US I would say the biggest challenge is to have airplanes, because availability of airplane is challenging but the airplanes that we are able to bring in.
Our team has done an amazing job in being able to create value on those airplanes for the customer as an OEM. There's a lot of things. We can do and we are clearly uniquely place to announce the pre own experience that the customer has so so we are actively right now participating in this market.
And as I said, the pre owned level is fairly low right now probably the lowest in the last 20 years that about 3%, but clearly we are capitalizing on our ability to create value for the customer on those airplanes and so far we've been extremely successful doing so last year and it did come to you in Q1.
And we have a good view for the rest of the year also.
Okay. Thank you very much for the time.
Thank you.
Thank you. The next question is from Stephen Trent from Citigroup. Please go ahead.
Good morning, gentlemen, and thanks very much for taking my question.
Just a real quick one for me I was intrigued to see what you guys had mentioned about the very low.
Use that pre owned inventory and from a structural perspective do you see any possibility.
That those inventory levels kind of remain naturally lower for some time considering.
<unk> Airlines shifting away from <unk> and business class service.
Yes. This is this is a great question, Stephen and thanks for asking it.
What we do foresee right now is we had an extremely solid first quarter.
Q2 remains very strong the activity level the flying remains strong.
Do foresee that as you know.
I'll read the same news everyday there is a.
Probability of that.
The war spending of course in Europe . There is the inflation also so but we do foresee that this could you know a bit tempered for the rest of the year you know that the possibility what do we see in terms of maybe keeping or slightly <unk>.
Creasing, maybe the inventory of airplane one phenomenon that we've started to see this year is because of the pricing being amazingly. Good right now on pre owned airplanes, we've seen some airplanes coming to the market with someone having the intention to sell the airplane at a higher value right now.
The challenge here is most of the OEM nothing replaces the airplane in the short term. So people are hesitant, but we've seen that kind of minimum of airplanes coming to the market, but the reality is that if it if thats happening there is that demand remains very strong and we've seen those airplanes being more.
And a couple of days on the market. So I would say right now if it's happening it's still turning pretty fast because of the lower level at 3%.
And paid in the normal in our industry is around 10.
That's where it usually is in traditional will be when it goes up to 2014, we don't like it because it's too much under 10, it's pretty healthy and of course have three it's our lowest record. So there's a there's a there was a view that it could go up slightly but it's not going to be significant between now and the end of the year, maybe a couple of percentage points.
Okay. That's super helpful. Let me leave it there and thanks very much.
Thank you so much.
Thank you.
Next question is from Shar <unk> from BMO. Please go ahead.
Mr. <unk> your line is open.
Yes, good morning.
Sorry about that.
Congrats on the good results, obviously and just a couple of questions for me.
Mark you said second and third quarter deliveries would be flat.
Kind of a flattish I guess year on year was that.
Including the later deliveries are flat year like what's the base for flat.
The medium and large.
Yes, good morning fatty and.
Thank you.
Great to hear from you.
The year on year being flat refers to the whole basket.
All aircrafts, so it's not not excluding anything.
Okay.
Effectively you are growing with medium and large year on year.
Absolutely absolutely.
Correct, Yes, we're replacing we're replacing what were <unk>.
Your jet deliveries with challenger in Globals absolutely.
Okay and then the other.
A related comment you mentioned on EBITDA margin being lower than the second quarter.
This is the first quarter whats driving that because it feels like if you're going to be.
Up and deliver even in the medium and large in the second.
Second last year I'm, not quite sure why EBITDA margin would be coming off versus what we saw in Q1.
Yes.
The.
The margin will be impacted a little bit by mix.
In terms of the split between.
<unk> globals.
And challengers.
We are delivering more aircraft.
And that in relation to.
The contribution from aftermarket is what will cause we believe the margin to be a little bit lower than it was in Q1.
But on a growth trajectory overall.
Year over year.
Okay.
So are you expecting this.
This is business to be a little bit lighter in the second quarter versus the first quarter.
No it's.
It's more a case, where if you look at the contribution from from aftermarket in Q1.
And just roughly multiply that by four that brings us to approximately our guidance for the aftermarket this year. So it's not a lot.
Lower contribution from them.
It's a higher contribution from.
From aircraft and keep in mind, we have not yet fully reached our EBITDA contribution on the 75 hundreds were still working through some aircrafts that were that were sold in the launch phase and it's sort of not yet pulp pricing. So as we've got more aircraft revenue relative to aftermarket revenue, that's what will cause the mark.
Yeah.
Percentage to come down a little bit.
Okay. Okay. Okay.
That's great color, maybe the last question for me.
I'm not sure what you are prepared to make in terms of a remark about the arbitration maybe help us.
Understand the scope of this.
Kind of dispute and potential.
Financial implication if you have any anything that you can help us understand kind of what what's happening on that front that would be great. Thank you.
I think fed.
Of course, you're aware.
Did receive a notification from all time on April 25th.
This is a confidential arbitration process as dictated by the SBA.
We can't comment further right now on since the matter is confidential and that's the agreement we have with Alstom. So.
And at this stage, we cannot speculate on any amount or outcome of what it may think theres a lot of work that needs to take place.
So we will get back to you.
If we must disclose any information at the right time, but it.
It is not unusual in a deal of this magnitude and this complexity that this is taking place so.
The right time, if anything has ever needs.
It needs to be disclosed we will do it at the right time.
Okay, great. Thank you.
Thank you thank.
Thank you Paddy.
Thank you. The next question is from Myles Walton from UBS. Please go ahead.
Thanks. Good morning, I was wondering if you could give some color context to geographic strength in the order book maybe customer.
Type the strength in the order book of the 50 orders you have.
And then any way to quantify for us the pricing improvement environment.
The level of discounting that is not taking place that was taking place 12.
12, or 18 months ago.
So thanks Myles for the question Eric here.
Clearly.
The gross order as you as we said has been very solid in Q1 with 58 units roughly if you do the math.
But north America with Hill.
The leading region.
We had a big big big contribution to that but I have to say that despite everything going on right now with Ukraine and Russia.
Western Europe , we did remain extremely extremely solid.
And we've seen actually some nice pickup.
Also happening in Asia.
And that's something that we've seen last year. So right now it's interesting to see that.
That region is with the reopening is an example of some of the.
The limitation, we had as an example in Singapore.
So we can see the traffic slowly but surely.
But is there still a lot to do in that region.
We've seen also middle East and Africa being being busy so overall.
It's coming from pretty much everywhere, even including Latin America, but I would say the top driver for us have been North America, Western Europe and Asia.
In this quarter.
Yes.
Maybe on pricing models, if I can maybe add just to comment on pricing we've seen.
Through last year through most of last year and the first quarter of this year and coming into Q2, very strong and healthy pricing environment pricing.
Pricing has actually been a little bit ahead of cost inflation. So that's a bit of a net tailwind for 2022, I think as Eric has pointed out.
Many times this demonstrates the value of having a very strong backlog.
Over our plan period, so over the next few years, our expectation is that.
Pricing and inflation will roughly offset but here in 'twenty two we're seeing some benefit.
From a price growth relative to cost inflation, hopefully that helps that's great and just one quick follow up if I could.
The fleet buyers are you seeing any effects of pilot shortages in their order books to you or is that not something that's affecting there.
Poll of airplanes. Thanks, again, so maybe that's a good question Myles we hear a lot about pilot shortages and I'm sure. You are reading the same news, we do but overall I have not seen any limitation right now from the fleet operators. So a very competitive market of course for pilot, but I think the fleet operator right now.
They are taking all the airplanes they are ordered and anticipate to do so moving forward.
Thanks again.
Thank you.
Our next question is from Simon.
Simon from Jpmorgan. Please go ahead.
Yes, hi, thanks very much.
Hey.
I Wonder if you can update us.
On kind of your expectations and.
The labor.
Situation at <unk>.
<unk> <unk> Sandler <unk> Theres, a contract rejected recently and.
And also how youre thinking about labor more broadly in this.
More inflationary environment.
Okay.
I think thank you for.
For the question, we are clearly in an inflationary environment. This we all recognize that but I think.
If youre, referring to the vote, we had in San R&R Val couple of weeks ago, we were already back to the table a couple of days later, so there is no more.
Major attention there everybody is back to work.
We do enjoy a good relationship with the Union in these in this group of employees have been amazing.
We are working on sorting out the situation.
Shortly.
As I said the day to day operation come to you I think you may have seen also there was a a communique from from the leaders of the Union last week, saying that we are back to the table and things are progressing well. So we do remain confident right now that we will reach a positive outcome shortly.
Okay. Okay.
Great.
And then maybe specifically.
Think.
From this supplier there should be all that much impact on Bombardier, but Tom.
There was some commentary during this earnings period about.
Titanium shortages affecting engine deliveries for for business Jets, as we think about the ecosystem more broadly.
<unk>.
Is that something where.
You guys are seeing any.
Increased risk.
No.
It's impacting all industries right now.
Supply chain challenges and as I said earlier, we do continue to manage that situation very proactively that's how we've been doing it over the last two years and even before.
We have <unk> pass at key supplier, we have no material impact right now expected. This year, we have a pretty good line of sight for what we need and where the material is right now.
The long lead time production gives capacity to adjust any disruption also and we've been using that.
We've raised the inventory also in <unk>.
Some area for certain key parts just to make sure that we're not facing.
Too much issue so.
Yes, there is some stress.
They're clearly in the supply chain, but so far.
We've been we've been doing well at <unk> and the logistic are less complex also on our side because the majority of our supply comes from North America.
Great. Thanks, very much and good quarter. Thank you. Thank you. Thank you.
Thank you. The next question is from Cai von <unk> from Cowen. Please go ahead.
Yes, Thank you for taking the question.
Your services aftermarket.
What percent of those sales are from parts and how much are the total services margins above your average adjusted EBITDA of 13 four.
Yeah. So.
Clearly I'm sure you'll understand Kai, we don't disclose kind of margin for our business segment of course, but our strong performance was supported by was fuelled by I would say many fronts.
First of all the market demand and limited capacity support pricing as it was.
There was was there and we were very busy.
Ability also to pass that cost increase so far has been of course supportive of us improving that margin and getting that business in pretty good shape.
The variable costs.
Or are pretty table, so far we are managing this.
And different cycle, but the potential also for increasing growth.
As the market share increase is there and that's what we've been capitalizing on and of course, you know we have an infrastructure today. We are in a growth mode. We put the inventory in place already so that we can be.
Bank into that market now.
So we're extremely pleased with the performance.
You know with $361 million, which is a 34% year over year improvement.
And the Q1 flight hours as I said earlier, so far are pretty much in Q1 about 23%.
Better on the Bombardier fleet expansion.
Expansion benefits to that that are contributing expanding those benefits are clearly contributing to our solid performance in this quarter.
Thank you and then Bart I think you said you can multiply first quarter services revenues by four could you give us some color as to the pattern of services revenues over the year, you expect because with your facilities coming on stream mid year, one would think that they would trend.
Up.
Yes, it's a good question and thank you.
The two incremental facilities that will be coming on stream Miami and.
And our facility in Australia are later in the second half of the year.
So they won't be big contributors to this year, we will continue to see ramp up where we expect to in 'twenty three and beyond once we have all the facilities up and running but it does take a bit of time several quarters to maybe a year year and a half to fully ramp up a new facility.
Facilities will start to make more contributions in 'twenty three and beyond.
And so what's the pattern I mean, why I mean, because the flight hours seem to be still increasing.
As well from a pharmacist.
Sure.
Yes, that's a great point.
From a forecasting point of view.
Forecasting stable flight hours, that's maybe a bit of a conservative way of forecasting but for our own purposes in the way we look at it we're looking at stable flight hour activity for the rest of the year.
Thank you very much okay. Thanks, Thank you guy.
Thank you. The next question is from Noah <unk> from Goldman Sachs. Please go ahead.
Hi, good morning, everyone.
Good morning Noah.
Just staying there.
You're you're assuming in the guidance stable flight activity sequentially from.
This first quarter here or.
Our year over year to two to four two versus $2 <unk> of last year.
Ah.
Stable from Q4, sorry.
From Q1 onwards for the rest of the year.
Okay. Okay. So we saw flight activity up 2024% and we think thats.
From a forecasting point of view.
As we have that stable throughout the rest of the year.
Got it.
Can you maybe update us on on lead times, how far out into the future or you sold into the Skyline Eric.
Aircraft type.
Okay. So.
I'm sure you understand why I'm not disclosing exactly those lead time, but we are.
Exactly where we like to be you know.
There is a zone there there is a minimum backlog that we are protecting and also there is a maximum backlog, which where we reached that maximum backlog. This is where the rate increase discussion falls into place because we don't want to be too far.
If we don't want to lose market share. So there is a zone of a minimum number of months and the maximum number of months for every program. Because every program is different perspective, but we are we're in a good place today, where we are we are exactly in that zone.
And the one Thats where were also a little bit.
Exceeding the maximum we are taking the measure by increasing the rate to bring back.
A number of months of where it needs to be so so that's how we need to manage that moving forward and now that we are in that zone.
Our target is to keep it there and we are taking the measure to leave it at the right place and have the right backlog on everyone Pro on every single program, but we're there right now, which we are very pleased with.
Okay.
<unk>.
I think that was how you described how you've been describing it for a little while now and the bookings keep coming in quite strong it would seem like they would be pushing you.
To the high end, although I guess you also have plans.
To raise production.
Yes, I'm not entirely sure how to kind of square all of that.
Clearly.
We already communicated that we're thinking of next year being 15% to 20% higher than this year right.
And we haven't talked about 2024, but.
The type of backlog, we are looking at right now, let's say that so far 24 looks good too so.
Okay.
And then how much different is the pricing that you're pulling into the backlog right now versus the pricing that you are delivering right now.
It depends by buy aircrafts.
So if you think about the platforms that have been around for a while.
Pricing continues to grow so backlog for 'twenty two.
<unk> for 23 would be a bit higher in aircraft, we're selling into 24 are higher again.
7500, we've just reached our unit cost.
So the contribution there on a unit cost side of things is now optimal and.
We expect to have.
Pricing increases starting well actually it's happening now and continuing in the months to come such that we expect the EBITDA margin contribution of that aircraft to double from where it is today by 2025, so it really depends on which platform or looking at.
Okay very helpful. Thanks, a lot okay. Thank you. Thank you.
Thank you. The next question is from Ron Epstein from Bank of America. Please go ahead.
Yeah, maybe just a couple quick ones.
What are your plans for your debt level call. It by end of year and maybe by the end of next year.
Yeah.
Well Ron.
Great question good morning.
So.
We announced today and we've already reduced gross debt by $3 4 billion since 'twenty one.
Which is on our cash interest expense down quite significantly $250 million a year.
From a longer term target, we have not changed our guidance. There we are targeting net leverage of approximately three five times by 25, not obviously implies continuing to.
Pay down debt or build cash on the balance sheet between now and 2025.
What I would say beyond 25%.
Three times is where we get to.
Given our plan and executing on that plan, but but we do believe that something lower than three times will be the optimal ultimate target. We just have not landed on what that is.
Got it got it got it got it and then on.
On the aftermarket business I mean, right now across the industry we're seeing.
Demand for for maintenance repair and overhaul surging.
Normalizes out.
Percentage of your business do you expect aftermarket to be.
I think Ralph it's Eric here, Thanks for the question.
Clearly I think our plan laid out if you remember we said that business was $1 billion two per year of revenue.
Planned brings us in $2025 to about $2 billion revenue. So thats the growth, we do foresee right now.
Is there we've put the infrastructure the inventory of parts to be able to do that and so far.
We've been delivering on that plan. So we are growing our market share from 30, something to about 50% of and I'm talking just about the 5000 business jet Bombardier flying out there. So our market share is going to be bigger the market is growing at the same time. So both together, we're going to be bringing all of our revenue.
From 1 billion to two which at the end should be around 27, 28% of our revenue overall.
Got it got it got it and then maybe just one quick detail on supply chain, you talked a little bit about.
Some some things like engines and so on and so forth. What are you seeing on avionics. My understanding is there is a.
Due to the.
Microelectronics supply chain being pretty tight.
Are you guys seeing any issues on sourcing avionics.
So the answer is no.
Not on my radar right now and usually it's a good sign if it's all on my radar.
So far the avionics supplier upbeat.
<unk> been performing extremely well for us.
Great. Thank you.
Yeah.
The next question is from George Shapiro from Shapiro Research. Please go ahead.
Yes, good morning.
I was wondering given the strong orders in the first quarter are you raising what you had said in the earlier about deliveries being up 15% to 20% next year.
Yes, we talked about 15% to 20% more airplanes in 2023, that's what we.
We have disclosed I guess it was.
Last earnings call.
Are you considering raising that given how strong the first quarter orders were.
Not at this stage I think eventually we will give a precise guidance for next year.
And in our industry. It takes time, depending on which program you know when the day from the day you make the decision to have the.
The line increase you are talking about very often 18 to 12 to 18 months.
Depending on which program and of course with the condition of the supply chain right now we are being prudent.
We want to make sure we deliver on time, and we don't pay penalties and that we've.
We've come to you amaze, our customer with the first thing being delivering the airplane on time and a good product. So so we are monitoring we've already made decision last year, which are starting to we're going to see the benefit of those rate increase next year in 2023 and <unk>.
We're going to make the decision that we have to make this year as I said earlier, we're trying to keep the backlog to a certain number of Mt.
Without going lower to a minimum and higher than the maximum we're targeting.
Okay.
A follow up.
Can you provide the mix of orders that went to fractional is versus the traditional buyer and has that changed over the last year.
That's really.
Thank you know for US fleet, operator, as we have been very successful they lagged the reliability of our product they like the cost of operation of our product. So we've been over the years extremely successful.
Are we feel pretty confident today that we have solid backlog with these guide it's a portion of certain portion of our backlog but of course, we have been growing quite a bit the individual customer in the last couple of months, but we're at the right place in terms of mix.
And we've said earlier I think in Q1, 83% of the orders came from traditional customer.
And how does that.
Is that 83%.
Different than what it was say a year ago no it's pretty much in line with what it has been so it varies by a couple of percentage point, but that's roughly what it what it is a world.
Okay. Thanks very much.
Thank you. Thanks, George Laredo, we have time for one last question.
You.
And the next question will be from David Strauss stress from Barclays. Please go ahead.
Great. Thanks for fitting me in.
Barge in terms of your your free cash flow guidance for the year.
The current guidance does that does that assume a one times book to bill for the full year.
Yeah, Good morning, David.
It assumes a book to bill of about one one.
For the full year with the very strong order intake in Q1, obviously, we're currently tracking better.
Then that so there is there is potential for upside, but as we've highlighted.
Earlier on in the call we wanted to take a few months here to really see what.
The current geopolitical tensions et cetera.
We consider any guidance adjustments.
Okay and in terms of the delivery cadence.
Through the course of the year.
With Q1 in line with your expectation in terms of the 21 deliveries.
Bill is the backend loading what sounds like a big Q4 is that really driven by.
Certification and initial deliveries of the challenger 3500.
Yeah, no, but clearly.
It was the plan from the start to have a lower Q1 in terms of number of delivery at 21 and <unk>.
Yes, we're ramping up so it was the plan as we transition from the $3 52 to 3500. So there was some adjustment on the line rate and that was the plan. We already guided that I think last earning call. We said that Q1 was going to be lower but the number.
Delivery for the year, we are very confident that will be greater than 120 as weak as we had guided in the last earnings call.
Okay.
Last one I had mark.
In terms of your escalation clauses in your customer contracts or you feel like you're fully protected or from from inflation or do you have any sort of caps.
In terms of the in terms of how much pricing can can escalate in terms of out year.
Deliveries, what's baked into those contracts.
Yes, David Good question. There is certainly are key.
Caps and sharing sorry sharing mechanisms throughout our our contracts with our supply chain.
They are largely idling.
So so we're well protected there we do hedge.
Both ourselves directly and through our through our supply chain on commodities, but definitely where we purchased directly.
And we do still see and anticipate strong pricing.
Across both both our aircraft and in the aftermarket relative to cost inflation. This year, we see it as a net positive in future years, we see it as a.
As a wash and so maintaining of margins going forward right.
Right now we're in good shape.
Alright appreciate it okay. Thank you David Thank you.
Thank you.
This concludes the question and answer session I would like to turn the meeting back over to Mr. Eric Marta.
So thank you again, everyone for joining us today as you could see we are off to a great start of the year, our team as being able to build on our strong performance last year and our momentum from last year and this quarter, which was one of the best in our books, we've proven once more.
We know how to make the most of opportunities when they present themselves and how to manage the unexpected from bringing in new orders to capitalizing on the world class. After market service. We provide we are steadily marching ahead towards our 2025 goals and sometime even <unk>.
Printing ahead. So thank you all for attending this call.
Thank you.
The conference has now ended please disconnect your lines at this time and we thank you for your participation.
This conference is no longer being recorded.
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