Q4 2022 Bombardier Inc Earnings Call
Yes.
Good morning, ladies and gentlemen, and welcome to the Bombardier fourth quarter and full year 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 Mr. Expenses does he see the lafleche Vice.
It then F G and H and Investor Relations for Bumblebee. Please go ahead Ms Yoshida Lafleche.
Good morning, everyone and welcome to the Bulverde is earning call for the fourth quarter and full year ended December 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.
Actual results or events 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, Erik <unk>, and our executive Vice President and Chief Financial Officer, Bert Demasi to review, our operations and financial results for the fourth quarter and full year 2022.
I would now like to turn over the discussion to Eric.
And I'll make a few cost is also a new <unk> E.
Good morning, everyone and thank you for joining us today.
I know that many of you listening today are eager to unpack our guidance figures and discuss where we see the business jet market going.
Bart and I are excited to walk you through this in detail and showcase the team's solid work.
I do want to take a few moments upfront to reflect on how great. The last year has been for Bombardier.
No matter, how you measure our company.
Products or our people Bombardier has delivered excellent results and met or exceeded commitment across the board.
I look at <unk> 2022 success through a few lenses.
First at the core of everything we do is the products.
We announced that we are developing the fastest Jeff in the industry the global 8000.
We then secured net Jeff as the fleet launch customer with a milestone order in Q4.
This key customer will transition their entire global 7500 sleep to global 8000 aircrafts. The team also dropped the challenge were 3500 into service on plan.
All of this keeps us our portfolio at the top of each market. We compete in when it comes to quality and performance.
Net services.
With not one or even two major announcements, but five major facility projects announced or completed.
Part of expansion plan in Singapore, Australia, the U K, the U S and the United Arab Emirates.
Defense was another key market.
We reoriented the offering under a fully integrated bombard your defense batter. This theme will play a key role in Wichita, which we design as our U S headquarters deep.
Defense will also be in Canada, and the many other markets, where governments and home force are proudly selecting Bombardier jets fort their missions.
On the financial side.
I can't.
Talk about 2022 achievement without mentioning deleveraging.
What a job the team has done.
We repaid $1 1 billion of debt with cash from our balance sheet and operation 1.1 billion.
And finally ESG.
Once again, we can point to efforts by talented Bombardier team member to lead the industry in.
In 2022, we revealed our acreage at the research project simply put it is it tangible and promising solution for business aviation path to net zero.
In the short term, we have adopted sustainable fuel for all of our operation through book and claim which immediately lower our flight operation emission by 25% on an annual basis.
I wanted to express my sincere thanks to the Bombora team member.
Made all of this possible I also want to recognize the many partners that supported us and our vision along the way.
What is it what is simply fantastic weight to Mark the company's atheists anniversary.
All of these achievements also translated to business performance or in most cases over performance.
I have certainly talked a lot about our proactive supply chain efforts, let me be clear managing supply chain as not being easy and we will continue to require a lot of focus the efforts we make a low allow me to sit here to date and confirm 123 deliveries.
For 2022.
This is a testament to our execution, especially considering the work to deliver 49 airplane in Q4 alone.
We have successfully ramped up to deliver the growth we have been forecasting for this year.
<unk> is now expecting to deliver more than 138 units in 2023.
This is well in line with the plan we have been sharing.
Looking at this more this more closely does delivery guidance would represent an increase of at least 15% in our deliveries versus 2022, excluding the object our facilities have this work in progress at the higher rate.
I also once again in a comfortable position with the skyline.
For the year.
Our $14 $8 billion backlog provides a high degree of comfort with our production plan well into 2024 as well.
All this to say we are operating in a sweet spot that allows us to remain critical.
I do want to pause for a moment here to speak about the mat and sustaining a higher delivery profile.
It is important to note that our plan is simply as it was presented in 2021 and did not depend on market upside.
We did end up getting that upside in 2021 and in the first half of 2022.
Now as we see the market stabilizing we are not going to over tweak our rates, we are going to stick to the plan and ensure our production remain de risk.
I talked last quarter about reaching a book to bill cruising altitude of one.
That's where we are at today, you can expect quarter over quarter variances slightly above or below that due to the season the ability of the delivery schedule.
The demand itself is stable to the level of full year production and further padded by our healthy backlog.
The way to look at it.
Look at this for Bombardier is simple.
We are seeing steady demand on a higher production base this year.
Industry fundamentals remained favorable in the medium and long terms and Bombardier as the right product mix to compete and win.
Turning back to the results I am delighted to confirm that our $6 9 billion. In revenue include an impressive $1 5 billion from service activities, we have highlighted potential market share growth in this field and I'm proud to see the execution is match the ambitions.
Opening new facilities and expanding existing existing one is a significant step.
Now the hard work continues to ramp up how youre more skilled technician and capture the customer through our world class offerings.
In 2023, our guided revenue of more than $7 6 billion to reflect our increase in deliveries as well as continued and steady growth from services.
Overall.
Steady and predictable growth is that the art of our success.
That approach is accelerating our bottom line growth in 2022.
We came in well over guidance recording adjusted EBITDA of $930 million.
This is a year over year increase of 45%.
Our efforts to tighten our cost structure and generate recurring savings are ahead of plan with more than 80% of our target already benefitting our P&L and we have full line of sight on the remaining initiatives. In fact Q4 2022 margin reached in most.
Impressive levels, we have seen in a while.
Adding to this we are where we need to be on key programs like the global 7500, and now setting ourselves up to smooth the cut in the global 8000 Jets ahead of its planned entry into service in 2025.
All in all this puts us in a solid position to guide more than $1 billion 125 billion and adjusted EBITDA for 2023.
Making a jump of that proportion in one year is impressive but a lot of our team members can take pride in their effort because three straight years of significant EBIT growth is quite an accomplishment.
When it comes to free cash flow and liquidity Bart would go into much more detail shortly.
Do want to highlight that over achieving on this metric is really welcome from a management perspective, we beat our revised full year guidance by 2000 $220 million.
And we again see positive free cash flow generation in 2023.
We have a clear and a repeatable ability to generate free cash going forward.
The bombard G team and I will continue to prioritize retiring debt or a fortunate sleep up be a fortunate stick refinancing maturities.
We have made significant moves towards this and in turn lowered the cost of carrying what remains.
Like on liquidity Bartsch will deep dive into that shortly but I wanted to highlight that in the past year. We have retired more than $1 billion of debt with cash from our balance sheet.
We are ahead of our plan, we have flexibility, we are being proactive and unfortunate stick and most importantly, we are succeeding.
I am encourage by the credit rating increases we saw from Moody's and Smbs as well as the positive energy that has surrounded discussion about bone biopsy as future over the past months.
To conclude I am proud of how the team executed in 2020.
We have built a strong business, which can drove volumes generate cash and predictability deliver growing EBITDA margin.
We are well placed to capture demand where interest is increasing to offset where he's made plateau in the coming months. After nearly two years of historical high.
Before I leave the floor to Bart for the deep dive into our impressive number I.
I want to fully recognize all the people behind the results.
Today, there are 15900 women and men of Bombardier that probably span behind each of our products and services.
Have all played a key part in winning as a team and delivering today's expect exceptional results.
It's also important to note that this is a team that is growing as we recruit all over the world.
I am so proud of everyone's passion and commitment and I am excited for our continued growth centered on our people and our customer. Thank you embarked over to you.
Thank you, Eric and good morning, everyone.
As we cap off what was clearly a very strong year I am pleased to speak to you today about our outstanding results as well as how our company is set up for continued success.
Today, we are confirming the very strong preliminary results, we released a few weeks ago.
And we are also sharing with you our 2023 outlook, which continues to demonstrate strong growth.
We are planning for a minimum of 15% growth in our global challenger deliveries versus the prior year.
Then 21% year over year growth in our EBITDA and most importantly continued positive cash flow generation.
I'll touch more on our guidance in a few minutes.
Before talking about 2023, I will recap some of the progress we have made in 'twenty two on our key strategic initiatives starting with the leverage.
As Eric said earlier, we reduced our debt by $1 1 billion in 'twenty two.
Which came with a recurring annual interest savings of more than $80 million.
That's a 15% reduction in our gross debt in a single year.
If we look back to December of 2020, we have reduced our debt by more than 40%.
The significant amount we repaid in 'twenty. Two was the result of several factors, which include a strong and consistent free cash flow generation being.
Being opportunistic in the markets the timing of calls tenders open market repurchases.
Finally cash optimization through securing a five year revolving credit facility, allowing us to reduce cash on our balance sheet.
Our vastly improved debt and leverage profile provided another benefit as our credit ratings were raised by both Moody's and S&P last summer.
The benefits from our efforts can also be seen through our debt refinancing last month.
Where we were able to refinance all of our debt stable interest rates, despite the broader market being interest rates rise significantly.
On that note we have successfully calls all of the outstanding 2024 maturities with the final settlement plans for next week.
And while our tender on the 25 notes reached $258 million of our 396 million repayment target, we fully expect to deploy the entirety of the proceeds from our refinancing towards debt repayment.
I'm also happy to say that the $400 million of restricted cash we had held on the balance sheet for the past two years has been released and is now sitting in our bank account available for us to use.
At the end of 2022 inclusive of this cash or adjusted net leverage stood at four six times.
Down from $7 seven times in 2021.
Representing an improvement of more than three times.
Looking ahead, we continue to see many opportunities to further reduce our debt and leverage.
Deleveraging remains our top priority and number one use of excess liquidity.
Our operational achievements last year were equally as impressive.
Our EBITDA grew 45% between 2021 and 2022.
We did this while Brian deliveries by three aircraft and growing revenues by 14%.
This impressive margin expansion is attributable to the execution of our key priorities.
During the global 7500 contribution deliberate cost and productivity improvements and growing our aftermarket.
The global 7500, EBITDA contribution materially improved throughout 2022.
In fact, we were at our targeted unit costs for most of the year.
And during the course of 'twenty three we will have fully transitioned from our launch pricing to current market price.
Our cost reduction program continues to track exceptionally well.
And we again outperformed the savings assumed in our original guidance, finishing the year at $330 million in recurring savings.
The remaining balance to reach our 400 million run rate target is included in our 2023 guidance at all of the initiatives have been launched to achieve that run rate.
Last but not least our aftermarket business had a remarkable year.
Growing its revenues by 22% versus the prior year as we executed on our service centre expansion strategy.
Flight hours of Bombardier aircraft over the same period were up approximately 11%.
Clearly our strategy is working and we are gaining market share and are now at $1 5 billion of aftermarket revenues are.
Rock with reaching our $2 billion objective.
There are two other impressive metrics that I would like to highlight that as our adjusted net income and resulting earnings per share.
Which for the first time in many years are both positive.
These metrics really embody the reduction in interest costs coming from our.
Accelerated debt reduction.
The rapid growth in our profitability.
The recognition of the significant tax attributes on our balance sheet.
Furthermore, we believe we've reached a point, where we are structurally able to generate positive adjusted net income on an annual basis.
I'll now dive a bit deeper into our 'twenty two results before talking about our 2023 guidance.
We ended the year with revenues of $6 9 billion, resulting from 123 aircraft deliveries as well as $1 5 billion in aftermarket revenues.
This represents a year over year improvement of 14%.
Our aircraft manufacturer and other revenues grew by $557 million largely the result of three incremental deliveries further compounded by improved aircraft mix as we replaced seven Lear jet deliveries in 2021 with higher revenue global challenges in 'twenty two.
Our large cabin aircraft were up for deliveries and our challenges were offsets.
As I mentioned earlier, our aftermarket business also increased its revenues by an impressive 22% year over year.
What's also help tilt our consolidated revenue mix in favor of aftermarket now representing 22% of our total revenues versus 20% in 2021.
I'm also very proud to report that in Q4 of last year, our aftermarket revenues topped $400 million for the first time.
Another impressive models milestone illustrating the progress we've made from the $252 million, we generated in Q4 of 2020.
Yes.
Moving to our profitability total adjusted EBITDA for the year was $930 million.
Representing an adjusted margin of 13, 5%.
And a 300 basis point margin expansion over 2021.
Our adjusted EBITDA growth is largely attributable to maturing our global 7500.
Generating incremental cost reductions and our aftermarket expansion.
Our adjusted EBIT totaled $512 million more than doubling our 2021 result of 223 now.
As I mentioned earlier, our adjusted net income also has meaningfully improved to a gain of $101 million versus a loss of $326 million a year group.
Sure.
Turning our focus to free cash flow, we had an impressive 22 with a cash generation of $735 million.
An improvement of $635 million from the prior year.
In Q4, we saw free cash flow generation of $169 million.
This cash generation resulted from our strong EBITDA generation of $352 million.
Positive working capital driven by a $481 million release in inventory from 49 aircraft deliveries.
Partly offset by a reduction in our accounts payable.
A drop in advances of $312 million due to those same 49 deliveries.
And a book to Bill that was a bit below one, but again reflects the high number of deliveries rather than a drop in demand.
Our capex finished at $337 million.
A bit on the high side of the range, we had provided previously.
Largely the result of greater investments to our Pearson facility as well as timing related to a land sale for which today, we continue to be active arm.
So now, let's turn to our 2023 guidance.
We are very pleased to continue demonstrating consistent progress towards our 2025 objectives.
Our aircraft deliveries are expected to be greater than 138.
In line with our prior commitments.
We expect global 7500 deliveries to remain stable and the growth to come relatively equally from the global 5500, 6500 platforms and the challenge of platforms.
Also offsetting the three near jet deliveries, we had in 2022.
Given the strong backlog, we have entering the year, we had very nice predictability and visibility in our top line.
With the planned increase in deliveries combined with expected continued growth in our aftermarket we see our revenues being greater than $7 6 billion.
Which translates into a more than 10% increase versus 2022.
On profitability, we are expecting to increase our EBITDA to greater than one $1 billion to $5 billion.
Representing at least at 21% increase versus last year.
We also expect our EBIT to grow to greater than $695 million.
An increase of greater than 36% year over year.
Our profitability growth is again outpacing our revenue growth as we continue to expand our margins by delivering on our strategic priorities.
The bridge from the 930 million of EBITDA in 2022.
Two our 2023 guidance of greater than 112 5 billion.
It can be explained by margin conversion of incremental revenues.
Positive tailwind from the global 7500.
As well as delivering the last portion of our cost reduction plan for which we have around $70 million to go.
We do see some headwinds, which partly offset our growth drivers, including increased bill of material and production costs, resulting from the high inflation environment, we've been in for much of 2022.
As well as supplier disruption costs as we continue to adjust to accommodate supply chain challenges.
Earlier last year, we shared our expectation that pricing and inflation would offset over the next few years and this is still how we see things playing out.
Our free cash flow guidance is coming in at greater than $250 million.
Including a nonrecurring costs related to legacy RPG liabilities, which totals about 125 million for the year.
The bridge from EBITDA is straightforward.
From our greater than 1.15 billion and EBITDA, we expect to remove cash interest, which should be in the neighborhood of $400 million to $450 million and.
And our Capex is expected to be around $350 million.
The Capex for 'twenty three is higher than our previously mentioned range, mostly a result from some higher construction costs at our German facility.
We do fully expect to return to a $200 million to $300 million range in 2024.
Our working capital is assumed to be relatively neutral as we are planning for a book to bill of around one <unk>.
Cash taxes continue to be negligible, even as we materially grow our earnings.
From there we must adopt the aforementioned $125 million in nonrecurring RPG payments to reach our guidance for 'twenty three.
This is the last year of significant RV RPG payments in fact between 2020, one and 2023, we will have paid out more than $225 million of Rpgs within our free cash flow performance.
So let me wrap up by providing some color on our first quarter of this year.
We expect growth to both our revenues and EBITDA in Q1, when compared to the same quarter of last year Walt.
While delivering around 20 aircrafts, which is in line with our production schedules.
Delivery wrap up throughout 'twenty three it will be progressive and we again expect to see a high delivery output in the second half of this year.
We also expect our working capital to be negative in the first quarter.
Driven by a buildup of inventory in support of our higher deliveries later this year.
We expect that this working capital Bill.
Bold with seasonally lower EBITDA and continued investments on a pearson's global facility will result in a negative free cash flow.
In conclusion with the past two years of hard work, putting us on very firm footing.
The team is ready and focus to continue building on our success and we look forward to another strong performance in 2023.
I also look forward to sharing with you an update of our strategic plan during our March 23 Investor day.
Thank you very much and with that let me turn it back over to Frances to begin the Q&A.
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 will open it up for questions operator, we're ready to begin.
Thank you ladies and gentlemen, if you do have any questions. At this time. Please press star followed by one on you touched on the phone you will then hear a threefold prompt acknowledging your request.
If you'd like to withdraw from the question queue. Please press star followed by two and if you're using a speaker phone. We do ask that you. Please lift the handset before pressing any Keith. Please go ahead and press Star. One now if you have any questions and your first question will be from <unk> <unk> at <unk>.
Bank capital markets. Please go ahead.
Yes, good morning, Bart good morning, and congratulations on the nice achievements.
Just looking at the booking activity could you mentioned some color in terms of what you're seeing by customer type model and geographies.
And whether you see any change in the market dynamics given.
The fact that the use inventory or slightly increasing and maybe the higher production rate expected that at Gulfstream.
<unk>.
Good.
Alright, Thanks, Penn West for Us for the question and.
I guess.
I think you know what we see is a resilient and start of the year you know.
So are we all understand that you know there's a nervousness in the economy right now, but we see.
You know our start to be a normal start no wind and and I would call. It resilient towards the market. So I think the category of customer that we are working with remain attracted by our products. So we see activity not just all in one category of airplane, but very much across the board. So that's the main.
To answer your first question and I think second also we still see you know.
The activity well distributed with maybe a little bit more in Asia than we had probably over the last year.
So.
That's how I would probably describe the activity, so far and and and maybe yes.
They use the airplane inventor is going up very slightly.
When I look at our product, but it's a it's far from being to a normal number we're still at about four 8% right now of abuse inventory by the end of Q4, when you and I know that usually things are all 10 12 sometime even 14%. So so we're still way below.
You know what a normal situation would be.
Okay, and maybe just a quick one for Bart with respect to the Capex of 350 million how much is related to Pearson and may be the trend going forward in terms of capex beyond the 2023.
Yeah, Great question pet bed, while off so we're looking in in 'twenty three for Pearson to be around.
Third it'll be somewhere between a third and 40% of Capex during the year. It's it's the most significant use of capex of the $350 million forecast.
It's the last year, where we will be spending significant dollars on getting our peers the facility up and running a very pleased to say that Eric and I just took a review of the project.
This past week, absolutely on track to commission on schedule beginning in August of this year.
Which is quite an accomplishment for the team just given how difficult labor markets and supply chain has been so hats off to the team has been working on the project for the coming years, because Pearson will be out of the mix. We do see ourselves returning to a more normalized capex range of $200 million to $300 million per year.
Sure.
Okay, that's great color thanks for the time.
So not a lot.
Next question will be swim set sweetman at J P. Morgan. Please go ahead.
Hey.
Thanks, very much and good morning, and congratulations on a very strong year good.
Good morning, just wanted to alright.
Just wanted to ask about the aftermarket.
Thoughts about I know tracking to the 2025 target, but we see the growth in flight hours kind of slowing and as you think about the flight hour growth that's kind of required from here to generate the aftermarket growth you are looking for both in 2023 and beyond versus what comes from the additional capacity the trading in terms of.
Service centers.
How do we think about that and doesn't environment in which flight hours are not growing or maybe even shrinking a little bit still conducive to the.
The targets that you have okay.
That's a great question.
What we've seen so far this year is a very very strong market on the after services are actually we are we see.
Amazing you know a spare parts ordering and sales we see our facility filling up very nicely you know of course, we emptied some of it by the end of the year, but we're going back to <unk>.
Being pretty much everything you know sold out very rapidly in the year and I think you know, we still see the bombora airplane flying quite a bit the fleet operator are still flying quite a bit. So the hours are there and you know we even when we compare our 12 months are over a year ago.
We're we're pretty much being ahead across the board and of course, we've installed as you know a million square foot of extra capacity, which allows us to go and bring market share at our place that we didn't have before so all of this together give us a.
Pretty strong start and we feel pretty good about being able to up to meet our objective for the year.
Great. Thank you very much I appreciate it thanks Ed.
Next question will be from Walter <unk> at RBC capital markets. Please go ahead.
Yeah, Thanks, very much good morning, everyone.
I wanted to touch a bit on your on your production guide.
Eric you're you're clearly pointing to what you had indicated at the 15% guide to 2023, it looks like it's going to be in that kind of 140 ish range and just on a go forward basis and just curious you mentioned that this is something that you want to maintain from a run rate perspective is that there.
Or something that we should just kind of model out that kind of $141 45 for a number of years or or is it and you touched a little bit on the supply chain issues.
Could you flex if you didn't have those issues right now would you be flexing higher than that 140 to $1 45.
Perhaps touch on how much higher could you go in that run rate or that line rate without having to expand your footprint.
Okay. That's that's a great question. So first of all we still up quite a bit of room to.
To increase our rate without having any footprint. So our line actually that we have either in Toronto Montreal, mainly.
Could take on more airplanes.
You know I would say in the magnitude of take probably up 200 of them overall capacity. So so that we still have quite a bit of room to up to get there before engaging into a halving of adding footprint.
In terms of how I characterize you know our number is.
For this year I think you know we were talking about being 15%.
Higher than this.
This year than last year sorry.
Guy being greater than 138, and yes. We are we are recognizing in that guidance that you know there is a supply.
Supply chain risk and everything that we want to make sure. We we manage properly. So so that's reflective of that.
In terms of what we're gonna be saying for next year.
Backlog is super solid we have all the reason to think about that but I think at Investor day idea of March I will be in a position with bard to give you more precision about our intention for 2000 the 2024.
But that's that's great and really it's all about twenty-five guide and I know you'll give us.
An update in March, but I want to make sure that we're properly characterizing how you looked at 2025 back when you provided a number of years ago and I think you know I just wanted to again be clear 2025 was not an end goal that that's the run rate that you know growth after that is going to be just bought.
Just I think what you've been indicating here is that it was kind of a first step in that with 2025, we may see other aspects of growth either on a supply chain issues are.
Decline in and you're able to.
Potentially raise your run rate, but also you know looking at new revenue opportunities with certified pre owned is that the right way to look at it that 2025 was just kind of your first step and that it's not over after that you're going to be looking at some other areas of new revenue growth as well as that is a is that fair, yes, no youre looking at it exactly there right.
Walter So.
2025 was what we guided for in 2021, but clearly you know last year. We spent detailed time to look at post 2025, and clearly you know exactly to what you said between CPO defense and other things we're doing today, we definitely.
See foresee growth in the future.
I'm looking forward to hear you go ahead, that's required if I could just add one one small comment in that first.
Forecast strategic plan, we laid out.
We gave a target of $7 5 billion of revenues for for 2025, and our guidance for this year is seven six.
So to Eric's point.
There is.
A lot of work that the teams are doing to to develop and ultimately deliver incremental growth. We're really excited about it and we'll share more towards the end of March when we have our investor day.
That's fantastic look forward to hearing about it.
Thanks Keith.
Next question will be from Noah <unk> with Goldman Sachs. Please go ahead.
Hey, good morning, everyone.
Good morning.
Mark just wanted to ask a few more follow ups on the cash flow plan.
Could you maybe given how much you've done with the balance sheet.
And how does that cash interest line move into the 2025 target.
To confirm 100% RPG is zero next year.
I'm curious about the advances given.
How positive those were last year.
Is that just kind of level out and it's a net zero or no.
Do we have to think of that as a headwind at some point.
And then on the capital plan there had been this.
Moving pieces you have the placeholder in 'twenty five and there was sort of a de facto raised but not raised because there was maybe some.
Investment in the 25 capital plan.
What's the latest thinking on that.
Yeah. Thanks, Thanks, Noah so let.
Let me talk about the cash flow first your youre essentially right on the RV cheese. This is the last significant year, we do have a 10 or $20 million left that will come off over the following couple of years, but it's we're basically down to zero. So you can use for all intents and purposes, you can model that now after 2023.
So on the cash advances.
The only thing I would say there is when we originally came out with our forecast.
Our production and delivery levels.
Were in the original model and we're a bit lower than what we're seeing in actual terms today. So if we look at our book to Bill of one.
Just for modeling purposes going forward.
Naturally we're going to deliver more about free cash flow than we would've otherwise and with interest expense coming down.
What more quickly.
And we had built it to even our modeling.
That's a great health as well for 25 or what I would say today given that we are going to talk more about this at Investor day.
Is that because our debt is coming down more quickly. We've also been able to reduce our absolute <unk>.
Average interest rates modestly, but that's helping as well we do see a clear path now to delever to a level that's a that's better.
Then what was in our our original 25 outlook and guidance and we'll talk more about that at Investor Day, I will give you some clearer picture as to what our longer term goals are.
Hopefully that that's okay.
That helps and if I could just ask you on on your margin goals. Obviously the performance in the progression has been aggressively.
The 23 guidance I think implies EBITDA margin up 100, 150 basis points getting kind of in that 15% Zhang.
Do you still have the target of 20% in 2025.
That still looks.
Somewhat steep I guess, despite everything you've accomplished.
How does how do we still get to that target.
Okay.
Well.
So again I mean, we'll we'll come to that and then a little more detail about the longer term goals and objectives. When we were at Investor day at all I would say to this point.
I mean, we came from about 5% to 15%.
In three years adjusting.
Adjusting for accounting differences I think we're now getting very close to the point, where we are on a margin basis the leader in.
<unk> our space with the other Oems we do have.
Incremental margin expansion coming this year and next year, a little bit from getting full pricing from our 7500 platform.
We refreshed our.
Our challenge of $3 50, a into the challenges III 3500, the sale system very impressive for.
For that aircraft is just incredibly impressive and of course, when you do a refresh like that.
We get some margin expansion as well and then of course, we're growing our aftermarket and.
And it's become a higher it's becoming a higher percentage of our overall revenues.
And so.
As it continues to contribute more edits at greater than 20% EBITDA margin business. It puts us in a place to continue to see <unk>.
The growth in EBITDA. So we're very pleased with where we're at today, we see a clear path.
The $1 5 billion of EBITDA that we.
Projected a couple of years ago is clear insight for us.
And we'll talk more about.
How much more than that is achievable and how we might get there when we need an investor day here later next month.
Thank you very much okay. Thank you. Thank you.
Next question is from conduct Gupta at Scotiabank. Please go ahead.
Thanks, operator, and good morning, everyone.
Yeah.
Good morning question that one of my first question is on <unk>.
Peter ship changes that you guys announced a pretty recently.
Just wondering if you can provide any color on what was the kind of basis of making those changes.
No great question Noah.
You know, it's it's important you know why stop at first of all you know I had one thing that one of my.
No member of my team was going to be retiring.
Mid June this year, Michelle will that then I just want to thank them also at the same time for everything he's he's done an amazing job it was behind it to 7500.
And you had an amazing career, but he's retiring.
Next June so that as trigger of course for me the ability to to make a change I was thinking about it for a while all too I had some of my team member that worried their current job for at least two of them for more than seven years. So all this to say that when you are to see Oh, you have to think also about them.
Government of your team and you know where do I and two two things you were trying to do first is make sure you keep the business running properly make sure that you can still deliver the plan and the growth that you are anticipating and that believe me that structure will I had the unfortunate he also to bring a new way.
A very talented person from a from the outside somebody that's been with US before 18 years that knows our business inside out also so I feel that I have been very very solid team and we will work together is anyway, one anything can happen when there is challenges in <unk>.
Whenever you're eroding step into this area to help so I think in a in a in a spirit of.
So, giving making sure we can deliver our plan, making sure that we are you know we gave a fortunate for our people to develop and beef up our succession plan in the future and that's with the spirit of what the most recent announcements were made.
I hope that helps.
No that helps thanks, so much for that then just maybe a quick follow up.
One of the comments I think I heard from you. This morning was the skyline that Paul for 2023.
And maybe at the expense of 24, but you're also assuming a onetime book to Bill ratio. So my question or clarification, it's really execute get any new orders. This year net new orders was up the cancellation that changes.
That mean that you might exceed the 100 per year delivery target or would that support the target.
No I think we're at we're pretty much sold out right now we still have a few airplane options and things like that but we are we are on solid ground in terms of backlog I think where there could be a fortunate this year with D. A.
We can have a better performance of the supply chain and I think thats, where the fortunate to your results.
Okay that makes sense appreciate the color. Thank you. Thank you. Thank you Sir Thanks Connor. Thank you.
Next question will be from <unk> <unk> at BMO. Please go ahead.
Yes, good morning.
Congratulation on the progress you've made so far.
I have a question about the.
Underwriting new projects or new programs going forward I mean, I think with.
You kind of being more focused on that.
The maintenance Capex for the last.
Number of year end.
Bringing the global 7500, then all goes into production.
Are you getting from a balance sheet perspective placed what makes you more comfortable to underwrite some bigger project or is there a balance sheet targets that you have in mind before you can enter into those types of maybe larger programs that.
You need to support long term growth.
Well I think Betsy that's a that's.
That's an excellent question that we've been discussing in detail here with the management team, but the board, but clearly.
We are very disciplined in our approach to new program and there's a there's different criteria that we have some are related to technologies. Some are related to the market expectation. Some are related to what our competition is doing but clearly one of them and probably the most important or one of the most important clearly.
It is.
No clear criteria about are.
The state of our balance sheet and our ratios.
And we're going to be very disciplined about it. The good news is that that criteria is where as Bart said. This morning. We're ahead of plan in terms of improving.
Our our balance sheet, we still have work to do so clearly I want just to be clear, we still have work to do to get to our target you know that.
We had in terms of net leverage ratio were better than we were supposed to be this year, we're already at four point something.
And aiming to continue to improve that especially with our EBIT done improving and that cash will become available we'll come to you as a priority to reduce that debt, but we are getting into a place right now and if you do the street, Matt its fairly easy Bart did them with you. This morning, and all of you guys can do it but.
If we take our targets of 2025, which for now remained one five and we will revisit will rediscover that at the end of March but you.
Take the interest rate the Capex, we're talking about we have a lot of room, you know and we're generating some pretty solid cash as a business.
Or the Rbg's are gone. So you have capex you have interest rate and it means there's a lot of available and then it's going to be a question of.
Capital allocation, what do we do with that capital.
And clearly a new program will be an option if the other criteria is or are there too so.
But we havent crossed that road, yet, but we are setting ourselves up for having the flexibility to make the right decision.
Okay, Great I appreciate that.
That answer on the 400 million.
Cash.
Freed up I guess now.
Is the plan to use that to repay debt or two.
Kind of.
Stronger liquidity I guess in an environment like this.
Yeah, great Great question fatty so.
Well I think.
Without telling you exactly how we're going to deploy the cash.
What I would say is that you should expect us to be consistent.
With the way, we've done things in the past and by that I mean.
Call it cash and liquidity thats available above $1 5 billion to us is excess and what we've said is that excess cash will be put towards debt retirement.
With that money coming into our accounts and now being there.
It would.
Mollify as is excess to our needs.
Okay, Great I appreciate it.
Perfect. Thank you Patty.
Next question will be from Myles Walton at Wolfe Research. Please go ahead.
Thanks, Good morning.
Was hoping to go to the Peirce and if I could not physically but mentally and maybe you said the cut in is going to happen in August and I'm. Just wondering are the commissioning happens in August since it's not trivial to lift and place our final assembly lines for the global So is there is there conservatism based on the EBITDA margins due to that.
At move, particularly.
Okay.
Yeah.
No not not really Myles I think.
You know we are.
No still targeting all our delivery this year the move is very well orchestrated and start will be starting.
With this this this coming fall.
With of course, a couple of months of moving station by station and our people and ramping up production. So we foresee the building you know.
<unk> still being radio on time and on track for this and we'll be we'll be adding a bit of a working capital to transition because.
Your transition, but it's all in our plan, it's all budgeted and we're planning for that but no impact on EBITDA, Yes, Myles just to add maybe one or two other comments Eric.
The cutover.
On a production basis globals, because it happens in the second half of this year I would not impact any of our R 23 deliveries.
What's going to be any impact would be 24, we're not anticipating any impact whatsoever of the cutover plan is very very well laid out.
All of the all of the capabilities people and machinery tooling everything.
The facilities are actually quite close to one another so we're not having to travel long distances.
It's simpler for us and we're doing a bit of a lift and shift into the <unk>.
New facility rather than.
Building all kinds of new things.
Without complexity.
In terms of the margin we're showing.
<unk> year over year margin growth, we still see clear path forward for a lot more growth from here.
And my only other comment would be that.
We've been very consistent since our first numbers, we put out.
In early 2021 and that we are we tend to be a bit conservative.
In our approach in our guidance and.
And we'll be consistent with that today and going forward.
And then just one clarification the land sale.
Is that embedded in the Capex guidance for 'twenty four or is that.
Would that be a lower net capex if that occurred.
Yes, there is a potential for a for a bit of a reduction an offset from that last sale, if we're able to execute on its not.
A huge number but it's an opportunity for us for sure Okay Alright.
Alright, thank you.
Thank you.
Operator, we'll have time for one last question.
Thank you.
Last question will be from Cai von <unk> Rama.
Allen. Please go ahead.
Yes. Thank you so much so to maybe follow up on Seth's question services, what sort of growth do you see this year and what.
Do you need for for flights going forward.
Because it looks like to get to two 2 billion you need 10% growth over the next three years.
I think.
Okay. That's a great question. Thank you for that.
We are clearly as I said foreseeing the growth will come from different angles. One is market share gain because of the 1 million square foot. We've added last year there'll be a significant part of that that will come our way.
I think we're being successful also in having more and more customer at the arena to our smartcard program. So that's another way for us to do that so this is I would call. It the market share category plus of course the activity level is very very strong.
Our airplane or keep flying quite a bit you have to to also think about us as being.
No clearly a leader in with the fleet operator in the fleet operator offline quite a lot.
And every.
Every airplane they have usually fly a thousand more hours a year, so which is great business for us.
So looking forward. So all of this together we are we do foresee a clear path to our objective of growing to $2 billion over five years. So we've achieved one five and we do foresee with the million square foot than everything else, we're doing the ability to get there.
Thank you very much and so what sort of growth do you see this year because by my numbers.
It looks like your obviously your sales are going to be better than seven six and it would look like after market might be down as a percent of sales this year.
Now this year, we foresee that we should be in the one six to $1 $7 billion range for the aftermarket for the aftermarket.
Okay, great. Thank you. Thank you so much. Thank you Scott and I would like to turn the call back over to Mr. Mcdowell.
Okay.
Thank you.
No.
Maybe the first thing that I would like to.
To say is thanks to all of you this morning for joining us.
So for joining us.
We look forward to connecting again during our Investor day. There is a lot right now I think to be excited about when looking at Bombardier as activities and how we are realizing our potential. So overall, we have accelerated and plan to stay the course predictably in March we will be.
Excited to dive further into the nuts, and bolts and spend a longer morning together virtually so thank you all for your time today, and your continued interest and confidence and Marty.
Thank you, Sir ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines and enjoy the rest of your day.
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