Q1 2024 Bombardier Inc Earnings Call
Operator: Good morning, ladies and gentlemen, and welcome to the Bombardier first quarter 2024 earnings conference call. Please be advised that this call is being recorded. At this time, I would like to turn the discussion over to Mr. Francis Richet de la Fleche, Vice President, FP&A, and Investor Relations for Bombardier. Please go ahead, Mr. Richet de la Fleche.
Good morning, ladies and gentlemen, and welcome to the bond balance sheet first quarter 2024 earnings conference call. Please be advised that this call is being recorded at this time I would like to turn the discussion over to Mr. Pascoe to reshape the Lafleche Vice President F. P N E and Investor Relations for Bombardier. Please go ahead, Ms usually sit they left.
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Pascoe: Good morning, everyone and welcome to both of these earnings call for the first quarter ended March 31 2024.
Francis Richer de La Fleche: Good morning, everyone, and welcome to Bombardier's earnings call for the first quarter ended March 31st, 2024. I wish to remind you that during the course of this call, we may make projections or other forward-looking statements regarding future events or the financial performance of the corporation. There are risks that actual events or results may differ materially from these statements. For additional information on forward-looking statements and underlying assumptions, please refer to the MD&A.
Pascoe: 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.
Pascoe: There are risks that actual events or results may differ materially from these statements.
Pascoe: For additional information on forward looking statements and underlying assumptions please refer to the MD&A.
Francis Richer de La Fleche: 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 Martel, and our Executive Vice President and Chief Financial Officer, Bart Demosky, to review our operations and financial results for the first quarter of 2024. I would now like to turn it over to Eric.
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 Martel.
Eric Martel: And our executive Vice President and Chief Financial Officer, Bart Demasco to review, our operations and financial results for the first quarter of 2024.
Eric Martel: I would allow like to turn it over to Eric.
And all of a messy process dawn jewel he behaved new at two tier twos.
Eric Martel: Alors, merci Francis. Bonjour et bienvenue à toutes et à tous.
Eric Martel: Good morning everyone, and thank you for joining us today. Let me first start by highlighting the great performance demonstrated by our teams during the first quarter of 2024. We continue to execute our plan with discipline and make important strides in positioning ourselves for future growth. Highlights of the quarter include a strong backlog increase, a notable percentage margin improvement, and a highly favorable book to build. This solid start reinforces our confidence in our ability to reach our guidance for the year. Before we take a closer look at the quarter's results, I would like to come back on the announcement we made yesterday.
Eric Martel: Good morning, everyone and thank you for joining us today.
Eric Martel: Let me first starts by highlighting the great performance demonstrated by our teams during the first quarter of 2024.
Eric Martel: We continue to execute our plan with discipline and made important strides.
Eric Martel: In positioning ourselves for future growth.
Eric Martel: Highlights of the quarter include a strong backlog increase a notable percentage margin improvement any IV favorable book to Bill.
This solid starts reinforces our confidence in our ability to reach our guidance for the year.
Speaker Change: Before we take a closer look at the quarter's results I would like to come back on the announcement, we made yesterday.
Speaker Change: It's a historic moment for Bombardier.
Eric Martel: It's a historic moment for Bombardier. Those who have followed us closely have seen how much we have transformed in terms of our core businesses, our employee engagement, and our balance sheet. So it was time to transform the company brand. The exercise was inspired by people.
Speaker Change: Those who have followed us closely <unk> seen how much we have transformed in terms of our core businesses, our employee engagement and our balance sheet.
Speaker Change: So at the worst time to transform the company brand.
Speaker Change: The exercise was inspired by people, our new brand identity reinforces our successful shift towards business aviation and propel the company forward.
Eric Martel: Our new brand identity reinforces our successful shift towards business aviation and propels the company forward. I hope you have had a chance to take a closer look at our new logo. We have introduced a symbol we call the mock. It's a forward-facing shape that represents air smoothly flowing over the wing of a jet.
Speaker Change: I Hope you have had a chance to take a closer look at our new logo. We have introduced a symbol we call. The Marc it's a forward facing shape that represents are smoothly flowing over the wing of a jet.
Eric Martel: Of course, the company's heritage also remains deeply rooted in the name Bombardier itself, after our entrepreneurial founder Joseph Armand Bombardier. His legacy has carried forward with Laurent and Pierre Beaudoin. Over the next few months, we are excited to show more details about this brand evolution. The first opportunity for most of the financial community on the line today to see it firsthand will be during our Investor Day on May 1st. I hope that many of you listening today will be able to attend and see the amazing facility we have built at Pearson, but more importantly, the proud and passionate team behind it.
Speaker Change: Of course, the companies <unk> also remains deeply rooted in the name Bombardier itself after our Intrapreneur Youll founder Joseph Hamamatsu.
Speaker Change: His legacy has carried forward with loja and Cabo the way.
Speaker Change: Over the next few months, we are excited to show more details about this brand evolution.
Speaker Change: The first opportunity for most of the financial community on the line today to see its first and its firsthand will be during our Investor day on may 1st.
Speaker Change: I hope that many of you listening today, we'll be able to attend and see the amazing facility, we build that Pearson, but more importantly, the proud and passionate team behind it.
Eric Martel: To me, our operation in Toronto is practically a metaphor for the transformation Bombardier is completing. We went from a large industrial footprint with many businesses and product lines to a streamlined space that's leaner, greener, focused, and ultra modern. Our brand evolution elevates what already makes Bombardier unique today, how we put people at the center, treating customers like family, and creating deep relationships.
Speaker Change: To me our operation in Toronto are practically a metaphor for the transformation. Bombardier is completing we went from a large industrial footprint with many businesses and product lines to a streamline space, that's leaner greener focus and ultra modern.
Speaker Change: Our brand evolution elevates, what already makes Bombardier unique today.
Speaker Change: How we put people at the center.
Speaker Change: Leading customer like family and creating deep relationships.
Eric Martel: We truly have a family-like relationship with our customers, and it's a team that is very important today as we examine our earnings for Q1. Customer metrics are at the heart of the good work we have done to start the year. We grew unit orders year over year, as well as posted another double-digit services growth quarter. Jet orders were up 60% versus Q1 last year, which represents excellent traction in our traditional client markets, fleet operators, and new opportunities materializing for Bombardier Defense. Backlog has been a key driver of operational predictability. We saw robust activity on the market with a first quarter unit book-to-bill of 1.6%. This has increased our backlog by 700 million.
Speaker Change: We truly have a family like relationship with our customers and it's a team that is very important today as we exit mine or earnings for Q1.
Speaker Change: Customer metrics are at the art of the good work, we have done to start the year.
Speaker Change: We grew unit orders year over years as well as posted another double digit services growth quarter.
Speaker Change: Jet orders were up 60% versus Q1 last year, which represent excellent traction in our traditional client markets fleet operators and new opportunities materializing for Bombardier defense.
Speaker Change: Backlog has been a key driver of operational predictability, we saw robust activity on the market with our first quarter unit book to Bill of 116. This has increased our backlog by 700 million.
Eric Martel: We therefore continue to stand with a multi-year and well-diversified backlog now at $14.9 billion. Services revenue continued its steady progress, posting a 13% year-over-year gain. Their momentum towards growing into a $2 billion business is remarkable and won't stop there. We continue to fill our newly built services center with more and more of the existing fleet with every passing month. Added to this, we are seeing a high capture rate for service programs like SmartLink Plus on new aircraft delivery.
Speaker Change: We therefore continue to stand with a multi year and well diversified backlog now at $14 9 billion.
Speaker Change: Services revenue continued their steady progress posting a 13% year over year gain their momentum towards growing into a $2 billion business is a remarkable and won't stop there.
We continue to feel our Uli build services center with more and more of the existing fleet with every passing month, adding.
Adding to this we are seeing a high capture rate for service program like smart linked plus.
Speaker Change: Our new aircraft deliveries. This is key to continuing our organic growth in the aftermarket.
Eric Martel: This is key to continuing our organic growth in the aftermarket, and it's a win-win for our customers. It's a win-win for our customers, who receive peace of mind knowing the OEM is with them every step of the way to help them operate with high reliability and financial predictability. On the delivery front, we remain on track to deliver between 150 and 155 aircraft in 2024. Our teams completed a total of 20 deliveries during this first quarter, down by two aircraft compared to the same quarter last year. This follows our plan for the year, as I already mentioned during our call in February. We have adjusted our delivery profile to meet the challenges we are facing with the supply chain.
Speaker Change: A win to win for our <unk>, It's a win win for our customers and received peace of mind, knowing the OEM is with them every step of the way to help them operate with high reliability and financial predictability.
Speaker Change: On the delivery front, we remain on track to deliver between 150 and 150 <unk> 55 aircrafts in 2024, our teams completed a total of 20 deliveries. During this first quarter down by two aircraft compared to the same quarter last year.
Speaker Change: This follows our plan for the year as I already mentioned during our call in February.
Speaker Change: We adjusted our delivery profile to meet the challenges we are facing with the supply chain. Our focus during the first half of the year is to build our inventory in order to deliver high volumes of aircrafts in the second half we are taking the right step to meet the continued demand for our aircraft and to reach our objectives.
Eric Martel: Our focus during the first half of the year is to build our inventory in order to deliver high volumes of aircraft in the second half. We are taking the right step to meet the country's demand for our aircraft and to reach our objective. The business jet market is resilient, and utilization continues to increase. In fact, Bombardier aircraft recorded a 7% growth in flight hours in March 2024, compared to the same month last year. It's a good sign that people have stuck with business aviation post-pandemic.
Speaker Change: <unk>.
Speaker Change: The business jet market is resilient and utilization continues to increase.
Speaker Change: In fact, Bombardier aircraft ever recorded a 7% growth in flight hours in March 2024, compared to the same month last year.
Speaker Change: It's a good sign that people stuck.
Speaker Change: Starting with business Aviation post pandemic.
Eric Martel: Regionally speaking, our sales team is well-placed to capture activity as it springs up. We are seeing activity in the Middle East, in Asia, and the American market remains strong. We also have signs of an uptick in Europe.
Speaker Change: Regionally speaking our sales team.
Speaker Change: Team is place is well placed to capture activity as it springs up we are seeing activity in the middle East and Asia and the American market remained strong. We also have signs of an uptick in Europe.
Eric Martel: From a mixed perspective, you will remember we closed 2023 very strong on the challenger 3500 order. The first quarter was marked by strong activity on the large cabin side of the business. As anticipated, we are seeing a lot of activity around the global family, a trend which is expected to continue in 2024.
Speaker Change: From a mix perspective, you will remember we closed 2023 very strong on challenger three 500 order. The first quarter was market marked by strong activity on the large cabin side of the business.
Speaker Change: As anticipated we are seeing a lot of activity around the global family a trend which is expected to continue in 2024, we like what we're seeing with regards to our product and how they line up on the marketplace.
Eric Martel: We like what we're seeing with regards to our product and how they line up in the marketplace. Taking a step back to look at our results as a whole, I am pleased to say that we are on track for the year. Bart will go into more details with you shortly on our finances, but I do want to touch on two areas of particular interest. First, deleveraging. It's notable because we continue to do it in a very steady and methodical way. Clearly, we are ahead of where we wanted to be. During the month of March, we further announced another $100 million debt retirement through the use of excess cash.
Speaker Change: Taking a step back to look at our result, as a whole I am pleased to say that we are on track for the year Bart will go into more details with you shortly on our financials, but I do want to touch on two areas of particular interest.
Speaker Change: First deleveraging.
Speaker Change: It is notable because we consider to do it in a very steady and methodical way clearly we are ahead of where we wanted to be during the month of March we further announced a 100 million more debt retirement through use of excess cash as.
Eric Martel: As we balance this all, it will lead to exciting opportunities to move from a transformational and turnaround mindset to future growth. Bart and the team have done a tremendous job of making our balance sheet something everyone can be proud of. Next, when it comes to our operating margins, we have very diligently focused on what we control. This approach has yielded one of the results I am most proud of this quarter, our 16% EBITDA margin.
Speaker Change: As we balance this all it will lead to exciting unfortunate these to move from a transformational and turnaround mindset to future growth.
Speaker Change: Bart and the team have done a tremendous job of making our balance sheet something everyone can be proud of.
Speaker Change: Next when it comes to our operating margins, we have very diligently focus on what we control. This approach as you'll need one of the results I am most proud of this quarter or 16% EBITDA margin.
Eric Martel: This is a great start to the year and points to how meaningfully we have shifted our cost structure. As mentioned, Services are, of course, a key margin driver, so continuing to grow that business is key to creating a steady base to build on.
Speaker Change: This is a great start to a year.
And points to all meaningfully we have shifted our cost structure.
Speaker Change: As mentioned.
Speaker Change: Services are of course, a key margin driver so continuing to grow that business is key to creating a steady base to build on.
Speaker Change: On the product side, our challenger aircraft continued to perform extremely well in the market and we're not where another key drivers this quarter.
Eric Martel: On the product side, our Challenger aircraft continue to perform extremely well in the market, and we're another key driver this quarter. The platform recorded a large increase in deliveries compared to the same quarter last year and had a great impact on our bottom line. Our global family of aircraft also continues to raise the bar, with the Global 7500 on track to transition to the Global 8000 in the second half of 2025.
Speaker Change: The platform, we recorded a large increase in deliveries compared to the same quarter last year and had a great impact on our bottom line.
Speaker Change: Our global family of Aircrafts also continues to raise the bar with the global 7500 on track to transition to the global 8000 in the second half of 2025.
Eric Martel: With an optimized facility and footprint now in place, we are poised to maintain the program's accretive position. The aircraft is performing on all fronts, on the bottom line and in the air. We have set speed records, as have some of our customers. Reliability is very high for a young program, and we see a lot of operators using the jet on long legs very routinely.
Speaker Change: With an optimized facility in footprint now in place we are poised to maintain the programs accretive position.
Speaker Change: The aircraft is performing on all fronts on the bottom line and in the Air we have speed records as of some of our customer.
Speaker Change: Reliability is very high for a young program and we see a lot of operators are using the jet on long legs very routinely.
Eric Martel: I am delighted that Bombardier has set the bar for the category and will raise it again in 2025 with the Global 8000. Bombardier entered the year with an excellent product mix. We're ramping up Challenger production in 24 and Globals for 25. And while we continue to require more working capital investment in the near term, we will be well placed in the second half of the year and well beyond. Our products will continue to lead the market in that category with the best plane supported by the best people.
Speaker Change: I am delighted that <unk> has set the bar for the category and we'll raise it again in 2025 with the global 8000.
Bombardier <unk> entered the year with an excellent product mix, we're ramping up challenger production in 'twenty, four and Global's 425, and while we consider require more working capital investment in the near term, we will be well placed in the second half of the year and well beyond.
Speaker Change: Our products will continue to lead the market in that category with the best Blaine supported by the best people.
Eric Martel: And before I pass the call to Bart, I want to take a moment to reiterate that this is a truly exciting time for Bombardier. We have a clear line of sight on the upcoming year and as well as where we need to be for 2025. This represents a generational transformation our employees and stakeholders can be proud of for years to come. Their hard work continues to pay off, and as we round the corner, I wanted to thank everyone who stepped up to the plate to make this all happen. Bart, on that note, the floor is yours.
Speaker Change: And before I pass the call to Bart <unk>.
Bart Demasco: Want to take a moment to reiterate that it is throughly exciting time for Bombardier.
Bart Demasco: We have a clear clear line of sight on the on the upcoming year and well as where we need to be for 2025. This represents a generation transformation our employees and stakeholders can be proud of for years to come.
Bart Demasco: Their hard work continues to pay off and as we round the corner I wanted to thank everyone, who has stepped up to the plate to make this all happen.
Speaker Change: On that note the floor is yours.
Speaker Change: Thank you, Eric and good morning, everyone.
Bart W. Demosky: Thank you, Eric. And good morning, everyone.
Bart W. Demosky: Let me begin by saying that we are truly off to a great start in 2024. We delivered a first quarter that demonstrated strong operational execution, and that was right on plan. In Q1, we continue to expand our margins, grow our aftermarket and defense businesses, and reduce our debt, demonstrating continued commitment and progress towards our core strategic priorities. Our EBITDA margins reached 16% in the quarter, representing a 140 basis point improvement versus the same quarter of 2023. Only a few years ago, we were talking about Q1 margins of 9%.
Let me begin by saying that we are truly off to a great start to 2024.
We delivered a first quarter that demonstrated strong operational execution and that was right on plan.
Eric Martel: In Q1, we continued to expand our margins grow our aftermarket and defense businesses and reduce our debt demonstrating continued commitment and progress towards our core strategic priorities.
Our EBITDA margins reached 16% in the quarter, representing a 140 basis point improvement versus the same quarter of 2023.
Eric Martel: Only a few years ago, we were talking about Q1 margins of 9%.
Bart W. Demosky: And this performance improvement speaks to our focus on costs, margin expansion, and the continued diversification of our revenues from our aftermarket, defense, and pre-owned business. As a matter of fact, our aftermarket revenues again grew in Q1 at a double-digit rate of 13% versus last year and represented 37% of our total revenues in the quarter. Simply put, we love having this business with its strong predictable revenues and cash flows and expectations of strong growth for years to come.
Eric Martel: And this performance improvement speaks to our focus on costs margin expansion.
Eric Martel: And the continued diversification of our revenues from our aftermarket defense and pre owned businesses.
As a matter of fact, our aftermarket revenues again grew in Q1 at a double digit rate of 13% versus last year and represented 37% of our total revenues in the quarter.
Eric Martel: Simply put we love having this business with its strong predictable revenues and cash flows and expectations of strong growth for years to come.
Eric Martel: We continued our balance sheet improvement activities in Q1 by launching a $100 million debt retirement through cash on hand.
Bart W. Demosky: We continued our balance sheet improvement activities in Q1 by launching a $100 million debt retirement through cash on hand. And we pushed out 2026 and 2027 debt maturities to 2031 by executing a $750 million debt refinancing at a coupon of seven and a quarter percent, which brings down our average coupon cost, which now stands at 7.49%.
And we pushed out 2026, and 2027 debt maturities to 2031 by executing a $750 million debt refinancing at a coupon of 7.25%.
Eric Martel: Which brings down our average coupon cost, which now stands at 749%.
Bart W. Demosky: We also finished the quarter strong with $1.4 billion in available liquidity, which is at the high end of our targeted range of $1 to $1.5 billion. And our net leverage for the quarter was 3.6 times. As Eric mentioned, we've seen strong order activity to start the year, with particularly active demand on the global platform. As a result, our backlog grew by $700 million to $14.9 billion in Q1, on the back of a 1.6 times book-to-bill.
Eric Martel: We also finished the quarter strong with $1 4 billion in available liquidity, which is at the high end of our targeted range of one to $1 5 billion.
Eric Martel: And our net leverage for the quarter was three six times.
Eric Martel: As Eric mentioned, we've seen strong order activity to start the year with particularly active demand on the global platforms as.
Eric Martel: As a result, our backlog grew by 700 million to $14 9 billion in Q1 on the back of a one six times book to Bill.
Bart W. Demosky: Our well-diversified and growing multi-year backlog provides us with strong visibility into our skyline and the future financial performance of our company. Now, turning to our financial performance in the quarter, our revenues were $1.3 billion, supported by 20 aircraft deliveries and $477 million in aftermarket revenue. Overall, this was a 12% decrease year on year, but that's explained by the two fewer deliveries and an aircraft delivery mix that favored our Challenger platform.
Our well diversified and growing multiyear backlog provides us with strong visibility into our skyline and the future financial performance of our company.
Yeah.
Eric Martel: Now turning to our financial performance in the quarter. Our revenues were $1 3 billion supported by 20 aircraft deliveries and $477 million in aftermarket revenues.
Eric Martel: Overall this was a 12% decrease year on year, but thats explained by the two fewer deliveries and an aircraft delivery mix, which favored our challenger platform.
Bart W. Demosky: Challenger deliveries were up 50% year-on-year, putting us in a strong position to grow our full-year deliveries on this platform, as is reflected in our guidance of 150-155 aircraft deliveries. As I mentioned earlier, the aftermarket continued its strong momentum and produced 13% year-over-year growth, translating into $477 million in revenue. Shifting to profitability, adjusted EBITDA for the first quarter was $205 million, $7 million lower than Q1 of last year, given our lower revenue. Our adjusted EBITDA margin, however, grew to 16%, an almost 10% improvement year over year.
Eric Martel: <unk> deliveries were up 50% year on year, putting us in a strong position to grow our full year deliveries on this platform as is reflected in our guidance of 150 to 155 aircraft deliveries.
Eric Martel: As I mentioned earlier, the aftermarket continues its strong momentum and produced 13% year over year growth translating into $477 million in revenues.
Eric Martel: Shifting to profitability adjusted EBITDA for the first quarter was $205 million.
Eric Martel: 7 million lower than Q1 of last year, given our lower revenues, our adjusted EBITDA margin, However grew to 16% and almost 10% improvement year over year.
Bart W. Demosky: The robust growth in adjusted EBITDA margins is mostly attributed to strong contributions from the aftermarket as well as our challenger product line. Our adjusted EBIT grew to $142 million, a 3% rise compared to the prior year, and our adjusted net income continues to be positive at $44 million this quarter. Looking at our free cash flow, we started the year right on plan. Our $387 million cash usage in Q1 reflects working capital build up in inventories, supporting our production ramp up. We invested heavily in our inventories to the tune of $659 million during the quarter.
Eric Martel: The robust growth in adjusted EBITDA margins is mostly attributed to strong contributions from the aftermarket as well as our challenger product line.
Eric Martel: Our adjusted EBIT grew to $142 million, a 3% rise compared to the prior year and our adjusted net income continues to be positive at $44 million this quarter.
Eric Martel: Looking at our free cash flow, we started the year right on plan, our 387 million cash usage in Q1 reflects working capital build in inventories supporting our production ramp up.
Eric Martel: We invested heavily in our inventories to the tune of $659 million in the quarter.
Bart W. Demosky: This investment was partly offset by growth in advances from orders we added to our backlog, as well as progress payments towards future delivery. Our CapEx expense was down to $44 million, nearly half of what it was in Q1 of 23, as we wrapped up the investments to commission our new aircraft assembly facility at Pearson Airport. Moving to our 24 guidance, our outlook for the year remains unchanged; we continue to expect to deliver between 150 and 155 aircraft with the growth versus 23 coming from our Challenger platform.
Eric Martel: This investment was partly offset by growth in advances from orders, we added to our backlog as well as progress payments towards future deliveries.
Eric Martel: Our capex expense was down to 44 million nearly half of what it was in Q1 of 'twenty three as we wrapped up the investments to commission, our new aircraft Assembly facility at the Pearson Airport.
Eric Martel: Moving to our 24 guidance our outlook for the year remains unchanged. We continue to expect to deliver between 150 and 155 aircraft with the growth versus 23 coming from our challenger platform.
Eric Martel: We do expect global deliveries to remain stable in 24 before growing in 'twenty five.
Bart W. Demosky: We do expect global deliveries to remain stable in 24 before growing in 25. We continue to expect our quarterly delivery and free cash flow profile to be similar to last year, with deliveries to be heavily skewed to Q4, resulting in a large inventory release after seeing continued investments in inventory during the second and third quarters. Looking ahead to the second quarter, we expect higher year-on-year deliveries with a mix that will favor the Challenger platform.
Eric Martel: We continue to expect our quarterly delivery and free cash flow profile to be to be similar to last year with deliveries to be heavily skewed to Q4, resulting in a large inventory release after seeing continued investments in inventory during the second and third quarters.
Eric Martel: Looking ahead to the second quarter, we expect higher year on year deliveries with a mix, which will favor the challenger platform.
Bart W. Demosky: And with continued inventory investment to support growth and deliveries, we do expect some cash usage again in Q2, though it will improve from Q1. So to conclude, we're off to a strong start in 24 hours, and we are continuing to execute on our plan as we begin the second quarter. This is an exciting time for Bombardier, and I very much look forward to speaking with you more about our path forward next week at Our Investment. With that, I will turn the floor back over to Francis to begin the Q&A.
Eric Martel: And with continued inventory investment to support growth in deliveries, we do expect some cash usage again in Q2, though improving from Q1.
Eric Martel: So to conclude we are off to a strong start to 24, and we are continuing to execute to our plan as we begin the second quarter.
Eric Martel: This is an exciting time for Bombardier and I very much look forward to speaking with you more about our path forward next week at our Investor Day.
With that let me turn the floor back over to Frances to begin the Q&A.
Francis Richer de La Fleche: Thanks, Bart. 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. During the question period, please limit yourself to one question and one follow-up. With that, we'll open it up for questions. Operator.
Frances: Thanks, Mark 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 for.
Frances: For the question period, please limit yourself to one question and one follow up with that we'll open it up for questions operator. Thank.
Operator: Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please press star followed by 1 on your touchtone phone. You will then hear a three-tone prompt acknowledging your request. If you would like to withdraw from the question queue, please press star followed by 2. And if you are using a speakerphone, please lift the handset before pressing any key. Please go ahead and press star 1 now if you have any questions. And your first question will be from James McGarroll at RBC. Please go ahead, James.
Speaker Change: Thank you, Sir ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your Touchtone phone you will then hear a threefold prompt acknowledging of your request if you would like to withdraw from the question queue. Please press star followed by two and if you are using a speaker phone. Please lift the handset before pressing any keys. Please.
Speaker Change: Go ahead and press Star one now if you have any questions.
Speaker Change: And your first question will be from James Marigold, Mick Garo at RBC. Please go ahead James.
Speaker Change: Yeah.
Tim James: Hey, thanks for having me on. I just wanted to ask... Yeah, good morning, James. On the competition environment and the G700 certification, you know, book to bill was really solid in the quarter, but can you just talk a little bit about how you see the competitive landscape evolving after the potential G800 gain certification?
James Marigold: Hey, Thanks, Rob and beyond.
James Marigold: Okay.
James Marigold: I just wanted to ask yes, good morning James.
James Marigold: On the other the competition environment in the 700.
James Marigold: Certification I know book to Bill was really solid in the quarter, but can you just talk a little bit about how you see the competitive landscape evolving after the potential G 800.
James Marigold: Gain certification.
James Marigold: Yeah.
Eric Martel: Yeah, that's a great question. And, of course, we're always closely monitoring what our competitors are doing, and as they do so also, but what I can tell you is we see, you know, strong success right now on the Global 7500 and 8000, as it only comes around late next year. So, we've seen a clear movement, I would say, towards our platform in the last couple of months. I think people appreciate that we already have something like around 170 airplanes in service.
Speaker Change: Great question and of course, we're always close.
Speaker Change: What was the monitoring what our competitors are doing and as they do so also.
Speaker Change: What I can tell you is we see.
Speaker Change: <unk>.
Speaker Change: It was strong success right now on the global 70 508000.
Speaker Change: Is it only comes around you know.
Speaker Change: Late next year. So we've seen clearly a movement I would say towards our platform in the last couple of months I think people appreciate that we already having service something like around 170 airplane. The airplane is performing extremely well and I think what we need to know what is that.
Eric Martel: The airplane is performing extremely well. And I think what we need to note is that, despite the airplane being in service for five years and the introduction of a new platform, we are still leading the performance. You know, we still have the airplane that does more range, more speed, cabin pressure, different criteria that are important for the customer. And actually, the 8000 is going to raise that bar again a year from now, which is going to be the only four zone airplane, you know, that does the range of 8000 nautical miles, achieves a speed of 94.5, and so on.
Speaker Change: Despite the airplanes being in service in five years and introduction of new platform. We are still leading the performance. We still have the airplane that makes more range more speed.
Speaker Change: Ed.
Speaker Change: <unk> cabin pressure different criteria that are important for our customer.
Speaker Change: And Julie the 8000 is going to raise that bar again in a year from now which is going to be the only four zone that makes the range of 8000 nautical mile.
Speaker Change: Achieve a speed of $94 five and so on so our airplane are extremely capable.
Eric Martel: So our airplanes are extremely capable, have proven reliability, we have a lot in service, you know. We are also starting to see customers that purchased their airplane at an earlier delivery that are coming for a second one, I think, which is a nice testimony to the performance of the product and its reliability.
<unk> proven reliability, we have a lot of in service. We are starting to see also a customer that purchased their airplane at the earlier deliveries that are coming for a second one I think which is nice to so many.
Speaker Change: The performance of the product and the reliability.
Tim James: And appreciate that. And on margins, obviously, margins came in really strong in the quarter, services were solid. But, you know, we also saw higher challenger deliveries. Can you walk us through the margin cadence for the rest of the year, given what will likely include some higher manufacturing revenues?
Speaker Change: Appreciate that.
Speaker Change: On margins, obviously margins came in really strong in the quarter services.
Speaker Change: Our solid but we also saw higher calendar deliveries.
Speaker Change: Can you walk us through the margin cadence for the rest of the year.
Speaker Change: Given what will likely include some higher manufacturing revenue.
Speaker Change: Yes, good morning, James It fits part here. Thank you.
Bart W. Demosky: Yeah, good morning, James. It's Bart here.
Bart W. Demosky: Thank you. Yeah, we did have a very strong margin this quarter; we saw margin expansion for the business. We did have, as you said, very, very strong aftermarket sales in the quarter, and they're continuing to grow. So that will benefit us through the year and in the coming years as well. The rest of the year as we look forward, we are probably going to see very strong growth in deliveries relative to this quarter.
Speaker Change: We did have a very strong <unk>.
Speaker Change: Margin this quarter, we saw margin expansion for the business.
Speaker Change: We did have as you as you said very very strong aftermarket sales in the quarter and they're continuing to grow so that will benefit us through the year.
Speaker Change: And in the coming years as well.
Speaker Change: The rest of the.
Speaker Change: The year as we look forward, we are going to probably as a next next quarter. We're looking at very strong growth in deliveries relative to this quarter, we've been very clear that this year.
Bart W. Demosky: We've been very clear that this year our production will be tied more closely, production, and deliveries will be tied more closely to our challenger fleet and next year with the strong growth for the globals. So we are anticipating overall margin growth year over year for the business, but we don't guide on a quarterly basis. So I'll leave it there.
Our production will be tied more closely production and deliveries will be tied more closely to our our challenger fleet and next year with the strong growth.
Speaker Change: For the globals.
Speaker Change: So we are anticipating overall margin growth year over year for the business, but.
Speaker Change: But we don't guide on a quarterly basis, so I'll leave it there.
Speaker Change: I appreciate it and I'll turn the line over thank you.
Tim James: I appreciate it, and I'll turn the line over to you. Thank you.
Speaker Change: Thanks, Jane and thank you.
Cameron Doerksen: The next question will be from Cameron Doerksen at National Bank Financial. Please go ahead.
Next question will be from Kamran Derksen at National Bank Financial. Please go ahead.
Cameron Doerksen: Yeah, thanks very much. Good morning.
Yes, thanks very much good morning.
Bart W. Demosky: Bart, I'm wondering if we can maybe go into a little more detail on your expectations for working capital investment over the next few quarters. I think at the beginning of the year or in February, you sort of talked about a total investment, I guess, in the first half of 2024 of something like $200 to $500 million in working capital. Is that still the expectation? And will some of that working capital investment, I guess, sort of carry over into Q3? Or do you expect it to mostly be done in Q2?
Cameron Doerksen: Bart I Wonder if you can just maybe go into a little more detail on your expectations for working capital investment over the next.
Cameron Doerksen: A few quarters I think at the beginning of the year or in February you'd sort of talked about a total investment.
Cameron Doerksen: I guess in the first half of 2024 of something like $200 million to $500 million in working capital is that still the expectation and.
Well some of that working capital investment I guess sort of carryover into Q3 or do you expect it to mostly be done in Q2.
Speaker Change: Yes, Thank you Kim and good morning, So yeah, we had a very strong inventory build in Q1, I think as I mentioned earlier $659 million, it's all tied to investing in our in our aircraft that we're going to be delivering this year and next year. So I mean, we are going to have very.
Bart W. Demosky: Yeah, thank you, Cam. And good morning.
Cameron Doerksen: So yeah, we had a very strong inventory build in Q1, I think, as I mentioned earlier, 659 million. It's all tied to investing in our aircraft that we're going to be delivering this year and next year. So I mean, we are going to have very strong inventory release later in the year; the profile for the year will be similar to last year with investment in the first three quarters but with improvement in the amount of investment in Q2 over Q1, and again, to a lesser extent, again, in Q3, with a very large release in Q4.
Speaker Change: Strong inventory release later in the year.
Speaker Change: Profile will.
Speaker Change: We will be for the year will be similar to last year with the investment in the first three quarters, but with improvement in the amount of investment queue.
Speaker Change: Q2 over Q1, and again to a lesser extent again in Q3 with a very large released in Q4, we have a.
Cameron Doerksen: We have a delivery profile for the year that is similar to last year. I think about 40% of our deliveries were in the fourth quarter of last year, and you would have seen a very, very strong free cashflow from the company. So the profile will be quite similar. And then, looking forward, we're hoping for, not hoping, but we're planning for improvement, a bit of improvement on that profile as we continue to work through the supply chain.
Speaker Change: Delivery profile for the year that is similar to last year I think about 40% of our deliveries were in the fourth quarter of last year and you would have seen very very strong free cash flow from the company. So the profile will be will be quite similar and then in 'twenty five looking forward, we're hoping for not hoping but we're planning for.
Speaker Change: A bit of improvement on that profile as we continue to work through the supply chain challenges.
Speaker Change: Okay. That's helpful and just to just to follow up on that just on 2025.
Bart W. Demosky: Okay, that's helpful. And just to follow up on that, on 2025, just as far as working capital investment is concerned, and you've talked about global deliveries being, you know, higher in 2025, is most of the investment you're making in working capital this year to kind of support 2025 deliveries as well, or should we anticipate there's going to be additional working capital investment into 2025?
Speaker Change: Just as far as working capital investment and you've you've talked about the global deliveries being higher.
Speaker Change: Higher in 2025.
Speaker Change: Is most of the investment you're in you in working capital this year to kind of support 2025 deliveries as well or should we anticipate there's going to be additional working capital investment into 2025.
Cameron Doerksen: Well, the investments this year are for both deliveries that will occur in 2024 and 2025. The order activity in the first quarter, we had 32 net orders, 32 gross orders, no cancellations, and it was biased towards the order activity, as we mentioned, was biased towards the global platforms. We do expect that to continue through the year. We've been clear that 25, we believe, will be a strong year for global deliveries. And we'll get into more of that next week when we're at investor day. OK.
Speaker Change: While the investments this year for both.
Speaker Change: <unk> deliveries that will occur in 'twenty, four and 'twenty five.
Speaker Change: The order activity in the first quarter, we had 32 net orders 32 gross orders no cancellations.
Speaker Change: And it was a bias towards the order activity as we mentioned was biased towards the global platforms, we do expect.
Speaker Change: That to continue through the year, we've been clear that 25, we believe will be a <unk>.
Speaker Change: <unk> year for global deliveries and we will get into more of that next week when were at Investor day.
Speaker Change: Okay. That's helpful. Thanks very much.
David Strauss: Okay, that's helpful. Thanks very much. Okay, thanks again. The next question will be from David Strauss at Barclays, please go ahead. Hi, good morning. Thanks for taking the question. This is actually Josh.
Speaker Change: Okay. Thanks, Ken.
Speaker Change: Next question will be from David Strauss at Barclays. Please go ahead.
Speaker Change: Hi, Good morning, Thanks for taking our question. This is actually Josh <unk> on for David.
David Strauss: The next question will be from David Strauss at Barclays, please go ahead. Hi, good morning. Thanks for taking the question. This is actually Josh Korn on behalf of David. I just wanted to follow up.
Speaker Change: Just wanted to follow up on the margin question.
Speaker Change: I know aftermarket is very strong, but could you breakout a little bit.
Josh: What drove the margin improvement between pricing mix aftermarket things like that thanks.
Josh Korn: Yeah, good morning, Joshua. It's Bart here again.
Josh: Yes, good morning, Joshua it's Bart here again.
Bart W. Demosky: I'll try to be as helpful as I can here. Some of the items we don't guide on, obviously, but I would say across the board for our company, we saw improvement in margins. It came in aircraft sales prices, but it also came in the aftermarket in a very strong way. We saw a nice margin expansion on that business, as well as very strong growth in overall revenues. Those were the two main contributors as well.
I'll try to be as helpful. As I can here some of the items, we don't guide on obviously, but I would say across the board.
Bart Demasco: For our company.
Bart Demasco: We saw improvement in margins it came in aircraft sales prices.
Bart Demasco: It also came in the aftermarket and a very strong way we saw.
Bart Demasco: We saw a nice margin expansion on that business as well as very strong growth in overall revenues. So those were the two main contributors as well you know we continue to manage our costs as a company.
Bart W. Demosky: We continue to manage our costs as a company very well and in our operations. I give full credit to the operating teams for their contributions as well. It's really across the board when we look at where the benefits came from.
Speaker Change: Very very well.
Speaker Change: And in our operations and I give full credit to the operating teams.
Speaker Change: For their contributions as well so it's really kind of across the board when we look at where the benefits were the benefits came from.
Speaker Change: Are you still there Josh.
Josh Korn: Are you still there, Josh?
Speaker Change: Thank you and just one for me.
Speaker Change: Okay. Thank you.
Myles Alexander Walton: The next question will be from Miles Walton at Wolf Research. Please go ahead. Hey, good morning. You have Louis Raffetto on for Miles.
Speaker Change: Next question will be from Myles Walton at Wolfe Research. Please go ahead.
Speaker Change: Hey, good morning of Lou Raffetto on for Myles.
Myles Alexander Walton: Good morning, Luke.
Speaker Change: Bart I just.
You talked about the $700 million of cash usage in the first quarter. Just curious when you sort of gave that guidance were you assuming such strong advances in the quarter and progress payments I guess.
Louis Harold Raffetto: We were, we were, we're, I think, as I mentioned earlier, we're actually right on plan for the first quarter, for both the amount of working capital build, as well as the advances. We were anticipating strong global order activity; we saw it beginning in the, well, ramping up more in the fourth quarter of last year, and just looking at our sales pipeline, more forward through this year, we were anticipating strong global activity. Obviously, the higher to higher the price of the aircraft, the higher the deposits up front.
Speaker Change: We were.
Speaker Change: We were we're I think as I mentioned earlier, we're actually right on plan.
Speaker Change: For the first quarter.
Speaker Change: For both.
Speaker Change: The amount of working capital build as well as the advances we were anticipating strong glue.
Speaker Change: Global order activity, we saw at beginning.
Speaker Change: In the well ramping up more in the fourth quarter of last year and just looking at our sales pipeline more forward through this year, we are anticipating strong global activity.
Speaker Change: Obviously, there is higher and higher the price of the aircraft that the higher the the deposits upfront. So that was impacting our advances in the quarter and so we came in basically right on plan.
Bart W. Demosky: So that was impacting our advances in the quarter. And so we came in basically right on plan, our budget for the quarter. In fact, our result was only a few million dollars different than our budget for the quarter. So it's part of the value of our business, and having a nice backlog as well, that we can really have strong predictability into what our free cash flows and financial performance are going to look like. Okay, great. Thank you for that.
Speaker Change: Budget for the quarter in fact, our result was only a few million dollars different in our budget for the quarter. So it's part of the.
Speaker Change: The value of our business and having a nice backlog as well we can really have strong predictability into what are our free cash flows and financial performance is going to look like.
Speaker Change: Okay, great. Thank you for that and just one quick follow up what are you guys impacted by Canada's recent sanctions on via <unk>.
Speaker Change: No.
Bart W. Demosky: No, not at all. So we're we're not.
Speaker Change: Not at all so we're not.
Speaker Change: Alright, great. Thank you very much.
Speaker Change: Okay. Thank you.
Benoit Poirier: The next question will be from Benoit Poirier at Desjardins, please go ahead. Yeah, good morning, and congratulations on the strong start to the year.
Speaker Change: Next question will be from <unk> at Deutsche Bank. Please go ahead.
Yes, good morning, and congrats for the strong start for the year.
Eric Martel: My first question is on bookings. Could you maybe provide more color about what's driving the strong booking activity, especially versus peers? You made some comments about the global, but could you also talk about some regions following some comments by your main competitor over the last few days and also how's the booking trending so far?
My first question is on the bookings could you maybe provide more color about.
Deutsche Bank: What's driving the strong booking activity, especially versus peers you made some comment about the global but if you could talk about <unk>.
Deutsche Bank: So some region following some comments by your main competitor over the last few days and also how's the booking trending up so far in Q2.
Deutsche Bank: Yeah.
Eric Martel: Okay, good morning, Benoit. And thanks for that's a great question. You know, I don't know, I cannot comment on the other OEMs' performance, but I know that, you know, we are extremely proud of our product offering. The product offering we have, the performance of the airplane, the reliability of the airplane, the cabin comfort are things that we've been working diligently over the last few years to make sure that we keep our product, you know, always attractive.
Speaker Change: Hey, good morning by the way and thanks for a photo that's a great question.
Speaker Change: I don't know I cannot comment for the other oem's performance, but I know that you know we are extremely proud of our product offering the product offering we have the performance of the airplane the reliability of the airplane. The cabin comfort are things that we've been working diligently over at all.
Speaker Change: Last few years to make sure that we keep our products you know always attractive.
Eric Martel: I think we are, you know, there's a recognition clearly out there just looking at the fleet, you know, operator behavior, you know, which majority choose our airplane, you know, in the medium and large segment is also a testimony to our product. So I think, you know, we made some strategic decisions, you know, about a year ago. And, you know, in line with the geopolitical situation in the world right now, it is more complex than ever to redeploy some of our sales team members in different regions where we think there will definitely be some movement, some movement, positive movement in terms of, in terms of sales.
I think we are.
Speaker Change: So there is a recognition clearly out there just looking at the fleet.
Speaker Change: Operator behavior.
Speaker Change: You know, which majority chose our airplane you know on the medium and large segment is also a testimony overall product. So I think we've also made some strategic decision you know about a year ago and.
In line with the geopolitical situation in the World right now and it is more complex than ever to redeploy some of our <unk>.
Speaker Change: Sales team member in different region, where we thought there will be definitely a.
Speaker Change: Some movement positive movement in terms of.
Speaker Change: In terms of sales so.
Eric Martel: So between, you know, you know, and the other one I need to comment on is the defense business. As a part of our success also in Q1, we had a nice order also on the defense side. So I think our strategy is building up. It's giving us, you know, the quarter that we just completed gives us great comfort, you know, because, as Bart said, we're right on plan. Everything that happened in Q1; we're expecting it. There was no surprise.
Between you know.
Speaker Change: And the other one I need to comment on is the defense business. You know it was a part of that of our success also in Q1, we had a nice order also on the defense side. So I think our strategy is building up <unk>.
It's giving us the quarter that we just completed gives us great comfort because as Bart said, we're right on plan everything that happened in Q1, we're expecting it there was no surprise. So it's actually in line with our plan to meet the guidance. This year, we still feel very we're still today feel.
Eric Martel: So it's actually in line with our plan to meet the guidance this year. We still feel very, we still today feel very comfortable about next year. We'll give you more detail when we're together on May 1st.
Speaker Change: Very uncomfortable about next year, we'll give you more detail when we're together on may 1st.
Eric Martel: But, you know, the thing that we've done over the last four years to prepare for that strategy, you know, grow services, is definitely giving us some good benefits. The defense business, you know, the structure that we've put together, we see the benefit in the quarter, and the great news is we see it from quarter to quarter. So I think we're getting benefits from the strategic positioning we've done over the last couple of years.
Speaker Change: But you know.
Speaker Change: The thing that we've done over the last four years to prepare for that strategy and it'll grow services.
Is definitely giving us some good benefit the defense business structure that we've put together, we see the benefit in the quarter and the Great News is we see it from quarter to quarter. So I think we're getting benefits from the strategic positioning we've done over the last couple of years the product cost. So I think we've been.
Eric Martel: The product also, I think we've been careful. We've put our dollar where we felt we had a significant return on the investment. You know, the global $8,000 is an example. The Challenger $3,500 has been extremely successful. When you look at that platform last year, we had about a share of almost 50% of the market, despite having three other competitors. So I think, you know, we're marching towards what we said, and next week we'll be giving you even more views on the future.
Speaker Change: Careful we've put our dollar where we felt we had a significant return in the investment the global eight.
Speaker Change: 8000, as an example, the challenger 3500 has been extremely successful.
Speaker Change: When you look at the platform last year, we had about a share of almost 50% of the market. Despite we have three other competitor. So I think we're marching towards what we said and next week, we'll be giving you even more view on the on the future.
Benoit Poirier: That's a great call, Eric. And just for the follow-up question, when we look at the used jet inventory, it's rising slowly but still remains well below historical levels. Any thoughts about the market dynamics? I've been told that the increase is largely driven by older planes that are less competitive against new ones. So I'm just wondering how the pricing on new jets these days, maybe the market dynamics with the used inventory and whether it becomes a driver for your CPO business.
Speaker Change: That's great color and again just for the follow up question. When we look at the used jet inventory sticking up slowly, but still remains well below historical levels.
Speaker Change: Any thoughts about the market dynamics.
Speaker Change: <unk> been told that the increase is largely driven by older planes that less compete against new ones. So just wondering how is pricing on new jet. These days, maybe the market dynamics with the use of inventory and whether it becomes a driver on your CPO business.
Eric Martel: Now, that's a great question. And I think to your point, you know, we still have a historical low level of inventory, despite the fact that it went up since 2022. But you're absolutely right.
Speaker Change: No. That's a great question and I think to your point, you know, where we still have a historical low level of inventory.
Speaker Change: Despite that the went up since 2022, but.
Speaker Change: You are absolutely right and I was going to say that that.
Eric Martel: And I was going to say that, you know, older airplanes are available on the market. But, you know, if you're looking for an airplane that is like five, six, even less than 10 years old, it's more difficult to find one. There are, but it's more difficult.
Speaker Change: Older airplanes are available on the market, but if youre looking for an airplane that have like five six even less than 10 years, it's more difficult to find one there is but it's more difficult. So.
Eric Martel: So people are coming towards, you know, new airplanes, and low inventory remains more expensive, too, because there's just a few airplanes that are in that vintage of less than 10 years old. So we see an advantage, of course, in the new airplane business. And at the same time, you know, we are out there and we're being opportunistic, you know, buying airplanes that we think we can improve their value and generate
Speaker Change: People are coming to words, you know new airplane.
Speaker Change: And low inventory remains more expensive too because theres just a few airplane.
Speaker Change: That are in that vintage of less than 10 years old. So we see a advantage of course on the new airplane business and at the same time you know we are out there and we're being opportunistic buying airplanes that we think we can improve their value and generate some sales in that business has generated some some.
Eric Martel: And that business generated some good work also in Q1. And we have line of sight for the rest of the year. So overall, again, it's a strategy we've put together. It is working. And we feel very, very comfortable here with the level of inventory that we see in the market.
Speaker Change: Good work also in Q1, and we have line of sight for the rest of the year. So overall again, it's a strategy. We've put together strategy is working and we feel very very comfortable here with the level of inventory that we see the market out there.
Benoit Poirier: Okay, thank you for joining us. Hey, Benoit, it's Bart.
Speaker Change: Okay. Thank you <unk>.
Speaker Change: They've been what's part if I could just add one other thing.
Bart W. Demosky: If I could just add one other thing to Eric's comments. One of the other leading indicators that, you know, is pointing towards strong activity and is very supportive of our sales activities is flight hours. For Bombardier aircraft, you know, we saw an increase in flight hours year over year in the quarter, up another 7%. The fleet operators who we were obviously very strong partners with are up 54%, I believe since 2019.
Speaker Change: To Eric's comments, one of the other leading indicators that are pointing towards strong activity and being very supportive.
Speaker Change: For our sales activities is as flight hours for Bombardier aircraft, we saw.
Speaker Change: Year over year increase in flight hours in the quarter up by another another 7% the fleet operators, who were obviously very strong partners with.
Speaker Change: Are up 54% I believe since 2019, and we're seeing growth in flight hour activity in basically all markets around the world that we participate in for Bombardier aircraft. So that's just another factor that's being really supportive for us in our efforts and we're very pleased.
Bart W. Demosky: And we're seeing growth in flight hour activity in basically all markets around the world that we participate in for Bombardier aircraft. So that's just another factor that's really supportive of us in our efforts. And we're very pleased.
Speaker Change: Okay, great. Thanks for the assignments you next week.
Benoit Poirier: Okay, thanks for the time, and see you next week.
Speaker Change: Gabe I think NFC. Thank you.
Eric Martel: Thank you. Thank you.
Tim James: The next question will be from Tim James at TD Cowan. Please go ahead.
Speaker Change: Next question will be from Tim James at TD Cowen. Please go ahead.
Tim James: Thanks. Good morning, everyone.
Tim James: Thanks, Good morning, everyone.
Tim James: Just wondering.
Tim James: You mentioned, Bart, that aftermarket, obviously, we've seen good revenue growth, but you mentioned also nice margin expansion in aftermarket. Could you talk about what's driving that? Or is it really just as simple as increasing the utilization of all the investments that you've made in recent years? And that's just sort of naturally giving you a bias higher in the margins in that
Tim James: You mentioned Bart aftermarket obviously, we've seen the good revenue growth, but you mentioned also nice margin expansion in aftermarket.
Tim James: Could you talk about what's driving that or is it really just as simple as increasing the utilization and all the investments that you've made over recent years and thats just sort of naturally, giving you a bias higher than the margins in that business.
Bart W. Demosky: Yeah, Tim, good morning. A great question. You're, you're, you're kind of jumping into next week's topics, but to just give you a little bit of color on that.
Speaker Change: Yeah, Tim Good morning, Great question Youre, you are kind of jumping into next week's topics, but.
Tim James: To just give you a little bit of color on it.
Bart W. Demosky: You know, we invested heavily in expanding our footprint and our global facilities, and they came on stream mostly in 2022. It does take a little bit of time to operationalize those facilities, even though they filled up right away. And we've got record levels of Bombardier aircraft in those facilities around the world. But it does take a bit of time to optimize the workflow and get the teams working at productive levels.
Tim James:
Speaker Change: We invested heavily in expanding our footprint and our global facilities and they came on stream in an.
Speaker Change: And mostly in 2022, it does take a little bit of time to operationalize those facilities, even though they filled up right away.
Tim James: And we've got record levels of.
Tim James: Bombardier aircraft and those facilities around the world.
Tim James: It does take a bit of time to optimize.
Tim James: The workflow and get the teams working at productive levels. So we've been anticipating seeing some margin expansion on that front, it's starting to come through and that's accretive to our margins. The other thing is part sales is.
Bart W. Demosky: So we've been anticipating seeing some margin expansion on that front, and it's starting to come through. And that's a creative way to increase our margins. The other thing is, part sales are very key, and we continue to see very strong part sale activity, much more of which we can. And that's been key as well to margin expansion. So those two things combined are going to continue to drive the business forward. I think you will find
Tim James: Is very key and we continue to see very strong parts sale activity much more of which we control now because of our growth.
Tim James: In the percentage of aftermarket that flows through our business.
Tim James: And that's been key as well to margin expansion. So those two things combined I think are going to continue to drive the business forward.
Eric Martel: I think if I may add to Bart's comment here, you know... I think by now you know that I love that business and we've been growing it for the last few years, and that was our view that this will, as long as I can see in front of us right now, the installed base is growing, and it's maturing. And at the same time, it's going towards, you know, platforms and packages that have more revenue.
Speaker Change: If I may had to barts comments here.
Barts: I think by now you know that I love that business and we've been growing this for the last few years and I was our view that this will as long as I can see in front of us right now.
Speaker Change: <unk>.
Speaker Change: The installed base is growing it's maturing and at the same time, it's going to words, you know platform and packages that have more revenue. So as an example, the installed base today, which you know has about 5000 airplane.
Eric Martel: So as an example, you know, the installed base today, which you know, has about 5000 airplanes. There are about 50 airplanes retiring every year. They're mainly Learjets. Okay, smaller work scope on maintenance, but they are being replaced by new airplanes that are more medium and large size, which require, you know, of course, a bigger package of maintenance. So just by, you know, our delivery profile and the decision we've made of being in medium and large, we see a clear improvement for us in terms of seeing, you know, that the installation is growing, but growing also with a product mix that is favorable.
Speaker Change: There's about 50 airplane retiring a year theyre, mainly Lear jet gate smaller work scope on maintenance, but they are being replaced by newer airplanes that are more medium and large size, which require of course bigger package of maintenance. So just by.
Speaker Change: Our delivery profile and the decision we've made of being in medium and large we see a clear improvement for us in terms of seeing that the installed base growing but growing also with a product mix that is favorable and on top of it.
Eric Martel: And on top of that, you know, of course, some of these airplanes are flying. And if you had one last thing, the fleet operator, which we're very successful with, is flying much more than any other airplane that we are delivering. So this is a nice place to be, and we foresee that growth for a long period of time.
Speaker Change: Of course, some of these airplanes are flying and if you had one last thing the fleet, operator, which were very successful with our flying much more than any other airplane that we are delivering so so this is a nice place to be and we foresee that the growth for a long period of time.
Speaker Change: Okay. Thank you and then my follow up.
Tim James: Okay, thank you. And then my follow-up question, and again, maybe I'm getting ahead of myself next week as well. So feel free to rein in the question here. But how do I not get more constructive on margins? I just, you know, as I look at this quarter and the deliveries and the delivery mix, and then the margin performance, which Eric you called out as being very happy with, and I just think about what, you know, is happening going forward.
Speaker Change: Question.
Speaker Change: And again, maybe I'm getting ahead of myself next week as well so so feel free to reading the question here, but.
Speaker Change: Why not get more constructive on margins.
Speaker Change: As I look at this quarter and the deliveries and the delivery mix and then the margin performance, which Eric you called out as being very happy with.
Speaker Change:
Speaker Change: And I just think about what.
Speaker Change: Is happening going forward maybe.
Tim James: Maybe the question should be, are there any particular headwinds to margins that maybe we're not thinking about or aren't as obvious that will maybe limit the sort of remaining margin expansion opportunities that you have?
Speaker Change: Maybe the question should be is there any particular headwinds to margins that.
Speaker Change: That maybe we're not thinking about or it is obvious that will maybe limit the sort of remaining margin expansion opportunities that you have.
Bart W. Demosky: Yeah, it's a great question, Tim. For us, it's not a question of margin headwinds, per se, it's more of what you're seeing in this quarter, in particular, is mixed between revenues, sorry, between aftermarket, in particular, and the rest of the business. 37% contribution from the aftermarket on the revenue side is, you know, that that's that business kind of punching above its weight. We had 20 deliveries in the quarter, which was basically right on plan.
Speaker Change: Yes, it's a great question Tim.
Speaker Change: For us it's not a it's not a question of margin headwinds per se it's more.
Tim James: What youre seeing in this quarter in particular is mix between of revenues sorry between aftermarket in particular.
Tim James: And the rest of the business 37%.
Tim James: Contribution from from aftermarket on the revenue side is.
Tim James: That's that business kind of punching above its weight, we had 20 deliveries in the quarter, which was basically right on plan, but we're also going to have delivery growth.
Bart W. Demosky: But we're also going to have delivery growth quarter over quarter next quarter, as an example. So that will impact margins in Q2. But overall, though, for the year, we're continuing to expect margin expansion as a whole, and our aftermarket and defense businesses will really hit the wall. Businesses in particular are going to be strong contributors to that. And those are the things we want to talk a bit more about next week. So I'll just end my comments there.
Tim James: Order over quarter next quarter as an example, so that.
Tim James: <unk>.
Tim James: It will impact margins in Q2, but overall, though for the year. We're we're continuing to expect margin expansion as a whole and our aftermarket and defense businesses. In particular are going to be strong contributors to that those are the things we want to talk a bit more about next week. So I'll just end my comments, there and I think if I may just add.
Eric Martel: And I think if I may just add, Tim, one comment here is a bit like I said in the previous question. If you look forward, you know, think about five, six, seven years down the road, we clearly have plans, and we've been successful so far to grow services and defense. And as you know, these are very positive for us in terms of margin. And the piece of the pie that these businesses will have in the future will be bigger and bigger. I think that's how we need to think about it
Tim James: Tim one comment here is a bit like I said in the previous question. If you look forward think about 567 years down the road, we clearly have plans and we've been successful so far to grow services and defense.
Tim James: And as you know these these these business are very positive for us in terms of margin and the piece of the pie that these businesses will have in the future will be bigger and bigger.
Speaker Change: I think thats, how we need to think about that.
Tim James: Yeah.
Tim James: Okay, great. Thank you.
Speaker Change: Okay, great. Thank you.
Speaker Change: Thank you thanks, Tim.
Tim James: Next question will be from Carbonite Gupta at Scotia Bank. Please go ahead.
Konark Gupta: The next question will be from Konark Gupta at Scotiabank. Please go ahead.
Konark Gupta: Thanks, and good morning, everyone. Good to see pretty strong order activity in Q1. So maybe I can just follow up on that order side of things. Book-to-bill 1.6, pretty strong.
Konark Gupta: Thanks, and good morning, everyone. Good to see pretty strong order activity in Q1, So maybe I can just follow up on that on our side of things.
Konark Gupta: Book to Bill of one six pretty strong obviously, there's some mix effect here given.
Konark Gupta: Obviously, there's a mixed effect here, given your deliveries in Q1, but even the absolute orders look pretty good. But going forward, I should not expect the book-to-bill ratio to remain at one, as you expect. And I'm talking both on a unit and dollar basis, as you expect good continued order activity on globals. However, in terms of deliveries, you expect more challenges this year. So it seems like the mix is skewing the book-to-bill toward one plus at this point, perhaps, you know, not one or below one. Any thoughts?
Konark Gupta: And the reason Q1, but even the absolute orders look pretty good.
Konark Gupta: Going forward like should not expect the book to bill ratio to remain above one.
Konark Gupta: As you expect and I am talking both the unit and dollar basis. As you expect good continued auto activity on Google's. However in terms of deliveries you expect more challenges this year. So it seems like the mix.
Konark Gupta: It's skewing the book devoted toward one plus at the spine, perhaps not one below one any thoughts.
Speaker Change: I think on the long run.
Eric Martel: I think in the long run, Konark, and thanks for the question, we have our plans made with a book to bill of one. And I think, you know, we've said that before. That's how we're planning.
Conoco: Conoco and thanks for the question.
Speaker Change: We have our plans made with a book to Bill of one and I think we've said that before that's all we're planning and as you know there will be time, where it's going to be higher than that and there could be a time, where it's going to be lower than that but we foresee over the average to be at around one <unk>.
Eric Martel: And as you know, there will be times when it's going to be higher than that. And there could be times when it's going to be lower than that. But we foresee on average to be at around one. It's going to depend on the market. It fluctuates.
Speaker Change: It's going to depend on the market it fluctuates, but on the long run will be at one what the beauty is today of our situation is that we can manage it with the length of the backlog. So if we have a bit less than our backlog will could decrease slightly if it's better than our backlog as we just foresee in Q1 will grow so overall.
Eric Martel: But in the long run, we'll be at one. What the beauty of our situation today is that we can manage it with the length of the backlog. So if we have a bit less than, you know, our backlog could decrease slightly if it's better than our backlog, as we just foresee in Q1. Overall, you know, I think it's a very realistic plan. History, I think, shows that it's quite possible at one of the backlogs, you know, for a long period of time. But that's how we're looking at it. And we know from quarter to quarter, there'll be some pluses and minuses. But overall, the longer trend will be one.
Speaker Change: I think it's a very realistic plan has three I think shows that it's a it's quite possible.
Speaker Change: One of backlog for a long period of time, but that's how we're looking at it and we know from quarter to quarter there'll be some plus and minus but overall the longer trend will be one.
Speaker Change: Okay that makes sense. Thanks for that and then if I can follow up on the <unk> sorry, one more question on supply chain pretty quick.
Konark Gupta: Okay, that makes sense. Thanks for that.
Konark Gupta: And then if I can follow up on the supply chain, sorry, one more question on supply chain pretty quick. You talked about the challenges continuing, which is why you have to build sort of more inventory this year in the first half. Any thoughts on the challenges with respect to maybe, you know, the engine makers or your engine suppliers, perhaps GE, etc.? They are having issues with the bigger ones. What's your sense on how soon can those resolve? Yeah, this is the problem.
Speaker Change: You talked about the challenges continuing which is why you have to build more inventory. This year in the first half and any thoughts on the challenges with risk.
Speaker Change: Back to maybe the engine makers engine supplier Pratt and GE et cetera, they are having issues on the bigger ones.
Speaker Change: Whats your sense on how some candles resolved.
Speaker Change: Yes. This is.
Eric Martel: Yeah, this is clearly one of our top monitoring items. The good news today is that when we look at our shortages, parts missing, we reduced them by close to 60% last year. So there are fewer issues.
Speaker Change: Clearly, our one of our top monitoring item.
Speaker Change: Yeah.
Speaker Change: The good news today is I think when we look at our shortages parts missing we reduced them by over close to 60% last year. So theres fewer issue, but some of the issue has been that we'll see a bit stubborn they've been staying there mainly with.
Eric Martel: But some of the issues have been, I will say, a bit stubborn. They've been staying there mainly with engines, as you just mentioned. So the good news, I would say, is at least... One of them is in much better shape, one of the OEMs, and another one has traction.
Speaker Change: Engines as you just mentioned.
Speaker Change: So the good news I would say is that please.
Speaker Change: One of them is in much better shape, one of the OEM. Another one as traction so we're seeing traction in their plan to recover.
Eric Martel: So we're seeing, you know, traction in their plan to recover. We would like them to recover, of course, always much faster, but they recover, they're recovering, that's a good sign. And I think, you know, this is what we're working on. We're working at the highest level in all these organizations to make sure that our teams have the support that we see issues coming up earlier, and that we're fixing the problem once and for all, so that they don't occur anymore. But there were some, a lot of things that still needed to be fixed.
Speaker Change: We would like them to recover of course always much faster, but they recover they are recovering does the good sign and I think this is this is what we're working on we're working at the highest level in all of these organizations to make sure that our teams have the support that we see issue coming up earlier and Thats where were.
Speaker Change: Fixing the problem once and for all so that they don't work here anymore, but there was some some a lot of things that still need to be fixed but the good news is we're getting traction and we see improvement in the plant, which gives us confidence that we can achieve what we said we're going to achieve this year and we're getting radio so nicely.
Konark Gupta: But the good news is we're getting traction, and we see improvement in the plan, which gives us confidence that we can achieve what we said we would achieve this year. And we're also getting ready nicely for what we were planning to do next year in 2015. Perfect. I appreciate the answers. Thank you. Thank you. And our last question will be from Jay Singh at Citi. Please go ahead. Hey, thanks for taking my call.
Speaker Change: For for what we were planning to do next year in 'twenty five.
Speaker Change: Perfect I appreciate the answer thank you.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our last question will be from Jason at Citi. Please go ahead.
Jason: Hey, Thanks for taking my question, it's Jay dialing in for Stephen Trent. My first question is that actually it's my only one but some of the U S Airlines Express concern that slight movement priority goes to private aircrafts.
Jay Singh: Thank you. And our last question will be from Jay Singh at Citi. Please go ahead. Hey, thanks for taking my question.
Jason: Commercial aircraft, especially in places like Florida. So do you think there could be any regulatory developments on this side or should we just assume this will remain status quo. Thank you.
Eric Martel: No, I think, you know, there's quite a bit of discussion; there will be some movement, I'm pretty sure. But I still believe, you know, that private aviation will will will will reside somewhere. There's discussion, you know, about, you know, dedicating airports in different cities of the world for that kind of application, like business aviation. So I guess, I guess there will be some movement; I don't anticipate, you know, things being static as they are right now.
Jason: Okay.
Jason: No.
Jason: I think there's quite a bit of discussion there will be some movement I'm pretty sure.
Jason: But I still believe that private aviation, we'll will reside somewhere.
Jason: Theres discussion you know about dedicating airport in different cities of the world for that kind of application like business aviation. So I guess I guess, there will be some movement I don't anticipate things being static as they are right now, but we do foresee that.
Eric Martel: But we do foresee that, you know, people have a need to travel with business jets. Business jets are, you know, used for all kinds of applications of needs that are super important. And I think they will always have room to land these airplanes and let them take off. Transcribed by https://otter.ai
Jason: People have a need to travel with business jet business jet this is <unk>.
Jason: For for all kind of <unk> of <unk>.
Jason: Needs that.
Jason: That are super important and I think they will have room always too to land these airplane and let them takeoff.
Speaker Change: Excellent. Thank you so much.
P J: Thank you P J.
Eric Martel: Thank you. At this time, I would like to turn the call back over to Eric Martel for closing remarks.
P J: Thank you at this time I would like to turn the call back over to Eric Martel for closing remarks.
Eric Martel: So next as we mentioned our Investor day will take place at our Pearson facility next week Bart the leadership team and I are looking forward to spending quality time with you and I. So I know I also know the local team onsite is so proud to show off their new one.
Eric Martel: So next, as we mentioned, our Investor Day will take place at our Pearson facility next week. Bart, the leadership team, and I are looking forward to spending quality time with you. And I also know the local team on site is so proud to show off their new home that they will be waiting for all of us. Overall, it's been an exciting start to the year. While our brand has a new look and feel, our commitment to product and service remains the same. We are committed to continuing to deliver products and services that are at the altitude of our customers and stakeholders. Thank you again.
P J: On that day.
P J: We'll be waiting for all of US overall, it's been an exciting start of the year, while our brand as a new look and feel our commitment to product and service remains the same we are committed to continuing to deliver products and services that are at the altitude of our customer and stakeholder. Thank you again.
Speaker Change: 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 ask that you. Please disconnect your lines.
Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude the conference call for today. Once again, thank you for attending, and at this time, we ask that you please disconnect your lines.
Speaker Change: Yes.
P J: Yes.
P J: Yeah.
P J: Okay.
P J: Okay.
P J: Yes.
P J: Yes.