Q2 2024 Bombardier Inc Earnings Call
Be advised that this call is being recorded.
At this time I'd like to turn the discussion over to Mr. Costa Sushi dinner flesh Vice President S. T N E and Investor Relations for Gold Avi. Please go ahead, Mr. If you see the luckless.
Good morning, everyone and welcome to <unk> earnings call for the second quarter ended June 30th 2024.
Speaker Change: 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 is an actual events and results may materially differ materially from these statements.
Yes.
For additional information on forward looking statements and underlying assumptions. Please refer to the MD&A I am making this cautionary statement on behalf of each speaker on this call.
With me today is our president and Chief Executive Officer.
And our executive Vice President and Chief Financial Officer Pardon Laski to review, our operations and financial results for the second quarter of 2024, I would now like to turn over the discussion to Eric.
Hello, Mr. <unk> says Bolshoi gave new at <unk>. Good morning, everyone and thank you for joining us today.
Speaker Change: I am speaking to you from loan whereby <unk> is wrapping up a successful and productive week at the Farnborough Air show.
Speaker Change: For those who crossed us on the side you probably saw that our presence was led by Bombardier defense, it's shaping up to be a banner year for that team as we deepen relationships with governments and prime contractor in more geographies.
Over the past few months.
Speaker Change: Intra dependable challenger 650 aircrafts.
It's used for a winning campaign to deliver new border surveillance capabilities in Finland. We also won a <unk> deal in Germany. That's further demonstrates the planes versatility, we also announced a new line station directly at Farnborough Airport, while we have a large scale brand new facility in begin.
Neil it's important that we balance capacity and convenience for our customer life stations are important enabler that perform quick task.
Sensually. This our full scale service center to have more availability for a larger maintenance packages.
Our New Farm Bureau line station joins a growing network of similar facilities. For example, last year, we ramp up the light station and virus to date it has more than doubled its capacity versus our original plan.
Clearly there is significant momentum in the areas, where we are diversifying and growing.
In just a moment I will also talk about the solid market, we see on the business jet sales side.
Before we turn to the excellent second quarter results I wanted to reflect on the recent labor negotiation, we concluded in Toronto.
The current economic context, we see a growing trend of workforce disruptions.
Negotiations are getting more complex and frankly harder is becoming a reality across many industries.
Speaker Change: We came to a fair solution that supports our people as well as the company's long term goals.
We did lose and have been working days of production. So as we move through the third and fourth quarter. We are working to address a bit of scheduled pressure that was created on a couple of sales that being said in order to land within our guidance range. All the aircraft we need are transitioning.
With the completion phase and are on track overall, we are on plan to meet our guidance.
Revenue in deliveries for the second quarter saw impressive growth.
Then.
For more than 30% year over year in both of those columns.
I have to say I am proud of the team's hard work to keep us on track to our plan as we continue to grow.
We are very clearly outperforming peers when it comes to consistency and predictability.
Aircraft deliveries.
Speaker Change: This has created an environment, where we can remain agile and approach any speed bumps in a methodical way.
You'll not be surprised to hear me say that supply chain is still a headwind.
Ultimately our biggest Serbia for intervention remains on the engine.
Speaker Change: The most important thing to take home on that front is that our plan and reflects what we learned from being very present upstream.
We are working very closely with the engine makers.
<unk> quantified their performance to be as we expected and planned for.
More completely this means there is still work to be done to return to a level that I would qualify as good.
Speaker Change: They are getting traction on their recovery plans, but some remained more challenging than others that said I'll repeat it again, it's consistent with what we expected and we have adjusted accordingly.
To keep our factories running steadily book to Bill and backlog is always an important focus for me and for my team.
We've talked about the cruising altitude around one on a full year basis and this is exactly where we are.
We have benefited from our well our sales team has spread geographically over the first half of the year.
In any given quarter, it's normal for activity to vary from market to market. So it's important we're there to seize the moment the second quarter was a great example of this.
We saw some softness in some traditional regions, but we're ready to close deals and sees a fortunate these in emerging regions.
This allowed us to keep our steady base.
If I take a step back we see market trends supporting our activities, we expect a stronger Q4 than Q3 due to the usual summer holiday period.
So overall taking into account typical seasonality curves, we remain very confident in sustained demand on an annualized basis.
Predictability is a central pillar of our services growth capacity has been a huge focus for the last two to three years and we have delivered.
We are at a stage, where we can fully optimize the network to the run rates, we need to reach our long term targets the.
The year over year trends are solid we generated $507 million in Q2, another significant double digit jump versus 2023.
With that in mind, I can say with confidence that I see the finish line to where we wanted to be in 2025, and we're ahead of our plan on it.
The services team is incredible momentum beyond staffing and ramping the facilities. We're also continuing to be very agile in how we evolve the customer experience.
Revolves around leveraging the power by the hour model through Smart services. This helps us capture long term revenue streams versus booking revenues from maintenance events, one at a time.
Win win for us and for the customer.
That's also the kind of predictability that will help level, our revenue and profitability profile across quarters in not so distant future.
On profitability I am also pleased with our actuals.
Hartsville covered a remarkable 44% adjusted EPS jump and further metrics.
I'd like to underscore the 22% growth in the adjusted EBITDA total versus last year, we reach $335 million in the second quarter.
This is a testament to how well we have managed our business and no matter the product mix or other external factors, we have the ability to execute and deliver on our bottom line.
I'll now turn the call over to Mark to walk through the detailed financials would you all I would like also to take the opportunity to once again congratulate our finance team.
Two more credit rating upgrades, we secured in the past months.
Well done and over to you.
Thank you, Eric and good morning, everyone.
Again, this quarter Bombardier demonstrated both strong execution and consistency at raising the bar, we've delivered impressive double digit growth in deliveries revenues services and profitability.
We're on track to meeting our full year guidance and we have strong momentum as we enter the second half of the year.
Our business is continuing to grow rapidly with Q2 revenues, increasing by almost a third versus 2023 or.
Our services revenues crossed above the $500 million Mark for the first time.
Speaker Change: And that's a milestone that we've been talking about for the past three years, putting us in the right place to reach our 2025 services revenue objective of $2 billion, but doing it one year early.
Our adjusted EBITDA and EBIT, both grew double digits as did our adjusted net income.
Last but not least our free cash flow usage was substantially reduced compared to the same quarter of last year as well as the first quarter of 2024.
As Eric noted, we have observed robust order activity in the first half of the year.
Eric: As is reflected in our 14 $9 billion multiyear backlog.
We finished the quarter with a book to Bill ratio of one supported by a diversified pipeline of orders across all customer types and geographies.
During Q2, we continued strengthening our balance sheet by refinancing $750 million of our 2026 and 2027 notes extending the maturity to 2032 at a 7% coupon rate.
This follows a 7.25% refinancing we executed in the first quarter and brings our average coupon cost down to 741% versus seven five at the start of the year.
We ended the quarter with $1 3 billion in available liquidity just above the midpoint of our targeted range of 1% to one 5 billion.
Our net leverage which is supported by a 12 months rolling EBITDA of $1 $2 3 billion.
Was three five times.
Building on our recent achievements and following our successful Investor day on May one we.
We were pleased to receive two credit rating upgrades in the quarter Moodys upgraded our rating from B to B. One on May 2nd and on June 4th S&P upgraded it from B to B plus.
These upgrades underscore the benefits of our deleveraging efforts and reflect our improved operating and financial performance and as well the derisking of our balance sheet.
Now speaking of Derisking, our business, we announced on July one that we reached an agreement to settle the New York Bondholder lawsuit. The terms of which are confidential I will say the settlement is not material to our financial results or consolidated cash position and.
And let me be clear, while we strongly believe the allegations in this case, we're completely without merit.
Also believe that it is in the best interest of Bombardier to take risks off the table for small amounts whenever we can.
Shifting to our financial performance for the quarter, we delivered sales of $2 2 billion, representing a 32% year over year growth.
This growth is the result of 10 incremental aircraft deliveries for a total of 39.
Eric: And an impressive 18% or $79 million increase in aftermarket revenues over the same period last year.
Our operations team performed exceptionally well and managed to bring in a few aircraft, which were originally planned to be delivered in Q3.
Our aftermarket business continued to deliver excellent results in the second quarter.
Our facilities operated at near full capacity generating $507 million in revenue, representing 23% of our total sales in the quarter.
This is an impressive performance.
And as we look to the future we anticipate more record breaking performances given the significant long term growth potential ahead for this business.
Turning to profitability adjusted EBITDA for the second quarter totaled $335 million, representing a 22% or $60 million increase versus Q2 of last year.
Notably the bulk of this growth came from margin on incremental aircraft deliveries.
Our adjusted EBITDA margin was consistent with our expectations at 15, 2%.
Albeit lower than the same quarter last year as a result of revenue mix.
Adjusted EBIT was $216 million in the second quarter, a 14% increase from the previous year with an EBIT margin of nine 8%.
Adjusted net income remains solidly positive at $111 million, representing $1 <unk> of earnings per share.
Looking at free cash flow are $68 million cash usage. In Q2 was the result of negative cash flow from ops of $31 million due to some working capital build along with Capex investments of $37 million.
We continued to invest heavily in our inventory in the second quarter, but our net position only slightly increased as this investment was offset by the high number of aircraft deliveries we achieved.
<unk> were down approximately $105 million as a result of the order and delivery mix.
Our capex expense decreased to $37 million for the quarter, marking a reduction of more than 50% compared to the second quarter of last year and this was largely driven by the completion of our Pearson facility.
Eric: We expect capex spend to ramp up somewhat in the second half of the year with the overall expectation to be below the $300 million Mark for the full year.
Looking ahead to the second half of the year, we are on track with our full year guidance.
Eric: First half results have been consistent with our expectations and as we shared at the start of the year. We expect to have a significant number of deliveries and by association revenues profitability and free cash flow coming in the fourth quarter.
A quick reminder, on the third quarter, we do typically see reduced order activity and delivery activity in the summer months. This is driven by planned shutdowns of our manufacturing facilities as well as reduced customer activity. During the months of July and August when vacations are taken.
As such we expect deliveries to be down by a few units versus Q3 of last year in line with our production plan and factoring in the aircraft deliveries, we managed to bring into the second quarter.
Combined with continued inventory investments, we expect a modest cash usage again in Q3 overall, we maintain confidence in our full year guidance and remain focused on our execution.
To conclude I am very pleased with our results at the halfway mark of the year. We've achieved some remarkable accomplishments as a business. The team is performing at a high level and I am confident that we will continue to raise the bar in the second half.
Eric: So with that let me turn it back over to Frances to begin the Q&A Francis.
Thanks, Mark operator, we'll begin the Q&A.
Please keep one question and one follow up as you make your questions. Thank you.
Thank you ladies and gentlemen, do you have a question. Please press the star followed by one on your Touchtone phone. If you would like to withdraw your question. Please press the star followed by the Q, if you're using a speaker phone. Please lift the handset before pressing any keys.
Please for your first question.
Your first question comes from <unk> Gupta from Scotiabank. Please go ahead.
Thanks, and good morning, everyone.
Maybe my first question.
I think you guys noted the strong.
Shen for deliveries that are coming up in the second half it's only a few tales I think got it.
But can you just help us understand.
The strike impacted.
The production and then what kind of top end once it also any impact on order to SaaS customers were concerned that the strike may continue for longer.
Eric: Yes.
Speaker Change: Good morning, <unk> good great question.
Speaker Change: First of all I'll answer your second question around are we absolutely no impact on customer taking order.
These things happen.
I said it last a few more days, but in terms of working days, we lost about 11 days, but what we have to realize is most of the airplanes that are delivering this year, we're already in Montreal for completion.
There is only a few airplanes that are.
We're still in Toronto that will be flying to Montreal for completion.
They already did for the majority of them. There is just a few left so we had a bit of a delay on a few tales only and we have a plan to catch up right now in Toronto, We are working heavily during shutdown in Toronto with about 500 people, even more and we're going to be also attached.
Hang up the remaining in Montreal during the completion of cycles. So that's why we're saying no impact on our guidance for this year.
Okay. Thank you and if I can follow up perhaps a box.
Our leverage ratio, it's kind of tracking towards your target.
For 2025.
Is there a possibility that could kind of clarify M&A or new products our shareholder returns.
And it is looking to divest their noncommercial business, which I think includes the assets that somebody is sold to them in 2020.
Speaker Change: I'll, maybe take the first part Eric can jump in as well, but in thank you Conor and good morning, we.
At our Investor Day I think.
Speaker Change: <unk> tried to make things very very clear that the.
With our upcoming.
Expected.
Large amounts of free cash flow that we're delivering as a business we have lots of flexibility.
When it comes to how we want to deploy that capital today, we have we have not come out and provided clear guidance yet we will after we meet with our board.
Later this year probably in the early part of next year, we'll come out with a clearer guidance on how we.
Speaker Change: Plan to deploy that but in the interim all of the things that you mentioned are open to us certainly debt repayment remains the number one priority.
Speaker Change: Excess free cash flow that we have at the moment, we are not going to take our eyes off of that we intend to continue our mission to pay down about another $800 million or so of gross debt.
Over the next.
Roughly 18 17 months as that remains number one priority and then as you say, we will have the ability to look at things like return of cash to shareholders like investing in our existing fleet and like M&A, but those are things that will that will come out with more information on later.
I think well said Bart.
Clearly our priority and as Bart said it remained to repay debt I think we've shown also though I don't think you should expect any substantial acquisition until this is done but we have been especially if there is issue in the supply chain you remember that we bought <unk> back in the D&S shop.
About a year ago. So we will come to you. If there is any supply chain pressure to consider.
Maybe doing that once warm, but our focus is debt repayment and clearly M&A will come. After this is done but again possible.
To a lower magnitude to make some M&A.
I would say regarding spirit as you know spirit used to be part of <unk> for more than three decades, I am talking about the whole spirit, but the Belfast portion.
I think we've stated very clearly that.
Speaker Change: Our priority right now is clearly to make sure that the existing contract will be upheld at the highest standards for quality for delivery respecting the contract. That's that's our priority and that's why we have on a regular basis people in Belfast working on on this priority to make.
Sure that the material keeps flowing because they made basically most of the fuselage on our airplanes.
Speaker Change: Clearly monitoring the next step and as a customer we are willing to provide the appropriate.
Speaker Change: However, operational structural or legal input to that but we'll see there'll be potential buyer at some point, we could consider also to be one of them we will see.
Speaker Change: What the market says, but I think what is important to us will be that.
Whoever the buyer is.
We need to be comfortable with these guys to be there for the long run and if theres nobody we could again be.
Considering that as an option.
That's great color. Thanks, so much appreciate it guys. Thank you. Thank you so much.
Your next question comes from Bangor Foggy from tissue Bank capital markets. Please go ahead.
Yes, good morning, everyone and congrats for the strong execution in Q2.
Joseph in terms of booking is it could.
Could you maybe provide more granularity about any particular strain.
On the customer type or geographies.
Bangor Foggy: Surprise you in Q2 in terms of booking.
Joseph: Yes, great question good morning <unk>.
Clearly.
You know where I mentioned during my speech here that we have we are benefiting from a very significant geographical presence and also we can always adapt and were always sees the unfortunately, but if I look at it.
The last quarter on gross order.
It was actually very well distributed.
North America was still very strong.
A slightly maybe a couple of points lower than than.
Joseph: Usual, but not by a lot a couple of points, but clearly the one place that was strong was middle East and Africa.
It was strong but also APAC was strong.
And the other thing that I should see is our defense business also.
Joseph: Is getting its fair share of.
If those order in line with what we are expecting in terms of growth for that business. So again, a well distributed.
Our backlog as you saw remained very stable, we have 18% to 24 months, we see.
In more detail on the platform <unk>.
In defense is doing something with Sweden, the finish border Pegasus medevac. So we're super pleased but clearly North America remained strong middle East APAC, where the driver for the last quarter.
That's great and just in terms of follow up backlog is now closer to $15 billion.
With over 200 options, which obviously provides great visibility so any desire to deliver more than 150 aircraft.
Speaker Change: Enduring long term or are you sticking to the original plan disclosed at the Investor day.
It is still the plan right now I think we wanted to be disciplined.
About increasing rates, so I think the $1 50 range.
Plus or minus minus a few airplane, but the 150 is what we foresee.
We will always reassess youre right. We have a couple of hundred options in our backlog, which are dot com thing by the way in our in our backlog Im sure you know that but that's also interesting because those those option actually continue to come in on a regular basis.
Okay. Thank you very much for the time.
Your next question comes from Betty Chen from BMO capital markets. Please go ahead.
Yes. Good morning, Thanks for taking my questions.
Okay.
My first question is on the.
Mix and the margins so the EBIT margin was off a little bit.
And.
Monitoring can provide some.
Kind of background on mix.
Speaker Change: And what's what's driving the up and I noticed also you mentioned.
That was the mix of orders as well that affected the add back to is if you could give us a little bit of background or color on that.
And the second question is on.
I mean, the Belfast plant and the potential for re integrating.
All of these assets.
I don't recall exactly prior did some commercial stuff.
Business aviation itself.
How should we think about the scope of that potential acquisition to you. If you end up going into that direction.
Yeah, I'll, maybe take the first part.
<unk>.
Speaker Change: Fatty and good morning, it's Bart here and then I'll turn it back over to Eric to talk about spirit, but on the EBITDA and EBIT sorry in the margins looking at adjusted EBIT.
On a year over year basis, just to simplify it we did have a couple of one timers last year in the same quarter that would not be repeated they were related to the divestment of our commercial aircraft business too.
Speaker Change: I guess when that took place two Airbus sorry, a couple of years ago at this time.
So those were finally closed out on settlement. So those gave a bit of a difference in year over year comparisons. So that explains most of the difference if if youre looking for that there from a mix point of view.
What we had spoken about at Investor day and earlier this year.
Was that we did intend because we had such a strong.
Order activity on the Challenger front last year that we were going to have more challenger deliveries then globally. This year.
But this year, we were also expecting.
Much stronger new sales activity on the global front and that also occurred in Q2, so youre seeing the two things, which are contracting higher challenger deliveries, which impacts our mix and margin this year, but stronger global sales overall, which will grow help us grow our margins in 2025.
Speaker Change: Maybe maybe.
Speaker Change: Saudi on the spirit aspects, so just to refresh everybody's memory, we sold the asset Belfast in 2020 and at the time.
Basically Belfast was producing they have mainly three businesses as I said earlier, we know where the facility very well as we were owning the facility for our more than three decades. So the main business was the fuselage fuselage to our airplanes. So they provide the fuselage on the bold challenger and two.
Out of the three global.
At the time they were also building the wing for what has become the <unk> hundred 20, and they were also having a nice aftermarket business MSL business. So today, you've seen the announcements that were made early July by.
Boeing and Airbus basically buying spirit, but with a carve out of some Airbus activity. So if you look at Belfast, specifically, there will be carving out the.
When that business for the <unk> hundred 20, but the remain co will be basically what they are these still haven't sold.
Is basically.
The fuselage business, which is basically fuselage being delivered to Bombardier in totality plus the nacelle business in the.
The aftermarket business. So thats, what will be will be left and thats, what I said that remain co we'll see.
Make sure we exercised our contractual right about who.
It was buying but at the end depending on how this is playing out we could be in.
Speaker Change: Interested also.
We would like to make sure that if.
Speaker Change: Another value can guarantee as I said earlier the long term.
Visibility on pricing on execution, delivering on time and quality of the product we're open to that but we could also be the solution.
Speaker Change: Okay. That's helpful, but on the on the EBIT margin comment.
I was referring to the adjusted EBIT margin I'm not sure. If these items you mentioned were in that EBIT margin adjusted EBIT margin.
Speaker Change: I think off like 150 basis points year on year, I didn't see kind of like.
The mix in large and medium kind of the same versus last year or a little bit tired after market, but it feels like maybe within the large there is a mix or.
The MD&A talks about lower contribution from large aircraft I just wanted to understand the background behind that comment.
Yes, yes, yes, sorry fatty thanks.
So again there is mix as you pointed out and mix does include food and something that.
Speaker Change: Over time, we will become a larger part of the overall mix story as.
Speaker Change: Our defense business grows.
Speaker Change: So when you are considering mix because the EBITDA margins on Green aircraft sold in the defense business are quite material relative to a fully finished aircraft. There is a nice delta there that's something else that you need to take into account so year over year in that quarter, but we did have some differences.
Speaker Change: Deliveries in the mix relative to defense aircraft that would make up in large part to.
The extra difference that youre talking about on adjusted EBIT.
Speaker Change: Okay. That's helpful. Thank you.
Speaker Change: Okay. Thank you.
Speaker Change: Your next question comes from James Nick Garik <unk> from RBC capital markets. Please go ahead.
Speaker Change: Hey, Thanks, Rob Neon and congrats on the really strong quarter.
James: Thank you James.
Speaker Change: I just wanted to ask a question on the services growth that came in really strong in the quarter.
Speaker Change: You met your 2025 targets, but if we look at Bombardier versus peers Theres still.
Speaker Change: In my view some substantial runway looking ahead.
Speaker Change: Just given that you make your 2025 target.
Speaker Change: Is it reasonable to think this level of growth that we saw in the quarter to persist into.
Speaker Change: 2025, and just how you're thinking about that a little longer term.
Yes.
James that we were thinking about this is first of all we're very happy with the growth. We had this year something like around 18% the year.
Speaker Change: Year over year.
Speaker Change: Now represent about 23% and I think as we mentioned during Investor day, there is clearly quite a bit of capability there to grow even further.
Speaker Change: Other buy market share could be acquisition also but the five more than 5000 airplanes flying out there you know will it require more maintenance. So so I think it's in line you remember, we said that we foresee that by 2030, we're going to have app of our revenue coming from new aircraft delivery.
Speaker Change: The remaining 50% will come from defense.
Speaker Change: <unk> services.
Speaker Change: To your point, absolutely there is growth and I think that growth will continue to be strong.
Speaker Change: Okay. Thank you and then just going back on margin you did a good job of kind of highlighting some of the impacts to Q2, but a few.
Speaker Change: Your competitors earlier this week the kind of.
Speaker Change: Referenced some higher costs related to the supply chain that they are expecting.
Speaker Change: Impact margins, a little longer term, so when we look out to 'twenty five.
Speaker Change: Expecting EBITDA margins around seven 5%.
Speaker Change: You have your own targets out there are you still comfortable in that number given some of the higher costs, we're seeing associated with continuing our supply chain issues.
Speaker Change: Yes, absolutely I think what we've seen so far and we said it earlier even for this year, we knew that the supplier will not turn the corner right and in a few weeks. So it's going to take time I think thats why we plan.
Speaker Change: I think properly this year based on their performance right now we plan a certain number of airplane, we are still feeling good about.
Speaker Change: The recovery we see.
Speaker Change: To enable next years deliveries.
Speaker Change: The supplier or as I said earlier, the most most of them have traction in their recovery front and we see an improvement.
Speaker Change: Still a lot of work to do we're not in a position where I can say we are in good shape.
Speaker Change: Eventually we will but it's actually at least tracking in the right direction to support this year and next year's ambitions.
Speaker Change: Thank you and I'll turn the line over.
James: Thanks, James Thank you.
James: Your next question comes from Kamran Dark from National Bank Financial. Please go ahead.
Kamran Dark: Hey, Thanks. Good morning, just had a question about labor you made the point in the prepared remarks, just with regards to labor negotiations, becoming more challenging.
Kamran Dark: So you saw that with the with the situation in Toronto earlier I was just wondering if you could talk about your sort of expectation for labor cost inflation over the next few years is something I guess changed materially.
Speaker Change: You potentially impacts your financial targets or is there an offset to higher labor costs versus what was expectations. Maybe a couple of years ago, just any thoughts on that.
Speaker Change: Yes, I think we said earlier, our overall cost of course have increased over the last couple of years.
Speaker Change: And I think we all know the situation, where we're in with Covid and what happened after.
Speaker Change: But I think you know it was always offset by better price increase also on our on our airplanes. So I think we've been seeing this come.
Speaker Change: Coming to us sticking together over the last couple of years and Thats. We also foresee moving forward that we will be able, especially with the two years of backlog were in a good place to keep pricing and keep increasing it and yes labor is increase probably a bit faster in the last couple of years, but we will also see this normalizing and I think.
Speaker Change: The collective agreement and we're renewing reflect that very often there is a bigger increase in the first year and then it's.
Speaker Change: I wouldn't call it a new more normalized increase in further years.
Speaker Change: So we have visibility because remember we just negotiated dorado, but as an example in Montreal, we had a five year contract. The last time. So when we negotiated two more collective agreement earlier this year, one being in Texas and that Red Oak and one in Mexico. So.
Speaker Change: We had three to do this year Theyre done now and we're getting ready there is only one next year. So we're thinking about that in depth.
Speaker Change: Since.
Speaker Change: Okay. That's very helpful and just maybe just for the follow up just a question for Barb just on your sort of working capital expectations and I guess the.
Speaker Change: The free cash flow guide for the full year I mean, there was.
Speaker Change: Somewhat of a wide variance to begin the year, if you've got a little more visibility on what you've needed to invest in.
Speaker Change: Inventory.
Speaker Change: Yes.
Speaker Change: Further thoughts on that range on the free cash flow as it is it trending towards the lower end or higher end.
Cam: Hey, good morning Cam Yeah.
Cameron Doerksen: What I would say about free cash flow as it's trending towards the range of guidance we've provided.
Speaker Change: But just to add a little bit of clarity to that and so that you've got a bit of granularity for Q3 and Q4 I mentioned earlier in my comments that because we brought a few planned deliveries from Q3 into Q2.
Cam: That is going to impact our delivery profile in the second quarter. So while we are building aircraft that does mean.
Cam: Likely we'll have a little bit of.
Cam: Of working capital usage build in the quarter Q4 is shaping up for a very strong delivery quarter in terms of percentages of aircraft to be delivered in the year much like last year, so a little bit more than 40%.
Cam: But as Eric highlighted earlier, all those aircraft except for a couple are in Montreal.
Speaker Change: We are finishing centers as we speak and the team is doing just an excellent job getting all those aircraft to deliver what that does mean is like last year, where we had a very very strong free cash flow quarter. In Q4, we're expecting the same type of dynamics this year.
Speaker Change: Okay, that's great thanks very much.
Speaker Change: Okay Super Thank you. Thanks.
Tim James: Your next question comes from James <unk> from Citi. Please go ahead.
James: Hey, Thanks for taking my questions, Jason dialing on for Stephen Trent, Yes, Christy I want to ask is you spoke already on defense.
Speaker Change: Farnborough munis as a follow up I wanted to ask what is the what.
Speaker Change: Looking like there and any other key takeaways that you can provide us with thank you.
Cam: Yes.
Christy: I think so.
Cam: Thanks for the question Jay.
Speaker Change: I guess.
Speaker Change: <unk> quite a bit of time with the team yesterday and the day before in Farnborough.
Cam: Our boot and <unk> were both actually.
Cam: Well occupied mainly for defense business as you know over us here and Thats why we are a different presence and before since we're not in the commercial aircraft anymore. We're focus on defense and it's never been a chauffeur private aviation private dilution add their own show with E base and an MBA.
Speaker Change: Where were attending of course, but clearly.
Speaker Change: The focus was on defense and the momentum is great I can tell you and I said that earlier.
Speaker Change: Number of countries geographies politicians, we're meeting that.
Speaker Change: Ambitions in defense with better equipment more civilians et cetera is is actually very significant. So we're pleased with that because I think we do offer platforms that are game changers in the industry.
Speaker Change: Our platforms are either challenge our global are very capable. They are cost effective we have the knowledge all sort of modify these airplane in house working also with Michelin announced on those projects. So so clearly.
Speaker Change: Our very strong store for us here in Farnborough with with.
Cam: With a lot of discussion with with different potential.
Cam: Here.
Nicole: Thanks Nicole.
Nicole: Thank you so much.
Speaker Change: Your next question comes from Myles Walton from Wolfe Research. Please go ahead.
Nicole: Hey, good morning of Lou Raffetto on for Myles.
Lee: Yeah, Good morning Lee.
Speaker Change: So maybe just to go back to the margin question. This quarter sort of sets you up very similar I think with 2025 will look like but the margins are still.
Speaker Change: 300 basis points below where you kind of expect them to be next year. So barden I'm sure I can you give us some sense of a walk to how we're going to get from 15 to 18.
Speaker Change: Sure so.
Speaker Change: So a few things.
Speaker Change: One as we look out into 2025 relative to 2024, just just one thing to keep in mind is that because.
Speaker Change: We are expecting very strong revenue continued revenue growth.
Speaker Change: Strong EBITDA growth in our case Ebitdas.
Speaker Change: Typically is 100% conversion to free cash flow, because we're paying a little in the way of any sort of cash taxes, but in terms of what will make up the incremental EBITDA growth for the company.
Speaker Change: Year over year, we're probably looking at.
Speaker Change: Some additional delivery not only deliveries, but revenues from modification work and others from our defense business, So thats going to be a strong contributor.
Speaker Change: As well our aftermarket growth as Erik highlighted.
Erik: In his comments earlier, we expect that to remain strong.
Erik: The level of activity in our aftermarket business for US is unprecedented to have basically all of our facilities full at all times allows us for.
Erik: Opportunities to not only be growing revenue revenues, there, but to take account of.
Speaker Change: <unk> within the business through our workforce and through continuous improvement so we're expecting more growth there.
Speaker Change: We know through the aircraft that we have sold and are built into our backlog.
Speaker Change: Day that we will deliver next year that we have a nice pricing tailwind.
Speaker Change: Relative to this year than in prior years, and as well as as I highlighted earlier on in.
Speaker Change: In my comments, we are expecting to deliver more global's next year than this year. So if we came in at roughly the same number of aircraft deliveries. This year relative to next year, that's a nice mix improvement as well and that will add to both EBITDA and EBIT growth. So those are the key building.
Speaker Change: Blocks for for next year Lou.
Louis Harold Raffetto: Thank you and maybe just to that point on global as I know you reiterated the entry into service of the 8000 next year is there just not enough of those to be of concern of sense from a margin point of view.
Speaker Change: No.
Speaker Change: We're still planning to have the first 8000 delivering next year in Q4.
Speaker Change: The change are planning are tracking well.
Speaker Change: No. So we feel that we're going to deliver as Bart just said more global going into next year.
Speaker Change: Thank you very much.
Speaker Change: Thank you okay. Thanks Lou.
Speaker Change: Your next question comes from Noah <unk> from Goldman Sachs. Please go ahead.
Speaker Change: Hey, good morning, everyone.
Speaker Change: Yes, good morning Noah.
Speaker Change: Bart.
Noah: What's your what's your latest thinking on what this working capital change.
Speaker Change: Looks like next year versus this year.
Bart: I know you have a decent amount of fill this year related to the expectation to deliver more global is next year maybe.
Speaker Change: Maybe just remind us what other moving pieces there are this year.
Speaker Change: And how's that shaping up to look next year, just since it's been such a big swing factor.
Speaker Change: In 'twenty four.
Speaker Change: Yes good.
Speaker Change: Good question, though it was a big swing factor in 'twenty three as well. So we've been we've been working our way through two years of growing production levels to meet the growth in demand and higher deliveries.
Speaker Change: Next year once we've lined out what our delivery schedule looks like.
Speaker Change: And plan will be able to give a bit more clarity on that but as it stands today.
Speaker Change: Working capital neutral if we're delivering about the same number of aircraft next year relative to this year, albeit we might have a bit of change in there depending on.
Speaker Change: What the 26 delivery profile looks like from a mix point of view.
Speaker Change: And as you highlighted the other thing we've been working through this year is because.
Speaker Change: Global order activity is higher that does use a little bit more working capital than if we're building challenges. They are just larger aircraft with them more dollars of bill of materials that goes into each plane.
Speaker Change: So aside from that because we don't anticipate we will be having to absorb considerably more growth.
Speaker Change: In production relatively neutral.
Speaker Change: And.
Speaker Change: As it as we see it today from a free cash flow point of view.
Speaker Change: We're firmly on track to achieving our stated goal of.
Speaker Change: Of $900 million or better.
Speaker Change: Okay, great Okay.
Speaker Change: I also wanted to ask you about defense.
Speaker Change: At the Investor day.
Speaker Change: <unk> laid out the 2030 possibilities.
Speaker Change: I've been thinking of that as a longer dated opportunity but.
Speaker Change: Maybe can you just level set us on how much defense revenue is there in the business now like what's in 2024, what was it in 2003 and I guess.
Speaker Change: And you said a lot of just campaigning for a few years and then it's really ramping closer to 2030 or is or how big can this be I guess.
Speaker Change: And 25 six to the extent it's.
Speaker Change: In high demand and maybe moving faster than I had I appreciate it.
Speaker Change: Yes, I think when we when we came out a little over a year ago.
Speaker Change: And spoke for the first time a boat.
Speaker Change: And next and we highlighted that we felt pay the potential is greater probably another 50% higher than what we had thought so going from one to one 5 billion by the end of the decade.
Speaker Change: We see no change there in fact as we worked through.
Speaker Change: Our strategic planning, we're looking at ways to perhaps even grow that further but the 1 billion and a half is where we're targeting now the exciting thing is as Eric highlighted with the number of campaigns, we participated and already we're starting to fill in the slots on a quarterly basis going forward and we will go from Hans.
Hans: Full of aircraft per year to multiple aircraft deliveries per quarter is the ultimate goal. So this could become a very consistent business as well in terms of delivering both revenues and profitability and that's our expectation, but aside from that it's a little bit difficult until we get all the orders in no matter how many campaigns.
Hans: Participating in.
Hans: To give you greater clarity clarity than that.
Speaker Change: Okay I appreciate all the detail. Thank you.
Speaker Change: So thank you thanks Noah.
Speaker Change: And our last question for today comes from David Strauss from Barclays. Please go ahead.
Joshua Tyler Korn: Hi, Good morning, this is Josh corn on for David.
Joshua Tyler Korn: Just wondering if you if you would comment on the pricing of what's in the backlog and new orders coming in anything on the pricing environment.
Speaker Change: And I need to highlight also the team's unwavering ability to execute so at the same time for those of you who will be taking some time to rest and recharge in the coming weeks I wish you, a pleasant and safe summer holiday and thank you again for participating this morning.
Speaker Change: Ladies and gentlemen. This concludes your conference call for today you may now disconnect. Thank you.
Speaker Change: [music].