Bombardier (OTC:BDRBF) Inc. (TSE:BBD.B) has reported a robust performance in the third quarter of 2023, with a significant rise in revenue, profitability, and adjusted EBITDA. The company also expects a strong fourth quarter and plans to reduce its debt-to-EBITDA ratio to below four times by the end of the year.
Key takeaways from the earnings call include:
- Bombardier's Q3 2023 revenue increased by $401 million or 28% year-over-year, reaching $1.9 billion. The services division recorded an 11% rise in revenue, and the pre-owned market program saw considerable attention.
- The company's profitability and adjusted EBITDA rose by 36% and 100 basis points, respectively.
- Bombardier generated $80 million in free cash flow in the third quarter and expects to generate over $250 million for the full year.
- The company remains on track to deliver over 133 aircraft in 2023, with a backlog of $14.7 billion.
- Bombardier expects to reduce its debt to EBITDA ratio to below four times by the end of the year.
- The company has 18 months until its next debt maturity, providing ample time to manage its debt.
During the earnings call, company executives expressed confidence in their strong sales pipeline and anticipated a robust fourth quarter with high deliveries. They also mentioned that they have a clear path to achieving their book-to-bill target and expect significant cash inflows. The supply chain is organized to support their growth, and they have a clear line of sight to their delivery targets for 2024 and 2025. The company also expects to see continued growth in fleet activity and has not been significantly impacted by supply chain issues like their competitors.
CFO Bart Demosky stated that the company aims to reduce its debt by $1 billion by the end of 2025 and will deploy excess cash into debt reduction. He also confirmed that most of the investment in the Pearson facility is already completed. CEO Éric Martel expressed confidence in meeting the company's objectives for 2023 and mentioned that he looks forward to discussing the plans for 2024 in the future.
Overall, Bombardier remains confident in its demand outlook and anticipates a book-to-bill ratio of one or higher. The company is well-positioned to continue delivering strong financial performance, with significant improvements in its fundamentals, including higher profitability, strong liquidity, and a reduced debt-to-EBITDA ratio.
InvestingPro Insights
In line with Bombardier's robust performance and optimistic outlook, InvestingPro data and tips provide additional insights.
InvestingPro data highlights that Bombardier's market cap stands at $3490M, and it operates with a low P/E ratio of 6.73, indicating that the stock is undervalued. The company has shown impressive revenue growth, with a 20.17% increase in the last twelve months as of Q2 2023 and a quarterly growth of 7.58% in Q2 2023.
InvestingPro tips further illuminate Bombardier's financial health. The company operates with a significant debt burden, but it's important to note that revenue growth has been accelerating. Additionally, Bombardier's net income is expected to grow this year, and the stock has shown a significant return over the last week.
These insights align with Bombardier's strong Q3 2023 results and its plans for debt reduction. For more detailed insights and tips, consider exploring InvestingPro's comprehensive suite of investment tools. InvestingPro currently offers over 10 additional tips for Bombardier, providing a wealth of information for potential investors.
Full transcript - BDRBF Q3 2023:
Operator: Good morning, ladies and gentlemen and welcome to the Bombardier Third Quarter 2023 Earnings Conference Call. Please be advised that this call is being recorded. At this time, I'd like to turn the discussion over to Mr. Francis Richer de La Fleche, Vice President, FP&A and Investor Relations for Bombardier. Please go ahead, sir.
Francis Richer de La Fleche: Good morning, everyone and welcome to Bombardier’s earnings call for the third quarter ended September 30, 2023. I wish to remind you that during the course of this call, we may make projections or other forward-looking statements regarding future events or the financial performance of the corporation. There are risks that actual events or results may differ materially from these statements. For additional information on forward-looking statements and underlying assumptions, please refer to the MD&A. I am making this cautionary statement on behalf of each speaker on this call. With me today is our President and Chief Executive Officer, Éric Martel; and our Executive Vice President and Chief Financial Officer, Bart Demosky, to review our operations and financial results for the third quarter of 2023. I would now like to turn over the discussion to Éric.
Éric Martel: [Foreign Language] Good morning, everyone and thank you for joining us today. I am pleased to share that Bombardier had an excellent third quarter, powered by exceptional performance on all fronts. The strong results we will review today demonstrate that our plan is working and continue to position us for sustainable and long term success. These results also show the underlining strength and resilience of our business, as well as our ability to deliver on our commitment in any marketplace. Our aircraft consistently meet market demand and position us favorably around the world. Our services are growing with a solid and consistent CAGR, and finally both our top and bottom line performance has grown year-over-year. I also want to highlight the incredible work our teams accomplished throughout the quarter. We executed the plan and performed very well in a dynamic business environment faced with geopolitical headwinds. Our rigor and focus have enabled us to record a remarkable revenue increase of $401 million or 28% year-over-year and put a cash positive quarter on the Board. Taking a step back, these results come after a series of consistent years of Bombardier that led to the company being ranked on the TSX30. This prestigious recognition highlights the Top 30 performing stock over a three year period ended June 30, 2023. Over this time, our share price grew by 522%, while our market cap increased by 533%. This is quite an accomplishment. While we know the share price has been more volatile and pressure over the past months, the TSX30 ranking demonstrate that we have set the right foundation to deliver impressive returns. We are confident that our plan will drive long term shareholder value. This is a testament to our team's hard work and especially the disciplined leadership from Bart and his group. Bart will go into the detail of this quarter results in a few minutes, but first I would like to walk you through some key highlights. Profitability remains a priority of our team and continues on a positive trajectory. Our adjusted EBITDA rose by an impressive 36% year-over-year. Consistent with the previous quarter, this double digit growth is largely driven by improving operating margins, a higher contribution from our market aftermarket business and diligent cost management. Our services team continue to play a key role as we execute on our commitments. They are driving significant and sustained revenue growth. In Q3, they recorded an 11% increase in revenue year-over-year. If you look at the last nine months, we increased revenue by nearly 16% when compared to the same period in 2022. After a rapid and successful expansion of our service center network in 2022, we are now focused on operationalizing and optimizing our facilities. As more business keeps coming through our new sites, our teams remain active on the recruitment side to ensure we have the workforce to bring more and more of our jets home. The aftermarket team also continue to put customer satisfaction at the forefront and is taking concrete actions to ensure we deliver an exceptional experience. To that end, we recently launched a new Smart Services Elite program, the most comprehensive cost per flight hours offering. Turning to the pre-owned market, our certified pre-owned program keeps drawing attention by offering a premium product. With this program, Bombardier created a new segment within the market and an OEM backed option for clients looking for a pre-owned jet. We meticulously update each of these planes and leverage the expertise of our service center to present our client with a turnkey product. We presented a CPO aircraft to the North American market for the very first time at NBAA two weeks ago. The 2010 Challenger 300 we had on static display sported a new interior in fresh coat of paint as well as the latest avionic and connectivity offering. It received a tremendous response from attendees and demonstrated once again the significant value of this program. When it comes to new aircraft delivery, we also perform extremely well. With 31 recorded during the third quarter, we remain on track to deliver more than 133 aircraft in 2023. On this front, I want to highlight the efforts from our team and the plans as we ramp up deliveries to end of the year, all while expertly managing the move into our new Pearson Airport facility without creating disruption to our deliveries this and next year. Overall, we have a good line of sight for the fourth quarter and everything is in place to deliver greater than 56 aircraft with some already behind us. Let me also acknowledge our supply chain organization, which has been instrumental in ensuring that we can meet our delivery objectives. When you look at what is going on across the industry, you won't be surprised to hear me say that the supply chain continues to put a considerable amount of pressure on our operation. However, while the global supply chain base is still under the strain of various disruption and challenges, our team is very agile and is able to react to identify problems before they escalate. Thanks to their proactiveness, we have been very successful in mitigating challenges in keeping our delivery projection on track. Speaking of deliveries, our backlog remains solid at $14.7 billion, which translate into an order book that is averaging 18 to 24 months. On top of this, our long term skyline include more than 200 order options from large operators. We ended the quarter with a book-to-bill of 1.1, which provides us with the visibility and predictability required to look at the future with confidence. This is exactly where we said we would be and I am happy with our consistency. We also benefit from a diversified customer mix, which of course includes large fleet operator, corporation and individuals, but also companies that are choosing Bombardier aircraft to expand their business and their fleet in a meaningful way. The most recent example is AB Jets based in [Phoenix] who jointly celebrated the purchase of three Challenger 3500 jets with us in Las Vegas. This company is growing and has positioned itself well to capture demand from individual customer as well as from large fleets who sometimes require backup flight. These jets will be transformational for them as they open the door to a larger market segment in the super midsize space. Our Defense division represents another key example of our diversified customer base. Over the last few weeks, a number of important international defense shows were held in the U.S. and in Asia. Our Global 6500 aircraft garnered a lot of attention and was put forth at the platform of choice for a wide range of missions. In fact, it was reported that the Sierra Nevada Corporation was selected to provide civilians aircraft that are based on the Global 6500. This is the latest addition to a long list of program that rely on our global platform to complete defense missions, including the successful BACN platform operated by the U.S. Air Force, for which we also announced last week the delivery of the seventh airplane. As you might have noticed, our platform are recognized around the world. Our defense division is striving and demonstrating its profound expertise and flexibility with many large scale modern as well as equipped armed force. With that said, overall we see steady order activity in a normalized demand environment. Our Q4 order pipeline looks robust, due to continued demand for our challenger in global jets. Our increased profitability has allowed us to record a cash flow positive quarter and to generate $80 million. This convincing results puts us on track to deliver on our full year guidance of greater than $250 million in free cash flow for 2023. Our consistency in meeting our objective demonstrate that we have the right business model to deliver strong results and outperform well into the future in any marketplace. We continue to stay focused on - delivery of business fundamentals, and with the talented and engaged team we have in place, I am confident that we will continue to meet and exceed expectations. Now, I'd like to invite Bart to share further information regarding our excellent performance over the last quarter, and how it paves the way for success in meeting, our full year guidance. Bart, the floor is yours.
Bart Demosky: Thank you, Éric, and good morning, everyone. It's absolutely great to be here with you today. And I have to say, that was one heck of a quarter we just had. When I take a step back and look at what we accomplished, our business is firing on all cylinders. To emphasize this point, let me share with you a few of the key highlights. First, we grew our deliveries by six aircraft this quarter, when the entire industry has been struggling with an exceptionally difficult supply chain. Our revenues are up 28%. Our margins are up 100 basis points year-on-year. Our adjusted EBITDA is up 36%. Our adjusted EBIT is up 54%. Our year-to-date adjusted EPS is higher than last year by $3.91. And finally, our leverage is 25% improved versus last year and is now on the cusp of going below four times. And we are generating free cash flow. Any way I look at it, this company is completely different than when this management team stepped in three years ago. And it isn't by luck, it is by design. It is a testament to our continued focus on managing things that we control most. We are managing our costs, ramping up our aftermarket, and delivering growing aircraft margins. These actions ensure margin lift in all environments. For the full year, we remain on track to meet or beat all of our guided metrics, including aircraft deliveries. This will be the third year in a row we expect to meet our delivery commitments. Supply chain is difficult, but we are not using it as an excuse for missing our commitments. Looking at our balance sheet, available liquidity is strong at $1.25 billion and our adjusted net leverage, continues to improve. At the end of Q3, we are down to 4.1 times, net debt to EBITDA, and what is even more impressive is that we anticipate to be below four times by the end of the year, as we deliver our full year guidance. Looking at our debt maturities, we continue to monitor markets for the right conditions and remain opportunistic in our deleveraging approach. We have around 18 months until our next debt maturity, which leaves us with ample time and flexibility to act in the most beneficial way for the company. Putting all these pieces together, Bombardier has made significant improvements to its fundamentals. With higher and sustainable profitability, strong liquidity and a materially delevered balance sheet, we have built a company that is able to perform in all business environments. Let me now turn to the financial highlights for our third quarter. Our revenues were up by an impressive 28% year-over-year, reaching $1.9 billion versus $1.5 billion last year. Our aircraft manufacturing and other revenues grew by $364 million or 34%, the result of six incremental deliveries, versus a year ago, with a total of 31 aircraft delivered in Q3 of this year. On that note, I am very proud to say that at NBAA in Las Vegas last month, we celebrated the delivery of our 150th industry defining Global 7500 aircraft. Our aftermarket business also saw impressive growth as revenues increased by 11% year-over-year, reaching $414 million. With the majority of our footprint expansion strategy completed and the ongoing operationalization of our facilities, we are aggressively focused on continuing to gain market share and grow the business at a high rate. Turning to our profitability, total adjusted EBITDA for the quarter was $285 million representing an adjusted EBITDA margin of 15.4% and an impressive 100 basis point margin expansion, over the same quarter last year. Our adjusted EBITDA margin growth continues to be underpinned by improving aircraft margins, growing our aftermarket business, taking in the benefits of our cost reduction plan, and the diligent management of our cost structure in a higher inflationary environment. Our adjusted EBIT totaled $193 million up 54%, versus the same period of last year. Our adjusted net income has also significantly improved to a gain of $80 million versus a loss of $2 million a year earlier. And our adjusted EPS came in at $0.73 for the quarter versus a $0.10 loss in Q3 of last year. As I mentioned in our previous calls. In 2023, we have reached profitability levels, where we have become structurally net income generative, and we expect to see continued growth in these metrics in the future. Moving on to free cash flow, we generated $80 million of cash in the quarter. Our cash conversion bridge is quite straightforward. We delivered $285 million of EBITDA, and from there we removed our cash interest costs of $75 million, as well as $99 million in CapEx, the majority of which was to support the completion of our new Global Assembly facility at Pearson Airport. Working capital was essentially neutral in the quarter, with additional inventory net of payables bill being offset by incremental advances. With only two months left in the year, we continue to expect our full year performance to be in line with guidance. Deliveries are on track for greater than 138, and with 82 deliveries achieved to the end of Q3, we have a clear path to greater than 56 deliveries to go. Our unchanged delivery outlook and excellent aftermarket performance continue to support the greater than $7.6 billion in top line we expect for the year. So far this year, we have generated $772 million of EBITDA, and we have a clear path to reach our 2023 adjusted EBITDA guidance of greater than $1.125 billion. On free cash flow, we continue to expect to generate greater than $250 million for the full year. This implies a fourth quarter cash flow generation of greater than $639 million. Our cash usage over the past nine months, was largely driven by inventory ramp up for, which we expect to see a significant release in the fourth quarter, as we deliver more than 56 aircraft. So to conclude, Bombardier had a very strong performance in the third quarter and our entire management team is focused on delivering on our full year commitments. Above the quarterly results, we are very happy with the progress we continue to make on growth and our balance sheet, and we believe that we are in an excellent position to continue to perform and bring value to our stakeholders. Thank you very much. And with that, I will turn it over to Francis to begin the Q&A. Francis?
Francis Richer de La Fleche: Thanks, Bart. I'd like to remind you that Bombardier Investor Relations team is available following the call in the coming days to answer any questions you may have. For the question period, please limit yourself to one question, one follow-up. With that, we'll open up for questions. Operator?
Operator: Thank you, sir. [Operator Instructions] Your first question will be from Tim James at TD (TSX:TD) Cowen. Please go ahead.
Tim James: Thank you. Good morning, everyone. My first question returning to the aftermarket service business, very nice growth again in the quarter. I'm wondering, Éric, if you could maybe talk about the market growth versus the growth that Bombardier is driving specifically through new service center openings, just trying to kind of disaggregate market share growth versus just the overall growth in the industry and flying activity?
Éric Martel: So a great question, Tim. So I think the growth we do observe right now comes from different form. I think, first of all, we clearly have growth because we've added about a million square foot last year, and we've been filling the capacity very nicely all across the board. But to your point also, we see growth in flying hours, so the growth in flying hours, of course, bring the airplane more often to our service center. So this has been a bit of a leading indicator also for us, and the reality is also our 5000 aircraft out there are aging, too. So airplane, a lot of the global this is one thing we were planning for a lot of the globals or a lot of the challenger are coming to midlife inspection, are coming to ten year inspection, which require quite a bit of maintenance. So I would say between, of course, a bigger offering, if I may say it this way, plus the flying hours that we've been observing increasing over the last couple of years, the fleet aging, I think that we clearly foresee that growth, and we're on target to meet what we said we're going to do for about $2 billion or greater in 2025.
Tim James: Great. Thank you. And then if I could just follow up the global 7500 again, of course, cited as one of the drivers of your gross margin expansion. Could you just update us on where the company or that platform is, specifically in terms of realizing full margin potential, how much still lies ahead, or perhaps maybe just more of a time frame you're thinking about until that platform, those margins have really reached kind of full run rate, if I can call it that.
Bart Demosky: Yeah. Good morning. Tim, its Bart here. So we've had obviously a tremendous margin growth on the 7500 platform since we started delivering the first aircraft a number of years ago. The early part of it was really based on unit cost reduction, which we achieved fully about 18 months ago, approximately. So we are now in pricing margin expansion. We are most mostly through the launch aircraft pricing. We did have some strong aircraft sales back in 2019 and 2020 and prices have gone up a fair amount actually on the per unit basis since then, so we'll be delivering those aircraft in 24 and even into a little bit in 25, so we expect by 25 we'll be to full run rate on margin on the 7500 platform.
Tim James: Okay, great. That's very helpful.
Bart Demosky: Thank you.
Éric Martel: Okay. Thanks, Tim.
Operator: Next question will be from Walter Spracklin at RBC (TSX:RY). Please go ahead.
Walter Spracklin: Yes, thanks very much. Yeah, can you hear me now?
Éric Martel: Yes, we can hear you, Walter. Good morning.
Walter Spracklin: Good morning. Yes, I was wondering great results, by the way. I was wondering if you could perhaps, Éric, speak to the cadence of demand. I know that's been a big question mark out there for many as to whether you see any signs of weakening demand. I know the used aircraft percent went up a little bit here, but do you think you can still maintain, as you go into a very strong fourth quarter here for deliveries? Do you think you can maintain a book to bill that ends for the year at above one and sustainable into 2024?
Éric Martel: I think, Walter, the short answer is definitely we have a line of sight for a book to bill of one. The demand right now is very strong still. We remain positive and there's a lot of activity and quite around the globe, actually, we have strong activity in North America, Europe. I was myself in Europe with the team a few weeks ago. And quite impressive activity, especially on the large platform in Europe and also in APAC and even in the Middle East, despite what's going on right now. So I have to say that we are pleased with the demand. People are still considering to buy the jet and we have quite a high level of activity as we speak.
Walter Spracklin: Thanks. Okay. And as my follow up question, Bart you called it a heck of a quarter. And indeed, it was just curious now that with the strength of the year to date in the third quarter here. Whenever you have an annual guide in the third quarter, you effectively have a fourth-quarter guide in place. And when I look at that, your trends seem to be meaningfully coming in above, that? Is there any and I know you said meet or exceed, and I guess we're underlying exceed here. Is that the case, or is there anything that we should be aware of in the fourth quarter due to seasonality or any margin pressure that we should build into our models that perhaps isn't there right now to temper some of the fourth quarter, given the full year guide that you have out there?
Bart Demosky: Yeah, Walter, good morning. Look, we're coming into a fourth quarter off of a strong third quarter, and we're expecting a strong fourth quarter. We have a full lineup of deliveries with the team is performing at an exceptional level. We see clear line of sight to making our delivery guidance. And as Éric highlighted just a moment ago, with the very strong pipeline of sales activity that we have, we see a clear path to achieving a book to bill a little bit better. That implies a lot of cash coming in. It's a very strong quarter, typically, because we tend to have a lot of deliveries in the fourth quarter. This quarter is even higher than some quarters in the past, and so that's setting us up very well too, as I said, meter beat guides across the board.
Walter Spracklin: That's fantastic. Congrats again on a great quarter. Thanks.
Bart Demosky: Thank you, Walter.
Operator: Thank you. Next question will be from Fadi Chamoun at BMO (TSX:BMO). Please go ahead.
Fadi Chamoun: Yes, good morning. And, yes, congrats on good results here, but I want to ask about kind of the orders, kind of momentum going into q four. I mean, it seems like you've been kind of in that high 20 orders a quarter for the last nine months. I know there's seasonality typically going into the fourth quarter. But we're looking for orders of about 50. I guess in Q4, is that normal seasonality? Are you expecting Q4 to be stronger than typical seasonality? And if so, what's driving that stronger? Is there a specific order that you feel kind of strong about to meet that kind of target for the year? So that's one and then follow up when we look into your bridge into 150 deliveries, I guess, by 2025. How? Should we characterize that going to 2024, do we kind of take a small step in 2024 into eventually 150 deliveries by 2025? Is the supply chain kind of organized in a way that helps you make that step up in 2024 and into 2025?
Éric Martel: Fadi, this is a great question. Good morning, Fadi. Clearly we've seen our booked a bill to be around one so far this year. And there was a lot of deal that we've been working on and have been maturing towards the last couple of months and right now they're all lining up in a sense that we've started to work on contract. We've started to, know, have the real conversation with the customer to close this deal in the quarter. So we've seen a bit of a profile of, of, of the pipeline maturing and it's happening in Q4. And I'm not just talking about, about traditional customer, but I'm talking also about some of the defense deal, could be fleet deal. So there's a few things that are lining up to happen in Q4 and, to be able to support, our book-to-bill and still have a line of sight for a book-to-bill of one this year. So that's kind of what's happening. And when we look at the pipeline, there's quite a bit of things, you know, that we know will be happening into next year that are already being put forward in this quarter. So it's actually pretty encouraging. The level of activity is actually very good.
Fadi Chamoun: Yes, on the bridge to 2025 and kind of confidence in the supply chain to make a step up in 2024?
Éric Martel: Yes, absolutely. As I’ve explained before and highlighted this morning, my team has done a tremendous job in proactively managing issue way before they earth our assembly line. And again, I think, yes, we have some challenge. The team has been creative. I think when you look at what we're delivering today. We're still aligned to meet guidance for Q4. We pretty much have all our parts and everything already with us under the roof as we like to say here, to be able to deliver the airplane. So it's pretty much all under our control right now. And when we look, we already have visibility and working with our supply chain, especially in OEM for 2024 and 2025. So far we do anticipate the supply chain to be able to support the growth we have and we still see clear line of sight again also for our 2025 target over.
Fadi Chamoun: Thank you.
Éric Martel: Thanks Fadi.
Operator: Thank you. Next question will be from Cameron Doerksen at National Bank Financial. Please go ahead.
Cameron Doerksen: Yes, thanks. Thanks very much. Good morning. Just I guess a question around cash flow and working capital investment. Obviously there's going to be the reversal of the inventory investment here in Q4. I know it's still going to be too early to talk about 2024, but I'm just wondering if you can kind of just directionally talk about working capital investment needs as we move into next year. I mean, we're sort of at a production rate now that's a little more stable, but maybe incrementally higher the next couple of years. What is the investment that's going to be need in inventory to kind of support that as we head into next year?
Éric Martel: Yes. Good morning, Cameron, thanks for the question. And you're right, we did have a fairly large inventory build earlier on in the year, really over the full first nine months, with the strong delivery activity and pace of activity that we're going to have here in Q4, we're going to recover a lot of that. And so that's going to be driving a fair amount of incremental free cash flow in the quarter as well. So we're very positive on that. As we look into next year, as you can imagine, when you've got a quarter like we're going to have in the fourth, where we've got so many deliveries, we will need to rebuild some inventory in the early part of next year, so that will have a bit of an impact on our results. So you should anticipate that. As you said, it's a bit early for us to give you guidance, but directionally, that's how I would have you think about it in terms of model.
Cameron Doerksen: Okay. But as we sort of think about--sort of structural levels of inventory, there shouldn't be a significant increase, I guess, on a kind of a full year basis in 2024, maybe a modest increase. Is that how I should be thinking about it?
Éric Martel: Well, you should expect to see some increase for sure. We're rebuilding inventory and as well. As Éric pointed out, we believe we're right on track with support from the supply chain and our own ambitions and the sales order activity, we have to grow to our targeted levels of around 150 aircraft delivery. So that would imply some inventory build to meet that higher delivery target both in 2024 and 2025.
Cameron Doerksen: Okay, that's helpful. I'll leave with that one question. Thanks very much.
Éric Martel: Okay. Thanks, Cameron.
Operator: Next question will be from Gavin Parsons (NYSE:PSN) at UBS. Please go ahead.
Gavin Parsons: Thank you. Good morning.
Éric Martel: Good morning Gavin.
Gavin Parsons: I just wanted to ask on the backlog versus the unit book-to-bill. I think historically that's been because you had so much visibility into the global 7500. So I wanted to ask if you could share insight on how sold out that platform is and when you might expect to see orders refilling there so that the backlog continues to grow with the unit book-to-bill?
Éric Martel: You can go ahead.
Bart Demosky: Sure. Yes. Thanks Gavin. So we're actually very pleased with our mix of backlog. We've got 18 to 24 months of backlog across all platforms, including the 7500. So we're in a good position when it comes to backlog this past quarter. And if you look at where we're at on a backlog basis on a dollar basis, we're really about flat from the beginning of the year till today, which is what you'd expect in an environment of a book-to-bill of around one. So that makes good sense. We did have very strong delivery activity on the 7500 platform the last few years. And last year and coming into this year we had very strong sales activity as well. And that's why the backlog on the 7500 has stayed fairly stable. Q4 is shaping up based on pipeline at least today to be another strong quarter for the 7500 platform. So we're comfortable where we are and feel really good about the position on the backlog for that platform and all of our platforms.
Gavin Parsons: Thank. Great. And then without maybe asking you to opine on how your competitors are treating their supply chain, and any thoughts on why maybe you haven't been as impacted as some of your peers?
Éric Martel: Yes, that's an interesting question and I'm glad you noticed. We're going to be delivering our guidance for a second year in a row. And I agree with you. I think I can pretty much say most of the other OEM have reduced their guidance so far. But I think I said it earlier, my team has done an amazing job. It goes back to, I remember summer and fall 2020 making probably a very different decision than most of the people in the supply chain by having people in the supply chain instead of reducing the workforce. Actually having people that are out there in the field working with our supplier to make sure they have the people to do the work and if they don't, then we were reacting. This actually translated in the last two years into us taking back some work or moving work elsewhere. We probably increased our population by taking work in by more than just about 500 in Montreal, another 700 in Mexico. So we took back some work in-house to make sure that our supply chain was reliable. We have people out there working with the major OEM, even at the tier-two level, extremely proactively. So, as I always like to say, the sooner you know about an issue, the more chance you have to be successful in fixing it and not impacting your line. So I think we've been managing this way for the last three years, very early when the pandemic started to it, and I think today and last year we've seen the benefit of that.
Gavin Parsons: Thank you.
Éric Martel: Thank you.
Operator: Next question will be form Benoit Poirier at Desjardins Bank. Please go ahead.
Benoit Poirier: Yes, good morning, everyone, and congrats for the solid execution in the quarter. First question, any color on the ability to get financing for bus-jet operators in light of this higher interest rate environment?
Éric Martel: Yes, Benoit, so a couple of things. You mentioned the bus-jet operators, but I would extend this to the actual purchasers of the aircraft as well who are not in the fleet space. But we've seen no impact whatsoever in terms of fleet operators being able to raise capital. Whether that be through equity, through cash flow generation, or through access to the debt markets, we continue to see very strong fleet activity. As Éric highlighted, we announced a deal at NBAA just a few weeks ago. We've got a number of other deals in the pipeline, so we're seeing no slowdown there whatsoever. In fact, it's more of a growth story for the fleet operators and we're very pleased to be partnering with them and helping support them. We did meet, as we always do at NBAA a few weeks back, with the various financing companies that participate in the business aviation space. All of them are seeing growth in their books. They're being very supportive of the industry. No signs of pulling back. In fact, to a group, they all said that they're deploying more capital into business aviation, because it's been high performing for them. So, no negative impact. In fact, if anything, it's the opposite. This business is attracting capital, because of financial institutions who support it are seeing it as a growth area.
Bart Demosky: And if I may have been well - good morning. I think, just to build on what Bart just said, the fleet operator also, I think, are generating their own cash. You've seen you look at the flight hours between '19 and last year, they were up by about 45% for these guys. And again in the last 12 months. When I look for month-to-month, the fleet operator, I'm talking about the Bombardier airplane here flying with the fleet operator went up by another 15% in the last 12 months, which is significant growth. So. these guys are growing at a fast pace. They are flying a lot of airplane for all the reason we've explained before. And I think generating cash flow at the same time.
Benoit Poirier: But that's great color. And just for the follow-up question, if you could provide an update on the move from down's view to Pearson that would be great? Thanks.
Éric Martel: Yes. Now we're pleased things are moving forward. We don't expect any disruption - of our operation. That the move has actually already started. So, we have an employee now working at Pearson. We had a lineup of truck the other day, moving wings, moving fixtures and equipment. So, this is - happening as we speak. And so everything is lining up for us, to be fully operational sometime in Q1.
Benoit Poirier: That's great, thanks for the time.
Éric Martel: Thank you, Benoit.
Operator: Next question will be from Noah Poponak at Goldman Sachs (NYSE:GS). Please go ahead.
Noah Poponak: Hi. Good morning everyone.
Éric Martel: Hi. Good morning.
Noah Poponak: Hi guys. The stock is down 40% from its high's. It's a $45 stock. You have guidance for 2025 free cash flow per share. That's somewhere around $10. So, the stock doesn't believe something you are saying or doesn't believe something you are saying is sustainable. I have a lot of questions in my inbox, about the exact orders in the quarter, where they go from here. I guess the orders are down, but they're down from a torrid pace. But you have plans to increase supply and if you're increasing supply while orders are declining, you can't do that forever? So are we in a tricky macro, such that - can you have a big backlog, so you can burn a little backlog and then two, three years down the line, demand accelerates and links up with where you've taken supply? Or is there another way to think about that? I mean, I know it's a little bit of a strange question. I have a lot of questions on line items in the model, but this seems like the biggest question, given what the stock is doing in the face of you beating numbers every quarter. So, how would you take that on? What would you say to the market in response to that?
Éric Martel: That's a great question. And I'm sure you realize, I won't comment on the stock moving and everything. What I can tell you is everything we've said so far we've been delivering on. I think, we're still reiterating our guidance. We're talking about 2025. I understand where some people may come from, but I have to tell you, we are extremely disciplined here. And I'm not just trying to be opportunistic to say, oh, the growth was there we build backlog. We are preserving the backlog we have. And that's our modus of R&D right now. We like the 18 to 24 months window we have, and we will accordingly move rate, adjust rate if needed to preserve that backlog or depending on the order. But the level of activity and I think that one thing that we've said also that needs to be understood. When we restructure this company, we - took a lot of time, at the time to make sure that our company was going to be resilient. And clearly the demand is there and the demand is important I understand that. But we will be disciplined in keeping the flow. The global demand remains high even in an environment where the economy - could be struggling. We know that the global has been usually still pacing well. The same thing with our service business. So, when I talk about the global and service business, you're now talking about 75% of our revenue, roughly. It's an interesting model we've built. That's why - we grew also our service business quite a bit. But we feel we have line of sight again next year, even '25. We have quite a few airplanes sold already in '25, and we're in a good place. So, we see the demand. We'll do what we have to do. We are being very careful with managing our costs, but preserving the 18 to 24 months is key in this business, and that's what's going to dictate, and will give us the discipline to make sure we don't build inventory and get whitetail and things like that. So that's not going to happen.
Noah Poponak: Okay. And Bart, can you put numbers on this working capital question? Like, how much specifically in absolute millions of dollars are you assuming? You recover in Q4 or what's in the 250? What's in the 925? Just because to your point, it is a simple bridge from the EBITDA to the free cash flow. And I can get to your numbers with that simple bridge, but the Q4 number is big. The ramp to 25 is big. We sort of are guessing on or - we don't know how linear '24 is. So, I don't know if you'd be willing to just give us a range or some hard numbers around the working capital that's in each of those periods of time.
Bart Demosky: Yes. Good morning, Noah. And thanks for the question. We've - tried to be as clear as we can around how timing at least and pace of working capital build and how that will get released in the fourth quarter. But we don't - just getting down to specifics is not something that we've talked about in the past. So what I will say is, we did have some free cash flow usage, obviously, in the first nine months of the year, first six months and cash intake coming into the business, $80 million in the third quarter. We are set up for a very big quarter. When you talk about the number of deliveries that are going to be happening. You can just imagine that, compare that to deliveries over the first couple of quarters and the delta between those, you're talking 20 aircraft more or 20 plus aircraft more. So that in and of itself, when you think in terms of number of aircraft, should help you understand how much inventory build we had versus how much we'll release. We've got a lot of deliveries coming. The aftermarket continues to just fire in all cylinders and is growing. It's a very strong PDP quarter for us. So lots of cash coming in. And as well as Éric's highlighted and I've highlighted, we've got great plans of really strong pipeline on the new order side. So, that's really all I can say at this point in time around that. But if you think of it in those 20 aircraft terms, that's about the strongest indicator I can provide you.
Noah Poponak: Okay. Is next year's free cash flow shape by quarter similar to this year or is a little flatter. There's less growth in the total year. Maybe supply chain is a little better or is the same [ph]?
Bart Demosky: We've got a couple of things that will be helpful next year. RVG, as you know, is something we're basically going to be done with this year. We've got one little tiny payment in 2025, but that was about $125 million headwind. So, you can add that in, just think of it in terms of perhaps a little bit more, although I can't guide you right now. But directionally, at least a few higher deliveries and we'll get back to you on with what - some firm numbers on guidance early in the New Year.
Noah Poponak: Okay, thanks, guys. Appreciate it.
Bart Demosky: Okay. Thank you, Noah.
Operator: Next question will be from Konark Gupta at Scotia Bank. Please go ahead.
Konark Gupta: Thanks. Operator, good morning, everyone, and thanks for squeezing me in. I echo my congratulations on a good quarter. Maybe my first question is on Q3 book-to-bill. So one-to-one on unit basis, on dollar basis it looks like a tad below one. Obviously pricing on the jets are going up across the board. But should we attribute this delta between unit and dollar book-to-bill to greater skew to challenger jets in the quarter?
Éric Martel: That's an excellent question. And actually in terms of number of airplanes, we got a positive book to build. But overall I would be careful. It's a product mix thing may happen, we pick up order, deliver a few more global pick up a few more, but it usually equalizes during the year. If you look at our book-to-bill, not book-to-bill but backlog since the end of last year, it's pretty much flat. So, but I think overall we're pleased where we wanted to be. As I said earlier, we are preserving our backlog, which is what's important right now and despite increasing deliveries. So I think if you look across the board, we have a good story for deliveries in Q3. And actually we see the backlog being protected pretty much there, plus or minus a couple of maybe not even a $100 million. So, it's been stable, the backlog has been stable since the beginning of the year. And that's what we're building the company on right now to try to preserve the backlog is how we're seeing that moving forward.
Konark Gupta: That's great color. Thanks Éric. And then follow up for Bart, maybe based on the guidance for this year, looks like you will have a lot of access liquidity by the end of this year. Presumably you need obviously some liquidity right in first half next year for inventory buildup, but you should still have a lot of excess liquidity next year. Do you anticipate redeeming some more debt in 2024?
Bart Demosky: Yes, great question, Konark. So if you look at our longer term goals out to 2025 that we've highlighted and our objective to get to somewhere between two and two and a half times net debt to EBITDA, that implies about a $1 billion of debt reduction from now until the end of that year. So where and when it will come over the next 24, 26 months, I can't really say today, But Q4 does tend to be a very strong cash flow quarter for us. That sets us up with strong liquidity at the beginning of the year. And our strategy to date, and it's something that we'll expect to continue to use in the next couple of years as we fully repair the balance sheet, is to deploy cash into debt reduction when we have excess cash beyond our desired liquidity range, which in that range being $1 billion to $1.5 billion. So, none of those things are going to change. That’s how we expect to - those are the things we expect to use as our guides to when we'll deploy that cash. And as I say, based on our forecasts, that should allow us the opportunity to reduce about another billion over the next couple of years or so.
Konark Gupta: That's great to hear. Appreciate the time, as always. Thanks.
Bart Demosky: Okay. Thanks, Konark.
Bart Demosky: Operator, we'll have time for one last question, please?
Operator: Certainly. Questions will come from Myles Walton from Wolfe Research. Please go ahead.
Myles Walton: Thanks. Good morning. Bart, you're starting down the path of the cash flow walk for '24, so I figured I'd try and get you down for that path. I think you mentioned the RVG tailwind into next year. I think CapEx is a similar size, maybe $75 million to $100 million tailwind into next year. And then interest is probably another $50 million tailwind into next year. And that's before considering growth in deliveries and earnings. Maybe you can give us the headwinds because it just looks like three, four tailwinds.
Bart Demosky: The tailwinds that you just - and good morning, Myles, by the way. Thanks for the question. The tailwinds that you described, those we do see as being helpful in the coming year - really in the next couple coming years. I wouldn't necessarily agree with all of your numbers, but certainly those will be beneficial. In terms of headwind, I see it more as an opportunity. As Éric highlighted, we've been able to maintain our book-to-bill, and as well maintain our backlog. We've guided that - we think we're going to get to somewhere around 150 deliveries by '25, at least directionally, that implies potentially more deliveries next year. Obviously inventory to deliver those aircraft, et cetera, is a place we might use some cash. So when you balance those things out, could we see a continuation of positive free cash flow next year, that is certainly what we see, but we'll come out with more clear guidance here in the next few months.
Myles Walton: Okay. Is most of the Pearson investment done this year, or does it continue into '24?
Bart Demosky: Yes, most of it's done now, Myles. In fact, we have video and pictures of the facility. Many of us have been there recently. It's coming along very nicely. And as Éric said, we expect to be fully into the facility in the first quarter, so we're mostly through that CapEx now.
Myles Walton: All right. Thanks so much.
Bart Demosky: Perfect. Thanks, Myles.
Operator: Thank you. Please proceed with closing remarks.
Éric Martel: Okay, So thanks to you all for joining us today. And as we said earlier, the fourth quarter is already well underway, as we discussed earlier, and we are progressing to meet all our 2023 objective. Our team across the world are already hard at work to make sure that we successfully close 2023 and can look back with pride on a great year for Bombardier. Our priority remains our people, and I would therefore like to take this opportunity to thank our team members and highlight the exceptional work that they do every day. I look forward to reconnecting with you all in the new year to discuss what 2024 will bring for Bombardier. In the meantime, I wish you all a safe and enjoyable rest of the year. Thank you.
Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines.
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