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Operator
Good morning, ladies and gentlemen, and welcome to Bombardier's first 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, Mr. Richer de la Fleche.
Francis Richer
Good morning, everyone, and welcome to Bombardier's earnings call for the first quarter ended March 31st, 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'm making this cautionary statement on behalf of each speaker on this call. With me today is our President and Chief Executive Officer, Eric Martel, and our Executive Vice President and Chief Financial Officer, Bart Demoski, to review our operations and financial results for the first quarter of 2023. I will now turn the discussion over to Eric. Thank you very much, Francis.
Eric Martel
Hello and welcome everyone. Good morning, everyone, and thank you for joining us this morning. Once again, Bombardier has executed to its plan. I am proud to share our results that reflect a collective team effort. It is a testament to the dedication and engagement I see across the company to meeting commitment with consistency, but also with predictability. Bart and I have talked a lot about the fundamentals going in the right direction. This past quarter, that trajectory brought adjusted net income to a very healthy $113 million. We continue to perform on our front, reducing debt, raising our deliveries, and ramping up production. The planned growth this year will bring us to more than 138 aircraft deliveries. We also reached new highs in services with $424 million of revenue in the first quarter. That is a 17% improvement compared to Q1 last year. If you take a step back and consider this as a run rate, it's well aligned to the progress toward our $2 billion annual revenue objective. In fact, we reaffirmed it at our investor day held just last March. Before we discuss Q1 results further, I did want to take a few minutes to reiterate that these broader results are a first stepping stone in our revised 2025 plan. A few weeks ago, we announced that we raised our target to more than $9 billion total revenues, $1.625 billion in EBITDA, more than $900 million in free cash flow, and most importantly, we have improved our targeted net leverage ratio to between 2 and 2.5 times. This is on the heels of some really outstanding work by Bart and the team. We also further detail our plans in services as well as presented a bold $1 billion defense ambition, in the later half of the decade. As we detail, that ambition really stems from a few key ingredients. First, we find ourselves today with the right size platform for the mission's equipment of the future. Our plane can fly farther, faster, and longer than the previous generation of converted airliners and turboprops. Our globals and challengers are providing their work in countries like the U.S., Sweden, Germany, and many more in multiple mission configurations. There are a few countries we are actively working to add to that list. Our defense team is pursuing prospects globally, and we are well-placed to provide flexible solutions to emerging requirements as countries face threats that require agile aircraft. It's truly an exciting time for those working on this project, as well as for anyone who is about to join Bombardier. If you missed our investor day, you can still watch the entire session or the highlight on our website. Now let's focus on what is immediately before us in the coming months. On the demand front, we are right where we want to be. We spoke a few quarters ago about a cruising altitude around one for our book to build. Our current pipeline of prospect and plan for the years reflects that. And it is important to note that we are operating on a higher level delivery base for this year. We are also looking at this with a long-term view aligned to our 2025 targets. It will see us land in the 150-unit delivery range, and there is encouraging activity and interest in business aviation that has remained. I have spoken personally to a lot of clients in North America, Europe, and most importantly, Asia Pacific recently. Mobility is still a key need for them, regardless of any macroeconomic prediction or sentiment, and our products stand out to them. Considering this, I will categorize the demand environment as stable and well aligned to our plan for the year and future. We have a good mix of customer over multiple geographies and across all product lines. This has continued to contribute to our LT backlog, which is stable at $14.8 billion. It gives us about a two-year production runway so we can focus our energy on maintaining a strict eye on cost and supply chain pressure. Q1 also saw us order a lot of inventory to support the ramp up to 138 deliveries. Bart will detail how that is reflected in our free cash flow performance along with other factors. Let me tell you, getting parts on the dock is a team sport. I continue to be encouraged by our proactive approach and the results I see across the board. We are working hard to mitigate risk all the way down to the tier three supplier. As a company, it's the most detailed we've ever been on a supplier by supplier basis. I want to acknowledge and recognize the team behind this. Don't get me wrong, we still have work to do, but our focus on assessing, mitigating and executing is serving us very well. Speaking about the benefit of execution, revenue this year are up 17% over the same period last year. But most importantly, we have grown the bottom line in all ways you can measure it. I first look at the adjusted EBITDA as a measure of our fundamentals. It's up 27% year over year for Q1 to Q2. $212 million. Our EBITDA margins have also grown to 14.6, a 120 basis point improvement year over year. The positive growth is also reflected in our reported and adjusted net income. I mentioned earlier that we reached $113 million in net income, but also want to highlight that this translated to a learning per share of $1.06. Finally, I'd like to circle back on services. $424 million is an impressive Q1 number as we are still operationalizing facilities that have been added to our footprint. Our customer capture rates are where we need them, and the curve has been progressing steadily and consistently. We are getting lift from capacity growth, organic fleet growth, and customer recapture. Overall, for our company, anyone in my position would be happy to post this kind of growth on the board, but the fact that it's Q1 has me particularly encouraged as it's traditionally one of the lighter quarters in business aviation. Once again, this is a testament to having the right strategy and the right level of execution. All that said, we will remain focused on the leveraging and operational predictability. We are on a good path for the full year, as well as our newly raised 2025 objectives. It seems I'm always ending over to Bart to tell you about successful debt pay down and debt rating upgrades. That's certainly a trend that we intend to keep, and we won't fire of it. But allow me to also commend Bart and the team for a tremendous few quarters and years, really, of making our balance sheet stronger. Most recently, Moody's upgraded Bombardier's corporate family and senior unsecured notes rating to B2 and maintain a stable outlook. On that note, Bart, congratulations, and over to you.
Bombardier
Thank you very much, Eric, and good morning, everyone. It's been about one month since our investor day where we raised the bar for our 2025 financial targets. And I'm pleased to share with you today that our Q1 performance has us on track to achieving our new goals. Indeed, the year is off to a very strong start, particularly when I look at our trajectory on profitability. Compared to the first quarter of last year, our EBITDA and EBITDA margins have increased by 27% and 120 basis points respectively. And our adjusted net income and EPS were both positive this quarter. In fact, this is the best first quarter net income Bombardier has had in more than five years, and the first time it's been positive since 2018. Now, excluding Learjet, our deliveries are up 22% year over year, consistent with our overall guidance of increasing deliveries by more than 15% for 2023. And our backlog remained stable at $14.8 billion, while our unit booked to bill was 0.9 times. We've also seen an impressive increase in our aftermarket revenues, which reached $424 million this quarter, a new high for Bombardier and a 17% year-over-year increase. As we expected and shared with you in February, we did see free cash flow usage in the quarter. largely resulting from inventory build as we ramp up production to meet higher planned deliveries during the second half of 23, and a bit more capex spend than we will typically have in Q1. I'll cover this more in detail in just a few minutes. Overall, from an operational standpoint, I would characterize our first quarter as in line with our expectations, putting us in a very strong position to deliver our 2023 guidance. Looking at our debt capital structure, as Eric mentioned, we accomplished a lot this quarter, including retiring $405 million of debt from cash on hand and receiving a credit rating upgrade from Moody's to B2 with a stable outlook. Our available liquidity remains very strong at $1.4 billion, which is towards the upper end of the targeted range we shared during our latest Investor Day. And we remain very focused on being opportunistic with the debt capital markets moving forward. Now, let me turn to the financial highlights for our first quarter. First, our revenues were up 17% year over year at $1.4 billion, compared to $1.2 billion a year earlier. Our aircraft manufacturing and other revenues grew by $144 million, largely the result of four incremental medium and large deliveries versus a year ago. Total deliveries in Q1 of this year were 22 versus 21 last year, which included three of the no longer produced Learjet aircraft. We delivered 14 large aircraft and eight medium aircraft, with both categories adding two deliveries versus the same quarter of last year. As I mentioned earlier, our aftermarket business also increased its revenues by an impressive 17% year over year. The $424 million in revenues underscores the high performance of this business and its continued growth. With our footprint expansion strategy completed last year, we are aggressively focused on continuing to gain market share. Turning to our profitability, total adjusted EBITDA for the quarter was $212 million, representing an adjusted EBITDA margin of 14.6%, and a 120 basis point margin expansion over the same quarter last year. Our adjusted EBITDA margin growth continues to be underpinned by the same drivers as in the past quarters, which are growing global 7,500 margins, executing on the tail end of our cost reduction plan, and growing our aftermarket business. Our adjusted EBIT totaled $138 million, up an impressive 89% versus the same period of 22. As I mentioned, our adjusted net income has also meaningfully improved to a gain of $113 million versus a loss of $69 million a year earlier. And our adjusted EPS came in at $1.06 for the quarter. A portion of our positive net income is the result of the recognition of some tax assets of approximately $86 million. which was related to our Q1 debt repayment. As I mentioned in our investor day, we have become structurally net income generative, and we should expect to see continued growth in these metrics over the next few years. Moving on to free cash flow, we had a net cash usage of $247 million in Q1, which is in line with our expectations coming into the year. Our bridge from EBITDA to cash is straightforward. From the $212 million of EBITDA, we remove our cash interest costs of $79 million, as well as $85 million in CapEx, the majority of which is supporting our new global assembly facility, which remains on track for its scheduled opening in Q3 of this year. Our working capital was negative for the quarter, mainly driven by two factors. First, we have increased our inventories by $479 million in the quarter, which is partly offset by an increase of our accounts payable of $269 million. This was fully expected as we ramp up production in support of our higher deliveries. Second, our other liabilities decreased by $106 million in the quarter, which was mainly due to the payment of our annual employee incentive plan, a program in which approximately 8,700 employees worldwide or 57% of our regular employees participate. Given our strong performance in 22, this payment was larger than last year, but was fully contemplated within our full-year guidance. I'd also like to highlight that our customer advances increased slightly over the quarter by approximately $30 million, which is in line with our backlog being relatively flat at $14.8 billion and our book-to-bill of 0.9. Now, lastly, turning to full-year expectations. Following on our first quarter results, we continue to expect our full year performance to be in line with the guidance we provided in February. Deliveries are on track for greater than 138. Supply chain does continue to be a key monitoring item, so we remain proactive on this front and have good visibility on the materials we need to meet our delivery targets. We expect steady year-over-year deliveries in Q2 as we continue to build inventory to support a strong delivery output in the second half of the year, mostly skewed towards the fourth quarter. This delivery outlook, coupled with a strong aftermarket performance in Q1, continues to support the greater than $7.6 billion in top line we expect for the year. From an EBITDA standpoint, we are on track to meet our 2023 guidance of greater than $1.125 billion. supported by a strong visibility on our deliveries and aftermarket performance. As for free cash flow, we are also on track to meet our guidance of greater than $250 million, which includes $125 million of residual value guarantee payments. In Q2, we expect to pay around $105 of this $125 million. And just as a reminder, the RVG payment is a non-recurring outflow. And I am very happy to say that after Q2 of this year, the remaining RVG liability in total will be below $50 million. So in conclusion, I am pleased with how we have started the year. We are building Bombardier to perform well in any environment. And we continue to show great progress towards our new 2025 objectives. So with that, thank you very much. And let me turn it back over to Frances to start the Q&A.
Francis Richer
Thanks, Bart. I'd like to remind you that the Bombardier Investor Relations team is available following the call in the coming days to answer any questions you may have. In order to ensure we have time for all participants, please limit yourselves to one question and one follow-up. With that, we will open it up for questions. Operator?
Operator
Thank you. Ladies and gentlemen, should you have a question, please press star, followed by the one on your touch-tone phone. One moment, please, for your first question. Your first question comes from Walter Sparkling from RBC Capital Markets. Please go ahead.
Walter Sparkling
Thanks very much and good morning everyone. Congrats on a good quarter again here. Let me start with supply chain. I know, Eric, you touched on that, but one of your competitors here, Gulfstream, had some issues during their quarter. It sounds like Honeywell was having some shortage of parts that created some significant out-of-station work. I know Honeywell is a supplier of yours as well. Is that something that – did you see any of that in the quarter? Are you worried about seeing it emerge in the near term at all based on what we're seeing from your competitor?
Eric Martel
Thanks, Walter, for your comments but also for the question. But clearly, I think I just said it. It's been a sport team actually managing the supply chain, and this is now probably for the third year in a row that it's been challenging. I think I mentioned earlier, Walter, that we were probably the first one to react three years ago, redeploying a lot of people in the supply chain. I think we are still capturing the benefit of that today. So, yes, there is issue. I would say there is probably less issue. Some of the issue, though, I would characterize them as being deeper. But this being said, since the beginning of the year, we had issue. We've been able to mitigate the risk and bring things back as much as possible with all suppliers. So without naming one more precisely, I would say we're probably facing the same type of challenges that they do face. we saw them you know coming earlier we saw them and we did mitigate those risks so yes there is uh things we need to still manage for the year but still we feel pretty good about you know the outlook we provided for the year and walter if i could just add uh just one uh added comment to eric's comments um we did anticipate this it's it's not something that's a surprise for us and
Bombardier
Because of that, we included the out-of-work costs in our guidance for the year. It's not a surprise for us.
Eric Martel
Just to give you a bit of a view on this, yes, we are managing a few issues for this year, but we are already focused on Q1 and Q2 next year for the engine deliveries, particularly.
Walter Sparkling
Anticipating is one thing, but getting ahead of it is another. You guys did a great job doing that. That's very commendable. On my follow-up question here, Eric, you mentioned there in late March that some of the regional bank failures led to a bit of a pause in new orders on the business side. Has that pause continued? Have we seen it come back at all? Just the kind of cadence. In other words, do you see your book-to-bill holding at 0.9? I know you talk about one. but I get a lot of investor inbounds about whether that 0.9 may slip if items like these bank failures and some of the gyration that that causes leads to that book-to-bill slip. I'm just curious on the overall demand environment, how you see that playing out.
Eric Martel
It's a great question. Clearly, the regional banking crisis has an impact probably for two to three weeks on us, and I would say things came back to normal after. Unfortunately, the two to three weeks were right, you know, the last two weeks of March. And, you know, Walter, I'm sure that it's always historically our slowest quarter in 2021. Usually not much is happening in January. Then things starting to ramp up in February and March, which gives us about eight weeks to execute the order book. And then we kind of pause, not pause, but really saw a slowdown in the last two weeks with the, you know, coming from the regional banking crisis. But this last about two to three weeks maximum. And then we saw the level of activity coming back to normal. So I'm very pleased today with, you know, all the prospect and everything we're working on, which is, you know, actually very supportive. of our plans, having a book to build greater than one. That's fantastic. I appreciate the time. Thank you. Thank you, sir.
Operator
Your next question comes from Benoit Poirier from Desjardins Capital Markets. Please go ahead.
Benoit Poirier
Good morning, everyone, and congrats for the solid start. Just first question with respect to booking. You mentioned great color about the booking for geography, but could you talk a little bit about how the mix has changed among the customer type? And if you could provide more color on the fleet customers and how they are feeling these days, that would be great.
Eric Martel
You know, actually, Benoit, thanks for the question and your comments too. It's interesting, but the fleet customer right now are still flying a lot more than 2019, but also they're flying much more than a year ago. So clearly, you know, the flying hours with the fleet operator, and this is what we've been saying for quite a bit now, that it is really sticking. You remember that movement of customer shifting from, you know, using commercial aircraft premium seat to private aviation. And the question about, are they going to go back or are they going to stick to it? A lot of them, as we discussed before, went through the fleet operator. They all did not purchase their own airplane, but they went through the different fleet operator that we know. And we see these guys keep flying quite a bit. I think there is, and to your question, So we still see these guys, you know, creating demand over the next coming years. So as they are flying a lot of people and they're usually running out of assets or capacity sometimes. So that's very encouraging for Bombardier. As you know, we're extremely well positioned with all the fleet operators. Geographically also, to answer your question, we see about the same type of proportion. If you look at the gross order we had per region, you know, similar to what we had in the last couple of years with something like about two-thirds being North America. And Europe is still okay. I would say if you look at, you know, what we saw, but clearly a little slow down there, but clearly a pickup in APAC. APAC is really, you know, showing a very positive sign right now. So I would say if I characterize it by region, North America stable, probably in terms of demand, still a big chunk of our order. And Europe about stable, but maybe slightly lower than a year ago. But Asia-Pac really picking up.
Benoit Poirier
Okay, and just for the follow-up, could you comment about the overall pricing environment, given the slight increase in use inventory and also kind of expectation at the e-base, the big show that will be late May, just in terms of attendance so far, what you've seen?
Eric Martel
So, clearly, you know, I would characterize the pricing as being stable. So, we haven't seen any And of course, we have two years of backlog, as you know, ahead of us approximately. So the pricing is pretty stable and growing and inflating the way we were planning this to inflate. So that's a good sign. And if you look at the key leading indicator, whatever if it's pre-owned inventory and everything, I know that you read a lot of articles saying that pre-owned inventory is going up. but at some point it's still at 5%, which is an historical low number. As you know, we're usually navigating between 10% and 14%-ish, but at 5%, yes, it's a little bit higher than about a year ago, which was around 3%, but clearly, you know, still a pretty low number. So all the You know, looking forward in Decatur, the hours of flying also, you know, we've seen a bit of reduction in some area compared to last year, but still, you know, a number that is much more higher than whatever we expected in 2019. And again, the fleet operators are really standing out with a lot of flying hours so far this year.
Benoit Poirier
Thank you very much for your time.
Eric Martel
Merci, Benoit.
Operator
Your next question comes from Konark Gupta from Scotiabank. Please go ahead.
Konark Gupta
Thanks, operator. Good morning, everyone, and congrats on good results, guys. Thank you. Thanks. My first question is on the order activity and the demand trends you guys noted. I'm just wondering if you can help us understand where these orders are coming from and how does that split compared to the backlog? So I'm looking at particularly, you know, the customer types like corporates, high net worth individuals and fleet customers.
Eric Martel
I would say that the split so far either by the type of customer or geographically is about the same. We haven't seen a change in profile. So we still have about, you know, the same proportion of iNetwork individual. We have the same proportion also of, you know, also the geographical spread, as I said, you know, between Europe and historical of what we've seen in the last two years between Europe, Asia-Pac and other region. So not much of a change there, you know, maybe a couple of percentage points left or right. And in terms of, you know, the type of customer, I think we still see, you know, an order coming from the fleet operator. We still see, you know, iNetwork individual and corporations still buying airplane. So basically the short answer is no changes in the profile.
Konark Gupta
Okay, thanks for that. And then, you know, you noted 5% of the fleet is now in the pre-owned market, but just kind of trickling up a little bit, obviously. Can you share any kind of thoughts on how that pre-owned market is looking for your family of global and challenger jets?
Eric Martel
Yeah, it actually looks pretty good. I think our product, you know, when I look at our global market, It's holding there. There's just a few available on the market. Their pricing remains pretty attractive for someone who wants to, you know, who would like to buy a pre-owned airplane. So we feel pretty good about this. You know, I don't see any type of airplane, you know, having much more availability than the other. But overall, the devil's in the detail. And we looked at the detail, of course. And we still feel good about the residual value of our product, you know, moving forward, which also is a good feeder to our CPO business. So clearly the environment is, you know, remain pretty stable in that regard slightly, despite what, as I said, you know, of about a 2% increase in overall inventory. But that inventory has not, you know, materialized that much in our platform.
Konark Gupta
Appreciate the color. Thanks. Thank you.
Operator
Your next question comes from Fadi Shamoon from BMO. Please go ahead.
Fadi
Thank you. Good morning. And congrats on the results and how you're managing through these supply chain issues. That's quite impressive. Thank you, Fadi. I have a question on the... On the margin, I mean, in the first quarter, your EBIT margin is higher than what's implied by your full-year guidance. Outside of the mix, which I understand the aftermarket is slightly higher contributor in Q1 versus historical, are there other things that kind of in the mix, in the aircraft mix, that are kind of driving the stronger margin in Q1?
Bombardier
Yeah. Hi. Good morning, Fadi. And thank you for joining us today. Thank you for the question. You actually answered your question very, very well. We had a very strong first quarter in aftermarket. And so if you look at the percentage of EBIT coming from the aftermarket business relative to what we'd expect for the full year, it was an over-contributor. And As we've talked about in the past, it's one of, if not our strongest, margin-contributing business, so it's what caused things to skew a bit.
Fadi
Okay. And one follow-up on that previous discussion on orders. I mean, you know, the corporate orders, like, you know, orders for aircraft from corporations – you're saying that it's kind of stable over time. Is that typically, when you go back in time, kind of lag in how corporates behave relative to the economy and how they approach aircraft orders? I'm just trying to understand, like, this macro environment, if there is a delay here in terms of how we're going to see the behavior on the order side in the next 6 to 12 months versus, you know, the current environment, which is quite challenging from a macro perspective.
Eric Martel
When I consider what's the activity that we have right now, we have a pretty good representation, I would say, of corporations in the discussion we're currently having. So we haven't seen a shift in reaction so far, you know, that affect the corporations. And, you know, it's always difficult for us also to make the distinction between iNetwork individual and some corporation because sometimes, you know, they're home by private individual or others. But despite the environment right now, we've seen, you know, people still need to move around. And that's one message I had, you know, I was in the APAC region a couple of weeks ago. And that's a consistent message. And even in the U.S., people still need to move around. we're all facing supply chain issue for most of the business and people need to move, go see their supplier and manage their business maybe differently. But the way they move around and transport remain important. I think, and I know we did a lot of work by Microsoft team or Zoom in the last couple of years, but still going and visiting a factory and really assessing what's going on and talking to customer remain very important. I think we all learn about that. But I think it's clearly how people are approaching it today. So if the economy really deteriorates, is there going to be a slowdown on corporate? Probably, which is, to your point, what we've seen in the past. But at the same time, the demand and the need to move around remains. But I think, again, we have two years of backlog. Fleet operators are being used more and more. Some corporations make the choice to say, I don't have my own fleet anymore. And we see that demand going to fleet operators, which is actually a pretty good thing for us.
Benoit Poirier
Thank you.
Konark Gupta
Thank you. Thank you, Fadi.
Operator
Your next question comes from Philip Nielsen from Citigroup. Please go ahead.
Philip Nielsen
Hi, everyone. Thanks for taking my question and congrats on the results. I have one question and one follow-up on my side. The question would be if you have any high-level view on new products that you're planning to produce or develop. And my follow-up question is related to demand. We talked a lot about geographic mix and geographic and customer mix. I'd like to have a little more color related to large versus small jets. If you have seen any indications of changes on preference between those two types of aircraft and how this has changed since the pandemic started?
Eric Martel
Okay, that's a great question. To answer maybe your first question about new product, clearly, you know, we have a very comprehensive portfolio today. And our portfolio today is selling very successfully, is well received. Our products are renowned for their reliability, their performance, the quality of our interiors and capabilities. And I don't feel any pressure right now to go with something new right away. I think we said that. I don't know if you had a chance to listen to our investor day, but we are extremely disciplined. I have very strict requirement myself with the state of our balance sheet, where our balance sheet needs to be before launching a new program. And at the same time, it's always an assessment of your your financial capability, but also the technology that are available. You don't want to launch a program and have knowing that new technology will come in in a couple of years and then make your program obsolete, you know, before going into service. So that's another requirement. And the other one is what our customer, you know, demand and what they're telling us. But today they are receiving extremely well our offering. And I think on technology we still have work to do. We have people today working, you know, a few people working and thinking about what's going to be our future program, but clearly the timing of that is going to be in line also with what we expect our financial capability will be. We'll have the same discipline than we've been having for the last couple of years as a management team, so that's probably a good way to characterize it. The second question, if you look at the customer base today, I think we still, you know, the way we've seen it evolving between global and the different platform, you remember that we made a very conscious decision of stopping the production in the light segment. And that was in line with our view that that market was much less first lucrative, but also, you know, will be impacted more significantly if there is a downturn. So I think the two segments that we are competing in today, which is medium and large, are still holding very well. I think we see a trend. People clearly are looking for bigger airplanes than maybe they were looking 10 years ago. So that trend has been continuing. And when you go from our base product, which is the Challenger 3500, you get quite a cabin for an airplane of that price. And I think people do appreciate that. So that is becoming a bit of a standard. And we feel pretty good about the two segments that we are competing in. And again, I think the large segment has always shown in the past also being extremely resilient to any movement in the economy.
Philip Nielsen
Great. Merci beaucoup and congrats on the results again. Thank you.
Eric Martel
Thank you so much. Thanks for your question.
Operator
Your next question comes from Elizabeth Grenfell from Bank of America. Please go ahead.
Elizabeth Grenfell
Hi, good morning. Thank you for taking my call. Thank you, Elizabeth. One, did you touch on if you had any delivery slip out of the quarter because of supply chain issues or anything else?
Eric Martel
We didn't have any. So, you know, last year, I think we delivered, actually, we delivered one more airplane than last year. But this, I have to clarify, also last year, we had three Learjet, which we're not producing anymore. So meaning that this year, we delivered four more Challenger and Global altogether than last year.
Elizabeth Grenfell
So nothing that you expected to deliver in the first quarter slipped to later in the year?
Eric Martel
No, we are exactly as per plan. Okay.
Elizabeth Grenfell
And then secondly, I think someone asked this question earlier, but I just wanted to delve into it a little more. With regards to the margin performance in the quarter, how much of the outperformance came from the strength that you saw in the aftermarket revenue?
Eric Martel
In terms of margin, you mean?
Elizabeth Grenfell
Yeah. Like how much of the margin strength was driven by the aftermarket performance?
Bombardier
Yeah, Elizabeth, it's Bart here. Obviously, we had a very strong first quarter, both on deliveries and on aftermarket. We did have some outperformance, though, in our aftermarket, a little bit ahead of plan. And so that was a contributor, but we don't break it down in that manner. If you look at it on a full year basis, though, it implies margin for the year of 14.8%.
Elizabeth Grenfell
Okay, and then if I could ask one more. Can you speak to your efforts to diversify in the defense market and how you're progressing against your plans for that?
Eric Martel
On the service market, you mean? On defense, sorry, I missed that.
Elizabeth Grenfell
Defense, yeah.
Eric Martel
Yeah, yeah, defense. So it's actually progressing extremely well. I think the different countries right now are realizing the capabilities of our product, which I said earlier can fly further, faster, and higher than pretty much any commercial aircraft that exists out there being modified for the same type of mission. So they bring some clear advantages. And I think this is what we'll receive. I said before, you know, the equipment you have to put on board for either surveillance or telecommunication or others are becoming smaller and smaller. So there's no need to have that big airplane anymore, which is much more costly, first of all, at purchasing costs, but also at operating costs. So our airplane produce less emission. They offer all kind of advantages. So I would say Geographically, clearly, I would characterize that clearly North America, Europe, and even APAC are two regions where we're having, you know, conversation with different customers for different missions. So we are extremely encouraged and we have a line of sight. You know, our objective is to bring, it's about to triple even a little bit more our revenue in that marketplace. you know, between now and the end of the decade. And we clearly have a line of sight for being able to achieve that.
Elizabeth Grenfell
Thank you very much.
Eric Martel
Thank you, Elizabeth.
Operator
And we have one last question coming from Tim James from TD Securities. Please go ahead.
Tim James
Thanks very much. Congratulations on a good quarter. Good morning, everyone. Good morning, Tim. I just have one rather big picture question. I'm wondering if you can talk about how you view the delivery cycle in respect to past experiences with downturns compared to what you see as you look out over the next two, three, five years, depending on your view. I'm wondering if there are factors at work that could make you know, an inevitable downturn less painful than past experiences. And maybe that's due to company initiatives or, you know, the industry supply chain issues that may be slowing the industry's ability to meet demand and therefore lowering the ultimate peak. Any other factors that investors should maybe consider when they're looking forward and thinking about what may be to come relative to sort of what we've seen in past downturns?
Eric Martel
Yep. That's a great question. I would say the biggest difference today than when we did in the past enter into more challenging situations is the two years of backlog that we have ahead of us. And it's not just a question of having a backlog, it's a question of having a quality backlog. We've entered into a different recession, call it 2008, even You know, late 2014, when price oil, you know, went down by about 50% and different things happened, we've seen major cancellation because in the backlog, we had speculators. Today, we don't have that. They're real individuals, you know, or corporation or who wants to have their airplanes. And I think we've learned from the past also that people have a bit more stake in the game, if I may use this word, in terms of LDs and potential penalty if they exit. So we feel pretty good that our backlog will sustain, even if there is a downturn. So that's a very, very different position than historically we've seen. So that's number one. So having two years of backlog, then it's a question of discipline and it gives us time to react if any rate adjustments are needed or something because, you know, you're within the window of when you need to make a decision to place your PO and bring your material and things like that. So you don't carry inventory that you cannot sell. So that's a very different environment than we had before. And we are extremely disciplined. That's why, you know, having a book to build of one for us is important because that means that you're keeping your backlog pretty much. So when you have two years of look ahead with a good quality backlog. So that's exactly how we look into this. And I would say that's probably a big difference than how we entered into a more challenging time in the past.
Bombardier
maybe a bard wants to have something yeah tim just a couple other things to to keep in mind as well um in addition to the the quality of the the backlog and the length of it is as eric was commenting on uh we we've been a lot more successful uh over the past years uh in as we build that backlog in uh bringing with it a very good progress payment profile so We're at a place today where we're receiving regular payments from customers throughout the manufacturing cycle. That means that our customers, through that cash flow profile, are basically financing the build of their own planes. So there's far less variability that we would expect, even in a downturn environment, to our financials and less stress on our balance sheets. For us in particular, our balance sheet is the strongest it's been in a very, very long time, and we continue to pay down debt and bring our interest costs down. And then the last thing I'd comment on is just working capital variability. It's one thing as an OEM to go from 120 aircraft deliveries in one year to maybe 150 or 180 in the next year, that's a huge amount of working capital you have to consume to build up the inventory. In our case, you know, we're working towards growth. Obviously, we want to get to around that 150 deliveries, but it's happening in very manageable steps for us. So even if we see a downturn, you know, working capital then becomes a bit of a tailwind where we're delivering the aircraft that we've sold. And so it's much more manageable for us as a business. So we think in almost any environment. you're just going to see less financial variability tied to any kind of order activity variability.
Tim James
Super. That's very helpful. Thank you very much. Thanks, Tim.
Operator
A few more people joined the queue, so we have a few more questions. The next question comes from Noah Poponac from Goldman Sachs. Please go ahead.
Noah
Hey, good morning, everyone. Good morning, Noah. Yeah, not sure what happened there. But nice to chat. Are you reiterating all of the 2023 guidance?
Eric Martel
Absolutely.
Noah
We are. Okay. Yep. Okay, great. I just wasn't sure I actually saw that in print. Bart, could you maybe spend another minute on just the progression of cash flow through the rest of the year? Sure. I can build to your cash flow forecast from revenue to margin and then things outside of that. But if I just look at the year-on-year, it requires a decent amount of year-on-year growth if I strip out working capital. And so maybe there's, I don't know if there's working capital help the rest of the year after what happened in the first quarter, but can you maybe just touch on the cadence through the rest of the year?
Bombardier
Yeah, well, the first quarter – and thank you for the question, Noah, and good morning. The first quarter usage was, as I mentioned in my comments, I think Eric did as well, was in line with our expectations. Just to build on that, we did have negative working capital in the quarter as we're building up – uh, our inventories, uh, to, to match to our rate increase. And we'll start making, uh, uh, deliveries against that to inventory build later on this year. So, uh, the goodness that comes with the investment today will, will start happening in the fourth quarter. Those inventories were around 480 million. We partially offset by about 270 million of payables. And then, uh, I mentioned in my comments, uh, Other liabilities on the balance sheet as well, which were down a little over 100 million, and that was mainly employee incentive plan activity, which was higher than last year, but because we had such a strong performance year in 2022. And it is a variable plan. So we expect to build inventory in Q2 and a little bit in Q3. So that will be using cash. but against obviously a stronger activity as we come into the middle part of the year and with inventory reversal to come in Q4. We do have a quite a significant delivery profile this year in the second half of the year, particularly in Q4. So there's going to be a lot of cash coming in as we deliver against that profile in the fourth quarter of the year. So we'll continue, as I said, to use up some working capital as inventory build, and then a big back half of the year for cash flow and deliveries.
Eric Martel
And Noah, I think I usually like to characterize the good and the bad inventory. The bad inventory would be the one that you have, and because you haven't been able to perform and deliver, which is not our case, In our case, I call it good inventory because, you know, this year, just want to remind everybody, we're growing our revenue by a billion dollars compared to last year. So in order to be able to achieve that, we have to grow the inventory, but that's for a good and positive reason.
Noah
Okay. So it sounds like 2Q, a little bit of use of working capital again, so I assume 2Q free cash flow. is a smaller negative than the first quarter, but is a use and then your positive 3Q, 4Q, is that accurate?
Bombardier
Yeah, the other, directionally you're correct, absolutely, Noah. But one other thing, I'm not sure if you were maybe on the call a little bit earlier, but the one other thing that you have to keep in mind for Q2 is that we've got 105 million of residual value guarantee payments to make. in the quarter against $125 million total for the year. And then after this year, we've only got about $25 million left, so we'll finally be looking at RVGs in the rearview mirror.
Noah
Okay. Great. Okay. Thanks so much. Okay. Thank you, Noah. Thank you.
Operator
Your next question comes from Cameron Dorkson from National Bank Financial. Please go ahead.
Cameron Dorkson
Yeah, thanks. Good morning. Maybe just a couple of quick things on the aftermarket and the services business. Obviously, we've got some utilization rates that are industry-wide that are sort of down year over year, but obviously still strong relative to 2019 levels. It doesn't look like you're having any impact from lower utilization in aircraft, but I just wanted to clarify that that's something you're not seeing, at least in your aftermarket business at this point.
Eric Martel
Yeah. No, absolutely. Clearly right now we have, you know, as you know, we've realized our footprint expansion last year and our service center are extremely busy right now. And the leading indicator, which is not exactly happening in this quarter, but the leading indicator that the airplane are, you know, still flying quite a bit is always, you know, encouraging for the future. But clearly the level of activity at the service center is very high right now.
Cameron Dorkson
Okay. And once we get to kind of a steady state to kind of run rate on the services business, is there, you know, typical seasonality here, quarter to quarter? Maybe you can just talk a bit about that. I'm just wondering if, you know, Q1 would normally be a strong quarter or not.
Eric Martel
No, usually, you know, it's, you know, the maintenance events are more planned with calendar and they may happen in Q1, Q2, Q3 or Q4. You have to go when you have to go. But of course, you know, if there is a little bit more flying, people will require more parts. Sometimes they will have to go to the service center. There is a bit of a seasonality in a sense that sometimes airplanes fly a little bit more in some months of the year, you know, during vacation time and things like that. So that could trigger a slight increase. But, you know, there's no real seasonality like we do see in our sales as an example.
Cameron Dorkson
Okay, that's very helpful. I appreciate the call. Thanks very much. Thank you, sir.
Francis Richer
Operator, we have time for one last question.
Operator
And your last question comes from Miles Walton from Wolf Research. Please go ahead.
Miles Walton
Hey, good morning, guys. Do you have a little photo on for Miles?
Eric Martel
Good morning.
Miles Walton
So I just want to go back to the free cash flow. Can you confirm, does this year include any benefit from the building sale that's kind of been expected for a couple of years now?
Bombardier
No, we don't have it built into our free cash flow forecast. That would be an upside, but it's not a hugely material item either way. But it would be a small upside to us if that were to happen.
Miles Walton
Okay, thank you. I thought it was a bigger number I can follow up off on. I guess just back to the margins for a second. Can you explain what drove the amortization down so much year over year, just given deliveries of the challengers and the global interrupts? I just wasn't sure why amortization was down as much.
Bombardier
It's mainly tied to lower 7,500 amortizations. So as time goes on, it'll be reducing. Okay. Thank you very much. Okay. Appreciate it. Thanks. Have a good day.
Eric Martel
Thank you so much. So thanks to all of you for joining us today. And I know some of you will be listening probably to the Bombardier's Annual General Meeting later today. So I look forward to meeting you again virtually and discussing Bombardier's success as well as the company's strategic path forward. As our Q1 results have shown, Bombardier is a strong, resilient, and predictable company. I continue to be impressed with our team's execution. This chapter in Bombardier's history is certainly looking very bright, and our talented team's tireless efforts are to thank. Merci à tous. Thank you all for your time today and your continued interest and confidence in Bombardier.
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