This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
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
Good morning, everyone, and welcome to Bombardier's earnings call for the third quarter and it's September 30th, 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. The risk 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 MDNA. I'm making this cautionary statement on behalf of each speaker on the 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 third quarter 2023. I would now like to turn over the discussion to Eric.
Eric Martel
Thank you, Francis. Hello and welcome everyone. 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 underlying 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 KGAR. And finally, both our top and bottom line performance has grown year over year. I also want to highlight the incredible work our teams accomplish 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 TSX 30. This prestigious recognition highlights the top 30 performing stock over a three-year period and then June 30th, 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 TSX-30 ranking demonstrates 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 continues to play a key role as we execute on our commitments. They are driving significant and sustained revenue growth. In Q3, they recorded a 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 and fresh coat of paint, as well as the latest avionics 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 identified problems before they escalate. Thanks to their proactiveness, we have been very successful in mitigating challenges and keeping our delivery projection on track. Speaking of deliveries, our backlog remains solid at $14.7 billion, which translates into an order book that is averaging 18 to 24 months. On top of this, our long-term skyline includes 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, cooperation 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 customers 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 surveillance aircraft that are based on the Global 6500. This is the latest addition to a long list of programs that rely on our global platform to complete defense missions, including the successful Bacon 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 on force. With that said, overall we see steady order activity in a normalized demand environment. Our true four order pipeline looks robust due to continued demand for our Challenger and Global jets. Our increased profitability has allowed us to record a cash flow positive quarter and to generate $80 million. This convincing result 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.
Francis
Bart, the floor is yours. Thank you, Eric, 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 de-levered 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 73 cents for the quarter versus a 10 cent loss in Q3 of last year. As I mentioned on 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 remove our cash interest cost 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. 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
Thanks, Mark. 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 and one follow-up. With that, we'll open it up for questions. Operator?
Operator
Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request. And if you would like to withdraw from the question queue, please press star followed by two. And if you're using a speakerphone, you will need to lift the handset before pressing any keys. Please go ahead and press star one now if you have a question. And your first question...
Disclaimer