Bombardier Inc.

Good morning, ladies and gentlemen, and welcome to the Bombardier first quarter 2025 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 from Bombardier. Please go ahead, sir.

Good morning, everyone, and welcome to Bombardier's earnings call for the first quarter of 2025. 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, Eric Martel, and our Executive Vice President and Chief Financial Officer, Bart Demoski, to review our operations and financial results for the first quarter ended March 31, 2025. I would now like to turn it over to Eric.

Thank you very much Francis. Hello and welcome everyone. Good morning everyone and thank you for joining us today. So last time we spoke here, we were celebrating our 2024 results and we also had to announce that we would not be providing guidance given the unstable geopolitical context. Today, I am pleased to start on a very positive note and to confirm a strong guidance for 2025. Our team has successfully navigated the first three months of the year. I am proud of their poise, their dedication, and their commitment to our customers. Since February, we have gained a lot more clarity on potential tariff mechanics. We also took the time to complete multiple deep dives throughout our business. It's important to note that despite being in a more volatile environment, we continue to see order activity and we have not seen any cancellations. With that said, we expect meaningful increases in revenues, profitability, and free cash flow versus 2024, all of which are in line with the journey we began in 2021. We stayed confident when faced with a lot of speculation. We kept our eyes closely on business aviation flight hours, which went up in Q1. We watched pre-owned inventory of Challenger and Global jets go down, remaining at very favorable levels. And finally, we kept a relatively stable backlog and a book to build close to one, achieving 0.9. We manage our supply chain proactively. While this may not make headlines during a global trade war, it does require continuous attention and is something we are proud of. The tariff landscape has clearly created new challenges for our suppliers, and we continue to work closely with them. I'll speak more to this later. For now, let's focus on the detailed results of Q1. They set the stage for the full year guidance number that Bart will cover with you in detail. As you've seen this morning in our release, double-digit gains are a major theme across Archimetrics. Looking at revenue, we have raised the bar. We have told this story before and are delighted to tell it again. Our operations team remained flexible and agile, delivering three more aircraft than in 2024. We also raised the bar in Q1 for services, boasting another year-over-year gain. The conclusion? 19% more revenue in what I am sure we will all agree was a turbulent quarter for many companies. Staying calm and confident help us maintain focus on what we control. This really comes true when you look at our adjusted EBITDA, which recorded an impressive 21% year-over-year jump to $248 million. It represents a margin of 16.3%. We were also much more efficient when it came to our seasonable use of cash. I call it seasonal because the first quarter is often a very intense time for inventory buildup. Adding to this, January and February are typically slower on the sales front. Overall, our free cash usage ticked in the right direction, noting a 21% improvement versus Q1 last year. I also want to take a moment to highlight key growth aspects in our business. At our investor day last year, we introduced the notion of high return on invested capital in our product, as well as continued diversification through services and defense. To start the year, we have seen strategic moves and milestones in all of those categories. Let's start with the Global 8000. It's a joy to watch the aircraft smoothly move down the final assembly line. It's en route to a non-time delivery entry into service this year. Excitement for this plane is really building. It is being healthy demand because of its unparalleled capabilities. I know people have been captivated by the fact that it will be the fastest civilian jet on the market. But the bottom line is that it does so much more. It combines the size, the range, the cabin comfort with speed in a way no other jet can. It's a total package. It also delivers unprecedented landing performance on shorter runways, unlocking thousands more destinations for our customers. With a plane that can virtually land anywhere, service is key. This is why we continue to look at strategic expansions in our network. These will happen on two fronts, capacity and new services. In terms of capacity, As far as Australia, more line stations are coming online. We also recently confirmed our commitment to the United Arab Emirates, where our next full-scale service centre will take shape in Abu Dhabi. In terms of new services, in the United Kingdom, we have begun construction of a paint facility. This will further drive diversification in how we generate revenues by offering customers more of what they need in the region. This worldwide focus on seizing opportunities also translates to Bombardier Defence. We continue to make strategic gains, much like the recent order for Challenger 650 aircraft in Australia. Our approach in Defence has been to remain flexible and collaborative with allied governments. In the defense sphere, this is as important as the fundamental quality of and performance of the planes themselves. The world has changed, and it continues to change at a pace that we'll see requirements quickly evolve. Our products, all the way up to our global jets, are set to take a more prominent position when it comes to defending vast expanses of land and oceans. Our team is working with partners to create customized solutions that can enter service fast and at advantageous costs. Bombardier continues to be well-placed to succeed. Managing through the short term will remain a priority as markets and our customers react to the international trade landscape. We are very happy with our results and our team's performance. I do want to add some color on order activity. It's important to note that we have a number of order discussion stalled around the March timeframe. We saw a similar trend during the 2023 banking crisis. Uncertainty caused a short speed bump as everyone involved in transaction slowed down a bit to reassess the situation. As things progress today, we are seeing much better traction and activity. I also want to highlight that there are new opportunities emerging as the geopolitical landscape shifts. Our existing relationship in all geographies will help us open doors as the year progresses. Governments upholding the USMC exemption has also contributed to stability. It has ultimately preserved aviation jobs in the U.S., Canada and Mexico on a broad scale. While we and our customers have not been subject to a tariff on a delivery, the whole process has been taxing, if you'll pardon the pun. We have an all-ends-on-deck approach on being responsive to customers, being in close touch with governments and working with our suppliers. This has represented a lot of effort and disrupted many days for our team's members specializing in international logistics, customs brokerage, taxation, and other such fields. Managing this very fluid situation is not magic, it's hard work. It's recognizing that your need to start working on scenarios, or needs of starting to work on scenarios early, and you need to go as far upstream as you can go to solve the problem. This is an approach that helps us succeed with supply chain. It's a reflex we have confidently deployed in our current situation with the threat of tariffs. The conclusion to our hard work is simple. Our aircraft are USMCA compliant, making them exempt of tariffs. Additionally, our guidance accounts for all known tariffs-related impacts. We have also factored an impact for aluminum, steel, and the reciprocal tariffs on non-USMC compliant materials. All this said, Bombardier and business aviation as a whole are resilient. There are dozens, if not hundreds, of major international trade deals to be done around the world in the immediate future. Business aviation is an accelerator thanks to the fundamental purpose of our plane. to connect leaders across ocean with speed and efficiency. It's important that we also carefully consider that in times of such intense and rapid change, there are always hidden opportunities. That will be an immediate focus for us. We have boots on the ground across so many countries, and we will be ready to capture opportunities in defense and also civil markets. With that, I will turn the floor to Bart to go through our results as well as our outlook for the remainder of the year. Bart, over to you.

Thank you, Eric, and good morning, everyone. We've certainly started 2025 off on a solid and confident footing with strong first quarter results and a very impressive year-over-year growth. Compared to Q1 of last year, our revenues adjusted EBITDA and adjusted EBITDA margins have increased by 19%, 21%, and 30 basis points, respectively. The environment around us has been rapidly evolving, but just as we've done over the past five years, we continue to focus on the things that we can control while remaining agile in order to mitigate emerging risks and quickly seize new opportunities. An example of these opportunities is in the continued expansion of our service capabilities. Our team is working through a long pipeline of projects to grow the reach and scope of our services business, such as increased component repair and overhaul capabilities for wheels and tires in Wichita, adding more mobile repair teams across the US, UK and Australia, adding paint capacity in the UK, increasing our interiors capabilities in Singapore, and adding a new service center footprint in Abu Dhabi and a line station in Australia. These are just a few examples of the investments we are making, most of which can be put in place quickly and will immediately start generating returns. In terms of focusing on the things we can control, we've continued to improve our balance sheet in the first quarter. Our net leverage has improved by 0.6 turns, or 17% versus Q1 of last year. We've reduced our gross debt by $400 million in the last 12 months, including $300 million this January, and our liquidity remains strong at $1.4 billion. From a debt management standpoint, you can expect us to remain proactive and to capitalize on opportunities to refinance, extend maturities, and reduce our coupon rates in this fast-changing market. Our already strong operational performance is also continuing to improve. With our 12 months trailing EBITDA now exceeding $1.4 billion, our $14.2 billion multi-year aircraft backlog continues to provide us with visibility into our top line well into the future, while continued growth in our services and defense businesses offers us more diversification. On the cost side, with the confirmation that USMCA-compliant products are not subject to U.S. tariffs, We have considerably more certainty on our cost structure than when we last spoke three months ago. All of this puts us in a position to provide you with our full year 2025 guidance today. Although there is clearly some uncertainty surrounding the direction of the global economy, the guidance we have shared today reflects a very strong financial performance. And I will provide you with more color on our guidance after covering our Q1 results, starting with revenues. For the quarter, we're pleased to report a strong top-line performance, with total revenues up 19% year over year to reach $1.5 billion. Our aircraft manufacturing and other revenues grew by $223 million compared to the previous year, primarily driven by three additional deliveries, higher defense revenues, and stronger pricing. Total deliveries in Q1 of this year were 23 versus 20 last year. We delivered 12 medium aircraft, and 11 large aircraft this quarter, marking an increase of three large aircraft deliveries compared to the same quarter last year. Our services business grew 4% year over year, with quarterly revenues reaching $495 million. And while this level of growth may be a bit slower than the same quarter last year, what's telling is that the work in progress in our services network grew by 29% versus Q1 of last year. indicating a marked increase in the volume of aircraft being serviced within our facilities and setting the stage for another impressive growth year in 2025. Shifting to profitability, adjusted EBITDA totaled $248 million, representing an impressive 21% year-over-year increase. Our adjusted EBITDA margin was 16.3%, which is an increase of 30 basis points compared to the prior year. On the margin side, we continued to see pressure from supplier-related costs, which were higher year over year. However, these costs were planned for in our budget as they are the result of disruption that happened over the course of 2024. But they did negatively impact our margins in Q1 when comparing to last year and will continue to be a headwind for the full year. However, we were able to more than offset these costs through lower SG&A as a percentage of sales, which is 207 basis points lower than in Q1 2024, as well as through lower R&D expense as we continue to leverage available investment credits against R&D expenses. Turning to our other profitability metrics, our adjusted EBIT for the quarter came in at $177 million, up 25% from the $142 million reported last year. Our adjusted net income was $68 million, a remarkable 55% increase from the previous year, and highlighting the benefit of our significant tax attributes as our profits continued to grow. Our adjusted earnings per share is also up by an impressive 69%, or $0.25 per share, and came in at $0.61 in the quarter. Moving on to cash, our free cash flow usage for the quarter was $304 million, a 21% year-over-year improvement. This usage is driven by a working capital investment of $406 million, resulting from a $566 million investment in inventories in order to support higher delivery activity in the second half of this year, as well as a decrease in other liabilities of $98 million, largely related to the payment of our 2024 Employee Short-Term Incentive Plan. This was offset by higher customer advances of $410 million, reflecting both anticipated customer progress payments and deposits related to new orders. Our book-to-bill was 0.9 times in Q1. Our order pipeline and customer engagement was strong throughout the quarter. But as Eric mentioned, the changing global environment is opening the door to new opportunities for us, while some deals did shift to the right. amidst the economic uncertainty of the first quarter. Other uses of cash came in from our $33 million in capex spend and cash interest expense of $99 million. Let's turn our attentions to guidance, and I'll finish my remarks by providing some additional color for what we expect in 2025. Despite the rapidly changing environment, Bombardier has guided for another strong year of growth in the year, As Eric mentioned, our aircraft are USMCA compliant, making them exempt from tariffs. Additionally, our guidance accounts for all known tariff-related impacts. We have also factored in impacts from aluminum, steel, and reciprocal tariffs on non-USMCA compliant materials. This guidance may be revised if the tariff regulatory environment changes. With that being said, our strong backlog diversified top line, and better clarity on tariff applicability gives us the visibility needed on our top and bottom line to provide you with guidance today. In 2025, we expect to deliver more than 150 aircraft and continue seeing growth in the mid to high single digits for our services business, as well as continued growth in defense. This translates into revenues of greater than $9.25 billion. In terms of profitability, we expect double-digit EBITDA growth once again in 2025 to greater than $1.55 billion. This is driven by strong margin conversion on our incremental revenues, improved aircraft mix, a net benefit of pricing versus inflation, partly offset by continued supplier disruption. Where we do see a wider range of outcomes is on our free cash flow, The lower end of our guidance range of $500 million to $800 million takes into account a reduced level of order activity through the first six months of the year, with a more stable environment in the second half. This would result in a book to bill of below one times in the first half, which could negatively impact our working capital due to lower advances. To reach the higher end of the range, we would need to see a return to the same environment we have been in the last few years. with a demand that is in line with our deliveries for the full year. From a CapEx standpoint, we expect to be in the range of $200 to $300 million. We expect our quarterly delivery and free cash flow profile in the year to be similar to 2024, with deliveries again skewed towards Q4, along with inventory build over the first half of the year. In the second quarter, we are expecting deliveries to be in the mid-30s, EBITDA margins to pare back versus Q1 due to revenue mix of aircraft versus services, and free cash flow usage. Taking a step back and looking at our guidance holistically, I believe that it represents very well the resilient company we have built. Strong operational performance in a challenging supply chain environment, continued revenue diversifications towards high-growth businesses, industry-leading margins, and the ability to generate significant free cash flow in a volatile environment. In conclusion, as we've done before, we'll continue this year with a focus on the things we can control, combining disciplined and proactive management to navigate uncertainty and deliver strong results and value for all of our stakeholders. With that, thank you very much. I'll turn it over to Francis, and we can begin the Q&A.

Thanks, Bart. I'd like to remind you that the Bombardier Investor Relations team is available following the call and in the coming days to answer any questions you may have. For the question period, please limit yourself to one question and one follow-up. With that, we'll open it up for questions. Operator?

Thank you, sir. Ladies and gentlemen, if you do have any questions, please press star followed by one on your touchdown phone. You will hear a prompt that your hand has been raised. And should you decide to decline from the polling, please press star followed by two. And if you're using a speakerphone, you will need to lift the handset first before pressing any keys. Please go ahead and press star one now if you have any questions. First, we will hear from Tim James at TD Cowan. Please go ahead, Tim.

Thank you very much. Good morning, everyone. Just wondering first if I could ask about supply chain. It's called out a couple times in the report. I know that's been challenging. Just directionally, are you seeing it improve but remain challenging? Is there anything that's surprising you from a negative perspective? Are you seeing that sort of this tariff-related uncertainty is adding additional complications into that? Just a general update on sort of where the momentum is in supply chain.

I think overall we've seen, if you go back a year ago to this year, Tim, we've seen improvement. You know, we have less shortages. We're missing less part today on the assembly line than we used to. We've seen for the majority of the engine supplier, which you know have been a challenge, one of them is doing actually pretty well. The other one has improved continuously since a year. And we're still working with one to continue to improve the situation. So overall, the supply chain has definitely improved. So there is much less issue to deal with than we used to. And I think it's been consistent with what we've seen probably in the last two years. So the good news, it's clearly heading in the right direction.

Okay. Thank you very much. You're welcome. My second question, if I could, the R&D, I guess a question for Bart here, R&D, Looks like it was actually a benefit in the first quarter. Can you sort of walk us through what the reason for that was and kind of what any sort of non-recurring impacts were that were recorded in R&D?

Yeah, thanks, Tim. Good question. So we're in an advantageous position as a company in that from all of the investments we've made in the past, we have significant growth. R&D tax credits available to us, about a billion of them of our roughly 11 to 12 total tax attributes available. They are non-cash, but they enable the use of our deferred tax assets as we grow our profitability. There is some technical reasons behind why we're starting to release them now when we've been profitable, but the beginning point was getting to being profitable on a net income basis. And so we achieved that a little while ago. As we continue to grow our net income in the future, we'll be able to consistently apply these R&D tax credits, and so they will form a part of our go-forward profitability metrics. So you can expect to see consistency in the future as we report in the quarters to come.

Okay, great. Thank you very much.

Thanks, Kim.

Next question will be from Noah Pavanak at Goldman Sachs. Please go ahead, Noah.

Hey, good morning, everyone. Can you hear me?

Yeah, we can hear you well.

Okay, great. Yes. Bart, I guess it just stands out that the $900 million prior free cash flow framework is not in your range, especially as you've discovered that your aircraft are completely exempt from tariffs, which was what held you back from guidance previously. Can you maybe just talk about that? I mean, I know obviously it's a little bit slower order environment, and you talked about the advances headwind from that, but why no 900 at the high end of the range in the scenario where demand picks back up? What other differences are there from the prior framework that you had?

Yeah, thanks, Noah, and great question. There's a simple answer, and it's a two-word one. It's supply chain, but to add a little more color for you, when we first provided, you know, our longer, I'll call it our medium to longer-term objectives, our targets back in 2022, we upped those from our original targets that we'd set in 2021, and we felt that $900 million would be achievable this year relative to our first outlook of $500 million. But that was three years ago, and a lot has happened since then. And on the supply chain side, although we as a company, as Eric mentioned, I think have done just an amazing job with managing the difficulty of the supply chain, we do have work being performed out of order still today, and largely due to engine availability on time. And that has an impact on our cost structure. And today it's, and I've mentioned it, I think last quarter, we said something like a 60 basis point EBITDA margin headwind. You know, it's roughly $100 million if you think of it in terms of cashflow. And that's why at the top end of our guidance, we're now 100 million below the 900. So it's simple math, it's straightforward. And that's why we set the target there.

Okay, great. That is clear. How is the defense effort trending this year and what you've rolled into the guidance versus what you maybe thought 6 to 12 months ago?

I think it's clearly reflected. Everything we know today is reflected in our guidance, and we have a very positive response. view on what's next in defence. There's a lot of momentum right now. You know the geopolitical tension that exists today. The pressure on most of the country to increase their spending and achieve a bigger portion of their GDP on defence spending definitely is materializing. So we can see across the board even in our own country in Canada but also you know, in Europe and other parts of the world, Asia also. So, and the good news is we're extremely well positioned. You know, if you think about surveillance airplanes and others, we have the airplane that can do it. And sometime on a campaign of three participants, we are part of, we are with two mission house participating, so which is increasing the likelihood of us being part and successful in those campaigns. So overall, there's, I would say, tens of different campaigns going on right now. We participate to those with our partners, and we feel pretty strong about the long-term outlook. But also, some of them will start to be unveiled this year.

Great. Thank you so much. Thank you, sir.

Next question will be from Cameron Dirksen at National Bank. Please go ahead, Cameron.

Yeah, thanks very much. Good morning. Just wanted to ask about the order activity. I mean, you highlighted that in March, just given all the tariff chaos that you'd seen, kind of, I guess, a slowdown in discussions or stalled discussions. Can you just maybe talk a little bit more about what the hesitancy was from customers? Was it really just around the uncertainty around the tariffs for U.S.-based customers, or was it more kind of the macroeconomic backdrop that was causing some of those order discussions to stall?

So, you know, this is a great question, Cameron. Clearly, you know, we've seen the quarter evolving in about three different periods of time. You remember that we started the year with an overall threat of 25% on Canada across the board, which was, of course, a concern. But, you know, the level of activity was okay. When the tariff, you know, clarity came out, we were able to clarify a lot of things. First of all, that we could, if tariffs apply, deduct the U.S. content from the level of tariffs to be paid. But all this to say, and then we ended up with USMC exempt, which was the best scenario for us. But I would say probably between beginning of February and end of February, we've seen a very similar situation way to behave from our customer base, similar to what we saw in 2023 when we had the bank crisis. About two to three weeks where people were paralyzed, I would call it trying to understand what is really happening. Even ourselves, you know, everybody was, and we had all our experts, we were ready for all potential scenarios, I think, that you can imagine. But then at least clarity did help. But for the two to three to maybe four weeks of that unclear situation, there was a bit of a pause, and we lost a bit of momentum there. And then it came back. When we got the exemption on USMCA, I think the whole world, you know, said, okay, we're moving on. And we've seen, you know, a better level of activity after that. So I think it was a bit of a pause, which explained a bit that we have a 0.9 backlog. I am not concerned about it right now because the level of activity that we have today, either in the U.S., in Asia, APAC, Middle East, continue to be very strong. Even South America right now is doing fine. I would say the only area right now where I see still hesitation is probably Europe. It's not completely stalled. but it's slower than what we usually see. But overall, if you look, and that's, I think, the strength of Bombardier, we are extremely well diversified. But again, also, there's quite a few opportunities arising on the defense side, which could upset that. So, you know, at the end, you know, these tariff situations and pressure on defense create opportunities on the defense business.

Okay, that's helpful. And just one quick clarifying question, I guess, is I guess the $500 million in free cash flow, just want to see that the low end of the range would imply, I guess, a full year book to build below one, if I got that correct?

Yeah, that's right, Cameron. That would be the outcome if we continued kind of on the path of what we saw in the first quarter or even a little bit lower book to build on that. would bring us to the low end of our guidance.

Okay, that's very helpful. Thanks very much.

Thank you.

Next question will be from Benoit Poirier at Desjardins. Please go ahead, Benoit.

Yeah, good morning, everyone. Yeah, first question, yes. Could you talk a little bit about the customer's advance that you were supposed to receive toward the fourth quarter around the deferred global 8,000 prepayment, whether we've seen an impact in Q1 or any caller about the timing for this?

Yeah, no, that's a good point. We talked about that at the last call, and we clearly are getting into a different territory right now. As I said, in Q4 we have, and a bit earlier on this call, we have greater and greater confidence about our ability to certify and deliver, you know, the Global 8000 this year. So this being said, that we can have our salespeople, you know, being more aggressive and selling, starting to sell these airplanes. So we've seen a buildup into the momentum this quarter. And actually there's a lot of, A lot of positive reception on the Global 8000 so far. It's going to be the airplane that flies higher, faster, further than anything that exists today. So we feel pretty good about how our customers are enthusiastic about the airplane coming into service. So we're starting to have a lot of conversations. Some of these deals will close tomorrow. During the year, we're pretty sure of that, and we're participating to many events to promote the airplane, but it's extremely well-received. So I guess we're going to see some positive this year about the Global 8000.

Okay, that's great, Collier. And for the follow-up question, Bart, could you talk a little bit about the opportunities that you see in terms of capital deployment for further debt repayment or maybe your thoughts about the buyback given the share price and your strong balance sheet.

Yeah, thank you, Benoit. So right now, you know, we're sitting at net leverage of about three times. We had a nice improvement year over year on our net debt to EBITDA of about 17%. We ended Q1 of last year at 3.6 times. So we're still targeting over the short term. to get our target leverage down to about two to two and a half times. I would say from a capital deployment perspective, Benoit, debt repayment is our number one focus still today for use of excess cash and liquidity. We paid $300 million off in the first quarter of this year. I think that highlights our confidence in our business prospects. and the market generally this year. And we have a target to pay down or I'm not sure what happened there, but approximately another 600 million of net debt reduction remains in the plan for this year. So that's where capital will be deployed in the short term. Once we get into 2026 and we start to talk about the next five years approximately, We'll come back to the discussion about how we want to deploy, but I don't think our options will change. Certainly, a return of capital to shareholders will be on the table. Clearly, investment in our business will be on the table. Further debt retirement is always an option as well, and we have all that optionality ahead of us, and we'll certainly work to maximize shareholder value through our choices.

I think we're in line.

As Bart said, you know, with what we said a year ago, we talked about a billion dollars of the debt repayment on the gross debt a year ago. We did 400 last year. So as Bart just confirmed, we're aiming to do another six this year.

That's perfect. That's clear. Thank you very much, gentlemen. Merci, Benoit. Thank you. Merci.

Next question will be from James McGarigle at RBC. Please go ahead, James.

Thanks for having me on. Just on the book to bill coming in below one in the quarter, you mentioned the speed bump. Then you kind of also flagged that you're seeing some much better order activity. And you just put to Cam's question earlier, you said that, you know, things stay, I think, Q1, the book to bill would come in below one for the year. But, you know, if you're seeing a lot better activity now, you know, recent trends persist, call it, you know, since April. Do you expect to come in toward the higher end of the free cash flow guidance in that case?

Yeah. Good morning, James. It's Bart here. I'll just go back to what I said in my prepared comments. And you're right. If we see a book-to-bill consistent with our planning basis of one times, that would bring us in at around the high end of our free cash flow guidance, so around $9,800 million. If we see... order activity continue to provide us with a book to bill closer to what we saw in the first quarter at 0.9 or maybe even a bit lower than that, that would bring us in closer to the low end of our guidance. And really that's the variable that defines the range.

Okay. And then on the margins, you know, they came in higher year-over-year but below your prior expectations. You know, you spoke a little bit in your prepared remarks that, you know, a little bit of program tariffs to supply chains likely driving some of that as well. But can you just talk about, you know, the room for improvement that you see longer term on the EBITDA margin side?

Yeah, look, there's significant opportunity for us. If you think through the strategy that we're deploying and where the vast majority of our growth is coming from over the coming years, it's in our services and defense businesses, which provide us with our highest EBITDA margins in the company. So that certainly will provide opportunity. If we look at the headwind that we've been working our way through, due to having to perform work out of order on our aircraft manufacturing line. Last quarter alone, like Q1 of this year, we would have been above 17% EBITDA margin today. So that's another opportunity. Once the clouds lift and we start getting engines to the line, across the line on time, that's a clear opportunity for us. And I know our operations team, is really looking forward to being able to take advantage of all that and deliver better margin profile for us. So those are the two key drivers, I think, in the coming quarters and years. Thank you. Thank you.

Next question will be from Myles Watson at Wolf Research. Please go ahead.

Hey, good morning. You have Lou Refedawan for Myles.

Good morning, Louis.

Maybe, Eric, for you, the 150-plus deliveries this year, I know last year you were split 50-50, medium-large. How do you think about that this year?

Yeah, no, we feel pretty confident about that number. You know, we've been a... On a regular basis, we do a thorough analysis of our supply chain and the capability. It's reflecting already some risk that we have. And, you know, you'll see how things evolve, but we feel... We feel pretty good about the greater than 150, and we just reassessed that recently and are in line to do that. So that's clearly a good place to be, I think, for us at this stage.

I'm sorry, but what about the mix between the medium and large jets for this year versus last year?

The mix is about like, you know, it's been last year, probably about half and half in terms of number of units. So, you know, we don't provide guidance per product, but overall it's about a similar mix to about 50-50-ish.

Okay, great. Thank you. Plus or minus.

Thank you.

Just to confirm, the $600 million of debt, is that in addition to the $300 million in the first quarter, or is that including that?

That's right, Louis. It will be in addition, so incremental, and that's in our plan for the back half of this year. As you know, you know, our heaviest period of deliveries and when we release a lot of working capital is in Q4. So, that's probably a good time to be thinking about that.

Appreciate it. Thank you.

Okay. Thank you.

Next question will be from Conard Gupta at Scotiabank. Please go ahead, Conard.

Thanks, and morning, everyone. And, you know, glad to hear, Eric, that you have a lot of clarity now on the DREF side of things, for sure. So, You know, from a high-level perspective, you know, I'm thinking tariffs probably are not impacting your products directly, your customers as well. So, you know, broadly speaking, things are not changing, I guess, in that sense. But, you know, the whole tariffs seep through to the macro, the economy, and, you know, the sentiment, obviously, it's all weighing down clearly. So when you talk to your customers, and I'm talking broadly, your major customers like fleets, cooperates and high net worth. Are you seeing or noticing any differences by each of these categories in terms of how they are pursuing the order activity? Some of these guys are saying we want to hold, some are saying we want to accelerate, and some are saying no change.

I think if I go, it's a great question, Konark. Clearly, I've already said defense is definitely hot right now. This is a place where we believe we have quite a few opportunities this year. On the fleet operator, this is actually a pretty good story. Overall, you've seen a major readjustment for these guys. They are way higher than they were in 2019. And they're still growing. If you look at the fleet hour, the flight hours of Bombardier, you know, compared to a year ago, it went up by 3% in the first quarter. And the flight hours, you know, from 24 up 39% in 19 are still up again this year. So overall, we see great momentum. either with the operator or either with the fleet operator. So the fleet operator, you remember, they're up 57%, 58% since 19. So this is quite significant. And the other operator, 34 in our case. And what's interesting also is the growth comes from, the majority of the growth comes from the Global and Challenger. Actually, the Learjet is actually down 1% since last year, but we've seen 3% and 4% on the Challenger and Global. So the flying hours are very important to us because they're a leading indicator. And as we mentioned earlier, the backlog of pre-owned airplane actually has been slightly lower recently. than a year ago and continue to go down. So in our case, the inventory is at around 6.7% right now on the Bombardier plane. So overall, the leading indicators are there. We still see corporations coming to the table because they still need to move around. They are global. They see the business aviation as a productivity tool for their team and themselves. So we still have a pretty healthy discussion and we haven't seen a a shift in behavior, as I said earlier, if you compare to a year ago or two years ago.

That's clear. Thanks, Arik. And if I can follow up, Bart, maybe for you on the margin bridge side of things. I mean, if I simply take the numbers you are guiding for 25 at the low end for revenue and EBITDA, you know, mathematically implies something sub 17% EBITDA margin, which is still pretty healthy compared to 15.7 you had in 24. So the incremental margin at 30% plus for this year sounds like, you know, in a tough environment like this, it's pretty robust. But what's driving this? You know, like, is it the mix that global 7,500 to 8,000 are kind of, you know, rebounding from production side of things? Is it Is it the aftermarket services growth and offset by supply chain? Are all those things enough to support the 30% plus incremental margin, or is there anything in cost that I'm missing here?

Yeah, thanks, Conarch. The first thing I'd point out is we're the industry leader on margins today, and that's a big change from a few years ago, and we're very proud of that. But our work's not done. And we do see margin growth opportunities. So if you think about it, adjusted EBITDA greater than $1.55 billion and adjusted EBIT greater than $1 billion for the year growth, we see coming from a couple of different areas in particular. Pricing on new aircraft sales relative to, well, new aircraft sales generally, we're seeing strong pricing. If you think about where we're at today with the backlog that we have, we already know that a lot of those pricing gains are built into the backlog. So we have real good visibility on those CONARC. As well, volume mix. We do have projected for the year prior to last year, or in comparison to last year, higher global content. So that will provide a margin boost as well. And then For the growth we have coming this year for defense and services, the revenues there, strong margin conversion there as well. So those are the three key drivers for us. And as I mentioned earlier, though, partly offset by supply chain headwinds. So we do have margin growth coming incrementally, and that would be where it's coming from. Okay, got it. Thanks so much for calling, Connor. I appreciate it. Okay. Thanks, Connor.

Next question will be from Ron Epstein at Bank of America. Please go ahead, Ron.

Hey, yeah. Good morning, guys. A lot of stuff we've already gone through. Good morning, Ron. I'm just curious. Have you seen a change in customer behavior sort of given, how do I frame this, you know, different perceptions about the U.S.? Meaning, have you seen some customers who are maybe going to buy a jet in the U.S. who are like, eh, maybe we'll go to Canada? That's my first question.

I did actually. I don't know if I should say that, but I did. I saw that in a few regions where people said, you know, we're concerned about what's going on in the U.S. and we'll definitely be considering your product. But at the end of the day, I want to be careful with that because we are a non-American company. I know people like to classify us as being either Canadian, American, or French, you know, if I look at my competitor. But You know, the reality, Ron, and I think it's super important that people understand that is, you know, we are a North American company. We have a strong presence in the U.S., 2,800 supplier. We have a presence, of course, in Mexico with our own operation and also supplier here in Canada, of course. You know, and it's important to mention that even if I compare to some of my competitors in the U.S., sometime on the maturity of my product, actually, I have more U.S. content than them. even if we are being perceived. So the point is that we are a North American company, you know, proud of being located here and at office in Canada, but we are clearly, you know, our supply chain are well embedded. But clearly there's reaction out there in other countries that people says, you know, hey, you know, we love the fact that you guys, you know, assemble the airplane in Canada and we're going to definitely consider you now more than ever.

Got it, got it, got it. And then maybe a little bit of a monkey kind of accounting question, but on... Under USMCA, were you guys using that before or were business jets covered by the WTO agreement, the ATCA, the thing that goes back to 1979 that used to cover RJs? I just don't know. Did it cover business jets or not? Or were you already kind of like USMCA was how you were doing it, so there's really no... How do I say transition that has to happen?

We already had a USMCA certificate the day that it was announced, so we were using USMCA. But you're absolutely right. The rules have been actually even before USMCA or NAFTA, the rules were there since 1979 by the World Trade Organization where aerospace, because of this strong integration from country to country, were exempt of tariffs. This has been the rule. And this is why we've built this industry around those rules. So changing it, like, overnight will have, like, significant impact, of course. But, you know, we've delivered airplanes under USMC for many, many years.

Got it. All right, cool. Thank you, guys. Yeah, have a good one. Thank you.

Next question will be from Gavin Parsons at UBS. Please go ahead, Gavin.

Thanks. Good morning, guys. Good morning, Gavin. Good morning, Gavin. In free cash flow, are there any working capital assumptions like inventory?

Yeah, generally. Good morning again, Gavin. So working capital for us, long range and over most time periods, what we're trying to do is find a balance between customer advances and inventories. If you look at where we ended last year, we were roughly balanced. I'll call it about $4 billion of each. So working capital neutrality is our goal. Each year when we go into our planning cycle, we try to set our budgets and plans based on what we see from forward-looking sales activities, etc., to build in deliveries, to build in an assumption of a round book-to-bill of one. And that book-to-bill of one would give us that neutrality. Obviously, there's mix and other things that come into play each year, but from a general perspective, that's our target. And assuming a one-times book-to-bill this year, we should have working capital neutrality for the year.

That's helpful. And then coming back to defense, Any opportunity for Bombardier to do maybe more than special mission or integration? And I'm thinking about the unmanned ecojet demonstrator.

No, I think, you know, those strategic discussions have been happening at Bombardier and still continue. Yes, we think, you know, when we talk to the mission hours today, I think that they realize more and more so that we can do more, so more vertically integrated within Bombardier supply chain could be helpful for them and, of course, create extra work for us. But at the same time, clearly, EcoJet brings a possibility. You know, the discussion of unmanned airplane is on the table, and we're looking into that. You know, there's technology. We said that we were going to invest into our product. We're looking at the appetite of different governments, you know, for this, and this is something we could do. if the appetite in the market is there. But clearly there is quite a few possibilities. The Echo Jet will be a quite capable product. So this is definitely one thing we're looking into. Thank you.

Last question is from Jay Singh at Citi. Please go ahead, Jay.

Hey, thanks for taking my question. It's Jay DeLeon for Stephen Trent. Since you guys pretty much answered all our other questions, I just wanted to ask, following Bombardier's inclusion in the U.S. Army's HADES program, do you see other global military demand or at least anything else specifically in the pipeline to the extent that you could talk about? Thank you so much.

The U.S. is very opportunity for incremental U.S. demand.

Oh, for the defense airplane. Okay, on defense airplane. Sorry, I missed that. Sorry. So clearly there is. You know that we are on the 80s program that won a few years ago, and there's clearly a strong appetite for our product. We said it earlier in defense. First, we are being perceived as a company as being very agile, capable of turning things around faster and adapt to what the customer wants, and I know that this is something that is extremely appreciated today especially on the U.S. side and, of course, around the world. But we have those comments directly from the Pentagon as they were appreciative of our ability to move fast and help them in terms of what they're trying to achieve. So I think we've been successful on the bacon program. Now we have ADs that we're working with, Sierra Nevada Corporation that's been selected as the mission house. And I think that our ability to execute and the capability of our product are so significant and different than others, I think that this will create also other possibilities for us, both in the U.S. and internationally.

I appreciate the talk. Thank you.

Thank you. At this time, I would like to turn the call over back to Eric for closing remarks.

Okay, so thank you again for joining our call today. Clearly, the excellent progress Bombardier has made is the result of more than 18,000 passionate individuals. We will continue to push the limits of what's possible in business aviation, and at the same time, we will remain focused on our people as well as sustainability. As we wrap up today's call, I want to take a moment to recognize the team for their continued effort on this front. Our Environmental Product Declaration Initiative is now fully implemented on all our aircraft, and this was recognized at the Aviation Week Laureate Awards. This and many other achievements will be detailed in our upcoming sustainability report. So thank you again for joining us today. And for those who will be joining our annual general meeting of shareholders later today, I thank you for your continued engagement and also support.

Thank you, sir. Ladies and gentlemen, this does conclude the conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines.