Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Bombardier Inc (BDRAF, Financial) reported a 32% year-over-year increase in Q2 revenues, driven by strong aircraft deliveries and aftermarket services.
- The company achieved a significant milestone with services revenues crossing the $500 million mark for the first time, putting them on track to meet their 2025 target a year early.
- Adjusted EBITDA grew by 22% year-over-year to $335 million, demonstrating strong operational performance.
- Bombardier Inc (BDRAF) received two credit rating upgrades from Moody's and S&P, reflecting improved financial performance and balance sheet de-risking.
- The company successfully navigated labor negotiations in Toronto, minimizing production disruptions and maintaining their full-year guidance.
Negative Points
- Supply chain issues, particularly with engine suppliers, continue to be a headwind, requiring close management and intervention.
- The recent labor strike in Toronto resulted in the loss of 11 working days, creating schedule pressures for aircraft deliveries in the second half of the year.
- Adjusted EBIT margin was lower year-over-year due to revenue mix and one-time items from the previous year.
- Free cash flow usage in Q2 was $68 million, driven by negative cash flow from operations and continued investments in inventory.
- The company anticipates reduced order and delivery activity in Q3 due to planned manufacturing shutdowns and the summer holiday period.
Q & A Highlights
Q: Can you help us understand how the recent strike impacted production and deliveries for the second half of the year? Was there any impact on orders due to customer concerns about the strike?
A: (Éric Martel, President, CEO, Director) The strike resulted in the loss of about 11 working days, but it did not impact customer orders. Most aircraft scheduled for delivery this year were already in Montreal for completion, with only a few still in Toronto. We have plans to catch up on the delayed production, and there is no impact on our guidance for the year.
Q: Your leverage ratio is tracking towards your 2025 target. Is there a possibility of M&A, new products, or shareholder returns?
A: (Bart Demosky, CFO, EVP) We have flexibility in deploying capital due to our strong free cash flow. Debt repayment remains our top priority, but we are also considering shareholder returns, investing in our existing fleet, and M&A. We will provide clearer guidance after meeting with our Board later this year or early next year.
Q: Could you provide more granularity about any particular strength among customer types or geographies in Q2 bookings?
A: (Éric Martel, President, CEO, Director) The bookings were well-distributed geographically. North America remained strong, while the Middle East, Africa, and A-Pac showed significant strength. Our defense business also contributed to the orders, aligning with our growth expectations.
Q: Can you explain the mix and margin impacts on EBIT for the quarter?
A: (Bart Demosky, CFO, EVP) The year-over-year difference in adjusted EBIT is mainly due to one-time items from the previous year related to the divestment of our commercial aircraft business. Additionally, we had more Challenger deliveries this year, impacting the mix and margin. However, we expect stronger global sales and deliveries next year, which will improve margins.
Q: What are your expectations for labor cost inflation over the next few years, and how might it impact your financial targets?
A: (Éric Martel, President, CEO, Director) Overall costs, including labor, have increased, but this has been offset by better pricing on our aircraft. We foresee labor cost increases normalizing, and our recent collective agreements reflect this. We have good visibility on labor costs due to long-term contracts.
Q: Can you provide an update on your working capital expectations and free cash flow guidance for the full year?
A: (Bart Demosky, CFO, EVP) We expect a modest cash usage in Q3 due to planned deliveries brought forward to Q2. However, Q4 is shaping up to be a strong delivery quarter, similar to last year. We remain confident in our full-year free cash flow guidance.
Q: Can you provide more details on the defense business and its growth potential?
A: (Bart Demosky, CFO, EVP) We see significant growth potential in our defense business, targeting $1.5 billion in revenues by the end of the decade. We are participating in multiple campaigns and expect to deliver more aircraft per quarter, contributing to consistent revenue and profitability growth.
Q: What is the pricing environment for your backlog and new orders?
A: (Éric Martel, President, CEO, Director) Pricing is meeting or exceeding our expectations, with slight year-over-year increases. We have good visibility on pricing for this year and next year, and new orders are being sold for 2026 and 2027, providing comfort on future pricing.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
