Bombardier Q1 call
Very strong orders lead to more than 1 billion in cash advance and Book to Bill of 3.6, while rising by 640m inventories to be able to significantly rise revenues in 2H
Legal Disclaimer: All content published on Wintergems is intended for informational and entertainment purposes only. It is not intended to serve as a recommendation to buy or sell any security. The views expressed are my own and are subject to change without notice. The information provided here is proprietary. I make no representations or warranties as to the accuracy or completeness of the information provided and will not be liable for any losses, injuries, or damages from the display or use of this information. Readers are solely responsible for their own investment decisions.
Bombardier has risen 17% yesterday following the Q1 results.. Here are my notes. After the big jump of both Google and Bombardier last 2 days, these 2 companies are back to over 50% of my portfolio.
Google is a Ultra-Wide Moat Company in Search
Bombardier is a Wide Moat Duopoly in business jets.
I am quite bulish on my other top 10 positions like D-Box, Adyen, eurokai, my 2 Japan micro/small cap Aero Edge and Okano Valve, but the overall performance is dictated by those 2 names..
Some notes on Bombardier Q1 call:
all figures are in USD but stock trade at roughly 285CAD
Very strong orders lead to 1.1B in cash advance
Strong performance in the quarter was driven by growth in customer advances of nearly $1.1 billion, reflecting both strong order activity as well as customer progress payments for orders, which were already in our backlog. This was partially offset by $670 million of inventory investments to support higher delivery activity in the second half of the year as well as a $126 million decrease in other liabilities, which includes incentive plan payments following a very strong 2025 financial performance. Other uses of cash in the quarter came from $33 million in CapEx spend and net cash interest of $74 million.
Finally, we achieved a unit book-to-bill of 3.6 in Q1, supported by broad-based demand and strong orders across all platforms. This level of backlog provides strong visibility for future financial performance, support margin durability and position us well for sustained growth.
Free cash flow machine!
We are increasing our full year 2026 free cash flow guidance. We now expect free cash flow of over $1 billion in '26, while reaffirming guidance on all other financial metrics.
Rising CAPEX level versus previous last few years..
Bombardier is building a new plant for the Challenger series
Looking at the second quarter specifically, we expect similar deliveries and profitability to last year as well as year-over-year improvement in free cash flow. Regarding CapEx, as we noted on our previous call, we plan to continue making incremental investments in 2026 across our product portfolio and facilities to support growth, while still expecting CapEx to remain close to the $300 million level.
Product sales a bit lower in Q1:
As Eric mentioned, we experienced a supplier snag, which affected our deliveries by a handful of aircraft, but which is now resolved. This was offset by a better performance in services and shows the benefit of our revenue diversification strategy, which helped mitigate the overall impact to our Q1 results.
And the quality snag we had, the issue we had in Q1 that prevented us of flying did not come from an engine. So it was another issue that we sort out. We're back and we're flying and those airplanes give us confidence that will happen in the remaining of the year. So we're catching up very nicely right now. So that's the thing.
Aircraft manufacturing and other revenues were $975 million, down $47 million year-over-year. Total deliveries in the quarter were 24 aircraft compared with 23 in the same period last year, with 2 additional medium aircraft and one fewer large aircraft.
On services:
Services business, this business continued to perform exceptionally well, with revenues up 25% year-over-year to $617 million, once again adding to its track record of consistent and robust growth. And we are well positioned for another strong year in aftermarket in 2026.
on deleveraging
Positive momentum has continued in April with S&P Global Ratings changing our outlook to positive on April 14. And we announced earlier this morning the early redemption of our CAD 150 million debenture, representing just under USD 110 million. When we put it all together, we will have repaid $860 million of debt by the end of Q2, resulting in annual interest savings of more than $52 million- thats 0.5$EPS USD in savings
On margin
Our gross margin was slightly higher than last year, seeing a 10-basis points improvement.
but spending more on SG&A on defense and future services…
Below gross margin, our spending to support future services and defense growth was up a bit, resulting in higher SG&A as a percentage of revenues and increased R&D spending. The resulting Q1 margin decline was in line with our expectations entering the year, and we continue to expect full year margins to be similar to last year. Adjusted EBITDA for the quarter was $246 million compared to $248 million in the first quarter of '25. Adjusted EBITDA margin was 15.4%, down about 90 basis points year-over-year.
Very strong underlying demand in terms of flying hours
And the other thing also is despite everything going on right now, the war with Iran and Ukraine, we see still growth in flying hours, which, again, for us, fleet is growing, the hours are growing. I don’t know, I was just looking at the number. We’ve seen on our platform, if you think of the Global Q1-over-Q1, 8% more flying hours since last year, 6% more flying hours on the Challenger.
On defense
We are building a good backlog right now. Last year, we're at about $1.5 billion on defense. We are expecting similar, if not better this year. So we had no deliveries in the first quarter, but the deliveries are coming, starting soon, and we're very enthusiastic about the defense business.
And if you look at the opportunity, you've heard about NATO looking at AWACS last week. We're partnering with both Saab and L3Harris on the AEW&C aircraft solution. Both are on the Global 5500. So some of them are waiting on some decision, but things are really looking promising in that field.
Global 8000 is replacing the Global 7500
Yes. So no, it’s completely done. Since January 1, we are only delivering Global 8000. So it went very smooth. As you know, we certified the plane in Canada first in the U.S. and in Europe, all according to our plan. So we produced the last 7500 last year. And it’s been a very, very smooth transition throughout the first quarter.
The other piece also where we have quite a bit of momentum is, as you know, we have a 200-plus installed base of 7500 flying out there. And the customer have the possibility to buy our service, Bolton in service to upgrade their 7500 to become an 8000. So a lot of customers have elected to do that, which preserve their value of the plane. So we have a lot going on at the service center right now in that regards. You’ve seen some announcement of fleet operator recently that did that. So we’re very enthusiastic about also that momentum.
On rising delivery rate
Yes. On the Challenger, we're building capacity right now. We've announced it in January, and that's progressing very well. We have had significant demand on the Challenger, long-term demand also, as you know with fleet operators. So we feel very confident because the fleet operator are all buying the 3500 these days, and that's visibility for us probably for the next 10 years. So that's helpful to make a decision that you want to make for the long run. So we're feeling pretty good about the Challenger piece.
Valuation
The Company is guiding to over 1B of Free cash flow even if they are increasing inventories and investing in a new plant for the Challenger series. I would guess that Free cash flow ends-up close to 1.2B so the company is trading at a FCF to EV of 5%. The stock trade at roughly 210USD and we can round up to the number of shares to 100m shares. So easy to calculate. Considering that the only reason for not increasing sales is the worldwide supplier and capacity constraints but eventually this will be figure out and we have strong visibility that sales (both product and services) will raise steadily over the next 5 years, we should see a steady rise in income over the next 5 years. Net Debt represents now a very small % of the Enterprise Value. They paid down 750m in the Quarter and might pay back a 700m Bonds due in 2029 later this year. M&A in Defense or Services is certainly in the horizon, now that debt repayment is less critical.
Feel free to ask any questions here or comments!
Legal Disclaimer: All content published on Wintergems is intended for informational and entertainment purposes only. It is not intended to serve as a recommendation to buy or sell any security. The views expressed are my own and are subject to change without notice. The information provided here is proprietary. I make no representations or warranties as to the accuracy or completeness of the information provided and will not be liable for any losses, injuries, or damages from the display or use of this information. Readers are solely responsible for their own investment decisions.