Bombardier Inc. (BBDB) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Bombardier Second Quarter 2026 Earnings Conference Call. Please be advised that this call is being recorded. At this time, I would like to turn the discussion over to Mr. Francis Richer de La Fleche, Vice President, FP&A and Investor Relations for Bombardier.

Good morning, everyone, and welcome to Bombardier's earnings call for the second quarter of 2026. 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, Éric Martel; and our Executive Vice President and Chief Financial Officer, Bart Demosky, to review our operations and financial results for the second quarter ended June 30, 2026. I would now like to turn over the discussion to Éric.

[Foreign Language] so good morning, everyone, and thank you for joining us today. Before Bart and I discuss our excellent progress, I want to provide some color on why the last quarter was significant to our entire team on many fronts. The Bombardier that I see today is a company that's continuing to build momentum. Our team is executing its plan at the top of their game. We've often talked about the importance of building a stronger, more resilient Bombardier. This quarter provides another good example of that journey in action. Revenue grew, EBITDA grew, free cash flow grew, our footprint is growing, our backlog is lengthening, and we are continuing to add flexibility to our balance sheet. Put simply, every fundamental measure of our business moved in the right direction. Looking at demand specifically, it continues to be a strong tailwind for us. Our backlog expanded to nearly $22 billion, which reflects the quality of our product and services and the confidence customers have in our future. Continuing to invest and adding capacity has always been a priority for us. We have begun advancing the expansion of our manufacturing footprint in Montreal, which will support long-term delivery growth. In the second quarter, we also announced the expansion of our Singapore service center, which will nearly double the facility's capacity when it comes online in the second half of 2028. This project adds to our ongoing effort already underway in the U.S. and in the UAE. Demand for our services continues to grow. Our facilities continue to operate at very high utilization levels, and we remain focused on expanding our footprint in the region that matter most to our customers. At this point, I almost feel like I'm repeating myself, but our services business continues to raise the bar, delivering another record quarter with revenue reaching $674 million, up 14% year-over-year. We've spoken many times about the importance of services to Bombardier's long-term strategy. As our installed fleet grows, aircraft utilization remains strong and our global network continues to expand. We continue to see meaningful opportunities ahead, including the recently announced 10-year service support agreement with the Swedish Armed Force. The good news is that we have moved from managing constraints to creating options, giving us significantly more flexibility for the future. During the quarter, we reduced net debt by more than $350 million while extending our maturity profile through refinancing transactions. To date, we have no debt maturities before November 2030, a strong liquidity position and an adjusted net debt-to-EBITDA ratio of 1.6x. Over the past several years, we have worked diligently to strengthen our balance sheet and improve our cash generation. Today, that discipline is paying off, creating a good problem to have, more opportunities to allocate capital where we can create the most value. With $228 million of free cash flow generated this quarter and $588 million in the first half, we have the capacity to continue investing in our long-term strategy, including enhancing our capabilities across the value chain. Turning to aircraft sales demand from fleet customers continue to be solid across geographies. The recently announced letter of intent with The Helicopter Company for up to 60 aircraft is another good example of the momentum we're seeing in the market and the confidence customers have in the competitiveness of our product portfolio all around the world. As I mentioned at the start of our call, the standout metric is our expanding backlog, which grew by more than $4 billion since year-end to reach $28.8 billion, and this tells a lot about the future. The Global 8000 aircraft continues to play a major role in that momentum. It is performing at the top of its category, both in the skies and in the order book. Customer interest remains extremely strong, and we continue to see tremendous enthusiasm for the capabilities this aircraft brings to the market. At the same time, momentum continues to accelerate in Bombardier Defense with strong and sustained customer interest around the world and a growing pipeline of opportunities. The relationships we have built in key regions over many years continue to create opportunities across both our business aviation and defense activities. Both Canada and NATO's down selection of our aircraft for airborne early warning and control on our Global 6500 program as well as the recently announced order from South Korea are all significant validation of the strength of our partnership and our platform's unique capabilities. We are well positioned to support a strong second half delivery profile and our team across the company have continued to set themselves up for a higher volume over the long term, all while maintaining the operational discipline our customers have come to expect from Bombardier. That discipline includes very proactive management of our supply chain challenges, which is still an industry issue. There's no question about that. They still is still a drag in terms of our cost and delivery profile, but we've been managing through this environment for several years now. We know where the pressure points are, and we adjusted very proactively at the outset in a very pragmatic and methodical way as we've always done in the past. As we've said before, we will not push the system to chase near-term upside. Our focus remains on serving presold demand, executing consistently and growing output in a disciplined and responsible manner. This approach continues to give us great confidence in our ability to deliver on our commitment. We have strong demand, a growing backlog, record services revenue, significant free cash flow generation and a very strong balance sheet. Clearly, we have moved from protecting the balance sheet to using it as a strategic advantage, which is a much better place to be. Given our strong performance through the first half of the year, we remain on track with our raised full year guidance. When I look where Bombardier stands today, I see a company operating from a position of strength. Customers are making long-term decision in placing their confidence in our product, our people and our exceptional support. With that, I'll turn it over to Bart to walk you through the quarter in more detail.

Thank you, Éric, and good morning, everyone. The first half of 2026 has certainly been a very strong one for Bombardier. When I look at our midyear scorecard, all of our results demonstrate very solid execution against our financial priorities, profitable revenue growth, high ROI investments, strong free cash flow generation and continued balance sheet improvement. In the first half, we delivered 56 aircraft, generated $3.7 billion in revenues, grew services to more than 1/3 of total revenues, maintained strong EBITDA margins and generated nearly $600 million of free cash flow. Demand for new aircraft is strong across our portfolio, supported by exceptional customer interest in our large cabin aircraft, particularly the Global 8000 and strong activity across all of our service network. Our backlog reached $21.8 billion at quarter end, up $4.3 billion compared with year-end 2025, supported by a unit book-to-bill of 1.5x as well as a long-term services agreement signed with VistaJet in April. In Q2, we were very active on further optimizing our capital structure. First, we reduced net debt by an additional $356 million in the quarter, including the repayment of all outstanding debentures due 2026 and senior notes due 2029. This brought year-end gross debt reduction to $1.1 billion. We also lowered the average cost of our remaining debt through a $500 million refinancing transaction at a rate of [ 5 and 7 rates ]. The impact of these actions is significant. We've reduced our annual run rate interest expense by a further $80 million. We now have no debt maturing before November 2030, and we reduced our net leverage ratio by 16% to 1.6x. Lastly, we also strengthened our liquidity position, ending the quarter with approximately $1.9 billion of liquidity and announcing today a new $750 million revolving credit facility to replace our previous $450 million facility. This new larger [ RCF ] will provide us a significant improvement in pricing, liquidity and financial flexibility and reflects our continuously improving credit quality. The actions we have taken to strengthen our balance sheet, combined with the performance of our operations put us in a strong position to allocate capital with greater flexibility and discipline. Our priority is to deploy that flexibility towards growth. Across the business, we see compelling opportunities to invest organically in higher aircraft output, our services network, defense and the continued strength of our product lineup. We also see opportunities to pursue inorganic growth where it can accelerate our strategic priorities and create attractive returns. At the same time, our stronger financial position gives us the ability to further optimize our capital structure and consider shareholder returns over time. We will remain disciplined in evaluating each of these choices with high [ ROIC ] growth-oriented investments continuing to sit at the center of our capital allocation approach. With that, I'll now spend a bit of time to take you through our Q2 results in more detail. Consolidated revenues reached $2.15 billion in the quarter, up 6% from a year ago. Aircraft manufacturing and other revenues increased by $38 million, largely the result of higher selling prices and a favorable mix of global aircraft, partly offset by four fewer deliveries than in the prior year. Services continued its standout performance with a 14% increase in revenues to a quarterly record of $674 million, supported by higher sustained activity across the network. Turning to profitability. Adjusted EBITDA increased 9% year-over-year to $325 million and adjusted EBITDA margin improved by 50 basis points to 15.1%. Reported EBIT reached $225 million, representing an EBIT margin of 10.5%, up 40 basis points year-over-year. The improvement in operating margins was driven by a stronger contribution from lower R&D and higher services business. These benefits were partly offset by higher SG&A as a percentage of revenues to support growth activities and fewer aircraft deliveries attributable mainly to timing. Our other profitability metrics, adjusted net income was $257 million and reported net income was $191 million for the quarter. Adjusted earnings per share were up 125% to $2.50, a $1.39 increase versus last year, while diluted earnings per share was $1.84. Free cash flow was another standout metric this quarter, reaching $228 million, $392 million improvement compared to the second quarter of 2025. Our Q2 free cash flow was a result of positive working capital, driven by a $610 million increase in customer advances as a result of progress payments and strong order intake, partly offset by a $420 million investment in inventories and accounts payable. Our CapEx in the quarter reached $110 million and net cash interest was $120 million. As we are now moving to the second half of the year, we are in a great position to meet our raised 2026 guidance. We've made the inventory investments required to meet our full year delivery expectations. In terms of delivery profile, we expect a very active fourth quarter. This means that the balance of our revenues, EBITDA and free cash flow to reach our guidance will largely also be skewed to the fourth quarter, with Q3 expected to be similar to last year across key metrics. So in closing, I am very pleased with our performance at the halfway point of the year. The strength of our results reflects the quality of our team, the resilience of our business model and the benefits of the strategic actions we have taken over the past years. So with that, I'll turn it back over to Francis and we can start the Q&A. Francis?

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. [Operator Instructions] with that, we'll open it up for questions. Operator?

[Operator Instructions] First question comes from James McGarragle from RBC Capital Markets.

The demand sustainability. Book-to-bill was obviously very strong. You cited strong Global 8000 demand. So is that concentrated amongst a few large fleet orders? Or is this defense orders? Or is that kind of broadly spread out across individual buyers? Just trying to get a sense of how sustainable this order pace is into the H2, given some of this elevated macro and geopolitical uncertainty.

I think it's -- the demand is pretty much across the board for us right now, I would say, across geography with maybe a little slowdown in the Middle East despite -- and I think we understand, but everything else is really working strong. And even when I say the Middle East, you saw what we've announced in Farnborough with The Helicopter Company, an intention of creating their own fleet operation. So I think that when you look at the long-term possibility in the Middle East, they remain very strong. So strong demand. And I would say well distributed for us, same pace on the fleet operator and traditional one by one is very, very strong. So -- and again, possibilities in all geographies. So I think across the board, we have 50 new orders recorded in the quarter. As you know, the flight hours remain extremely strong, another 6% when you look at our fleet compared to last year and way ahead in the 50-plus percent since before COVID. So when I look at every day, we're asking the question, are we missing something, but all the fundamentals are strong and the wealth creation is actually the biggest driver behind all of this that we all know about of people desire to fly private. And I think without saying, you've seen a lot of highlight on our defense business, which the demand is actually very, very strong. I can mention some of them that are public, you heard Canada negotiating for the GlobalEye, NATO up to 10 airplanes. We've mentioned -- they've mentioned yesterday airplane in the Middle East. So when you just add up those three possibilities, you're talking about 18 planes. And I think it's important, defense takes a longer time. We're not going to deliver those planes this year, but it gives us so much confidence for the future. And very little of those that are public right now are part of our backlog. Some are, some are not. So eventually, they will turn around into backlog and we'll deliver a green plane and our partner will deliver or with our support a finalized airplane -- a finished airplane to the customer. So it's great. It's not just short term, but it's also building up our backlog for the future.

Yes. I appreciate the color. And then my follow-up is just on the free cash flow guide. Bart, I believe you said Q3 was going to come in about the same across your key metrics. I assume that means our free cash flow. So that kind of points to, call it, $800 million of free cash flow in the first 3 quarters, then if we look at like the worst free cash flow you've done in the past couple of years, I think 2023, you did about $600 million. So that's at least $1.4 billion of free cash flow. So can you just give us a bit of color to think about how we should be thinking about free cash flow in Q4? Just to help frame how the full year might come in just given the volatility that we typically see in that free cash flow number in Q4.

Yes. Thanks, James. Good question. So free cash flow has obviously been very strong this year. As you said, we're sitting at just under $600 million for the year over the first half. Our raised guidance that we provided last quarter when we changed it from $600 million to $1 billion range to greater than $1 billion stands. We're very confident that we'll obviously reach the revised guidance, the revised upward guidance. To give you a sense of what that looks like, though, to get there, we assumed a book-to-bill of 1x for the last 3 quarters of the year. So we've obviously had higher book-to-bill than that in Q2. I can tell you that Q3 demand remains very strong and shaping up very good. So the ability for us to not only achieve our new guidance, but perform very well on free cash flow over the remainder of the year is very strong. So we're in a good place. We're very pleased with where we're sitting. This is going to give us even greater flexibility around our balance sheet and capital allocation, as both Éric and I said on the call. And what we're going to show, I think, is that we're going to be really disciplined in how we approach allocating that capital.

Your next question comes from Konark Gupta from Scotiabank.

So maybe just to kind of clarify a quick thing on the margins, Bart. The R&D tax credit has been quite lumpy quarter-to-quarter. I think this quarter, you recognized about $44 million tax credits here. So maybe a 2-part kind of there. Is it driven specifically by certain programs? Or is the timing totally dependent on when you make investments, et cetera? Any color on like what drives these things? And is it outsized or this is normal?

Look, the R&D tax credits have been part of our results and performance for the past 4 years now. We weren't able to utilize them early on in our business transformation and turnaround because we didn't have the track record of profitability and profitability growth that we needed to be able to start recognizing them, which is really formula-driven. The formula for recognizing R&D tax credits is driven by accounting policy, accounting structure, our external auditors. We have not changed that formula at all over the past number of years. And what you're seeing now is that as our profitability has grown, as the prospects for profitability growth continue to increase and as our strategic plans of the future show incremental profitability growth, we'll continue to recognize the R&D tax credits. There are things every quarter that can caused them to change a little bit. But I think what you're going to see moving forward is a more smooth recognition of these credits as our profitability profile now moves into a phase of just regular growth that's not as lumpy in and of itself quarter-to-quarter.

Okay. No, that's really helpful. And my main question was about the defense platform. So I'm curious about your thoughts. I mean you have Canada, you have the NATO. You talked about other opportunities around the globe. I think Canada is also talking about building these or assembling these aircraft in Canada for domestic as well as export usage. I mean I know you guys provide the aircraft platform with some modification, but my understanding is the aircraft value, the AWACS aircraft value itself is big enough for you to maybe increase the economic participation there. So trying to understand like what do you think your potential is there to increase the economic participation? I mean, can you extract more value than what you do today or where you are, you probably are capped?

We already have an operation in Wichita that basically works on multiple programs these days, some from the U.S. Air Force, U.S. Army, from the German Air Force and all across the world, and we're making those modifications. There is definitely a strong desire to kind of mirror that kind of operation in Canada. Actually, I have a team this week visiting sites to decide where we're going to do this. It's all about having the people and the talent available. So we're looking at establishing ourselves somewhere in Canada, a mirror operation of what we do. And there's -- it's been public discussion with our partner [ SAF ], which it makes a lot of sense. We build the plane. We know the plane more than anybody else to make structural modification, provisioning and potentially even installation of some of those equipment. So we are looking into this for the GlobalEye and for other type of mission also, and we are very active on this right now. So which was, to your point, an interesting area where there's a big piece of the revenue coming to those plays and interesting margin. So we're definitely looking at doing more there.

Your next question comes from Fadi Chamoun from BMO Capital Markets.

So you talked about demand outgrowing deliveries. I wanted to ask you, where are you in the plans to expand output, specifically on how should we think about the timing of that expansion in the delivery output and the magnitude, like what level of production is currently supported by the backlog or the demand picture that you see out there?

Yes. That's a great question and a question we're debating here every day. But we have to be mindful of that. The backlog is there. The potential is there, and I can probably easily convince myself to increase the rate across the board. But we have to approach it in a disciplined manner. You don't raise the rate for a year or 2. You have to see that this is going to be a long-term play. And that's why we've already announced. And if you come to our manufacturing site in Montreal right now, we're building a new facility. It's actually progressing very well to exactly do that, to add some capacity. So we've been selective, and it's in the context also that we know as an industry that there is supply chain constraints. So I need two things basically with the team to make that decision. It's first, we foresee a long-term demand for that product. And the second one is that the supply chain is capable. And we've taken, I would say, a more careful approach there that we probably did in the past. We like the one we're increasing now, we've studied it for more than a year probably. And we have other opportunity to that we haven't made a decision yet, but it's based on those two criteria. It's a long-term play. So we see that we can increase and keep those rates for a while. And the second one is can the supply chain support us properly. So we've been prudent. We're trying to give more time to our supplier to ramp up also even more than what the contract says, and it's just being careful here. So we are building. We are increasing capability right now, and this has been mentioned publicly. And there's a few other things we're working on right now and evaluating.

And just a follow-up on that. You're clearly having kind of a very strong year for advances and bookings. But I wanted to ask you, like usually, when you have this situation, you have some kind of investments in working capital supporting production increases or higher output, is there a way for us to think about kind of what kind of cash flow as we look through into 2027? How to think about really kind of more normalized run rate of free cash flow performance? Clearly, this year is going to be a very strong year given this demand and the advances growth that you're experiencing. I just want to make sure we're cognizant that some of these advances have to go into inventories at some point. Just if you have any color on that?

Yes, thanks. Yes. So we did grow -- to your last point, we did grow inventory in Q2 by over $400 million. That's to support what's going to be a very active delivery quarter in the fourth quarter. We'll have a fairly traditional delivery quarter here in Q3, and things are going well from that point of view. If you think back to our -- to just try and help frame up a bit of an answer to your question. If you think back to our guidance when we first set out 5, 6 years ago now, we started with a view that we had a book-to-bill of 1x. So we're going to get to about $500 million of free cash flow by last year. We increased that to $900 million a couple of years into the plan, and that's based on a book-to-bill of 1. So mix is obviously very important in that, as you know, because Global 8000 is the equivalent of 3400, 3500. So mix is important. But as we're sitting here today with earnings growth happening each year, that does mean that beyond $900 million of free cash flow per year in a normal planning environment of a book-to-bill of 1 is a reasonable expectation for our company in the future and currently as well. This year, we're 1.5x book-to-bill in the first half of the year. So obviously, the customer advances are allowing us to perform on free cash flow above what would be, I'll call it, a more normalized environment. So hopefully, that gives you a bit of a sense of what we're talking about.

And again, also, Fadi, if I may add, is the diversity of our portfolio today having the services business, but also the defense business. I mentioned earlier, a lot of the things you hear in the news today about countries buying airplanes, there's not even a firm contract for our partner. And those will translate probably not even this year, but probably later next year or maybe even the year after into real backlog for us and of course, which comes with advances and payment. So to echo what Bart said, we feel pretty good about the future also on cash flow.

Your next question comes from Benoit Poirier from Desjardins.

Just to pursue on the strong free cash flow generation. When we look at your balance sheet, you end up the quarter with a leverage of 1.6x, which is closer to the bottom end of the range, while we know that there is a seasonal free cash flow buildup upcoming in the second half. So any progress on discussion around capital deployment?

I'm going to echo the comments we had and made with our Board that this is a great problem to have to be sitting on a very strong liquidity and cash position. I think what it allows us to do is to think very clearly about how we want to deploy that capital in the coming months and years, not only in terms of investing in our business and our growth and our portfolio, both organically and inorganically, but really turning our attention towards return of cash to shareholders as well. So we're actively reviewing all of that right now. We have a number of opportunities. We have a very strong organic growth profile that will require us to spend some money, particularly to support production growth that is coming. and we've already started to invest in. And the timing of when we want to start talking about that more is early next year. So we're planning our next Investor Day. We're working through all of the details, and that's the timing of when we want to come back to the market and give you more color and clarity on that.