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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning everyone and welcome to the Bombardier Earning Call for the First Quarter ended March 31 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, the actual events or results may differ materially from these statements. For additional information or 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 operational and financial results for the first quarter of 2023.
I will now turn the discussion over to Éric.
[Foreign Language] Good morning, everyone, and thank you for joining us this morning. Once again Bombardier has executed to its plan. I am proud to share our results that reflect a collective team effort. It is a testament to the dedication and engagement I see across the company to meeting commitment with consistency but also with predictability.
Bart and I have talked a lot about the fundamentals going in the right direction. This past quarter, that trajectory brought adjusted net income to a very healthy $130 million. We continue to perform on all front reducing debt, raising our deliveries and ramping up production. The planned growth this year will bring us to more than 138 aircraft deliveries. We also reached new high in services with $424 million of revenue in the first quarter, that is a 17% improvement compared to Q1 last year.
If you take a step back and consider this as a run rate, it’s well aligned to the progress the word are $2 billion annual revenue objective, infact we reaffirmed it at our investor day held just last March. Before we discuss Q1 results further, I do want to take a few minutes to reiterate that these broader results are a first stepping stone in our revised 2025 plan. A few weeks ago, we announced that we raised our targets to more than $9 billion total revenues $1.625 billion in EBITDA more than $900 million in free cash flow. And most importantly, we have improved our targeted net leverage ratio to between 2 and 2.5 times. This is on the heels of some really outstanding work by Bart and the team.
We also further detail our plans in services as well as presented a bold $1 billion defense ambition in the later half of the decade. As we detail that ambition really stems for from a few key ingredients. First, we find ourselves today with right size platform for the missions equipment of the future. Our plane can fly farther, faster and longer than the previous generation of converted airliners and turboprop. Our Global’s and challengers are providing their work in countries like the U.S., Sweden, Germany, and many more in multiple mission configurations. There are a few countries we are actively working to have to that list. Our defense team is pursuing prospect globally and we are well placed to provide flexible solution to emerging requirements as country faced threats that require agile aircraft.
It’s truly an exciting time for those working on these project as well as for anyone who is about to join Bombardier. If you missed our investor day, you can still watch the entire session or the highlight on our website. Now let’s focus on what is immediately before us in the coming months. On the demand front, we are right where we want to be. We spoke a few quarters ago about a cruising altitude around one for our book-to-bill. Our current pipeline of prospects and plan for the years reflects that. And it is important to note that we are operating on a higher level delivery base for this year. We are also looking at this with a long-term view aligned to our 2025 target. It will see us land in the 150 unit delivery range. And there is encouraging activity and interest in business aviation that has remained. I have spoken personally to a lot of clients in North America, Europe, and most importantly, Asia Pacific recently, mobility is still a key need for them regardless of any macroeconomic prediction or sentiment, and our products stand out to them.
Considering this, I will categorize the demand environment as stable and well aligned to our plan for the year and future. We have a good mix of customer over multiple geographies and across all product lines. This has continued to contribute to our LT backlog, which is stable at $14.8 billion. It gives us about a two year production runway, so we can focus our energy on maintaining a strict eye on cost and supply chain pressure. Q1 also saw us order a lot of inventory to support the ramp up to 138 deliveries. Bart will detail how that is reflected in our free cash flow performance, along with other factors.
Let me tell you, getting parts on the dock is a team sport. I continue to be encouraged by our proactive approach and the results I see across the board. We are working hard to mitigate risk all the way down to the tier three supplier. As a company, it’s the most detailed we’ve ever been on a supplier by supplier basis. I want to acknowledge and recognize the team behind this. Don’t get me wrong, we still have work to do but our focus on assessing, mitigating and executing is serving us very well.
Speaking about the benefit of execution, revenue this year are up 17% over the same period last year. But most importantly, we have grown the bottom line in all the ways you can measure it. I first look at the adjusted EBITDA as a measure of our fundamental. It’s up 27% year-over-year for Q1 to $212 million. Our EBITDA margins have also grown to 14.6, a 120 basis point improvement year-over-year. The positive growth is also reflected in our reported and adjusted net income. I mentioned earlier that we reach $113 million in net income but also want to highlight that this translated to a learning per share of $1.06.
Finally, I’d like to circle back on services. $424 million is an impressive Q1 number, as we are still operationalizing facilities that have been added to our footprint. Our customer capture rates are where we need them. And the curve has been progressing steadily and consistently. We are getting lift from capacity growth, organic fleet growth and customer recapture. Overall, for our company, anyone in my position would be happy to post this kind of growth on the board. But the fact that it’s Q1 as we particularly encourage, as is traditionally one of the lighter quarters in business aviation. Once again, this is a testament to having the right strategy and the right level of execution.
All that said, we will remain focused on deleveraging and operational predictability. We are on a good path for the full year, as well as our newly raised 2025 objectives. It seems I’m always -- ending over to Bart to tell you about successful debt pay down and debt rating of rates. That’s certainly a trend that we intend to keep, and we won’t prior of it. But allow me to also commend Bart and the team for a tremendous few quarters and years really, of making our balance sheets stronger.
Most recently, Moody’s upgraded Bombardier’s corporate family and senior unsecured notes rating to B2 and maintain a stable outlook. On that notes Bart congratulation, and over to you.
Thank you very much, Éric and good morning, everyone. It’s been about one month since our investor day where we raised the bar for our 2025 financial targets. And I’m pleased to share with you today that our Q1 performance as it’s on track to achieving our new goals. Indeed, the year is off to a very strong start, particularly when I look at our trajectory on profitability. Compared to the first quarter of last year, our EBITDA and EBITDA margins have increased by 27% and 120 basis points respectively. And our adjusted net income and EPS were both positive this quarter. In fact, this is the best first quarter net income Bombardier has had in more than five years, and the first time it’s been positive since 2018.
Now excluding Learjet, our deliveries are up 22% year-over-year, consistent with our overall guidance of increasing deliveries by more than 15% for 2023. And our backlog remained stable at $14.8 billion while our unit book-to-bill was 0.9 times. We’ve also seen an impressive increase in our aftermarket revenues, which reached $424 million this quarter, a new high for Bombardier, and a 17% year-over-year increase. As we expected and shared with you in February, we did see free cash flow usage in the quarter, largely resulting from inventory build as we ramp up production to meet higher planned deliveries during the second half of 2023. And a bit more CapEx spend than we will typically have in Q1, a couple. I’ll cover this more in detail in just a few minutes.
Overall, from an operational standpoint, I would characterize our first quarter as in line with our expectations, putting us in a very strong position to deliver our 2023 guidance. Looking at our debt capital structure, as Éric mentioned, we accomplished a lot this quarter, including retiring $405 million of debt from cash on hand and receiving a credit rating upgrade for Moody’s to B2 with a stable outlook. Our available liquidity remains very strong at $1.4 billion, which is towards the upper end of the targeted range we shared during our latest investor day. And we remain very focused on being opportunistic with the debt capital markets moving forward.
Now, let me turn to the financial highlights for our first quarter. First, our revenues were up 17% year-over-year at $1.4 billion compared to $1.2 billion a year earlier. Our aircraft manufacturing and other revenues grew by $144 million, largely the result of four incremental, medium and large deliveries versus a year ago. Total deliveries in Q1 of this year were 22 versus 21 last year, which included three of the no longer produced Learjet aircraft. We delivered 14 large aircraft and eight medium aircraft, with both our categories adding two deliveries versus the same quarter of last year.
As I mentioned earlier, our aftermarket business also increased its revenues by an impressive 17% year-over-year. The $424 million in revenues underscores the high performance of this business and its continued growth. With our footprint expansion strategy completed last year, we are aggressively focused on continuing to gain market share.
Turning to our profitability, total adjusted EBITDA for the quarter was $212 million, representing an adjusted EBITDA margin of 14.6% and a 120 basis point margin expansion over the same quarter last year. Our adjusted EBITDA margin growth continues to be underpinned by the same drivers as in the past quarters, which are growing global 7500 margins, executing on the tail end of our cost reduction plan and growing our aftermarket business. Our adjusted EBIT totaled $138 million, up an impressive 89% versus the same period of 2022. As I mentioned, our adjusted net income has also meaningfully improved to a gain of $113 million, versus a loss of $69 million a year earlier. And our adjusted EPS came in at $1.06 for the quarter.
A portion of our positive net income is the result of the recognition of some tax assets of approximately $86 million, which was related to our Q1 debt repayment. As I mentioned, in our investor day, we have become structurally net income generative. And we should expect to see continued growth in these metrics over the next few years.
Moving on to free cash flow, we had a net cash usage of $247 million in Q1, which is in line with our expectations coming into the year. Our bridge from EBITDA to cash is straightforward. From the $212 million of EBITDA we remove our cash interest costs of $79 million, as well as $85 million in CapEx, the majority of which is supporting our new Global Assembly Facility, which remains on track for its scheduled opening in Q3 of this year. Our working capital was negative for the quarter, mainly driven by two factors; First, we have increased our inventories by 479 million in the quarter, which is partly offset by an increase of our accounts payable of $269 million. This was fully expected as we ramp up production in support of our higher deliveries.
Second, our other liabilities decreased by $106 million in the quarter, which was mainly due to the payment of our annual employee incentive plan, a program in which approximately 8700 employees worldwide, or 57% of our regular employees participate. Given our strong performance in 2022, this payment was larger than last year, but was fully contemplated within our full year guidance. I’d also like to highlight that our customer advances increased slightly over the quarter by approximately $30 million, which is in line with our backlog being relatively flat at $14.8 billion and our book-to-bill of $0.9 billion.
Now lastly, turning to full year expectations. Following on our first quarter results, we continue to expect our full year performance to be in line with the guidance we provided in February. Deliveries are on track for greater than 138. Supply chain does continue to be a key monitoring item. So we remain proactive on this front and have good visibility on the materials we need to meet our delivery targets. We expect steady year-over-year deliveries in Q2 as we continue to build inventory to support a strong delivery output in the second half of the year, mostly skewed towards the fourth quarter.
This delivery outlook coupled with a strong aftermarket performance in Q1 continues to support greater than 7.6 billion in top line we expect for the year. From an EBITDA standpoint, we are on track to meet our 2023 guidance of greater than $1,125 million [Ph] supported by a strong visibility on our deliveries and aftermarket performance.
As for free cash flow, we are also on track to meet our guidance of greater than $250 million, which includes $125 million of residual value guarantee payments. In Q2, we expect to pay around $105 million of this $125 million. And just as a reminder, the RVG payment is a non-recurring outflow. And I am very happy to say that after Q2 of this year, the remaining RVG liability in total will be below $50 million. So, in conclusion, I am pleased with how we have started the year. We are building Bombardier to perform well in any environment. And we continue to show great progress towards our new 2025 objectives.
So with that, thank you very much. And let me turn it back over to Francis to start the Q&A.
Thanks, Bart. I’d like to remind you that the Bombardier investor relations team is available following the call in the coming days to answer any questions you may have. In order to ensure we have time for all participants, please limit yourself to one question and one follow up. With that, we will open it up for a questions. Operator?
Thank you. [Operator Instructions] Your first question comes from Walter Spracklin from RBC Capital Markets. Please go ahead.
Yes. Thanks very much. And good morning, everyone. Congrats on a good quarter again, here. Let me start with supply chain. I know you touched on that. But when you're or Bart as well, when you were competitors hear Gulfstream had some issues during their quarter, sounds like Honeywell was having some some some shortage of parts that created some significant out of out of station work. I know Honeywell is a supplier of yours as well. Is that something that did you see any of that had in the quarter? Are you worried about seeing it emerge in the near term at all based on based on what we’re seeing from your competitor?
Thanks Walter for your comments, but also for the question. But clearly, I think I just said it’s been a sportin that's really managing the supply chain. And this is now probably for the third year in a row. It's been it's been challenging. I think I've mentioned earlier, Walter, that we were probably the first one to react three years ago redeploying a lot of people in a supply chain. I think we are still capturing the benefit of that today. So yes, there is issue, I would say there was probably less issue some of the issue, though I would characterize them as being deeper. But this being said, since the beginning of the year, we had issue, we've been able to mitigate the risk and bring things back as much as possible with all suppliers. So without naming one more precisely, I would say we're probably facing the same type of challenges that they do face. We saw them coming earlier, we saw them and we didn't mitigate those risks. So yes, there is things we need to still manage for the year. But still, we feel pretty good about, you know, the outlook we provided for the year.
And, Walter, if I could just add just one added comment to to Éric’s comments. We did anticipate this. It's not something that's a surprise for us. And because of that we included the out of work costs in our guidance for the year. So it's it's not a surprise for us. Just to give you a bit of a view on this. Yes, we are managing a few issue for this year. But we are already focused on Q1 and Q2 next year for the engine deliveries, particularly.
Anticipating is one thing, but getting ahead of it is is another new and that's you guys said it did a great job doing that. That's very commendable. On my follow up question here. Éric, you mentioned there in late March that, that some of the regional bank failures lead to a bit of a pause in new orders from on the business outside? Has that pause continued and we seen it come back at all just the kind of cadence and in other words, do you see your book-to-bill holding at 0.9? I know you talk about 1. But I get a lot of investor inbounds about whether that 0.9 may slip if items like these bank failures and some of the gyration that that causes leads to that, that book-to-bill slipping, just curious on the overall demand environment. How you see that playing out?
It's a great question. Clearly, the regional banking crisis had an impact probably for two to three weeks on us and I would say things came back to normal after. Unfortunately, two to three weeks were right, the last two weeks of March. And Walter, I'm sure that it's always historically our slowest quarter in Q1, usually not much is happening in January, then things starting to ramp up in February and March, which gives us about eight weeks to execute the order book.
And then we kind of pause, not pause, but really saw a slowdown in the last two weeks with the -- coming from the regional banking crisis. But this lasts about two to three weeks maximum. And then we saw the level of activity coming back to normal. So I'm very pleased today with all the prospect and everything we're working on, which is actually very supportive of, our, our plans, having a book-to-bill greater than one.
That's all. I appreciate the time. Thank you.
Thank you.
Your next question comes from Benoit Poirier from Desjardins Capital Markets. Please go ahead.
Yes, good morning, everyone. And congrats for the solid start. Just first question, with respect to booking, you mentioned great color, about the booking per geography. But could you talk a little bit about how the mix has changed among the customer type? And if you could provide more color on the fleet customers? And how they are feeling these days? That would be great.
Actually Benoit thanks for the question and your comments, too. It's interesting, but the fleet customer right now are still flying a lot more than 2019. But also, they're flying much more than a year ago. So clearly, the flying hours with the fleet operator, and this is what we've been saying for quite a bit now. That it is really sticking, you remember that movement of customer shifting from using commercial aircraft premium seat to private aviation? And the question about, are they going to go back? Are they going to stick to it? A lot of them, as we discussed before went through the fleet operator, they all did not purchase their own airplane, but the they went through the different fleet operator that we know, and we see these guy keep flying quite a bit.
I think there is an if you to your question. So we still see these guy creating demand over the last over the next coming years. So with it as they are flying a lot of people and they're usually running out of assets or capacity sometimes. So that's very encouraging. For one Brody, as you know, we're extremely well positioned with all the fleet operator. Geographically also, to answer your, your question, we see about the same type of proportion. If you look at the gross order, we have per region similar to what we had in the last couple of years with something like about two third being North America, and Europe as silicate [Ph], I would say, if you if you look at what we saw, but clearly a little slow down there. But clearly a pickup in APAC.
APAC is really showing a very positive sign right now. So I would say if I characterize it by region, North America stable, probably in terms of demand, still a big chunk of our order, and Europe about stable but Asia, but maybe slightly lower than then a year ago, but AsiaPac really picking up.
Okay, and just for the follow up, could you comment about the overall pricing environment, given the slight increase in U.S. inventory and also kind of expectation at the e-base, the big show that will be late May, just in terms of attendance, so far, what you've seen.
So clearly, I would characterize the pricing as being stable. So we haven't seen any, so and, of course, we have two years of backlog as you know, ahead of us approximately. So the pricing is pretty, pretty stable and growing and inflating the way we were planning this to inflate so, so that's a good sign. And the, if you look at the key leading indicator, whatever if it's pre owned inventory and everything. I know that you read a lot of articles saying that pre owned inventory is going up, but at some point, it's still at 5%, which is an historical low number. As you know we usually navigating between 10% and 14% ish but at 5% yes, it's a little bit higher than about a year ago, which was around three. But clearly, still at a pretty low number. So all the -- looking forward indicator the hours of flying also, we've seen a bit of reduction in summer react compared to last year, but still, a number that is that is much more higher than whatever we expected in 2019. And again, the fleet operator really spending out with a lot of flying hours so far this year.
Thank you very much for the time.
Thanks Benoit.
Your next question comes from Konark Gupta from Scotiabank. Please go ahead.
Thanks operator. Good morning, everyone. And congrats on the good results, guys.
Thank you.
Thanks. My first question is on the order activity and the demand transfer, you guys know that. Just wondering if you can help us understand where these orders are coming from? And how does that split compared to the backlog. So I'm looking at particularly, the customer types, like corporates, high net worth individual customers.
I would see that the split so far, either by the type of customer or geographically is about the same, we haven't seen a change in profile. So we still have about the same proportion of I [Ph] network individual. We have the same proportion also of the, also the the geographical spread, as I said between Europe and historical of what we've seen in the last two years between Europe, AsiaPac and other region. So not much of a change there, maybe a couple of percentage point that are right. And in terms of the type of customer, I think we still see a loader coming from the fleet operator, we still see I network individual and corporations still buying aeroplane. So basically, the short answer is no, no changes in the profile.
Okay, thanks for that. And then, like 5% percent of the fleet is in the pre-owned market, but just kind of trickling out a little bit, obviously, can you share any kind of your thoughts on how that pre-owned market is looking for your family of global and challenge a chance?
Yes, it actually looks pretty good. I think our product, when I look at our global, it's holding there, there's just a few available on the market, their pricing remains remains pretty attractive for someone who wants to who elect to buy a pre-owned airplane. So, so we feel pretty good about this. I don't see any type of airplane having more available much more availability than then the other, but overall the devils in the detail and we looked at the detail of course, and we still feel good about the residual value of our product, moving forward, which also is a good feeder to our CPO business.
So, so clearly the environment is remain pretty stable in that regard slightly. That is, despite what as I said, about a 2% increase in overall inventory, but that inventory has not, materialized that much in our platform.
Appreciate the color. Thanks.
Thank you.
Your next question comes from Fadi Chamoun from BMO. Please go ahead.
Good, thank you. Good morning, and congrats on results. And how you're managing through the supply chain issue. It's quite impressive.
Thank you, Fadi.
I have a I have a question on the on the on the margin. I mean, in the first quarter, your EBIT margin is higher than what's implied by your full year guidance. Outside of the mix, which I understand the aftermarket is slightly higher contributor in Q1 versus historical. Are there other things that kind of in the mix in the aircraft mix that are kind of driving the stronger margin in Q1?
Yes hi, good morning, Fadi. And thank you for joining us today. Thank you for the question. You actually answered your question very, very well. We had a very strong first quarter in aftermarket and so if you look at the percentage of EBIT coming from the aftermarket business relative to what we'd expect for the full year, it was an over contributor. And, as we've talked about in the past, it's, it's one of, if not our strongest margin contributing business. So it's, it's what caused things to skew a bit.
Okay. And one follow up on a previous discussion on orders. I mean, the corporate orders, like, orders for aircraft from corporations, you're saying that is kind of stable over time is that typically, when you go back in time, kind of like and how corporate behavior artists to the economy and how they approach aircraft orders. I'm just trying to understand, like, this macro environment, if there is a delay here, in terms of how we're going to see the behavior on the other side, in the next six to 12 months versus the current environment, which is quite challenging from a macro perspective.
And when the what I consider what's the activity that we have, right, now, we have a pretty good representation, I would say, of cooperation in, in the discussion we're currently having. So we haven't seen a shift in, in and reaction so far, that affect the cooperation. And, it's always difficult for us also to make the distinction between high net worth individuals in some corporation, because sometime their home by private individual or others, but despite the environment, right, now, we've seen, people still need to move around. And that's one message I had. I was in a in in the APAC region a couple of weeks ago. And that's a consistent message, even in the U.S. People still need to move around. We're all facing supply chain issue for most of the business, and people need to move, go see their supplier, and manage their business, maybe differently, but the way they move around and transport remain important.
I think, and I know, we did a lot of work by Microsoft team or zoom in the last couple of years, but still going and visiting a factory and really assessing what's going on and talking to customer remain very important. I think we all learn about that. But I think it's, it's clearly our people are approaching it today. So is there a if the economy really deteriorates, is there going to be a slowdown on corporate probably, which, which is to your point, what we've seen in the past, but at the same time, the demand and the need to move around remains? And but I think, again, we have two years of backlog, fleet operator are being used more and more, some corporation make the choice to say, I don't have my own fleet anymore. And we see that demand going to fleet operator, which is actually a pretty good thing for us.
Great, thank you.
Thank you Fadi.
And your next question comes from Philip Nielsen from Citigroup. Please go ahead.
Hi, everyone. Thanks for taking my question. And congrats on the results. I have one question. And one follow up on my side, the question would be if you have any high level view on new products that you're that you're planning to, to produce or develop.
And my follow up question is related to demand. We talked a lot about a geographic mix and geographic and customer customer mix. I'd like to have a little more color related to large versus small jets, if you have any have seen any, any indications of changes on on preference between those two types of aircraft and how this has changed since the pandemic started.
Okay, that's a that's a great question. The -- to answer maybe the your first question about new product. Clearly, we have a very comprehensive portfolio today. And our portfolio today is selling very successfully. It's well received, our products are renowned for their reliability, their performance, the quality of our interiors and capabilities. And I don't feel any pressure right now to, to go with something new right away. I think we said that. I don't know if you had a chance to listen to our investor day. But we are extremely disciplined I have very strict requirements myself with the state of our balance sheet where a balance sheet needs to be before launching a new program. And at the same time, it's always an assessment of your, your, your, your financial capability, but also the technology that are available, you don't want to launch a program and, and have knowing that new technology will come in, in a couple of years, and then make your program obsolete, before going into service.
So, so that's another requirement. And the other one is what our customer, demand and what they're telling us. But today, they are receiving extremely well are offering. And I think on technology we still have work to do we have people to be working, a few people working and thinking about what's going to be, our future program. But clearly, the timing of that is going to be in line also with, what we expect are capable financial capability will be will have the same discipline, and we've been having for the last couple of years as a management team. So that's, that's probably a good way to characterize it.
The second question, if you, if you look at the customer base today, I think we still, the way we've seen it evolving between global and a different platform, you remember that we made a very conscious decision of stuffing the production in the light segment. And that was in line with our view that that market was much less first lucrative, but also, will be impacted more significantly if there is a downturn.
So I think that too, segments that we are competing in today, which is medium and large, are still holding very well. I think we see a trend, people clearly are looking for bigger airplanes than they maybe they were looking 10 years ago. So that trend has been continuing. And when you go from, our base product, which is the Challenger 3500. You get quite a cabin for an airplane of that, of that price. And I think people do appreciate that. So that that is becoming a bit of a standard. And we feel pretty good about the two segments that we are competing in. And again, I think the large segment has always shown in the past also being extremely resilient to any movement in the economy.
Great, [Indiscernible] and congrats on the results again.
Thank you. Thank you so much. Thanks for your question.
Your next question comes from Elizabeth Granville from Bank of America. Please go ahead.
Hi, good morning. Thank you for taking my call. One, one, did you touch on if you've had any delivery slip out of the quarter because of supply chain issues or anything else?
We didn't have any. So last year I think we delivered. Actually we delivered one more airplane than last year. But this I have to clarify also last year we had three Learjet, which we're not producing anymore. So meaning that this year we delivered four more challenger in global altogether than last year.
So nothing has nothing that you expected to deliver in the first quarter slips to literally…
No we are exactly as per plan.
Okay. And then secondly, I you know, I think someone asked this question earlier, but I just wanted to delve into a little more. With regards to the margin performance in the quarter how much of the outperformance came from the strength that you saw in the aftermarket revenue?
In terms of margin, you mean?
Yes. Like how much of the margin strength was driven by the aftermarket performance?
Yes, Elizabeth, it's Bart here. Obviously, we had a we had a very strong first quarter both on deliveries and on aftermarket. We did have some outperformance so in our aftermarket little bit ahead of plan, and so that was that was a contributor, but we don't break it down in that manner. If you look at it on a full year basis, though, it implies margin for the year of 14.8%.
Okay, and then if I can ask for Bart, can you speak to your efforts to diversify into the defense market and how you're progressing against your plans for that?
On the service markets, you mean or on defense, sorry, sorry, I missed that. So yes defense. So it's actually progressing extremely well. I think the different country right now are realizing the capabilities of our products, which I said earlier, can fly further faster and higher than pretty much any commercial aircraft that exists out there being modified, for the same type of mission. So they bring some, some clear advantages. And and I think this is what Rosie, I said before, the equipment you have to put on board for either civilians, or Telecommunication or others are becoming smaller and smaller. So there's no need to have that big airplane anymore, which is much more costly, first of all our purchasing costs, but also our operating costs.
So our airplane produce less emissions, they offer all kinds of advantages. So I would say, geographically, clearly, with I would characterize that clearly North America, Europe, and even APAC are to region where we're having, conversation with, with different, different customer for different missions. So we're extremely encouraged. And we have a line of sight. Our objective is to bring, it's about to triple even a little bit more our revenue in that market, between now and the end of the decade, and we clearly have a line of sight for for being able to achieve that.
Thank you very much.
Thank you Elizabeth.
And we have one last question coming from Tim James from TD Securities. Please go ahead.
Thanks very much. Congratulations on a good quarter. Good morning, everyone. I just I just have one rather big picture question. I'm wondering if you can talk about how you view the delivery cycle, in respect to past experiences with downturns compared to what you see, as you look out over the next, 2, 3, 5 years, depending on your view. I'm wondering if there are factors at work that could make an inevitable downturn less painful than past experiences, and maybe that's due to company initiatives, or the industry supply chain issues that may be slowing the industry, the ability to meet demand, and therefore lowering the ultimate peak? Any other factors that investors should maybe consider when they're looking forward? And in thinking about what may be to come relative to sort of what we've seen in past downturns?
Yes, that's a that's a great question. I would say the biggest difference today, than when we did in the past, enter into more challenging situation, is the two years of backlog that we have ahead of us. And it's not just a question of having a backlog, it's a question of having a quality backlog. We've entered into a different recession, call it 2008, even, late 2014, when price all you know, went down by about 50%. And different things happen. We've seen major cancellation, because in the backlog, we had speculators. Today, we don't have that. They're real individuals or corporation, or wants to have their airplane. And, and, and I think we've learned from the past also that, people have a bit more stake in the game, if I may use this word in terms of LDS and, and potential finality if they exist. So, so we feel pretty good that our backlog will be will sustain and even if there is a downturn, so that's a very, very different position than historically we've, we've seen.
So that's number one. So having two years of backlog, then it's a question of discipline. And it gives us time to react, if any rate adjustments are, are needed or something because you're within the window of when you need to make a decision to place your PIO and bring your material and things like that. So you don't carry inventory that you cannot sell. So that's a very different environment than we had before. And we are extremely disciplined. That's why having a book-to-bill of one for us is important because that that made that means that you're keeping your backlog, pretty much so when you have two years of of look ahead with a good quality backlog.
So that's exactly how we look into this. And I would say that's probably a big difference than how we entered into more challenging time in the past. Maybe Bard wants to have something.
Yes, Tim, just a couple other things to keep in mind as well. In addition to the quality of the backlog and the length of it As Éric was commenting on. We we've been a lot more successful over the years in as we build that backlog in bringing with it a very good progress payment profile. So we're at a place today where we're receiving regular payments from customers throughout the manufacturing cycle. That means that our customers through that those cash flow profile are basically financing the bills of their own planes. So there's far less variability that we would expect, even in a downturn environment, to our to our financials and less stress on our balance sheet.
For us, in particular, our balance sheet is the strongest it's been in a very, very long time, and we continue to pay down debt and bring our interest costs down. And then the last thing I'd comment on is just working capital variability. It's one thing as a as an OEM to go from, 120 aircraft deliveries in one year to maybe 150 or 180. In the next year, that's a huge amount of working capital you have to consume to build up the inventory. In our case, we're working towards growth, obviously, we want to get to around that 150 deliveries, but it's happening in very manageable steps for us. So even if we see a downturn, working capital then becomes a bit of a tailwind. We're delivering the aircraft that we've sold. And so it's much more manageable for us as a business. So we think in almost any environment, you're just going to see less financial variability tied to any kind of order activity variability.
Super, that's very helpful. Thank you very much.
Thanks Tim.
There are a few more people joining the queue. So we have a few more questions. The next question comes from Noah Poponak from Goldman Sachs. Please go ahead.
Hey, good morning, everyone.
Good morning Noah.
Yes, not sure what happened there. But nice to chat. Are you reiterating all of the 2023 guidance?
Absolutely. We are okay. Yes.
Okay, great. I just wasn't sure I actually saw that in print. Bart, could you maybe spend another minute on just the progression of cashflow through the rest of the year? I can I can build to your cash flow forecast from revenue to margin and then things outside of of that. But if I just look at the year-on-year, it requires a decent amount of year-on-year growth if I strip out working capital. And so maybe there's I don't know if there's working capital help the rest of the year after what happened in the first quarter. But can you maybe just touch on the cadence through the rest of the year?
Yes, well, the first quarter. And thank you for the question Noah. And good morning. The first quarter usage was, as I mentioned, in my comments, I think Éric did as well, was in line with, with our expectations. Just to build on that, we did have negative working capital in the quarter as we're, we're building up our inventories to match to our rate increase, and we'll start making deliveries against that to inventory build later on this year. So the goodness that comes with the investment today, will start happening in the fourth quarter, those inventories were around 480 million, we partially offset by about 270 million of payables.
And then I mentioned in my comments, other liabilities on the balance sheet as well, which were down a little over 100 million, and that was mainly employee incentive plan activity, which was higher than last year, but because we had such a strong performance year in in 2022. So and it is a variable plant. So we expect to build inventory in Q2, and a little bit in Q3. So that'll be using cash. But against obviously, stronger activity as we come into the middle part of the year. And with inventory reversal to come in Q4.
We do have a quite a significant delivery profile this year in the second half of the year, particularly in Q4. So there's going to be a lot of cash coming in as we deliver against that profile in the fourth quarter of the year. So we'll continue to as I said, you have used up some working capital as inventory build, and then a big back half of the year for cash flow and deliveries.
And though I think I usually like to characterize the good and the bad inventory, the bad inventory with Be the one that you have and because you haven't been able to perform and deliver which is not our case in our case I call it good inventory. Because this year, just don't want to remind everybody, we're growing our revenue by a billion dollar compared to last year. So in order to be able to achieve that, we have to grow the inventory, but that's for a good and positive reason.
Okay. So if it sounds like 2Q a little bit of use of working capital again, so I assume 2Q free cash flow is a smaller negative than the first quarter but is but is a use, and then you're positive 3Q 4Q, is that accurate?
Yes, directionally, you're correct. Absolutely Noah. But one of the thing, I'm not sure if you were maybe on the call a little bit earlier, but the one other thing that you have to keep in mind for Q2 is that we've got 105 million of residual value guarantee payments to make in the quarter against a 125 million total for the year. And then after this year, we've only got we've only got about 25 million left. So we'll finally be looking at RVGs in the rear view mirror.
Okay. Great. Okay. Thanks so much.
Okay. Thank you, Noah. Thank you.
Your next question comes from Cameron Dirksen from National Bank Financial. Please go ahead.
Yes, thanks. Good morning. Just maybe just a couple of quick things on the aftermarket in the services business. Obviously, we've got some utilization rates that are industry wide, that are sort of down year-over-year, but it's obviously still strong relative to 2019 levels. It doesn't look like you're having any impact from lower utilization in aircraft, but just wanted to clarify that that's, that's something you're not seeing at least in your aftermarket business at this point.
Yes, no, really, right. Now, we, we have, as you know, we've realized our footprint, footprint expansion last year, and our service center are extremely busy right now. And the leading indicator, which is not exactly happening in this quarter, but the leading indicator that the airplane are still flying quite a bit, as always, encouraging for the future. But clearly, the level of activity at the service center is very high right now.
Okay, and once we get to kind of a steady state to kind of run rate on the services business is there, typical seasonality here, quarter to quarter, maybe can just talk a bit about that. And just wondering if you know, q1 would normally be a strong quarter or not.
Usually, it's, the maintenance events are more planned with Calendar, and they may happen in Q1, Q2, Q3, or Q4, you have to know when you have to go. But of course, if there is a little bit more flying people will require more parts, sometimes you will have to go to the service center, there is a bit of a seasonality in a sense that sometimes airplane fly a little bit more in some months of the year, during vacation time and things like that. So that could trigger a slight increase. But, there's no real seasonality like we do see in our sales as an example.
Okay, well, that's very helpful. Appreciate the color. Thanks very much.
Thank you, sir. Yes, thanks again. Operator, we have time for one last question.
And your last question comes from Myles Walton from Wolfe Research. Please go ahead.
Hey, good morning, guys. You have [Indiscernible] on for Myles. So just want to go back to the free cash flow. Can you confirm does this year include the any benefit from a building sale? That's kind of been expected for a couple years now?
No, we don't have it built into our free cash flow forecasts. That would be that would be an upside but it's not a hugely material item, either way. So but it would be a small upside to us if that were to happen.
Okay, thanks. I thought was bigger number I can follow up offline. I guess. Just back to the margins for a second. Yes. Can you explain what drove the amortization down so much year-over-year, just given deliveries of the challengers and global's are up so just wasn't sure why amortization was down as much.
It's mainly tied to lower 7500 amortization. So as time goes on it, it will be reduced.
Okay, thank you very much. Okay. Appreciate it. Thanks. Have a good day.
Thank you so much. So, so thanks for all of you for joining us today. And I know some of you will be listening probably to the Bombardier annual general meeting later today. So I look forward to meeting you again virtually and discussing the Bombardier’s success as well as the company's strategic path forward. As our Q1 results have shown Bombardier is a strong, resilient and predictable company. I continue to be impressed with our team's execution. This chapter in Bombardier’s history is certainly looking very bright, and our talented team’s tireless efforts are to thank. [Indiscernible] Thank you all for your time today, and your continued interest and confidence in Bombardier.