Embraer S.A.

Good morning, ladies and gentlemen, and welcome to the ESG Flight Plan event in Embraer's second quarter 2021 financial results. Thank you for standing by. I'm Felipe Calçada, and I'll be your host for today. At this time, all participants will watch our financial results presentation. Right after, we will conduct a question and answer session, and instructions to participate will be given at that time. If you should require any assistance during the event, you can do so using the chat box on the platform. As a reminder, this presentation is being recorded and webcasted at Reuters' platform. Before we begin, just a legal statement. This conference call includes forward-looking statements or statements about events or circumstances which have not occurred. Embraer has based these forward-looking statements largely on its current expectations and projections about future events and financial trends affecting the business and its future financial performance. These forward-looking statements are subject to risks, uncertainties, and assumptions, including, among other things, general economic, political, and business conditions in Brazil and in other markets where the company is present. The words believes, may, will, estimates, continues, anticipates, intends, expects, and similar words are intended to identify those forward-looking statements. Embraer undertakes no obligations to update publicly or revise any forward-looking statement because of new information, future events, or other factors. In light of these risks and uncertainties, the forward-looking events and circumstances discussed on this conference call might not occur. And the company's actual results could differ substantially from those anticipated in the forward-looking statements. Participants on today's conference are Francisco Gomes Neto, President and CEO, António Carlos Garcia, Chief Financial Officer and Procurement, and Eduardo Couto, Director of Investor Relations. And now, I would like to turn the conference over to Francisco Gomes Neto. Please go ahead, Francisco.

Thank you, Felipe. Good morning to all, and thank you for joining our call today. I hope that all of you are well and safe, and thank you for your interest in our company. As you will see in Antonio's presentation, our results for the quarter were strong. The Q2 results are a clear example that our strategic planning has been well executed with the right focus and discipline, showing significant improvement in our financial performance. Before we go into more details regarding the Q2 results, I'd like to highlight the good momentum we are going in the different business segments. In commercial aviation, we announced a new firm order for third generation E-195, E-2 jets from the Canadian Porter Airlines with purchase rights for 50 more aircraft. We also announced new firm orders for 34 E-175 jets to Horizon Air and SkyWest to be operated for Alaska Airlines and Delta Airlines. These new orders and other active campaigns reiterate the continuous interest in the E-jet family as the best option in the regional aviation market. In executive aviation, we keep up the momentum with record sales in the quarter. We maintained our price discipline strategy and had a strong backlog growth with book to bill in excess of two to one for this business. In defense and security, we delivered seven Super Tucano aircraft in the first half of the year. Also, we had strong performance in our cybersecurity and systems integration companies with double digit revenue growth in the first half of this year compared to the first half of last year. Further, In the second quarter, the KC-390 Millennium reached an important milestone by successfully performing unpaved runaway tests. Although we are currently in negotiations with the Brazilian Air Force on the KC-390 Millennium contract, we continue to be focused on the new export sales campaigns for this aircraft as well as In services and support, we are pleased with strong second quarter results, with better revenues and higher margins, as traffic recovery and strong maintenance activity drove 55% revenue growth in the second quarter. It is exciting to see the continued positive sales activity in services, with deals signed with several important customers across all markets and at OGMA, driving backlog expansion for this segment during the period. This was further highlighted by the contract we signed with Porter Airlines for a 20-year total support program. With respect to innovation, we continue to make progress on partnerships in the urban air mobility ecosystem through our subsidiary, IVE, in a segment with a strong growth potential in the years to come. In addition, our services collaborative platform, Beacon, signed agreements with key customers such as Republic for its maintenance applications. Finally, on the operations front, we continue to see great improvements. We expect a 16% increase in inventory returns compared to 2020 and a 20% reduction in production cycle time of our aircraft this year, positively impacting working capital and production costs. I will now hand it over to Antonio Garcia, our CFO, to give further details on the financial results, and I will return in the end. Thank you.

Thank you, Francisco. And good morning, everyone. I will start with our backlog for the quarter. On slide seven, the graph shows we ended the second quarter at 59 billion, up 1.7 billion, or 12% from the prior quarter. This represents a return to the same 15.9 billion we were at in 2020, before the pandemic began. In our commercial aviation business, we closed 48 aircraft sales in a quarter, spread across several different airlines. In executive aviation, we had to record second quarter sales. A solid backlog as demand for light and larger business jets continue to grow. Backlog in service and support and defense and security also grew from the prior quarter's level. In summary, it was the best sales quarter since mid-2019. This gives us confidence in our plans for future revenue growth and improvements. Moving to slide eight, you can see the continuous improvement in aircraft deliveries compared last year and both commercial aviation and executive aviation. In commercial aviation, We delivered 14 aircrafts in the quarter. This represents a 56% increase compared to the prior quarter and 250% increase compared to the second quarter in 2020. Year-to-date deliveries, we were at 23, almost two and a half times higher than the same period in the prior year. Of these 23 deliveries, 14 were issues. compared to four E2s in the same period last year. SEIUS continues to perform very well for D2 as the most efficient right-sized single-aisle aircraft for the world post-pandemic. In executive aviation, we delivered 12 jets, light jets, and eight larger jets for a total of 20 aircrafts in the second quarter. This represents 54% increase compared to both first quarter of 2021 and the second quarter of the prior year. Year-to-date, Executive Aviation delivered 33 aircraft, a 50% increase compared to the first half of 2020. As noted in the Guidance 2021 we published this morning, we expect deliveries of commercial jets to reach between 45 to 50 aircrafts and executive jets to reach between 90 to 95 aircrafts. On slide nine, we show Embraer's net revenue. Embraer had a solid revenue growth in the quarter as all four business units rebounded strongly from the pandemic. Our top line more than doubled compared to the second quarter of last year. Growth came primarily from higher deliveries in commercial aviation, although all our segments showed much improved growth during the quarter. Year-to-date net revenue was just under $2 billion, as $767 million, or 65% increase over 2020. Net revenue breakdown by business show Embraer diversification, with commercial aviation representing 34% of the total revenues. Service and support, 28%. Executive aviation, 22%. And defense, 16%. It's important to highlight the strong recovery in commercial aviation, as this business was severely impacted by the pandemic last year. Slide 10. SG&A expenses reduction continues to trend very favorably over the last six quarters. We remain highly focused on SG&A efficiencies that are being implemented since the company's restructuring last year. Although the second quarter had a slight increase in G&A, this was primarily driven by increase in provision for profit sharing and performance-based incentives program due to better expected results for the company in 2021 as compared to 2020. Combined with the consolidation of expenses from Tempest, our new cybersecurity company acquired in the end of 2020. Selling expenses remains at historical low levels. Compared to the prior quarters, selling expenses increased 4% while net revenue increased over 40% sequentially. As percentage of net revenue, sale expenses was 4.2% in the second quarter compared to 5.7% in the first quarter. We achieved these results by leveraging our sales activity as volume increase combined with more cost efficiency digital sales effort. Slide 11 shows our adjusted EBITDA and adjusted EBITDA. We are very encouraged by the strong margin performance across all business segments in the second quarter. Our adjusted EBITDA margin was 9.3%, up 13 percentage points over the first quarter. Our adjusted EBITDA margin was in double digits, at 14%, or up over 16 percentage points from the first quarter. Both of these profitability metrics have recovered to the levels not seen before 2020. For the first half of 2021, our adjusted EBITDA margin was 3.9%, and our adjusted EBITDA margin was 9.2%, both well above prior year's level. These improvements come from several factors, including higher deliveries resulting in higher revenue, better gross margin on improved pricing, mixed production efficiency, fixed cost leverage on higher volumes, and favorable tax obligation reversal of this quarter of approximately $25 million. All of our segments have much better performance in the second quarter. adjusted a beat margin by segment in the second quarter were as follows. Commercial aviation was at 1.7% negative, which, although negative, shows a great improvement from last year. Executive aviation was at positive 8%, with a strong price discipline and consistent profitability. Defense and security was at positive 25%, led by Super Tucano deliveries along with positive adjustments on certain defense contracts. And service and support was at 19% as a strong contribution from spare parts programs. Slide 12 shows our adjusted net income. It was positive 44 million, or 24 cents per ADS, in the second quarter. This represents the first net profit on a quarterly basis since 2018. The recovery in adjusted net income is primarily driven by improved operating margins, reductions in financial leverage also contribute to improved profitability, and Any future debt reduction would naturally have an additional positive impact on earnings. Moving to slide 13, I'd like to begin with free cash flow. Free cash flow in the second quarter was positive 45 million, 272 million higher than first quarter, and 517 million higher than the same period of last year. This is a remarkable achievement. Although year-to-date the cash flow is negative 181 million, this is compared with a free cash flow burden of around a billion of the first half of 2020. We expect positive free cash flow from the second half of the year, of the 2020 year as indicated in this morning's guidance. Now to investments. Our total investments were $50 million in the second quarter and $89 million year-to-date, both of which are in line with last year's levels. This is important because it shows we continue to invest in our future. We have been very judicious in balancing They needed to invest our future if they needed to preserve cash. Slide 14 shows our cash and liquidity position. We ended the quarter with $2.49 billion cash and cash equivalents, a slight increase from the end of the first quarter. Our debt balance was at $4.3 billion, a slight decrease from three months ago. Our average debt maturity remains at four years. We expect to continue to generate cash in the second half of 2021. And beyond so, our leverage will naturally decrease. This will correspondingly reduce our net interest and expenses and have an additional positive impact on net income. Finally, moving to slide 16, Embraer has published 2021 financial deliverance guidance for the first time since the start of the pandemic. Despite risks of the economic recovery, vaccination rates around the world, and with a solid first half and good visibility for the remainder of the year, we decided to share the marked our targets for 2021. We expect to deliver between 54 to 50 commercial jets, just to correct, 45 to 50 commercial aircrafts in 2021, and 90 to 95 executive jets in the year. We have a good confidence in those figures as our skyline, our red field for both segments. Combined with the growth in defense and security, and continued the recovery in the service and support traffic recovered globally, we expect consolidated revenues to be between $4 to $4.5 billion this year, representing a low double-digit growth at the midpoint compared to the last year. Adjusted EBIT margin should be in the range of 3 to 4%. and adjusted EBITDA for 2021 should be between 8.5 to 9.5%. Embraer has had, in the first half of 2020, margin in these ranges, as we expect these good margins to repeat in the second half of the year. It's important to mention that those margins include costs related to the reintegration of commercial aviation as well as expenses related to the arbitration process. Finally, our free cash flow guidance is arranged from free cash flow usage of $150 million to a break-even for 2021. We had $181 million of free cash flow usage in the first half of the year, so we are anticipating to generate up to $180 million cash and the second half of 2021 without any cash inflows from M&A projects. With that, I conclude my presentation and hand it back over to Francisco for his final remarks. Thank you very much.