Embraer S.A.

Good morning, ladies and gentlemen, and welcome to the audio conference call from Embraer for Squatter 2022. Financial results. Thank you for standing by. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions to participate will be given at that time. If you should require assistance during the call, please press the star key fold by zero. As a reminder, this conference is being recorded and webcasted at riinbrouwer.com.br. This conference call includes forward-looking statements or statements about events or circumstances which have not occurred in Brouwer has based its 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 exceptions, including, among other things, general economic, political, and business conditions in Brazil and in other markets where the company is present. The words believe, may, will, estimates, continues, anticipates, intends, expands, and similar words are intended to end in five forward-looking statements. Embraer undertakes no obligation to update publicly or revise any forward-looking statements because of new information, future events, or other factors. In light of these risks and uncertainties, the forward-looking events and circumstances are discussed on this conference call may not occur. The company's actual results could differ substantially from those anticipated in the forward-looking statements. It is important to mention that all numbers are presented in U.S. dollar as in our functional currency. Participants on today's conference call are Mr. Francisco Gomez Neto, President and CEO, Mr. Antonio Carlos Garcia, Chief Financial Officer and Procurement, and Mr. Leonardo Shinohara, Director of Investor Relations. I would now like to turn the conference over to Mr. Gomes Neto, who will proceed the first remarks of our first quarter 2022. Please go ahead, sir.

Good morning, and thank you all for joining our first quarter 2022 results call today. I hope that all of you are well and safe, and I thank you for your interest in our company. The first quarter results continue to show that our planned execution and company turnaround remains underway. And our focus to drive innovation and enterprise efficiency are key pillars to our growth strategy. As you will see later in Antonio's presentation, we are maintaining our guidance for the year. And our numbers show that even with a shutdown of our operations during the month of January to reintegrate the commercial aviation systems, we were able to deliver solid results. Before we go into more financial details on the first quarter, I'd like to give you some quick highlights of our key actions. First, on innovation. if its closing is expected in May. The listing at the New York Stock Exchange will accelerate and bring innovation to the new urban air mobility ecosystem. Speaking about our innovation pipeline, we have several ongoing projects, such as zero or low carbon emission and airframe efficiency. Second, enterprise efficiency. We continue to work with great focus and discipline on improving efficiency in all business units, in our administrative areas and operations, applying lean principles and continuous improvement culture to several processes. Our financial performance continues to trend up with the best free cash flow in the first quarter since 2010. As mentioned previously, we are maintaining our guidance for the year, even with a challenging supply chain due to the war in Ukraine and shortages of products worldwide. On the next slide, we'll talk about growth and see more details of business units highlights in the quarter. In commercial aviation, we have several ongoing campaigns, mainly due to a steadily rebound of domestic flights in the USA and Europe. The oil price increase also reinforces the relevance of the E2 family as the most efficient narrowbody in fuel consumption. Executive aviation keeps up the good momentum with sales orders exceeding prior year levels and backlog increase above 12% in Q1-22 versus Q4-21. On defense, we have seen an increased interest in C390 Millennium and the A29 Super Tucano from several countries recently. We expect an acceleration in sales campaigns for these products. Services and support has grown above pre-pandemic levels, with a growing backlog and positive gross margin versus last year. Deliveries of aircraft in the first quarter were slightly below expectations, mainly due to approximately 30-day shutdown, which I have commented earlier on. I will now hand it over to Antonio to give further details on the financial results, and I will return in the end. Thank you.

Thanks, Francisco, and good morning, everyone. Let's give some highlights of the first quarter of 2022 financial results. By the way, a quarter with 60 days activities for us is a short quarter. Let's get started in the slide five. First of all, we are reaffirming all aspects of our 2022 financial and delivery guidance with no material variations. Embraer delivered 14 jets in the first quarter, of which six commercial jets and eight executive jets. Six light jets and two mid-sized jets, all of this according to our schedule. Deliveries in the quarter were negatively impacted by almost one month shutdown in January 2022 due to the commercialization system and legal reintegration. Third order backlog ended the first quarter 2022 at $70.3 billion, plus $300 million versus Q4 2021. This is the highest quarter backlog since the second quarter 2018. driven by solid sales activity. On the revenue side, revenue reached 601 million a quarter, down 26% compared to the first quarter, 21, with almost one month production shutdown in January. In contrast, reported consolidated gross margin of 20% was higher than the 9.5% reported the first quarter of 2021, we do it to the better performance in all business units. On the slide six, adjusted EBIT and EBITDA. Even with less 26% revenue and higher SG&A compared to the first quarter of 2021, adjusted EBIT and EBITDA margin were 27 million negatives and 13.2 million positive, respectively, yielding adjusted EBIT margin of minus 4.5% and adjusted EBITDA margin of positive 2.2%. Adjusted EBIT Q1 2022 also includes no recurring expenses like commercial aviation integration process, arbitration process, and others of $17 million. If we exclude all of extraordinary effects, adjusted EBIT margin would have been minus 1.7 or minus $10 million and EBITDA margin of 5% or $30 million positive. Complementing our strategy to mitigate exchange risks through the cash flow hedging, we recognize credit of $800,000 related to payroll expenses in the first quarter of 2022. At least we do see a limited FX impact for this fiscal year in our results between Brazilian reais and U.S. dollar basis. Moving to slide seven, let's start with G&A. SG&A as a whole continues to trend infavorably over the past years. Quarterly SG&A reached 95 million or increase of 15 million compared to the first quarter 21 figures. Due to more activity on the sales side, campaigns impacting expenses as well the upstick corporate administrative expenses driven by inflation. It's important to say that we remain highly focused on SG&A efficiency. On investments in Q1 2022, Embraer invested a total of 39 million in product development and research, mainly related to G2 commercial jet programs, and 9 million CAPEX. It's important to mention we continue to invest our future with highly disciplined CAPEX allocations. Another good news, let's go to slide number eight, starting with adjusted free cash flow. In regards to free cash flow, the company continue highly focused to improve the cash steering process. Free cash flow in first quarter 2022 was a usage of 68 million, representing a significant improvement compared to the 227 million negative million in the first quarter of 2021, consistent with working optimization measures and enterprise efficiency. Working capital had a positive impact in the company overall cash performance, even considering the seasonality of the business, delivering its best first quarter cash since 2010. The main highlights were optimized inventory management and higher Advanced payment from customer compared with the fourth quarter of 2021. On the adjusted net results was a loss of 79 million. Although negatives, we do see net results trending up, driven by revenue growth in the next quarters, fixed cost leverage, reduction interest costs due to our liability management activities, and the full tax efficiency that we achieved get back from the legal reintegration of commercial aviation. All of these effects together will provide an additional positive impact earnings for this fiscal year. So let's move to slide number nine, liquidity. The company finished the quarter with a total debt of $3.5 billion, or $500 million less than Q4 2021, in line with our strategy, a net debt of $1.5 billion. Embraer continues to leverage the balance sheet, reducing systematically the gross debt and improve the credit metrics, and we do expect to reduce the interest expenses with that. It's important to highlight that our net debt, the B to the A ratio, is around 3.7 times in the first quarter of 2022, and we remain focused on generating cash and reducing our debt levels. With that, I conclude my presentation and hand over back to Francisco for his final remarks. Thank you very much. Thanks, Antonio.