Embraer S.A.

Good morning, ladies and gentlemen, and welcome to the audio conference call from Embraer's second quarter of 2022 financial results. Thank you for standing by. We remind that EVE's results will be discussed on EVE's teleconference. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session and instructions to participate will be given at that time. Should you require assistance during this call, Please use the chat on the platform. As a reminder, this conference is being recorded and webcasted at ri.embraer.com.br. This conference call includes forward-looking statements or statements about events or circumstances which have not occurred. Embraer's 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 economics, political and business conditions in Brazil and other markets where the companies present. The words believes, may, will, estimates, continues, anticipates, intends, expects and similar words are intended to identify 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 those risks and uncertainties, the forward-looking statements, events and circumstances discussed on this conference call might not occur. The company actual results could differ substantially from those anticipated in the forward-looking statements. It's important to mention that all numbers are presented in US dollars, as it is our functional currency. Participants on today's conference call are Mr. Francisco Gomes Neto, President and CEO, Mr. Antonio Carlos Garcia, Chief Financial Officer and Procurement, and Mr. Leonardo Shinohara, Director of Investor Relations. I would like now to turn the conference over to Mr. Gomes Neto, who will proceed with the first remarks. Please go ahead, sir.

Good morning and thank you all for joining our second 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 second quarter results show a steady improvement in our financial results with our focus and discipline in the execution of our growth plan. Despite the challenging supply chain environment, which I will talk more about later, we were able to deliver solid results. And we have also maintained our focus on enterprise efficiency and innovation as key pillars of our growth strategy. We reached a firm order backlog of 17.8 billion in the second quarter 2022. the highest level since the beginning of the pandemic. And this number does not consider Porter's new order announced during the Farborough Airshow last month. And we are pleased to announce a reported adjusted net income of $39.4 million in this quarter. Before we go into more financial details on the quarter, I'd like to give you some quick highlights on our two key pillars. First, on innovation. IFES IPO brought 377 million of gross proceeds, which will be used to accelerate the development, certification, and commercialization of our urban air mobility solution. During the Farnborough Air Show, EV announced Halo Aviation as the launch customer for its urban air traffic management solution. At the event, we also unveiled the EVTOL cabin mock-up and updated the product design. Second, enterprise efficiency. We continue to work with great discipline to be more efficient at the entire company. This quarter, we announced a partnership with Toyota to maximize efficiency in our production and accelerate the use of lean principles to reduce the production cycle lead time of our aircraft by 40% by the end of 2023. Mainly due to our efficient initiatives, the financial performance continues to improve. free cash flow increased 100% versus the second quarter last year. And our gross margin presented a substantial increase compared to the same period last year. On the next slide, we will speak about our main ESG achievements announced in the second quarter. Embraer and Raizins signed a letter of intent with a commitment to develop a sustainable aviation fuel production ecosystem. Embraer will become the first aircraft manufacturer to use SAFTET. It will be distributed by Raizins, a global leader in bioenergy. We also announced that a new purchase agreement to source 100% renewable energy in Brazil by 2024, a year ahead of our 2025 target. Embraer and Pratt & Whitney had successfully tested an E195E2 aircraft on 100% sustainable aviation fuel this quarter. Finally, our annual 2021 report was published in May. The report brings the main highlights of the year on innovation, financial performance, and a complete overview of Embraer's ESG actions in 2021. Important to note that our report is already in SASB framework, friendly for investors in our company. On the next slide, we will talk about growth and see more details of business unity highlights in the quarter. In commercial aviation, during the Fibreware show, we announced a firming order of 20 E195E2 from Porter Airlines, now totaling 50 orders and 50 options, and an additional eight E175E1 firm order from Alaska Air. On the P2F Passenger to Freighter project, we signed a firm order for up to 10 aircraft for an undisclosed customer and an LOI with NAC for 10 freighters. Gross margin of 13.2% in Q2 2022 versus 4.5% in the previous year. Executive Aviation keeps up good momentum with strong sales. We delivered 21 jets, being 12 light and 9 large. Backlog increased above 16% compared to the previous quarter and gross margin of 22% compared to 17.5% in the previous year. On defense, we are very pleased to have received in June the Netherlands Ministry of Defense's decision to select the C390 Millennium as the sole source to replace its cargo fleet. It is a clear demonstration of the increased interest in our air product from several countries recently. Gross margin of 28% in Q2 22 versus 34.6% in the previous year. Service and support continues to improve its results, with a stable backlog and positive gross margin, which reached almost 32% in Q2 2022 versus 28% in the same period of 2021. We also signed a new contract with Lot Polish, expanding the pool program to cover 44 aircraft. 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 talk about financial results. We delivered stronger results in the second quarter, reinforcing our confidence in our financial performance for the year. We continue highly focused in our pillars of the leverage, the company, driving profitability and efficiency. Embraer delivered 32 jets in the second quarter, of which 11 commercial aircrafts and 21 executive jets, 12 light jets and nine midsize jets, according to our schedule. We reaffirmed all aspects of our 2022 financial and deliveries guidance with no material variations. Deliveries is in a good pace and seasonally concentrated the second half of the year. We have noticed some concern from the south side reports about deliveries for the year. But just as a reminder, we are today just four aircrafts from commercial aviation behind our skyline. Despite the very challenging supply scenario, our plans have not changed, and we remain confident in the delivery of the aircrafts. Fermi order backlog ended second quarter 2022 at $17.8 billion, half billion more versus first quarter 2022. This is the highest quarter backlog since beginning of the pandemic. 12% higher, driven by solid sales activities, mainly in executive aviation. Revenues reached $1 billion and $90 million in the quarter, down 10% compared to the second quarter of 2021, due to lower deliveries in commercial and defense segments, partially offset by our services and support business units. Before I start with EBITDA and EBITDA, I want to mention that we reported consolidated gross margin of 21.9% in the quarter. It was higher than the 18.2% reported in the second quarter of previous year, 2021. We find year-over-year improvement in most segments. due to the product and service mix, pricing, and overall operational performance, including tax efficiencies. Adjusted EBIT and EBITDA were 81 million and 125 million respectively, yielding adjusted EBIT margin of 8% and adjusted EBITDA margin of 12.2%. It's important to mention that our adjusted EBIT in the second quarter of 2022 also includes commercial aviation integration and arbitration expenses of around $16.5 million. If we exclude all these extraordinary effects, adjusted EBIT margin would have been around 10% or $100 million in the second quarter of 2022. And EBITDA margin of around 14%. excluded these effects. And please take into account, we book it, 21 million provision for bad debt in the second quarter, around 21 million in the quarter. Also impact the results here. Quarterly, G&A reached $42 million, or an increase of 1 million compared to the second quarter 21 figures. Due to inflation, wage adjustment, but no increase in headcount. Selling expenses reach at 66 million or an increase of 60 million compared to the second quarter, 21 figures, due to more active sales campaign and trading events. It's important to mention the selling expense does not include 21 million of bad debt provision that we exclude in this graph here. Talk about investment. In the second quarter of 2022, Embraer invested a total of 42 million in product development and research, mainly in product development, for example, with two-family freighter, executive aviation, and TP projects. We invested also 30 million CAPEX, mainly for service and support expansion business. We continue to invest in our future. Another good news moving to free cash flow and net results is slide number eight. In regards to free cash flow, we continue highly focused and cash flow discipline for positive trends. Free cash flow in the second quarter of 22 was a surplus of $91 million, represent a significant results supported by the divestment of Everett's facility and optimization for working capital. driven by positive free cash flow year-to-date, even considering a production ramp-up and deliveries in the second semester. Moving to adjusted net results was a profit of 39 million due to the better EBIT performance and interest reduction of 28 million in the second quarter, 22 year-on-year basis. The company finished the quarter with a total debt of $3.2 billion, or $864 million last year to date, in line with our liability management strategy. Embraer continues to leverage the balance sheet, reducing systematically gross debt and improving credit metrics. Moreover, reducing interest expenses. It's important to highlight that our net debt EBITDA last 12 months ratio is around four times in the second quarter 2022. But in the next quarter, we will show a significant improvement because deliveries are concentrated in the second half and we remain committed to improve our financial metrics. With that, I finish my presentation and hand it back to Francisco for his final remarks. Thank you very much.