Embraer S.A.

Good morning, ladies and gentlemen, and welcome to the audio conference call for Embraer's third quarter of 2022 financial results. Thank you for standing by. We remind that EVE's results will be discussed on EVE teleconference. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer section and instructions to participate will be given at that time. Should you require assistance during the conference, please use the Q&A button 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 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 believe, 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 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 financial 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 third quarter 2022 results call today. Mainly due to our continuous focus on efficiency, we were able to deliver better margins even with the supply chain constraints. And our firm order backlog is one of the highest since the beginning of the pandemic. It is important to highlight that we, the whole company, have concentrated our focus on year-end aircraft deliveries. There are comprehensive initiatives in place, and they are progressing well to mitigate the production challenges. always keeping a strong focus on safety and quality. Regarding growth, several campaigns are advancing well, both in commercial aviation, mainly the E-2 family, and in defense, including the C-390 and A-29 Super Tucano. In this quarter, as we will see on the next slide, we have already reached new regions and operators for E2. Having said that, we maintain our confidence in our guidance for the year, and we are pleased to share that our free cash flow will increase to 150 million, or better. On the next slide, we will see more details of business unity highlights in the quarter. In Commercial Aviation, we announced a firm order of 20 E195-E2 from Porter Airlines, now totaling 50 orders and 50 options. We also announced the expansion of our presence to the Middle East with a new operator, Salaam Air, which ordered 6E195E2. On the freighter's project P2F, we signed a firm order for up to 10 aircraft with NAC. More recently, we received a great and promising news. The China Aviation Authority granted certification for our E190-E2, opening the door of a relevant market for the E2 family. And considering the nine-month period, the gross margin in our commercial aviation improved to 10% from 3.2% in the previous year. Our executive aviation keeps up the good momentum with fantastic performance. We delivered 23 jets in Q3 2022, 10% higher than the same quarter last year. And the gross margin was 20.6% in the last nine months, compared to 16.3% in the previous year. On defense, the conflicting environment continues to influence countries around the world to revise plans and update their capabilities and readiness. During the quarter, we were pleased to announce a partnership with L3Harris to expand the capabilities of the KC-390 Millennium as a jet-powered agile tanker, addressing the U.S. Air Force's operational requirements. More recently, we signed some MOUs with South Korean aerospace industries for future collaboration in the KC-390 program. Finally, we reached a final agreement with the Brazilian Air Force on the KC-390 contract, preserving the company's cash flow and ensuring the economic and financial viability of the project. The service and support business continues to positively evolve with a growing backlog and positive gross margin, which reached 29.90% in the nine-month period versus 26.4% in 2021. 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. We delivered reasonable results in the third quarter, reinforced our confidence in our financial performance for the year end, highly focused on enterprise efficiency. As a remark, our guidance does not include EVE numbers. Moreover, the final numbers also include the account adjustment performed by EVE in the second quarter. So moving to slide five, aircraft deliveries. Embraer delivered 33 jets in the third quarter, of which 10 commercial aircrafts and 23 executive jets. Year to date, we have delivered 27 commercial and 52 executive jets. We all know the supply chain constraints, which is impacting Embraer and moving big portion of the deliveries to Q4. Deliverers are in a good pace, and we have noticed concern from the street about deliverers for the whole year. We have affirmed all aspects of our 2022 revenue and delivery guidance. Despite the challenging supply scenario, we should stay in the lower end of the delivery guidance for both commercial and executive jets, with some minor risk on the downside. Firm order backlog ended 30 quarter 22 at 70.8 billion, or 1 billion versus the same period last year. This is one of the highest quarter since the beginning of the pandemic, driven by solid sales activity in executive aviation and service and support. Revenue reached 929 million in the quarter, down 30 million compared with the same period at 30 quarter 21, mostly driven by lower revenue and the sense of security partially offset by the other business unit. The revenue breakdown even spread through the business unit have helped to contribute to the consolidated gross margin. Moving to slide number six, let's talk about adjusted EBITDA and EBITDA. Before that, just to report, In the first nine months of 2022, Embraer reported consolidated gross margin of 20.9%, then 16% report in the same period of 2021. Due to the enterprise efficiency as a whole, 1% mix, 1% one-time effect, and 2% margin improvements driven by enterprise efficiency, even with lower volumes that we delivered in the first nine months. Adjusted EBITDA and BTDA were 50 million and 93 million respectively, yielding an adjusted EBITDA margin of 5.4% and adjusted EBITDA margin of 10%. Adjusted EBIT in the third quarter 2022 also includes extraordinary items. If we exclude all extraordinary items, adjusted EBIT margin would have been around 6.8% or 63 million in the third quarter 2022. Adjusted EBIT margin would be around 11.4% in the third quarter 2022. In regards to our guidance for EBIT and EBITDA, we should stay in the upper range of the guidance for EBIT and EBITDA with some upside potential if all delivers happen as planned. Quarterly G&A expenses reached 41 million, with no significant changes compared to the second quarter 22. Selling expenses reached 67 million due to higher volumes of campaigns in all segments, promising in defense in commercial aviation. Investments in the third quarter Embraer invested a total of 41 million in product development and research, mailing due to development, for example, into family, executive aviation, and other products. And we've invested 14 million in CAPEX mailing for the service and support expansion. Moving to slide eight, starting with adjusted free cash flow. Free cash flow in the third quarter was negative 109 million. This easily to expand due to the higher working capital needs for the higher deliveries in the fourth quarter 2022. Free cash flow year to date is negative. 86 million is slightly better than nine months consolidated basis. Therefore, regarding to the free cash flow, we continue highly focused on the cash flow discipline, and we decided to increase our free cash flow guidance from 50 million to 150 million or better in 2022. On the right side, adjusted net results was a profitable 24 million adjusted, trading positive from efficiency and less interest expenses. Year to date, we are more or less close to zero. In slide number nine, we are extremely happy with the developer's strong liquidity profile. the company reduced the quarter, finished with a total debt of 3.1 billion, or 808 million less year to date in line with our liability management strategy to reduce gross debt and interest expenses. The current schedule of our debts give us a comfortable situation on our monetization for the next two years. If you see, we do have 37 million residual value to pay in 2022, 244 in 2023. Moreover, The 310 we have for 2024 has been already refinanced, being postponed to 2027. Means we do have three years and a comfortable situation to overcome any kind of recession or volatility in the market. And we continue to work on increasing duration and improving the financial metrics. to ensure the company liquidity, Embraer obtained in October 2022 a revolving credit facility line RCF in the amount of 650 million and the renewal of the current loans with the national bank in Brazil with additional two years maturity from 300 million. We thank all of our banking partners for the support through the revolver credit facility. To finish my presentation, moving to the slide number 10, talk about if accounting restatement for the second quarter 22, no cash adjustments. If you issued warranties to a strategy and spec investor during the IPO. In September, we reviewed its account for central warrants that were issued and became exercisable at the close in May. Based on such a review, Embraer expects to recognize the following no-cash expenses associated with the issuance of such warrants for the second quarter. Warranties. The revised accounting treatment is to measure the warrants as a fair value. Based on these premises, we recognize a non-cash impact of 76 million in net results, of which 142 million in other operating expenses and 67 million are fair value financial income. Second, listing expenses. We recognize a non-cash expense of 136 million in other operating expenses as a listing expense. All values were known, but was previously booked in the equity. Now we are recognizing the profit and loss before impact the equity of the company. Transaction cost. Embraer assessed its direct and incremental costs and concluded that the amount to be reclassified is 15 million in equity to other operating expenses. With that, I conclude my presentation, pass, Francisco, the final words. Thank you very much.