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spk07: Good morning, ladies and gentlemen. Thank you for waiting. Welcome to Embraer's teleconference for the presentation of the financial results for the first quarter of 2023. At this moment, all participants are watching this teleconference as listeners. We will soon provide instructions for the participation of the Q&A session. If there is a need for assistance, please use the Q&A button on the platform. It is important to mention that the information related to the results of the IVE will be discussed at the IVE conference. We also inform that all numbers are presented in US dollar, because it is the company's functional currency. In addition, the numbers of this presentation contain financial information, not GAP, to make it easier for investors to reconcile IVE's financial information in GAP standards with Embraer's IFRS rules. We also remind you that this conference is being recorded and transmitted by the website ri.embraer.com.br. This teleconference includes prospective statements or statements about events or circumstances that did not occur. Embraer based these prospective statements largely on its expectations and current projections about future events and financial trends that affect businesses and their future financial performance. These prospective statements are subject to risks, uncertainties and assumptions, including, among other things, economic, political and business general conditions in Brazil and in other markets where the company is present. The words believe, can, will, estimate, continue, anticipate, intend, wait and similar terms are intended to identify expectations. Embraer does not assume any obligation to update publicly or review any estimates as a result of new information, future events or other factors. In view of the risks and uncertainties inherent, such estimates, events and predictions about the future may not occur. The real results and the performance of Embraer may differ substantially from those previously published as expectations of the company. Participate today in this teleconference Francisco Gomes Neto, President and CEO. Antônio Carlos Garcia, Vice-President of Finance, and Leonardo Shinohara, Director of Relations with Investors. At this moment, we pass the floor to Mr. Francisco, who will begin the presentation of the company's results. Please, Francisco, you may proceed.
spk01: Good morning and thank you all for participating today in our first quarter of 2023 results conference. We delivered the results of the first quarter according to our expectations. The liquid revenue increased 19% in relation to the first quarter of 2022, due to the best commercial mix, strong growth in defense, 56% year-on-year, and in services, 20% year-on-year. The restrictions in the supply chain are still present and we continue to act to mitigate these risks. We see improvements this year, but the scenario is still challenging. The portfolio of firm requests to be delivered ended the first quarter of 2023 with US$ 17.4 billion, stable from quarter to quarter, and driven by the evolution in business jets and support services. In the next few months, we see a better perspective in terms of deliveries, revenue growth and profitability. We are working on many active sales campaigns, with excellent chances of new orders for the coming years, in all business units, mainly commercial and defense. We continually focus on business efficiency in our operations and innovation through our subsidiary, IVE. In the next slide, we will see the ESG alignments and achievements and, next, we will show more details of each business unit in the quarter. Regarding ESG, our sustainability report was released last month and brings environmental, social and governance indicators aligned with international standards . Our actions are on the right track. This was reflected in the improvement of our performance in the CDP report and in the ESG MSCI rating agency. In the next slide, I confirm that IVE has the largest and most diversified order portfolio, with 2,770 purchase intention cards, valued at $ 8.3 billion, the highest in the sector. In the next slide, I will talk about the main highlights of the business units. In commercial aviation, we have more than 200 aircraft in discussion in several sales campaigns, in practically all regions of the world. We announced the expansion of our presence in the Asian market, with the Scud airlines, which added 9 E190E2 to its fleet, and also Bintar, which confirmed its order of 10 E195E2. Revenue growth of 17.5% year-on-year for US$199 million, due to an additional delivery in the first quarter, with more deliveries from the family 2, which has a higher price. The business market continues with a strong order portfolio, in a market returning to normal levels. The revenue was US$ 87 million, 3% less year-on-year, due to the mix in relation to the first quarter of 2022. Our portfolio continues with strong demand and very well positioned, with the backlog growing quarter by quarter and price discipline. In defense, we had the pleasure of announcing the memorandum of understanding with SAAB, to expand collaboration in various areas, including the C-390 Millenium. The C-390 Millenium received the Final Type Certificate, reflecting its total operational capacity , of which the aircraft is capable of carrying out all the missions for which it was designed. Finally, revenue of US$ 98 million, 56% higher year-on-year, due to the better revenue recognition of C390 in the first quarter of 2023. The margins show an improvement compared to last year. In Support Services, we announced an extension of the service and support contract with Porter Airlines to include 20 jets in 195E2 in the firm's request. With this extension, all 50 aircraft will be supported by the PULL program of heavy parts and checks. The highlights also include the service entry support for Salam Air and Endeavour. We announced a complete flight simulator of the FENO 300 in Las Vegas, in a joint venture with the CAE Group. During the first quarter, we received the first E190 to be converted to cargo, in a dedicated installation for all cargo conversions. Revenues of US$ 326 million represent an annual growth of 20%. I now pass the word to Antonio to give more details about the financial results and I will return with the final considerations.
spk00: Thank you, Francisco, and good morning everyone. Before we start with the slides, I would like to emphasize that the results of the first quarter were solid and within our expectations. Historically, this quarter is the smallest in terms of deliveries, as well as in most other indicators. We achieved or exceeded our planned goals for the first quarter in terms of deliveries, revenue and operating profit, and cash flow. The sales remained strong and our order portfolio remained solid. Slide 9. Embraer delivered 15 jets in the first quarter, 7 in the commercial and 8 in the executive. It is important to highlight that the deliveries of commercial aircraft are ahead of last year, with an improvement in the mix of aircraft. Last year, we delivered two E-2s in the first quarter, This year, we delivered five E-2s. The E-2 is a global aircraft, and both sales and deliveries continue to grow worldwide. In the executive, we delivered eight jets within the schedule, equal to last year. Slide 10. Our firm order portfolio ended the quarter with $17.4 billion. basically the same as at the end of last year, 2022, and at the end of the first quarter of last year. As we deliver aircraft, our sales teams continue to receive new aircraft orders and new service contracts in the same proportion. Therefore, our order portfolio remains practically the same. This stability is a sign of strength and guarantees us a stable cash flow to support and execute our strategic plan. Moving on to revenue, we ended the first quarter with $717 million in liquid revenue, 116 million or 19% above the same period of the previous year. The increase in revenue is in line with our growth projection for this year. Slide 11, the adjusted EBIT of the first quarter was $32 million negative, while the adjusted EBITDA was 10 million positive. Both are slightly below the first quarter of 2022, mainly due to the non-recurrence of several specific benefits that we had in the same period last year. We hope that our EBITDA and EBITDA margins will increase as there is a greater dilution of fixed costs according to the larger deliveries over the rest of the year. Slide 12. The free cash flow, excluding IVE, was $399 million negative in the first quarter. This includes revenues of more than $450 million for stock formation in order to meet our production and delivery commitments for the rest of the year. We will recover this cash out as we deliver the aircrafts and we are reaffirming our guidance for the entire year of 150 million dollars or more in cash flow. Moving on to investments. We made 40 million investments in product development and research and development and invested 17 million in CAPEX, adding a total investment of 57 million in the first quarter. Most of it was invested in the passenger plane conversion project for cargo and in the expansion of our service and support services. Our adjusted liquid results were 89 million negative. Despite being negative, the first quarter is historically our weakest period. And with our positive estimate of bids and bids, we will certainly have a recovery in the next three quarters. Slide 13. We finished the quarter with a liquid debt excluding the IVE of US$1.4 billion, as shown in the upper central part of the slide. The debt slightly increased in relation to the end of 2022, due to an increase in stock-related cash outputs, as mentioned above. Our leverage index, shown in the upper right corner, is 3.1 times, a slight increase in relation to the previous quarter, plus a drop facing 4.1 times in the same period of the previous year. In the lower half of the chart, it shows that we ended the quarter with 2.85 billion in liquidity. Our strong liquidity position, combined with the future cash flow, will allow us to cover all debt earnings until 2027. With this, I close my presentation and return the floor to Francisco for his final considerations. Thank you very much. Thank you, Antônio.
spk01: As we expected, the first quarter reflects the seasonality of the sector. We expect greater delivery activity, sales and better results in the coming quarters. There are several sales campaigns in progress, with good growth prospects for 2024 and the following years. I visited China and Portugal in the last few weeks and we are enthusiastic about the opportunities for new businesses. especially for the commercial and defense versions. We hope to bring good news in the next few months. That said, we are fully committed to the execution of our plan and the estimates for the year. Thank you again for your interest and confidence in our company.
spk07: Thank you. We will now begin the Q&A session for investors and analysts. We ask those interested in asking questions to raise their hand at any time and activate their microphone when they are requested. For everyone to have a chance to participate, we ask that they ask only one question per call. You can also send your questions by writing using the Q&A button on the platform. Wait while we collect the questions. Our first question comes from Mr. Lucas Lag, from XP. Please, Mr. Lucas, your microphone is already free.
spk05: Good morning, Francisco. Good morning, Antônio. Thank you for asking my question. I wanted to better explore the issue of gross margin, which you reported now in the first TRI, especially in the segments of commercial and executive. You mentioned in the release a question of product mix, I would like to understand with you how much this should continue to be reflected in the results of the next three months for the two divisions and an eventual impact here of operational leverage, if this was relevant at the level of gross margin in the divisions or if it is more at the level of SDNA. And just a complement too, but in the commercial specifically, we notice that the gross margin of this first TRI came at a level similar to the gross margin of the first TRI of 2021, which had a volume not very different from deliveries and also with a mix more focused on E2. So, is it possible to think that the lowest gross margin of the commercial this quarter reflects the largest mix of E2? or if it was a more specific dynamic, more punctually some aircraft and does not reflect the category of the E2 as a whole. I think that this dynamic of gross margin and especially how this will be reflected in the next few months is a point that we wanted to understand better with you here. Thank you.
spk00: Good morning Lucas, I'm Antônio, how are you? Lucas, in general, you don't have our internal plan, so when we say that the result is in line with our expectations, it's a little strange because from your point of view, the result was worse than last year. Was it? In general, for the company, we lost around 5%. both for commercial and for executive, in relation to... We had a lot of benefits in Q1 last year, mainly supplier credit, so we lost 5% per business unit in relation to that. When we talk about commercial, our expectation, just to make it clear to everyone, commercial, I'll give you another number, commercial, we make... in which 10% of what we imagine to make in the year. Executive, from 5% to 6%. So, we didn't even start the year right in terms of revenue. So, we didn't manage to realize the margins. So, the decrease in fixed costs was not so favorable. The main point of the commercial that we estimate a higher single digit for gross margin this year We are very happy to have the biggest mix of E2, and this year is the first year of Embraer where we sell more E2. When we talk about New Learning Curve, as E2 is a global aircraft, for example, this year we started to provide Porter's aircraft. Each aircraft has a different configuration, so we have some extra expenses to start delivering to these customers. And of course, the E1 image level It's much better than the D2 margin. So, yes, we have a higher single-digit gross margin for this year. It's our expectation, based on stronger D2 sales, and we also compete with Airbus. And last year was very good, right? This year is bad. Last year was very good, due to these special effects. For the executive, we also had the same behavior. We produced a lot until Q4 last year, so we had a bit of carryover at the beginning of the year. We also had this 5% that we didn't benefit from. We sell more finance, mainly finance, or we deliver, than the black people. To give you an idea, 75% of the sales, of the deliveries, of the first quarter are Finals. This year it will be 50-50, 50 Pretors and 50% Finals. So, there is also an impact on the margin. We expect the executive margin to be the same as last year, or even better, and a double-digit BIT margin. So, there is simply an impact on the seasonality and nothing that worries us at this moment. And we're not going to stop talking, right? The defense, as we had been preaching and saying that it was going to improve, we're starting to confirm and see the result. The margin of defense was double. And the VSS, our part of services, always as a little clock, always showing an equal performance depending on the volume. So, in general, the first three are a little scary, but in our opinion, we are very confident. There is nothing structural that can take our guidance at any risk. I don't know if I answered your question. I talked a lot because I know that the other colleagues have the same question, so I wanted to answer a little for everyone.
spk05: Good. No, perfect. I think it's clear, Antônio.
spk07: Thank you. Our next question comes from Mr. Marcelo Mota, from JP Morgan. Please, Mr. Marcelo, your microphone is already free.
spk03: Perfect, thank you very much, good morning everyone. A question about defense, there was a very strong revenue growth of more than 50% year-on-year, and defense is a line that has a lot of things within POC, long-term contracts, so I wanted to understand when we look at the defense outlook for the year, in addition to this margin recovery that we in the first three, we can expect a very strong growth rate, if you can open up a little where you see this growth of 50% year-on-year, for us to understand if it continues throughout the next three, finally trying to understand here what is the level of defense revenue that you can reach in the year, thank you.
spk00: Good morning Marcelo, Antonio, thank you for the question, and thank you for reminding me of the area of defense, that again, I will reiterate, we have promised that it will improve, Here it is very simple. Last year, due to the reduction of the FAB contract, we held the revenue recognition a little bit. And this year, we are already in line with Portugal, Hungary and the FAB and KC contract itself. So, this has already brought a great growth in the defense revenue. Lembrando que os antigos contratos que eram deficitários deixaram de existir, então essa margem, a tendência é de alta e vocês devem esperar um faturamento de defesa em torno de 600 a 700 milhões para esse ano, que é um crescimento expressivo com uma margem muito melhor do que o ano passado.
spk03: Perfeito, muito obrigado.
spk07: Our next question comes from Mr. Vitor Mizuzaki, from Bradesco BBI. Please, Mr. Vitor, your microphone is already free.
spk04: Good morning. I have a question here regarding, returning, Antônio, to the discussion of the executive margin. When we look at the gross margin, now in the first three, it was slightly negative. If we take the first three of last year, around 18, you mentioned now these five points, But if we look at 2022 closed, there is a big ramp up throughout 2022. I don't know what else you can give in detail for us to try to build, how can we expect this margin recovery? Because our concern is if, as we are talking about a long backlog, as you have disclosed in our account, what you are selling now, delivery for 2025, if suddenly there is some impact of inflation of staff that is harming the margin. Good morning, Vitor and Antônio. Thank you for the question.
spk00: We supply eight planes in Q1. Our guidance is 120 to 130, and we are constantly forcing to do more. Just so you have an idea, we must deliver 30 planes already in Q2. There is nothing structural that goes against the margin. On the contrary, we have managed to adjust the prices that are the same or better with the inflationary impact of our accounts. I think one more detail that I can add, as I said, the Q1 of last year was very good. We sold, for example, the plane that was in trade, and its value was much better than the value that we sold. So, this impacts the gross margin, but it is a unique event. Our margin expectation for the executive continues to be two digits, more than 20%. We expect to reach 25%. Two digits of EBIT, so there is nothing structural On the contrary, it will keep Embraer away from a positive margin. Other than that, the seasonality, the supplier credits we had last year in Q1. So, purely a reflection of the lower turnover. Other than that, in Q1, we also sold comparatively. It's something that maybe can help your analysis. I sold... We sold one Finon 100 this year, in the Q1, we delivered, last year it was only Finon 300. So there is a reasonable impact also on the margin. So nothing that worries us right now, quite the opposite. We think that in the executive we will be better than Guidance. Great, thank you.
spk07: Our next question comes from Mr. Gabriel Rezende, from Itaú BBA. Please, Mr. Gabriel, your microphone is already free.
spk06: Hello, Francisco, Antônio, good morning. I just wanted to go back to the commercial division, talking a little bit about the recipe trend. We observed a a growth of about 17% year-on-year, of the revenue level, which is more or less in line with the volume growth level as well, of the number of deliveries. But with this more favorable mix effect, a more concentrated mix in the new generation of aircraft in the E2. In principle, this suggests that this growth in line is happening because of bigger discounts, now aligned with the ramp-up process of the new generation of aircraft. If you could bring insights here for us on how this discount level of the new generation of aircraft should behave over the next 13, the next few years, it would be an interesting support for our modeling. and also understand if the requests you have on day 2 in the backlog, they incorporate a discount level that will decrease over the next few years, or would it be just new requests that could enter the backlog with a lower discount level? Thank you.
spk00: Gabriel, good morning, Antônio. Regarding Victor's question a little while ago, Everything that is in our Guidance today reflects our backlog. It is logical that the margin of E1 is better than the margin of E2, because we compete with Airbus in E2. And the new contracts that are coming in have a smaller margin. It doesn't mean that we are giving additional discounts, but it is a new price level compared to previous years. What is in our Guidance, and we are happy to sell more E2 than E1, because the E-1 is missing pilots in the United States, and the E-2 we sell to the whole world. So, that's the future of commercial aviation, to have a share of one-third to 40% of the E-1, and then two-thirds to 60% of the E-2. That's our future, and we have this global platform. So, we're not giving additional discounts, but it's logical. When you sell 50 planes to a client like Porta, it's logical that there will be a price level when you sell it to another client that you sell in 5 units, 10 units. But nothing that has forced Embraer to worsen the current levels, but it is a tighter margin than the E1, without a doubt.
spk01: Antônio, if you allow me to add here, another important point is related to production costs. The E1 is a much more mature product, so the production time and the cost is already in a much more optimized situation than the E2. The E2, we are still in a process of ramp up, now increasing volumes this year, so there is a lot of opportunity to reduce the lead time of production and reduce the costs of the production of this aircraft in the next few years, which will contribute to a better margin of contribution of the E2 as well, as has happened with the E1s.
spk06: Perfect. Thank you and have a good day.
spk07: Our next question comes from Mr. Alberto Valério from UBS. Professor Alberto, your microphone is already free.
spk02: Good morning, Antônio, Francisco, thank you for taking my question here. I wanted to know a little bit about the demand for executive jets in the United States, mainly. We have heard from customers and also in the news that there could be a marginal deterioration, a potential recession in the United States. If you could give a little bit of If I could also ask two more quick questions. Do you have any news about ScopeCLOS and Boeing's arbitrage? These are my three questions.
spk01: Thank you. Good day, Alberto. This is Francisco speaking. Let's go to the first one, which is the demand for executive aviation. We are practically sold, the slots are sold for 2024. and we are now selling in 2025 and years ahead. The market that we notice that the level of growth of the market is decreasing in relation to previous years. We had a much stronger growth in sales, for example, in 2022 at the beginning of the year, The sales are still good, at a lower rate, but they are still good. Our book-to-bill is quite high, higher than 2 for each aircraft delivered. Another interesting point is the greater penetration of our freighters. Last year, about 35% of the deliveries of the executive aircraft were freighters, and you saw that, as Antônio mentioned today, that this year almost 50% This indicates a greater penetration of these planes, an acceptance of these planes, which will guarantee a good stability, a growth in our production in the coming years, even though with the growth of the market returning to normal levels, I would say, of a digit. About Scope Close, no, there is no news of a change in Scope Close. And about arbitration, The process goes on and we hope this will be resolved probably in the first half of next year.
spk02: Perfect, thank you very much.
spk00: By the way, Alberto, it's good to see UBS asking questions to us again. Welcome. Thank you. And just to remember that last year, with 102 planes, we did double-digit margin and EBIT in the executive. So, even with a... A gradual reduction in the market due to the extension of our backlog, we have a sustainable business for a few years. Just to make this very clear, when you go to look at the margin, take a look at what we did last year and what we can do this year. Thank you. Perfect, thank you very much.
spk07: Obrigado. Concluímos a sessão de perguntas e respostas e a teleconferência de resultados da Embraer. Agradecemos a participação de todos e tenham um excelente dia.
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