Embraer S.A.

Good morning, ladies and gentlemen, and thanks for standing by. This conference call will be conducted in English, but please let me say a short announcement for Portuguese speakers. Essa conferência será realizada originalmente em inglês. Para ouvir a tradução em português, pressione o botão interpretação da plataforma e selecione o idioma desejado. Para melhorar a qualidade da transmissão em português, clique também em desativar o áudio original na plataforma Zoom. My name is Gui Paiva, and I'm the head of investor relations and M&A for Embraer. I want to welcome you to our third quarter of 2024 earnings conference call. The numbers in this presentation contain non-GAAP financial information to facilitate investors to reconcile EVE's financial information and GAAP standards to Embraer's IFRS. We remind you that EVE's results were discussed at EVE's conference call last Monday on November 4th. It is important to mention that all numbers are presented in US dollars as it is our functional currency. This conference call may include statements about future events based on Embraer expectations and financial market trends. Such statements are subject to uncertainties that may cause actual results to differ from those expressed or implied in this conference call. Except in accordance with the applicable rules, the company assumes no obligation to publicly update any forward-looking statements. For detailing financial information, the company encourages revealing publications filed by the company with the Brazilian Comissão de Valores Mobiliários, or CVM. At this time, all participants are in a listen-only mode. We'll give instructions later on for participation in the two question and answer sessions. As a reminder, this conference is being recorded. Participants on today's conference call are Francisco Gomez Neto, President and CEO of Embraer, Antonio Carlos Garcia, Chief Financial Officer, Luis Harrison, Corporate Communications Director, and myself. This conference call will have three parts. In the first part, top management will present the company's Q3 results. In the second part, we will host a Q&A session only for investors. And last but definitely not least, we will host a Q&A session only for the press. It is my pleasure to now turn the conference call to our President and CEO, Francisco Gomes. Please go ahead, Francisco.

Thank you, Yogi. Good morning and good afternoon to all. Welcome to Embraer's third quarter 2024 results conference call. Today, we update our 2024 guidance to reflect both opportunities and risks for our operations. In financials, we reiterate our 6.2 billion midpoint of the range revenue guidance for the full calendar year. We are happy to increase our adjusted EBIT margin interval to 9.5% and our free cash flow generation to 300 million or higher. In operations, we reiterate our 125 to 135 delivery guidance for Executive Aviation in 2024. However, we reduced our commercial aviation guidance from 72 to 80 jets to 70 to 73 aircraft because of supply chain problems. In Q3, Embraer revenues increased more than 32% year over year, helped by executive aviation and defense and security, both up more than 65%. However, the top line for services and support and commercial aviation were also up by double digits during the period, 16 and 11% respectively. In the first nine months of 2024, overall company revenues increased 24% compared to the same period in 2023. The highlight was defense and security, with an increase of 56%, followed by executive aviation with 41%, service and support with 16%, and commercial aviation with 12%. Our continuous efforts to improve efficiency and profitability led our adjusted operating margin to improve to 17.6% during Q3. Even if we exclude for the 150 million from the Boeing arbitration agreement, our adjusted operating margin was up to 8.7% in the quarter. If we look at the year-to-date periods, our adjusted operating margin improved year-on-year to 10.8%. Even if we exclude the Boeing-related monies, our adjusted operating margin expanded year-on-year to 7.2% during the first nine months of the year. Our firm order backlog reached $22.7 billion in Q3. supported by a robust year-to-date book-to-bill ratio higher than 2 to 1. In late September, feature ratings upgraded Embraer rating from BB plus to BBB minus, with a stable outlook. I'm happy to announce that our company is rated investment grade by two out of the three leading U.S. rating agencies. Our rating with MODIS remains one notch below investment grade, but now with a positive outlook. We delivered for a total of 57 aircraft in this third quarter, or 33% higher year-on-year. So far, the total number for 2024 currently stands at 128 aircraft, or 22% higher than the same period for 2023. We also delivered two C390 Millennium in defense during the quarter, and a total of three tactical cargo planes for the first nine months of the year. We still face several supply chain challenges. This year, we reinforced our supply chain organization by enforcing our team capability, introducing digital tools and artificial intelligence, and expanding our presence with more employees closer to our most critical suppliers. All these initiatives aim to address the ongoing obstacles and help us to further improve the efficiency of our global supply chain capacity management. I will now move on to the operation results highlights by business units in the next few slides. In commercial aviation, we highlighted the order of eight E192s to Virgin Australia. This order reflects the strong ability of our E-2 jet family to operate in several markets and provides a viable option to complement the airline's larger narrowbodies and to replace its smaller, long-serving aircraft. We also did the first delivery of three E-195 E-2s to lot Polish Airlines, listed through Azora. Lot became the first operator of our brand new at that time E-Jet family E-170s, more than 20 years ago. Revenues increased 11.4% year-on-year during the quarter. The adjusted EBIT margin for the quarter declined from 0 to minus 5% year-on-year because of supply chain delays, product and customer mix. In the nine months of 2024, the adjusted EBIT margin was minus 2.3%, compared to minus 1.3% in the nine months of 2023. We currently are in campaigns for more than 200 commercial aircraft in different continents. We expect the profitability of our commercial aviation division to improve in Q4 2024 and beyond. despite the strong competition in the segment. In executive aviation, the top line expanded 65% year-on-year in Q3, supported by higher volumes and product mix. Revenues for the current year are now at 1.1 billion, or circa 40% higher than the same period in the previous one. The business unit achieved the best third quarter in the first 90 months in terms of revenues and deliveries in its history, demonstrating growing performance, good sales momentum, and sustainable demand across our business jets portfolio. The adjusted EBIT margin for executives improved from 10.7% in Q3 2023 to 16.3% in Q3 24, helped by more air traffic deliveries. The adjusted EBIT margin for the first nine months of the year moved up from 4.0% in 23 to 12.5% in 24. In defense and security, there were three main highlights during the quarter. First, the deliveries of the first City United Millennium to Hungary. And the seventh, one to the Brazilian Air Force. Second, the signing of the order for nine units from the Netherlands and Austria. And third, the brand new orders for six to 12 A-29 Super Tucanos from Paraguay and Uruguay. The recent signing orders under PINET The 1.5 billion increase in the company's backlog in Q3. Revenues for the division increased 65% year-on-year in Q3 and 56% year-on-year in the nine months of 2024. Turning to profitability, the adjusted EBIT margin declined from 15.6% in Q3 23 to 7.2% in Q3 24 because of product and customer mix and supply chain delays as well. For a year, the adjusted EBIT margin was 0.8% in the first nine months of 2024, compared to 7.2% in the same period of 2023. In service and support, the division continued to be one of the main drivers of profitable growth for the company, with higher revenues and profitability. Revenue grew 16% year-on-year during the quarter, while the adjusted EBIT margin recorded a solid 3.9 percentage points gain. For the year, the adjusted EBIT margin increased to 16.2% in 2024, compared to 14.6% in 2023. The business unit announced a $70 million investment in a new MRO center in Fort Worth, Texas, which aims to expand our maintenance service network to support the growing customers fleet of E-Jets in North America. Finally, EV, our EV top business, continues to progress in its development process. The company unveiled its full-scale prototype in July, and it's now moving forward with a battery installation and lifter production to get ready for its first flight in early 2025. EVE also completed an additional $236 million secured loan, which will help to support the development and industrialization of its eVTOL. Embraer remains confident in EVE's business outlook as its majority shareholder, with an 83% equity stake. We expect our EVE TOS certification by ENAC in Brazil and FAA in the US in 2027. I will now hand it over to Antonio to give you further details about the financial results, and then I will be back with closing remarks. Thank you, Francisco.

Good morning and good afternoon to everyone. I'm very happy to highlight another set of solid financial results in Q3. Let's now move to slide 10 in the presentation and start with deliveries. The highlight of the quarter was executive aviation, which delivered 22 light jets and 19 medium jets. The total 41 jets for the quarter was an impressive 46% increase year-on-year and the first material positive results from our production leveling plan, which goals is to have a more stable production pace throughout the year despite supply chain delays. Meanwhile, commercial aviation delivers increased 6% versus a year ago, In this quarter, our E-2 family represented 75% of total deliveries and our E-1 jet family, the balance 25%. It is important to mention our Commercial Aviation Division is facing significant supply chain delays, mainly in the E-2 assembly line. In defense, we are pleased to have delivered two C-319 Millennium Aircrafts to Brazil and Hungary. The global fleet in operation now totals 10 aircrafts among Brazil, Portugal and Hungary. It is important to remind you, C390 are not included in our 2024 deliveries guidance. Slide 11, please. The company continues to break records. The 22.7 billion accretive and solid backlog in Q3 is almost 10% higher quarter-on-quarter and more than 25% higher year-on-year with growth in all divisions. The highlight for the quarter goes to defense and security. The whole 3.6 billion backlog increased almost 70% quarter-on-quarter and year-on-year. and reflect the new contracts for 9C319 Millennium and Super Tucanos. Service and support also moved up 12%, supported by the new contracts in defense and commercial aviation. The backlog for commercial aviation, with 374 aircraft firming orders, and executive aviation, with a record pace of business jet deliveries during the quarter, declined slightly. Moving on to revenues, the strong pace of deliveries led our top line to reach almost 1.7 billion in Q3, or 13% higher quarter-on-quarter and 32% higher year-on-year. On a year-to-date basis, our revenues have now topped at 4.1 billion, or 24% higher. or close to $800 million more than $3.3 billion recorded in the same period of 2023. The total nine-month revenue represents about 65% of the midpoint of our 2024 guidance of $66.4 billion. If we look at the pie chart on the right, we can see executive aviation with 32% of the company's revenue. higher almost seven percentage points year on year, driven by the increase in deliveries. Meanwhile, defense contributed with 13% of total revenue versus 10% a year ago. In the opposite side, commercial aviation declined five percentage points to 28% of company revenues, in 30 quarter 24 compared with the same quarter last year. And services and supports lead 3% year on year. Next slide, please. On EBITDA and EBIT, we continue to capture the benefits of diligent cost and expense control and the efficiency program. We generated 357 million in adjusted EBITDA in 30 quarter 24. with a 21.1% margin. Meanwhile, the adjusted EBIT in the quarter was 298 million for a 17.6% margin. However, there was an important 150 million contribution from the Boeing agreement, which propped up both margins by circa 900 basis points for the period. If we look at the results for the quarter, Ex-Boeing Agreement, the EBITDA margin improved 60 basic points year-on-year from 11.6 to 12.2, while EBITDA margin improved almost 100 basis points from 7.8 to 8.7, supported by higher profitability and sectorization and service and support. On to slide 13 now, please. In Q3, if we exclude if, We generated 241 million in adjusted pre-cash flow because of the high numbers of aircraft deliveries and advanced customer payments. Year-to-date, our pre-cash flow was negative 320 million. However, it should turn to positive by year-end because of the historical concentration of deliveries in commercial aviation and down payments in defense programs during the last quarter of the year. Moving to investment, and again, without EIF, we spent 42 million in research and development during the quarter, 59 million in CAPEX, and net 10 million in pool programs, for a total of 111 million, compared to 103 million a year ago. Our capital allocation continues to be focused on segments with higher returns, as follows. Executive Aviation, $90 million to increase our production capacity in line with our recent backlog growth. Service and Support, $90 million in our subsidiary OGMA for the maintenance service for pre-treated engines. Service and Support, $70 million to expand our MRO footprint to service commercial aviation clients in North America. Our Adjusted Net Income was positive $221 million. for the quarter supported a 13.1% adjusted margin. If we exclude the Boeing agreement, our adjusted net income was 122 million for a 7.2% margin compared to 33 million and 3.6% margin a year ago. In slide 14, going to our liability management plan in 30 quarter 24, We continued our initiatives to extend the duration, reduce the cost of our debt. Our cash flow position, including our revolver credit facility in the US, was basically equivalent to our gross debt balance in Q3. Therefore, we have a very solid cash balance and no relevant debt to be paid back during the next two and a half years. The company has materially deleveraged its balance sheet over the past three years, and we are happy to highlight our net debt to EBITDA leverage ratio declined to 1.3 times in Q3-24, as shown in the top right corner of this slide. I want to mention our circa 700 million EBITDA ex-Boeing agreement over the past 12 months, which is now almost 25% higher than the $560 million generated in 2023. The liability and cash management strategy strongly contributed to the credit rate upgrades by Fitch from BBB plus to BBB minus with a stable outlook in late September. Consequently, both Standard & Poor's and Fitch currently rate the company as an investment-grade company. In a nutshell, we remain focused on generating cash, reducing our debt levels, lowering the cost of our debts, and improving our credit metrics. Last but not least, let's talk about our guidance. We presented our update 2020 for Guidance Standard Slide 50. We update the guidance focusing on companies efficiency and considering the overall performance of all business units. From a financial perspective, we still feel very comfortable with our current 6 to 6.4 billion revenue estimates for the full year. This is a benefit of having different business units, where the strength of service and defense helps to offset some missing deliveries in commercial aviation, for example. More importantly, the company has been able to operate more efficient than expected. With cost control that can be seen by SG&A expenses, for example. Thus, we have revised upwards our adjusted bid margin by 250 basis points from our previous 6.5 to 7.5 range to our new 9 to 10 percentage point estimate. We highlighted The Boeing agreement money, circa 125% net without taxes or with taxes and final losses accounted for 200 of 250 base points change. Meanwhile, the one tax credit benefit mentioned in the Q2 earnings release accounted for a balance of 50 base points. Therefore, the company was able to maintain its margin guidance stable after the adjustment for these extraordinary events, despite all reduction of five aircrafts delivered in commercial aviation segment for the year. In commercial aviation, we moved the delivery guidance down from 70 to 80 aircrafts to 70 to 73 deliveries to reflect our most updated accurate estimate consider the risk from supply chain constraints. Our 2024 guidance for free cash flow generation increases from 220 or higher to now 300 million or higher. The changes reflect monies from Boeing agreement, the loss of around five previously mentioned aircrafts in commercial aviation guidance, and the forecasted down payments from recently signed defense contracts. From an operation perspective, we feel comfortable to reiterate our 125 to 135 guidance for executive aviation, despite the ongoing supply chain challenges we face on a daily basis. We continue to work steadfastly to accomplish our production plan with safety and quality, and to reach our new 2024 financial operational guidance. We are also on track to deliver for C309 Millennium's schedule for this year. Looking forward, it is important to mention we still see double-digit growth for aircraft deliveries, revenue, and EBIT in 2025 and beyond, notwithstanding the current operational challenges. With that, I conclude my presentation and hand it back to Francis for his final remark. Thank you very much for your attention.