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Operator
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.
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.
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.
Francisco
Thank you, Antonio. We delivered another solid quarter for our shareholders, despite all the challenges we continue to face in our supply chain. I am especially proud of the hard work of our almost 20,000 employees, whose contributions helped us reiterate our 2024 revenue guidance and, even better, revise upwards our adjusted EBIT margin and free cash flow estimates for the year. Aussie, Aussie, Aussie. Oi, oi, oi. I would like to give a warm welcome to Virgin Australia as a new operator of our E2 family, and the first in Oceania. We believe the world's most fuel-efficient single-wire aircraft will offer outstanding comforts. the lowest noise emissions and fuel burn in its class, and higher performance to complement the fleet of one of the largest Australian airlines. The joint purchase for C-29 Millenium by the Netherlands and Austria will allow both nations, as well as current and future operators, to cooperate with other NATO nations. They should benefit from synergies in areas like training, logistics, and future growth of the platform. We welcome the two newest members of the growing group of the most efficient and modern military tactical transport aircraft. Our company remains very well positioned for the future, especially with a nine-year high 22.7 billion backlog. and the steady progress seen in our operational and financial indicators, underpinned by our solid strategy plan. To finish, I'd like to thank you all again for your interest and confidence in our company. We are optimistic about year-end results and very confident about our future. We continue working hard and embracing the foundation of our culture, that is, safety first and quality always. Let's now move to the Q&A session of the call.
Virgin Australia
We will now start the question and answer session. The first part of the Q&A session will be exclusively for equity research analysts and investors. The second part of the Q&A will be only for the press. We highlight again this conference call is being conducted in English with translation to Portuguese. Please, let me see a short announcement for Portuguese speakers. Essa conferência está sendo realizada originalmente em inglês. Para ouvir a tradução em português, pressione o botão Interpretação da Plataforma Zoom e selecione o idioma português. Após selecionar o idioma no botão Interpretação, clique também em desativar o áudio original na plataforma para melhorar a qualidade da transmissão em português. We request participants interested in asking questions to press star then 9 in the phone at any time or press the raise a hand button on the platform. When your name is announced, please press star then 6 on the phone or make sure that your microphone is on and start your question. We will also answer questions sent via the platform chat. If you need assistance, please use the Q&A button on the platform. To give everyone a chance to participate, we request to ask just one question per call. Our first question comes from Andrea Ferreira with Bradesco DPI. Please go ahead.
Andrea Ferreira
Hi, good morning. Congrats on the results and thank you for taking my question. Just one quick one here about the commercial aircraft guidance. I guess the revision is of course, I mean, they really related to the ongoing supply chain issues, but does it mean that the supply chain got worse or is it just more of a course adjustments? and uh just a follow-up on this uh is it more so the supply chain issues or maybe did the lower guidance have a component of mix or uh just uh you know operational issues related to bunched up uh deliveries for the later later half of the year thank you thank you andrea francisco speaking thank you for for your question
Francisco
Again, this delay has to do with the supply chain only. In average, we have seen improvements in the supply chain, but we're still facing challenges with a specific group of components, mainly engines and structural parts. And there's no other reason, no reason of mix or labor or other topics. It's basically due to supply chain and basically with the E-2 aircraft.
spk07
Perfect. Thank you.
Virgin Australia
Thank you. The next question comes from Lucas Macchiori. with BTG Pactual. Please, go ahead.
Tony
Thank you. Hey guys, good morning. Just want to hear your thoughts on margins actually. So, if you could give us any color on why the, I mean, the weaker margin on commercial, I know, I mean, probably volumes, but if there's anything else there, any comments on if this should kind of ramp up better for next years. And also, On executive aviation, if you guys think this high pair strong margins on executive aviation, if you guys think this is sustainable for Q4, maybe 25 as well. I mean, any color on that would be helpful, guys. Thank you.
Francisco
Thank you, Luca, for the question. Tony speaking here. Nice to talk to you. In regards to commercial aviation, we have a combination of facts in Q3. It is a mix of more E2s instead of E1s. First point, and also the customer make, which is not favorable for the margin results, and is basically highly concentrated in Q3. A part of the, I would say, lower volume that should be offset in Q4. I would say our expectation continues to be for this year, lower single-digit margin for commercial aviation. they move forward means they go digital the case does not change it's just really a bad quarter in regards to a specific performance and customer for executive aviation as we have some uh good guys in the quarter and a lot of output that we need also to see on this case i would say uh i do not see 16 happening before but lower these margins going to be our pace for Q4 and the years beyond.
Tony
Thanks. Thanks, Antonio. Super helpful. Great to talk to you again. Thank you. Thank you.
Virgin Australia
The next question comes from Marcelo Mota with JP Morgan. Please go ahead.
Morgan
Hi, everyone. Thank you for taking my question. It's regarding the recent defense orders from Czech Republic. You know, if we look at the document that was published by the government from Czech Republic, I mean, they talk about a contract that has a high value. I mean, we are talking about potentially being, you know, over $400 million. So just trying to understand here if this is related to services of the aircraft that they are buying, you know, they have a much higher average price and potentially higher margin.
Francisco
then the rest and also they comment about a very strong down payment or disorder so any color that you can give us on that front that will be very helpful thank you thanks marcelo anthony speak here i would say it's true uh what is written there but not as it was mentioned uh i would say is a big amount of money but not only defense is also going to to the service piece that we are going to to put in the backlog on Q4, I would say as long as we have the money on our bank account. That's why when we set the new guidance for cash flow, $300 million or better, it's because of it. We do not have already received it. If we receive everything that was written, the contract, then probably have still an upside on the free cash flow guidance.
Morgan
Perfect. Super clear. Thank you, Antonio. Thank you. Welcome.
Virgin Australia
Thank you. The next question comes from the cell phone number ending with 7519 with Citibank. Please go ahead.
Steve
Good morning. Good morning. Can you hear me?
spk07
Yes.
Steve
Hi. Good morning, guys. Steve Trent from Citi, and thank you very much for taking my question. Sorry about. Good morning, guys, and sorry for my little electronic trouble there. Just a very quick question. I recall that on the commercial aerospace side, you guys roughly did two-thirds or thereabouts of your air structures work in-house, which seems considerably higher than your competitors in a good way. Do you see any opportunity at all, M&A or otherwise, to pick that number up a little bit, or do you think on a long-term basis, two-thirds is a good level, you know, when you look at where we are in the cycle. Thank you.
Francisco
Hello, Steve. Nice to talk to you, and thanks for the question. I would say we are, I would say, highly verticalized in our infrastructure business. For sure, it is also a piece that is really under severe pressure outside our company here. I would say we always do make our buy analysis, but we do not see M&A as an alternative for us on these regards. If you could source additional parts, it's okay, but I would say it's not something that we are putting a lot of energy right now to look for that.
Steve
Appreciate that, and I will stick to your one-question guide. So thank you very much for the time. Take care. Thanks, Steve.
Virgin Australia
Thank you. The next question comes from Miles Walton with Wolf. Please go ahead.
Miles Walton
Okay. I think I got this. Good morning, Antonio Francisco. Can you hear me? Good morning. Yes. Awesome. So I wanted to go to new product investment if I could. And in the context of the financials that you're putting up, it looks like executive is sort of, lights out in terms of your performance over the near term and over the medium term. And similarly, you're having struggles financially in the commercial side with relatively captive markets in the 175 and obviously competitive markets in the E2. Does that inform where you're going to put the next dollar investment? And if you can't make profit in six years in commercial aviation, there's a lot of speculation that you'd go further and deeper into that market. But The financials, at least looking backward, would tell me that's probably not a good idea. Does that resonate with you, Francisco?
Francisco
Boss, thanks for the question. You know, I think this is the beauty of having different business, right? I mean, in one period, one business is good, other one is not as good, and another period is the opposite, right? I think the period we are living now, we are seeing a very good performance with our executive aviation, our business aviation, and not as good as in commercial. But remember that our most profitable area is services, and in services, almost 40% of the services revenue come from commercial jets. On the other hand, yes, we see... good perspective for the U1s, still U1s for the next 10 years. But the E2s, if you look at what is happening in the market, since 2023, we added five new customers for the E2s. You know, customers as, for example, Scoot in Singapore showcasing our aircraft in Asia Pacific. Royal Jordania doing the same in the Middle East. Luxair and Lord Polish, I mean, Europe. Lord Polish is considering to replace almost the entire fleet. You know, Mexicana in Mexico, I mean, joining Porter. So we see good perspectives for the E2 as well in the future. And then we'll see the commercial aviation coming back to good performance as well, as Antonio said, to middle digits. in terms of EBIT, but with a very strong contribution for our service and support performance as well.
Francisco
And, Myles, just to complete the answer here, what we are capturing, the new backlog, the new contracts for commercial aviation, we have a different margin profile than we have with the old contracts. We are in this, I would say, migration right now from old backlog contracts to new ones. I would say that's why We are confident to the mid-single-digit margin, the mid-term, I would say, in the next three years. That's our trip right now that we are first seeing. And, again, a big part of it is already embedded in our backlog.
Miles Walton
Okay. Just one clarification. You mentioned fourth quarter commercial aviation margins would get better. Are they going to be positive in the fourth quarter?
Francisco
Absolutely. We see for the whole year a lower single-digit margin between 2% to 3%. That's more or less what you see today. And the mix for Q4 delivery is much more favorable today. That's more or less confirming what I just told you right now. That's some new content we have in our backlog that's accurate for a much better margin, a part of the operations that we do have more volume in Q4.
Francisco
Okay. And also, Maus, if you look at the past years, the commercial aviation, with all the difficulties, have delivered positive results. That's the same we expect for this year and years ahead.
spk07
Thank you. You're welcome.
Virgin Australia
The next question comes from Lucas Laghi with XP Inc. Please go ahead.
Guy
Good morning, everyone. Thank you for the question. Antonio, you mentioned the three points of non-recurring items in the adjusted guidance for EBIT margins this year. That would imply an adjusted level of 6% to 7%, right, on a recurring basis. I mean, now that we're heading into the end of the year and looking more closely monitoring what 2025 will look like. I mean, is this 6% to 7% range a good reference to have in mind for next year's profitability as a starting point? I mean, I'm not trying to have a number, not to have a figure, but you mentioned the profitability improvement expectations for commercial in the upcoming quarters. I mean, what should we have in mind as profitability drivers for the next years for the other divisions as well. I mean, try to compare what should we expect in 2025 onwards compared to the 6% to 7% range reference that we would imply for this year's profitability on a recurring basis. Thank you, guys.
Francisco
Thank you, Lucas and Antony speaking here. I hope you change your report getting out from the neutral to the positive. We, for sure, the margin we are seeing right now is far below our ambition in this group here. What you should see for the future, then I will ask Guy to explain about this year. If you see our backlog, we are growing in all divisions. On the defense service and executive, faster than commercial aviation. We do see this three. a business unit and lower jeans margin in the coming years. That's accurate for a higher number. And with the improvements on the commercial aviation, we do see, I would say, the overall company margin moving up to a higher single digit or even closer to a lower double digit. That's the future. For the current one, I just want to explain to you about the no-recruiting items that we just reported today.
Operator
Hey, Lucas. Thanks for the call, and good morning. So if you look at our guidance, we increased by 250 basis points both the low and the high ends versus where we were before. The move is fully explained by guidance. the BA monies that we received and also the one-time tax credits that we reported in Q2. So, as Antonio mentioned in his previous speech, despite lowering our guidance for commercial aviation by, on average, five aircrafts, we were still able to achieve the operating margin that we had set forth in the beginning of the year. And looking forward, as we have operating leverage in the company, as we continue to grow our production, we would expect the margin in the next couple of years to continue to improve.
Francisco
And, Lucas, if you allow me to complement what my colleagues just said, we have very well-structured initiatives in place, such as price discipline in new sales, cost reduction initiatives. Production lead time reduction, expense and investment control, production linearity. So all those initiatives combined, what Guy just said about deliveries growth, this will result in better financial performance. So this is why we are saying that we expect to improve our performance in all the business, including commercial aviation as well.
Guy
That's clear. Thank you, guys.
Francisco
Thank you, Lucas.
Virgin Australia
The next question comes from Daniel Gasparetti with Itaú. Please, go ahead.
Daniel Gasparetti
Well, hello, guys. Thank you very much for the call. The first question would be related to the competitive environment. We are talking about supply chain issues, so I wanted to get your view on how the whole supply chain issue on the market has been translating to better opportunities for you guys to gain new orders or price at better margins. Just to get a sense if the clients are moving out for perhaps your competitors, moving to Embraer, to E2 or to E11, given the supply chain issues on the competitors. And secondly, if you allow me, Francisco mentioned about the beauty of having a diversified portfolio, right? You have executive right now doing very well and commercial ramping up. So I just wanted to get Francisco's view on when he expects executive to turn or if it's not on the horizon at all. Thank you very much.
Francisco
All right, Daniel. Thanks for the question. So let's start with the supply chain. As I said before, we see... Supply chain is improving, but, you know, the aggressive growth of all OEMs is pressurizing the supply chain, right? So, again, they are improving average, but we are still struggling with specific components. So what do we have done? We have put in place a new organization in our supply chain area. I mean with more people working very closely to our most critical suppliers, we are implementing a new digital platform to improve the speed and accuracy in the relationship with our suppliers. We are implementing also new platforms to help us to manage better the forecasting in the parts in our organization. Again, we are doing a lot of things to make our supply chain management globally more robust. We have already put in place a team to to manage the global chain capacity. So to make sure that we are monitoring not only the tier one, but tier two and tier three of our suppliers to make sure they will have a capacity to fulfill with our demands in the future. So again, we expect to grow, as Antonio said, double digit again next year. We have been growing a lot in the past three years, but with this better structure, And with our experience we have accumulated with the relationship and the performance of our suppliers, we believe our plan for next year will be even more robust than it was for this year. And number two, you mentioned about the executive jets. I do not expect executive jets going backwards. I mean, we see the market, for us, normalizing, but at high levels. We do see growth in our executive jets and sales and deliveries for the following years.
Daniel Gasparetti
Thank you very much, Francisco. If you allow me just to follow up here, just to better understand the first part of your answer. Would you say that your level of conversion in terms of the bids that you guys compete has been increasing given this whole supply chain issue on the market affecting your competitors? Or would you say it would be the same? Just trying to separate things here.
Francisco
I don't know if I understood your question. Could you repeat it? What do you mean by conversion?
Daniel Gasparetti
If in the bids that you are competing against competitors, if you are seeing that the level of conversion, if you are winning more contracts or not regarding commercial aviation, given the whole supply chain?
Francisco
We are very optimistic with the potential new orders. We are basically sold out until 2026. We have available slots now. from 2027 onwards, but we are in campaigns for more than 200 aircraft. So we are very optimistic to fill our production slots, you know, for until the end of the decade for all the units. I mean, commercial aviation is active in defense. So we are in a very positive moment at this point of time. in terms of sales opportunities to fill our production as well, as I said before, you know, in the following years.
Daniel Gasparetti
That is great, Francisco. Thank you very much and have a good day.
Francisco
Thank you. You're welcome, Daniel. Thank you.
Virgin Australia
The next question comes from Alberto Valerio with UBS. Please go ahead. Mr. Valerio, we cannot hear you.
Valerio
Can you hear me now?
spk07
Yes. Yes, we can.
Valerio
Sorry. Good morning. Good morning. Thank you for taking my question, Gui, Antonio, Francisco. I have two on my side that left for me. It's about the Boeing deal. If you could provide us what would be the tax on this $150 million and the cash out of it. And the second one, looking for 2025, can we consider these deliveries of KCs per quarter, two per quarter for next year, 80 maybe for the entire years for next year? And also, I remember that you guys were trying to make better seasonality on deliveries for commercial and business jets. It looks like business jets work very well. Commercial, not yet. But how can you look at that for the next year? Thank you.
Operator
Thanks for the question. On the Boeing monies, you know, as a Brazilian corporate, we have to pay fully the 43%, which includes fees for things in income tax in Brazil. So at the EBIT level, we recorded the full 150 million. And for the bottom line, we do expect to pay, according to the legislation initially, 34% of income tax, but we have to kind of obviously look at all the tax credits and, you know, the possibilities that we have at year end when we do our accounting for the full year. Let me pass it to Francisco to go over the KC.
Francisco
The KC, yes, Alberto, we are planning to grow the production delivers of KC in 2025. as well as for the other business units. So, actually, we are going to see growth, important growth, two-digit growth in all the four business units we have, commercial, executive, defense, and supporting services.
Valerio
Thank you. About the seasonality, can we consider that commercial will also have a better seasonality next year?
Francisco
Well, commercial, we are still dealing with the limitation in terms of a supply chain to grow. We could grow further in commercial and even a business jet, but we are making a very robust and realistic plan according to our experience with the supply chain. So even then, we are planning to grow two digits in all the business units. And so, especially commercial, as I said before, we are working in a lot of campaigns with more than 200 aircraft, and we expect to see results, you know, Within the next six to eight months.
Daniel Gasparetti
Thank you very much, Francisco.
Francisco
You're welcome. Good to talk to you, Alberto.
Virgin Australia
Thank you. The next question comes from Victor Mizuzaki with . Please go ahead.
Victor Mizuzaki
Hi. Congrats for the quarter. I have just one question here. When we take a look at service support revenues, I mean, when I take a look at first quarter, second quarter, and third quarter, and then we compare third quarter with the first, we're going to talk about a big expansion of like $60 million, right? So my question here is if we can assume that this is basically the ramp-up of augment expansion. And, I mean, if, let's say that, I mean, we're talking about like $60 million per quarter of additional revenues, then we're talking about analyzing revenues of like 240. So, my guess here is that, I mean, the ramp-up is moving faster than expected, and now we're talking about like 50% of potential revenues from these expansions. So my question here is if this analysis makes sense, and that's why margins in this division is also moving up. Thank you.
Francisco
Thanks, Victor. Anthony speaking. Thanks for the nice question here. We are going – and the revenue side for service and support, you are going to – you already realize we are up on the revenue side. I would say the ramp up on the OGMA project or for the MRO for the engines – It's just 40% off on the other side. We are continuing to grow with the new content. That's why I would say we do see a peak in revenue for this year, and the margin is going to, I would say, be accurate to what you are showing here on the accumulated nine months. That's why your math is a little bit better. Your math really fits. And please do not forget, we're on path for the – in my role facility this year is more causing losses than wins not because we have a pre-operational cost but at the end to answer a question i do see something like 100 million more for the year on service and support which the mario have cumulated here today okay thank you thank you victor
Virgin Australia
Thank you. This concludes the question and answer session for equity research analysts and investors. Now, we will start the Q&A session dedicated to the press. First, we will answer questions in English, and then we will answer questions in Portuguese. We will also answer questions sent via the platform chat. Please let me say a short announcement for Portuguese speakers. Essa conferência está sendo realizada originalmente em inglês. Para ouvir a tradução em português, pressione o botão Interpretação da plataforma e selecione o idioma português. Clique também em Interativar o áudio original na plataforma Zoom para melhorar a qualidade da transmissão em português. We ask participants interested in asking questions to press the Raise a Hand button on the platform. When your name is announced, please make sure your microphone is on and start your question. If you need assistance, please use the Q&A button on the platform. To give everyone a chance to participate, we request to ask just one question. Please hold while we poll for questions. The first question comes from Jay Hammerdinger. Please go ahead.
Jay Hammerdinger
Hi there. Thank you so much. John Hammerdinger from Plate Global. Francisco, can you expand more on the supply chain issues? You mentioned engines and you mentioned some structural components. How bad is the issue still? How many engines are you short? What's your expectation for improvement on the problem next year? And what about components? What types of components are in short supply? When is this going to get significantly better? Do you have anything more you can add?
Francisco
Thanks for the questions. About specific about engines, we have to recognize that we are – increasing the demand for engines a lot this year comparing to last year. So the problem is that we are not getting the engines on time to be able to finalize the assembling of our aircraft and delivery the aircraft to the customer. That's the issue. But the output in terms of quantity is improving. from last year to this year. And we expect to continue to improve for next year. The problem is the timing. This is why we are still struggling with the deliveries and are reducing our guidance in terms of aircraft for commercial aviation. But we are also having issues with other parts, structural parts, interior parts, that have been also a bottleneck for us to finalize the aircraft on time according to our plan. But we are now improving our aircraft. our planning criteria for next year in order to avoid this kind of, I'd say, last minute surprise. But again, I mean, we recognize that we are increasing the demand of French, not only us, but all the industry, with more pressure on the supplier, right? But things are improving, but not at the pace we need for this year. Hope I answered your question. You did. Thank you. Welcome.
Virgin Australia
The next question comes from Christian Favaro with Valor. Please go ahead.
Francisco
Guys, can you hear me? Yes, Christian, we can. Okay, thank you.
spk13
My question would be a really straightforward one regarding the U.S. marketing. I mean, they have a new president now and everyone in the market is trying to understand the possible effects. on every industry. And my goal is, I mean, do you see any risk in terms of sell to the US or policies that might affect the business for Embraer in the region? I mean, Brazilian President Lula is a really huge promoter in terms of spreading Embraer abroad, and he's not actually an ally of Trump. So what's your perspective on it? Thank you.
Francisco
Thanks for the question, Christian. Well, at this point of time, we don't see any big risk or big impact for Embraer. Let me remind you that Embraer has been in the U.S. for more than 45 years. We have in the U.S. almost 3,000 high-qualified employees. We have in the U.S. almost $3 billion in assets. We have a production plant in the U.S., We have a very important content in our aircraft of U.S. products, U.S. equipments. So, again, every aircraft we sell, we are helping the U.S. economy as well. So, again, because of this partnership, this connection, long-term connection with the U.S., we don't believe that Embraer will suffer. uh with this change this is our view at this point of time to make this very clear thank you the next question um
Virgin Australia
Okay. This concludes the question and answer session in English for the press. This Q&A session is now being conducted in Portuguese. To switch to English, please press the interpretation button on the platform and then select English.
spk10
We're now going to start the Q&A session in Portuguese. We kindly ask journalists who want to pose their question to press the raise hand button on the platform and whenever your name is announced, please activate your mic and ask your question. We're also going to answer questions in writing through the platform chat. If you need assistance, please use the Q&A button on the platform. To give everyone a chance to participate, please ask just one question at a time. The first question is from João Sorima from OGlobal. You may now proceed. Good morning. Good morning, João. Congratulations on the results. Thank you for taking my question. Can you talk about your sales campaign for KC390? Thank you for your question, João. We are quite optimistic. We're very excited about the perspectives for KC 390. This year, we have already announced 11 new orders. Netherlands, Austria, and recently Czech Republic. And there are many other campaigns that are ongoing as we speak. This is the best-in-class aircraft for the segment. It's been quite well welcomed, especially in Europe and Asia. Last year, we sold it to South Korea. So, yes, we're very optimistic with our sales and the growth we're seeing for this aircraft for the next years. Thank you. Next question from Christian Favaro from Valor Economico. Please go ahead. Hello, everyone. Now, since we're speaking Portuguese now, I'm going to ask another question. Can you please give us some color on FENAC? We talked about this fund. We were waiting for news on that regard. How does that reflect on you? Is there an upside for the future? Can that help the company in any way? Can we increase the number of orders per part for airlines in Brazil? Well, Christian, you can actually ask as many questions as you want, okay? Be our guest. Now, we see this quite positively. FENAC is advancing quite well, and it's a fund that is now available to support airlines. I think we need healthy airlines. We need the market to grow. We are seeing the market grow, but... we're surely going to need to have stronger airlines who will need more aircrafts. Now, since the government is to improve connectivity, not only between large cities, but also small cities, we understand that our aircraft is a perfect fit for such strategy. Our aircraft is of the ideal size, it's quite efficient, and we're confident that airlines are going to see that. Azul already does, and we expect other airlines to see the same. So we're quite positive, not only with the FNAC fund, but also considering that we're going to have new airports soon enough, and the current government is trying to better connect smaller cities in the country. Perfect. Follow-up question. Do you know when this is actually going to be seen as money for the market, when airlines are actually going to have access to this fund? Any estimates on that? Not really, because Embraer is not directly involved with that. We just follow up the news because it is of our interest, but we're not directly involved with the process, so I can't really answer that question. I see. Thank you. Thank you, Christian. Thank you. Next question was sent via chat by Ricardo Meyer. When we look at this slide of operators for KC390 showed flags from Morocco, the UAE, and Chile. Are they potential customers? Ricardo Meyer from the Airway website. You know, Ricardo, these countries are interested in those aircrafts. We're looking closely into some of them, not to all of them. But yes, I think these countries are interested in these products. Nothing more than that. In the Middle East, we've been in touch with some countries trying to tap into some sales opportunities, but for other countries, like I said before, I think they could be interested potentially in our products, which is quite positive. Thank you. Next question by Jesse Nascimento from Valley 360 News. Go ahead. Mr. Nascimento, you're muted. We can't hear you. No. Apologies. Good morning, everyone. Francisco, Antonio, and everyone. Here's my question. I wanted to hear your take on the Boeing crisis. They are laying off many employees, including people from São José dos Campos office. How are you going to make the most out of this opportunity? How are you going to sell more Super Tucano aircrafts? Since Embraer has been expanding their operations on the commercial market. Now, since you touched on the American market, you mentioned the US elections and Trump coming into office. How can that impact defense markets since you want to expand to the US? Hello, Jesse. Thank you for your question. On the Boeing issue, we do follow up the news But we have our own strategy. And we've been following that strategy with great discipline. And that's what's bringing about these great results we can now see. And that's what we're going to continue doing. You know, creating our own strategy and just deploying that. And of course, watching out for what's happening around us. On the US note, Like I said before, we have a long-lasting partnership with the U.S. for more than four decades, not only in terms of commercial aviation, but also in terms of business aviation. A great part of that happens in the U.S. We've got 2,000 aircrafts flying in the U.S., and defense is, of course, a great potential market for our KC-390 aircraft for the future. And we've been working on that to be able to introduce this aircraft in the U.S. Considering this long-lasting partnership and considering what we bring to the market in terms of products and equipment, we don't think there will be any negative impact. Much to the contrary, we think this partnership will become even stronger with the U.S.
Virgin Australia
Thank you. This concludes the conference call. Just one second. Apparently, we do have a question. We have one last question in English from Carl Schwartz. What will be the total investment needed on EVE up to certification and delivery start?
Francisco
It's around $600 million total today, and we have cash to run the company for the next two years.
Virgin Australia
Thank you very much.
spk05
This concludes the Q&A session and Embraer's earnings call. Thank you very much for your participation. I hope you all have a great day.
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