Embraer SA Q1 FY2024 earnings call

Management Statement and Operational Highlights

• Operational Performance: Q1 2024 operational performance despite seasonality; total deliveries and revenue margins higher than Q1 2023; focus on business and financial efficiency.
• Deliveries: Executive Aviation delivered 18 jets (125% y-o-y), Commercial Aviation flat at 7, Defense had no C-390 deliveries.
• Backlog: Strong total backlog of $21.1B, up 13% q-o-q. Commercial Aviation backlog $11.1B, Executive $4.6B, Services & Support $3.1B, Defense & Security $2.4B.
• Revenues: Top-line ~$900M, 25% growth y-o-y. Service & Support ~41%, Executive ~27%, Commercial ~22%, Defense ~9%.
• EBITDA and EBIT: Adjusted EBITDA $47M (5.2% margin), adjusted EBIT $7M (0.8% margin). Reported EBIT negative $1M (-0.4% margin).
• Cash Flow: Excluding EVE, adjusted free cash flow consumption $346M, better than Q1 2023. Cash consumption in 2024 for EVE ~$130M-$170M.
• Debt Management: Reduced gross debt by $276M in Q1, net debt $1B.

Segment Performance

• Executive Aviation: Delivered 18 jets in Q1, up 125% y-o-y. Light jet segment up 83% with 11 Phenom delivered; medium jets up over triple with 7 freighters. Revenue contribution ~27% in Q1.
• Commercial Aviation: Deliveries flat at 7 aircraft in Q1 (4 E1s, 3 E2s). Revenue contribution ~22% in Q1.
• Defense & Security: No C-390 deliveries in Q1 2024. Backlog decreased marginally by 4% q-o-q to $2.4B. Revenue contribution ~9% in Q1.
• Services & Support: Revenue grew 12% y-o-y, ~41% revenue contribution in Q1. MRO in Portugal ramp-up to last 4 years, expecting revenues ~$500M in 2028.
• EVE: On track for milestones in 2024, cash consumption estimated $130M-$170M in 2024.

Guidance

• Deliveries: Confident in meeting guidance for deliveries in 2024 despite ongoing supply chain constraints.
• Commercial Aviation: Expect production growth in 2025/2026 to return to pre-pandemic levels, driving better profitability.
• Executive Aviation: Expect growth in 2025 and beyond due to investments in production capacity to increase production.
• EVE: On track for milestones in 2024, with cash consumption range $130M-$170M.

Risks

• Supply Chain Issues: Continued challenges in specific components affecting production in defense and commercial, impacting deliveries and margins.
• Bad Debt Provisions: $3M provision in Q1 due to higher concentration of overdue payments in Services & Support.

Q: Concern about supply chain overlap between defense and commercial?

A: Francisco and Antonio discuss supply chain challenges in specific components, affecting production and deliveries but confident in meeting guidance.

Q: Details on sale campaigns for E1a and E2s?

A: Francisco talks about geographic dispersion of campaigns, E2s complementing bigger narrow-body operations, optimistic about sales in 2024.

Q: Arbitration timing with Boeing?

A: Expect arbitration to end no later than mid-2024.

Q: Updates on Mahindra negotiations and bad debt provisions?

A: Francisco updates on Mahindra visit and partnership for C-390 sales; Antonio discusses $3M bad debt provision due to overdue payments.

Q: Defense order conversions and backlog?

A: Francisco mentions high expectations to sign important defense contracts in 2024.

Q: Commercial Aviation margins?

A: Guilherme Paiva says margins expected to improve towards mid-teens double-digit territory.

Q: Competitive dynamics and E2 pricing?

A: Francisco discusses competitive pricing, Embraer's efficient aircraft, and cost reduction initiatives.

Q: Commercial Aviation unit growth and production?

A: Francisco talks about 2024 deliveries 72-80, expected growth in 2025 to pre-pandemic levels.

Q: Executive Aviation supply chain and full-year range?

A: Francisco mentions investments in production capacity, expecting growth in 2025 and beyond.

Q: E2 orders from U.S. customers?

A: Francisco discusses opportunities for E2s in U.S. market, with Porter Airlines flying E2s.

Q: Asia sales campaigns?

A: Francisco talks about E2 sales campaigns in Asia, including Singapore simulator and opportunities in China, India, etc.

Q: Arbitration with Boeing timeline?

A: Expect arbitration decision within first half of 2024.