Embraer SA Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Top management presented Q3 2024 results and updated 2024 guidance. Reiterated $6.2 billion midpoint of revenue guidance, adjusted EBIT margin interval to 9.5%, and free cash flow generation to $300 million or higher.
• Commercial Aviation guidance reduced due to supply chain issues. Q3 revenues increased more than 32% year-over-year, led by Executive Aviation and Defense & Security.
• Firm order backlog reached $22.7 billion in Q3, with a robust year-to-date book-to-bill ratio >2:1. Fitch Ratings upgraded Embraer's rating to BBB- with a stable outlook.
• Delivered 57 aircraft in Q3 and 128 YTD 2024. Initiatives to address supply chain challenges included digital tools and AI implementation.
• Service & Support announced $70 million investment in MRO center to support North American Commercial Aviation clients. Eve eVTOL progressing with prototype and loan for development.

Segment Performance

• Commercial Aviation: Revenues increased 11.4% year-over-year in Q3. Adjusted EBIT margin declined from 0% to -5% year-over-year in Q3. Year-to-date 2024, adjusted EBIT margin was -2.3% compared to -1.3% in the same period of 2023. Deliveries guidance was reduced from 72-80 jets to 70-73 due to supply chain issues.
• Executive Aviation: Revenues expanded 65% year-over-year in Q3. Year-to-date 2024, revenues were at $1.1 billion, circa 40% higher than the same period in 2023. Adjusted EBITDA margin improved from 10.7% in Q3 '23 to 16.3% in Q3 '24. Delivery guidance remains 125 to 135 for 2024.
• Defense & Security: Revenues increased 65% year-over-year in Q3 and 56% year-over-year in the first 9 months of 2024. Highlights included deliveries of C-390 Millennium to Hungary and Brazil, and new orders from the Netherlands, Austria, Paraguay, and Uruguay. Adjusted EBIT margin declined from 15.6% in Q3 '23 to 7.2% in Q3 '24.
• Service & Support: Revenues grew 16% year-over-year in Q3. Year-to-date 2024, adjusted EBIT margin increased to 16.2% compared to 14.6% in 2023. Announced a $70 million investment in a new MRO center in Fort Worth, Texas.
• Eve eVTOL: Unveiled full-scale prototype in July, moving forward with battery installation and lifter production for first flight in early 2025. Completed an additional $236 million secured loan.

Guidance

• Reiterated 2024 revenue guidance at $6.2 billion midpoint.
• Adjusted EBIT margin interval increased to 9.5%.
• Free cash flow guidance raised to $300 million or higher.
• Executive Aviation delivery guidance remains 125-135. Commercial Aviation delivery guidance reduced to 70-73 from 72-80 due to supply chain.
• Expect margin improvement in Q4 2024 and beyond for Commercial Aviation. Anticipate double-digit growth in deliveries, revenue, and EBIT in 2025 and beyond.

Risks

• Supply chain challenges, particularly with engines and structural parts for aircraft.
• Impact of competitive landscape on Commercial Aviation margins and delivery timelines.
• Uncertainties in global economic and political factors affecting defense and commercial aircraft markets.

Question and Answer

Q: About the commercial aircraft guidance revision, what's the cause?

A: Francisco Gomes Neto - Due to supply chain issues, specifically with engines and structural parts for E2 aircraft.

Q: Margins in Commercial Aviation, what's the outlook?

A: Antonio Carlos Garcia - Mix of E2 vs E1 aircraft and customer mix; expect lower single-digit margin in 2024, moving to mid-single digit.

Q: Defense orders from Czech Republic, any margin impact?

A: Antonio Carlos Garcia - Includes service component, new backlog in Q4, potential free cash flow upside.

Q: Supply chain issues, when will they improve?

A: Francisco Gomes Neto - Improving on average, but still struggling with specific components; expect improvement next year but timing uncertain.

Q: Sales campaign for KC-390?

A: Francisco Gomes Neto - Optimistic, with 11 new orders in 2024 and ongoing campaigns in Europe, Asia, etc.