Embraer SA Q4 FY2023 earnings call

Management Statement and Operational Highlights

• 2023 was a strong year with solid demand in main markets, backlog surpassing pre-pandemic levels at $18.7 billion. Adjusted EBIT up 30% YoY, free cash flow over $300 million. Back to investment grade rating.
• Commercial Aviation had 20% revenue growth, E2 family deliveries doubled. Executive Aviation had book-to-bill >1:1.3, largest delivery volume in seven years. Defense & Security saw revenue increase due to C-390 volumes. Services & Support backlog hit record high.
• EVE reached milestones like first prototype assembly, on track for Urban Air Mobility market. Safety and quality are priorities in strategy.

Segment Performance

• Commercial Aviation: Revenues increased 20% year-over-year to $1.85 billion due to higher deliveries and product mix. Book-to-bill exceeded 1:1.1. E2 family deliveries doubled from 19 in 2022 to 39 in 2023. Delivered 64 aircraft in 2023. Adjusted EBIT margin was 1.1% in 2023, with Q4 at 4.6%.
• Executive Aviation: Book-to-bill exceeded 1:1.3, backlog $4.3 billion (+11% year-over-year). Delivered 115 jets, the largest volume in seven years. Phenom 300 was world's best-selling light jet for 12 consecutive years. Adjusted EBIT margin was 9% in 2023, with Q4 at 15.7%.
• Defense & Security: Revenues reached $515 million (+25% year-over-year) driven by higher C-390 volumes. Backlog increased $100 million (+4% year-over-year).
• Services & Support: Backlog $3.1 billion (+19% year-over-year). Registered double-digit adjusted EBIT margin, with 16.7% in Q4.

Guidance

• 2024 Commercial Aviation delivery guidance: 72-80 aircraft.
• 2024 Executive Aviation delivery guidance: 125-135 jets.
• Top line guidance: $6 billion to $6.4 billion, midpoint 18% higher than 2023.
• Adjusted EBIT margin guidance: 6.5%-7.5%.
• Free cash flow guidance: $220 million or better.

Risks

• Supply chain delays impacting deliveries and operational results.
• Leverage levels and maintaining optimal debt structure.
• Certification challenges for EVE, including FAA pressure.
• Uncertainty around the arbitrage process with Boeing.

Question and Answer

Q: Regarding capital structure, what is the level of leverage the company is comfortable with?

A: Antonio Carlos Garcia stated everything below two times is comfortable, aiming for net debt to EBITDA below one times, with potential to resume dividend payouts in 2025.

Q: About cash flow and new orders from American Airlines, when will the impact be seen?

A: Antonio Carlos Garcia said it's too early to determine, with free cash flow guidance being conservative due to ongoing factors.

Q: How much did supply chain issues cap delivery guidance for 2024?

A: Francisco Gomes Neto said deliveries could be higher without supply chain issues, but some bottlenecks still exist, but optimistic guidance will be achieved.

Q: CapEx in Executive Aviation, what are the areas of expansion?

A: Antonio Carlos Garcia said it's for production capacity adaptation to support growth, making production leaner. Francisco Gomes Neto added investment in innovation verticals for future products.

Q: Updates on E2 sales campaign and EVE certification?

A: Francisco Gomes Neto said working on E2 sales campaigns, but couldn't disclose details. Antonio Carlos Garcia said EVE is progressing, first prototype PAF 2 expected to fly end of 2023/beginning of 2024, aiming for entry into service end of 2026.

Q: Arbitrage process with Boeing?

A: Francisco Gomes Neto said expect resolution in first half of 2024. Antonio Carlos Garcia said not counting on arbitrage money in projections, decision not in Embraer's hands.

Q: Entrance of new orders in business jets and competition backlog?

A: Francisco Gomes Neto said happy with business jet performance, healthy sales mix, confident in future sales.

Q: GTF MRO at OGMA progress and revenue/margin in 2024?

A: Francisco Gomes Neto said GTF program moving well, first delivery planned April, OGMA to double revenue in two years. Antonio Carlos Garcia said forecasting ~$40 million additional revenue, but no positive margin in 2024 yet.

Q: Free cash flow conversion and E2 ETOPS certification?

A: Antonio Carlos Garcia said targeting minimum 50% EBITDA conversion, E2 ETOPS certification helps improve competitiveness in sales campaigns.