Silence Therapeutics Q2 2023 Earnings Call Transcript

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August 14, 2023

There are 9 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to the audio conference from Aimbriar's Financial Results the Q2 of 2023. Thank you for standing by. The numbers of this presentation contain non GAAP financial information to facilitate investors to reconcile EVE's financial information and GAAP standards to Embraer IFRS. We remind that EVE results were discussed in EVE's teleconference. It's important to mention that all numbers are presented in U.

Operator

S. Dollars as it is our functional occurrence. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session, and instructions to participate will be given at that time. Should you require assistance during the conference, please use the Q and A button on the platform.

Operator

As a reminder, this conference is being recorded and webcasted atri.mbraer.com.br. This conference call includes forward looking statements or statements about events or circumstances, which have not occurred. Embraer has based these forward looking statements largely on its current expectations and projections about future events and financial trends affecting the business and its future financial performance. These forward looking statements are subject with risks, uncertainties and assumptions, including, among other things, general economic, political and business conditions in Brazil and in other markets where the company is present. The words believes, may, will, for estimates, continues, anticipates, intends, expects and similar words are intended to identify forward looking statements.

Operator

Embraer undertakes no obligation to update publicly or revise any forward looking statements because of new information, for future events or other factors. In light of these risks and uncertainties, the forward looking events and circumstances discussed on this conference call might not occur. The company's actual results could differ substantially from those anticipated in the forward looking statements. Participants on today's conference calls are Francisco Gomez Neto, President and CEO were Antonio Carlos Garcia, Chief Financial Officer and Leonardo Shinohara, Director of Investor Relations. I would like now to I will now turn the conference over to Francisco, who will proceed with the first remarks.

Operator

Please go ahead, Francisco.

Speaker 1

Good morning, and thank you all for joining our Q2 2023 results call today. Aircraft deliveries reached 47 jets in the quarter, a strong increase of 47% for the Q2 last year. Revenue grew significantly, 57% in Commercial and 42% in Exactive. Even with higher deliveries, backlog remains stable at RMB17.3 billion performance in Exactive Aviation. We have been able to reduce and extend the duration of our debts.

Speaker 1

Presentation. Our operational and financial guidance for the year remain unchanged. On the next slides, highlights of our business units. In Commercial Aviation, we reported a strong revenue growth of 57%, performance. As mentioned before, an EBIT increase of 70% compared to the same quarter last year.

Speaker 1

Adjusted EBIT margin increased from 4.9% to 5.3% on a year on year basis. We announced recently new operators in Asia, SCOOPs from Singapore, for the Q1. In the U. S. Market, American Airlines announced a field order of for the Q1.

Speaker 1

This is an important highlight as it shows that The pilot shortage situation is improving in the U. S. With new orders for E175E1s, performance, an important segment for Embraer. We also have additional firm sales of for the quarter. For the Q1.

Speaker 1

Effective Aviation continues with a strong book to bill of 2 to 1. Adjusted EBIT margin at 8.8% We announced this quarter a very relevant deal with Nat Jets of up to 250 Praetor for 500 jet options, along with a comprehensive services and support agreement, valued for the quarter. Our portfolio is very well positioned with a backlog for the quarter. On defense, the delay of new contracts performance. We expect this to recover in the coming quarters.

Speaker 1

We have several sales campaigns gaining momentum, and we hope to make announcements in the second half of the year. On service and support, our year to date revenue has increased by 13% to EUR 666,000,000 Our EBIT margin increased from 12.5% to 15.7% compared to the same quarter last year. We signed a letter of agreement with the Chinese Lanzhou Aviation Group for the conversion of 20 EGS to freighters. Performance. This is an important movement of Embraer returning to the Chinese market.

Speaker 1

On the next slide, with some updates about EV's numbers and milestones. We have announced the first production facility in Taobate and also a joint venture with the Japanese Nidec, world's leading electric motor manufacturer, presentation to develop electric propulsion systems for the aerospace sector. It is backlog is now totaling for 2018.50 Letter of Intent, valid at 8,600,000,000, performance, the highest in the industry. The company has 28 eVTOL customers in 14 different countries. Our Vice President of Service and Support, Johan Borden, was named as the new CEO of EV to lead for the next phase of the company.

Speaker 1

I will now hand it over to Antonio to give further details on the financial results, and we'll be back with closing remarks.

Speaker 2

Thank you, Francisco, and good morning, everyone. We had another solid quarter with nearly all metrics moving higher when compared to the Q1 for the Q2 of last year. On Slide 8, now on to deliveries. For the Q2, 17 in commercial and 30 in executive. This is up 47% compared to the Q2 of last year and more than 3 times the deliveries from the Q1 of this year.

Speaker 2

Presentation. We are very pleased to announce in our commercial segment deliveries of E2s continue to grow. Performance. We had 7 EQ deliveries in the quarter, up 40% compared to the Q1 and up more than 100% performance. Deliverance in executive continues to increase as well.

Speaker 2

With 3 deliveries in Q2, it was the highest second quarter in the last 7 years. Presentation. As a result, we are confirming the delivery outlook in our commercial and executive business. Performance. Slide 9.

Speaker 2

Our 3rd order backlog ended the quarter at $17,300,000,000 consistent with the last three quarters. In Executive, Strong demand continues for Embraer Finos and Pareto's aircraft as the year to date book to bill ended the 2nd quarter at 2:1. This stability in our backlog is accretive to the guidance growth and profitability, giving us for a steady and reliable stream of cash flow that strengthens our balance sheet. Moving to revenue, for the year. Year to date, revenues are above 2,000,000 with over 60% of the revenue to be realized in the second half of this year performance as the entire company commits to deliver more aircraft and services to our customers.

Operator

Slide 10. For the Q2.

Speaker 2

2nd quarter adjusted EBIT was €100,000,000 and adjusted EBITDA was €149,000,000 performance, both better than the Q2 of 2022. Adjusted EBIT and EBITDA margins were a few basis points report in the Q2 of last year due to the non recurrence of several one time benefits we had in nearly 2022. Performance. We are reaffirming our adjusted EBITDA and EBITDA margin guidance for this year. Slide 11.

Speaker 2

Free cash flow, excluding IF, was minus €11,000,000 in the Q2, basically breakeven. As a reminder, for the Q2. Last year, we had a cash inflow from the divestment in Europe, which benefited our free cash call in the Q2 of 2022. This year, we already forecasted working capital usage for the Q2 with higher aircraft deliveries. Our outlook remains unchanged with free cash flow at $150,000,000 or better.

Speaker 2

Performance. Moving to investments, we funded $56,000,000 of research and development and invested $25,000,000 CapEx for an investment total of $80,000,000 in the 2nd quarter. Similar to the last quarter, the majority of this for the company. We are very pleased with the progress we made in the presentation of our Service and Support Business Unit. Our adjusted net results were RMB58 1,000,000, for RMB12 1,000,000 better than the Q2 of last year, RMB147 1,000,000 better than the Q1.

Speaker 2

Presentation. It's important to highlight that reported net results were negatively impacted by non cash mark to mark if warrants in the amount of BRL 53,000,000. Our adjusted net margin was 4.5 percent, equal to the Q2 of last year.

Operator

Presentation. Slide 12. As seen

Speaker 2

on this slide, I'm happy to share with you the $500,000,000 plus for the Q1 of 2019. This cash tender was to re profile our debts, strengthening our balance sheet and reduce our overall liabilities. As previously announced, We recently placed a 750,000,000 7 year bonds in July 2023 and used the procedures to increase our duration from 3 to 5 years. The positive impact on this liability performance. Our liquidity position with EVE for the company.

Speaker 2

And combined with future cash flow, we allowed us to cover all debt maturity obligations well past 20 28. Our net debt excluded at the end of the second quarter was $1,459,000,000 as shown at the top center of the slide. Presentation. This is a slide from the Q1 due to the increase of working capital previously mentioned. For the quarter, a decrease from 4.7 times in the same period 1 year ago.

Speaker 2

It's important to point out report. The positive results from our business unit is what allowed us to execute our liability management plan.

Operator

Presentation.

Speaker 2

Presentation. With that, I conclude my presentation and hand it back to Francisco for his final remarks.

Operator

Thanks for your attention.

Speaker 1

That we are making consistent presentation. There are several ongoing sales campaigns, especially in defense and commercial aviation, and we are confident to share announcements that account for the Q4 combined with even better results in line with our guidance for the year. On top of that, the aircraft is launched on their production line for deliveries in 2024 2025 for commercial aviation and executive jets, which will result in a sustained increase in our revenue and Profitability. Thanks again for your interest and confidence in our company.

Operator

Thank you. We will now start the question and answer session. And we will ask who are interested in making questions. Or press activate microphone. To give everyone a chance to participate, we will request to ask just one question per call.

Operator

For questions. Our first question comes from for Christine Liwang from Morgan Stanley. Please, Christine, your microphone is open.

Speaker 3

For Q and A. Great. Good morning, everyone. Thanks for letting me ask the question. So in terms of your sales campaign, you talked about for some of these active orders that could potentially come through this year.

Speaker 3

From your conversations with your airline customers, What have been the key sticking points that prevent some of these campaigns into converting into firm orders?

Speaker 1

Hello, Cristina. Thank you for your question. Francisco speaking. Well, I think No, this is a good momentum for the E2s now. I mean, to complement the operation in different airlines, to complement The bigger aircraft, so we do believe the E2s are a perfect fit for them to offer

Operator

for the full year.

Speaker 1

A high frequency of flights with a very attractive cost benefit. And as I said in my opening, we are working many different campaigns in different regions for especially for the E2. So we expect to make some announcements in this second half of the year. But there's nothing against the aircraft on the opposite. I think it's a natural sequence for the airlines now to go to this regional aviation.

Speaker 3

Great. Thanks, Francisco.

Speaker 1

Thank you, Cristina.

Operator

Presentation. Our next question comes from Myles Walton from Wolfe Research. Please Mr. Miles press star 6 to activate your microphone.

Speaker 4

Thank you. Good morning. I was hoping you could maybe touch on the defense outlook. You've mentioned it's as a result of contract delays that are causing reduced sales and profitability. I think you had previously talked about 600 for the year.

Speaker 4

Is that still achievable? And then also the delays that are happening, are they specifically KC-three ninety, Super Tucano, Perhaps something you could add in terms of color.

Speaker 5

Hello, Myles. Good morning. Antonio speaking. Myles, the issue in defense is we have first what we have a heavily impact in Q2 Was material delay, especially for the KC, assuming that we were not able to book as a revenue on the percentage of completion for the Q1. What we have seen delay right now is the Super Tucano.

Speaker 5

We have some already finished in the event for

Operator

the Q1. We have just waited in the orders to ship those aircraft this year.

Speaker 5

And I would say the level of EUR 600,000,000 revenue we heavily discussed last week and we are confirming is doable and achievable due to these two facts. For the Super Tucano, which is fast track because the aircraft, they are ready and also the increase of for production for KFC in the second half of the year. And the margin, again, the revenue in Q2 was pretty low, and we have Adjustment in some basis of the contracts and with minor effect, but assuming that the revenue was too low, We have this impact, but I would say, we in our expectation, we confirmed the revenue above BRL 600,000,000 and fighting for for the Q1. ABAT margin higher single digit for this fiscal year end. Moving ahead, we are quite confident that defense is going to for the quarter.

Speaker 4

Okay. Thanks. And just a clarification or in addition to Christine's question, Francisco, do you expect book to bill to be above 1 or well above 1 for 2023 or below 1?

Speaker 1

Well, we expect at least 1 to 1, but with the potential to be higher than that.

Operator

Thank you. Our next question comes from Ron for Epstein from Bank of America. Please, Mr. Ron, your microphone is open.

Speaker 1

Can you hear me okay? Yes, we can't run.

Operator

Go ahead. Yes. Good morning, guys.

Speaker 6

Maybe one question and then if I'm a super quick follow-up. What do you expect the normalized volume of E2s to be when we're kind of back to a normal state? Because it seems like we're still in this tale of recovery from COVID and it was very disruptive for the mainline airlines and kind of like hyper disruptive for the regionals. Once everything sorts itself out and we're back to sort of a normal cadence, what do you expect annual deliveries to be? Is it 100 airplanes a year, 120, for I mean, kind of what's something we can think about as sort of a reasonable normal target?

Speaker 1

Well, Ram, thanks for the question. I mean, 2023 is expected to be the year with the highest number of E2 deliveries since the program was launched. We believe the E2 family is on the rise in the market And this is going to be in the following years as well. So we expect to be between 19 100 Total aircraft delivered by 2025 and most of them will be E2s. So again, we see for the E2 family growing faster, much faster than E2 in the following years.

Speaker 1

And we expect 25, 26 to be combining E2s in 1, I mean, over 100 aircrafts a year as we had pre pandemic levels.

Speaker 6

Got it. And then just a quick follow-up on the Super Tucanos. I'm surprised that you're having some trouble there, Be it that the airplane has been in fabrication for a very long time. I mean, if you can describe maybe a little more what's going on?

Speaker 1

We produce Super Tucano in Brazil and in Jacksonville as well. So we have opportunities. We are working on sales campaigns for both sides. So in Brazil, we expect to announce this year for the quarter. Important orders, as Antonio just mentioned, to deliver the white tails we have in production.

Speaker 1

In the Jacksonville plants, we are also working with our partner there, Sierra Nevada, to sell aircraft to for some other countries using the FMES support. So again, we expect to announce new orders for Super Tucano as well as the C29 in the second half of the year.

Operator

Presentation. Our next question comes from Marcelo Motta from JPMorgan. Please, Mr. Marcelo, your microphone is open.

Speaker 7

Hi, everyone. Good morning. A question regarding this new order that you guys mentioned about $700,000,000 that will be added to the backlog of commercial in the Q3. Could you provide any additional detail in addition to what is on the release like the number of aircraft for the family or maybe, let's say, the continent that this order is coming from. Thank you.

Speaker 1

Hi, Marcelo. Thanks for the question. Sorry, this order is still confidential, and we promise to you to disclose as soon as we have an agreement with the customers.

Operator

For you. Our next question comes from Andrea Ferreira from Bradesco PBI. Hi. Good morning, guys. So my question is regarding Yves.

Operator

So the FAA recently published the Innovate 28 plan, which for C's EBITDAO starting operations only in 2025, but mostly in 2028. And some EBITDAO companies had plans to start operations in 2024. My question is, you was already a leader in the number of orders or at least close to it, but Given this projection by the FAA closer to EVE's launch date, do you see a greater interest now from the part of the customers for a solution compared to competitors. Thanks.

Speaker 1

Thank you, Andrea, for the question. Yes, absolutely, we do more interest That new business model, let's put it like that, we are working very hard. We have more than 600 people working the development of the EVE, and we are lucky to have some respectful authority in Brazil as ANAC, And we are in contact with them. We are working with them in order to certify both the aircraft And the air traffic management in Brazil. And with the work progressing well with ANAC, We will have more chances to do the same with FAA and EASA as well.

Speaker 1

So again, we are very excited about that

Operator

Our next question comes from Jay Singh from Citi. Conference. Mr. Jay, your mark for Zoben. Good morning, guys.

Operator

Can you provide us with any color regarding any product developments?

Speaker 1

Could you please repeat?

Operator

Yes. Can you provide us with any color regarding product developments at the moment?

Speaker 1

You mean new product development?

Operator

Correct.

Speaker 1

Yes. Well, we are working in different fronts, In the different business units, I mean, evaluating the possibilities for the future. But At this moment, we have a very competitive and modern portfolio of products. In all business units, we have the phenons and preters and executive, we have the E2 family in commercial and the C3-nineteen defense. So again, our focus at this moment is really to sell the existing portfolio of products.

Speaker 1

And of course, We continue working in new generation in the future as we are doing with the EBITDA, with EVE And in other fronts as well. But at this point of time, our main focus is with to sell the current portfolio and

Operator

presentation. Our next question comes from Ron Epstein from Bank of America. Call. Please, Mr. Brown, your microphone is open.

Speaker 6

Hey, thanks guys. Thanks for the follow-up. We didn't talk much about China. If you could, could you mention how is the opportunity there? What's going on?

Speaker 6

Because To be honest, I'm a little surprised that we haven't heard much out of China yet in terms of demand for E2s.

Speaker 1

Thank you for the question, Ron. Well, you know that we have recently certified the for E195 and E2 in China and the certification of the E195 is underway. We do believe our gents are the best alternative to complement the local products. For ARJ21, I mean, up to 100 seats Comac and the same C1 'nineteen from Comac, above BOV156 hits. So again, our Itus, They go exactly in the middle and they would help a lot to improve the efficiency of the Chinese for Air Traffic.

Speaker 1

We announced during the Paris Air Show this Agreement, this letter of agreement to convert, I mean, E1s from passenger to freighter in China to any aircraft. So this movement is a highlight that Embraer is returning to China. And you know that the bilateral agreement between our President and the Chinese President, I mean, Includes a collaboration between Embraer and Chinese Airlines. So again, we are working in advanced negotiation to sell it to in China. And we do believe this scenario, China will be an opportunity for Embraer

Operator

from Cowen.

Speaker 8

Thank you so much. So commercial, a couple of questions. The $700,000,000 that you'll add in the 3rd What should we expect the mix to be between E2s and E1s? And thirdly, what is the pricing environment like now

Speaker 1

Okay. Thank you for the question. Well, I mean, By 2025 2020 as I said before, 2023, we have already majority of the deliveries with ETUs. This is going to remain in the following years. So by 2025, we believe that the E tools will be responsible for 6, for 65% of the total deliveries in the year.

Speaker 1

As day 1, we believe day 1 still have an important market, for the quarter. Especially in the U. S. And with the resolution of this product shortage issue, We will have more and more opportunities for you once in the next 10 years at least. Regarding the price, I mean, it's a tough competition, we know that, but we are working on also to optimize and reduce the costs of the E2s, which in the ramp up is helping us point in that direction as well.

Speaker 1

So again, we believe that we can make mid single digit margin in the Commercial Aviation with the projection we have with the E1 the mix we have for E1 and E2 for the next years. Is there another question, Kai, that I missed it here?

Speaker 8

The last the third one was the $700,000,000 addition

Speaker 2

to backlog

Speaker 8

In the Q3, is that one order or several orders? And is it basically signed and already there? Or is it about to be signed?

Speaker 1

Well, it's signed. What I can tell you, this is more than one.

Speaker 8

Got it. Thank you.

Operator

Presentation. Our next question comes from Myles Walton from Wolfe Research. Please Mr. Miles, press star 6 to activate your microphone.

Speaker 4

Thanks for the follow-up. I was hoping to touch back on for the quarter. When as NetJets has been taking the latitude from for Cessna for the better part of the last 6 or 7 years have been taking about 20 planes a year on average. Is that roughly the cadence that you think about out in 25 when they start to accept deliveries. And then also in the backlog or book to bill in executive of 2 to 1 this quarter.

Speaker 4

What was the excluding NetJets, How is the rest of the order book looking in terms of cancellations and orders? Thanks.

Speaker 1

Well, Meyers, thanks for the question. Actually, NatChat is not included yet in our backlog. I mean, the NatChat is options And this will start to we started the deliveries will start in 2025 on. In that year on that we will see according to the demands of NetChat, we will bring the demands to the backlog. But our history with Net Chat has been very positive with the Finno.

Speaker 1

So we believe they will take for the 2 50 aircraft or even more in the future in the future years. Regarding the backlog, I mean, we We have a very comfortable situation today year to date, I mean, with the book to bill ratio of 2:one. In the long term, we expect the market to normalize. I mean, going back to pre pandemic levels, This means a book to bill closer to 1 to 1. I think we believe this is the trend.

Speaker 1

But remember that we are already with Delivery volume, delivery quintet much higher and will grow in the following year. So even with The backlog approaching 1 to 1 will keep an important volume for the in terms of jets in the adaptive aviation.

Speaker 4

Similar to commercial where you had a target for 25%, 26%, do you have a similar one for executives to share in terms of deliveries?

Speaker 1

Well, we are growing this year about 20% in Executive Aviation, and the projection for the next years

Operator

Our next question comes from Christine Liwag from Morgan Stanley. Conference. Ms. Christine, your microphone is open.

Speaker 3

Thank you. And just following up on the business strategy, executive jets questions, With the orders that you're getting, can you provide more color regarding the pricing environment? And then also a follow-up to that follow-up is that we're hearing that the MRO facilities for executive jets are pretty much full until for Q2 of next year, and there's a shortage of spare engines and customers are unable to fly their assets right now. Is that spurring more activity for Executive Jets? And could we see Executive Jets book to bill will be significantly greater than 1 this year.

Speaker 1

Hi, Cristina. Thanks again for the questions. You're helping me if I can to cover all your questions here. For the book to bill, as I said, so far it's 2 to 1, ever with over $4,000,000,000 which is excellent. As I said before, we believe this book to bill, I mean, going to the end of the year, maybe the trend may be to approach 1 to 1, Which again, which the backlog we have in house means that we will continue to grow in important volumes In the following years in the executive jets.

Speaker 1

I mean, the margins, you talked you asked about the price. I think that our team is doing a great job Keeping the price disciplined in the new sales and we can see this by look at the margins. We don't have a good mix Between fleet and retail, you see the margin of commercial aviation, I mean, going up. So what is your other question?

Speaker 3

No, like the MRO,

Operator

will it

Speaker 3

be available and not having any spare engines? Could you get even more orders in the 2:one? And I recognize Antonio that's pretty greedy because it is already a spectacular year, but I was wondering if that shortage

Speaker 1

Yes. We are having difficulties with engines for Executive Jet as well. But I mean, our supplier is improving. We believe we We'll do much better from now on. I mean that since they are resolving some issues with their sub for service suppliers.

Speaker 1

MRO, I mean, is another opportunity for us to grow our business. We duplicated SORO CABO. We are working also to expand also all their MROs, I mean, the U. S. And in Europe.

Speaker 1

I mean, it's another good opportunity for us to grow. So and we don't see Big issues with engines in the future, as I said. We believe no, by the end of the year, I mean, Q1 or Q2 next year, the

Operator

Our next question comes from Kai from Cowen. Please, Mr. Cai, press star

Speaker 8

6. Yes. Thank you. No one's asked for a while, but the arbitration with Boeing, their 10 Q indicates that they expected, I guess, about year end. When do you expect that arbitration decision?

Speaker 8

Will it be binding? And are you optimistic this will still be a net plus for Embraer?

Speaker 1

Well, the process had some delays because of the complexity. But Kai, we expect to see an end of this process during the first half twenty twenty

Speaker 8

four. Excellent. Thank you.

Speaker 1

You're very welcome.

Operator

Presentation. Thank you. This does conclude today's question and answer session and that does conclude for Embraer's audio conference 2. Thank you for your participation, and have a wonderful day.

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Earnings Conference Call
Silence Therapeutics Q2 2023
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