Embraer Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
March 18, 2024

There are 14 speakers on the call.

Operator

Good morning, ladies and gentlemen. My name is Guy Pava, and I'm the Head of Investor Relations for Embraer. I want to welcome you to the Q4 of 2023 and full year earnings conference call. Thank you for standing by. The numbers in this presentation contain non GAAP financial information to facilitate investors to reconcile EVE's financial information in GAAP standards to Embraer's IFRS.

Operator

We remind you that Yves' results were previously discussed at Yves' conference call. 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's 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 applicable rules, the company assumes no obligation to publicly update any forward looking statements.

Operator

For detailed financial information, the company encourages reviewing publications filed by the company with the Brazilian, Comisao de Valores Moviliare or CDM. At this time, all participants are in a listen only mode. We will give later on instructions for the participation in the Q and A session. As a reminder, this conference is being recorded. Participants on today's conference call are Francisco Gomez Neto, President and CEO of Embraer and Antonio Carlos Garcia, our CFO.

Operator

It is my pleasure to now turn the conference call to our CEO, Francisco Gomez. Please go ahead, Francisco.

Speaker 1

Good morning and good afternoon to all. Thank you and welcome to Embraer's Q4 2023 results conference call. In 2023, our commercial activity intensified in all business units, with solid demand in the company's main markets. We also had a great start in 2024 with an important order from American Airlines that has driven our commercial aviation book to bill ratio above 1 to 1 for the year already in Q1. Last year, supply chain delays negatively impacted our business.

Speaker 1

However, we posted double digit growth in aircraft deliveries, services and revenues. The strong increase in sales helped the company's backlog to surpass pre pandemic levels, as it reached RMB 18,700,000,000, the highest number recorded in the last 6 years. And I am confident to say there is still much more upside to be captured in the near future for all business units. In the financial side, we also experienced great results. We registered a 30% increase in adjusted EBIT year over year, and we generated more than $300,000,000 in free cash flow in 2023, above our guidance.

Speaker 1

I am pleased and proud to share that Embraer is back to investment grade rating. All these results are a consequence of the execution discipline the company is focused on. On EV, we reached important milestones in 2023, like the first prototype assembly. The progress made so far makes us even more confident that EV is on track to develop the foundations for the global urban air mobility market. Last but not least, safety and quality are priorities in our strategy and are ever present in our culture.

Speaker 1

I will present now the operational results of our business units in the next slides. In Commercial Aviation, revenues increased an impressive 20% year over year to RMB1.85 billion because of higher deliveries and product mix. The business unit registered the book to bill in excess of 1 to 1.21. The highlight was the E2 family whose deliveries more than doubled from 19 aircraft in 2022 to 39 in 2023. In addition, in Q4, Portrail Lines added a firm order of 25 Embraer E195 E2.

Speaker 1

Commercial Aviation delivered 64 aircraft in 2023, but registered a positive 1.1 percent adjusted EBIT margin without services or basically the same margin as in 2022. The adjusted margin in Q4 reached 4.6% compared to 4.1 quarter over quarter. Exactive Aviation registered a book to bill in excess of 1 to 1.3 with a strong profitable backlog of RMB4.3 billion or 11% growth year over year. On deliveries, the business unit posted the largest volume in 7 years at 115 Jets or 13% more than in 2022. The Finno 300 was again the world's best selling light jets now for 12 consecutive years and the most delivered twin engine jets for the 4th consecutive year.

Speaker 1

Executive Aviation presented a 9% adjusted EBIT margin in 2023 versus 12.2% in 2022, a consequence of product mix and one time tax benefits. The Q4 adjusted margin ended at 15.7% compared to 19.3 percent year over year. In Defense and Security, revenues reached a significant increase to RMB515 1,000,000 or 25 percent higher year over year, driven by higher C390 volumes. In 2023, South Korea was in the spotlight with the victory of the C390 in the public tender, becoming the 1st customer in Asia. Embraer also ferments 2 important MoU contracts, one with Mahindra in India and one with Sami in Saudi Arabia to become partners in the Street United sales campaigns.

Speaker 1

The business unit presented a 5.5 percent adjusted EBIT margin in 2023 versus 2.4% in 2022. In Q4 2023, the adjusted margin ended at 2.8% compared to 40.3% quarter over quarter, due to product mix and baseline contract adjustments. If we move to Services and Support, in 2023, the business unit experienced solid growth momentum. We announced 3 new MROs dedicated to Executive Jets in the U. S.

Speaker 1

The expansion doubled our maintenance capacity in the country and it should continue to support the growth of our customer base. The business unit backlog ended 2023 with RMB 3,100,000,000, a 400,000,000 growth year over year, the highest level on record, reinforcing services' role as one of the main drivers of growth over the next years. We recorded a consistent double digit adjusted EBIT margin throughout the year, finishing at 15.2% in 2023 versus 12% in 2022. In Q4, we had a 16.7% adjusted margin compared to 5.7% in the same period of the previous year, mainly because of sales, bad debt provisions. Oneth, the company had several significant achievements like the selection of important suppliers and the start of assembling of its first full scale prototype.

Speaker 1

LiaoSoo conducted a successful test of its urban air traffic management software in the UK. On the financial side, the company consumed less cash than expected in 2023. The next 12 months will be important for Yves. The company expects to perform the 1st test flight of its full scale prototype and plans to start preparing its manufacturing facility for production. I will now hand it over to Antonio, our CFO, to give you further details on the financial results, and I will be back with closing remarks.

Speaker 2

Thank you, Francisco, and good morning and good afternoon to everyone. I'm glad and proud to share with you our 2023 achievements, driven by the continuous focus on business efficiency and innovation. We also reached our 2023 guidance for all financial indicators, net revenue, adjusted EBITDA and EBITDA and free cash flow. Despite a miss in commercial and the executive aviation aircraft deliveries because of supply chain constraints. Moving to Slide number 9, on deliveries.

Speaker 2

Executive Aviation delivered 49 business jets in Q4 and a total of 115 aircraft in 2023. The Large Jet segment was 12% higher year over year and reached the largest volume for the company in the past 7 years. Additionally, Mediocrejes registered a 14% annual growth. Meanwhile, Commercial Aviation delivered 25 aircrafts in Q4 and a total of 64 jets in 2023 for 12% year over year growth. In 2023, Embraer supplied 181 aircraft, including 2 military C-three ninety jets.

Speaker 2

The total represents an increase of 13% when compared to the under 60 jets in 2022. This shows an improvement in the supply chain situation year over year, but we continued to face some delays, which have negatively impact our operational results and delivery guidance. The company continues working to mitigate the seasonality in production and deliveries over the coming quarters. Moving to Slide 10, the company's backlog rose by $1,200,000,000 in 2023, a 7% increase year over year and reached a total of BRL 18,700,000,000, the highest number recorded since Q1 2018. Executive Aviation ended 2023 with a resilient $4,300,000,000 backlog or a $400,000,000 or 10% growth year over year.

Speaker 2

The backlog for defense security increased $100,000,000,000 or 4% year over year with the victory of the C309 million in South Korea standard. It is also important to highlight the aircraft was selected by the 3 NATO countries, and this negotiation for 11 aircrafts have not yet been incorporated into our backlog, which represents a significant upside potential for the upcoming quarters. In Commercial Aviation, the business unit backlog reached 2 98 records in Q4 for 8,800,000,000 total or BRL 200,000,000 or 2 percent growth year over year. And it does not consider yet the 9175 E1 units sold to American Airlines in the Q1 of 2024. The service and support backlog reached our historical record at BRL 3,100,000,000 with a BRL 500,000,000 or 19 percent growth year over year.

Speaker 2

Our top line reached almost BRL 2,000,000,000 in Q4 and raised the yearly total to 5,300,000,000 for a 16% growth rate year over year. Therefore, I'm happy to share that we met the low end of our EUR 5,200,000,000 to EUR 5,700,000,000 guidance range for revenues. Looking at the right chart, in 2023, Commercial Aviation represented more than 35% of the revenue. Executive and services and support, close to 27% each and defense around 10%. Slide 11.

Speaker 2

The 4th quarter have an excellent performance in terms of adjusted EBITDA with BRL253,000,000 and margins of 12.8%. Meanwhile, in 2023, we ended with a EUR562,000,000 total and 10.7% margin, meeting guidance for the year, driven by volumes, enterprise and tax efficiencies. Slide 12, in Q4 'twenty three, adjusted EBIT was 182,000,000 and adjusted EBIT margin was 9.2%. Therefore, for 2023, adjusted EBIT reached 350,000,000 and adjusted EBITDA margin was 6.6 percent, in line with guidance. This represented a 80,000,000 increase year over year because of higher volumes across all business units and other operational income.

Speaker 2

Consequently, reported EBIT for the year, which includes M and A results, total EUR 340,000,000 for a 6% mark. Looking at the right chart, Executive Aviation and Service and Support were responsible for almost 90% of EBIT generated during the year, driven by higher volumes and double digit markets. Meanwhile, defense and security represented 7% and commercial aviation 5%. In Slide 13, in Q4, if we exclude If, we had an adjusted free cash flow generation of BRL 684,000,000 or BRL 100,000,000 higher year over year. For 2023, we achieved BRL 318,000,000 compared to BRL540 1,000,000 year over year because of investment and no recurring items.

Speaker 2

We surpassed the guidance of BRL150 1,000,000 or more because of the improvement in working capital. If we move to investments, in Q4, €54,000,000 were allocated to research and development and €60,000,000 to CapEx. For a $140,000,000 total invested compared to $94,000,000 in Q4 'twenty two, if we exclude EAF. Meanwhile, in 2023, the company invested a total of BRL326 1,000,000, of which BRL 194 1,000,000 were invested in research and development and €132,000,000 in CapEx if excluded or €82,000,000 higher year over year. We should highlight capital allocation continues to be focused on segments with higher returns, with projects such as expansion of our production capacity in Executive Aviation and Service and Support.

Speaker 2

About EVE, I would like to remind you that the company reached the necessary milestones to begin the capitalization of product development costs based on IFRS rules in Q3. I would like to finish this slide talking about this important metric for the company, return on invested capital, ROIC. The momentum of in our V shape recoveries continue. Our ROIC reached 8.8% in 2023, more than 200 basis points higher than 2022 and similar to our cost of capital. Looking forward, our expectation is to increase ROIC to the lower teens level.

Speaker 2

Slide 14, Embraer posted BRL 78,000,000 in adjusted net income in Q4 for a 3.9% adjusted margin or an 80% plus sequential increase. Meanwhile, we ended the year with BRL 79,000,000 in adjusted net income for an adjusted 1.5 percent margin. Consequently, reported net income for the year, which includes deferred tax income, totaled under €64,000,000 for a 3.1 percent margin. In Slide 15, we will move now to our liability management plan. In 2023, we reduced our gross debt to without EV by BRL317,000,000 year over year.

Speaker 2

Thus net debt declined to BRL781,000,000 in 2023 for BRL 1,000,000,000 in 2022. Consequently, we are happy to report a significant reduction in our leverage ratio. In the top right corner, you can see we ended 2023 with a 1.4x net debt without EBITDA ratio or 0.9 turns below the 2.3 times observed in 2022. Furthermore, we increased the average debt maturity to 4.6 years compared to 3.4 years year over year, which has left Embraer to a very comfortable position or a cash of almost BRL2.4 billion, which IVE allowed us to cover all obligations beyond the 2030. Last quarter, we mentioned we were taking all necessary steps to recover our investment grade status.

Speaker 2

Today, I'm very pleased and proud to share that Thunder improves raised Embraer to investment grade rating and moved to only 1 notch below investment grade. At least, Fitch revised the company's outlook to positive. Slide 16, and I must forget to mention one important thing, it's our 2024 guidance. We forecast commercial aviation should deliver between 72 to 8 aircrafts for an increase of 18% year over year using the midpoint of the range if we consider ongoing supply chain constraints. For Executive Aviation, we forecast 125 to 135 jets, an increase of 13% year over year based on the midpoint of the range.

Speaker 2

If we move to financials, we estimate top line to settle between BRL 6,000,000,000 to BRL 6,400,000,000 with the midpoint of the range 18% higher than what we generated in 2023. In addition, in order to simplify the process, we are just giving guidance for the adjusted BIT margin. We forecast this indicator between 6.5 and 7.5 for the year, which would imply BRL434 1,000,000 at the midpoint of the range. Finally, if you move to free cash flow, we estimate BRL220 1,000,000 better for the year. We will update or reiterate our guidance quarterly as the years goes by.

Speaker 2

With that, I conclude my presentation and hand it back to Francisco for his final remarks. Thank you very much.

Speaker 1

Thank you, Antonio. I'm proud to say 2023 was a remarkable year for Embraer. It represented the start of a new cycle for the company, a phase focused on sustainable growth to capture our full potential. The continuous focus on business efficiency and innovation as well as stronger sales efforts were and will be fundamental to achieve the expressive results in 2023, 2024 and years ahead. In 2024, we will celebrate Embraer's 55th anniversary in a very good shape.

Speaker 1

We remain very positive about our strategy to grow and generate value for our customers, shareholders, and society through strategic partnerships, business efficiency, innovation, and ESG. With all that said, I am extremely confident about our 2024 guidance and the brilliant future Embraer has. I would like to thank you all again for your interest and confidence in our company and with our company motto: safety first and quality always in everything we do.

Speaker 3

We'll now begin the question and answer session. We ask who is interested in asking question. Is on in the platform and start your question. We will also answer questions sent by the platform chat. To give everyone a chance to participate, we request to ask just one question per call.

Speaker 3

The first question comes from Marcelo Motta with JPMorgan. Please go ahead.

Speaker 4

It is regarding capital structure. When we look at the guidance for 2024, the expected or let's say the implied EBITDA and the free cash flow generation, we are talking about a net debt to EBITDA that potentially be below one times, right? So what is, let's say, the level of leverage that the company feels composed and operate? Does it means that you are targeting for a 0 leverage? Or could we see dividends, buybacks or some type of distribution or investment?

Speaker 4

So that is the question. Thank you very much.

Speaker 5

Mario, Marcelo, thanks for the question. To be honest, everything below 2 times we are comfortable. The way we are doing right now is going to be below 1, which implies that assuming that we are going to exhaust or accumulated profit, we should be able to resume dividend payouts in 2025 onwards. That's the first part. And the other parts, we are going to evaluate additional demand for the business units who have a better growth like executive and service and support if you have additional needs for investment.

Speaker 5

At the least, that's more or less where we are today, but if everything below 2x, we are comfortable to work with and we need to think how we are going to move forward for the years to come out to use this money out.

Speaker 3

The next question comes from Victor Mizusaki with Bradesco BB. Please go ahead.

Speaker 6

Hi, congrats for the results. I have just a quick question here. Think about 2024 and what happened in the Q4. When we take a look on cash flow, Embraer received

Speaker 7

a lot of PDPs. And I feel that in this case, you do not have any impact from this new order from American Airlines. So my question is, if it would make sense to assume pre delivery payments for IMBRUV reimburse PDPs in the Q1 or in the Q2 of this year?

Speaker 5

Thank you, Victor, for your question. Antonio speaking here. Victor, you know more or less the dynamic of our cash flow. We become a positive last year just in Q4. There's a lot of moving parts throughout the year.

Speaker 5

I would say, it's too early to say that we are going to be better. Traditionally, when you in our free cash flow guidance, we always we were able in the last 2 years to do better. But for us, it's too early to say because we do have also other talks ongoing right now. We continue to grow in 2025. And in some of our companies, our factory are producing parts already for 20 5 deliveries.

Speaker 5

And assuming that the volatility we have if the advanced payments, we may see a different behavior. And you all know Q1 is going to be better, but not in the way we should see. That's why I would say, what we agree internally here, as soon as we have more visibility regards to the free cash flow, we are going to adapt the guidance and do not wait for the Q4 closing. Summary, what I tell you right now, I would say the free cash flow at least can be higher, can be seen as, I would say,

Speaker 3

conservative. The next question comes from Gabriel Resenge with Itau BPA. Please go ahead.

Speaker 8

Thanks and good morning Francisco, Antonio and Guilherme. Just a quick one regarding the supply chain risks. We saw your comments on Brazil Journal's interview Francisco's interview on Brazil Journal, mentioning that supply chain issues somewhat improved in 2023 versus 2022. I was just wondering how much of these potential issues regarding the supply chain capped your delivery guidance 24. So these 80 aircraft in the commercial division, could it be higher if we're not for the supply chain issues?

Speaker 8

And what is the risk that you're seeing for guidance right now regarding this particular variable?

Speaker 1

Thank you, Gabriel. Francisco speaking. Thank you for your question. Well, starting for the last part, yes, both deliveries in the executive and commercial could be higher if we had more parts from the market. But on the other hand, we saw improvements in 2023 in the supply chain in general.

Speaker 1

And we believe we will see further improvements in 2024. But we still have some bottlenecks, I mean, important components that are limiting our production. We actually we made our plan based on the conservative commitments from our suppliers. But even then, we are seeing already some delays in the beginning of the year that brings some challenges in our production flow. But anyway, we are optimistic that the numbers we put in our guidance will be achieved this year in terms of production.

Speaker 1

You're welcome.

Speaker 3

The next question comes from Myles Walton with Wolfe. Please go ahead.

Speaker 9

Apologies. Thanks so much. Antonio, you mentioned CapEx potential investments as a source an area in executive and in services. And the services piece, I think I can understand with the expansion of the fleet and capture there. Can you talk about the areas of expansion in executive from a CapEx perspective?

Speaker 9

Is it purely capacity on the larger aircraft? Is it anticipation of something else to come and maybe put a quantification around it? Thanks.

Speaker 5

Morning, Myles. Thanks for your question. In regards to CapEx for Executive Aviation, we are since 1.5 years doing some adaptation of production capacity in order to be more efficient and also to support the growth. And we are continuing to grow with the book to be 13:1, what we did already in 2023. Therefore, it's just painting both a completion center in order to be more lean and body to manage travel work, productive and also to adjust for the capacity.

Speaker 5

On the MRO side or in the services side, there's more expansion in our MRO. I would say organic growth that we are fostering right now. And on top of it, for our new products, it's not there yet any type of decision to be made if 2025. Maybe Francisco could comment on the last one.

Speaker 1

Well, thank you very much, Antonio. Just to complement Antonio's answer, in terms of new products, we are investing on innovation. We are investing on 7 innovation verticals in order to close the technology gaps to be ready to go for a new program in the next future. We also made, as we do all the time in marketing studies and product studies in order to be prepared for next steps for IMBRY. For now, we have a very young and competitive portfolio of products developed in the less than 10 years.

Speaker 1

And we are in a good moment. We want to sell those products and improve our financial performance. So that's what we are doing. But again, we are investing. We have a good investment in new technologies and we call innovation verticals.

Speaker 9

Okay. Thank you. I'll take the 1. Thank you.

Speaker 3

The next question is coming from a telephone number with the end of 1339. We ask for you to introduce yourself before asking the question. Please go ahead.

Speaker 10

Yes. Thanks so much, Cai von Rumohr. So in your guide, what is the relative mix within commercial between E1s and E2s and deliveries for 2024 and also in bizjets between lights and mediums. And also if you think about most biz jet makers make more money on the larger jet and it looks like yours is reversed. Is there any opportunity for the profitability of the medium biz jets to improve?

Speaker 10

Thank you.

Speaker 5

Antonio speaking. Thanks for your question. It's always very nice. For the commercial jets for 2024, we are targeting 60% E2 and 40% E1 and the mix, okay? And for the Executive Aviation, it's more or less light jets around 5545 to midsize jets.

Speaker 5

I would say, we are seeing a margin expansion for the Active Aviation, but percentage wise, our margin is much better than in light jets, the midsized jets. However, where we are going much more than the midsized jets, that's why, I would say, we should be able to get some margin improvement, but not as the same we have in the light jet. For the midsize jet, we do have more competition. That's why I would say in order to keep our guidance to the market, we are being a little bit conservative, I would say. Same margin, but with much more dollars to come with the expansion production for the midsized jets.

Speaker 5

Thank you.

Speaker 3

The next question comes from Jordan Leone with Bank of America. Excuse me, sir. We cannot hear you. If you could please unmute your phone.

Speaker 6

So sorry about that. Could you hear me now?

Speaker 3

Yes. Thank you.

Speaker 6

Great. Thank you. Sorry, could I you talk a little bit more about the read through on the United and the American orders for the 175s? Should we look at this as a new replacement opportunity for RJs?

Speaker 1

Yes, sure. So, I mean, this new order shows to us that the that market of regional jets in the US is recovering. I mean, although the shortage situation is not resolved, the market is recovering. And this was the first important movement. And this will be very important for us to make a health to have a healthy mix of aircraft between E1s and E2s in the following years.

Speaker 1

So as E1s continue to be the workforce in the regional aviation in the U. S.

Speaker 5

Francisco, just to complement the United issues, it was just a repositioning 20 units to Mesa, which just does not means a new backlog. But for sure, we do have interest from the other players in positions for D1. Even that our B competitors were saying that the regional market is dead, but is as you can see, is not as dead as more alive that we all believe. And the orders are just confirming what we were saying in the last years.

Speaker 3

The next question comes from Jay Singh with Citi. Please go ahead.

Speaker 11

Hey, thanks for taking my question. It's Jay from Stephen Trent's team. My first question is, do you guys have any updates on the E2 sales campaign in and out of the U. S?

Speaker 1

Well, we cannot disclose you about sales campaigns. But what I can tell you that, yes, we are working. We are in conversations with potential customers of E2s in the U. S.

Speaker 11

All right. Awesome. Thanks. And my second question is regarding EVE, what are your thoughts on the certification process, really considering that the FAA is probably under a little bit of pressure right now regarding recent commercial airlines incidents? Just any color on that would be great.

Speaker 11

Thanks.

Speaker 1

You're asking about the EV certification. Is that right?

Speaker 6

That's right.

Speaker 1

Okay. We are having important progress on EV development. I mean, the key suppliers are already defined for the product. We are progressing well in the assembly of the first prototype, the POP-two, scale 1 to 1 that we expect to fly, I mean, end of this year, beginning of next year. So we are committed for the entry into service of the EBITDA our EBITDA to the end of 2026.

Speaker 3

The next question comes from Fernanda Hequia. Please go

Speaker 5

ahead.

Speaker 12

A quick one from my side. Could you please provide us an update on the arbitrage process with Boeing? Thank you.

Speaker 1

Well, we expect a resolution in the first half of this year.

Speaker 12

Perfect. And just a follow-up. Looking at your statement, we can reach close to $300,000,000 that you already reported in expenses for Karvin and Carvault. Should the discussion be close to this number? I know you could not give any guidance on this, but at least if we look at your financial statement, we can see close to 300,000,000

Speaker 5

dollars Bernard, this is Antonio speaking. It would be great if they paid the same cost we have, but it's not in our hands to take the decision. And if you're asking me personally, I would be see more than that, but it's not the decision is not in our hands. And we don't know if we're going to win or lose. That's why it's difficult to give you any type of forecast.

Speaker 1

Exactly. And just to complement, and we are not counting on that money in any of our projections, Fernando.

Speaker 3

Our next question is from the chat. Please hold while we get the question. The next question is from Lucas Barbosa. Hi, Antonio, Francisco and Guilherme. Thanks for taking my question and congratulations for the result.

Speaker 3

My question is regarding Business Jets. How are you seeing the entrance of new orders today? For new orders, is there any niche market that the company is focusing more on such as corporate, flight departments and fractionals? And any visibility of how full the backlog of the competition is looking like? Thank you.

Speaker 1

Well, thank you for the question, Lucas. I mean, we are very happy with the performance of our sales performance of our business yet. I mean, as we mentioned in the opening, I mean, our backlog today is at $4,300,000,000 The book to bill ended the year at 1.321 even with high deliveries in the Q4. And I think we have a healthy mix in our sales. I mean, 1 third, 1 third, 1 third more or less.

Speaker 1

I mean, 1 third for corporate side departments, 1 third for fractionals, 1 third for, I mean, individuals. And this and we have a great portfolio of products. I mean, just launched the FINU 100EX and the Praetors that are gaining more and more the preference of the customers. So we are really happy and comfortable with the sales of our business jet and we are confident that we have another we will have another great year of sales in that business unit.

Speaker 3

The next question comes from Christine Li Huang with Morgan Stanley. Please go ahead.

Speaker 13

Hi, this is Gabby on for Christine. Good morning. So I was just wondering if you could provide some color on how the GTF MRO at Ogla is progressing? And if you can just give an idea of how much revenue and margin will be in 2024? Thank you.

Speaker 1

Can you please repeat the questions the question?

Speaker 13

Yes. So, I was wondering if you can provide some color on how the GTF MRO at AGMA is progressing? And if you can also provide color on how much revenue the GGF MRO at Agba will provide in 2024 as well as any color on margins would be great.

Speaker 1

I will start and then Antonio can help me to complement. Now it's clear. Well, GTN program is moving very well. I mean, the first delivery is planned for April or until following the program. That program will be very important for the AGIMA and IMBRAS growth.

Speaker 1

That the program will help us to more than double AGIMA's revenue in the next 2 years, I would say. And this will be a very, very important factor of growth for OcMA and for Embraer. Jon, would you like to add something about the margin as well?

Speaker 5

Yes. Just in regards to the revenue side, we are more or less forecasting around $40,000,000 additional revenue for this year on the GTF. But assuming that we are under the ramp up, we are not foreseeing any type of positive in market this year. It's even slight negative impact because we are starting right now. But I would say, in the long term, we do see a higher single digit margin for this business.

Speaker 3

The next question comes from Myles Walton with Wolfe. Please go ahead.

Speaker 9

Thanks. Antonio, just another quick one if I could. From a free cash flow conversion of EBITDA, I think 50%, five-zero percent has been sort of your target level and obviously you're guiding below that in 2024. I realize you said it was conservative to start, but is 5 0 percent still the right level to think about over the medium term? Thanks.

Speaker 5

Yeah, Maestro, thank you for the question. You are totally right that it's more or less what we are targeting internally, minimum 50% of EBITDA. What we are facing the backlog is not a surprise maybe for you is the volatility that we are facing throughout the year. That's why we are guiding between 220 plus because it's really hard. For example, last year, we got a big amount of money in the last week of the year.

Speaker 5

That's why we prefer to be conservative. But internally, we are targeting a 50% of our EBITDA even in our long term planning. That's the minimum basis that we are looking for.

Speaker 9

Okay. One quick one, if I could. Francisco, the E2, ETOPS certification, was that preventing you from competing in any competitions? And does that open up new competitions that you see in the near term?

Speaker 1

You mean the E2 certification?

Speaker 9

The ETOPS certification for Europe, for the E2.

Speaker 1

No, no. I think we are moving well with the ETOPS certification. And, this will help us actually to improve the competitiveness of, of our e tools and, you know, to be more successful in the sales campaign we are working on, not only on Europe, but also as well as in other regions.

Speaker 3

Thank you all very much. This concludes today's question and answer session. That does conclude Embraer's conference for today. Thank you very much for your participation, and have a good day.

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Earnings Conference Call
Embraer Q4 2023
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