Embraer Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 27, 2025

There are 18 speakers on the call.

Operator

for three speakers. My name is Gipaeva, and I'm the Head of Investor Relations and M and A for Embraer. I want to welcome you to our fourth quarter and twenty twenty four full year earnings conference call. The numbers in this presentation contain non GAAP financial information to help investors reconcile EVE's financial information in GAAP standards to Embraer's IFRS. We remind you, EVE's results will be discussed at the company's conference call in March.

Operator

It is important to mention that all numbers are presented in U. S. 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.

Operator

Except in accordance with the applicable rules, the company assumes no obligation to publicly update any forward looking statements. For detailed financial information, the company encourages reviewing publications filed by the company with the Brazilian Commissando Valores Modiliaris or CVM. At this time, all participants are in a listen only mode. We will give instructions later on for participation in the two Q and A sessions. As a reminder, this conference is being recorded.

Operator

Participants on today's conference call are Francisco Gomez Neto, President and CEO of Embraer Antonio Carlos Garcia, Chief Financial Officer Luis Harrison, Corporate Communications Director and myself. This conference call will have three parts. In the first part, top management will present the company's Q4 and 2024 full year results. In the second part, we'll host a Q and A session only for investors. And last but definitely not least, in the third part, we will host a dedicated Q and A session only for the press.

Operator

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

Speaker 1

Thank you, Ugi, and good morning and good afternoon to all. Welcome to the Embroer's q four twenty twenty four results conference call. Before I start my presentation about 2024, I'm pleased to share with you that ANA, Au Nippon Airlines, purchased 15 e 190 e two jets this week plus options for additional five aircraft. This is the first sale of our e two family in Japan, and this e one ninety two aircraft will join the order 47 e one jets which have been successfully operating the country since 02/2009. Now come back to 2024.

Speaker 1

Twenty '20 '4 was a historic year for Embraer with remarkable results that show the company's successful growth path. We reached or exceeded our modified and original 2024 guidance for both financial and operational indicators showing our capacity to face the challenges still present in the supply chain. We achieved record revenue of 6,400,000,000.0, our highest level in our history. Our focus on sales resulted in all time backlog record of 26,300,000,000.0. We have made further progress in financial deleveraging, and our net debt is now close to zero.

Speaker 1

Embraer now has the accounting conditions to start paying dividends subject to approval by its shareholders. For this year, we are committed to sustainable growth, and our 2025 guidance reflects the same successful formula of the past few years, double digit growth. Talking about sales, we had a remarkable year with positive highlights in all areas and an impressive company wide 2.2 book to bill ratio. We announced our largest order in executive aviation, a 7,000,000,000 contract with 182 firm orders and third options from FlakJet. The Phenom 300 remains the most delivered light jet for the thirteenth consecutive year and the most delivered twin engine jet for the fifth consecutive year.

Speaker 1

The division finished 2024 with a record 7,400,000,000.0 backlog and an industry leading 2.7 book to bill ratio. Defense and security ended the year with the best sales performance in its history. In 2024, Austria, Czech Republic, the Netherlands, and an undisclosed client acquired 13 k c three nineties. Sweden and Slovakia also selected the aircraft. The a '29 Super Tucano also did it very well and received 29 new orders from Paraguay, Portugal, Uruguay, and two undisclosed clients.

Speaker 1

The backlog rose to 4,200,000,000.0 with a record share more than 60% from global clients. The business unit recorded a superb 3.3 book to bill ratio. In commercial aviation, we announced a firm contract with American Airlines for 90 e one seventy five aircraft plus 43 options. Now e two jet family who signed contracts with Luxor Mexicana in British Australia, thirty aircraft, and welcomed lot Polish with three aircraft via lessors. The division finished the year with a 10,200,000,000.0 backlog and a strong 1.6 book to bill ratio.

Speaker 1

Service and support also showed solid growth, expanding its own MRO centers in The US and announcing new long term contracts with Flexjet and several commercial airlines. The division backlog rose to 4,600,000,000, a new all time high supported by long term contracts, and the business unit finished the period with a solid 1.9 book to bill ratio. The business unit also started inducting engines for repair in our new Pratt Whitney GTF engines operation at AGUMA Portugal. Supply chain is still an important issue, but we are working very hard to address its related challenges. In 2024, we focused on strategic initiatives to better balance production in 2025 and over the coming years, ensuring more linearity.

Speaker 1

We have also improved collaboration with our suppliers, reinforced the supply chain air restructure, digitized processes, and invested in AI tools to anticipate potential issues to monitor and manage activities in real time. I will now move on the operational results by segment over the next few slides. In commercial aviation, revenues increased 20% in 2024. The adjusted EBIT for the full year was 55,000,000 or 182% higher than in 2023, supported by a 2.5% EBIT margin driven by customer mix and operating leverage. In Executive Aviation, revenues expanded 25% in 2024.

Speaker 1

The division adjusted EBIT reached $2.00 5,000,000 or 62% higher than in 2023, helped by an 11.7% EBIT margin because of operating leverage. In defense and security, top line grew 40% in 2024. The adjusted EBIT was 45,000,000 or 57% higher than in 2023, supported by a 6.2% EBIT margin because of KC '29 customer mix and higher eight twenty nine volumes. Moving now to servicing support. Revenues increased 15% in 2024.

Speaker 1

The adjusted EBIT reached $270,000,000 or 25% higher than in 2023, driven by a 16.5% EBIT margin supported by higher volumes in the division. Finally, EV continues to make progress with its EBITDAU development and testing phase. In 2024, EV achieved important program milestones as the final assembly of its first full scale prototype, which is currently being evaluated during the ground testing campaign and is scheduled to make the first flight in 2025. I will now hand it over to Antonio to give you further details about the financial results, and then I will be back with closing remarks.

Speaker 2

Thank you. Good morning and good afternoon to everyone. The remarkable results Francisco just presented are also reflected in our financial numbers, which show sustainable and solid growth in all key Q4 indicators. Let's now move it to slide 11 and start with deliveries. Embraer delivered 75 aircrafts in the last quarter, equal to the number in the same period of the previous year.

Speaker 2

Meanwhile, the company delivered a total of two zero six aircrafts in 2024, including three KC three ninety Millennium, 14% increase compared to 181 aircrafts in 2023. Executive Aviation delivered 44 jets in q four and a total of a 30 for the year at the midpoint of the regional guidance for 2024. And at fourteen year high, the meats and super meat category represent half of the segment deliveries during the quarter, supported by the solid thrust forward of our operator family. It is important to highlight the progress observed in the company's production level initiatives. We managed to reduce the share of Q4 deliveries in the year by 10% points 2024 versus 2023.

Speaker 2

Meanwhile, commercial aviation delivered 31 aircrafts in the last quarter of 2024 and seventy three in the year. At the ceiling of our revised revised estimates of 70 to 73 and still with him the original estimates of 72 to 80 for the period. For the year, our H2O family represented 65% of deliveries and E1 the balance of 35%. Slide 12. As already mentioned by Francisco, our backlog expanded more than 40% year on year in Q4.

Speaker 2

Giving more details, the backlog for Executive Aviation increased 70% year earlier, supported by the contracted Flexjet. The backlog for Service and Support soared to more than 65%, while for defense and security increased 50%, supported by new orders from KC three ninety million and A twenty nine Super Tucano. The backlog for commercial aviation increased a solid 15% year on year. Moving on to revenues. We had a 17% increase year on year in Q4 to more than 2,300,000,000.0.

Speaker 2

Our top line of 6,400,000,000.0 in 2024 reached the high end of our guidance and an increase more than 20% when compared to 2023. All business performed well throughout the year, especially defense and security and executive aviation, Host revenues increased 4025% year on year, respectively. Together, these two segments represent more than 40% of the company's total revenue in 2024. Next slide, please. We generated $328,000,000 E address at the beginning in q four with a 14% margin and $922,000,000 in the year.

Speaker 2

I remind you, there is the Boeing arbitration impact of 150,000,000 in the results of the year. That increased the margins around two thirty basis points from 12.1 to 14.4. Moving to the next slide. Adjusted EBIT for the quarter was DKK $265,000,000 with an 11.5% margin. For the year, we generated DKK $780,000,000 with an 11.1% margin, surpassing the upper end of our previous revised up 10% guidance for 2024.

Speaker 2

If you look at the results for the year ex Boeing agreement, the EBIT mark improved to two ten basis points year on year from 6.6% to 80.7%, supported by high profitability in our business unit driven by efficiency and operating leverage. On to Slide 15 now, please. In Q4, we generated $996,000,000 in adjusted free cash flow because of higher numbers of aircraft deliveries and strong performance in sales, including significant advanced customer payments in defense, which is going to negatively impact 2025. For 2024, we generated $676,000,000,000 in adjusted free cash flow and a strong $540,000,000 without borrowing, helped by significant defense prepayments compared to $318,000,000 in 2023. We did better than our 300,000,000 or more guidance because of the improvement in our working capital.

Speaker 2

Moving to investments without ETH, we spent 64,000,000 in research and development during the quarter, 56,000,000 CapEx, and a net of 10,000,000 in the pool program for a total of 130,000,000 in q four compared to 142,000,000 a year ago. On a yearly basis, Embraer stand alone invested a total of $428,000,000 in 2024 compared to $440,000,000 in 2023. Our capital allocation continues to be geared towards segments with higher returns such as executive aviation services support mainly in US. We continue to see our CapEx run rate at close to $400,000,000 per year in the near future. Slide 16.

Speaker 2

Our adjusted net income was positive $173,000,000 for the quarter supported by a 7.5% adjusted margin. Meanwhile, we ended the year with four sixty two million in adjusted net income for an adjusted margin of 7.2%. If you exclude the bond agreement, our adjusted net income was $363,000,000 for a 5.7% margin compared to 80,000,000 and one point five percent margin a year ago. Slide 17, please. I would like to start highlighting the top right corner of this slide.

Speaker 2

Embraer finished 2024 with a net debit position without ETH of only a hundred 11,000,000 and zero point one times net debit to EBITDA ratio compared to 781,000,000 and one point four times at the end of 2023 for a significant year on year decrease. Last year, I mentioned we were taking all necessary steps to recover investment grade status. I'm happy to announce in 2024, we became investment raised by all three main rating agencies. And we see room for additional potential improvements in our ratings in 2025 and 2026. As part of our liability management plan, we are focused on generating cash, extend the duration, and reduce the cost of our debt.

Speaker 2

Last month, we successfully issued a new bond of $650,000,000 set to mature in 02/1935. This issuance is intended to be leverage neutral as we plan to retire $522,000,000 in debt set to matter in 2027 and 150,000,000 in '28. As a result of this transaction, our debt duration for 2024 has increased from three point eight years to over six point five years, which will be effective in the first quarter of twenty twenty five. And to conclude my presentation, let me go over the details of our 2025 guidance. In terms of operation, we forecast commercial aviation should deliver between seventy seven and eighty five aircrafts for an increase of 10% year on year, use the midpoint of the range.

Speaker 2

Meanwhile, for executive aviation, we forecast 145 to 155 jets for an increase of 15% year on year. If we move to financials, we estimate top line to settle between 7 to $7,500,000,000 with the midpoint of the range 13% higher than what we generated last year. We forecast a bit margin between 7.58.3% for the year, which would imply around $575,000,000 at the midpoint of the range and 10% higher than adjusted $520,000,000 EBIT ex BOIN and ex positive items generated in 2024. Finally, if you move to free cash flow generation, we estimate 200,000,000 or higher for the year. Remember, our goal is to convert 50% of our EBITDA in free cash flow.

Speaker 2

It is important to highlight, it's difficult to predict the dynamic and timing of prepayments mainly in defense business. For instance, we received a sizable pre down payment in q four, which had originally expected for 2025. Thus, if we look 2024 and 2025 together, we should generate $875,000,000 or more in free cash flow, which is 50% of circa 1,750,000,000.00, imply EBITDA by our 2024 hectares and our 2025 guidance. We will update or reiterate our 2025 guidance on a quarterly basis as the years goes by. With that, I conclude my presentation, hand it back to Francisco for his final remarks.

Speaker 2

Thank you very much.

Speaker 1

Thank you, Antonio. First, I'd like to express my sincere appreciation and thank you to our partners, suppliers, and our more than 20,000 people that are part of our Embraer family for your trust last year. Your continued support is a critical part of our success and growth. For 2025, we remain committed to our ongoing effort to manage our business with efficiency, financial discipline, innovation in all areas of the company, and strengthening our supply chain management. And, of course, we will maintain our steady focus on sales to achieve even better results in our business units in 2025 and years ahead.

Speaker 1

To finish, we expect 2025 to be even better than 2024. And Braske has shown it is stronger than ever, well positioned for sustainable growth, and ready to capture its full potential in the coming years. We continue to work hard, always embracing the foundation of our culture, safety first and quality always. Let's now move to the q and a section of the call.

Speaker 3

Thank you. We will now start the question and answer session. Please hold a minute while we poll for questions.

Speaker 4

Uh-huh. Okay.

Speaker 3

The first part of the q and a session will be exclusively for equity research analysts and investors. The second part of the q and a will be only for the press. We highlight again this conference call is being conducted in English with translation to Portuguese. Please let me say a short announcement for Portuguese speakers.

Speaker 5

This conference is being conducted in Portuguese. To listen to the audio in English, please press the interpretation button and select English. After you select the button on interpretation, you can also mute the original audio to improve quality of the transmission.

Speaker 3

Participants interested in asking questions to press star the 9 in the phone at any time or press the raise a hand button on the platform. When your name is announced, press then 6 on the phone or make sure your microphone is on and start your question. We will also answer questions sent via the platform chat. If you need assistance, please use the q and a button on the platform. To give everyone a chance to participate, we request to ask just one question per call.

Speaker 3

The first question comes from Vitor Mizusaki with Bradesco BBI. Please go ahead.

Speaker 6

Hi. Good morning, and, congrats for for the quarter. I have a quick question here about the guidance for 2025. This EBIT margin guidance of 7.5% to 8.3. If you think about this 8.3%, is this maybe let's say, kind of a conservative or maybe here we're talk about, the company assume that the delivers commercial delivers.

Speaker 6

Maybe if you think about, I mean, the the the clients that we get the plans this year, maybe they put some pressure on margins in 2025, but then this means that by 2026, you see a big margin improvement. So any color you can give on on EBIT margin guidance, would be very helpful. Thank you.

Speaker 4

We know better than I know here a lot of volatility regards to exchange rate, regards to inflation, this and this and this. In our math internally here, our recurring APIT without borrowing, without tax credit and other good guys we have in 2024 is 7.6. That's why the guidance between 7.5% to 8.3%. In our view, it's showing already the midpoint 10% increase in value. And if you reach the top line, probably it's going to be better.

Speaker 4

But at least today, we are not the guidance we have follows the operational side. Please do not forget to have the defense, we have services support that we do not show the guidance. I would say is a a combination of facts, okay? What is important, we were able to compensate the positive help we have from arbitration this and this and this in our numbers. And I would say mixed feeling for the time being.

Speaker 4

Guillermo, I want to compliment anything.

Speaker 7

No, Antonio, I think you highlight the main points.

Speaker 8

Thank you.

Speaker 3

The next question comes from Daniel Gasparetti with Itau BBA. Please go ahead. The next question comes from Daniel Gasparetti with Itau BBA. Please go ahead.

Speaker 9

Hey. Thank you very much. Good morning. Apologize for the issues here with the microphone. So my question, I would firstly would just like to confirm what Antoine just said.

Speaker 9

He said that, the recurring year, a beach margin of 2024 when it's just for BAE and also for the credits was 7.6. That was the first question just to confirm that. And the second one would be regarding commercial aviation, just to get a view of how you guys are seeing the evolution of the backlog in terms of pricing. We are seeing if we are seeing a better price environment for the market right now and what is your expectation for 2025, please?

Speaker 7

Hey, Daniel. Good morning and thanks for the question. Just to clarify then, there were some extraordinary items in 2024, right? The Boeing settlement was one of them. We have tax credits and we also had some extraordinary suppliers credits that brought the that helped us in the results in 2024.

Speaker 7

So as Antonio mentioned, if you look at what we believe to be the recurring EBIT for 2024, the margin was at 7.6%. And let me pass it to Antonio so he can comment on the second part of the question.

Speaker 4

Daniel, good morning. Thanks for your question. So first of all, we are happy and you guys talk to us more or less every month about the famous merger of commercial aviation. And we always said we are on the way to meet single digit. And moving forward to the 5% to 6% in midterm, I would say, having already 2.5% is a nice improvement compared to previous year.

Speaker 4

That's one point. That's sure already that our backlog is somehow improving. We are, I would say, we were able to capture some operational leverage. I would say the new orders we are getting is accretive for a mid single digit midterm, I would say, we have some tough campaigns, yes, but I would say, on average, our new backlog is accretive for a mid single digit. And I don't know, Francisco, if you want to comment about the moment you are facing on commercial BHL right now and is important for the audience here?

Speaker 1

Oh, absolutely. Thank you. Thanks for the question, Daniel. We had a good year in terms of sales, as I said before, in commercial aviation. E1, no, the big order from American Airlines, ninety nine plus 43 jets.

Speaker 1

And also E2, I think considering the the market in 2024, we did it very well. We we sold 30 new E2s, opening new customers, and placed another three, one ninety five at, lot Polish. And we have several campaigns ongoing. And then here we are, I'd say and this year, we just announced it, A and A decision for fifteen plus five, UNI t z two. So we are very optimistic with the commercial vision sales in 2025.

Speaker 9

Okay. Thank you guys. Thank you very much for the call, Bertolish, for the result.

Speaker 1

Thank you very much. You're welcome, Daniel. Thank you.

Speaker 3

The next question comes from Lucas Macchiolli with BTG Pactual. Please go ahead.

Speaker 10

Hey, guys. Good morning. Thank you for the call. Yeah. Let me just go back to this a bit more than topic because I think this is kind of important.

Speaker 10

Right? And, when we think about, I mean, the mix for 2025, we are assuming probably commercial aviation still running below historical averages and most likely diluting somehow the growth from executive and services and support. Maybe this is somehow implicit on your margin for 2025. It would be nice at least to have some color on what are your maybe best thoughts on margins for each segment, if you guys could, of course, right? That will be helpful, guys.

Speaker 10

Thanks a lot.

Speaker 4

Lucas, thanks for your question. Good morning. Now you know why you're not taking part in your conference. And I hope you like that we were not taking part by seeing the results. I'd say the margin profile for next year, you have our release there.

Speaker 4

It's more or less in the semi line for 2025. You have the release you could read. We were even ticked better in service and support in 2024. That's normalized a little bit for this year, for 2025. Commercial, the same.

Speaker 4

Defensive small growth and then executive in the same level, I'd say. It really reflects quantities without what we just said to Daniel here from Vitau, the recurring margin without the good guys we have last year. I would say, is accurate with our backlog, with our operations. It can look a little bit, I would say, modest for you guys, but let's wait till the year goes by that we do have a lot of volatility in the market. That's why we prefer to not disappoint you at the end of the year.

Speaker 10

Okay. Thank you, Antonio. Thank you, guys. Have a nice day.

Speaker 3

The next question comes from Noah Poponak with Goldman Sachs. Please go ahead.

Speaker 11

Hey. Can you hear me? Yes. Noah, how are you? I'm great.

Speaker 11

Thanks so much for taking the questions. I wanted to ask about the Flexjet order and if you could help me better understand, how much of that is incremental to existing deliveries versus how much of that is, was, you know, sort of already in your delivery stream in executive?

Speaker 1

No, no. Thanks for the question. I mean, all the order is incremental. It's a fresh order for us that went to our backlog and show how sustainable has been our executive business. So again, 100% of the order is incremental.

Speaker 4

It's from 2026, '20 '13, the deliveries, it's more or less, between 30 to 40 aircrafts a year.

Speaker 11

Okay. That's helpful. Appreciate that. And then I just also wanted to ask about cash flow guidance. Can you maybe just walk through why free cash flow would be down a good bit from the last few years where your conversion from net income or EBITDA has been pretty strong?

Speaker 4

Thanks for the question. I was prepared to answer you. And by the way, my comment in the when in the speech was direct to you because we always discuss about 50% EBITDA conversion. And if you sum up 2024, '20 '20 '5, we are there 50% of the implied EBITDA that we are turning to cash. What we are facing is a lot of seasonality, especially that we are growing all business unit.

Speaker 4

But mainly in defense, it's really hard to predict when you get a new order, the dynamic of the deal, we forget a nice PDP or not. I would say, on average, we are there in the 50%, but we have ups and downs. You saw 2024 around $700,000,000 And I would say when we do the math here for this year, calculating progress payment more or less at the same level, we need more working capital for deliver more $1,000,000,000 revenue. That's why I would say sounds modest, but beginning of the year, let's see how the sales campaign evolved during this year. Probably, we have, as always, upside.

Speaker 4

That's why we always guide 200 plus. And by the way, last year, we changed the guidance in Q3 also going up. And but it's more or less the dynamic we have in the cash flow today.

Speaker 12

Good morning. It's Miles Walton from Wolfe Research.

Speaker 4

Hello, Miles.

Speaker 12

Hello, hello. Francisco, could you speak to some of the supply chain constraints that are still governing how quickly you can grow perhaps by segment, if you could? And then also just to clarify that Precision Cast parts fire for fasteners, just want to make sure that you don't have any idiosyncratic exposure to them?

Speaker 1

Thanks for the question, Myles. And it is true that supply chain has been one of the big issues we have had in the past years, but we have done a lot to improve our internal process and our relationship, the way we support, we identify, we anticipate critical issues in the way we support, our suppliers to to come with us and deliver the parts we need. The first, what we did was, you know, to to prepare a production plan that in our view is very realistic considering all the the limitations and risk we have. Honestly speaking, we could, we could deliver even more aircraft, commercial, executive, and even defense in 2025. But we decide to be, you know, little more conservative, take into consideration the limitation in the supply chain.

Speaker 1

And the bottlenecks, no, it's interesting. The bottlenecks moves from one critical supplier to another. But we are we believe we are very well prepared, in 2025 to to bring the parts we need. And this is in combination with this initiative as we put in place already back in 2023 that we call production leveling or production linearity. The idea is to better distribute the production in deliveries throughout the year, which will be healthier for our efficiency, productivity, and cash generation.

Speaker 1

This is actually with what we are doing. We are even closer to our suppliers. We are applying, I mean, digital in the, IA tools to to monitor, the risks of our supply chain and put in place in our initiatives, as a rescue teams, lean teams to help our suppliers know to eliminate the bottlenecks in machine or quality or efficiency. This is not what we are doing, and we expect another difficult year, but we are prepared to face the challenges, Miles.

Speaker 12

And just to clarify, anything specific on Precision Castparts fasteners? And then Francisco, is it fair to think then that the success you've had in the quarterly seasonality of deliveries, you can do as good or or even better going forward?

Speaker 1

Yeah. Exactly. We have, as I said, the the bottleneck, moves from one supplier or one sub supplier to another every year. And this is one of the risks we are managing, but we do believe that our production and delivery plan for this year is realistic.

Speaker 13

Okay. All right. Thank you.

Speaker 4

Thanks, Mario.

Speaker 3

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

Speaker 14

Hi, everyone. Good morning. There's a question regarding the top line. I mean, we know the numbers from executive and also the commercial based on the deliveries. So just want to see if you guys can comment about what is the outlook for service than defense.

Speaker 14

Defense, given that is the percentage of completion on the KC, can you tell us how many aircrafts you will have in production this year, if this number could accelerate, if some orders are confirmed or not, just to understand what are the upside risk in terms of defense, especially on services and on defense? Thank you.

Speaker 7

Hi. Good morning, and thanks for the question. I mean, in defense, we delivered three C390s last year, and we had five of them running through our mind and accounted at the POC methodology. And our objective is to be at close to 10 aircraft by 02/1930. So we're gonna see a gradual increase in the next few years towards that level.

Speaker 7

I think that's if you're just forecastedly, I mean, your increase towards the 10 birds by the end of the decade, I think you're going to be right on spot.

Speaker 14

Thank you. And on service and support, Augema ramp up, anything different than that double digit growth that the company has been commenting?

Speaker 7

No. I mean, we continue to see the GTF engine shop ramping up to about $250,000,000 in 2026 and the full ramp of SEK 500,000,000 top line in 2028. We continue to kind of try to get more high value added work to the shop in the next few years. So there is some upside there if we're able to kind of obtain those contracts. But the rest of the business continues to do well with the Embraer related business growing close to double digits and the agnostic part more towards low to mid single digits.

Speaker 4

And Marcelo, just to complement, we reached the high end in 2024. And I guess the high end for our guidance in 2025, we know is a tick better than what you guys are thinking, assuming what Francisco said. And then we could even could deliver more than what we put in the guidance there, I would say. We are, I would say, at least today, very committed and also positive to reach also the high end of our top line. Let's see how the year evolves.

Speaker 4

A lot of volatility, but I would say we are equipped to the high end.

Speaker 14

Super clear. Thank you very much.

Speaker 4

Thanks, Marcelo.

Speaker 3

The next question comes from the telephone number ending 7519. Please go ahead.

Speaker 13

Excuse me. I'm sorry. Good morning. Can you hear me okay?

Speaker 10

Yes. I can hear you, Steve.

Speaker 13

Oh, great. Thank you very much, Antonio. Good morning. Steve from Citi. Most of my questions have been answered and I will stick to your request for just one question.

Speaker 13

I was curious when kind of a follow-up on Myles' question earlier, when you look at supply chain, you guys have done

Speaker 4

a

Speaker 13

great job with doing a lot of this stuff in house. But is there any sort of pain point specific pain point of the supply chain that you think is really going to take a while to clean up for the whole industry? And is this maybe the engine side or is there something else that's specific area that's really stubborn in terms of the sector trying to fix? Thank you.

Speaker 1

Absolutely. Francisco speaking, well, even with engines, we have seen some improvements, but still have specific engines that are hurting our production schedule. But also structural suppliers and fasteners becoming a big challenge for us in 2025 as the OEMs continues to ramping up their production, you know, pressuring their supply chain. But again, we we we have some, as I said before, some bottlenecks we are working on, but we made our production plan and guidance based on the limitation we see from the market.

Speaker 13

Very helpful. Thank you very much, Francisco.

Speaker 1

You are very welcome. Thank you for the question.

Speaker 12

You bet.

Speaker 3

The next question comes from Lucas Estevis. Please go ahead.

Speaker 15

Good morning, guys. Wow, congratulations again for outstanding results. Just a quick question here. Does your guided volumes for 2025 imply any change in product mix to justify those margins?

Speaker 1

Yeah. Okay. Lucas, thanks for the question. I think the product mix is not changing too much for 2025. We are we are seeing a growth in all the products we we have, you know, either business jet, commercial jets, and defense.

Speaker 1

Defense, we have more Super Tucanos, that's true, which will help us in terms of results. But the other products, we see growth in almost all of them in 2025.

Speaker 15

So for commercial aviation, do you do you foresee any change in in e twos, any one mix?

Speaker 1

We see we see a little more u ones in 2025 because of the new contracts we closed last year. I think this is this is the change we we see with more U1s in 2025.

Speaker 15

That's great, Francisco. Thanks.

Speaker 4

Lucas, just be careful. All old contracts and new contracts, not only new contracts, okay, that we still have to deliver the ones. And I guess the the I would say the main change is the Super Tucano in my opinion, that we we have almost not nothing in the last two years, I'd say, that's going to change a little bit the profile for defense.

Speaker 15

The Tucano should boost profitability, right, Antonio?

Speaker 4

That's more or less what we hope, Lucas.

Speaker 15

Let's see. Thanks, guys.

Speaker 4

Thanks for the question.

Speaker 3

The next question comes from Lucas Lackey with XP Investments. Please go ahead.

Speaker 16

Good morning, everyone. Thank you for the question and congratulations on the results. I have some follow-up questions on profitability. Just, getting some more color on the executive division and defense division. On the executive division, we we saw profitability of 10% EBIT margin.

Speaker 16

Just wanted to to know, and if you if you could give us more details if already reflects the structural mix profile, following the strong order activity with fleet operators that we saw throughout 2024. And in the defense division, I mean, on the other hand, we saw a very strong, profitability level in fourth q. Q. Just trying to understand what was the main driver for this profitability improvement and how much of it should be recurring considering your profitability guidance for 2025. Thank you, guys.

Speaker 4

Lucas, nice to talk to you. By the way, we start to talk to you there. I am going to answer in regards to the Executive Aviation. And for sure, when you see Q3 Q4 'twenty three, we report 16% and in Q4 'ten percent. Even that the division itself has performed, I would say, much better in regards to the year.

Speaker 4

And it's basically very simple. In Q3, we have a huge concentration of deliveries in Q4 that this year we were able to soften a little bit Specialty Executive Aviation because of the production level. It means we are going to see, even this year, much more balanced results for Executive Aviation because of it. That's, I would say, the main difference on Executive Aviation. And also the we have also some positive guidance also in Q4 twenty twenty three that also helped this equation here.

Speaker 4

And the same for Defense. Now we assuming that we have the POC and we closed some contracts in Q4 that we were able to, I would say, monetize our some words we have in the inventory. That's also, I would say, push the results positive in Q3, but I'd say I would prefer to see defense on a yearly basis. We just went from 5.5 in 2023 up to 6.2 in 2024 is more or less what we are telling to TheStreet. And you notice the phase is moving for mid single digit on the way to higher single digit or lower teens, but more or less the process we are today and we are going to see it in 2025 as well.

Speaker 16

Perfect. Very clear. Thank you, Antonio.

Speaker 1

Thank you.

Speaker 3

The next question comes from Alberto Valerio with UPS. Please go, go ahead.

Speaker 17

Good morning, Antonio Francisco, and congrats for the outstanding 2024, results. My questions is regarding 2025. I have two on my side, to to estimate the free cash flow on on the guidance. Do you guys consider how much book to bill it's close to one? And my second one, it's about maximum capacity, on your plans.

Speaker 17

I I was having in mind that, executive jets was about 144, 1 hundred and 50. I would like to, to know if, if this, maximum capacity, is correct or if you already have this capacity that you delivered for the zero, or if you need to do any, additional CapEx to, to increase, the capacity for the business jet this year. And just as a recap, I, I have here a maximum capacity of 120 commercials, 144, one hundred and 50 business jets, and, and then, cases for for one year. Thank you very much, and congrats again for the year.

Speaker 7

Thanks for the for the question. So let's split it. Francisco will address the the the capacity of the company, then we start with the free cash flow. Just to recap what Antonio mentioned before, I mean, we our goal is to convert about 50% of EBITDA into free cash flow in the medium to long run. We have a very strong PDPs in defense in the fourth quarter of twenty twenty four that helped us generate more than $600,000,000 in free cash flow last year.

Speaker 7

And obviously, there will be a payback in 2025 because of that. So when we kind of look at the two years combined, you know, what we delivered last year with the implied IR guidance, we think we are very close to that 50% conversion of EBITDA. And let me pass it to Francisco so he can go over the operational side.

Speaker 4

Just to complete, Guy, first, Alberto, it's a pleasure to talk to you. And you are realizing our backlog is moving up, up, up. And there is always a point that we should be careful. And our, I would say, our premises for 2025 is a book to bill one to one in order to keep, I would say, the substance we have in our closing 2024 does not mean that you are not continue to grow. You see here, again, a nice growth for 2025, and we could also foresee the same for 2026.

Speaker 4

And capacity are going to Pesto Francisco.

Speaker 1

Thank you, Guy. Thank you, Antonio. And thank you, Alberto, for the question. Actually, Alberto, we are ramping up production in all the divisions. Right?

Speaker 1

I mean, business, commercial, and defense, and also support and service as well. And we are increasing our capacity. So production capacity year after year in line with our backlog our backlog. But as I said before, we are very diligent about our financial discipline to approve investments. So before we approve investments to increase the capacity, we look carefully at the opportunities we have to increase productivity, to work with suppliers in order to make sure that the investments will have a good return for us in the following years.

Speaker 1

But yes, we still have a capacity to grow in all the units. In commercial aviation, we this year, the guidance goes up to 85 jets. We expect to go to to be at the three digits in the next two or three years and increase, you know, up to a 20 or even more if the investments justify the return. The same is valid for our business jets. We are growing this year.

Speaker 1

We have plans to we are investing in new painting booth, in new flight preparation area, production area to increase production 25 in any years ahead, but always one eye on the fish and other eye on the cat. Right? I mean, the the investment has to prove its return. And the same for defense and and service and support. So again, we announced in the last year 77,000,000 investments in expanding our MRO service in Dallas because we see a very good return in that project.

Speaker 1

So that's why we are doing.

Speaker 17

Thank you very much, Guy, Antonio and Francisco. Congrats again.

Speaker 1

Very welcome.

Speaker 3

Next question comes from Ronald Epstein. Please go ahead.

Speaker 8

Hey, guys. Can you hear me okay?

Speaker 4

Yes, we can hear you. We're missing you, Ronald.

Speaker 8

Hey, good morning. So just a couple of questions. Maybe turn one of the questions around a little bit. How long do you think you can harvest for before you need to make an investment in a new platform either in business aviation or commercial?

Speaker 1

Well, Rom, I I was expecting your question, honestly. It is actually, it's a very good one. Rom, I mean, the answer remains the same. We are making a lot of studies in in those fronts, you know, commercial and as executives. And beside that, what we are doing, we are focused on delivering the results in our plan from now to 02/1930 to make sure we will have a very healthy cash generation to support a potential next move.

Speaker 1

And also, we are investing a lot in new technologies. I think this year is one of the highest investments we are making in new technologies to guarantee our technology readiness for, in case we decide to go in a new program. But until 02/1930, we have a we will focus a lot on the products we have, and we have a great plan. You saw great results '24. We are growing now almost 20%, eighteen % in '25, and we have a plan to grow, you know, to be, you know, a company beyond 10,000,000,000 at the end of this decade without EVE.

Speaker 1

And we are investing a lot in EVE, right, to develop this this new new new aircraft. So with EVE, we'll be even higher. So, again, this is our plan, considering the existing and potential new products, Ron.

Speaker 4

I just to comment, you added to your comments, Francisco, Ron. We are I would say, we like the harvest that's becoming a sustainable growth view in this case. And if you see, we are, I would say, DE2 is very brand new, KC is brand new. Now we are continuing to have the super Tucana that's nothing new. And also, we are even, I would say, put ourselves to make some improvements in our U1 platform in order to extend the lifetime of the aircraft.

Speaker 4

And we are doing that and also run some improvements in the executive aviation platform. I would say combination of everything and let's see what the future reserves to us, but even with the current portfolio, we are doing improvements as well.

Speaker 8

And then Antonio, if we think about the outlook for 2025, if you can answer this, you might not be able to, which is okay. How much conservatism is built into it?

Speaker 4

It's a great question. I would say, if you ask me today, I like the high end of our guidance for EBIT. I like that. But I would say, let's wait a little bit how the year is above around because it's a lot of volatility. We never know about tax impact, this and this and this.

Speaker 4

It's quite volatile. But I would say, we know each other already for a long time and we always try to hit the guidance and that's our commitment here. And we hope that you continue to, I would say, surprise you in a positively. Antonio,

Speaker 1

if you allow me to compliment this wrong. I do not say conservative, but I would say realistic. In the past year, since 2021, we have been delivering on our promise to the market. We have been able to eliminate the hockey stick effect from our lives. So, I mean, the hockey stick effect, you know, right, the the the first years are bad, but the future will be bright.

Speaker 1

So we have been delivering our promise year after year, and this is what we want to do. We want to show again to the market that, we will deliver our promise, and our promise has been ambitious year after year. We see double digit growth year after year from 6,400,000,000.0 last year to almost between 7 to 7,500,000,000.0 this year. And I said, have a plan to be beyond 10,000,000,000 until the end of the decade. So again, we see this a win win situation for us and for our investors as well.

Speaker 1

So again, not conservative but realistic.

Speaker 8

Got you. And then maybe one last one, if I can. On the KC three ninety, given the changing transatlantic relationship with The US, have you seen any pickup in demand for the airplane out of NATO?

Speaker 1

Well, I mean, KC, you know, a is a great product developed, on the right time, right, for that that platform up to 26 tons. We believe we have the best product in the market, And we are seeing this. 60% of our orders now is coming from global global clients. And we are working in a lot of new campaigns, you know, campaigns in Europe, campaigns in Asia, campaigns in in South America. And, of course, North America is our, maybe masterpiece.

Speaker 1

Right? I mean, it's the biggest defense budget in the world, and we do believe that KC will help USF to increase substantially the productivity with this kind of aircraft. And, with the volume the potential volumes, this is going to be a product made in U. S. So we see this is a great opportunity for us in line with The U.

Speaker 1

S. Expectation of the new government, right?

Speaker 8

Got you. Alright. Thanks, guys. Yeah. Have a good day.

Speaker 4

You as well. Thank you, Rom.

Speaker 3

The next question comes from Victor Misuzaki with Bradesco PBI. Please go ahead.

Speaker 6

Hi. Thanks for taking my my my question again. Just just a quick one here. I mean, the company reports a very good quarter, right, with, robust cash flow generation. We're talking about net debt of only $111,000,000 And, when you take a look on your auto financial statements in your ERGAAP, in Bara could zero the net losses and and then now we're talking about earnings reserve.

Speaker 6

So my question here is, and a follow-up on this question about the harvest period. So when Embraer expects to start or resume the dividend distribution And if is there any kind of plan to set a kind of dividend policy?

Speaker 4

Thanks for the question, Victor. We exhausted the accumulated losses. Accounting wise in Q3 means we are qualified to start to pay in Q4. For sure, it has to be approved by the board and it has to be approved by the shareholders meeting. That's going to happen April.

Speaker 4

Okay? And we have already our dividend policy, which says we pay the latest SEAS 25% on net profit of the year and the rest to converting investment in working capital reserves. That's more or less what is our institute. And there is, at least today, no big move in this corner here. The only issue that the market does not know how we pay dividend because the last one was in 2018.

Speaker 4

And now we are, I would say, getting familiar even ourselves years out to come back to this activity. It's the only reason, but we have already statute this policy here. We paid what is basically said by the late Azarcias.

Speaker 6

Okay. Thank you.

Speaker 4

Thanks, Victor.

Speaker 3

This concludes the question and answer session for Equity Research, Analysts and Investors. Now we will start the Q and A session dedicated to the press. First, we will answer questions in English, and then we'll answer questions in Portuguese. We'll also answer questions sent via the platform chat. Please let me say a short announcement for Portuguese speakers.

Speaker 3

This conference is being given originally in English. If you would like to listen to the translation into Portuguese, please choose interpretation and Portuguese. Questions to press Raise a hint button on the platform. When your name is announced, please make sure your microphone is on and start your question. If you need assistance, please use the q and a button on the platform.

Speaker 3

To give everyone a chance to participate, we request to ask just one question. Please hold while we pull for questions. The first question comes from Charles Alcock with AIN Media Group. Which regions of the world do you expect to see the strongest growth in demand for executive jets? Are you concerned about access to The US market if tariffs are introduced?

Speaker 1

Well, Charles, thanks for the question. The first part, I mean, US represents more than 60% of our market for business jet. So it's natural that we expect this market to continue growing. But we are also selling business jetting in other markets as well. South America was a great market in terms of sales last year, Europe, and even sales we had to other regions like Middle East and Asia.

Speaker 1

But I do believe that the main market will continue to be for many years U. S. The second part, I didn't get the second part of our question. Could you repeat, please?

Speaker 3

Sure. Just one second. Are you concerned about the access to The US market if tariffs are introduced?

Speaker 1

Well, I mean, we we cannot anticipate movements or decision made by the US government. But at this point of time, we do not anticipate any big issue. As Embraer has a very well balanced trade with The US. We have production plant in The US. We have more than 2,500 employees in The US.

Speaker 1

We have been in The US for forty five years. Our aircraft carry a lot of very high US content in terms of equipments. Our E one seventy five E one is basically the only option for regional aviation in The US. So, anyway, because of this long term collaboration of The US, we see that this is a win win business, and we believe that, you know, the situation should not change. But but, anyway, if something changes, we'll see what we'll do.

Speaker 1

But at this point of time, we don't anticipate any any issue or difficult to introduce our products in The US. That's because we have a good basis there. And as I said before, the KC three ninety is a potential product to be assembled in the country.

Speaker 3

Thank you. The second question is also from Charles Alcock, and he's asking how much has Emperor invested in EVE? Does EVE need to raise further funding to complete development of the EVE tow aircraft?

Speaker 4

Thanks for the question. We already invested something like $300,000,000 if not active. And I would say we have equity and debt to our credit lines with the bankers to go to the certification at least today. But if you see any possibility for a new investor, we have new investor coming, want to also to take part, I'd say, maybe it can happen. It's not we are not closing our eyes for that.

Speaker 4

I would say, I do not see a risk for the project today. There's much more interest from the streets today than even before. It's more or less the momentum we are seeing for EVE right now.

Speaker 3

Thank you. The next question comes from Andreas Schulz with he's an aviation journalist. One seventy five e twos are not breaching cruise level in the markets? The issue of e one seventy five e twos remains close associated with the ongoing US mainline scope clause discussion with the pilot unions. Are there no other international markets around to place the aircraft for the smaller 76 seater segment?

Speaker 1

Andres, thanks for the question. But the answer for the question number one is your quest question number two. The UN 75 is very simple. We are postponing because, we don't see signs of changing in the scope clause in the e one seventy five e two despite being much more efficient than the the the first generation. His his his weight is not compliant with this COB clause.

Speaker 1

That's why we decide to to to postpone another four years. But on the other hand, we are investing in improving our E175 E175 E175s with new seats, with new luggage bins, with new connectivity, and we are occupying that market for regional aviation with the E175 E175 E175 E175s.

Speaker 4

Not the only US, Prinsiv?

Speaker 1

Not only US. In the video, we are. We we we could have opportunities to sell e one seventy five e twos in other markets, but the main market, the main target market for that aircraft is US. So it does not make sense for us to develop a product for small volumes market and leaving behind the high volume market. And as Antonio said, yes, we are selling once in a much more volume, but in other markets other markets as well.

Speaker 3

Thank you. The next question comes from Richard Sherman, as a freelance aviation reporter. Can you specify where your priorities are in your R and D spending? What specific technologies slash aircraft technologies are you studying right now?

Speaker 1

Richard, thank you for your question. In order to optimize our investments in new technologies, we have defined, serving we call serving innovation verticals. And among them, I can say I can tell you, for example, autonomous flight. I can tell you alternative propulsion system. I can tell you airframe competitiveness.

Speaker 1

I can tell you, passenger experience, I mean, and many others. I mean, industry four point zero, artificial intelligence, cybersecurity. So then we are with those seven verticals, we are on those seven verticals, we are concentrating our investments to be prepared to develop new products. And some of them are being applied already in in existing products, like the EVITO, for example. Right?

Speaker 1

EVITO is 100% electric vehicle. So it's a good example of alternative proportion systems that, can be used in in new products as well. So again, this is why where we are putting our money in terms of new technologies.

Speaker 3

Thank you. The second question is also from Richard Sherman, and he's asking, Airbus said it is delaying the launch of its hydrogen aircraft by five to ten years because of delays in the hydrogen ecosystem. What's your view on this?

Speaker 1

Well, in Embroer, I mean, in line with this investment in new technologies, Embroer has developed or has been working in two new aircraft concepts we call Energia family. One is a hybrid electric. No. It's a small one up to 19 seats, and the other one is a hydrogen hybrid. But we also see these technologies, you know, being mature, you know, in fifteen years ten to fifteen years from now.

Speaker 1

So and hydrogen is even more complex because, it's not just the aircraft, but the infrastructure in the airports as well. So, again, we we see this, we are working that to, you know, to acquire knowledge technology, but we don't see entry into service in a short term. This should be also ten, fifteen years or more from now.

Speaker 3

Thank you. The next question is from Coral Schwarz. How much more money is needed for Eve to a certain certification in the

Speaker 4

question. We the way to go is around BRL400 million around for the certification, including also industrialization.

Speaker 3

This concludes the question and answer session in English for the press. This q and a section is now being conducted in Portuguese. To switch to English, please press the interpretation button on the platform and then select English.

Speaker 5

We'll now begin the q and a session in English. The chat box on the platform. If you need assistance, please use the q and a button on the platform. We kindly ask that you ask only one question at a time so everyone gets a turn. Please stand by while we collect the questions.

Speaker 5

First question is from Nelson During from DefesaNet. What is the sales percent percentage target for defense and security in total at Embraer? The historical average used to be 20%. Hi, Nelson. Good morning.

Speaker 5

Thank you for the question. Well, the historical target in the past, if you look back a few years, it used to be about 15% at Embraer. But now our projection for the next few years is to grow considerably, and defense will keep up with that growth. There's been plenty of sales of KCs, Super Tucano, as well as other products in defense. We don't really have a percentage target or share for each one, but I would imagine that it will tend to remain at the 15%, which is the historical share in defense.

Speaker 5

It should grow with the other divisions in the company. Thank you. The next question is also from Nelson During. He says, what are the prospects for ATEC, a subsidiary of the defense division? It currently makes radars and naval contractors of the nuclear submarine and the Tamandare ship.

Speaker 5

Wow, Nelson. You're very well informed when it comes to defense. Well, our focus on financial discipline, efficiency, and innovation also goes to our subsidiaries. ATEC is a % Embraer. ATEC has been showing considerable improvements in its performance, both in terms of growth and revenue.

Speaker 5

Last year, ATEC deliver an EBITDA of 18%, which is fantastic performance, and it's been growing. So we have high hopes for new businesses, including Vector, which is the new ATEC product to support the eVTOLS operation. Thank you. The next question is from Pablo Diaz. Any advances on the LOI e 95 e two from Aerolineas, Argentina?

Speaker 5

Would you prefer do you think that will become a firm order after the change in the government? Well, thank you for your question. Before the government change, we had made considerable progress in our negotiations to replace the old e ones by e twos in Erlenius, Argentina. Now with the change in government, that product that process has been interrupted, and we're waiting. We believe e two to be the best solution to replace e ones in other markets as well as that of Argentina.

Speaker 5

So right now, we're just waiting. Thank you. Please stand by while we wait for further questions. The next question is from Carlos Martin from Erwin. Please go ahead, mister Martin.

Speaker 5

Hello, everyone. First of all, congratulations on Embraer's results. I have a question. Can you hear me okay? Yes.

Speaker 5

Please go ahead, Carlos. Great. You announced the material fact about freezing the e two aircraft. I'd like to hear about the certification, considering that four years from now, you're gonna resume that project. Does Embraer have a specific date for its certification?

Speaker 5

And also considering the the question about The US, do you have any prospects of the January or January e two for that market as well? About e one, one seven five e two, it has already flown. We have had a test flight with that aircraft. We're just delaying the conclusion of the development because The US market is still closed for that market due to the scope clause because the e one seven five e two does not meet the scope clause. That's the only reason why.

Speaker 5

Once we realize that there will be a change to the scope clause that will become more flexible, then we will resume that project. And we believe certification could take place in a short period of time, a few years only, because the aircraft is practically ready. So we just need to conclude some developments, some of which are quite important, but we don't really have a deadline. We don't have a set date to tell you how long after we resume the project the aircraft will be certified. There's something else I think, you can support me with the answer.

Speaker 5

What is

Speaker 7

it? I asked about

Speaker 5

your prospects to sell one ninety and one seventy five e two, which have already been certified to be sold in The US. Okay. We have great prospects, Carlos. We're already working on it. We're not allowed to disclose it yet, but we are working with some American Airlines and showing them the benefits of having an aircraft the size of one e one nine five, especially a two for regional flights, and the Garabar is the large ones.

Speaker 5

So we're moving forward in convincing them, and we hope that in the next two years, we should have some good news coming from North America for our e twos. Thank you. This concludes

Speaker 6

the

Speaker 5

Q and A session and Embraer's conference for today. Thank you very much for joining us and have a great day.

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Embraer Q4 2024
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