Yahoo Finance Embraer S.A. (NYSE:ERJ) Q1 2024 Earnings Call Transcript
Embraer S.A. (NYSE:ERJ) Q1 2024 Earnings Call Transcript May 7, 2024
Embraer S.A. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: [Technical Difficulty] quarter-over-quarter and a strong 2:1 book-to-bill for the quarter. We recorded our first set of firm orders from NetJets, with deliveries will begin in 2025. In total, NetJets has purchased rights for 250 aircraft over the next 14 years. In Defense & Security, we hosted the first Embraer Defense Day in the U.S. with C-390 Millennium and the A-29 Super Tucano. The event included a diverse guest list of government authorities, military officials, prospects and partners. In early 2024, Embraer in Mahindra sign MoU to jointly pursue the sale of the C-390 Millennium to the Indian Air Force. The first Hungarian C-390 successfully completed its maiden flight. The aircraft continues to receive international recognition on the back of its remarkable operational performance and capabilities.
We should note the division reported lower year-over-year revenues because of supply chain delays and business seasonality. In Services & Support, revenue grew 12% compared to the same period last year with solid double-digit profitability. The business reality backlog maintains the historical $3.1 billion record reached in Q4 2023 with a 10% plus EBIT margin. Another important step for our Services division was the induction of the first product GTF 1100 engine in OGMA. Our MRO in Portugal, the ramp up should last four years and we expect revenues to reach closer to $500 million in 2028. Last but not least, EVE, our EVE business is on track to achieve important milestones in 2024. We have already selected now more than 90% of its component suppliers and we successfully concluded a Urban Air Traffic Management trial.
The company is on track to accomplish the next development test, first prototype assembly conclusion, initial test and the definition of certification basis. We also began the definition of our EVE found factory configuration. All-in, we estimate EVE should have a total cash consumption between $130 million and $170 million in 2024. I will now hand it over to Antonio, our CFO, to give you further details about the financial results, and then I will be back with closing remarks.
Antonio Carlos Garcia: Thank you, Francisco. Good morning, and good afternoon to everyone. I would like to highlight our operational performance in Q1 despite the historical seasonality. Total deliveries revenue margins were higher than the same period in 2023 and the company's cash consumption was better than a year ago. Our focus in Q1 was on business and financial efficiency. We want to lay down an important stepping stone to put us in a comfortable position to achieve our full year guidance, even with the ongoing supply chain constraints we continue to deal with. Let's now move to Slide 9 in the presentation. Deliveries, Executive Aviation delivered 18 jets in Q1 for an increase of 125% versus a year ago and the highest Q1 level of the last eight years.
The light jet segment was 83% higher year-over-year with 11 Phenom delivered, while the medium jets won more than triple during the period with seven freighters delivered. Meanwhile, Commercial Aviation deliveries were flat at seven aircrafts in Q1 compared to the same quarter of 2023 with four E1s and three E2 aircrafts. In Defense, we should note there were no C-390 delivers in the first quarter of 2024 and 2023. We continue to work steadfastly to accomplish our production plan and reach the milestones in our Defense & Security programs, which includes forcing C-390 Millennium deliveries scheduled for the year. It is important to mention the company has developed and is currently implemented a production leveling plan to mitigate business as amended.
The plan should help the company to deliver less volatile financial results throughout the year in the near to mid-term future. Slide 10, please. The company registered a strong total backlog of $21.1 billion at the end of Q1 for an increase of 13% quarter-over-quarter and the highest number recorded over the past seven years. Looking forward, our current backlog is accretive to our financial projections. The backlog for Commercial Aviation reached more than 308 aircraft in Q1 and it is valued at $11.1 billion or $2.3 billion higher than the last quarter. Meanwhile, Executive Aviation ended with a solid $4.6 billion backlog or 7% higher quarter-over-quarter, helped by the inclusion of the first Praetor 500 firm orders for NetJets. We should note NetJets has ordered 246 options not included in the current backlog.
The backlog for Service & Support is finished stable at $3.1 billion in Q1, while for Defense & Security, it decreased marginally by 4% quarter-over-quarter to $2.4 billion. Again, we should there are 11 C-390 aircrafts in three tender offers, one whose contract haven't been signed yet as those included in our backlog. Moving on to revenues, our top-line reached almost $900 million in Q1 or $180 million year-over-year for a 25% growth rate. If you look at the right chart, Service & Support represented around 41% revenue in Q1, followed by Executive close to 27%, Commercial Aviation from 22% and Defense at around 9%. Next slide, we generated $47 million in adjusted EBITDA in Q1 with a 5.2% margin driven by higher aircraft delivery compared to the same period last year and better consolidated gross margin.
Meanwhile, adjusted EBIT was $7 million for an adjusted EBIT margin of 0.8%. Reported EBIT for the quarter was negative for $1 million for a negative 0.4% margin. Both figures were better than the first quarter 2023 supported by our volumes better mix especially in Executive and Service & Support. Look at the right chart; we can see Executive Aviation and Service & Support generated positive EBIT during the quarter, while Commercial and the first presented negative results because of limited volume, supply chain delays and more aircrafts in the early stage of assembly. Slide 12, please. In Q1, if we exclude EVE, we had an adjusted free cash flow consumption of $346 million or $53 million better in Q1 2023 driven by customer advanced payments.
The Q1 cash consumption is basically due to the increase in inventories should support higher deliveries in the upcoming quarters. This cash should be reverted as more deliveries take place throughout the year and we have firm or $220 million or higher guidance for the cash generation 2024. Moving to investment and again without EVE $47 million were allocated to research and development, $28 million to CapEx and a net of $15 million to the POOL program in Q1 for a $90 million total compared to $82 million a year ago. We highlight our capital allocation continues to be focused on segments with higher returns, which projects such as expansion of our production capacity and Executive Aviation and Service & Support. Our adjusted net income was negative $13 million for the quarter on a negative 1.4% adjusted margin.
Historically, the first quarter of the year is the weakest because of the business seasonality. The positive reported net income is driven by the mark-to-market valuation of the EVE awards around $30 million. Next slide, going to our liability management plan, in first quarter 2024, we reduced our gross debt without issue by $276 million only during the quarter and by a more sizable $754 million versus a year ago to a total of $2.6 billion. In addition, our net debt declined by $384 million year-over-year to a total of $1 billion in first quarter 2024. However, on a sequential basis, our net debt EBITDA deleverage ratio increased 0.4x to 1.8x as shown in the top right corner. This variance is explained by the seasonality of the business. Our almost $2.4 billion liquidity position allowed us to cover our debt obligation beyond 2030 and leave us in a very comfortable position.
With that, I conclude my presentation and hand it back to Francisco for his final remarks. Thank you very much.
Francisco Gomes Neto: Thank you, Antonio. The Q1 2024 was another step in the right direction, supported by both external factors like some marginal improvements in our supply chain and internal ones like our production leveling initiatives. Speaking of production leveling, we recently hosted a conference with our main suppliers to strengthen our partnership and operational plans for 2024 and years ahead. We remain optimistic that supply chain disruption should continue to diminish and improve our ability to deliver more aircraft in the next few years. To finish, I would like to thank you all again for your interest and confidence in our company and a very special shootout to our friends in Dallas. We are very grateful for their partnership and trust. We continue to focus on operational and business decisions in 2024, having a foundation of our culture, safety first and quality always. Let's now move to the Q&A session of the call.
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