Eve (EVEX) - 2023 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements Net loss improved to $88.4 million, total assets decreased, liabilities increased, and operating cash flow usage rose Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | Sep 30, 2023 ($) | Dec 31, 2022 ($) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | 10,097,318 | 49,146,063 | | Financial investments | 164,448,485 | 178,781,549 | | Total current assets | 259,562,244 | 312,207,206 | | Total assets | 261,551,372 | 312,875,428 | | Liabilities & Equity | | | | Total current liabilities | 46,159,081 | 24,933,011 | | Long-term debt | 11,319,690 | - | | Total liabilities | 59,506,557 | 25,953,085 | | Total equity | 202,044,815 | 286,922,343 | Condensed Consolidated Statements of Operations Highlights (Unaudited) | Account | Nine Months Ended Sep 30, 2023 ($) | Nine Months Ended Sep 30, 2022 ($) | | :--- | :--- | :--- | | Research and development | 71,991,658 | 33,830,890 | | Selling, general and administrative | 17,822,207 | 23,892,011 | | New Warrants expenses | - | 104,776,230 | | Loss from operations | (89,813,865) | (162,499,131) | | Net loss | (88,391,854) | (153,976,295) | | Net loss per share basic and diluted | (0.32) | (0.62) | Condensed Consolidated Statements of Cash Flows Highlights (Unaudited) | Account | Nine Months Ended Sep 30, 2023 ($) | Nine Months Ended Sep 30, 2022 ($) | | :--- | :--- | :--- | | Net cash used by operating activities | (69,996,532) | (38,702,719) | | Net cash provided (used) by investing activities | 19,831,944 | (250,418,721) | | Net cash provided by financing activities | 10,714,180 | 352,703,551 | | (Decrease) increase in cash and cash equivalents | (39,048,745) | 63,564,848 | Note 1 – Organization and Nature of Business Eve Holding, Inc. accelerates Urban Air Mobility with eVTOL aircraft and services, formed via a May 2022 reverse recapitalization - The company is dedicated to accelerating the urban air mobility ("UAM") ecosystem through a holistic approach involving an advanced eVTOL project, a global services and support network, and a unique air traffic management solution[26] - On May 9, 2022, the company completed its business combination with Zanite Acquisition Corp., becoming Eve Holding, Inc. The transaction was accounted for as a reverse recapitalization[28][30] Note 5 – Related Party Transactions Eve maintains significant related-party agreements with Embraer for R&D and services, with $55.5 million in expenses and an $81 million loan extended - Eve has Master Service and Shared Service Agreements with Embraer for R&D, engineering, manufacturing access, and administrative services, also holding a royalty-free license to Embraer's intellectual property for the UAM market[57][59] Related Party Expenses (Nine Months Ended Sep 30) | Expense Category | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | | Research and development | 53,363,778 | 27,555,717 | | Selling, general and administrative | 2,157,575 | 7,707,429 | | Total | 55,521,353 | 35,263,146 | - On August 1, 2023, the Company amended its loan agreement with EAH (an Embraer subsidiary), extending the term for an additional 12 months to August 1, 2024, and increasing the interest rate to 5.97% per annum on the principal amount of up to $81,000,000[62] Note 7 – Debt Eve Brazil secured a R$490 million (approx. $98 million) BNDES loan for eVTOL development, with $11.3 million outstanding as of September 30, 2023 - Eve Brazil secured a loan agreement with BNDES for R$490 million (approx. $98 million) to fund eVTOL development, split into two sub-credits with maturities from 2026 through 2035[68] Long-Term Debt Outstanding as of September 30, 2023 | Description | Carrying Amount ($) | | :--- | :--- | | Long-term debt principal | 11,723,724 | | Unamortized debt issuance costs | (404,034) | | Long-term debt | 11,319,690 | Note 11 – Common Stock Warrants Private Placement Warrants, classified as liabilities, increased to $13.4 million from $3.6 million, resulting in a $9.8 million loss, with Public and New Warrants also outstanding - Private Placement Warrants are liability-classified, with their fair value increasing from $3,562,500 at Dec 31, 2022, to $13,395,000 at Sep 30, 2023, resulting in a loss from the change in fair value[74][78][100] - Public Warrants are equity-classified and became exercisable on June 8, 2022, at a price of $11.50 per share[87][88] - The company has issued or agreed to issue New Warrants to strategic partners, including potential customers, lenders, and suppliers, with exercise prices ranging from $0.01 to $15.00 per share[89][94][95] Note 18 – Segments Eve operates in three R&D segments: eVTOL, UATM, and Service and Support, with eVTOL accounting for the majority of R&D expenses at $65.6 million - The company operates in three segments: eVTOL (design and certification), UATM (next-gen air traffic management system), and Service and Support (maintenance, training, data services)[114][115][116] Research and Development Expenses by Segment (Nine Months Ended Sep 30) | Segment | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | | eVTOL | 65,601,417 | 28,183,054 | | UATM | 3,120,002 | 4,299,873 | | Service and Support | 3,270,239 | 1,347,963 | | Total | 71,991,658 | 33,830,890 | Management's Discussion and Analysis of Financial Condition and Results of Operations Eve, a pre-revenue company, improved its net loss to $88.4 million due to non-recurring expenses, despite increased R&D, with $342.5 million liquidity expected to fund operations for the next twelve months - Eve has not yet generated any revenue and will require substantial additional capital to develop its products and fund operations, planning to finance through existing cash, offerings, and debt[129] - The company has signed non-binding letters of intent for the sale of over 2,850 eVTOL aircraft and has established partnerships for ecosystem development in markets like Australia, the UK, Rio de Janeiro, and Miami[142][143] Results of Operations Net loss decreased to $88.4 million due to the absence of $104.8 million in New Warrant expenses, despite a 113% increase in R&D to $72.0 million, while SG&A decreased and investment income grew Year-over-Year Changes in Operations (Nine Months Ended Sep 30, 2023 vs 2022) | Account | Change ($) | Change (%) | | :--- | :--- | :--- | | Research and development | 38,160,768 | 113% | | Selling, general and administrative | (6,069,804) | (25)% | | New Warrants expenses | (104,776,230) | (100)% | | Loss from operations | 72,685,266 | (45)% | | Net loss | 65,584,441 | (43)% | - R&D expenses for the nine months ended Sep 30, 2023 increased by $38.2 million (113%) year-over-year, primarily due to increased headcount and higher engineering expenses for prototype development, including batteries, motors, and propellers[153] - SG&A expenses for the nine months ended Sep 30, 2023 decreased by $6.1 million (25%) year-over-year, largely due to non-recurring legal, consulting, and marketing expenses related to the May 2022 NYSE listing[154] Liquidity and Capital Resources Eve's total liquidity of approximately $342.5 million is sufficient for the next twelve months but not for eVTOL commercial launch, necessitating future financing - As of September 30, 2023, the company had total liquidity of approximately $342.5 million, which is expected to be sufficient to fund the operating plan for at least the next twelve months[162] - Future capital will be required to complete eVTOL development and commercial launch, with the company exploring various funding opportunities including debt finance, customer advances, and equity or convertible lines[164] Cash Flow Summary (Nine Months Ended Sep 30) | Activity | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | | Net cash used by operating activities | (69,996,532) | (38,702,719) | | Net cash provided (used) by investing activities | 19,831,944 | (250,418,721) | | Net cash provided by financing activities | 10,714,180 | 352,703,551 | Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate risk from Brazilian CDI and foreign currency risk from BRL-denominated assets and liabilities, with 5% of assets and 38% of liabilities in Reais - The company is exposed to interest rate risk from the Brazilian CDI rate on its cash equivalents in Brazil[181] - The company faces foreign currency risk from its Brazilian operations, with assets and liabilities denominated in Reais; as of September 30, 2023, 5% of total assets and 38% of total liabilities are in Reais[184] Controls and Procedures Management concluded disclosure controls were ineffective as of September 30, 2023, due to unremediated material weaknesses in internal control over financial reporting, with a remediation plan underway - Management concluded that disclosure controls and procedures were not effective as of September 30, 2023, due to unremediated material weaknesses in internal control over financial reporting[187] - The identified material weaknesses include ineffective controls over complex transactions, inadequate risk assessment and communication processes, and insufficient personnel with experience in complex accounting matters[190][191] - A remediation plan is underway, involving engaging outside consultants, hiring qualified resources, enhancing risk assessment, and providing training to personnel[192][194] PART II OTHER INFORMATION Legal Proceedings The company is not currently involved in any material legal proceedings that would adversely affect its business or financial condition - As of the filing date, the company is not involved in any material legal proceedings[197] Risk Factors For a detailed discussion of potential risks, the company refers to its most recent Annual Report on Form 10-K - For a detailed discussion of risk factors, the company refers investors to its most recent Annual Report on Form 10-K[198] Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities There were no unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities during the period - None[199]