Eve (EVEX) - 2023 Q4 - Annual Report

FORM 10-K Filing Information Eve Holding, Inc. filed its 2023 annual report as an accelerated filer and emerging growth company, with 269.4 million common shares outstanding as of March 8, 2024 Registrant Information Eve Holding, Inc. is an accelerated filer and emerging growth company, with 269.4 million common shares outstanding as of March 8, 2024 - Eve Holding, Inc. is an accelerated filer and an emerging growth company[6] - | Metric | Value | | :----- | :---- | | Common Stock Outstanding (as of March 8, 2024) | 269,365,708 shares | | Aggregate Market Value of Common Stock (as of June 30, 2023) | ~$286.1 million | Documents Incorporated by Reference Part III information is incorporated by reference from the 2024 definitive proxy statement, to be filed within 120 days - Information for Part III of the 10-K is incorporated by reference from the 2024 definitive proxy statement, to be filed within 120 days after fiscal year end[9] Table of Contents Cautionary Note Regarding Forward-Looking Statements Forward-Looking Statements Disclosure This report contains forward-looking statements subject to risks and uncertainties, with no obligation to update unless legally required - Forward-looking statements are based on current expectations and beliefs, but actual results may differ materially due to various risks and uncertainties[12][13] - Key risks include ability to raise future financing, regulatory environment complexities, maintaining effective internal controls, growing market share, responding to economic conditions, managing growth, achieving profitability, accessing capital, success of strategic relationships, developing/certifying UAM solutions, competition, environmental requirements, retaining key employees, and reliance on Embraer services[15] - The company does not undertake to update forward-looking statements to reflect events or circumstances after the date they were made, except as required by applicable securities laws[14] PART I Business Overview Eve Holding, Inc. develops comprehensive Urban Air Mobility solutions, including eVTOLs, services, and UATM, leveraging Embraer for a late 2026 eVTOL entry-into-service - Eve Holding, Inc. is an aerospace company developing a comprehensive Urban Air Mobility (UAM) solution, including eVTOLs, maintenance services, and UATM systems[19] - The company expects its eVTOL to reach entry-into-service in the latter half of 2026 and has an initial order pipeline of 2,850 vehicles valued at $8.6 billion from 29 launch customers, though these agreements are non-binding[20][21] - Eve leverages its strategic relationship with Embraer S.A. for aviation heritage, technology, intellectual property, and management experience to develop and commercialize its UAM solution globally[19] Company Overview and UAM Solution Eve Holding, Inc. specializes in UAM solutions, including eVTOLs, services, and UATM, targeting late 2026 entry-into-service with 2,850 non-binding orders valued at $8.6 billion - Developing a comprehensive UAM solution: eVTOL design/production, maintenance/support services, and Urban Air Traffic Management (UATM) system[19] - Expected eVTOL entry-into-service: latter half of 2026[20] - Initial order pipeline: 2,850 vehicles valued at $8.6 billion from 29 launch customers (non-binding agreements)[21] Business Combination Details Eve Holding, Inc. was formed on May 9, 2022, through a business combination involving Zanite Acquisition Corp. and Eve UAM, LLC, structured in three steps - The business combination with Zanite Acquisition Corp. and Eve UAM, LLC was consummated on May 9, 2022, resulting in Eve Holding, Inc. trading on NYSE under 'EVEX' and 'EVEXW'[23][25] - EAH received 220,000,000 shares of common stock of Zanite in exchange for Eve UAM, LLC interests[23] - The business combination involved a three-step process: Pre-Closing Restructuring, Preferred Stock Sale, and Equity Exchange[29] Urban Air Mobility Market Development The UAM market is driven by urbanization, congestion, and autonomous tech, offering significant eVTOL cost savings (up to 85%) and reduced noise - Demand drivers: urbanization, traffic congestion, autonomous mobility technologies, and global carbon emission reduction initiatives[26] - Consumer assessment study (2020): 89% of 14,000+ consumers would use UAM frequently; 83% willing to pay 1.5x taxi fare for time savings[27] - eVTOL operating cost savings: Estimated 65% savings compared to conventional helicopters (piloted), 85% savings (autonomous mode)[28] - eVTOL noise reduction: Designed for up to 90% lower noise footprint compared to helicopters[30] Key Success Factors for UAM Market UAM market success requires optimal aircraft design, certification expertise, comprehensive solutions, global scalability, and robust financial backing - Optimal Aircraft Design: 'lift plus cruise' configuration chosen for balance of performance, operating costs, and ease of certification[33] - Certification Experience: Essential for navigating complex, time-consuming regulatory processes (Type and Production certification)[34] - Solution Breadth: Need for comprehensive offerings including fleet operations, maintenance, air traffic management, and ground infrastructure[35] - Ability to Scale Globally: Requirement for a worldwide presence to serve diverse markets[37] - Financial Strength: Access to sufficient investment capital and a healthy order pipeline are critical for growth[38] Eve's Integrated Business Model Eve's integrated business model combines eVTOL production, service solutions, and UATM, featuring a lift-plus-cruise design, leveraging Embraer, and requiring substantial capital - eVTOL Design: Lift plus cruise, eight redundant rotors, separate forward propulsion, fixed wing. Initially 4 passengers + pilot, evolving to 6 passengers (autonomous). Range: 100 km at entry into service[39] - Service and Operations: Full suite of support (materials, maintenance, technical support, training, ground handling, data) for Eve and third-party eVTOLs, leveraging Embraer's network[40] - UATM: Next-generation system developed with Atech, offered as subscription software to air navigation service providers, fleet operators, and vertiport operators[41] - Strategic Partnership: Embraer acts as a subcontractor through Master Service Agreements (MSAs) and Shared Service Agreement (SSA), providing engineering, flight test, manufacturing, and aftermarket resources[42] - Current Financial Status: No revenue generated to date; requires substantial additional capital for product development and operations, financed through existing cash, public/private offerings, and debt[48] Customer Base and Strategic Partnerships Eve targets UAM service operators, with 2,850 non-binding orders valued at $8.6 billion, supported by a broad partner network across technology, energy, vertiports, and financing - Initial order pipeline: 2,850 vehicles valued at $8.6 billion from 29 launch customers (non-binding agreements)[49] - Target customers: Fixed Wing Operators (United Airlines, Republic Airways, SkyWest, GlobalX, Sydney Seaplanes), Helicopter Operators (Avantto, Bristow Group, Halo Aviation, Helisul Aviação, Nautilus Aviation, Omni Helicopters International), Aircraft Lessors (Azorra, Falko), and Ride Sharing Platforms (Blade Urban Air Mobility, Blade India, Flapper, Helipass)[49][51] - Partner network includes: Technology (BAE Systems, Rolls-Royce, Thales Group), Renewable Energy (Acciona, EDP Group, Florida Power & Light), Vertiports (Heathrow Airport, Jetex, London City Airport, Pentastar Aviation, Rio de Janeiro International, Signature Aviation, Skyports, Universal Aviation), and Financing (BNDES, Bradesco BBI)[52] Competitive Advantages Eve's competitive strengths include optimal eVTOL design, Embraer's certification experience, a holistic UAM solution, strategic support, a powerful partner network, revenue visibility, and an experienced team - Optimal Vehicle Design: Lift plus cruise eVTOL for range, speed, reliability, and clear certification pathway[53] - Proven Aircraft Certification Experience: Leveraging Embraer's 50-year track record and relationships with ANAC, FAA, EASA[54] - Holistic UAM Solution: Comprehensive offering across eVTOL design/production, maintenance/support, and UATM systems[55] - Strategic Support from ERJ: Access to 5,000 Embraer employees (1,600 engineers), flight test infrastructure, manufacturing resources, aftermarket network, and royalty-free IP license[56] - Powerful Partner Network: Over two dozen industry leaders globally across various segments[57] - Significant Revenue Visibility: Order pipeline of 2,850 vehicles ($8.6 billion), exceeding expected shipments for the first four years[59] - Highly Experienced Management Team and Board: Leadership with extensive aviation industry experience, many from Embraer[60] Growth Strategy Pillars Eve's growth strategy combines startup agility with Embraer's execution, using hybrid innovation, established certification practices, and strategic partnerships to expand its UAM solution - Combine Startup Mindset with Established Execution Skills: Leverage agility of a disrupter with Embraer's support[61] - Utilize Hybrid Innovation Approach: Combine Embraer's background IP (royalty-free) with Eve's proprietary innovations (e.g., fly-by-wire systems with bespoke man-machine interface)[62] - Follow Established Development and Certification Practices: Extensive use of proof-of-concept vehicles, subscale models, and engagement with ANAC as primary certification authority[63] - Leverage Partnerships and Acquisitions: Expand partner ecosystem and selectively pursue strategic acquisitions for organic growth[64] eVTOL Design and Safety Features Eve's eVTOL design prioritizes safety, low costs, zero emissions, and low noise, featuring a lift-plus-cruise configuration with redundant rotors, fixed wings, and distributed propulsion - Design Choice: Lift plus cruise configuration for high safety, optimal performance, and operational cost balance, avoiding complex tilting mechanisms[66] - Safety Features: Eight redundant rotors for lift, fixed wings for extended range after pusher failure, ensuring safe operation[67] - Battery Performance: Focus on maximizing energy, meeting power demands, fast charging, and long cycle life[68] - Noise Reduction: Distributed propulsion reduces rotor blade tip speeds, large rotor area, and electric motors make it significantly quieter (up to 90% less than helicopters); rotors turn off during cruise[69] - Flight Control Systems: Complex fly-by-wire systems for control and stability, leveraging Embraer's experience[70] - Autonomy Evolution: Initial piloted operations, with a planned transition to fully autonomous flights as technology and ecosystem mature[71] R&D Activities Eve conducts extensive R&D on eVTOL concept vehicles, subsystems, and electric powertrains, using testbeds, simulations, and lab tests to optimize designs - Significant R&D efforts are focused on eVTOL concept vehicles, subsystems, battery systems, and electric powertrain components, utilizing testbeds, simulations, and lab tests[73] Manufacturing Strategy Eve leverages Embraer and Atech MSAs for manufacturing, with initial production in Embraer's Brazilian facilities, planning a transition to Eve's own global modules - Manufacturing support: Leverages MSAs with Embraer (15-year term) and Atech (10-year term) for manufacturing support and software development services[74] - Initial production: Proof-of-concept vehicles, testbeds, simulators, and initial flight-test prototypes will be developed and manufactured in Embraer's existing facilities in Brazil[75] - Future expansion: Plans to transition to Eve's own manufacturing modules for serial production, with locations based on economic factors and proximity to customer markets[76] Intellectual Property Protection Eve protects its IP through patents, trademarks, copyrights, and trade secrets, holding 38 granted trademarks, 19 pending applications, and 9 granted patents as of December 31, 2023 - IP Protection Methods: Patents, patent applications, trademarks, copyrights, trade secrets, and contracts (license, confidentiality, invention assignment agreements)[77] - Trademarks (as of Dec 31, 2023): 38 granted registrations, 19 pending applications (U.S. and Brazil)[78] - Patents (as of Dec 31, 2023): 9 granted patents, 10 designs, and 30 patent/industry design applications filed, primarily for eVTOL vehicle technology (e.g., rotor configurations, cruise rotor control, flight control solutions)[78] Regulatory and Certification Process Eve pursues eVTOL certification with ANAC as primary authority, leveraging Embraer's experience for FAA and EASA validation, aiming for common airworthiness criteria - Primary Certification Authority: ANAC (Brazil), with FAA and EASA as validating authorities[81] - ANAC Type Certificate Application: Accepted on February 3, 2022, establishing certification basis under RBAC no. 23 with special conditions[82] - Public Consultation: ANAC published proposed airworthiness criteria in December 2023, closing in February 2024[83] - Certification Basis: Discussions with FAA for 14 CFR Part 23 (amendment 64) and EASA SC-eVTOL for commercial purposes, aiming for commonality[83] Competitive Landscape Eve faces competition from UAM developers and aerospace firms; success hinges on eVTOL performance, timely certification, efficient manufacturing, strategic partnerships, and advanced technology - Primary Competitors: Focused UAM developers (Archer Aviation, Beta Technologies, Ehang, Joby Aviation, Lilium, Vertical Aerospace, Volocopter, Wisk) and established aerospace/automotive companies (Airbus, Bell Textron, Honda, Hyundai)[88] - Competition in specific segments: Service and Operations Solutions (Airbus, Bell Textron, Boeing), UATM (companies developing Unmanned Traffic Management systems)[89] - Key Success Factors: eVTOL performance, timely certification, efficient manufacturing, strategic partnerships for operations, value-added UAM services, next-gen technology, and high quality/reliability/safety[89] Workforce and Labor Relations As of December 31, 2023, Eve had 180 full-time employees (115 in engineering), supplemented by up to 524 Embraer employees, with good labor relations - | Metric | Value (as of Dec 31, 2023) | | :----- | :------------------------- | | Total Full-time Employees | 180 | | Engineering Workforce | 115 | | Embraer Employees (first priority access) | Up to 524 | - All Brazilian employees are unionized, and the company maintains good relationships with its employees, with no interruptions due to labor disagreements[90] ESG Initiatives Eve is committed to ESG leadership, addressing congestion and climate change through efficient, electric, zero-emission aircraft, structured around Environmental, Social, and Governance pillars - Environmental Pillar: Focus on sustainable manufacturing, reducing resource use and energy consumption, full life-cycle design, chemical reduction, and tracking emissions/waste[94] - Social Pillar: Promote diversity, equity, inclusion, health, safety, and democratize UAM through affordable, green, and accessible solutions[95] - Governance Pillar: Uphold ethical business conduct, integrity, corporate responsibility, and integrate strong governance/enterprise risk management[96] Publicly Available Information Eve's website (www.eveairmobility.com) provides access to its SEC filings, including 10-K, 10-Q, 8-K, and proxy statements - Company's website (www.eveairmobility.com) provides access to SEC filings, including 10-K, 10-Q, 8-K, and proxy statements[96] Risk Factors Investment in Eve Holding, Inc. securities involves high risk due to the emerging UAM market, operational challenges, regulatory uncertainties, partner reliance, and macroeconomic factors - Investment in Eve Holding, Inc. securities involves a high degree of risk[98] - The UAM market is emerging and may not achieve expected growth or consumer adoption[99] - eVTOL aircraft may not perform as expected, have defects, or face production challenges[100] - Regulatory approvals for commercialization (Type, Production, Operating Certifications) are critical and may be delayed[102] - Reliance on ERJ for services, products, and components exposes the company to supply chain and operational risks[100] - The company is an early-stage company with a history of losses and expects significant future losses, with no assurance of profitability[102] - Cybersecurity risks to operational systems, aircraft software, and customer data are significant[99] - Brazilian political and economic conditions, including inflation and exchange rate volatility, directly impact the business[100] Summary of Key Risk Factors Key risks include an unestablished UAM market, consumer reluctance, airspace limitations, UATM underperformance, launch delays, production challenges, and financial risks from losses and capital needs - Market for UAM is emerging and may not achieve expected growth or consumer adoption[100] - eVTOL aircraft may not perform as expected (noise, payload, range, cost) or have defects[102] - Inability to produce eVTOL aircraft in projected volumes and timelines[100] - Crashes, accidents, or incidents involving eVTOLs or UATM solutions could materially affect the business[102] - Reliance on ERJ for development, certification, and supply of critical components exposes the company to risks[100] - Agreements with customers are non-binding, posing risks to order pipeline and future revenue[102] - Inability to obtain relevant regulatory approvals (Type, Production, Operating Certifications) for commercialization[102] - Company is an early-stage company with a history of losses and expects significant losses for the foreseeable future[102] Business and Industry Specific Risks This section details risks specific to Eve's business and the UAM industry, covering market adoption, aircraft performance, production, regulatory hurdles, and operational challenges Market and Service Risks Market risks include uncertain UAM growth, consumer reluctance, pricing issues, community rejection, airspace limitations, and UATM underperformance or regulatory delays - UAM market is still emerging; uncertain growth and consumer adoption[103] - Consumers may be unwilling to pay projected prices for aerial ridesharing services[105] - Local communities may reject eVTOL operations due to perceived safety risks or burdens (noise, visual pollution)[109] - Current airspace regulations may not be modified to increase air traffic capacity, leading to limitations[111][112] - UATM systems may underperform, fail to provide adequate situational awareness, or not allow industrial scalability, impacting the UAM ecosystem's growth[119] Aircraft and Production Risks Aircraft and production risks include unproven manufacturing, potential defects, inability to mass produce, reliance on ERJ, certification delays, supply chain disruptions, and union activities - No prior experience in manufacturing or delivering eVTOL aircraft, making business evaluation difficult[130] - eVTOL aircraft may not perform as expected (e.g., higher noise, lower payload, shorter range, higher costs) or may have defects[135] - Significant challenges in mass producing aircraft in projected volumes and timelines, including capital requirements, long lead times, and specialized expertise[139] - Reliance on ERJ and other sole-source suppliers for services, products, parts, and components exposes the company to supply chain disruptions and delivery failures[150] - Non-binding customer agreements for all current aircraft orders pose a risk if definitive agreements are not reached or orders are cancelled/modified[157] Regulatory and Airspace Risks Regulatory risks include delays in critical eVTOL certifications, increased operating costs from regulation changes, stringent export/import controls, and evolving data privacy laws with potential for non-compliance liabilities - Inability to obtain relevant regulatory approvals (Type, Production, Operating Certifications) for aircraft commercialization on anticipated timelines[160] - Changes in government regulation could impose additional requirements, increasing operating costs and causing service delays[161] - Stringent U.S. export and import control laws and economic sanctions laws pose compliance risks, potentially leading to penalties or loss of privileges[163][166] - Rapidly changing privacy, data protection, and data security laws (e.g., CCPA) require significant compliance efforts, with non-compliance risking litigation, fines, and reputational damage[167][169] Macroeconomic and Technology Risks Macroeconomic and technology risks include uncertain eVTOL market development, IP violations, insurance difficulties, partner relationship deterioration, technology maturation failures, and a history of significant losses with no guaranteed profitability - Uncertainty in eVTOL industry development, market adoption, and government certification (FAA, ANAC, EASA) for commercial operations[170] - Risks of intellectual property violations, inability to protect proprietary rights, and defending against infringement claims[173] - Difficulty in securing adequate insurance policies at reasonable prices as operations scale[174] - Deterioration or termination of relations with strategic partners (e.g., ERJ, Atech) could adversely affect business[179] - Failure of key technologies (e.g., autonomy, battery density) to mature as projected may impact service volume and pricing[181] - History of significant losses since inception ($127.7 million in 2023, $174.0 million in 2022, $18.3 million in 2021) and expectation of continued losses for the foreseeable future[183][184] - Significant operating expenses expected to increase with development, manufacturing, and scaling, potentially outpacing revenue[186] Operational and Infrastructure Risks Operational risks include cybersecurity threats, weather interruptions, maintenance costs, growth management challenges, talent acquisition, increased public company costs, and strategic alliance risks - Cybersecurity risks to operational systems, security systems, aircraft software, and customer data, potentially leading to disruptions, data loss, and reputational harm[191] - Shortage of qualified pilots and mechanics could increase operating costs and limit service deployment at scale[211] - Aircraft utilization may be lower than expected due to poor weather conditions (snowstorms, thunderstorms, icing, fog), leading to service delays and disruptions[214] - Unexpectedly high frequency or cost of aircraft maintenance could adversely impact business and operations[215] - Risks associated with climate change, including increased impacts of severe weather events on operations and infrastructure[217] - Inability to manage future growth effectively could strain resources and lead to operating difficulties[202] - Increased costs and management time devoted to compliance as a public company[203] Financial Risks Financial risks include ineffective use of business combination proceeds, insufficient capital requiring dilutive financing, and stock price volatility influenced by analyst coverage - Broad discretion in using business combination proceeds, with potential for ineffective allocation[219] - Available capital resources may be insufficient, necessitating additional capital raises through equity or debt, potentially diluting stockholders or imposing restrictive covenants[221] - Market price and trading volume of common stock can be volatile, influenced by analyst research, financial results, and broad market factors[220] Risks Related to Brazilian Operations Eve's business is significantly impacted by Brazilian political and economic conditions, including government intervention, inflation, exchange rate volatility, and potential credit rating downgrades - Brazilian political and economic conditions directly impact the business, including government intervention, interest rates, exchange rates, inflation, and tax policies[223] - Uncertainty over government policies and political instability (e.g., corruption investigations) create volatility in the Brazilian economy and may adversely affect operations[227] - Historically high inflation rates in Brazil and government efforts to combat them can increase costs, reduce profit margins, and affect debt service[233] - Exchange rate volatility, particularly the depreciation of the Brazilian real against the U.S. dollar, can affect labor and engineering development costs, as well as the value of U.S. dollar-denominated cash[243][249] - Infrastructure and workforce deficiencies in Brazil may limit economic growth and adversely affect the company[251] - Further downgrading of Brazil's sovereign credit rating could increase the cost of debt and impact the market price of common stock[252] - Decreases in Brazilian government-sponsored customer financing or increases in competitor financing could reduce the competitiveness of Eve's aircraft[255][256][262] Business Combination Related Risks Business combination risks include warrant dilution, redemption issues, prior internal control weaknesses, market price volatility, NYSE listing compliance, and reliance on ERJ for administrative functions - Exercise of outstanding warrants (public, private placement, new warrants) will increase shares eligible for resale, resulting in dilution to stockholders[263] - Company may redeem unexpired public warrants and certain other warrants prior to their exercise at a disadvantageous time, making them worthless[264] - Prior material weaknesses in internal control over financial reporting led to financial statement restatements, creating potential for litigation[270][272] - Market price and trading volume of securities may be volatile and could decline significantly due to various factors[277] - Inability to maintain compliance with NYSE listing standards could lead to delisting and adverse consequences[281] - Reliance on ERJ for administrative and support functions via Services Agreements, with risks if ERJ fails to perform or agreements terminate[292] - Payments under the Tax Receivable Agreement (TRA) to EAH may be substantial and could exceed actual tax benefits, potentially impairing liquidity or accelerating payments[296][297][298] Common Stock and Warrants Ownership Risks Stockholder risks include management's limited public company experience, SOX compliance challenges, potential litigation, future stock sales depressing prices, and no anticipated dividends - Management has limited experience operating a public company, potentially leading to challenges in regulatory oversight and reporting obligations[304] - Failure to timely and effectively build accounting systems for Section 404(a) of Sarbanes-Oxley Act could adversely affect the business and investor confidence[305] - Future sales or resales of common stock by the company or existing securityholders (including PIPE Investors post-lock-up) could cause the market price to drop significantly[314] - The company does not intend to pay dividends for the foreseeable future, requiring investors to rely on stock sales for returns[312] - Potential for securities litigation due to stock price volatility, which could be expensive and divert management attention[313] Unresolved Staff Comments No unresolved staff comments were reported - No unresolved staff comments were reported[316] Cybersecurity Risk Management and Governance Eve adopts Embraer's NIST 800 and ISO 27001/2-based cybersecurity risk management, conducting regular assessments and maintaining incident response plans, with Board oversight - Adopts Embraer's cybersecurity processes based on NIST 800 and ISO 27001/2 for risk assessment, identification, and management[318] - Conducts security assessments, vulnerability management, penetration testing, security audits, and maintains incident response plans[319] - Third-party cybersecurity risk management process in place for suppliers with access to confidential information[320] - No known material cybersecurity incidents or risks to date[322] - Cybersecurity governance includes annual enterprise risk assessments by management, oversight by the Board and Audit Committee, and the CISO's primary responsibility for risk management[323] Properties Eve operates from facilities in Melbourne, Florida, and Eugenio de Melo, Brazil, with a new leased site in Gavião Peixoto, all on Embraer-owned/leased land - Operates from facilities in Melbourne, Florida, and Eugenio de Melo, Brazil; a leased facility in Gavião Peixoto, Brazil, is yet to commence. All facilities are on Embraer-owned/leased land[324] Legal Proceedings No material legal claims, lawsuits, or proceedings are currently pending against the company that would adversely affect its business or financial results - No material legal proceedings are currently pending against the company[325] Mine Safety Disclosures Mine Safety Disclosures are not applicable to the company - Mine Safety Disclosures are not applicable[326] PART II Market for Common Equity and Stockholder Matters Eve's common stock trades on NYSE under 'EVEX', with 60 holders of record as of December 31, 2023; no dividends are anticipated, and earnings will be retained - Common stock trades on the NYSE under the symbol 'EVEX'[328] - | Metric | Value (as of Dec 31, 2023) | | :----- | :------------------------- | | Holders of Record | 60 | - No cash dividends declared or paid, nor anticipated in the foreseeable future; future earnings will be retained for business growth[330] - No recent sales of unregistered securities or use of proceeds from registered offerings[333] Reserved This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations Eve is an early-stage UAM company with no revenue, incurring significant net losses in 2023 and 2022 due to R&D, relying on existing capital and debt, with future needs tied to eVTOL development and market conditions - Eve is a development stage company with no revenue generated to date, expecting to incur losses and negative operating cash flows until sustainable commercial operations commence[342][377] - Net Loss (in thousands USD) | Year Ended December 31, | Net Loss | | :---------------------- | :------- | | 2023 | $(127,658) | | 2022 | $(174,030) | | 2021 | $(18,256) | - Research and development expenses increased significantly by 104% in 2023 compared to 2022, primarily due to increased headcount, engineering expenses, and prototype development costs[367][368] Company Overview Eve Holding, Inc. aims to lead the UAM market by developing eVTOLs, maintenance services, and UATM systems, leveraging its strategic relationship with Embraer - Eve Holding, Inc. aims to be a leading UAM company by developing eVTOLs, maintenance/support services, and a UATM system, leveraging its strategic relationship with Embraer[338] Eve's Core Business Offerings Eve's business model includes eVTOL production, agnostic service/support, and a subscription-based UATM system; it currently generates no revenue and requires substantial capital - eVTOL Production and Design: Designing and certifying eVTOLs for global UAM service operators and lessors[339] - Service and Operations Solutions: Offering comprehensive eVTOL service and support (materials, maintenance, technical support, training, ground handling, data) for its own and third-party eVTOLs[340] - Urban Air Traffic Management: Developing a next-generation UATM system as a subscription software for air navigation service providers, fleet operators, and vertiport operators[341] - Financial Status: No revenue generated to date; requires substantial additional capital for product development and operations[342] Strategic Service Agreements Eve Sub has MSAs with Embraer and Atech, and an SSA with Embraer and EAH, providing access to R&D, engineering, manufacturing, and administrative services for UAM solution development - MSAs with Embraer and Atech: Provide services and products for eVTOL development, certification, manufacturing, and support (e.g., R&D, engineering, parts planning, MRO, training, administrative services)[343] - SSA with Embraer, EAH, and Eve Brazil: Provides corporate and administrative services to Eve[343] - Data Access Agreement: ERJ provides Eve Brazil access to certain IP and proprietary information for UAM business activities[343] Key Factors Influencing Operating Results Operating results are influenced by Brazil's economy, the undeveloped UAM market, and critical government certifications; viability depends on timely eVTOL delivery, market adoption, and high utilization - Brazilian Economic Environment: Frequent government intervention, inflation, and exchange rate variations significantly impact financial condition and results[346] - Development of the UAM Market: Revenue tied to eVTOL development and sales; market is undeveloped with uncertain future demand and adoption drivers (time savings, safety, cost)[348] - Competition: Dynamic and increasingly competitive industry; risk of competitors reaching market first or benefiting from Eve's market development efforts[350] - Government Certification: Critical for commercialization (ANAC, FAA, EASA); delays or failure to obtain could adversely affect business[352][353] - Initial Business Development Engagement: Engaged in CONOPS collaborations and secured non-binding letters of intent for over 2,850 eVTOLs[354][355] - Fully-Integrated Business Model: Uncertain payback periods; viability depends on timely eVTOL delivery at cost-effective prices, sufficient market adoption, and high aircraft utilization rates[357] Recent Business Developments On October 9, 2023, Eve Sub and Embraer entered a supply agreement for the design, development, manufacturing, testing, and certification support of the EVE-100 eVTOL - Eve Sub and Embraer entered into a supply agreement on October 9, 2023, for the design, development, manufacturing, testing, and certification support of the EVE-100 eVTOL[358] Analysis of Operating Results Components Eve, a development-stage company, expects initial revenue in 2025 (services/UATM) and late 2026 (eVTOL sales), with increasing R&D, decreasing SG&A and New Warrants expenses, and impacts from derivative liabilities - Revenue: No revenue generated to date; projected to begin in 2025 for Service and Operations Solutions/UATM, and late 2026 for eVTOL sales[359] - Research and Development Expenses: Expected to increase significantly due to staffing, engineering, prototype building, and software development[360] - Selling, General and Administrative Expenses: Decreased by $9.8 million in 2023 (30% YoY) due to non-recurring IPO-related expenses in 2022[362][363] - New Warrants Expenses: Decreased by $103.0 million in 2023 (98% YoY) due to non-recurring warrants issued to Strategic PIPE Investors in 2022[364][367] - Change in Fair Value of Derivative Liabilities: Increased loss by $20.0 million in 2023 (209% YoY) due to an increase in the value of Private Placement Warrants[369][370][371] Consolidated Results of Operations (2023 vs. 2022) Eve reported a net loss of $127.7 million in 2023, an improvement from $174.0 million in 2022, driven by decreased New Warrants expenses and higher investment income - Consolidated Statements of Operations (in thousands USD) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :------------------------------------------ | :------- | :------- | :--------- | :--------- | | Research and development expenses | $105,581 | $51,858 | $53,724 | 104% | | Selling, general and administrative expenses | $23,104 | $32,856 | $(9,752) | (30)% | | New Warrants expenses | $1,863 | $104,776 | $(102,913) | (98)% | | Loss from operations | $(130,549) | $(189,490) | $58,941 | (31)% | | (Loss)/gain from change in fair value of derivative liabilities | $(10,403) | $9,548 | $(19,950) | (209)% | | Financial investment income | $11,672 | $5,073 | $6,599 | 130% | | Interest income from related party loan | $4,385 | $1,650 | $2,735 | 166% | | Other (loss)/gain, net | $(945) | $122 | $(1,066) | (876)% | | Interest expense | $(252) | $- | $(252) | 100% | | Loss before income taxes | $(126,091) | $(173,097) | $47,007 | (27)% | | Income tax expense | $1,568 | $933 | $635 | 68% | | Net loss | $(127,658) | $(174,030) | $46,372 | (27)% | - Research and development expenses increased by $53.7 million (104%) due to higher headcount, engineering expenses, and prototype development costs[368] - Selling, general and administrative expenses decreased by $9.8 million (30%) due to non-recurring IPO-related expenses in 2022[369] - New Warrants expenses decreased by $103.0 million (98%) due to non-recurring warrants issued in 2022[370] - Loss from change in fair value of derivative liabilities increased by $20.0 million (209%) due to an increase in Private Placement Warrants value[371] - Financial investment income increased by $6.6 million (130%) due to 12 months of income in 2023 vs. 8 months in 2022[372] - Interest income from related party loan increased by $2.7 million (166%) due to 12 months of income in 2023 vs. 5 months in 2022[373] - Other loss, net increased by $1.1 million (876%) due to a net decrease in the BRL to USD exchange rate[374] - Interest expense increased by $0.3 million due to BNDES Loans secured in January 2023[375] Liquidity and Capital Resources Eve has incurred net losses and no revenue, requiring substantial capital; total liquidity was approximately $316.3 million as of December 31, 2023, but additional financing is likely needed for eVTOL development - Eve has incurred net losses since inception and has not generated revenue, requiring substantial additional capital for product development and operations[377] - Liquidity (as of Dec 31, 2023, in millions USD) | Metric | Amount | | :----- | :----- | | Cash | $46.9 | | Investments in marketable securities | $111.2 | | Related party loan receivable | $83.1 | | Available BNDES loan draws | $75.1 | | Total Liquidity | ~$316.3 | - Future capital requirements depend on R&D expenses, manufacturing expansion, operating costs, and marketing[380] - Existing funds are likely insufficient to complete all eVTOL development and commercial launch, necessitating future equity or debt financing[382] Financing Activities In January 2023, Eve Brazil secured two BNDES loan facilities totaling R$490 million (approximately $101.2 million) for eVTOL development, with $26.1 million drawn by year-end - Eve Brazil secured two loan facilities from BNDES on January 23, 2023, totaling R$490 million ($101.2 million) for eVTOL project development[384][385] - BNDES Loan Status (as of Dec 31, 2023) | Metric | Amount (USD equivalent) | | :----- | :---------------------- | | Total Borrowing Availability | $101.2 million | | Debt Outstanding | $26.1 million | Cash Flow Analysis (2023 vs. 2022) Net cash used in operating activities increased to $94.5 million in 2023, investing activities provided $66.8 million, and financing activities provided $24.9 million - Cash Flows (in thousands USD) | Cash Flow Category | 2023 | 2022 | Change ($) | | :----------------- | :------- | :------- | :--------- | | Operating Activities | $(94,509) | $(59,458) | $(35,051) | | Investing Activities | $66,832 | $(258,476) | $325,308 | | Financing Activities | $24,926 | $352,704 | $(327,778) | | Net (decrease) increase in cash and cash equivalents | $(2,264) | $34,770 | $(37,034) | - Net cash used by operating activities increased due to higher R&D expenses, partially offset by higher accounts payable to ERJ[387] - Net cash provided by investing activities resulted from net redemptions of investments to fund operations, contrasting with capital contributions and related party loans in 2022[388] - Net cash provided by financing activities decreased significantly due to the non-recurrence of proceeds from the business combination and PIPE Investment in 2022[389] Critical Accounting Estimates Valuation allowance for deferred tax assets is a critical accounting estimate, dependent on future taxable income, totaling $395.9 million as of December 31, 2023 - Valuation allowance of deferred taxes is a critical accounting estimate, dependent on the ability to generate sufficient future taxable income. As of December 31, 2023, valuation allowances against deferred tax assets were $395.9 million[391] Credit Risk Management Eve's credit risk is concentrated in cash, financial investments, and a related party loan, held at major institutions, with minimal risk deemed after counterparty evaluations - Credit risk concentrations are in cash, cash equivalents, financial investments, and a related party loan receivable, held at major financial institutions. Minimal credit risk is deemed to exist[393][394] Emerging Growth Company Status Eve's 'emerging growth company' status under the JOBS Act allows extended accounting transition and reduced disclosures, potentially complicating financial comparisons - Status: 'Emerging growth company' under the JOBS Act[395] - Benefits: Extended transition period for new accounting standards, reduced disclosure obligations (e.g., no auditor attestation for Section 404(b) SOX, reduced executive compensation disclosures)[396] - Impact: May make financial comparisons with other public companies more difficult[397] Quantitative and Qualitative Disclosures About Market Risk Eve is exposed to market risks from Brazilian interest rates (CDI) and BRL to USD foreign currency fluctuations, managing interest rate risk while facing significant foreign currency exposure - The company is exposed to market risk from changes in the Brazilian interest rate CDI and foreign currency fluctuations (BRL to USD)[399][403] - Interest Rate Risk Exposure (as of Dec 31, 2023, in thousands USD) | Risk Factor | December 31, 2023 | -50% Scenario | -25% Scenario | Probable Scenario | 25% Scenario | 50% Scenario | | :---------- | :---------------- | :------------ | :------------ | :---------------- | :----------- | :----------- | | CDI (Cash equivalents and financial investments) | $4,385 | $280 | $162 | $44 | $(74) | $(192) | | Interest rates considered (CDI) | 11.8% | 5.4% | 8.1% | 10.8% | 13.4% | 16.1% | - Foreign Currency Risk Exposure (as of Dec 31, 2023, in thousands USD) | Risk Factor | December 31, 2023 | -50% Scenario | -25% Scenario | Probable Scenario | 25% Scenario | 50% Scenario | | :---------- | :---------------- | :------------ | :------------ | :---------------- | :----------- | :----------- | | BRL (Net impact) | $(20,327) | $(9,935) | $(4,739) | $456 | $5,652 | $10,848 | | Exchange rates considered (BRL per USD) | 4.8413 | 2.4750 | 3.7125 | 4.9500 | 6.1875 | 7.4250 | Financial Statements and Supplementary Data This section presents audited consolidated financial statements for 2023, 2022, and 2021, prepared under U.S. GAAP, including auditor reports, core financial statements, and detailed notes - Audited consolidated financial statements for the years ended December 31, 2023, 2022, and 2021 are presented in conformity with U.S. GAAP[407][415] Report of Independent Registered Public Accounting Firm (KPMG) KPMG LLP issued an unqualified opinion on the 2023 and 2022 consolidated financial statements, affirming fair presentation under U.S. GAAP, without auditing internal controls - KPMG LLP issued an unqualified opinion on the consolidated financial statements for 2023 and 2022, affirming fair presentation in accordance with U.S. GAAP[407] - KPMG LLP has served as the Company's auditor since 2022 and did not perform an audit of internal control over financial reporting[409][412] Report of Independent Registered Public Accounting Firm (PricewaterhouseCoopers LLP) PricewaterhouseCoopers LLP issued an unqualified opinion on the 2021 consolidated financial statements, affirming fair presentation under U.S. GAAP - PricewaterhouseCoopers LLP issued an unqualified opinion on the consolidated financial statements for the year ended December 31, 2021, affirming fair presentation in accordance with U.S. GAAP[415] - PricewaterhouseCoopers LLP served as the Company's auditor from 2021 to 2022[420] Consolidated Balance Sheets Total assets decreased from $312.9 million in 2022 to $245.3 million in 2023, while total liabilities increased to $80.3 million, and total equity decreased to $165.1 million - Consolidated Balance Sheet Highlights (in thousands USD) | Metric | Dec 31, 2023 | Dec 31, 2022 | Change ($) | | :-------------------------- | :----------- | :----------- | :--------- | | Cash and cash equivalents | $46,882 | $49,146 | $(2,264) | | Financial investments | $111,218 | $178,782 | $(67,564) | | Total current assets | $242,221 | $312,207 | $(69,986) | | Total assets | $245,339 | $312,875 | $(67,536) | | Total current liabilities | $51,989 | $24,933 | $27,056 | | Long-term debt | $25,764 | $- | $25,764 | | Total liabilities | $80,288 | $25,953 | $54,335 | | Total equity | $165,051 | $286,922 | $(121,871) | Consolidated Statements of Operations Net loss improved to $127.7 million in 2023 from $174.0 million in 2022, primarily due to reduced New Warrants expenses, with basic and diluted net loss per share improving to $(0.46) - Consolidated Statements of Operations Highlights (in thousands USD, except per share amounts) | Metric | 2023 | 2022 | 2021 | | :------------------------------------------ | :------- | :------- | :------- | | Research and development expenses | $105,581 | $51,858 | $13,280 | | Selling, general and administrative expenses | $23,104 | $32,856 | $4,899 | | New Warrants expenses | $1,863 | $104,776 | $- | | Loss from operations | $(130,549) | $(189,490) | $(18,179) | | (Loss)/gain from change in fair value of derivative liabilities | $(10,403) | $9,548 | $- | | Financial investment income | $11,672 | $5,073 | $- | | Net loss | $(127,658) | $(174,030) | $(18,256) | | Net loss per share–basic and diluted | $(0.46) | $(0.68) | $(0.08) | Consolidated Statements of Comprehensive Loss Total comprehensive loss for 2023 was $127.7 million, consistent with net loss, with no other comprehensive income/loss items in 2023 or 2022 - Consolidated Statements of Comprehensive Loss (in thousands USD) | Metric | 2023 | 2022 | 2021 | | :----- | :------- | :------- | :------- | | Net loss | $(127,658) | $(174,030) | $(18,256) | | Derivative financial instruments - cash flow hedge | $- | $- | $(78) | | Total comprehensive loss | $(127,658) | $(174,030) | $(18,334) | Consolidated Statements of Equity Total equity decreased from $286.9 million at December 31, 2022, to $165.1 million at December 31, 2023, primarily due to the net loss, with accumulated deficit growing significantly - Consolidated Statements of Equity Highlights (in thousands USD) | Metric | Dec 31, 2023 | Dec 31, 2022 | | :-------------------------- | :----------- | :----------- | | Common Stock (Shares) | 269,359 | 269,094 | | Common Stock (Amount) | $269 | $269 | | Additional Paid-In Capital | $509,448 | $503,662 | | Accumulated Deficit | $(344,667) | $(217,008) | | Total Equity | $165,051 | $286,922 | - Net loss of $127.7 million contributed to the decrease in total equity[431] - Additional paid-in capital increased by $5.8 million, reflecting warrant issuances and share-based compensation[431] - Accumulated deficit increased by $127.7 million, from $(217.0) million to $(344.7) million[431] Consolidated Statements of Cash Flows Net cash used in operating activities increased to $94.5 million in 2023, investing activities provided $66.8 million, and financing activities provided $24.9 million - Consolidated Statements of Cash Flows Highlights (in thousands USD) | Cash Flow Category | 2023 | 2022 | 2021 | | :----------------- | :------- | :------- | :------- | | Net cash used by operating activities | $(94,509) | $(59,458) | $(14,886) | | Net cash provided (used) by investing activities | $66,832 | $(258,476) | $- | | Net cash provided by financing activities | $24,926 | $352,704 | $29,263 | | Net (decrease) increase in cash and cash equivalents | $(2,264) | $34,770 | $14,377 | | Cash and cash equivalents at end of period | $46,882 | $49,146 | $14,377 | - Operating cash outflow increased by $35.1 million YoY, mainly due to increased R&D expenses[387] - Investing cash flow shifted from a significant outflow to an inflow, driven by net redemptions of financial investments[388] - Financing cash inflow decreased by $327.8 million YoY, primarily due to the one-time proceeds from the business combination and PIPE Investment in 2022[389] Notes to Consolidated Financial Statements These notes detail Eve Holding, Inc.'s organization, accounting policies, and financial statement components, including cash, investments, related party transactions, debt, equity, warrants, and segment information Note 1 – Organization and Nature of Business Eve Holding, Inc., a Delaware aerospace company focused on UAM, formed via a May 9, 2022, reverse recapitalization, secured $357.3 million from the PIPE Investment - Company is an aerospace company dedicated to accelerating the UAM ecosystem, with operations in Melbourne, Florida, and São Paulo, Brazil[436] - Business Combination: Consummated on May 9, 2022, as a reverse recapitalization, with Eve Sub's financial statements continuing as the Company's historical statements[438] - Financing: PIPE Investment provided $357.3 million through the issuance of 35.7 million shares of Class A common stock at $10.00 per share[439] Note 2 – Significant Accounting Policies This note details significant accounting policies, including a change in carve-out methodology, US Dollar functional currency, and policies for property, debt, R&D, stock plans, and income taxes - Change in Carve-Out Methodology: Shifted from management approach to legal entity approach effective January 1, 2022, due to direct charges under MSAs/SSAs and asset/liability transfers[449] - Functional and Reporting Currency: US Dollar (USD)[450] - Research and Development Expenses: Expensed as incurred, primarily for eVTOL design, Service and Operations Solutions, and UATM software development[452] - Stock Incentive Plans: Embraer Plan (cash-settled phantom shares) and Eve's 2022 Stock Incentive Plan (equity-classified RSUs with service, performance, and/or market conditions)[458][459][460] - Income Taxes: Calculated using a separate return methodology; valuation allowance applied if deferred tax assets are unlikely to be realized. Unrecognized tax benefits are assessed using a two-step process[461][462][463] Note 3 – Cash and Cash Equivalents Cash and cash equivalents, including CDBs and fixed deposits, decreased from $49.1 million in 2022 to $46.9 million in 2023 - Cash and Cash Equivalents (in thousands USD) | Category | Dec 31, 2023 | Dec 31, 2022 | | :--------- | :----------- | :----------- | | Cash | $9,173 | $14,447 | | CDBs | $4,385 | $4,483 | | Fixed deposits | $33,325 | $30,216 | | Total | $46,882 | $49,146 | Note 4 – Financial Investments Financial investments, classified as held-to-maturity (HTM) securities, decreased from $178.8 million in 2022 to $111.2 million in 2023 - Financial Investments (HTM securities, at cost, in thousands USD) | Metric | Dec 31, 2023 | Dec 31, 2022 | | :---------------- | :----------- | :----------- | | Amortized Cost | $111,218 | $178,782 | | Unrealized Gains | $106 | $- | | Unrealized Losses | $- | $(1,128) | | Fair Value | $111,324 | $177,654 | Note 5 – Related Party Transactions Eve has significant related party transactions with Embraer, including MSAs, SSAs, a royalty-free IP license, and a related party loan, with R&D and SG&A expenses totaling $75.8 million in 2023 - Master Service Agreement (MSA) and Shared Service Agreement (SSA) with Embraer and Atech provide R&D, engineering, manufacturing, and administrative services[474] - Royalty-Free Licenses: Access to Embraer's intellectual property for UAM market use[477] - Related Party Loan: Loan agreement with EAH (Embraer subsidiary) for up to $81 million, extended to August 1, 2024, with a fixed interest rate of 5.97% per annum[479] - Related Party Expenses (in thousands USD): R&D increased from $39.3 million in 2022 to $72.8 million in 2023; SG&A decreased from $8.5 million in 2022 to $3.0 million in 2023[480] Note 6 – Other Balance Sheet Components This note details property, plant and equipment totaling $0.5 million net in 2023, with other current payables increasing to $13.2 million and non-current payables to $2.5 million - Property, Plant and Equipment, Net (in thousands USD) | Category | Dec 31, 2023 | Dec 31, 2022 | | :-------------------------- | :----------- | :----------- | | Development mockups | $516 | $419 | | Total property, plant and equipment, net | $547 | $452 | - Other Current Payables (in thousands USD) | Category | Dec 31, 2023 | Dec 31, 2022 | | :--------------- | :----------- | :----------- | | Accrued expenses | $7,075 | $2,492 | | Payroll accruals | $4,737 | $4,034 | | Total | $13,245 | $6,648 | - Other Non-Current Payables (in thousands USD) | Category | Dec 31, 2023 | Dec 31, 2022 | | :-------------------- | :----------- | :----------- | | Advances from customers | $1,284 | $800 | | Payroll accruals | $867 | $42 | | Total | $2,535 | $1,020 | Note 7 – Debt In January 2023, Eve Brazil secured two BNDES loans totaling R$490 million (approximately $101.2 million); as of December 31, 2023, $25.8 million was outstanding, with $75.1 million available - Eve Brazil secured two BNDES loans totaling R$490 million ($101.2 million) in January 2023 to support eVTOL project development[485] - Long-Term Debt Outstanding (as of Dec 31, 2023, in thousands USD) | Loan Type | Interest Rate | Carrying Amount | | :---------- | :------------ | :-------------- | | Sub-credit A | 4.55% | $13,132 | | Sub-c