Embraer(ERJ) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics - Q2 2024 revenues increased by over 15% YoY, driven by Defense & Security (up over 100%), Commercial Aviation, and Service & Support (both up around 20%) [4] - First-half 2024 revenues grew 19% YoY, with Defense & Security leading at 50% growth, followed by Executive Aviation (24%), Service & Support (16%), and Commercial Aviation (12%) [5] - Operating margin improved by 1.6% to 9.3% in Q2, with a 2.7% gain in the first half of 2024 [5] - Firm order backlog reached $21.1 billion, the highest in seven years, with a book-to-bill ratio exceeding 2.2:1 [6] - Adjusted EBITDA for Q2 2024 was$190 million, with a 12.7% margin, compared to $149 million in Q2 2023 [15] - Adjusted EBIT margin improved to 9.3$3.3 billion YoY to $11.3 billion, with a book-to-bill ratio above 4:1. Deliveries and revenues nearly tripled sequentially in Q2, reaching 19 aircraft and$554 million [8] - Executive Aviation: Recorded the strongest first half in 10 years, with revenues of $575 million and 45 aircraft delivered. Backlog increased by$300 million to 4.6 billion, with a 1.5:1 book-to-bill ratio [9] - **Defense & Security**: Revenues increased 2.3 times YoY, with an adjusted EBIT margin improving to -0.5% in Q2 2024 from -4.1% in Q2 2023 [9] - **Service & Support**: Revenue grew 20% YoY in Q2, with a 1.3% gain in adjusted EBIT margin. Backlog remained stable at 3.1 billion [10] Market Performance - Commercial Aviation saw strong demand, with Mexicana de Aviación ordering 10 E190-E2s and 10 E195-E2s, with deliveries starting in Q2 2025 [6] - Defense & Security secured contracts for 90 C-390 Millennium aircraft with the Netherlands and Austria, and six Super Tucano aircraft with Paraguay [6] - Executive Aviation capitalized on strong sales momentum in both fleet and retail markets [7] Strategy and Industry Competition - The company is focused on improving supply chain efficiency by localizing teams near critical suppliers and implementing digital tools and AI [7] - Embraer remains confident in its eVTOL business, with EVE completing a $96 million equity round and progressing in prototype development [10][11] - The company reiterated its 2024 operational and financial guidance, expecting strong demand in its main markets [5] Management Commentary on Operating Environment and Future Outlook - Management highlighted ongoing supply chain challenges but expressed confidence in meeting 2024 delivery guidance [12][24] - The company expects double-digit growth in aircraft deliveries, revenue, and EBIT for 2024 and 2025, despite operational challenges [12] - Management sees bright prospects for the company, with a strong backlog and strategic plan in place [21] Other Important Information - The company completed the first flight of the E190 Freighter, a passenger-to-cargo conversion, certified by ANAC in July 2024 [10] - Embraer extended its revolving credit facility from$650 million to 1 billion, reflecting improved liquidity for Q3 [19] Q&A Session Summary Supply Chain and Delivery Guidance - Management expressed confidence in meeting 2024 delivery guidance despite supply chain challenges, citing proactive measures such as localized teams and digital tools [23][24] EBITDA Margin and Guidance - The company is closer to the high end of its EBITDA margin guidance, with potential for upside if all aircraft are delivered as planned [27][28] Defense Revenue Outlook - Defense revenues are expected to reach around 600 million in 2024, driven by C-390 and Super Tucano deliveries [30][31] EBIT Margin Impact - One-time items, including tax credits, boosted the EBIT margin by 250 basis points in Q2 [33][34] Commercial Aviation Orders - The company is working on multiple sales campaigns globally and expects new orders in Q3 and beyond [35] Business Jet Market - Strong demand for business jets continues, with production ramp-up being the primary challenge [37] Defense Margin Outlook - Defense margins are expected to improve, potentially reaching lower teens in the coming years [40][41] Cash Flow and Working Capital - The company expects to recover cash in Q4 as deliveries increase, with a target of turning 50% of EBITDA into cash [53][54] C-390 Profitability - The C-390 program is expected to be profitable by the end of 2024 [56] Digital Design Tools - Embraer is using digital tools like MES to improve manufacturing efficiency [61] LatAm Market and Competition - The company sees the E2 as a competitive product in the LatAm market, with ongoing discussions with potential customers [65][66] Stock Performance - Embraer's stock has grown significantly since the pandemic, with further growth expected [69][70] U.S. Defense Market - The company is exploring opportunities to penetrate the U.S. defense market, including potential mergers and acquisitions [73][74]