Embraer(ERJ) - 2021 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company ended Q2 2021 with a backlog of $15.9 billion, up $1.7 billion or 12% from the prior quarter, returning to pre-pandemic levels [11] - Net revenue for Q2 more than doubled compared to the same quarter last year, with a year-to-date net revenue of just under $2 billion, representing a 65% increase over 2020 [14] - Adjusted net income was positive at $44 million or $0.24 per ADS in Q2, marking the first net profit on a quarterly basis since 2018 [20] - Free cash flow in Q2 was positive at $45 million, significantly higher than the previous quarter and the same period last year [21] - The company ended the quarter with $2.49 billion in cash and cash equivalents, with a slight decrease in debt to $4.3 billion [23] Business Line Data and Key Metrics Changes - In Commercial Aviation, 14 aircraft were delivered in Q2, a 56% increase from the prior quarter and a 250% increase from Q2 2020 [12] - Executive Aviation delivered 20 aircraft in Q2, a 54% increase compared to both Q1 2021 and Q2 2020 [13] - Services and Support saw a 55% revenue growth in Q2, driven by traffic recovery and strong maintenance activity [8] - Defense and Security achieved a 25% adjusted EBIT margin, supported by Super Tucano deliveries and positive adjustments on defense contracts [19] Market Data and Key Metrics Changes - The company reported strong demand in the E-Jet family, with new firm orders from Porter Airlines and Horizon Air [6] - The backlog for Executive Aviation continued to grow, reflecting increased demand for light and larger business jets [11] - The company noted that 94% of the Embraer air fleet is back in operation globally, indicating a recovery in the domestic market [54] Company Strategy and Development Direction - The company aims to double its size in the medium term, focusing on both top-line growth and higher profitability [28] - There is a strong emphasis on innovation, particularly in Urban Air Mobility and electrification initiatives [9][34] - The company is actively pursuing partnerships and new programs to drive growth opportunities [29] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the ongoing recovery and the potential for positive operating profit this year [29] - The company anticipates a return to historical levels in Commercial Aviation from 2023 onwards, with significant growth expected in 2022 [43][54] - Management highlighted the importance of efficiency gains as a key driver of improved results [45] Other Important Information - The company has published its 2021 financial delivery guidance for the first time since the pandemic began, expecting to deliver between 45 to 50 commercial jets and 90 to 95 executive jets [24] - The company is also focused on ESG commitments and corporate governance improvements [30] Q&A Session Summary Question: Update on SPAC negotiations with Eve - Management is optimistic about the ongoing negotiations [33] Question: Development of electric aircraft - The company recently conducted its first technical flight with a full electric aircraft and continues to invest in electrification [34] Question: Details on defense gross margin expansion - The expansion was driven by Super Tucano deliveries and adjustments in defense contracts [35] Question: Clarification on the $25 million tax reversal - The reversal was related to a provision built in 2018 for a claim that was resolved in Q2 [36] Question: Update on business jets and first-time buyers - Approximately 30% of the backlog consists of first-time buyers, indicating strong market interest [40] Question: Supply chain issues affecting commercial deliveries - Management has not seen any supply chain problems impacting the current year's guidance [46] Question: Long-term margin expectations - Long-term margins are expected to be double-digit for Services & Support, single-digit for Executive Aviation, and mid-single digit for Commercial Aviation [47] Question: Expectations for new KC-390 orders - The company is actively working on sales campaigns for the KC-390 [55]