Embraer Earning Results 1st Quarter 2022

·     Embraer delivered 14 jets in the first quarter, of which 6 commercial aircraft and 8 executive jets (6 light and 2 mid-size).

·     Firm order backlog ended 1Q22 at US$ 17.3 billion (+US$0.3 billion versus 4Q21). This is the highest quarter backlog since 2Q18, driven by solid order activity.

·     Revenues reached US$ 600.9 million in the quarter, down 26% compared to 1Q21, with almost one month of production shut down due to system and legal reintegration of Commercial Aviation in January. In contrast, reported consolidated gross margin of 20.1% was higher than the 9.5% reported in 1Q21 due to better performance in all segments.

·     Adjusted EBIT and EBITDA were US$ (27.0) million and US$ 13.2 million, respectively, yielding Adjusted EBIT margin of -4.5% and Adjusted EBITDA margin of 2.2%. This includes nonrecurring expenses of US$17 million for the quarter.

·     Free cash flow (FCF) in 1Q22 was a usage of US$ (67.8) million, representing a significant improvement compared to the US$ (226.6) million in FCF in 1Q21, and best FCF for 1Q since 1Q10, consistent with working capital optimization measures and enterprise efficiency.

·     FX Variation & Hedge – in 1Q22 we recognized credits of USD 0.8 million related to payroll expenses due to cash flow hedge, mitigating our exposure to FX variation, which is approximately 13% of total costs.

·     The Company finished the quarter with total debt of US$ 3.6 billion, or US$0.5 billion less in line with the strategy to improve our capital structure.

·     We reaffirm all aspects of our 2022 financial and deliveries guidance, with no material variation.

MAIN FINANCIAL INDICATORS

2 Adjusted Net Income (loss) is a non-GAAP measure, calculated by adding Net Income attributable to Embraer Shareholders plus Deferred income tax and social contribution for the period, in addition to adjusting for non-recurring items. Under IFRS for Embraer’s Income Tax benefits (expenses) the Company is required to record taxes resulting from unrealized gains or losses due to the impact of changes in the Real to US Dollar exchange rate over non-monetary assets (primarily Inventory, Intangibles, and PP&E). The taxes resulting from gains or losses over non-monetary assets are considered deferred taxes and are presented in the consolidated Cash Flow statement, under Deferred income tax and social contribution. Adjusted Net Income (loss) also excludes the net after-tax special items.

São Paulo, Brazil, April 28, 2022 – (B3: EMBR3, NYSE: ERJ). The Company’s operating and financial information is presented, except where otherwise stated, on a consolidated basis in United States dollars (US$) in accordance with IFRS. The financial data presented in this document as of and for the quarters ended March 31, 2022 (1Q22), December 31, 2021 (4Q21) and March 31, 2021 (1Q21), are derived from the unaudited financial statements, except annual financial data and where otherwise stated.

REVENUES AND GROSS MARGIN

Consolidated revenues of US$ 600.9 million in 1Q22 represent a decrease of 26% y-o-y mostly driven by lower deliveries in Commercial and Executive Aviation and lower revenues in Defense & Security, only partially offset by higher revenues in Services & Support. Deliveries in the quarter were negatively impacted by almost one month shut down (jan22) due to Commercial Aviation reintegration.

* Executive Aviation 1Q22 revenues were US$ 89.9 million, which is 41% lower y-o-y, driven by expected decrease of 38% in deliveries compared to 1Q21. Reported 1Q22 gross margin from Executive Aviation of 18.7% higher than 6.2% reported in 1Q21.

* Defense & Security reported revenue fall of 47% to US$ 68.3 million, mainly impacted by no KC-390 deliveries in the quarter. Reported 1Q22 gross margin from Defense & Security of 14.4% higher than 10.4% reported in 1Q21.

* Services & Support reported revenues of US$ 271.2 million, representing y-o-y growth of 8%. It continues to show solid recovery as airlines flight activities are recovering from the pandemic peak in 2020. Reported 1Q22 gross margin from Service & Support of 26.5% higher than 24.6% reported in 1Q21.

Reported 1Q22 consolidated gross margin of 20.1% higher than 9.5% reported in 1Q21, with the year over-year improve in all segments, especially in the Commercial and Executive Aviation.

EBIT AND ADJUSTED EBIT

In 1Q22, the Company’s reported results include one special item related to the expenses of Eve’s Business of US$ (9.3) million, as summarized in the table below.

Excluding this special item, 1Q22 Adjusted EBIT was US$ (27.0) million and Adjusted EBIT margin was -4.5%, compared to Adjusted EBIT of US$ (29.6) million and Adjusted EBIT margin of -3.7% in 1Q21. Adjusted EBIT in 1Q22 also includes Commercial Aviation reintegration, Arbitration, and other non-recurring expenses of US$17 million. If we exclude all extraordinary effects, Adjusted EBIT margin would have been -1.7%.

Negative Adjusted EBIT in 1Q22 was driven by lower deliveries in Commercial and Executive Aviation and the decrease in revenues in Defense & Security segment.

NET INCOME (LOSS)

Net loss attributable to Embraer shareholders and loss per ADS for 1Q22 were US$ (31.7) million and US$ (0.17), respectively, compared to US$ (89.7) million in net loss attributable to Embraer shareholders and US$ (0.49) in Loss per ADS in 1Q21.

ADJUSTED NET INCOME – US$ Million

BALANCE SHEET ACCOUNTS

DEBT & LIABILITY MANAGEMENT

Embraer ended 1Q22 with a net debt position of US$ 1.5 billion, compared to US$ 1.4 billion q-o-q and US$ 1.9 billion y-o-y. The increase in the Company’s net debt position q-o-q is a result of Embraer’s usage of free cash flow in the quarter. Liquidity position decreased to US$ 2.1 billion, from the US$ 2.6 billion in 4Q21, with payment of US$ 471.1 million of short and long-term debt.

BALANCE SHEET ACCOUNTS

DEBT & LIABILITY MANAGEMENT

Embraer ended 4Q21 with a net debt position of US$ 1.4 billion, compared to US$ 1.8 billion q-o-q and US$ 1.7 billion y-o-y. The improvement in the Company’s net debt position q-o-q resulted from Embraer’s significant positive free cash flow generated in 4Q21, as explained below. Liquidity position improved to US$ 2.6 billion, above 3Q21, with payment of short-term debt.

The average loan maturity of 1Q22 was 3.8 years, compared to 3.7 yrs. q-o-q. The cost of Dollar-denominated loans in 1Q22 was 5.20% p.a., in line with the 5.08% p.a. cost in 4Q21, while the cost of Brazilian Real denominated loans increased to 6.39% p.a. in 1Q22 compared to 5.04% in 4Q21.

The company continued to pursue further liability management and launched a cash tender of ˜USD 300 million o repurchase outstanding bonds, with duration around 4 years in 1Q2022.

FREE CASH FLOW

Adjusted free cash flow for 1Q22 was US$ (67.8) million, a significant improvement compared to US$ (226.6) million reported in 1Q21 due to the quarter higher net result and continuous working capital discipline, especially with lower inventories, PP&E and higher advanced payments from customers (Contract liabilities).

CAPEX

Net additions to total PP&E for 1Q22 were US$ 18.1 million, the same amount reported in 1Q21. Of the total 1Q22 value, Capex amounted to US$ 8.7 million, and pool program spare parts represented US$ 10.0 million of total figures, partially offset by US$ (0.6) million of proceeds from the sale of PP&E. In 1Q22, Embraer invested a total of US$ 21.4 million in product development, mainly related to the E-Jets E2 commercial jet program. In 1Q22, the Company invested a total of US$ 18.1 million in net additions to PP&E and US$ 38.8 million in R&D.

WORKING CAPITAL

Working capital had a positive impact in the company overall cash performance, even considering seasonality, delivering its best 1Q cash flow since 2010. The main contributors were optimized inventory management and higher contract liabilities compared with 4Q21.

TOTAL BACKLOG

Firm order backlog and the end of 1Q22 was US$ 17.3 billion representing an increase of 22% and 2% compared to 1Q21 and 4Q21, respectively, reaching the highest quarter backlog since 2Q18.

COMMERCIAL AVIATION

In 1Q22, Embraer delivered 6 commercial jets, as shown below:

Embraer delivered 4 Embraer 175 to Skywest (Alaska) and 2 Embraer 195-E2 to Aircastle (KLM). The lower number of deliveries was planned due to the reintegration of the Embraer’s Commercial Aviation business and related services and support. The systems reintegration works were done in January, and during this time, the factory was mainly closed.

In Commercial Aviation, Embraer will enter the air freight market with the launch of the E190F and E195F Passenger to Freight Conversions (P2F). The full freighter conversion is available for all pre-owned E190 and E195 aircraft, with entry into service expected in early 2024. This initiative comes as Embraer addresses three major opportunities: (1) Current small narrowbody freighter airframes are aged, inefficient, highly polluting, and well within their retirement window; (2) The ongoing transformation of the intersection between commerce, trade and logistics; (3) The earlier E-Jets that entered service around 10-15 years ago are now emerging from long term leases and beginning their replacement cycle, continuing over the coming decade, extending the life of the most mature E-Jets by another 10 to 15 years deliver head turning performance and economics. The E190 and E195 P2F conversions also facilitate the replacement of the older passenger aircraft by new generation E2s.

Unit backlog and cumulative deliveries for Commercial Aviation at the end of 1Q22 were as follows:

EXECUTIVE AVIATION

Executive Aviation delivered 8 aircraft (6 light and 2 mid-size jets) in the first quarter 2022, equal to Plan.  Deliveries were below 1Q21 due to system reintegration activities in January.

Executive Aviation sales continued strong in the quarter with sales orders exceeding prior year levels.  The book-to-bill ratio remains above 2.5 to 1, the highest in the industry.

Growth in the light and mid-sized business jet segments continues.  Embraer Executive Aviation is well positioned to capitalize on this growth, with strong product performance and increased customer demand.

DEFENSE & SECURITY

In cybersecurity, Tempest broke revenue records, posting 11% growth compared to 1Q21. This growth was backed by a solid portfolio of cybersecurity products and services, expanding its base to more than 300 customers throughout the year.

In April, Embraer signed two contracts with the Brazilian Army. The first for the Army’s acquisition of four additional SABER M60 radar units and the second for the development and deployment of Phase Two of the Army’s Strategic Program for the Integrated Border Monitoring System (SISFRON), which will be included in the 2Q backlog.

SERVICES & SUPPORT

Embraer signed a long-term contract extension for the Pool Program with German Airways. Highlights are shed on a new Technical Services long-term contract, a significant E190 Pool Program celebrated between Embraer and Aerolineas Argentinas, along with RPM and an agreement to extend simulator components support. Currently, Embraer’s Pool program supports more than 50 airlines worldwide.

EBIT and EBITDA are presented because they are used internally as measures to evaluate certain aspects of the business. The Company also believes that some investors find them to be useful tools for measuring a Company’s financial performance. EBIT and EBITDA should not be considered as alternatives to, in isolation from, or as substitutes for, analysis of the Company’s financial condition or results of operations, as reported under IFRS. Other companies in the industry may calculate EBIT and EBITDA differently from Embraer for the purposes of their earnings releases, limiting EBIT and EBITDA’s usefulness as comparative measures.

Adjusted EBIT and Adjusted EBITDA are non-GAAP measures, and both exclude the impact of several non-recurring items, as described in the tables bellow.

Adjusted Net Income is a non-GAAP measure, calculated by adding Net Income attributable to Embraer Shareholders plus Deferred Income tax and social contribution for the period, as well as removing the impact of non-recurring items. Furthermore, under IFRS for purposes of calculating Embraer’s Income Tax benefits (expenses), the Company is required to record taxes resulting from gains or losses due to the impact of the changes in the Real to the US Dollar exchange rate over non-monetary assets (primarily Inventories, Intangibles, and PP&E). It is important to note that taxes resulting from gains or losses over non-monetary assets are considered deferred taxes and are accounted for in the Company’s consolidated Cash Flow statement, under Deferred income tax and social contribution.