Source: Embraer

HIGHLIGHTS

  • Firm order backlog ended 2Q22 at US$ 17.8 billion (+US$0.5 billion versus 1Q22). This is the highest quarter backlog post pandemic, driven by solid order activity. Recent announcement of 20 E195-E2 firm order of Porter will be included in 3Q22 backlog.
  • Reported 2Q22 consolidated gross margin of 22.9% higher than 18.2% reported in 2Q21, with y-o-y improvement in most segments due to product mix, pricing increase and overall operational performance, including tax efficiencies.
  • Adjusted EBIT and EBITDA were US$ 81.2 million and US$ 124.6 million, respectively, yielding Adjusted EBIT margin of 8.0% and Adjusted EBITDA margin of 12.2%.
  • In 2Q22, Embraer reported Adjusted Net Income (excluding deferred taxes and special items) of US$ 39.4 million and Earnings per Share of US$ 0.40.
  • Free cash flow (FCF) in 2Q22 was a surplus of US$ 91.2 million, representing a significant improvement compared to the US$ 45.1 million in FCF in 2Q21, supported by divestment of Évora’s facilities and EVE’s IPO offset by working capital needs and liability management strategy.
  • The Company finished the quarter with net debt of US$ 1.198 billion, or US$ 0.255 billion less than 1Q22 in line with the strategy to improve our capital structure and liability management.
  • 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.

3 Net Debt w/o EVE represents cash and cash equivalents, plus financial investments, minus short and long-term loans and financing, less EVE’s Net Debt.

São Paulo, Brazil, August 4, 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 June 30, 2022 (2Q22), March 31, 2022 (1Q22), December 31, 2021 (4Q21) and June 30, 2021 (2Q21), are derived from the unaudited financial statements, except annual financial data and where otherwise stated.

REVENUES AND GROSS MARGIN

Consolidated revenues of US$ 1,018.9 million in 2Q22 represent a decrease of 9.9% y-o-y mostly driven by lower deliveries in Commercial and Defense & Security and partially offset by higher revenues in Services & Support.
  • Commercial Aviation reported revenue reduction of 23% y-o-y of US$ 299.9 million due to lower aircraft deliveries in the quarter. Reported 2Q22 consolidated gross margin from Commercial Aviation of 13.2% higher than 4.5 % reported in 2Q21.
  • Executive Aviation 2Q22 revenues were US$ 266.7 million, which is 0.2% higher y-o-y. Reported 2Q22 gross margin from Executive Aviation of 22.1% higher than 17.5% reported in 2Q21 due to higher y-o-y prices.
  • Defense & Security reported revenue fall of 28% to US$ 126.6 million, mainly impacted by less Super Tucano deliveries and revenues in 2Q22 compared to 2Q21. Reported 2Q22 gross margin from Defense & Security of 28.0% lower than 34.6% reported in 2Q21.
  • Services & Support reported revenues of US$ 320.1 million, representing y-o-y growth of 7.4%. It continues to show solid recovery as airlines and executive jets operators’ flight activities are recovering from the pandemic peak in 2020. Reported 2Q22 gross margin from Service & Support of 31.8% higher than 28.3% reported in 2Q21.

Reported 2Q22 consolidated gross margin of 22.9% higher than 18.2% reported in 2Q21, with the y-o-y improvement in most segments, especially in the Commercial, Executive Aviation and Services & Support.

EBIT AND ADJUSTED EBIT

In 2Q22, the Company’s reported results as summarized in the table below.

Excluding these special items, 2Q22 Adjusted EBIT was US$ 81.2 million and Adjusted EBIT margin was 8.0%, compared to Adjusted EBIT of US$ 104.7 million and Adjusted EBIT margin of 9.3% in 2Q21. Strong recovery Adjusted EBIT in 2Q22 as compared to 1Q22 was driven by better production, cost and price efficiency in Commercial and Executive Aviation, that led to increase in revenues and gross margin.

NET INCOME (LOSS)

Net profit attributable to Embraer shareholders and earnings per ADS for 2Q22 were US$ 74.2 million and US$ 0.40, respectively, compared to US$ 87.9 million in net income attributable to Embraer shareholders and US$ 0.48 in Earnings per ADS in 2Q21.

Note: reported net income is explained above and adjusted net income can be seen below at the chart.

 

BALANCE SHEET ACCOUNTS

DEBT & LIABILITY MANAGEMENT

Embraer ended 2Q22 with a net debt position of US$ 1.2 billion, compared to US$ 1.5 billion q-o-q and US$ 1.8 billion y-o-y. The decrease in the Company’s net debt position q-o-q is a result of cash usage and payment of all 2022 balance of Embraer’s bond and repurchase of 2025, 2027 and 2028 bonds. Liquidity position decreased to US$ 1.96 billion, from the US$ 2.10 billion in 1Q22, with payment of US$ 396.8 million of short and long-term debt.

The average loan maturity of 2Q22 was maintained at 3.8 years. The cost of Dollar-denominated loans in 2Q22 was 5.30% p.a., in line with the 5.20% p.a. cost in 1Q22, while the cost of Brazilian Real denominated loans increased to 7.32% p.a. in 2Q22 compared to 6.39% in 1Q22, due to the increase in the reference rate.

FREE CASH FLOW

Adjusted free cash flow for 2Q22 was US$ 91.2 million, a significant improvement compared to US$ 45.1 million reported in 2Q21 due to working capital optimization, in light of production ramp-up and divestment of Évora’s facilities.

Free cash flow resources offset part of US$ 396.8 million bond repurchase and loans payment in the quarter.

As reference, EVE’s US GAAP cash flow amounted to US$162 million in the first half, for more details EVE publishes its results on the same day on New York Stock Exchange.

CAPEX

Net additions to total PP&E for 2Q22 were US$ 31.6 million. Of the total 2Q22 value, Capex amounted to US$ 12.6 million, and pool program spare parts represented US$ 19.3 million of total figures, partially offset by US$ (0.3) million of proceeds from the sale of PP&E. In 2Q22, Embraer invested a total of US$ 26.4 million in product development, mainly related to TP program.

WORKING CAPITAL

Aligned with the Company’s planned ramp-up of deliveries in the coming quarters, working capital was impacted by an increase in inventory’s work-in-progress. Several working capital initiatives resulted in a positive YTD free cash flow, considering 2/3 of annual revenue planned for the second semester.

TOTAL BACKLOG

Firm order backlog reached US$ 17.8 billion in 2Q22, representing an increase of 12% and 2.9% compared to 2Q21 and 1Q22, respectively, reaching the highest backlog post pandemic, not accounting for the 20 firm orders for Porter in July22.

COMMERCIAL AVIATION

In 2Q22, Embraer delivered 11 commercial jets, as shown below:

 

Embraer delivered 8 Embraer 175 to SkyWest and 3 Embraer 195-E2 to Aircastle and ICBC. In the 2Q22, NAC was announced as the E-Jets Freighter launch lessor, after signing an LOI of up to 10 P2F conversions and additional undisclosed customer signed a firm order of up to 10 P2F conversions. Embraer and Pratt & Whitney successfully tested a GTF-powered E195-E2 aircraft on 100% SAF, the first step in the certification process to maximize emission reduction with the use of Sustainable Aviation Fuels.

Unit backlog and cumulative deliveries for Commercial Aviation at the end of 2Q22 were as follows:

EXECUTIVE AVIATION

Executive Aviation delivered 21 aircraft (12 light and 9 mid-size jets) in the second quarter 2022. Deliveries were higher than 2Q21 and 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

As of 2Q22, there are four units of C-390 Millennium in the production line destined to the Brazilian Air Force (FAB), two units to the Portuguese Air Force and one to the Hungarian Defense Forces. With regards to ongoing sales campaigns, Embraer was honored by the Netherlands Ministry of Defense’s (MoD) decision of selecting the C-390 Millennium as a sole source in its project “Replacement Capacity Tactical Airlift”.

In our cybersecurity business, Tempest continues to show strong growth, with more than twice revenue when compared 2Q22 vs 2Q21 and representing a year-to-date growth of more than 60% compared to the first half of 2021.

SERVICES & SUPPORT

Growth of Services and Support is based on the expansion of the sale of materials (parts and support to special programs). This is due to higher aircraft fleet usage of the Commercial and Executive aviation, because of the recovery from the adverse impact of the COVID-19 pandemic.

The main drivers for the Commercial Aviation services were in Pool Program and components. Highlights are shed on a new long-term and significant agreement extension signed with Intel for the ERJ fleet. Porter has also made an addition to its E2 fleet in the pool program, now overseeing new components. New long-term agreements also included Eswatini National Airways and Marathon pool agreement.

For Executive Jets Services, sales results continue ahead of target with new contracts signed in the first six months of the year.

For the Defense market, new temporary support contracts were celebrated with the Brazilian Federal Police for two E175 and with SATENA, bringing new revenue to Embraer Services & Support. Also in the term, the Services & Support Training team assisted the first and successful KC-390 operation for cargo airdrop of supplies at the Brazilian Research Base at Antarctica.