Embraer S.A. (NYSE:ERJ) Q4 2024 Earnings Call Transcript

Embraer S.A. (NYSE:ERJ) Q4 2024 Earnings Call Transcript February 27, 2025

Embraer S.A. beats earnings expectations. Reported EPS is $0.94, expectations were $0.47.

Gui Paiva: Good morning ladies and gentlemen and thanks for standing by. This conference call will be conducted in English, but please let me say a short announcement for Portuguese speakers. [Foreign Language] My name is Gui Paiva and I’m the Head of Investor Relations and M&A for Embraer. I want to welcome you to our Fourth Quarter and 2024 Full Year Earnings Conference Call. The numbers in this presentation contain non-GAAP financial information to help investors reconcile EVE’s financial information in GAAP standards to Embraer’s IFRS. We remind you EVE’s results will be discussed at the Company’s conference call in March. It is important to mention that all numbers are presented in U.S. dollars as it is our functional currency.

This conference call may include statements about future events based on Embraer’s expectations and financial market trends. Such statements are subject to uncertainties that may cause actual results to differ from those expressed or implied in this conference call. Except in accordance with the applicable rules, the Company assumes no obligation to publicly update any forward-looking statements. For detailed financial information the Company encourages reviewing publications filed by the Company with the Brazilian Comissão de Valores Mobiliários, or CVM. At this time, all participants are in a listen-only mode. We will give instructions later on for participation in the two Q&A sessions. As a reminder, this conference is being recorded.

Participants on today’s conference call are Francisco Gomes Neto, President and CEO of Embraer; Antonio Carlos Garcia, Chief Financial Officer; Luiz Herrisson, Corporate Communications Director; and myself. This conference call will have three parts. In the first part, top management will present the company’s Q4 and 2024 full year results. In the second part, we will host a Q&A session only for investors. And last but definitely not least, in the third part, we will host a dedicated Q&A session only for the press. It is my pleasure to now turn the conference call to our President and CEO, Francisco Gomes. Please go ahead, Francisco.

Francisco Gomes Neto: Thank you, Gui, and good morning and good afternoon to all. Welcome to the Embraer’s Q4 2024 results conference call. Before I start my presentation about 2024, I’m pleased to share with you that ANA, All Nippon Airways, purchased 15 E190-E2 jets this week, plus options for additional five aircrafts. This is the first sale of our E2 family in Japan and these E190-E2 aircrafts will join the other 47 E1 jets which have been successfully operating in the country since 2009. Now come back to 2024. 2024 was a historic year for Embraer with remarkable results that show the company’s successful growth path. We reached or exceeded our modified and original 2024 guidance for both financial and operational indicators showing our capacity to face the challenges still present in the supply chain.

We achieved record revenue of $6.4 billion, our highest level in our history. Our focus on sales resulted in all time backlog record of $26.3 billion. We have made further progress in financial deleveraging and our net debt is now close to zero. Embraer now has the accounting conditions to start paying dividends subject to approval by its shareholders. For this year we are committed to sustainable growth and our 2025 guidance reflects the same successful formula of the past few years, double digit growth. Talking about sales, we had a remarkable year with positive highlights in all areas and an impressive company-wide 2.2 book-to-bill ratio. We announced our largest order in Executive Aviation, a $7 billion contract with 182 firm orders and 30 options from Flexjet.

The Phenom 300 remains the most delivered light jet for the 13th consecutive year and the most delivered twin engine jet for the fifth consecutive year. The division finished 2024 with a record $7.4 billion backlog and an industry leading 2.7 book-to-bill ratio. Defense and Security ended the year with the best sales performance in its history. In 2024. Austria, Czech Republic, The Netherlands and an undisclosed client acquired 13 KC-390s. Sweden and Slovakia also selected the aircraft. The A-29 Super Tucano also did very well and received 29 new orders from Paraguay, Portugal, Uruguay and two undisclosed clients. The backlog rose to $4.2 billion with a record share more than 60% from global clients. The business unit recorded a superb 3.3 book-to-bill ratio.

In Commercial Aviation, we announced a firm contract with American Airlines for 90 E175 aircraft plus 43 options. In our E2 jets family we signed contracts with Luxair, Mexicana and Virgin Australia 30 aircrafts and welcomed LOT Polish with three aircraft via lessors. The division finished the year with a $10.2 billion backlog and a strong 1.6 book-to-bill ratio. Service and support also showed solid growth, expanding its own MRO centers in the U.S. and announcing new long-term contracts with Flexjet and several commercial airlines. The division backlog rose to $4.6 billion, a new all-time high, supported by long-term contracts and the business unit finished the period with a solid 1.9 book-to-bill ratio. The business unit also started inducting engines for repair in our new Pratt & Whitney GTF engines operation at OGMA Portugal.

Supply chain is still an important issue, but we are working very hard to address its related challenges. In 2024, we focused on strategic initiatives to better balance production in 2025 and over the coming years, ensuring more linearity. We have also improved collaboration with our suppliers, reinforced the supply chain aerostructure, digitized processes and invested in AI tools to anticipate potential issues, to monitor and manage activities in real time. I will now move on the operational results by segment over the next few slides. In Commercial Aviation revenues increased 20% in 2024. The adjusted EBIT for the full year was $55 million or 182% higher than in 2023, supported by 2.5% EBIT margin driven by customer mix and operating leverage.

In Executive Aviation, revenues expanded 25% in 2024, the division adjusted EBIT reached $205 million, or 62% higher than in 2023, helped by an 11.7% EBIT margin because of operating leverage. In Defense and Security, top line grew 40% in 2024. The adjusted EBIT was $45 million, or 57% higher than in 2023, supported by a 6.2% EBIT margin, because of KC-390 customer in higher [indiscernible] volumes. Moving now to Service & Support, revenues increased 15% in 2024. The adjusted EBIT reached $270 million, or 25% higher than in 2023, driven by a 16.5% EBIT margin supported by higher volumes in the division. Finally, EV continues to make progress with its eVTOL development in testing phase. In 2024, EV achieved important program milestones as the final assembly of its first, full scale prototype, which is currently being evaluated during the ground testing campaign and is scheduled to make the first flight in 2025.

I will now hand it over to Antonio to give you further details about the financial results and then I will be back with closing remarks.

Antonio Carlos Garcia: Thank you. Good morning and good afternoon to everyone. The remarkable results Francisco just presented are also reflected in our financial numbers, which show sustainable and solid growth in all key Q4 indicators. Let’s now move to Slide 11 and start with deliveries. Embraer delivered 75 aircrafts in the last quarter, equal to the number in the same period of the previous year. Meanwhile, the company delivered a total of 206 aircrafts in 2024, including three KC-390 Millennium, a 14% increase compared to 181 aircraft in 2023. Executive Aviation delivered 44 jets in Q4 and a total of 130 for the year. At the midpoint of the regional guidance for 2024 and at 14-year high, the mid and super mid category represent half of the segment deliveries during the quarter, supported by the solid trust forward of our operator family.

It is important to highlight the progress observed in the company’s production leveling initiative, we managed to reduce the share of Q4 deliveries in the year by 10 percentage points 2024 versus 2023. Meanwhile, Commercial Aviation delivered 31 aircraft in the last quarter of 2024 and 73 in the year, at the ceiling of our revised estimates of 70-73 and still within the original estimates of 72-80 for the period. For the year, our E2 family represented 65% of deliveries and we won the balance of 35%. In Slide 12, as already mentioned by Francisco, our backlog expanded more than 40% year-on-year in Q4. Giving more details, the backlog for Executive Aviation increased 70% year-on-year supported by the contract Flexjet. The backlog for service and support soared more than 65%, while for Defense & Security increased 50%, supported by new orders from KC-390 Millennium and A-29 Super Tucano.

The backlog for Commercial Aviation increased a solid 15% year-on-year. Moving on to revenues, we had a 17% increase year-on-year in Q4 to more than $2.3 billion. Our top line of $6.4 billion in 2024 reached the high end of guidance and an increase more than 20% when compared to 2023. All business performed well throughout the year, especially Defense & Security and Executive Aviation, whose revenues increased 40% and 25% year-on-year respectively. Together, these two segments represent more than 40% of the company’s total revenue in 2024. Next slide please. We generated $328 million adjusted EBIT in Q4 with a 14% margin and $922 million in the year. I remind you there is the Boeing arbitration impact of $150 million in the results of the year.

That increased the margins around 230 basis point from 12.1 to 14.4. Moving to the next slide, adjusted EBIT for the quarter was $265 million with an 11.5% margin. For the year we generated $780 million with an 11.1% margin, surpassing the upper end of our previously revised up 10% guidance for 2024. If you look at the results for the year ex-Boeing agreement, the EBIT margin improved 210 basis points year-on-year from 6.6% to 80.7%, supported by high profitability in all business units, driven by efficiency and operating leverage. Onto Slide 15 now please. In Q4, we generated $996 million in adjusted free cash flow because of higher numbers of aircraft delivers and strong performance in sales including significant advanced customer payments in Defense, which is going to negatively impact 2025.

For 2024 we generated $676 million in adjusted free cash flow and a still strong $540 million without Boeing, helped by significant Defense prepayments compared to $318 million in 2023. We did better than our $300 million or more guidance because of the improvement in our working capital. Moving to investments without EVE, we spent $64 million in research and development during the quarter, $56 million CapEx and a net of $10 million in the Pool Program, for a total of $130 million in Q4 compared to $142 million a year ago. On a yearly basis, Embraer standalone invested a total of $428 million in 2024 compared to $440 million in 2023. Our capital allocation continues to be geared towards segments with higher returns such as Executive Aviation, Service & Support, mainly in U.S. We continue to see our CapEx run rate at close to $400 million per year in the near future.

Slide 16, our adjusted net income was positive $173 million for the quarter supported by a 7.5% adjusted margin. Meanwhile, we ended the year with $462 million in adjusted net income for an adjusted margin of 7.2%. If you exclude Boeing agreement our adjust net income was $363 million for a 5.7% margin compared to $80 million and 1.5% margin a year ago. Slide 17 please. I would like to start highlighting the top right corner of the slide. Embraer finished 2024 with a net debt position without EVE of only $111 million and 0.1 times net debt-to-EBITDA ratio compared to $781 million and 1.4 times at the end of 2023 for a significant year-over-year decrease. Last year, I mentioned we were taking all necessary steps to recover investment grade status.

I am happy to announce in 2024 we became investment grades by all three main rating agencies and we see room for additional potential improvements in our ratings in 2025 and 2026. As part of our liability management plan, we are focused on generating cash, extended the duration and reduce the cost of our debt. Last month, we successfully issued a new bond of $650 million set to mature in 2035. This issuance is intended to be leveraged neutral as we plan to retire $522 million in debt set to mature in 2027 and $150 million in 2028. As a result of this transaction, our debt duration for 2024 has increased from 3.8 years to over 6.5 years, which will be effective in the first quarter of 2025. And to conclude my presentation, let me go over the details of our 2025 guidance.

In terms of operation, we forecast Commercial Aviation should deliver between 77 and 85 aircrafts for an increase of 10% year-on-year, use the midpoint of the range. Meanwhile, for Executive Aviation, we forecast 145 to 155 jets for an increase of 15% year-on-year. If we move to financials, we estimate top line to settle between $7 billion to $7.5 billion with the midpoint of the range 13% higher than what we generated last year. We forecast EBIT margin between 7.5 and 8.3% for the year, which would imply around $575 million at the midpoint of the range and 10% higher than adjusted $520 million EBIT ex-Boeing and ex-positive items generated in 2024. Finally, if you move to free cash flow generation, we estimate $200 million or higher for the year.

Remember, our goal is to convert 50% of our EBITDA and free cash flow. It is important to highlight it’s difficult to predict the dynamic and timing of prepayments, mainly in defense business. For instance, we received a sizable pre-down payment in Q4 which had originally expected for 2025. Thus, if we look 2024 and 2025 together, we should generate $875 million or more in free cash flow, which is 50% of circa $1.75 billion imply EBITDA by our 2024 reports and our 2025 guidance. We will update or reiterate our 2025 guidance on a quarterly basis as the years go by. With that, I conclude my presentation, hand it back to Francisco for his final remarks. Thank you very much.

Francisco Gomes Neto: Thank you, Antonio. First, I’d like to express my sincere appreciation and thank you to our partners, suppliers and our more than 20,000 people that are part of our Embraer family for your trust last year. Your continued support is a critical part of our success and growth. For 2025, we remain committed to our ongoing effort to manage our business with efficiency, financial discipline, innovation in all areas of the company and strengthening our supply chain management. And of course, we will maintain our steady focus on sales to achieve even better results in all business units in 2025 and years ahead. To finish, we expect 2025 to be even better than 2024. Embraer has shown it is stronger than ever, well positioned for sustainable growth and ready to capture its full potential in the coming years.

We continue to work hard, always embracing the foundation of our culture, safety first and quality always. Let’s now move to the session of the call.

Q&A Session

Operator: Thank you. We will now start the question-and-answer session. [Operator Instructions] The first part of the Q&A session will be exclusively for equity research analysts and investors. The second part of the Q&A will be only for the press. We highlight again this conference call is being conducted in English with translation to Portuguese. Please let me say a short announcement for Portuguese speakers. [Operator Instructions] The first question comes from Victor Mizusaki with Bradesco BBI. Please go ahead.

Victor Mizusaki: Hi, good morning and congrats for the quarter. I have a quick question here about the guidance for 2025. This EBIT margin guidance of 7.5% to 8.3%, if you think about this 8.3% is this – let’s say kind of a conservative or maybe here we’re talking about the company assume that the deliveries commercial deliveries. Maybe if you think about I mean the clients that will get the planes this year, maybe they put some pressure on margins in 2025, but then this means that by 2026 you see a big margin improvement. So any color you can give on EBIT margin guidance would be very helpful. Thank you.

Antonio Carlos Garcia: We know better than I know here a lot of volatility, regards to check exchange rate, regards to inflation, this and this and this. In our math internally here, our recurring EBIT without Boeing, without tax credit and other good guys we have in 2024 is 7.6, that’s why the guidance between 7.5% to 8.3%. In our view is showing already the midpoint 10% increase in value. And if you reach the top line, probably is going to be better. But at least today, we are not – the guidance we have follows, the operational side, please do not forget to have defense, we have services support that we do not show the guidance, I would say is a combination of facts. Okay, what is important we were able to compensate the positive help we have from arbitration, this and this and this in all numbers. And I would say, I would say mixed feeling for the time being. Guilherme, you want to complement anything?

Gui Paiva : No, Antonio, I think you highlight the main points.

Victor Mizusaki: Thank you.

Operator: The next question comes from Daniel Gasparete with Itau BBA. Please go ahead. The next question comes from Daniel Gasparete with Itau BBA. Please go ahead.

Daniel Gasparete: Hey, thank you very much. Good morning. Apologize for the issues here with the microphone. So my question I would firstly would just like to confirm what Antonio just said. He said that the recurring EBIT margin of 2024 was when it just for BA and also for the credits was 7.6. That was the first question just to confirm that. And the second one would be regarding commercial aviation. Just to get a view of how you guys are seeing the evolution of the backlog in terms of pricing. We are seeing if we are seeing a better price environment for the market right now. And what is your expectation for 2025, please?

Gui Paiva: Hey Daniel, good morning, and thanks for the question. Just to clarify then, there were some extraordinary items in 2024, right? The Boeing settlement was one of them. We have tax credits and we also had some extraordinary suppliers credit that brought the that helped us in the results in 2024. So as Antonio mentioned, if you look at what we believe to be the recurring EBIT for 2024, the margin was at 7.6. And let me pass it to Antonio so he can comment on the second part of the question.

Antonio Carlos Garcia : Daniel, good morning. Thanks for your question. So, first of all, we are happy and you guys talk to us more or less every month about the famous marginal commercial aviation. And we always said we are on the way to mid-single digit and moving forward to the 5% to 6% in mid-term. I would say having already 2.5% is a nice improvement compared with previous year. That’s one point. That show already that our backlog is somehow improving. We are – I would say we were able to capture some operational libraries. I would say the new orders we are getting is accurate even for a mid-single digit mid-term. I would say we have some tough campaigns. Yes, but I would say on average our new backlog is accurate from mid-single digit. And I don’t know Francisco, if you want to comment about the moment you are facing commercial aviation right now. It is important for the audience here.

Francisco Gomes Neto : Absolutely. Thank you. Thanks for the question, Daniel. We had a good year in terms of sales as I said before in commercial aviation. E1 the big order from American Airlines 99 plus 43 jets and also E2 I think considering the market in 2024 we did it very well. We saw the 30 new E2s opening new customers and placed another three E195 at LOT Polish and we have several campaigns ongoing. And then we are – I’d say and this year we just announced it ANA decision for 15+5 E190-E2. So we are very optimistic with the commercial aviation sales in 2025.

Daniel Gasparete : Okay. Thank you guys. Thank you very much for the call. Congratulations for the results.

Gui Paiva : Thank you, Daniel.

Francisco Gomes Neto: You’re welcome, Daniel. Thank you.

Operator: Thank you. The next question comes from Lucas Marquiori with BTG Pactual. Please go ahead.

Lucas Marquiori: Hey guys, good morning. Thank you for the call. Yes, let me just go back to this EBIT margin topic because I think this is kind of important, right. And when we think about I mean the mix for 2025, we are assuming probably commercial aviation still running below historical averages and most likely diluting somehow the growth from executive and services and support. Maybe this is somehow implicit on your margin for 2025. It would be nice at least to have some color on what are your maybe best thoughts on margins for each segment, if you guys could of course, right. That would be helpful guys. Thanks. Thanks a lot.

Antonio Carlos Garcia: Lucas, thanks for your question. Good morning. Now you know why you’re not taking part your conference and I hope you like that we were not taking part by seeing the results. I’d say the margin profile for next year, you have our release there is more or less in the same line for the – for 2025, you have the release you could read, we were even a tick better and service and support in 2024 that’s normalized a little bit for this year, for 2025, commercial the same defensive small growth and then executive in the same level is really reflects quantities without what he just said to Daniel here from [indiscernible] the recurring margin without the good guys we have last year, I would say is accretive with our backlog, with our operations.

It can look a little bit, I would say modest for you guys. But let’s wait the year goes by then. We do have a lot of volatility in the market. That’s why we prefer to not disappoint you at the end of the year.

Lucas Marquiori: Okay, thank you, Antonio. Thank you guys. Have a nice day.

Operator: The next question comes from Noah Poponak with Goldman Sachs. Please go ahead.

Noah Poponak: Hey, can you hear me?

Antonio Carlos Garcia : Yes, Noah, how are you?

Noah Poponak: I’m great. Thanks so much for taking the questions. I wanted to ask about the Flexjet order and if you could help me better understand how much of that is incremental to existing deliveries versus how much of that is – was sort of already in your delivery stream in executive.

Antonio Carlos Garcia : Noah, thanks for the question. I mean all the order is incremental, fresh order for us that went to our backlog and show how sustainable has been our executive business. So again, 100% of the order is incremental.

Francisco Gomes Neto : It’s from 2026, 2013, the deliveries it’s more or less Guilherme between 30 to 40 aircraft and years.

Noah Poponak : Okay, that’s helpful, appreciate that. And then I just also want to ask about cash flow guidance. Can you maybe just walk through why free cash flow would be down a good bit from the last few years where your conversion from net income or EBITDA has been pretty strong?

Antonio Carlos Garcia : Thanks for the question. I was prepared to answer you. And by the way, my comment in the when in the speech was direct to you because we always discuss about 50% EBITDA conversion. And if you sum up 2024, 2025, we are there 50% of the implied EBITDA that we are turning to cash. What we are facing is a lot of seasonality, especially that we are growing all business units. But mainly defense is really hard to predict when you get a new order, the dynamic of the deal, if you get a nice PDP or not. I would say, on average, we are there in the 50% but we have ups and downs. You saw 2024 around $700 million. And I would say, when we do the math here for this year, calculating progress payment more or less the same level.

We need more working capital for deliver more $1 billion revenue. That’s why, I would say, sounds modest. But beginning of the year, let’s see how the sales campaign evolved during this year, probably we have as always upside. That’s why we always guide 200 plus. And by the way, last year, we changed the guidance in Q3 also going up. And this is more or less the dynamic we have in the cash flow today.

Noah Poponak: Okay, great. Super helpful. Thank you.

Francisco Gomes Neto: Thank you, Noah.

Operator: The next question comes from the telephone number ending 6840. Please go ahead.

Myles Walton: Good morning. It’s Myles Walton from Wolfe Research.

Francisco Gomes Neto: Hello, Myles.

Myles Walton: Hello. Hello. Francisco, could you speak to some of the supply chain constraints that are still governing how quickly you can grow, perhaps by segment, if you could. And then also just to clarify that precision cast parts fire for fasteners. Just want to make sure that you don’t have any idiosyncratic exposure to them.

Francisco Gomes Neto: Oh, thanks. Thanks for the question, Myles. And it is true that supply chain has been one of the big issues we have had in the past years. But we have done a lot to improve our internal process and our relationship. The way we support, we identify, we anticipate critical issues in the way we support our suppliers to come with us and deliver the parts we need. The first, what we did was to prepare a production plan that in our view is very realistic considering all the limitations and risk we have. Honestly speaking, we could deliver even more aircraft, commercial, executive, navy, defense in 2025. But we decide to be more conservative, take into consideration, the limitation in the supply chain. And the bottlenecks – it’s interesting, the bottlenecks moves from one critical supplier to another, but we believe we are very well prepared in 2025 to bring the parts we need.

And this is in combination with this initiative as we put in place already back in 2023 that we call production leveling or production linearity, that the idea is to better distribute the production and deliveries throughout the year, which will be healthier for our efficiency, productivity and cash generation. This is exactly what we are doing. We are even closer to our suppliers. We are applying digital in the IA tools to monitor the risks of our supply chain and put in place initiatives as rescue teams, lean teams to help our suppliers to eliminate bottlenecks in machining or quality or efficiency. Exactly what we are doing and we expect another difficult year, but we are prepared to face the challenges, Myles.

Myles Walton: And just to clarify, anything specific on precision cast parts fasteners, and then, Francisco, is it fair to think then that the success you’ve had in the quarterly seasonality of deliveries, you can do as good or even better going forward?

Francisco Gomes Neto: Yes, exactly. We have, as I said, the bottleneck moves from one supplier or one sub supplier to another every year. And this is one of the risks we are managing. But we do believe that our production and delivery plan for this year is realistic.

Myles Walton: Okay. All right, thank you.

Francisco Gomes Neto: Thanks, Myles.

Operator: The next question comes from Marcelo Motta with JPMorgan. Please go ahead.

Marcelo Motta: Hey. Hi everyone. Good morning. There’s a question regarding the top line. I mean, we know the numbers from executive and also the commercial based on the delivery. So just want to see if you guys can comment about, what is the outlook for service then defense. Defense, given that is the percentage of completion on the KC, can you tell us how many aircraft you will have in production this year, if this number could accelerate if some orders are confirmed or not. Just to understand what are the upside risks in terms of defense, especially on services and on defense. Thank you.

Francisco Gomes Neto: Hi, good morning and thanks for the question. I mean, in defense, we delivered three C-390s last year and we had five of them running through our line and accounted at the PLC methodology. And our objective is to be at close to 10 aircraft by 2030. So we’re going to see a gradual increase in the next few years towards that level. I think that’s – if you just forecastedly a linear increase towards the 10 birds by the end of the decade, I think you’re going to be right on spot.

Marcelo Motta: Thank you. And on service and support, [indiscernible] ramp up, anything differentthan that double-digit growth that company has been commenting?

Francisco Gomes Neto: No. I mean, we continue to see the GTF engine shop ramping up to about $250 million in 2026 and the full ramp of $500 million top line in 2028. We continue to kind of try to get more high value added work to the shop in the next few years. So there is some upside there if we’re able to kind of obtain those contracts. But the rest of the business continues to do well with the Embraer related business growing close to double digits and the agnostic part more towards low to mid single digits.

Antonio Carlos Garcia: And Marcelo, just to compliment and we reached the high end in 2024 and I guess the high end for our guidance in 2025, we know is a tick better than what you guys are thinking assuming what Francisco said and we could – even could deliver more than what we put in the guidance there. I would say, we are – I would say, at least today very committed and also positive to reach also the high end of our top line. Let’s see how the year evolves. A lot of volatility, but I’d say, we are equipped to the high end.

Marcelo Motta: Super clear. Thank you very much.

Francisco Gomes Neto: Thanks, Marcelo.

Operator: The next question comes from the telephone number ending 7519. Please go ahead.

Steve Trent: Excuse me, I’m sorry. Good morning. Can you hear me okay?

Francisco Gomes Neto: Yes. We can hear you, Steve.

Steve Trent: Oh, great. Thank you very much, Antonio and good morning. Steve Trent from Citi. Most of my questions have been answered and I will stick to your request for just one question. I was curious when kind of a follow-up on Myles question earlier, when you look at supply chain, you guys have done great job with doing a lot of this stuff in house. But is there any sort of pain point – specific pain point of the supply chain that you think is really going to take a while to clean up for the whole industry? And is this maybe the engine side or is there something else that’s – specific area that’s really stubborn in terms of the sector trying to fix? Thank you.

Francisco Gomes Neto: Absolutely. Francisco speaking. Well, even with engines, we have seen some improvements, but still have specific engines that are hurting our production schedule. But also structural suppliers and fasteners are becoming a big challenge for us in 2025 as the OEMs continues to ramping up their production, pressuring this supply chain. But again, we have some – as I said before, some bottlenecks we are working on. But we made our production plan and guidance based on the limitation we see from the market.

Steve Trent: Very helpful. Thank you very much, Francisco.

Francisco Gomes Neto: You are very welcome. Thank you.

Antonio Carlos Garcia: Thanks for the question.

Steve Trent: You bet.

Operator: The next question comes from Lucas Esteves [Santander]. Please go ahead.

Lucas Esteves: Good morning, guys. Wow. Congratulations again for an outstanding result. Just a quick question here. Does your guided volumes for 2025 imply any change in product mix to justify those margin?

Francisco Gomes Neto: Yes. Okay. Lucas, thanks for the question. I think the product mix is not changing too much for 2025. We are seeing a growth in all the products we have, either business jet, commercial jets and defense. Defense we have more Super Tucanos that’s true, which will help us in terms of results. But the other products, we see growth in almost all of them in 2025.

Lucas Esteves: For commercial aviation, do you foresee any change in E2s and E1 mix?

Francisco Gomes Neto: We see a little more E1s in 2025 because of the new contracts we closed last year. I think this is the change we see with more E1s in 2025.

Lucas Esteves: That’s great, Francisco. Thanks.

Antonio Carlos Garcia: Lucas, just be careful, our old contracts and new contracts, not only new contracts, okay, that we still have to deliver the E1s. And I would say the main change is the Super Tucano, in my opinion that we have almost nothing in the last two years, I’d say that’s going to change a little bit the profile for defense.

Lucas Esteves: The Tucano should boost profitability, right Antonio?

Antonio Carlos Garcia: That’s more or less what we hope, Lucas.

Lucas Esteves: Let’s see. Thanks guys.

Antonio Carlos Garcia: Thanks for the question.

Operator: The next question comes from Lucas Laghi with XP Investimentos. Please go ahead.

Lucas Laghi: Good morning, everyone. Thank you for the question and congratulations on the results. I have some follow up questions on profitability. Just getting some more color on the Executive division and Defense division. On the Executive division, we saw profitability of 10% EBIT margin. Just wanted to know and if you could give us more details if already reflects the structural mix profile following the strong order activity with fleet operators that we saw throughout 2024. And in the Defense division on the other hand we saw a very strong profitability level in 4Q. Just trying to understand what was the main driver for this profitability improvement? And how much of it should be recurring considering your profitability guidance for 2025. Thank you, guys.

Antonio Carlos Garcia: Lucas, nice to talk to you. By the way we start to talk today early. I going to answer in regards to the executive aviation for sure and you see Q3 – Q4 2023 we report 16% and in Q4 10% even that the division itself has performed I would say much better in regards to the year. And it’s basically very simple. In Q3 you have a huge concentration of deliveries in Q4 that this year we were able to soften a little bit, especially executive aviation because of the production level means we are going to see even this year much more balanced results for executive aviation because of it. That’s I would say the main difference on executive aviation. And also the – we have also some positive guys also in Q4 2023 that also helped this equation here.

And the same for defense. Now we assuming that we have the Falcon, we close some contracts in Q4 that we were able to, I would say, monetize some we have in the inventory. That’s also I’d say push the results positive in Q3. But I would say, I would prefer to see defense on a yearly basis. We just went from 5.5% in 2023 up to 6.2% in 2024 is more or less what we are telling to the Street. And you know this, defense is moving for mid-single digit on the way to higher single digital or lower teens. But more or less the process we are today and we are going to see it in 2025 as well.

Lucas Laghi: Perfect. Very clear. Thank you, Antonio.

Antonio Carlos Garcia: Thank you.

Operator: The next question comes from Alberto Valerio with UBS. Please go ahead.

Alberto Valerio: Good morning, Gui, Antonio, Francisco and congrats for the outstanding 2024 results. My question is regarding 2025. I have two on my side. To estimate the free cash flow on the guidance, do you guys consider how much book to bill? It’s close to 1. And my second one, it’s about maximum capacity on your planes. I was having in mind that executive jets was about 144, 150. I would like to know if this maximum capacity is correct or if you already have this capacity that you delivered for the Zero or if you need to do any additional CapEx to increase the capacity for the business jet this year. And just as a recap, I have here a maximum capacity of 120 commercials, 144 and 150 business jets and 10 KCs for one year. Thank you very much and congrats again for the year.

Gui Paiva: Thanks for the question. So let’s split it. Francisco will address the capacity of the company. Let me we start with the free cash flow. Just to recap what Antonio mentioned before. I mean our goal is to convert about 50% of EBITDA into free cash flow in the medium to long run. We have very strong PDPs in defense in the fourth quarter of 2024 that help us generate more than $600 million in free cash flow last year. And obviously there will be a payback in 2025 because of that. So when we kind of look at the two years combined, what we deliver last year with the implied IR guidance, we think we are very close to that 50% conversion of EBITDA. And let me pass it to Francisco so he can go over the operational side.

Antonio Carlos Garcia: Just to complete, Gui. First, Alberto, it’s a pleasure to talk to you. And you are realizing our backlog is moving up, up, up. And there is always a point that we should be careful. And I would say, our premises for 2025 is a book to be one-to-one in order to keep, I would say, the substance we have in our close in 2024. Does not mean that you are not continue to grow. You see here again a nice growth for 2025. And we could also foresee the same for 2026. And capacity are going to first Francisco.

Francisco Gomes Neto: Thank you, Gui. Thank you, Antonio. And thank you Alberto for the question. Actually, Alberto, we are ramping up production in all the divisions, right? I mean business, commercial and defense and also support and service as well. And we are increasing our capacity, so production capacity year-after-year in line with our backlog, our backlog. But as I said before, we are very diligent about our financial discipline to approve investments. So before we approve investments to increase capacity, we look carefully at the opportunities we have to increase productivity, to work with suppliers in order to make sure that the investments will have a good return for us in the following years. But yes, we still have a capacity to grow in all the units.

In Commercial Aviation this year the guidance goes up to 85 jets. We expect to be at three digits in the next two or three years and increasing up to 120 jets or even more if the investments justify the return. The same is valid for business jets. We are growing this year. We have plans to – we are investing in new painting booth, in new flight preparation area, production area to increase production in 2025 [ph] in years ahead. But always one eye on the fish and other eye on the cat, right? The investment has to prove its return. And the same for defense and service and support. So again, we announced the last year $77 million investments in expanding our MRO service in Dallas, because we see a very good return in that project. So that’s why we are doing.

Alberto Valerio: Thank you very much, Gui, Antonio and Francisco and congrats again.

Francisco Gomes Neto: You are welcome.

Operator: Next question comes from Ronald Epstein [Bank of America Merrill Lynch]. Please, go ahead.

Ronald Epstein: Hey guys, can you hear me, okay?

Francisco Gomes Neto: Yes, we can hear you. We’re missing you, Ron.

Ronald Epstein: Hey, good morning. So just a couple questions. Maybe turn one of the questions around a little bit. How long do you think you can harvest for before you need to make an investment in a new platform either in business, aviation or commercial?

Francisco Gomes Neto: Well, Ron, I was expecting your question, honestly. It’s actually a very good one. Ron, I mean, the answer remains the same. We are making a lot of studies in those fronts, Commercial and as Executives. And beside that what we are doing, we are focused on delivering the results in our plan from now to 2030 to make sure we will have a very healthy cash generation to support a potential next move. And also, we are investing a lot in new technologies. I think this year is one of the highest investments we are making in new technologies to guarantee our technology readiness for – in case we decide to go in a new program. But until 2030, we will focus a lot on the products we have. And we have a great plan.

You saw great results 2024. We are growing now almost 20%, 18% in 2025. And we have a plan to grow to be a company beyond $10 billion at the end of this decade without Eve. And we are investing a lot in Eve to develop these new aircrafts with Eve will be even higher. So again this is our plan considering the existing and potential new products, Ron.

Antonio Carlos Garcia: I just to compliment to add it to your comments, Francisco, Ron, we are, I would say, we like the harvest that’s becoming a sustainable grow view in this case. And if you see we are, I would say the E2 is very brand new, KC is brand new, now we are continuing to have a the Super Tucano that’s nothing new. And also we are even, I would say, put ourselves to make some improvements in our E1 platform in order to extend the lifetime of the aircraft. And we are doing that and also run some improvements in the Executive Aviation platform. I would say, combination of everything and let’s see what the future reserves to us. But even with the current portfolio we are doing improvements as well.

Ronald Epstein: And then Antonio, if we think about the outlook for 2025, if you can answer this, you might not be able to, which is okay. How much conservatism is built into it?

Antonio Carlos Garcia: It’s a great question. I would say, if you ask me today, I like the high end of our guidance for EBIT. I like that. But I would say, let’s wait a little bit how the year above, Ron, because it’s a lot of volatility. We never know about tax impact that this and this and this is quite volatile. But I would say, we know each other ready for a long time and we always try to hit the guidance and that’s our commitment here. And we hope that you continue to I would say, surprise you in the positive way.

Francisco Gomes Neto: Ron, if you allow me to compliment this. I would not say, conservative, but I would say realistic. In the past year, since 2021, we have been delivering on our promise to the market. We have been able to eliminate the hockey stick effect from our lives. So I mean the hockey stick effect, right, the first years are bad, but the future will be bright. So we have been delivering our promise year-after-year and this is what we want to do. We want to show again to the market that we will deliver our promise. And our promise has been ambitious year-after-year, we see double digit growth year-after-year from $6.4 billion last year to almost between $7 billion to $7.5 billion this year. And I said have a plan to be beyond $10 billion until the end of the decade. So again we see this a win-win situation for us and for the our investors as well. So again, not the conservative but realistic.

Ronald Epstein: Got it. And then maybe one last one if I can. On the KC-390, given the changing transatlantic relationship with the U.S. have you seen any pickup in demand for the airplane out of NATO?

Francisco Gomes Neto: Well, I mean, KC, it’s a great product developed on the right time, right, for that platform up to 26 tons. We believe we have the best product in the market and we are seeing this. 60% of our orders now is coming from a global clients. And we are working in a lot of new campaigns. Campaigns in Europe, campaigns in Asia, campaigns in South America, and of course North America is our – maybe masterpiece, right? I mean, it’s the biggest defense budget in the world. And we do believe the KC will help USAF to increase substantially the productivity with this kind of aircraft. And with the volume – the potential volumes, this is going to be a product made in U.S. So we see this a great opportunity for us in line with the U.S. expectation of the new government, right.

Ronald Epstein: Got you. All right. Thanks guys. Yes, have a good day.

Francisco Gomes Neto: Thank you, Ron.

Operator: The next question comes from Victor Mizusaki with Bradesco BBI. Please go ahead.

Victor Mizusaki: Hi. Thanks for taking my question again. Just a quick one here. I mean the company reported very good quarter, right, with robust cash flow generation. We’re talking about net debt of only $111 million. And when you take a look on your audit financial statements in your GAAP [ph], Embraer could zero the accumulated net losses. And then now we’re talking about earnings reserve. So my question here is and a follow-up on discussion about the harvest period. So when Embraer expects to start or resume the dividend distribution? And if is there any kind of plan to set a kind of dividend policy? Thank you.

Francisco Gomes Neto: Thanks for the question, Victor. We exhausted the accumulated losses accounting wise in Q3 means we are qualified to start to pay in Q4 for sure, has to be approved by the Board and has to be approved by the Shareholders Meeting. That’s going to happen end of April, okay? And we have already our dividend policy which says we pay the latest [indiscernible] 25% on net profit of the year and the rest will converting investment and working capital reserves. That’s more or less what is our institute. And there is at least today no big move in this corner here. The only issue that the market does not know how you pay dividend because the last one was in 2018 and now we are – I’d say getting familiar even ourselves years out to come back to this activity is the only reason. But we have in our institute this policy here we paid what is basically said by the [indiscernible].

Victor Mizusaki: Okay. Thank you.

Francisco Gomes Neto: Thanks, Victor.

Gui Paiva: This concludes the question-and-answer session for equity research analysts and investors. Now we’ll start the Q&A session dedicated to the press. First, we will answer questions in English and then we’ll answer questions in Portuguese. We’ll also answer questions sent via the platform chat. Please let me say a short announcement for Portuguese speakers. [Foreign Language]

Operator: This conference is being given originally in English. If you would like to listen to the translation into Portuguese, please choose interpretation and Portuguese.

Gui Paiva: Participants interested in asking questions to press – raise the hand button on the platform. When your name is announced, please make sure your microphone is on and start your question. If you need assistance, please use the Q&A button on the platform to give everyone a chance to participate, we request to ask just one question. Please hold while we poll for questions. The first question comes from Charles Alcock with AIN Media Group. Which regions of the world do you expect to see the strongest growth in demand for executive jets? Are you concerned about access to the U.S. market if tariffs are introduced?

Francisco Gomes Neto: Well, Charles, thanks for the question. The first part, I mean, U.S. represents more than 60% of our market for business jet. So it’s natural that we expect this market to continue growing. But we are also selling business jet in other markets as well. South America was a great market in terms of sales last year. Europe and even sales we had to other regions like Middle East and Asia. But I do believe that the main market will continue to be for many years U.S. The second part. I didn’t get the second part of our question. Could you repeat please?

Gui Paiva: Sure. Just one second. Are you concerned about the access to the U.S. market if tariffs are introduced?

Francisco Gomes Neto: Well, I mean, we cannot anticipate movements or decision made by the U.S. government. But at this point of time we do not anticipate any big issue as Embraer has a very well balanced trade with the U.S. We have production plant in the U.S. We have more than 2,500 employees in the U.S. We have been in the U.S. for 45 years. Our aircraft carry a lot of very high U.S. content in terms of equipments. Our E175-E1 is basically the only option for regional aviation in the U.S., so anyway, because of this long-term collaboration of the U.S., we see that this is a win-win business and we believe that the situation should not change. But anyway, if something changes, we’ll see what we do. But at this point of time, we don’t anticipate any issue or difficulties to introduce our products in the U.S. That’s because we have a good basis there. And as I said before, the KC-390 is a potential product to be assembled in the country.

Gui Paiva: Thank you. The second question is also from Charles Alcock and he’s asking how much has Embraer invested in EVE? Does EVE need to raise further funding to complete development of the eVTOL aircraft?

Francisco Gomes Neto: Thanks for the question. We already invested something like $300 million if not active. And I would say we have equity and debt to our credit lines with the bankers to go to the certification at least today. But if you see any possibility for a new investor, we have new investor coming, want to also to take part, I’d say, maybe it can happen. It’s not – we are not closing our eyes for that. I would say, I do not see a risk for the project today. There’s much more interest from the streets today than even before. It’s more or less the momentum we are seeing for EVE right now.

Gui Paiva: Thank you. The next question comes from Andreas Schulz, he’s an aviation journalist. E175-E2s are not breaching cruise level in the markets? The issue of E175-E2s remains close associated with the ongoing U.S. mainline scope clause discussion with the pilot unions. Are there no other international markets around to place the aircraft for the smaller 76 seater segment?

Francisco Gomes Neto: Andreas, thanks for the question. But the answer for the question number one is your quest question number two. The E175 is very simple. We are postponing because, we don’t see signs of changing in the scope clause in the E175-E2 despite being much more efficient than the first generation. His weight is not compliant with this COB [ph] clause. That’s why we decide to postpone another four years. But on the other hand, we are investing in improving our E175-E1s with new seats, with new luggage bins, with new connectivity and we are occupying that marked for regional aviation with the E175-E1s.

Antonio Carlos Garcia: Not the only U.S., Francis?

Francisco Gomes Neto: Not only U.S. in the video, we are – we could have opportunities to sell E175-E2s in other markets, but the main market, the main target market for that aircraft is U.S. So it does not make sense for us to develop a product for small volumes market and leaving behind the high volume market. And as Antonio said, yes, we are selling once in a much more volume, but in other markets other markets as well.

Gui Paiva: Thank you. The next question comes from Richard Schuurman, as a freelance aviation reporter. Can you specify where your priorities are in your R&D spending? What specific technologies/aircraft technologies are you studying right now?

Francisco Gomes Neto: Richard, thank you for your question. In order to optimize our investments in new technologies, we have defined it serving – we call serving innovation verticals. And among them, I can say I can tell you, for example, autonomous flight. I can tell you alternative propulsion system. I can tell you airframe competitiveness. I can tell you, passenger experience, I mean, and many others. I mean, Industry 4.0, artificial intelligence, cybersecurity. So then we are with those seven verticals, we are on those semi-verticals we are concentrating our investments to be prepared to develop new products. And some of them are being applied already in existing products, like the eVTOL, for example, right? eVTOL is 100% electric vehicle. So it’s a good example of alternative proportion systems that can be used in new products as well. So again, this is why where we are putting our money in terms of new technologies.

Gui Paiva: Thank you. The second question is also from Richard Schuurman, and he’s asking, Airbus said it is delaying the launch of its hydrogen aircraft by five to 10 years because of delays in the hydrogen ecosystem. What’s your view on this?

Francisco Gomes Neto: Well, in Embraer, I mean, in line with this investment in new technologies, Embraer has developed or has been working in two new aircraft concepts we call Energia family. One is a hybrid electric. No. It’s a small one up to 19 seats, and the other one is a hydrogen hybrid. But we also see these technologies being mature in 15 years, 10 to 15 years from now. So and hydrogen is even more complex because it’s not just the aircraft, but the infrastructure in the airports as well. So, again, we see this – we are working on that to acquire knowledge technology, but we don’t see entry into service in a short-term. This should be also 10, 15 years or more from now.

Gui Paiva: Thank you. The next question is from Coral Schwarz [ph]. How much more money is needed for EVE to a certain certification in the U.S.?

Francisco Gomes Neto: Yes. Thanks for the question. We – the way to go is around 400 million around for the certification, including also industrialization.

Gui Paiva: Thank you so much. Please hold while we pull for questions. [Operator Instructions] This concludes the question-and-answer session in English for the press. This Q&A section is now being conducted in Portuguese. We will now begin the Q&A session in English. [Operator Instructions] First question is from Nelson [indiscernible].

Unidentified Analyst: What is the sales percentage target for Defense and Security in total at Embraer the historical average used to be 20%.

Francisco Gomes Neto: Hi Nelson. Good morning. Thank you for the question. Well, the historical target in the past, if you look back a few years, it used to be about 15% at Embraer. But now our projection for the next few years is to grow considerably and defense will keep up with that growth. There’s been plenty of sales of KCs, Super Tucano as well as other products in defense. We don’t really have a percentage target or share for each one, but I would imagine that it will tend to remain at the 15% which is the historical share in defense. It should grow with the other divisions in the company.

Operator: Thank you. The next question is also from Nelson [indiscernible]. He says, what are the prospects for Atech, a subsidiary of the Defense division. It currently makes radars and naval contractors of the nuclear submarine and the Tamandaré ship.

Francisco Gomes Neto: Wow, Nelson, you’re very well informed when it comes to defense. Well, our focus on financial discipline, efficiency and innovation also goes to our subsidiaries, Atech is a 100% Embraer. Atech has been showing considerable improvements in its performance both in terms of growth and revenue. Last year Atech deliver an EBITDA of 18%, which is fantastic performance and it’s been growing. So we have high hopes for new businesses, including vector, which is the new Atech product to support the eVTOLs operation.

Operator: Thank you. The next question is from Pablo Diaz.

Unidentified Analyst: Any advances on the LOI E195-E2 from Aerolíneas Argentinas? Would you prefer, do you think that will become a firm order after the change in the government?

Francisco Gomes Neto: Well, thank you for your question. Before the government change, we had made considerable progress in our negotiations to replace the old E1s by E2s in Aerolíneas Argentinas. Now with the change in government that process has been interrupted and we’re waiting. We believe E2 to be the best solution to replace E1s in other markets as well as that of Argentina. So right now we’re just waiting.

Operator: Thank you. [Operator Instructions] The next question is from [indiscernible]. Please go ahead. Mr. Martins.

Unidentified Analyst: Hello everyone. First of all, congratulations on Embraer’s results. I have a question. Can you hear me? Okay.

Francisco Gomes Neto: Yes, please go ahead, Carlos.

Unidentified Analyst: Great. You announced the material fact about freezing the E2 aircraft. I’d like to hear about the certification, considering that four years from now, you’re going to resume that project, does Embraer have a specific date for its certification? And also considering the question about the U.S. do you have any prospects of the 190 or 195E2 for that market as well?

Francisco Gomes Neto: About E175-E2? It has already flown. We have had a test flight with that aircraft. We’re just delaying the conclusion of the development because the U.S. market is still closed for that market due to the scope clause. Because the E175-E2 does not meet the scope clause. That’s the only reason why, once we realize that there will be a change to the scope clause that will become more flexible, then we will resume that project. And we believe certification could take place in a short period of time. A few years, only because the aircraft is practically ready. So we just need to conclude some developments, some of which are quite important, but we don’t really have a deadline, we don’t have a set date to tell you how long after we resume the project the aircraft will be certified. There’s something else. I think you can support me with the answer. What is it?

Unidentified Analyst: I asked about your prospects to sell E190 and E175-E2, which have already been certified to be sold in the U.S. okay.

Francisco Gomes Neto: We have great prospects, Carlos. We’re already working on it. We’re not allowed to disclose it yet, but we are working with some American airlines and showing them the benefits of having an aircraft the size of E195, especially A2 for regional flights and the [indiscernible], the large ones. So we’re moving forward in convincing them. And we hope that in the next two years we should have some good news coming from North America for our E2s.

Operator: Thank you. This concludes the Q&A session and Embraer’s conference for today. Thank you very much for joining us and have a great day.