Q3 2021 Embraer SA Earnings Call
Good morning, ladies and gentlemen, and welcome to the audio conference call that will review employers third quarter 2021 results.
Thank you for standing by.
At this time all participants are in a listen only mode. Later, we'll conduct a question and answer session and instructions to participate will be given at the time.
Issued a request she's just during the call. Please press the star followed by zero.
As a reminder, this conference is being recorded and webcast at at our Eidos <unk> BR.
This conference call includes forward looking statements or statements about events or circumstances, which have not occurred embraer has based these forward looking statements largely on its current expectations and projections about the future events and financial trends affecting the business and its future financial performance.
These forward looking statements are subject to risks uncertainties and assumptions, including among other things general economic political and business conditions in Brazil and in other markets.
The company is present.
The words believes May will estimates continues anticipates intends expects and similar words.
And to identify forward looking statements.
Embraer undertakes no obligations to update publicly or revise any forward looking statements because of new information future events or other factors.
Of this risks and the third thing just before the looking events and circumstances discussed on this conference call might not occur.
The company's actual results could differ substantially from does anticipate it sounds its forward looking statements.
Participants on today's conference call are Mr. Francisco Gomes Neto, President and CEO Vicente I'm trying to Carlos Garcia, Chief Financial Officer, and procurement and least Eduardo Couto director of Investor Relations.
I would like now to turn the conference over to Mr. Mcknight.
Please go ahead Sir.
Good morning, and thank you all for joining our third quarter call today.
I hope that all of you are well.
Thank you for your interest in our company.
As you will see later during this presentation.
Our results for the quarter were in line with our internal expectations.
With gas generation come in.
Better than plan.
The Q3 results continue to show that our strategic planning.
Execution are showing tangible positive results for the company.
Before we go into more financial details on the third quarter.
I'd like to touch on some highlights in each of our business segments.
The commercial aviation, we delivered 90 E jets in the third quarter. So.
So far in 2021 we have delivered 32 aircraft in line with our forecast for the year.
We continue to show positive momentum on the order front with another 60 aircraft.
<unk> order.
Moving to book to Bill ex.
Due to work this year.
Also within commercial aviation demand was strong and was Richard when Swiss airline Helvetic Airways performance. The first revenue generating flight of the issue to local airports.
The ability of these two to obtain strategic airports, we allow for further penetration of this family of Jets and European market.
And is that due to aviation we continue to see very good momentum on the demand front.
In the third quarter this business Hairdressers records.
Further our porch for Cmos and breeders is sold out through 2022.
Each of the first quarter of <unk> III needing to book to Bill in excess of 221.
And this doesn't even include the deal we announced with <unk> with <unk>.
One.
$2 billion sale of <unk>.
Up to 100 300 aircrafts.
Finally, we delivered 1500 <unk> executive jets in the third quarter, showing our rapid growth within this industry.
It took us three years to reach this milestone.
The rest of the industry players took on average 34 years to deliver that many aircrafts over the next two slides we start with the highlights from the defense and security.
During the third quarter, our subsidiary APEC deliberate an updated version of the Brazilian Air traffic management system.
Which will be able to unify all flight plan process in Brazilian aerospace also we delivered six super to Congress to different customers undermining the continuing demand we see for these market leading like effects in three aircrafts.
We also continue to negotiate.
Cte 90 production contract with the Brazilian Air Force and the <unk>.
We will share additional information regarding this matter once it becomes available.
Services.
<unk> continues its recovery, along with commercial and business jet traffic globally and do we recently were able to obtain the MRO Europe event in person.
Weak signal.
During the event, we had the server sales announcements, including the full program support contract with Gilead CDO poker for.
Greg you want 95, two fleets.
At present is X.
Second to be the largest operator in Europe.
Also products.
Next the executive Aviation services Graces first again.
Brook pilots product support service for 2020 one.
Third place.
<unk> survey.
Finally, our MRO subsidiary in Portugal was harder it we see top 10 ranking of MRO services centers in Europe for 2021.
The great time, as we'd expect it to significantly grow.
In the coming years.
Exciting new business to ramp up.
We'll go next to slides with respect to innovation.
Do you need to make progress on partnerships, the eurobond and mobility ecosystem.
Our subsidiary.
You may segment with strong growth potential in the years to come.
Further our IBRA X signing a multiyear agreement with Republic Airways for the use of victims Messiness coordination platform.
Although currently not very large in terms of our financial results, we see a very interesting opportunity for <unk> to grow.
New customers over the next few years.
Number FX losses.
Also the partnership with Pfizer with Silicon Valley's conflict to accelerate the future of autonomous aerial agriculture operations.
This quarter, we are going to stock shares.
Highlights regarding enterprise excellence, we reach at the lowest inventory level since Q2.
<unk> thousand 18.
<unk> of three 2% in the last 12 months.
In terms of operational efficiency reaches an increase of six 5%.
The mazo you reduction over 3% in the production was at the time of our aircraft.
I will now hand, it over to Anthony to give further detail on the financial results and I will return.
Thank you.
Thank you Francesca and good morning, everyone.
I would like to start to show our backlog we ended the third quarter with a backlog of $16 8 billion.
This is up 20% in six months and is the second cost savings.
60% quarter over quarter increase this year.
Looking at each segment.
We have a good sales activity in our commercial aviation business with another 16 frame orders from our Skywest.
Bringing total <unk> this year to 64 commercial jets.
In executive aviation.
Strong backlog continues across the entire portfolio with record third quarter sales.
And book to Bill ratio in excess of 221.
Victor logging service and so forth also grew from prior quarters level.
In summary.
Our backlog has reached levels not seen since 2019.
Just give us confidence our fit for growth plans are working and revenue and profitability new continued shrink risk.
Moving to deliveries.
In the third quarter, we delivered nine commercial jets and <unk> for a total of 30 aircrafts during the period.
The nine deliveries in commercial aviation.
<unk> represents three 9% increase compared to the third quarter 2020.
Year to date deliveries were at 30 June.
100% increase over the same period last year.
32 deliveries.
<unk>, where each of those.
<unk> continues to perform very well showing a recovery in your core markets.
Executive Aviation delivered 14 light jets and seven large jets for a total of 21 aircrafts in the third quarter.
Year to date deliveries were at 54.
Acquaint five increased 25% increase over the same period last year.
We expect these positive trends to continue with 2021 deliveries of commercial aviation jets, reaching between 45% to 50 aircrafts and the <unk> jets between 90 to 95.
<unk> by the end of this year.
Turning to net revenue.
Third quarter net revenue was $958 million up.
6% from the same quarter last year.
<unk> revenue growth was driven by higher delivers while executive aviation growth was due to a more favorable mix of delivers.
Service and supports growth was due to expanded commercial executive and defense services.
Defense also post.
Revenue increased due to advances in your main programs and the deliveries of Super Tucano.
Year to date net revenue was $2 9 billion.
Up 50% from last year.
We have.
Solid revenue growth as all four business units posted higher third quarter and year to date revenue compared to 2020.
We expect.
Fourth quarter 'twenty, one the revenues to remain strong and.
And we expect to end of this year between four to four and $5 billion.
Looking at SG&A.
SG&A continues to trend favorably over the last seven quarters.
Year to date.
SG&A was down 48 medium or 15% compared to the same period in 2020.
As a percentage of revenue.
Year to date adjusted G&A was at nine 1% compared to 16, 1% in the first nine months of 2020.
Now a full seven percentage points.
The next basis was up due to increase sales and market activities demo flights and in person customer engagements.
Although the trend is up.
Sell experiences is far below 2021 levels 2020 level, sorry, due to our focus on more cost effective ways to reach our customers.
As a percentage of revenue year to date certain experiences was five 2% less than the half of the 10, 8% level in the same period of 2020.
General and administrative expenses were 36 this quarter.
Equally to the average of the last seven quarters.
A percentage of revenue.
Nee has held steady at 4% in each of the three quarters this year.
It is important to reinforce we remain highly focused.
SG&A efficiencies and apply lean principles to our SG&A functions.
Move on to a beat and the beat to the.
We are very encouraged by the continuing improvement in margin performance for the company.
For the third quarter on a consolidated basis, our adjusted EBIT margin was three 7%.
And our adjusted EBITDA margin was eight 3%.
Both up over 9% of your points compare.
To the same quarter in the prior year.
Year to date margin are similar we suggested the beat at three 2% and adjusted EBITDA eight nine both of our both for this year.
On a dollar basis year to day, adjusted EBIT was $111 million compared to a loss of <unk> $770 million in 2020.
And adjusted EBITDA was positive at $258 million compared to a loss of $63 million in 2020.
In our business segment.
Adjusted EBITDA margin for the quarter worse as follows.
Commercial aviation was at four 5% improvement from last year on higher deliveries and improved mix.
Executive Aviation was at six 7% driven by a robust price discipline and consistent profitability.
Defenses decreased was at 10%, resulting from a good mix of Super Tucano and Casey deliveries.
Services and support the wells also at the same 0.8% with improvement service contract performance.
This your next basis related to Haynes regulation costs or going arbitration costs and other non business related costs.
The total company margin is likely below the.
The business segment average.
These improvements on a beach in the beat to that Marty.
Result of our fit for growth initiatives and enterprise efficiencies.
This next slide shows our adjusted net income for the quarter. Adjusted net income was a loss of $4 million or 18 <unk>, yes.
Although negative net income trading up on a trailing 12 months basis, driven primarily by our revenue growth in the corporate efficiencies.
As our topline growth, our fixed cost leverage and financial leverage.
<unk> provide the additional positive impact on earnings.
Moving on to investment and cash flow.
I'd like to first highlight our remarkable cash flow recovery.
Third quarter adjusted free cash flow was a positive $21 million, which was the first time in more than 10 years, we generated positive free cash flow during the third quarter.
Give given the seasonality of the business.
More efficiency inventory management, better production planning and strong sales and executive and commercial.
They don't payments associated with new sales.
Have led to our positive cash really the question. We're now year to date basis, our adjusted free cash flow was negative $160 million. Although negative this is far better than where we were this time last year.
Looking to the fourth quarter, we expect this positive cash flow trend to continue. So today, we are taking the opportunity to increase our 2021 free cash flow guidance.
Positive <unk> hundred mediums are better we.
We are very happy that's only.
One year after the worst downturn in the aerospace history.
Our area generates positive free cash flow.
The phosphate and not on your top line recovery, but also results of our cost and working capital initiatives.
Now to investments our total investment were $56 million in the third quarter and heard that $45 million year to date.
In line with last year. This is important because it shows we continue to balance the need to invest in our future, which they needed to preserve cash.
This next slide shows our cash and liquidity position we.
We ended the quarter with $2 5 billion cash and cash equivalents.
<unk> increased from the prior two quarters.
Our depth balance was at $4 3 billion.
With net debt of $1 8 billion.
<unk> decreased from three months ago.
Our average debt to maturity decreased to three eight years.
We expect to continue to generate cash in the fourth quarter and beyond so our leverage will naturally decrease you remained focused on generating cash reduce reducing our debt level and improve our credit metrics.
And of course lower debt levels, we reduced our net interest expenses and have a positive impact on net income.
Finally, as I mentioned earlier in my remarks, we are increasing our free cash flow guidance, Joe positive you heard that mean or better.
I just didn't know other metrics remain unchanged.
With that I conclude my presentation and heading into back to <unk> for his final remarks. Thank you very much.
Thanks for joining the third quarter and year to date results reinforce our confidence.
Our energy.
During the last nine months.
We have just seen the net revenue was up 50% from last year SG&A.
Expenses down 50%.
Adjusted EBITDA at eight 9%.
All that means.
Focus and discipline in executing our long term strategic plan.
Year of a recovery on top of sales and deliveries the efficiency gains projects.
Prove it to be a key element in improving the companys performance.
The updated guidance with a positive free cash flow for the full year shows not only the positive momentum of the company.
Howard will become one of the focus on the top line and higher profitability.
Regarding ESG practices, we are also making progress on all of the Jordan <unk>.
This quarter, we announced new ESG commitments, which includes to be carbon neutral in our operations by 2040.
100% energy from renewable sources.
Suitable aviation fuel in our flex.
We want to work together with the suppliers and the whole industry to achieve a net zero carbon emissions of the issue by 2050 developing products based on sustainable technologies, such as electrification hybrid propulsion hydrogen.
A final note regarding innovation.
This quarter, we were awarded by the largest and most prestigious financing newspaper in Brazil lower economy.
As the most innovative company in the country among all sectors.
It is an incredible recognition for all of those work to make <unk> a place of excellence in engineering innovation and technology.
Thanks to our great team for their focus and passion on creating disruptive and sustainable technologies and executing our strategic plan.
Thank you all for your interest and confidence in our company.
Ladies and gentlemen, we will now begin the question and answer session.
Mr has a question. Please press star one if at any time, you would like to remove yourself from the question on Q Press Star two.
Our first question comes from Josh Milberg.
With Morgan Stanley.
One moment please Mr. Josh.
Florencia stories with Metlife.
You May proceed.
Hi, Hello, everyone. Thanks for taking my question congratulation for voluntary side.
I have two questions.
One.
Regarding cost you are expecting any any issue regarding the shortage of supply.
Everyone is suffering in upcoming quarters.
So any strategy in pennsauken Bentley regarding that.
One is we have been targets on <unk> at Ash for for next year, we are expecting to back to back to the baseline level. Thank you.
Yes.
Sure.
So for the for the first part with regard to.
Charters.
We.
Just a moment.
Total carloads.
He got to shortly.
I would say we are for this.
For this to the end of 2021, we may have some issues.
<unk> confirmed maybe do not arrive in time Thats why we still keep a range. When we give you the guidance and for our production planning for next year. We also have the confirmation for our partners our suppliers, but we.
We are going to follow up.
In a daily basis, because we know that the whole industry is being affected by the shortly.
And.
What we are doing some extended we are also.
Partially building up some material, especially where we do see more risks associated with this shortly.
For next year.
Second question I was not able to to understand could you repeat the deleverage Antonio if we expect to reach a leverage of three times next week.
We are confident to that.
This year will be.
Net debt for a beat to date around maybe slightly better and we are confident that we're going to reach the level next year.
At three that's more or less of our planning.
Just to remind.
One year ago, we were at 20, and we should close this year.
Okay.
I'd say four or even slightly below and next year, having no doubts.
Can we get to the three.
<unk>.
Okay. Thank you so much.
The next question comes from Josh Milberg with Morgan Stanley.
Hey, everyone. Thank you for the call and congrats on the results I had several questions on the executive business and just first start with the good book to Bill that you mentioned and the strong strong backlog.
Was hoping you could talk a little bit about the executive pricing environment, we've gotten some inputs from the industry in recent months, suggesting some meaningful upward moves, but it would be good to get your perspective on that.
The second question.
You mentioned being at the Las Vegas exhibition.
I wanted to see if you could touch on the competitive landscape and if youre seeing any competitor product developments that could pose a threat longer term. Thank you.
<unk>.
Thank you Josh So let me do this.
The business jet industry is really has been really good good surprises for us for all of US This year right in the business jet industry.
It is growing likely to reach a 3% year over year to.
<unk> <unk> 21, and this is this is good for all of US we have been doing very well with over team.
Enjoying these market with.
It's a good discipline in prices, so which has helped with us.
Showing a good result in the us equities.
We do believe we will we are sold out until the.
The first quarter 'twenty to 'twenty three is as we said.
As we said before we have agreed to.
With regard to the competition, we do believe we have agreed to.
40 of products with the Cmos and <unk>.
100, 300 that continues to be our best seller, but also doing very well with the praetors and the 500 and the.
The six six hundreds.
We do believe in the market to me.
Las Vegas, we do believe that.
We do have to have a soft landing of the demands from 'twenty to 'twenty, two and 'twenty 'twenty three words with.
Bruce average growth.
Goes to the pre pandemic levels off one digit, but so far I think we.
We're doing very well in the executive.
The market.
Okay. That's helpful and good to hear that you sort of see a software number.
Right.
This is an industry that has seen a number of false starts in recent years.
There is the issue of course of how much COVID-19 has been boosting.
Your performance there and the overall industry performance.
I might just squeeze one more question and on the commercial side.
Just wanted to hear a little bit about how your campaigns have been evolving there and how youre seeing the 2022 delivery scenario at this point. Thank you.
Okay you too.
A busted executive Jets I mean, we will have other reasons to believe that the DS in the soft lending I'd see right I mean.
The well the group will.
Bruce.
The economic activity in the market liquidity also deeper you wanted the market that is one of the lowest <unk>.
<unk> levels ever right.
Below 5% in the normal levels represent on the on the fleet in operation.
The levels are normal levels used to be in the double effect in this and also note that the first time users and first time buyers. In these markets also are good indicators that we are in a different level is not too good not only because of the COVID-19, where there are the other reasons for that right regarding the.
The commercial.
I mean.
Optimistic with the market.
The one the 100% to 100% of our 175 fleets.
Already back in service.
And these aircraft has been fundamental to support the market recovery. So our market intelligence has indicated that there are over 500 aircraft in North America to be replace it. The next 10 years and our E 175 to one.
Emily scope complaints aircrafts in production today. So good good good perspective is 41.
The right sizing post COVID-19 is going to benefit our <unk>.
The strongest <unk> activity I could see that we have with triple digit number of aircraft under active commercial discussions and also if you said this.
In Greece.
<unk> pressure from environment environment, CEO to reduction, which is all we do in a very good position as we have the most environmentally friendly and air.
Aircraft in that category, so because of that.
We are really optimistic.
With the commercial aviation for the next two years.
And you were saying that.
And then just.
At a point here I mean on the E.
Having this ESG angle that very sort of angle does not in any way kind of pose a threat to you one.
Just given that the lack of alternatives at this point, even with oil prices being where they are from your standpoint.
Could you please repeat that please.
Well I was just making the point that youre highlighting the environmentally friendly.
Driver of the two and just just wanted to raise the question of <unk>.
One being sort of a last generation of aircraft.
Higher oil prices today that.
That does not in any way threatened.
Demand for the one just because there are no alternatives.
Well I think short term is the perspective, we have for nuance with the partner we are still working.
And the new alternatives.
Turboprop and new generation is one of them, we have seen strong interest from customers.
On desktop that project.
And everything is going well for our business plan for that.
Aircraft in order to be approved by the second half of next year.
And the wonderful 175, you too as well so we have to.
We'll continue working that project.
Okay really appreciate all the perspective.
Josh just to complement to one point here.
Hey, guys should the planning for 2022 years.
So in my speech, we sold.
64 commercial jetson.
B cells.
These lighter above 60 aircrafts for next year something like that just if you can remember is to pull through me.
With the supplier or the customer, but just to give you a perspective.
It's more or less whereas yourselves next year.
Okay. That's good visibility it really appreciate it.
Thank you Josh.
Yeah.
Yes.
Our next question comes from Ron Epstein with Bank of America.
Hey, good morning, guys.
A couple of questions. So the cash flow in the quarter clearly was.
It was good now.
Now.
In the past it's been lumpy. So I mean, how should we think about cash flow going forward is this a trend towards better cash flow on a more consistent basis.
Or is this more of a onetime thing.
Hello World as Anthony speaking stinks for aircraft.
As I mentioned in previous calls we do see I.
I would say the cash flow generation is sustainable base.
I would say.
Mid term perspective, we should be able to show free cash flow I would say 50% software.
For the first beginning that's more or less.
And that means that we are disclosing right now.
Assuming the growth that we are in the recovery here that should be more or less following for the coming years, it's more.
So for excellence are telling us we are let's say quite diligently for investment with the new price you know even that lead to more details.
Highly focused on cash generation for the legacy business, a new business, we need to find alternatives to not compromise.
The legacy businesses, we have in the company here.
And thereafter.
Allow me to complement net room, specifically speaking now we also continue to work on.
And our actions.
To reduce inventory to increase in the third mover of our inventories and to reduce working capital.
Our operations. So all of these activities combined with the growth.
Makes us to believe that we tend to believe that we will continue with this good performance and cash generation.
Got it got it and when you think about EBITDA margins.
How should we think about where those could go as you work through the efficiency programs.
Is there sort of a notional target we could think about as investors.
Rome for sure.
And then no no brainer we are.
Gross you're eight quite nicely year to date that should be.
Let's see.
And we do see ourselves between 10 to 15.
It does not mean that we are happy with those numbers.
It's already a good sign for us, it's more or less.
Long term planning.
Okay. So if we were to think a range of 10 to 15 that serve usable range and potentially maybe even higher depending on how things go.
With me on.
We do see the recovery in the commercial aviation.
Slowing now coming back to 2023% range for let's say is more value to monetize it but it is going to take longer because of the recovery of the commercial guys.
Got it got it got it and then maybe on that front on the commercial jet front.
What are you seeing in terms of sales campaigns activity.
As we start thinking about 2022.
How do you think that your crude.
And I know you haven't guided yet for 2022, so I'm not really asking you for that but just broadly do you have a sense on how 2022 from from an order activity front could appear for for the E Jets.
Well.
I think as I said before.
The answer before we see good perspectives for the E 170, <unk> because of the weak weaker.
Rebounds.
In the U S market.
Four for domestic flights there are good opportunities we have in the next few years.
E twos as well as I said before and we are working now Laura.
All of our commercial campaigns.
And this.
This right sizing post COVID-19.
The increasing pressure from environment.
What's how are we doing.
Good position.
All of this.
This first Z experiences first XP software the Hill Airways in the London City.
Many things are happening that we believe will put our <unk> in a good position for for next year onwards, we are optimistic with both Bruce Bruce with products.
Got it.
I just want to come back to the <unk> market issuance.
Important to mention is the Q3 and we try to give you information you order that you do the math.
Costs.
We do as you know we have some.
Cost of debt, we are handled in a central way in the corporation without affecting the <unk> business unit.
The integration of the commercial aviation arbitration costs and we are restructuring.
Structuring the company and I would say we are today without this already above 10%, but we are not adjusting because we'd.
We don't want to disclose those numbers, but without this we are our edibles, 10%.
Got it got it got it and then maybe just one last question if I may.
There's been a lot of discussion around the potential of maybe a new turboprop a new a new platform.
Where does that stand.
Hello.
Sure.
As always as I said before I mean, we are seeing.
Very strong interest from customers.
And the suppliers and also investors in that product.
Everything is going very well for a business plan approval by the second half of next year. So we are also very.
Optimistic.
The development of this product.
This new product.
Got it got it thank you very much.
You are welcome room.
Our next question comes from Mr. Mr. Zack <unk> with Bradesco <unk>.
Alright first congrats for the solid results.
Two questions here.
The first one is related to the.
Guarantee default right to me.
We saw how much of inquiries into third quarter. So I'd like to know if it could make sense for us to perhaps some of that.
Commercial aircraft deliveries for 2022.
If we compare what happened with easier with.
According to the policy.
Diverse.
Freeze dried plasma with what could happen in 2022 that maybe the company could deliver more than six aircraft next year.
Sure correct.
The second question.
It's related to provisions.
Write off debt the company booked in the third quarter.
Take a look at the order figures.
We can still write thoughtful of 33 33 million Reais. So I don't know if you kind of give you additional details. Thank you.
Hello, Peter Thanks for your question, let's say starts from the answer to the provision side.
<unk>.
We have some movements are obsolete material.
We are selling right now thats why we did an adjustment in Q3.
Not a big issue is to come back in the coming months as soon as it gets.
The materials sold.
And delivered.
I would say, we do have a chance to be above 60.
We are continuous to discuss sharp craftsman specialty suppliers in order to make sure that we will be able to fulfill because the situation is not let's say.
First starting defense industry like automotive, but we are senior right now thats, assuming that we are picking up are compared to the RFP that we may see more restrictions that we're seeing today.
We do have space to be.
Above 60, and we are going to give a guidance for 2022 or next next fall.
Okay. Thank you.
If I may just a quick one.
You mentioned some expense with the arbitration process with Boeing.
Can you give us any kind of data.
Data on this matter.
Fortunately we are not.
<unk> allows.
It allows us to give too much in detail and Thats why we are not adjusting the cost chart you could do the math in a different way.
We are.
What I can tell you we are in.
Process to continue it.
Next you would be more or less.
I would say.
Kind of importance here for that protection, but it's going to take the more two years in my opinion.
Okay. Thank you.
Welcome.
The next question comes from Marcelo Motta with Jpmorgan.
Hi, everyone. Thanks for taking the questions to two questions as well first if you guys could provide any update regarding <unk> and Dave talk business. I mean, we all know the material fact that negotiations are growing so just wondering how you guys feel about the negotiations is that there have been any border.
<unk> or anything that might be leading to a lower than expected conclusion.
For that.
And the second question is regarding services and support I mean, the segment continued to show a very strong growth continue to have solid margins you want on several agreements during the quarter. So just wondering if you guys can provide us some expectations on how much of this line could grow or how much those new agreements have been adding to revenue or how much.
They could adding revenues are only in the midterm.
Thank you Ms <unk> for.
For the questions. The first one regarding <unk>.
I can tell you is that in the negotiations with our partners are ongoing.
But we cannot.
Further.
The company, we will keep you keep their market informed of any relevant to developments of these operations.
About the second one yes, you're right I mean, our service and support area.
Doing very well in.
Enjoying this.
The return to operation of our aircrafts booth in commercial.
Next year's business.
We have yes, we have good plans to move to grow further in that area not only with with Embraer aircraft markets, but also in the new Embraer aircraft market, we have as we said.
In the previous call, we had that we signed an important contract with the FERC to Italy.
Sure.
The GTS engine and maintenance in Portugal.
It's a multiyear multibillion multi billion contract in Israel will allow us to grow that operation poor to go almost to triple the revenues in the next years and this will help our service you everything brand as well. So again, we're very good perspectives and opportunities to grow services and.
Third area.
Two juice to the group.
It is growing.
Every year exactly for the next five years.
Perfect. Thank you very much.
The next question comes from Noah <unk> with Goldman Sachs.
Hi, good morning, everyone.
Hi, Noah.
Yes.
The commentary around being sold out next year on executive deliveries.
At what level of delivery is that the case.
And that being sold into the first quarter of 2023.
What do you want that lead time to be on a sustainable basis.
No. Thanks, Thanks, a lot for the question.
As I said.
We are sold out.
Through the first quarter was 22 minutes, we actually so our our team is doing a great job and joined this good momentum in the markets. So we are still we are working this production plan for next year, but we.
We do believe you're still another two digit growth for next year and as I said.
Before we believe in a soft landing of the demand from <unk> to 'twenty three onwards, I mean with that with the growth average closer to the normal.
Pre crisis that there would be a one digit growth.
<unk>.
Because for many reasons as I said before eroded.
They will go.
Both the pre ordered a fleet and the new users.
New buyers.
So coming to this market. So this is our is our view on there is a few markets.
Okay. So youre planning for double digit growth in units 22 versus 2021.
Correct.
Can you tell us what do you happen to have the number on the exact book to Bill and executive in the quarter. I know you said I know you said it was over two but if you just happen to have that precise number there would be helpful.
As said before AZZ Nexsan is off a two to one.
Book to Bill.
Okay.
And just to confirm the cash flow conversion target you are referring to 50% that's EBIT H E B I T E.
As opposed to EBIT or EBITDA.
For the first the beginning a bit.
Operating results.
50% conversion for the first begin because you've got your mirrors with upside potential, but I do see today in the short term is 50% what we generate as regards to EBIT.
<unk>.
50% five zero free cash free cash flow to EBIT.
Because we are still having.
A higher interest cost in our company.
As a company two or three years ago at <unk> revenue today are beating our revenue and we still have this issue of <unk>.
Being able to generate and that's I would say business size in order to be able to compensate to do.
The interest that's why it gives you time indias metrics, but I promise you guys go.
To refine this number for the next call.
Okay, great. Okay. Thanks, so much.
Okay.
The next question comes from Jack <unk> with Cowen and company.
Hey, guys. Good morning. This is Jack on for Cai today.
Thanks for the question.
I guess just just previously following up on the margin commentary.
It looks like your guide implies.
EBITDA margin improving sequentially from Q3 to Q4.
Yeah.
I guess, if you could just talk about.
Or provide a framework for how we think about.
Q4 margin by segment.
Like is it defense as Jud I think your guide implies Q4 Biz jet deliveries.
Expanding here.
Q4.
If you could just provide some color around the key sort of moving.
Pieces around margins there would be helpful.
And then on just backlog and book to Bill specifically this quarter, if you could provide what the defense.
And.
Commercial backlog was that'd be great.
Thanks.
Thanks, Jack for your question.
Today, our year to date.
Either a beat our EBITDA Marty we are at I would say at the high end of our guidance.
We do see for Q4 highly driven by it.
Executive aviation because we do have.
Let's see.
More or less 6% to 40% of the delivery is going to happen in Q4 is the first point.
<unk> commercial aviation more or less close to breakeven.
<unk> supports also.
Dan we set aside the quotation we do have the same pace at the same level.
We are cautious on the <unk> margin guidance, because we are still negotiating with the Brazilian Air Force the contract the credit scores of the KC. We may have some risks that tell you don't want to see.
<unk>.
Saying that we're going to improve because we still have a challenge here to end of this year.
That's why we decided to keep the beach and the EBITDA guidance at the same level for sure today, we are much better.
The high end, but we do have challenges to endoscopy.
This fiscal year.
You guys showed the backlog defense on the quiet, we have I would say no.
New contracts in defense.
Just a moment here then you ask the defense and commercial.
In commercial we added the 50 skywest.
We book it in Q3.
On the Skylark.
On the backlog.
Got it got it. Thank you and then and then I guess just.
As a follow up the cash it looks like you're increasing your cash guide for full year, what about 'twenty two cash.
Like how is it how we should think about.
That growing off of this 'twenty one base.
Is that really just a function of volume and deliveries.
Yes, we do we do see for next year all singles range between 100 to 200 million of Deutsche <unk> guidance right now, but we are assuming that we are.
Coming back to I would say not.
Pre pandemic levels, but is likely to result in pre pandemic levels, we should be able to keep between under 200 million.
Because we continue to win.
<unk> program is not only driven by deliberate itself, but to everything you are doing <unk>.
<unk> management.
They are chasing improve at the gap that we still have I would say.
Potential to improve this figure that we are seeing right now.
Great. Thank you so much okay.
Okay.
The next question comes from Betsy is female.
The mail with low asset management.
Hi, good afternoon I think.
Big part of my questions have been addressed but just piggybacking on the most recent one again just trying to think about your working capital into next year.
I see some offsetting forces on the one hand.
You have fairly low inventory levels right now and we're seeing increases in there.
A lot of input costs.
And to the extent that you see some upside in your potential deliveries next year I would imagine.
Inventories can be a bit of a.
Of a drag on working capital and the other and the other half.
And Youre seeing better.
That liability so again, just trying to understand perhaps the different.
Pushing for dynamics of your working capital.
If you could just comment a little bit on again.
Are your expectations on inventories kind of going forward and everything.
That can be offset by.
Other work thank you.
Thanks.
Thanks for the question.
And this is a good opportunity to me to share with you guys or other activities. We are doing so first of all our our five year plan is focused on the sales of.
Existing product portfolio.
In the end, we do have as I said before.
The potential to almost double.
These revenues of the company in these periods focusing on the existing portfolio of products.
Last year went through an important right sizing this company and we started to focus on it.
Initiatives to reduce the cost of our aircraft to focus on improving our accounts receivable.
In two to increase.
The turns of our inventories we have targeted two to almost triple the terms offered.
Inventory turnover in the next three to four years so again.
All of these activities to rightsize the company.
To reduce the cost of the projects to reduce the <unk>.
<unk> expense to manage responsibly, the SG&A of the company going to a period of more growth.
We expect from 'twenty to 'twenty two onwards, now do we expect that we will improve our financial performance either in the profitability and more specifically into cash generation as well as stated by <unk> before.
Just to complete your CFO Mathias OA.
You ask me today, we continued the crisis mode here means.
We know about inflation isolation.
Zero or worldwide.
With the.
How much of your true we are.
We have.
Contract backing.
Astral.
And we continue to run efficiencies in our production.
Back office in order to offset the in additional deviation demands.
Additional awards.
Perfect. Thank you very much.
Okay.
The next question.
Trout, Nicholas <unk> Yang with Jefferies.
Hi, Thank you guys for the call and congratulations on the results.
Just a quick one here on the rating agencies.
These strong results the strong recovery, it's notable to us that the three agencies still have you on negative outlook.
Does it seem to make any sense.
We actually think that Theres, a credible path here back to investment grade. So just wondering what's the latest in terms of conversations with the timing.
With the agencies.
And then on liability management.
As mentioned the the level of interest expenses and sort of thinking about reducing gross debt.
How would potential issuance.
Fit into those plans, maybe coming back to the market Opportunistically with a new 10 year.
Specifically I wanted to ask around the ESG agenda that you guys mentioned.
Clearly, we've seen a lot of Brazilian corporate.
Focus on ESG and doing things like sustainability linked bond so.
So is that something that you guys are already starting to think about thank you.
Nicholas Thanks for the question nice statistically a rating.
We just take for example, Fitch.
We are one notch below investment grade.
The less.
We will report this year.
And this was negative as they already changed to stable.
Stable and I do believe you are going with the news from Asia, providing theyre going to put in the positive range and it might it's my hope that we get back our investment grade.
Thank you drew most probably end of 2022.
That's the first question.
For sure. We are you guys to liability management and we are discussing.
Q3 will be the basis for that tomorrow toward sure we.
We find this hard that's in.
And Chris the lens for a maturity level. That's also our agenda.
And this launch will be a red and.
The green bonds.
Thanks, Kevin.
Question and answer session that does conclude <unk> audio conference for today. Thank you very much for your participation.
Good day.
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