Embraer SA (EMBJ) 2024 Q2 法說會逐字稿

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. (spoken in foreign language)

My name is Gui Paiva, and I'm the Head of Investor Relations for Embraer. I want to welcome you to our second quarter of 2024 earnings conference call. The numbers in this presentation contain non-GAAP financial information to facilitate investors to reconcile Eve's financial information in GAAP standards to Embraer's IFRS.

We remind you that Eve's results were discussed at Eve's conference call last Tuesday, August 6. It is important to mention that all numbers are presented in US 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 revealing publications filed by the company with the Brazilian Comissao de Valores Mobiliarios or CVM. (Event Instructions) As a reminder, this conference call 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 Q2 results. In the second part, we will host a Q&A session only for investors and last but definitely not least, we will host a 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.

Thank you, Gui. Good morning and good afternoon to all. Welcome to Embraer's second quarter 2024 results conference call. Embraer revenues in Q2 increased more than 15% year over year, mainly helped by defense and security, up more than 100%, but also by commercial aviation and service and support, up around 20%.

In the first-half of 2024, overall company revenues increased 19% compared to the same period in 2023. The highlight was defense and security, with an increase of about 50%, followed by executive aviation with 24%, service and support with 16%, and commercial aviation with 12%. Our efforts to improve efficiency and profitability led to a 1.6% gain, to 9.3% in our operating margin during Q2.

The gain in the first half of the year was even bigger, in total 2.7%. It is important to mention that we reiterate all lines of our 2024 operational and financial guidance after considering the opportunities and risks for the company in the second half of 2024. Our commercial activity in 2024 continues to be strong in all business units and we see solid demand in the company's main markets.

Our firm order backlog reached $21.1 billion, which is the highest level over the past seven years and supported by a solid year-to-date book-to-bill ratio in excess of 2.2 to 1. In commercial aviation, Mexicana de Aviación ordered 10 E190-E2s and 10 E195-E2s, with deliveries scheduled to start in the second quarter 2025. This is another evidence of the strong ability of our E2 jet family to operate in several markets and to provide their lines with a viable option to increase their capacity quickly.

In defense, the recent signing of the contract for 90 C-390 Millennium Aircraft by the Netherlands and Austria at Feinburofaire, coupled with the order for six Super Tucano aircraft by Paraguay, underpins our positive perspective for the business unit. In executive aviation, we continue to capitalize on the good sales momentum in both fleet and retail markets, with solid demand across our product portfolio.

In service and support, the division continued to be one of the main drivers of growth for the company, with the higher revenues and profitability, through a combination of operational and financial excellence, customer experience and innovative solutions. We continue to face supply chain challenges.

This year, we reinforced our supply chain organization by localizing more people closer to our most critical suppliers, and we introduced digital tools and artificial intelligence to help us further improve the efficiency of our supply chain management.

I will now move on to operational results by business units in the next few slides. In commercial aviation, the backlog in the first half '24 rose $3.3 billion, or plus 40% year over year, and reached $11.3 billion, with a book-to-bill ratio above 4 to 1 during the period. Deliveries and revenues almost tripled, sequentially in Q2, and reached 19 aircraft and $554 million.

The year-on-year growth rates were also solid in double-digit territory. Adjusted EBIT margin for commercial in Q2 declined 1% year-on-year, from 5.3% to 4.3%, mainly because of product mix.

In executive aviation, we recorded the strongest first semester in terms of revenues and deliveries for the division over the past 10 and 8 years, with [$575 million] and 45 aircraft. The backlog for the division registered an increase of $300 million in Q2 and ended the period at $4.6 billion, or 8% higher year over year, supported by a strong 1.5 to 1 book-to-bill ratio in the first half of 2024.

The adjusted EBIT margin for executives improved 2.5%, from 8.8% in second quarter '23 to 11.3% in the second quarter '24, helped by higher productivity despite lower production volumes.

In defense and security, revenues in Q2 increased 2.3 times year on year, or more than $100 million. The adjusted EBIT margin also improved to minus 0.5% in second quarter '24, from minus 4.1% in the same period of 2023. The delivery of the second C-390 Millennium to the Portuguese Air Force was an important highlight for defense and security in the quarter. The first aircraft entered into service at Beja Air Base in October 2023.

In service and support, revenue grew 20% in Q2, compared to the same period of last year, with solid mid to high teens profitability and a gain of 1.3% in the adjusted EBIT margin. The business unit maintained its historical $3.1 billion record backlog reached in Q4 '23. Another important achievement for our service and support division was the first flight of the E190 Freighter, a passenger-to-full-cargo conversion, which received the certification by the National Civil Aviation Agency of Brazil, ANAC, in July 2024.

Last but not least, our eVTOL business reached other important milestones in second quarter '24. The company has now already selected and contracted most of the component suppliers, completed its first full-scale eVTOL prototype assembly, and celebrated its rollout in our Gavião Peixoto plant last month.

Eve also completed a new equity financial round of $96 million from multiple investors. The monies will help support the continued development and manufacturing of its eVTOL. Embraer remains confident in EV's business outlook as its majority and controlling shareholder, with an 83% equity stake.

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

Thank you, Francisco. Good morning and good afternoon to everyone. I'd like to highlight we had another solid quarter in Q2. Our financial results improved both quarter-over-quarter and year-over-year. For instance, revenues for the period were 16% higher than a year ago, and our EBIT margin was 160 basis points higher.

Our focus in Q2 continued to be on business and financial efficiencies. We are fully committed to reach our full-year guidance, despite all the ongoing supply chain constraints we continue to deal with, which had also negative impact on our year-to-date cash flow. It is important to mention we still see double-digit growth for aircraft deliveries revenue and EBIT in 2024 and 2025, notwithstanding the operational challenges.

Slide 10, deliveries. Commercial aviation delivered 90 aircraft in Q2, for an increase of 12% versus a year ago, and almost three times higher than in Q1. Meanwhile, executive aviation delivered 27 jets in Q2, compared to 30 aircraft in the same quarter of 2023. However, if we look sequentially, the numbers of deliveries grew 50% from Q1 to Q2.

In defense, we delivered one C-390 Millennium to the Portuguese Air Force in Q2, compared to one KC-390 to the Brazil Air Force one year ago. It is important to mention the aircraft is not included in our delivery guidance for 2024. We continue to work steadfastly to accomplish our production plan, and to reach our 2024 guidance of between 125 and 135 executive jets, and 72 and 80 commercial aircrafts. We are also on track to deliver four C-390 Millennium aircrafts scheduled for the year.

Slide 11, please. The company registered a seven-year high total backlog of $21.1 billion in Q2, which was marginally higher quarter over quarter, and 22% higher than a year ago. The backlog for commercial aviation continued to move higher. It's total more than 380 aircrafts in Q2, and it was valued at $11.3 billion, or $200 million higher than last quarter, and $3.3 billion above second quarter '23.

Meanwhile, the backlog for executive aviation was a solid and resilient $4.6 billion during the period, flat quarter on quarter, but up $300 million year on year. Last but not least, the backlog for service and support finished relatively stable at $3.1 billion in Q2, while for defense and security, it decreased marginally by 10% to $2.1 billion.

Looking forward, our backlog for defense should increase by more than 50% in Q3, with the new contracts, if we factor in the export contracts recently announced for C-390 Millennium and Super Tucanos.

Moving on to revenues, our topline reached almost $1.5 billion in Q2, or $200 million higher year-over-year for 16% growth rate. If you look at the pie chart on the right, we can see a more balanced revenue mix. For instance, commercial aviation represented around 37% of total revenue followed by services and support, close to 27%; executive aviation with 23%; and defense at around 13%.

For the first half of the year, we recorded $2.4 billion in revenue or almost 40% of the midpoint of the 2024 guidance. Next slide 12, EBITDA. We generated $190 million in adjusted EBITDA, second quarter '24. With a 12.7% margin compared to $149 million, second quarter '23, driven by strong operating results when compared to the same period last year.

One related note, the Brazilian foreign exchange rate has been very volatile in the first half '24. And its recent depreciation should provide some tailwind in the second half of the year. We generated $237 million in adjusted EBITDA, with 9.9% margin in the first half of 2024 versus $159 million with 7.9% margin in the prior year period; for dollar amount, almost 50% higher annually.

Meanwhile, adjusted EBIT was $139 with a 9.3% adjusted margin. However, there were one-time items in the quarter which brought up the adjusted EBIT margin by 250 basis points. Reported EBIT for the quarter was $128 million with an 8.6% margin. Both figures were materially better than their second quarter '23, comps supported by better efficiency, lower SG&A cost, especially in the executive aviation and service and support.

Looking on the right chart, we can see executive aviation and service and support generated more than 75% of the companywide EBIT during the quarter while commercial aviation earned balance 25%, and defense practically broke even in accordance with the percentage of cognition accounting methods.

On the slide 13, in Q2, if we exclude Eve, we had adjusted free cash flow consumption of $250 million due to networking capital needs for high aircraft delivered in the second half of the year. This cash should be recovered as much deliveries take place over the next couple of quarters.

Moving to investments, again, without Eve, we spent $29 million in research and development during the quarter, $47 million in CapEx, and net $11 million in the pool programs for spare parts for a total of $107 million compared to $104 million a year ago. Our capital allocation continues to be focused on segments with higher returns, with projects such as expansion for our production capacity in executive aviation and service and support.

To finalize, our adjusted net income was positive $80 million for the quarter, supported by a 5.4% adjusted margin, or $22 million higher than year ago.

Slide 14, going to our liability management plan. In second quarter '24, our gross debt without Eve was relatively stable at $2.6 billion during the period. But we still managed to reduce it by circa $880 million when compared to one year ago.

Meanwhile, our net debt declined by $152 million year on year and reached $1.3 billion during the quarter. Our net debt to EBITDA leverage ratio increased 0.2 times sequentially to two times as shown in the top right corner.

This increase is explained by the seasonality of the cash consumption in preparation for higher deliveries in the second half of the year. We also announced this week an extension for the next five years of our revolving credit facility. And then, increase of its size from $650 million to $1 billion, which will be reflected in our Q3 liquidity position.

With that, I conclude my presentation and hand it back to Francisco for his final remarks. Thanks for your attention.

Thank you, Antonio. The progress recorded in the Q2 2024 demonstrates we are on track to achieve all the results embedded in our 2024 guidance. More importantly, we will continue to work hard to deliver even better results in the coming quarters of the year, especially in Q3.

Our company remains very well-positioned for the future with a seven-year high backlog of $21.1 billion, A strong 2.2:1 in the first of the year, a steady progress in our operational and financial indicators as well as a solid strategic plan. It is important to mention that we will include in our Q3 backlog for Defense, the contracts for nine C-390 Millennium signed with The Netherlands and Austria, and, six Super Tucanos ordered by Paraguay during the recent Farnborough Airshow in England.

I would also like to give a special welcome to Mexicana de Aviación as a new operator of our E2 family, expanding the E2 presence in North America. We believe our recognized global jet family will help the airline generate great operational and financial results with a strong commitment to sustainability and aviation efficiency.

And to finish, I would like to thank you all again for your interest and confidence in our company. We see bright and clear skies ahead for our company. And we will continue to work hard and embrace the foundation of our culture that is safety first and quality always.

Let's now move to the Q&A session of the call.

(Operator Instructions) (spoken in foreign language)

Kristine Liwag, Morgan Stanley.

Hi, good morning, Francisco, Antonio, and Gui. And thank you for the results for today. I guess my question is on the supply chain. You maintained your 2024 full-year delivery guide for commercial aerospace. We are seeing some of the other manufacturers like Airbus lower their outlook for the year because of supply chain.

Can you give more color regarding your confidence that you are able to meet these deliveries? What you are seeing in the supply chain? And maybe a little more color also on your approach in providing guidance like how conservative is the range that you gave for delivery for 2024? Thank you.

Your question, well, as I mentioned in the opening, we are this year reinforcing our supply chain team. We are locating more people closer to the most critical suppliers to support them. We are having more senior management meetings with our suppliers, the critical ones to make sure that we follow the delivery of the parts we need for a year.

We are implementing new digital tools and also artificial intelligence to help us to be ahead of the problems. We have been, Kristine, very proactive with our suppliers and glad to be even closer to them to help them. I have seen a very positive approach as is the Embraer style. So, again, we see challenges. But at this point of time, we are confident that we will be able to deliver the guidance for the year.

Victor Mizusaki, Bradesco BBI.

Hi, congrats for the quarter. I have two questions here. The first one, when we think of the EBITDA margin of 12% in the second quarter, I mean this was something (inaudible) for the second half? So my first question here is, is there any chance that maybe Embraer will revise guidance of works in the second-half, or maybe we are talking about high-end of your guidance?

And the second one, we have seen a lot of news going in Brazil about maybe (inaudible) place orders for the jets. So, my question is if can you give any color these negotiations and what's your view for the regional aviation markets? Thank you.

(spoken in foreign language) About the EBITDA margin for sure, the Q2 we have some tailwind that one-time effect. We are confident in our guidance it is in the mid or the high end of the guidance. We need more one quarter to be more precise. But everything that we are seeing right shows that today, we are more closer to the high-end of the guidance than the lower end. That's from the EBITDA side. And I will hand over to Francisco for Latin issues.

Thank you, Victor, for the questions. At this point, we are talking to a lot of customers about E2 opportunities. I don't have anything concrete about Brazilian customers to share with you. But what I can I say is that we see a great opportunity to increase the E2 presence in Brazil as we are very -- we are confident that these jets are a perfect fit for the Brazilian market. And can help the airlines not only Brazil but everywhere to add capacity quickly to their fleets.

Marcelo Motta, JPMorgan.

Hi, everyone, and thanks for taking the question. I'll keep to just one question. I mean can you comment a little bit about the Defense revenue outlook for second half? I know [80%] of completion you still have, if I am not mistaken another three KCs to be delivered this year. And, the revenues are very good increase both on a quarter-over-quarter and year-over-year basis. So can we expect the Defense revenues to continue to accelerate throughout the second half?

And I mean could the driver be also the Super Tucano order, which probably could be delivering the short term since the production is little bit more simple? And what are the order components of defense revenues that could also increase and accelerate, so the full-year revenues for defense could be -- maybe closer to $600 million, $700 million? Thank you.

Thanks, Marcelo. This is Antonio speaking here. And, thanks for answer already your question. We do see Defense around $600 million this year. With the deliveries for the C-390, we are confident to deliver for this year. I would say, next week, we are going to deliver the second one and I would say we are confident in that.

And the order for the Super Tucanos is coming to the right time and the right point because a big portion of the aircraft are ready, no inventory means it's going to go on top for the second quarter, the Super Tucanos for Paraguay. Let's put all together, we do see defense here around $600 million for this year.

Lucas Barbosa, Santander.

Hi, good morning. Francisco, Antonio, Gui, thank you very much for taking my question and congratulations for the results. I just wanted to know if you can provide more color on the one-time items that affected the EBIT margin by around 250 basis points. So if you can provide just some details if it's just one item. If it's more than one item, what's the nature of it? That would be very helpful. Thank you very much.

Hi, Lucas. Good morning and thanks for the question. There are a few items that impacted the quarter, but I would say by far, the biggest one was tax credits that helped us improve the margins by about 250 basis points. So if you show that the margin will be closer to 7% or slightly under that.

Ron Epstein, Bank of America.

Hi, good morning, guys. Maybe if you could circle back on -- we had a question about interest from airlines in Brazil, but maybe more broadly, after Farnborough, stepping away from that, can you maybe give more characterization a little color around what you're hearing from customers, how sales campaigns are going. To be honest, I was expecting to hear a little bit more in terms of orders for commercial airplanes at Farnborough. Where do we stand on that? And what's the outlook for maybe the rest of the year into next year?

Thank you, Ron. Francisco speaking. Thanks for the question. I mean, we had a good start to this year. If you look at the glass, we have a pool. We had a good start this year with orders in commercial aviation with American lines in Mexicana. And we are working in a lot of sales campaigns. I mean basically, all the regions in the world.

So we expect -- we are confident that we will bring good news soon about the new orders, and we have a good expectation for Q3 and the rest of the year as well. So again, we believe we have a very good chance to fill our production loss for the years ahead, in line with our strategic plan.

The next question comes from the Q&A chat. And it's from Stephen Trent with Citibank.

Many thanks, gentlemen. Can you provide some color on what you're seeing in the competitive environment for business jets? Is it possible that lower interest rates could support small and mid-cabin sales? Thank you.

Thank you, Steve, for the question. Actually, we still see a strong interest in our business jet product portfolio. So, we are selling all the four models very well, in line with our expectations. And yes, we are now our challenges, to be honest with you, in the business genesis is more to ramp up production levels and deliveries than the sales. I think the sales continue to be strong, as I said. We are very optimistic about the -- not only sales but the deliveries and the growth of our business jet business in the next years

Noah Poponak, Goldman Sachs.

Hey, good morning, everyone. Can you hear me?

Yes.

Okay, great. On the margins, the reiteration of the 6.5% to 7.5% for the full year adjusted operating margin. I just want to clarify if that's including or excluding the items you listed as kind of one-time for 2Q. And maybe put a different way, I guess to be at the midpoint or the high end of that for the full-year, the margins would have to be down year-over-year in the back-half. Do you expect margins down year-over-year in the back-half?

Thanks, Noah, for the nice questions. Antonio speaking here. For sure, if you take the one-time and added on top of the guidance, for sure, we could be in a higher debt, assuming that we are in this volatile situation on supply chain, we prefer to not raise the guidance today.

But today, we are at the high end, and we are not planning to reduce margins for the coming quarters and the opposite, but what we try to avoid with the math we did is that you've taken a 9% margin from Q3, Q2 and move forward for the next quarter. It's going to be a little bit higher, lower, but not in the magnitude of that we were to be even below previous year, means in a nutshell, yes, we are closer to the high end.

And if you are able to get all aircraft out of the door probably have a chance for upside. Then we want to do this -- probably are going to review the guidance already in Q3, when we announce that for Q3. Well, let's see. It depends on several facts.

Okay. That makes sense. That's helpful. And Antonio, I guess, I feel like I have a sense for what the progression of the commercial margin could be from here. Executive has been kind of just solid for a while now, services reasonably straightforward.

I guess the defense margin has been pretty volatile through the quarters. It used to be kind of high single-digits on an annual basis. It's now mid single-digits. I guess, as you ramp KC-390 with different customers and the mix is changing. I guess how should we be -- well, what should we be expecting for the kind of medium-term progression in that defense margin?

Thanks for the question, Noah. We are -- I would say, in an inflection point right now and the defense margin means, the magnitude of the local contracts is being, I would say, well-filled right now with a new contract for export, and we do see this year something like mid-digit market for this year, but moving, I would say, very fast for higher even lower teens for the next year. That's more or less the production you see based on the new contracts that we are just signing right now.

Today, if you see year-to-date, it has been very highly impacted by still the Brazilian contract here. With this move from local contracts to export, we do see this projection from mid-single-digit to higher single-digit or lower teens. That's more or less how do you see defense right now with on top of it with revenue growth, both together.

Gabriel Rezende, Itau BBA.

Hi, good morning, Francisco, Antonio, and Gui and congrats on the results. I would like to make -- to judge on one point regarding the commercial division. And whether do you think that will be fair for us to assume that given the ongoing supply chain crisis across the globe in the industry, prices in this industry could benefit the commercial division? What should maybe translate into even higher margins for the commercial division in the future? Thanks.

Gabriel, thank you. Francisco speaking. Thanks for the question. I mean our commercial division has been despite the lower volumes in the past year has been profitable. And you see that even the results of this Q2 was very positive for the commercial division.

And we see opportunities to improve even further with the volumes growing, and we are also working internally and the other P&L drivers, like the prices and especially in cost reduction programs. So, again, we do believe that the margins of the commercial division will continue to be positive, right? And let's say middle single digits for this year and the next years as well.

Lucas Laghi, XP Investimentos.

Hi, everyone. Can you hear me now?

Yes.

Yes, we can.

Great. Thank you. Good morning. Francisco, Antonio, and Gui. My question is a follow-up on the commercial division profitability standpoint. But, I mean, we noted this slight decline over a year on margins due to the higher mix of each use.

I mean, my question is, I mean, aside from the effects of operating leverage as deliveries should accelerate in these upcoming years, I mean, are we already seeing the orders that you added to your backlog in the past year imply a room for gross margins to improve or a further contribution margin improvement should come as a result from incremental new orders in this next year?

So basically, a matter of mix and how should we think of the each used margins going forward taking into consideration what you already have added to your backlog and what you expect to add in these upcoming years. Thank you very much.

Thanks, Lucas, for the nice question. The margin that you are generating today is based on the backlog that the first sales campaign for E2. If you take Porter or Azul, it's more or less the margin that we are delivering today. For sure, the future backlog is accurate for a mid-single digit at least today. And please do not forget to have also a boost in E1 for the future. But we needed to exercise the new contracts.

If you take the mix today, they are more or less the first contracts for E2. That's why the margin is more tough, more tight. But if you take Mexican, it's much better margin than we are exercising with the customer this year. But we needed to wait the coming years in order to, I would say, regain traction.

Nevertheless, you follow our numbers. We are able to report positive margin even with not the full capacity occupied. That's why we see between operational levers and new contracts a good way to improve the margin, but not this year. This year is highly dependent on E2 with the main customer that has at least a lower margin. But we are confident for the future.

Alberto Valerio, UBS.

Hi. Good morning, Antonio and Francisco. Thank you for taking my questions. I have two here on our side. First one about pricing in the commercial aviation, we heard from competitors that there is some low-priced aircraft going out of the inventory and sooner we should have a higher-priced aircraft going out from the inventory. I would like to see if in Embraer we have the same situation.

And secondly, on the executive aviation, that margin comes great year-over-year, despite what we see a worse mix with less pressure on the delivery side. If you could provide more color on this one, also it would also be very helpful, and congrats on the results.

Alberto. Antonio speaking here. Good morning. First, I hope you revise your number because you do believe that we are not growing too much this year, but I'm sure you are going to do it. In regards to the margin side, again, it's a combination of facts for commercial aviation, okay?

I would say on the mix for executive aviation, growing price brings a lot of dollars, but let's say incremental margin should lead this unit to be above two digits of EBIT margin this year. We are already more or less close to that. Let's say the Freighter brings much more dollars.

That's why incremental margin should help. Sometimes the percentage-wise is a little bit different when you see females against Freighters, but dollar-wise, we do see a nice boost for the margin for this year, for the years to come.

Okay. I will revise for sure our numbers, Antonio. Thank you very much.

Thank you. We love to listen to that, Alberto.

Thank you. The next question comes from the phone number ending 5135. Please go ahead.

Hey, good morning, guys. I'm (inaudible) from Wolfe Research.

Hello.

Just on services, you had a good quarter on the top line, good quarter on margins. Just how should we think about that business for the remainder of the year? Growth stepped up pretty nicely in the quarter. We had sort of a sustainable level here, around $400 million, and same on the margins, 17%. Should we think about that as sort of a run rate, or did any one-time benefits help the quarter there?

Thanks for the nice question. Antonio speaking here. I would say we are already in the range of mid-teens margin for the service and support. With expansion activities right now, I would say I would continue to see for this year at the mid-teens, because we are putting more revenue and margin for the engine MRO we have in Portugal.

That's why the ramp-up of this production does not help or contribute too much for the margin. That's why I would say we are confident in the mid-teens and on-time effect to us for service, not a big contributor, to be honest.

Noah Poponak, Goldman Sachs.

Antonio, can you just spend another minute on the cash flow? I know that your cash flow is always seasonally weighted to the back-half, and you've had a working capital build in the first half before. It looks pretty sizable in the first half of 2024, even though the deliveries are up a little bit year-over-year, revenues up year-over-year. So maybe if you could just walk us through that. How confident are you in hitting the 220 for the year? And can you grow free cash flow next year versus this year?

Thanks for the nice question. By the way, cash is one thing that we discuss every single day in this company here. That's why we launched the production leveling in order to be more, I would say, not suffer too much from Q1 to Q3 during the year. It's going to, I would say, help more next year than this year. I'd say the trend for the cash flow, we are today confident in the 220 or better, but unfortunately, it's going to happen just in Q4.

The discerning between negative into positive for several reasons, more or less 20% growth on top line this year, and also for next year is more or less also double-digit growth that we are foreseeing. And if you go to our effectiveness today, you see new people and parts for 2025 already. We already produced 25 parties, several parts of our company here.

It's pushing, putting a lot of pressure on the cash flow, and also the progress payment for the new contracts is going to happen, especially in the second half of the year. I would say combine those effects, lead us for this tight situation Q1, Q2, and Q3, and hopefully to become positive as we did last year in Q4.

However, we are not happy with this situation, and we do have, and we are discussing this week very, very strong how to -- I would say, harmonize our cash generation, and in regards to generate more cash next year or not, our targets here are minimum turn EBITDA 50% into cash.

I would say we are a little bit behind this year because of the higher growth that you continue to face for the company, which is nice, but puts a lot of pressure on the cash flow, I'd say. In a nutshell, we are still confident with the cash this year, and for sure a lot of chances to improve cash flow next year.

If you are able to level in the production, then it's going to be even better, and you guys are not getting scared to see negative cash consumption. Three quarters and a very strong positive in Q4, that's more or less what we are looking for.

Thank you all very much. This concludes the question-and-answer session for equity research analysts and investors. Now we will start the Q&A session dedicated to the press. (Operator Instructions) (spoken in foreign language)

Joanna Bailey.

Do you expect the C-390 program to be profitable by the end of 2024? And how have you managed to increase the EBITDA so much on executive?

Well, Joanna, thanks for the question. I think it depends. Yes, for our defense and security to be profitable this year already and including the C-390 and other products. And in the executive, I mean, we are seeing a very good performance in terms of margin and results. And this should continue with the sales, production, deliveries growing in the next years.

And for executive aviation, we do have a nice mix of products, I'd say (inaudible) where we were able to keep the price dissipating, which is showing also in the financial results. That's more or less without services, by the way. That's the combination of facts we do see in executive aviation.

Richard Schuurman.

Hello, I have already asked many questions in Farnborough, but I have one follow-up from that. You announced the [E2FT or E2 Feet] enhanced takeoff system. It isn't clear if this system has already been certified. If not, when do you expect this to be available?

Richard, this is a very good question, and thank you for your interest. And about this feature, the certification is expected to happen by the Q4 next year 2025.

Woodrow Bellamy.

One of the technologies that Airbus, Boeing, and other OEMs highlighted at Farnborough was their use of new digital design tools to improve time to market for new aircraft technologies and components. Is Embraer using any new digital design tools to improve its manufacturing and production efficiency? And could you give some examples?

We have been using the -- one example I can give it to you is the MES, the Manufacturing Excellence System, that we use in our manufacturing process. That is a digital 3D tool, and that helps us a lot. I mean, to improve our efficiency, productivity, and quality in our manufacturing process. And we are developing other systems as well that we expect to be implemented in the next years.

(Operator Instructions) Thank you all very much. This concludes the question and answer session in English for the press.

This Q&A section is now being conducted in Portuguese.

(Operator Instructions)

Cristian Favaro, Valor Econômico.

Hello, everyone. Can you hear me?

Yes, Cristian.

Very well, then. Yes, guys. Thank you. Congratulations for the results. I do have a question, but let me give you a follow-up here, Antonio, and let me see if I got it right. You said that the perspective is to have a 15% backlog on the Q3, just to make sure that I got the percentage right, 15%. And I wanted to ask about LatAm.

Yesterday, Gerard Cartier has confirmed on the LatAm conference call that they are considering lower-sized aircraft, and they said that Embraer is competing with the A220, so they are probably considering the middle cabin. So, I'd like to know about your perspective with the A220.

Are you with a good competitive edge? And how is this conversation evolving? Because there is some time that you mentioned, Francisco, that LatAm has been engaged in conversations to procure with you, but do you have any good perspectives with regards to that?

I can take the first question. It's actually a 50% increase in Q3. That's for the defense backlog. You will see agreements from the Netherlands, Austria from C-390, and then Paraguay with Super Tucano aircraft. That accounts for more than 50% increase in the defense backlog. And for LatAm, I'll hand it over to Francisco to answer that.

Thank you, Cristian, for your question. Like I said before, we've been in conversation with different customers about business opportunities for E2. And, of course, there is competition. There is competition in the market with A220, but for us, we think E2 is more of an efficient aircraft with lower operational costs and lower maintenance costs. E2 is a perfect fit. It's tailor-made to markets such as the Brazilian market.

If you look at the operations of Azul Airlines or Scoot, KLM in Europe, so we do think E2 is quite a competitive product. And, again, it is tailor-made to better connect cities, medium to small-sized cities, which is what Brazil needs and other countries also do, but more specifically Brazil. So, we're excited about these opportunities. We've got no concrete news to share with you, but let's wait and see how these processes evolve.

Jesse Nascimento, Portal Vale 360 News.

Hello. Can you hear me okay?

We can, yes.

Good morning. Hi, Francisco. Congratulations on the results. We're located at the Vale do Paraiba region, and we're following up closely on Embraer's numbers. The question goes to Antonio, and then another question to you, Mr. Francisco. Antonio, as we looked at the numbers yesterday, we saw that Embraer's stocks reached 38.13, but numbers were different in late July.

And in October -- on October 30, 2020, stocks were worth BRL6.03, considering the results that are now sharing with us. How much can we expect stocks to go up? Or the market value since the pandemic, how much will that increase?

And then the question to Francisco is the following. According to news portals specialized in aviation, in the UK trade show, they mentioned that Embraer is negotiating to sell 300 commercial aircrafts. How is that going? Can that happen by the end of this year? Thank you very much.

Thank you for your question. No, I remember in 2020, Embraer stocks -- well, Embraer as a company was worth BRL3 billion, and it's worth now BRL30 billion, roughly. So, we're talking about a 10 times increase. On Friday and on Monday, people's temper was quite hard. But we were in touch with many banks already. There were many investors who were feeling uncertain about it. We think these numbers should get back on track in the following weeks or so.

So what's been going on with the company's valuation is reflected, again, in the gain in trust, in our sustainable growth as a company. I still believe there is a lot of room for growth. I think we grew by 10 times. Since early 2023 to date, our stocks have grown more than 60%, which makes us really happy.

But I think we've got a long way to go and grow based on what we're doing in terms of trust, foreseeability, and in terms of delivering what we promise, always, of course, focusing on safety and security. So we're very excited about growth. But if we consider how ambitious we are, there is a lot that will still happen.

I can add to that. If you think of the company's valuation during the pandemic that's a very low bar. But what makes us excited is that even if we consider stock prices before the pandemic in mid-2019, and compare that to now, we can safely say that we are 100% above that. So that's a good way to compare stock prices. And then, about your second question, it's true we've got 300 aircrafts being sold. This is round number, but we expect these campaigns to provide results in the short term, meaning 2024 and 2025.

Leda Alvim, Bloomberg News.

Hello, good morning. Thank you for this opportunity. Thank you, and congratulations on the results. I wanted to ask you about a specific point that you mentioned during the Media Day a few months ago about the defense sector. It was mentioned that Embraer is working to penetrate the US market with their defense aircrafts, exploring even opportunities of mergers and acquisitions.

I wanted to learn from you. Has there been any update on that note, any initiative for the US market, especially in the defense sector? How do you see these opportunities for merge and acquisitions?

Hi, Leda, this is Francisco. It's great to hear from you again. Thank you for your question. C-390 is doing well in different regions of the world. We talked about new agreements with the Netherlands and Austria. We are now at an advanced stage in negotiations with Czech, and we expect this to come to fruition by the end of this year.

We're also in touch with South Korea. In Asia, we're also making great strides with our program, and, of course, the American market is the largest defense market in the globe, so they are a target market for us. And we believe that our aircraft, C-390, would be a suitable product and important to help the US Air Force increase their productivity in this multi-mission military aircraft sector.

So at this point, we're just doing our research in the US, we're strengthening our team in the market, so that we can define what the next steps will be, hoping to fast-track our penetration in the market. That's where we stand as of now.

Thank you. Thank you very much. This concludes our Q&A session. This concludes Embraer's earnings call. Thank you very much for attending the session, and have a great day.