Embraer SA (ERJ) 2021 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the audio conference call that will review Embraer's third quarter 2021 results. Thank you for standing by. (Operator Instructions) As a reminder, this conference is being recorded and webcasted at ri.embraer.com.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 where the company is present. The words believe, may, will, estimate, continue, anticipate, intend, expect and similar words are intend 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. In light of these risks and uncertainties, the forward-looking events and circumstances discussed on this conference call might not occur. The company's actual results could differ substantially from those anticipated in the forward-looking statements.

Participants on today's conference call are Mr. Francisco Gomes Neto, President and CEO; Mr. Antonio Carlos Garcia, Chief Financial Officer and Procurement; and Mr. Eduardo Couto, Director of Investor Relations. I would like now to turn the conference over to Mr. Gomes Neto. 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 and safe. Thank you for your interest in our company.

As you will see later in Antonio's presentation, our results for the quarter were in line with our internal expectations, and with cash generation coming better than planned. The Q3 results continue to show that our strategic planning and its 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.

In the Commercial Aviation, we delivered 9 E-jets in the third quarter. And so far in 2021, we have delivered 32, aircraft in line with our forecast for the year. We continued to show positive momentum on the order front, with another 60 aircraft in a firm order with SkyWest, leading to book-to-bill in excess of 2:1 this year.

Also within Commercial Aviation, a milestone was reached when Swiss airline Helvetic Airways performed the first revenue-generating flight of the E2 to London City Airport. The ability of the E2 to attend to this strategic airport will allow for further penetration of this family of jets in the European market. In Executive Aviation, we continue to see very good momentum on the demand front and in the third quarter this business registered record.

Further, our portfolio of finance and products is sold out through 2022 and into the first quarter of 2023, leading to book-to-bill in excess of 2:1. And this doesn't -- it includes the deal we announced at NBAA in Las Vegas of $1.2 billion sale of up to 100 Phenom 300E aircraft.

Finally, we delivered the 1,500 Embraer executive jet in the third quarter, showing our rapid growth within this industry as it only took us 20 years to reach this milestone, when the rest of the industry players took, on average, 34 years to deliver that many aircrafts.

On the next slide, we start with the highlights from the Defense & Security. During the third quarter, our subsidiary Atech delivered an updated version of the Brazilian Air Traffic Management System, which will be able to unify all flight plan processing in Brazilian aerospace.

Also, we delivered 6 Super Tucanos to different customers, underlining the continued demand we see for this market-leading light attack in trainee aircraft. We also continue to negotiate the KC-390 production contract with the Brazilian Air Force, and we will share additional information regarding this matter once it becomes available.

The Services & Support support continues its recovery along with commercial and business jet traffic globally. And we recently were able to attend the MRO Europe event in person a few weeks ago. During the event, we had several sales announcements, including a full program support contract with KLM Cityhopper for its entire planned E195-E2 fleet which, at present, is expected to be the largest E2 operator in Europe.

We are also proud that the executive aviation services placed first again in ProPilot Product Support Surveys for 2021 and was third place in the AIN survey.

Finally, our OGMA MRO subsidiary in Portugal was honored with a top 10 ranking of MRO service centers in Europe for 2021, a great sign, as we expected to significantly grow this business in the coming years with exciting new business to ramp up.

On the next slide, with respect to Innovation, we continue to make progress on partnerships in the urban air mobility ecosystem through our subsidiary EVE in a segment with strong growth potential in the years to come.

Further, our EmbraerX signed a multiyear agreement with the Republic Airways for the use of Beacon's maintenance coordination platform. Although currently not very large in terms of financial results, we see a very interesting opportunity for Beacon to grow and add new customers over the next few years.

EmbraerX also announced a partnership with Pyka, a Silicon Valley company to accelerate the future of autonomous aerial agriculture operations.

This quarter, we are going to start sharing some highlights regarding enterprise excellence. We reached the lowest inventory level since 2018, with a reduction of 22% in the last 12 months.

In terms of operational efficiency, we reached an increase of 6.5% and also a reduction of 10% in the production lead time of our aircraft.

I will now hand it over to Antonio to give further detail on the financial results, and I will return in the end. Thank you.

Thank you, Francisco, and good morning, everyone. I would like to start with our backlog. We ended the third quarter with a backlog of $16.8 billion. This is up 20% in 6 months and is the second consecutive quarter-over-quarter increase this year.

Looking at each segment. We have a good sales activity in our Commercial Aviation business, with another 16 firm orders from SkyWest, bringing total firm orders this year to 64 commercial jets.

In Executive Aviation, a strong backlog continues across the entire portfolio, with record third quarter sales and a book-to-bill ratio in excess of 2:1.

Backlog in Services & Support also grew from prior quarter's level.

In summary, our backlog has reached levels not seen since 2019. This gives us confidence our Fit for Growth plans are working and revenue and profitability will continue to increase.

Moving to deliveries. In the third quarter, we delivered 9 commercial jets and 21 executive jets for a total of 30 aircrafts during the period. The 9 deliveries in Commercial Aviation represents a 29% increase compared to the third quarter 2020. Year-to-date, deliveries were at 32, a 100% increase over the same period last year. Of the 32 deliveries, 17 were E2. Sales continued to perform very well, showing a recovery in our core markets.

Executive Aviation delivered 14 light jets and 7 large jets for a total of 21 aircraft in the third quarter. Year-to-date, deliveries were at 54, a 25 increase -- 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 executive jets between 90 to 95 aircrafts by the end of this year.

Turning to net revenue. Third quarter net revenue was $958 million, up 26% from the same quarter last year. Commercial Aviation revenue growth was driven by higher deliveries, while Executive Aviation growth was due to a more favorable mix of deliveries. Services & Support growth was due to the expanded commercial executive and defense services. Defense also posted a revenue increase due to advances in our main programs and the deliveries of Super Tucanos.

Year-to-date, net revenue was $2.9 billion, up 50% from last year. We had solid revenue growth as all of our business units posted higher third quarter and year-to-date revenue compared to 2020.

We expect fourth quarter '21 revenues to remain strong, and we expect to end this year between $4 billion to $4.5 billion in revenue.

Looking at SG&A. SG&A continues to trend favorably over the last 7 quarters. Year-to-date, SG&A was down $48 million or 15% compared to the same period in 2020. As a percentage of revenue, year-to-date, SG&A was at 9.1% compared to 16.1% in the first 9 months of 2020, down a full 7 percentage points. Selling expenses was up due to increased sales and market activities, demo flights and in-person customer engagements. Although the trend is up, selling expenses is far below 2021 levels -- 2020 levels, sorry, due to our focus on more cost effective ways to reach our customers. As a percentage of revenue, year-to-date selling expenses was 5.2%, less than half of the 10.8% level in the same period of 2020.

General and administrative expenses were $36 million this quarter, equal to the average of the last 7 quarters. As a percentage of revenue, G&A has held steady at 4% in each of the 3 quarters this year.

It's important to reinforce, we remain highly focused on SG&A efficiencies and apply lean principles to our SG&A functions.

Moving on to EBIT and EBITDA. We are very encouraged by the continued improvement in margin performance for the company. For the third quarter, on a consolidated basis, our adjusted EBIT margin was 3.7%, and our adjusted EBITDA margin was 8.3%, both up over 9 percentage points compared to the same quarter in the prior year.

Year-to-date margins are similar, with adjusted EBIT at 3.8% and adjusted EBITDA at 8.9%, both above last year.

On a dollar basis, year-to-date adjusted EBIT was $111 million compared to a loss of $177 million in 2020. And adjusted EBITDA was positive with $258 million compared to a loss of $63 million in 2020.

In our business segment, adjusted EBIT margin for the quarter were as follows: Commercial Aviation was at 4.5%, improvement from last year on higher deliveries and improvement mix. Executive Aviation was at 6.7% driven by robust price discipline and consistent profitability. Defense & Security was at 10%, resulting from a good mix of Super Tucanos and KC deliveries. Services & Support was also at 10.8% with improved service contract performance.

Additional expenses related to interrogation costs, ongoing arbitration costs and other nonbusiness-related costs explain the total company margin is slightly below the business segment average. These improvements on EBIT and EBITDA margin are results of our Fit for Grow initiatives and enterprise efficiencies.

This next slide shows our adjusted net income for the quarter. Adjusted net income was a loss of $1 million or $0.18 per ADS. Although negative, net income is trending up on a trailing 12-month basis, driven primarily by revenue growth and corporate efficiencies. And as our top line grows, our fixed cost leverage and financial level will improve, providing 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 given the seasonality of the business. More efficient inventory management, better production planning and strong sales and executive and commercial and the down payments associated with the sales have led to our positive cash flow in the quarter. On a 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 these positive cash flow trends to continue. So today, we are taking the opportunity to increase our 2021 free cash flow guidance to positive $100 million or better. We are very happy that only 1 year after the worst downturn in the aerospace history, Embraer generates positive free cash flow, emphasize not only our 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 $145 million year-to-date, both in line with last year. This is important because it shows we continue to balance the need to invest in our future with the need to preserve cash.

This next slide shows our cash and liquidity position. We ended the quarter with $2.5 billion cash and cash equivalents, a slight increase from the prior 2 quarters.

Our debt balance was at $4.3 billion, with net debt of $1.8 billion. Both are slight decreased from 3 months ago. Our average debt to maturity decreased to 3.8 years.

We expect to continue to generate cash in the fourth quarter and beyond. So our leverage will naturally decrease. We remain focused on generating cash, reducing our debt level and improve our credit metrics. And of course, lower debt levels, we reduce 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 to positive $100 million or better. Guidance in all other metrics remain unchanged.

With that, I conclude my presentation and hand it back to Francisco for his final remarks. Thank you very much.

Thanks, Antonio. The third quarter and year-to-date results reinforce our confidence in our strategy. During the last 9 months, we have just seen the net revenue was up 50% from last year, SG&A expenses down 15% and adjusted EBITDA at 8.9%. All that means, focus and discipline in executing our long-term strategic plan.

In a year of recovery on top of sales and deliveries, the efficiency gains projects have proved to be a key element in improving the company's performance. The updated guidance with a positive free cash flow for the full year shows not only the good momentum of the company, but also the combined focus on the top line and higher profitability.

Regarding ESG practice, we are also making progress on our journey. This quarter, we announced new ESG commitments, which include to be carbon-neutral in our operations by 2040, using 100% energy from renewable sources in sustainable aviation fuel in our own flights. We will also work together with the suppliers in the whole industry to achieve a net 0 carbon emission aviation by 2050, developing products based on sustainable technologies such as electrification, hybrid propulsion and hydrogen.

A final note regarding innovation. This quarter, we were awarded by the largest and most prestigious finance newspaper in Brazil, Valor Econômico, as the most innovative company in the country among all sectors. It is an incredible recognition for all of those who work to make Embraer a face 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.

We thank you all for your interest and confidence in our company.

(Operator Instructions) Our first question comes from Josh Milberg with Morgan Stanley. One moment, please, Mr. Josh.

[Florencia Torres with MetLife], you may proceed.

Congratulations for the results. I have two questions. One is regarding cost. If you are expecting any issue regarding the shortage of supply that everyone is suffering in the coming quarters. Or any strategy in terms of inventories regarding that? The other one is regarding targets on the leverage for next year. We are expecting to back to the 3x level.

So for the first part with regards to shortage, we -- just a moment. With regards to shortage, we -- I would say we are -- for this -- to the end of 2021, we may have some issues, but the material is confirmed. Maybe they will not arrive in time, that's why we still keep a range when we give the guidance.

And for our production planning for next year, we also have the confirmation from our partners, our suppliers. But we are going to follow up on a daily basis because we know that the whole industry is being affected by the shortage.

And what we are doing to some extent, we are also cautiously building up some material, especially where we do see more risks associated with this shortage especially for next year.

And your second question, I was not able to understand. Could you repeat that?

It's about the leverage, Antonio, if we expect to reach a leverage of 3x next year.

We are confident that this year will be net debt per EBITDA around 4, maybe slightly better. And we are confident that we are going to reach the level next year at 3. That's more or less our planning.

And just to remind, 1 year ago, we were at 20. And we should close this year, I would say, 4 or even slightly below. And next year, having no doubt that, we are going to reach the 3. Thank you.

The next question comes from Josh Milberg with Morgan Stanley.

And congrats on the results. I had several questions on the executive business. And just for starters, with that good book-to-bill that you mentioned and the strong backlog, I was hoping you could talk a little bit about the executive pricing environment. We've gotten some input from the industry folk in recent months, suggesting some meaningful upward moves, but it would be good to get your perspective on that.

And as a second question, you mentioned being at the Las Vegas exhibition, and I wanted to see if you could touch on the competitive landscape and if you're seeing any competitor product developments that could pose a threat longer term.

Well, thank you, Josh. So I mean the business jet industry is really -- has been really a good surprise for us -- for all of us this year, right? I mean the business jet industry is growing likely to reach 10% year-over-year in 2021. And this is good for all of us.

We have been doing very well with our team and enjoying this market with a good discipline in prices, so which has helped us. I mean, showing a good result in executive. We do believe -- well, we are sold out until the first quarter 2023, as I said before.

We have a great -- in regard to competition, we do believe we have a great portfolio of products with the Phenoms, Phenom 100, the Phenom 300 that continues to be our best seller. But also doing very well with operators, the 500 and the 600.

We do believe in the market. I mean, in Las Vegas, we do believe that we want to have a soft landing of the demand from 2022 and 2023 onwards with the growth -- average growth to the pre-pandemic levels of 1 digit. But so far, I think we are doing very well in the executive market.

Okay. That's helpful. And good to hear that you sort of -- you see a soft landing, because this is an industry that's seen a number of false starts in recent years. And there's the issue, of course, of how much COVID has been boosting your performance there in the overall industry performance.

If I might just squeeze one more question in on the commercial side. Just wanted to hear a little bit about how your campaigns have been evolving there and how you're seeing the 2022 delivery scenario at this point.

It's still above the executive jet. We have other reasons to believe that this -- the soft landing, I'd say, right? I mean the wealth -- the global wealth growth, the economic activity and the market liquidity. Also the preowned market, that is one of the lowest levels ever, right? We are below 5% in the normal levels, 5% on the fleet in operation. The levels -- normal levels used to be double of that.

And this -- and also now the first-time users and first-time buyers in this market also are good indicators that we are in a different level. It's not that we are growing not only because of the COVID, but there are other reasons for that, right?

Regarding the commercial, we are also optimistic with the market. I mean the new one, 100% of our E175 fleet is already back in service. And this 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 replaced in the next 10 years and our E175-E1 is the only scope-compliant aircraft in production today. So good perspectives for the E1.

And also the rightsizing post COVID is going to benefit our E2s. I mean we have a strong sales activity. I could say that we have a triple-digit number of aircraft under activity commercial discussions. And also, this increased pressure from environment, CO2 reduction, puts our E2 in a very good position as we have the most environmentally friendly aircraft in that category.

So because of that, we are really optimistic with -- also with the Commercial Aviation for the next years.

And you're saying that -- I mean -- and just to add a point here. I mean, on the E2 having this ESG angle, I mean that very sort of angle does not, in any way, kind of pose a threat to the E1 just given 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, I mean, you're highlighting the environmentally friendly driver of the E2, and just wanting to raise the question of E1 being sort of a last-generation aircraft and high oil prices today that, that, in your view does not in any way threaten demand for the E1 just because there are no alternatives?

Well, I think short term is the perspective we have for E1s. But in parallel, we are still working in the new alternatives. I mean the turboprop new generation is one of them. We have seen stronger interest from customers on that project. And everything is going well for a business plan for that aircraft to be approved by the second half of next year. And we consider with the E175-E2 as well. So we have to continue working that project.

Okay. Really appreciate all the perspective.

Just to complement one point here in regards to the planning for 2022. You saw in my speech, we sold 64 commercial jets. And it should be something -- slightly above 60 aircraft for next year, something like that. Just to give you, to memory, to confirming with the suppliers with the customer. But just to give you a perspective, it's more or less where is yourselves next year.

Our next question comes from Ron Epstein of Bank of America.

A couple of questions. So the cash flow in the quarter clearly was good. 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?

Ron, this is Antonio speaking. Thanks for your question. As I mentioned in previous calls, with this, I would say, the cash flow generation on a sustainable base. I would say, in a mid-term perspective, we should be able to show free cash flow, I would say, 50% of our EBIT for the first beginning. That's more or less the $100 million that we are disclosing right now. And assuming the growth that we are in the recovery here, that should be more or less following for the coming years. It's more that our projections are telling us. We are, I would say, quite diligent for investment in new products. You know even into more details and highly focused on cash generation for the legacy business.

New business, we need to find alternatives to not compromise the legacy business we have in the company here.

And if allow me to complement that. Ron, Francisco speaking now. We also continue to work on actions to reduce the inventory, to increase the turnover of our inventories, and to reduce the working capital in our operations. So all of these activities, combined with the growth, will make us to believe that we will continue with this good performance in 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 like a notional target we could think about as investors?

Ron, for sure, to date and no-brainer, we are close to 8.9% year-to-date. That should be, I would say, in the long run, we do see ourselves between 10% to 15%, but it does not mean that we are happy with those numbers, but it's already a good sign for us. It's more or less our long-term planning.

Okay. So if we were to think a range of 10% to 15%, that's a reasonable range, and potentially maybe even higher depending on how things go.

Absolutely. We do see the recovery in the Commercial Aviation slowing down coming back 2023, '24, let's say, it's more value to monetize, but it's going to take longer because of the recovery of the commercial jets.

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 year could -- 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 an order activity front could appear for the E-Jets?

Well, Ron, I think, as I said before, in the answer before, we see good perspectives for the E175-E1s because of the quick rebound in the U.S. market for domestic flights, very good opportunities we have in the next years. In the E2s as well, as I said before, we are working in a lot of our commercial campaigns. In this, this rightsizing post COVID, this increasing pressure from environment, this puts our E2 in a good position.

I mentioned also this first experience -- first experience of the Helvetic Airways in the London City. I mean, many things are happening that we believe we put our E2 house in a good position for next year onwards. We are optimistic with both of those products.

Got it.

Ron, I just want to come back to the EBITDA margin issuance. It's important to mention if you see the Q3 and we try to give you guys information in order that you do the math because we do -- as you know, we have some costs that we are handled in a central way, in the corporation, without affecting the margin of the business units, like the integration of the Commercial Aviation, arbitration costs, and we are still structuring the company. And I would say, we are today, without this, already above 10%. But we are not adjusting because we don't want to disclose those numbers. But without this, we are already above 10% today.

Got it. Got it. Got it. And then maybe just one last question, if I may. On the -- there's been a lot of discussion around the potential of maybe a new turboprop, a new platform. Where does that stand?

Well Ron, as also as I said before, I mean we are seeing a very strong interest from customers, I mean suppliers and also investors in that product. And everything is going very well for the business plan approval by the second half of next year. So we are also very optimistic with the development of this product -- of this new product.

Our next question comes from Victor Mizusaki with Bradesco BBI.

First, congrats for the solid results. I have two questions here. The first one is related to guarantee deposits, right? I mean, we saw a material increase in the third quarter. So I'd like to know if it could make sense for us to talk some of that commercial car delivers for 2022? I mean, if we compare what happened this year with warranty deposits and delivers, if we try to estimate what could happen in 2022, that maybe the company could deliver more than 60 aircraft next year, commercial aircraft?

And the second question is related to provisions. I mean, the write-off that the company booked in the third quarter. When we take a look at the audit figures, we can see a write-off of BRL 33 million. So I don't know if you can give additional details.

Victor, thanks for your question. Let's say, start, from the answer to the provision side. We have some movements in our obsolete materials that we are selling right now. That's why we did an adjustment in Q3. It's not a big issue. It will come back in the coming months as soon as we get the material sold and delivered.

And I would say we do have a chance to be above 60. But we are -- continues to discuss shortage management, especially the suppliers in order to make sure that we will be able to fulfill the cost. The situation is not, let's say, first starting different industry like automotive, but we are seeing right now that, assuming that we are picking up, our competitor are picking up that we may see more restrictions that we are seeing today. But we do have space to be above 60, and we are going to guide -- give a guidance for 2022 in our next call.

And Antonio, if I may, just a quick one. You mentioned some expense with the arbitration process with Boeing. Can you give any kind of update on this matter?

Yes, unfortunately, we are not able -- we are not allowed to give too much detail, and that's why we are not adjusting the cost. Or you could do the math in a different way, but we are -- what I can tell you, we are in the process to continue, and next year would be more or less, I would say, a kind of important year for the arbitration. But it's going to take more 2 years, I think.

The next question comes from Marcelo Motta with JPMorgan.

Two questions as well. First, if you guys could provide any update regarding EVE and the eVTOL business. I mean we all know the material fact that the negotiation is going. So just wondering how you guys feel about the negotiations, if there have been any bottleneck or anything that might be leading to a lower-than-expected conclusion for that.

And the second question is regarding Services & Support. I mean the segment continue to show a very strong growth, continue to have solid margin. You announced several agreements during the quarter. So just wondering if you guys can provide us some expectations on how much this line could grow or how much those new agreements have been adding to revenue or how much they could add in revenues in the midterm.

Thank you, Marcelo, for the questions. The first one regarding EVE, what I can tell you is that negotiations with our partner, Zanite are ongoing. But we cannot comment further. The company will keep the market informed of any relevant developments of this operation.

About the second one, yes, you are right, I mean our Services & Support area is doing very well. It's enjoying the return to operation of our aircraft, both in commercial and executive business. And we have -- yes, we have good plans to grow further in that area, not only with Embraer aircraft market, but also in the non-Embraer aircraft market. We have, as we said in the previous call, we signed an important contract with Pratt & Whitney for the GTF engine maintenance in Portugal. It's a multibillion contract. And this will allow us to grow that operation in Portugal, almost triple the revenues in the next years, and this will help our service at Embraer as well.

So again, we hve very good perspective and opportunities to grow our Services & Support area.

Two digits growth...

Yes, two digits growth, every year, exactly, for the next 5 years.

The next question comes from Noah Poponak with Goldman Sachs.

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, how -- what do you want that lead time to be on a sustainable basis?

Noah, thanks a lot for the question. I mean, as I said, well, we are sold out through the first quarter 2023 actually. So our team is doing a great job enjoying this good momentum in the market. So we are still -- we are working this production plan for next year, but we do believe it is still in another 2-digit growth for next year.

And as I said before, we believe in a soft landing of the demand from '22, 2023 onwards. I mean, with a growth average closer to the normal pre crisis, that there would be 1-digit growth. And because of many reasons, as I said before, the wealth growth, the pre-owned fleet and the new users and new buyers that are coming to this market. So this is our view on the executive market.

Okay. So you're planning for double-digit growth in units 2022 versus 2021?

Correct.

Can you tell us what -- do you happen to have the number on the exact book-to-bill in executive in the quarter? I know you said it was over 2, but if you just happen to have that precise number, that would be helpful.

As I said before, it's in excess of 2:1, the book-to-bill.

Okay. And just to confirm the cash flow conversion target you're referring to, 50%. That's EBITA, E-B-I-T-A as opposed to EBIT or EBITDA?

Noah, for the first beginning, EBIT operating results, 50% commercial. For the first beginning, recall regarding, merging, with upside quotation. But I do see today in a short term 50% what we generate in regards to EBIT, not EBITDA.

50%, 5-0 free cash flow to EBIT?

Yes, because we are still having a higher interest cost in our company. We was a company 2, 3 years ago $6 billion revenue. Today, we are at $4 billion revenue. And we still have this issue of being able to generate enough, I would say, business size in order to be able to compensate the interest. That's why I give you, for the time being, these metrics. But I promise you guys, I'm going to refine this number for the next call.

The next question comes from Jack Ayers with Cowen & Company.

This is Jack on for Cai today. I guess just previously following up on the margin commentary, it looks like your guide implies EBITDA margin improving sequentially from Q3 to Q4. 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, biz jet, I think your guide implies Q4 biz jet deliveries sort of expanding here in Q4. If you could just provide some color around the key sort of moving pieces around margin 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 would be great.

Thanks, Jack, for your question. If you see today our year-to-date either EBIT or EBITDA margin, we are at, I would say, at the high end of our guidance. We do see for Q4 highly driven by Executive Aviation, because we do have, I would say, more or less 40% of the delivery is going to happen in Q4. That's the first point.

Commercial Aviation is more or less close to breakeven. Then Services & Support, also then with upside potential. We do have difference at the same level.

But we are cautious on the EBITDA and EBITDA margin guidance because we are still negotiating with Brazilian air force, the contract -- the current contract of the KC. We may have some risks that I don't want to say -- saying that we are going to improve it because we still have a challenge here to end of this year. That's why we decided to keep the EBIT and EBITDA guidance at the same level. For sure, today, we are much better, in the high end, but we do have a challenge to end up this fiscal year.

In regards to the backlog, defense on the quarter, we have, I would say, added no new contracts in defense. In just a moment here, the U.S. Defense and Commercial. In commercial, we added the 15 SkyWest that we booked in Q3 on the backlog.

Got it. Got it. And then I guess just as a follow-up to cash, it looks like you're increasing your cash guide for full year. What about '22 cash, like how we should think about that growing off of this '21 base? And is that really just a function of volume and deliveries?

Yes, we do see for next year all [cities] range between $100 million to $200 million. I don't have to give our guidance right now. But we -- assuming that we are coming back to, I would say, not pre-pandemic level, but it's likely below the pre-pandemic level, we should be able to keep between $100 million to $200 million because we continue in the efficient problem is not only driven by delivery itself, but everything you are doing with regards to inventory management, purchasing, improving the working capital, we still have, I would say, a potential to improve this figure that we are seeing right now.

The next question comes from Matías as Vammalle with BlueBay Asset Management.

I think a big part of my questions have been addressed, but just piggybacking on the most recent one. Again, just trying to think about working capital into next year as I see some offsetting forces on the one hand. You have fairly low inventory levels right now, and we're seeing increases in 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 drag on working capital. On the other hand, you're seeing better contracted liabilities. So again, just trying to understand perhaps the different push and pull dynamics of your working capital. If you could just comment a little bit on, again, your expectations on inventories kind of going forward. And if you think that can be offset by other work.

Thanks for the question, Matías. And this is a good opportunity to meet -- to share with you guys those other activities we are doing.

So first of all, our 5-year plan is focused on the sales of the existing product portfolio. And we do have, as I said before, the potential to almost double the revenue of the company in this period, focusing on the existing portfolio of products.

Last year, we went through an important rightsizing program of this company. And also, we started to focus on important initiatives to reduce the cost of our aircraft to focus on improving our accounts receivable and to increase the turns of our inventories. We have the target to almost triple the turns of our inventory turnover in the next 3 to 4 years.

So again, I mean, with all these activities, rightsizing the company, to reduce the cost of the products, to reduce the expense, to manage responsibly the SG&A of the company, going to a period of more growth that we expect from 2022 onwards, then we expect that we'll improve our financial performance, either in the profitability and more specifically in the cash generation as well as stated by Antonio before.

Just to complete, Matías, if you ask me today, we continue in the crisis mode here. We know about inflation -- high inflation in Brazil or worldwide, with how much is reduced. We are -- we have the contracts backing in regards to (inaudible), I would say. And we continue to run efficiencies in our production or back costs in order to offset any additional deviation we may have.

The next question comes from Nicolas (inaudible) with Jefferies.

Congratulations on the results. Just a quick one here on the rating agencies. After these strong results, the strong recovery, it's notable to us that the 3 agencies still have you on negative outlook. Doesn't seem to make any sense. We actually think that there's a credible path here back to investment grade. So just wondering what's the latest in terms of conversations with them, timing with the agencies.

And then on liability management, you guys mentioned 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?

And 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 bonds. So is that something that you guys are already starting to think about?

Nicolas, thanks for the question. I start with the rating. We just take, for example, Fitch. We are 1 notch below investment grade. The last week, the report this year, then this was negative. They already changed it to stable. And I do believe we are going, with the new information we are providing, they are going to put in the positive trend. And it's my hope that we get back our investment grade in 2022, most probably end of 2022. That's the first question.

And for sure, we are with regards to universal liability management, we are discussing, and Q3 will be the basis for the debt market to go to refinance our debts and increase the length for maturity level. That's also in our agenda. And these bonds will be a red ESG bond, a green bond.

This concludes today's question-and-answer session. That does conclude Embraer's audio conference for today. Thank you very much for your participation, and have a good day.