Eve Holding, Inc. (NYSE:EVEX) Q4 2023 Earnings Call Transcript
Eve Holding, Inc. (NYSE:EVEX) Q4 2023 Earnings Call Transcript March 8, 2024
Eve Holding, Inc. beats earnings expectations. Reported EPS is $-0.14, expectations were $-0.23. Eve Holding, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings and welcome to the Eve Holding, Inc., Fourth Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Lucio Aldworth, Director of Investor Relations for Eve Holding. Thank you. You may begin.
Lucio Aldworth: Thank you, Operator. Good morning, everyone. This is Lucio Aldworth, the Director of Investor Relations at Eve, and I wanted to welcome everyone to our fourth quarter 2023 and full-year earnings conference call. I have here with me our CEO, Johann Bordais; CFO, Eduardo Couto; and our Chief Technology Officer, Luiz Valentini. After their initial remarks, we're going to open the call for questions. We have a deck with a few slides and additional information on our website at ir.eveairmobility.com, so please feel free to download it and tag along. Let me first start this presentation by saying that it includes forward-looking statements or statements about events or circumstances that have not yet occurred. These are largely based on our current expectations and projections about future events and financial trends affecting our business and our future financial performance.
These statements are subject to risks, uncertainties, and assumptions, including, among other things, general, economic, political, and business conditions, both in Brazil and in our market. The words believe, may, will, estimates, continues, anticipates, intends, expects, and similar words are intended to identify these forward-looking statements and we undertake no obligation to update publicly or revise any forward-looking statement because of new information, future events, or other factors. With that, the future events and circumstances discussed in this presentation may not occur and actual results could differ substantially from those anticipated in our forward-looking statements. With that, I wanted to turn the presentation over to Johann.
Johann?
Johann Bordais: Thank you, Lucio. Good morning all, and thank you for joining us for this call today. We had a very busy 2023 year with several important achievements. And among the milestone last year, I would like to highlight the one that the most directly influenced our program. Starting with the selection of our suppliers and the signing of the binding contracts, which define technically all the specifications for each of the components as well as all commercial aspect with the volume and the unit price, including by the way, aftermarket support conditions. We defined the architecture of our eVTOL in June of last year with the definition of the flight critical components like the electrical motors, the energy management system, the propellers, especially when it comes to the dimension and the requirements for the subsystem of each of these parts.
This enabled us to start the building process of our first full-scale non-conforming prototype. As a reminder, I would like to say that we have a unique approach that was [indiscernible] by Embraer proven methodology. We test the system and the components independently and only then we incorporate them in the design once we find an optimal configuration. This allows us to quicker -- to be quicker and efficiently involved with the design and reduce the program development schedule, but also the cost. So up until the initial assembly of the prototype we already had tested individual system with the rigs under different conditions and configurations. We also started the September -- the Joint Definition Phase, what we also call internally the JDP.
This is when our engineer interacts closely with their counterpart of the suppliers we have selected to go over all the details and how each component will work and interact with each other for a seamless and integrated system. I'm going to give you an example here, I think it's a little bit more concrete. During the JDP, where the team we'll define the multiple sensors and which will feed the airspeed data, temperature, relative humidity into the avionics and how the flight control system will interpret the data in order to control the flight surface after the pilot command. This of course will be supported by the fly-by-wire system that we are putting in place. So as you can see, it is a very complex task that involves several different processes impacting each other with a lot of moving parts and interactions.
So the focus here is to design the systems to work seamlessly and safely. Now going to Slide 3. It shows us the latest development and includes the five-day exercise that we conducted in the UK to test the Urban Air Traffic Management, the ATM software with the partner FlexJet, Halo. It was used to validate and refine the software. We deployed it in parallel with the incumbent software that they already have in operation -- right now in their operation, but to simulate all typical functions in the Air Traffic Management operation. We successfully run some tests under normal conditions, but also under different conditions, which is such as the delay, the bad weather, and it was a very concrete operation and we could learn from it, and, obviously, just make the software better afterwards, so quite excited about this.
Now moving to the next slide, a couple of slides. We have -- we're bringing here several pictures that we just took from the test facility in Gaviao Peixoto in Brazil, in State -- Sao Paulo State, where you can see the process of our full-scale prototype. You can see the harness, which are the all electrical and electronic connectors that we will place soon inside the wings and the empennage. These also carry all the information and the comments back and forth between the flight computers, sensors, and actuators. You can also see the early stage of the structure and the fuselage, the wing, the detail of the vertical stabilizer of the empennage. If you go to the next slide here, which show you the prototype is getting really the final stage.
We have positioned the wing and the empennage in the fuselage. We call it internally the junction, but also, even like in a nice way, we call it a marriage, just the marriage between the fuselage and the wing. We now still have to install the actuators, the control surface on the wings on the empennage, and the composite of the skin of the eVTOL, which we expect to be concluded in the next few weeks. And once we receive the electrical motors, also in the second semester, we'll perform the necessary ground test and we plan to start the test fly campaign later on this year. Going to Slide number 6. Now this is showing you here the latest additions to our component suppliers list, which we will start to use for the first of our five conforming prototypes.
Since the third quarter 2023, we have announced several suppliers. We have selected the FACC to provide the control surface and empennage; Aciturri, a Spanish provider for the wings; Crouzet for the pilot control, we call it also a joystick; and then we also have signed deal with Thales for the sensors and Honeywell for guidance and navigation; and lastly Recaro for the seats. These new suppliers are actually joining the select group of the industry leaders of our eVTOL. Really important to highlight here that we have the best-of-breed approach to bring suppliers with their expansion, aviation, and certification, and importantly, will support us in the certification campaign and throughout the eVTOL lifecycle, not only for the certification and delivery, but also in the lifecycle process.
Lastly, these contracts will have defined the price, the quantity schedule with a scale function with reduction of the unit price as we reached the higher eVTOL volumes out of our production site, which will reduce the unit price of production, as we call economy of scales. These lates suppliers join Nidec to supply the electrical motors, the BAE that we already informed early on in 2023 for the energy management and DUC Helices for the propellers. We had also signed the Embraer for the Eve's flight control computer, the FCC and systems, and with these fly-by-wire capabilities. Embraer will also assist us in designing, developing, and manufacturing all flight control hardware systems and provide support for certification. Garmin will supply also the fly deck with the high-resolution display of the flight deck and integrate the aircraft management with the flight control system.
We also selected Liebherr for the flight control actuators and Intergalactic to provide us the thermal management system for the equipment. We still have few suppliers to select, but as they're not that critical for the aircraft performance like the transparencies, the cabin interior, we expect to conclude the selection process very soon. Okay, looking at the list, which is obviously increasing, we're not up to 90%. I'm very confident that the level of safety and the certifiability and performance of our eVTOL. Moving on to the Slide 7, it shows that we are in an entire -- what we are in entire master development phase. As I mentioned before, we're currently in a joint definition phase to detail all the interface to link the different system and make sure that they integrate altogether.
This phase also includes the system of our manufacturing process as well. As a reminder, we have already selected our manufacturing site a few months ago. The site is currently being used by Embraer, but we will start soon to customize it to our own need later on this year. At the current pace and judging by the progress of the assembly of our prototype, we're in really good shape to receive the certification, the Type certification and make the first delivery still in 2026. Moving on to the Slide number 8, it shows that currently what we have to believe is to be the largest and the most diversified backlog by number of customers, but also by region, by diversity in the whole industry today. In total, we have announced LOIs for 2,850 aircraft from 29 different customers spread over 13 countries and different businesses.
From the main lines to the regional airlines, to helicopter operators, ride-sharing platform, the leasing company, as you can see, it's very complete. We’ll also have LOIs to offer our Urban Air Traffic Management system for 14 different customers and we also -- we believe that this reflects the market-leading value proposition that we bring to our customers and our partners. Beyond this, we're developing a strong network of partners in the area, such as the infrastructure energy to address one of the main challenge that we have in industry and the air mobility, it's really to create the whole new ecosystem besides the simple development of aircraft. And important -- and nothing more important than the vehicle, and obviously to me it's [really dear] (ph).
It's also we're securing the contracts with 10 different customers for the maintenance, repair, overhaul for service and support. That will bring back about up to $660 million in revenues for Eve, over the course of the next five years -- actually five years from the delivery -- the first delivery in 2026. Importantly, these customers have placed LOIs and they represent 985 aircrafts, okay, and which is about 35% of our order book. So we can potentially expand this business within this customer base that I didn't mention about the 2,850 aircraft. Because those are agnostic also, that means that we potentially, we can service the eVTOL of our competitors, service revenues could proceed actually aircraft sales. We believe that our pipeline is and the services for the vehicle, but also service and support contracts offer a strong long-term revenue visibility, and it will help Eve to smooth the cash flow consumption in the years to come as we start converting the existing letters of intent into orders and collect the pre-delivery payment known as PDPs. Now I'd like to invite Edu to go over our financial and the next milestones.
Eduardo Couto: Thanks, Johann. Now moving to Slide 9. Eve is a pre-operational company developing its eVTOL and the ecosystem around it. Currently, our financials reflect mostly the costs associated with our program development. With that in mind, I want to highlight some of our 2023 financials. Eve had invested $34 million during the fourth quarter 2023 in our program development and $106 in the full year. The majority was invested to develop our eVTOL and a smaller portion went to our service and support solutions and the Urban Air Traffic Management system. We are the only eVTOL company with a complete solution that includes design, development, manufacturing, and sale of an aircraft, as well as maintenance services and air traffic control software.
We also deployed $5 million in SG&A during the quarter and $23 million in the year. Including R&D and SG&A, we reported a net loss of $39 million in the quarter, and $127 million in the year. Now moving to cash flow, our operations consumed $25 million in the quarter and a total of $95 million in the year. We ended the fourth quarter with $241 million in cash, down just $15 million from the third quarter 2023. As we also drew around $15 million from the preapproved credit line with the Brazilian Development Bank. We still have around $75 million available from this line that we expect to access still in 2024. Eve is highly comfortable with its total liquidity of $316 million as of the end of 2023, and believe our current liquidity would be enough to sustain our operations into the end of 2025.
It's important to say that we anticipate an increase in our cash consumption in 2024 as we intensify our development with different rigs to test systems and components, wind tunnel tests to validate our models, and now we're assembling our first full-scale prototype, and have selected most of our suppliers, which involves higher payments going forward. Now moving to Slide 10 with a checklist of our previously announced milestones. I'm happy to say that we have either met or exceeded our milestones for 2023. We selected the primary suppliers for critical components of our aircraft and froze the configuration of our eVTOL around the first semester of last year. And as Johann showed a few slides ago, we are advanced in the assembly of our first prototype.
We have also successfully conducted a trial run of our UATM software under real-life conditions in the UK late last year. And lastly, we invested $95 million in our program during 2023, which is lower than anticipated than our guidance of $130 million to $150 million range given the three main factors: First, our continuous discipline on cost control as a pre-operational company; second, we managed to extract savings from synergies with Embraer; and third, we moved some of supplier payments from 2023 to the years ahead. The last slide lays the upcoming milestones for 2024 that includes the conclusion of our full-scale prototype and initial tests. In parallel, we expect to conclude the basis of certification and means of compliance with the Brazilian certification authorities.
It's important to remind we have Brazil as our primary certification authority that we work in alignment with the FAA to achieve the dual-type certificate in Brazil and in the US in 2026. We also start working in preparation for our first eVTOL manufacturing plant in an existing site of Embraer in Brazil. We're also working to secure the necessary funding through a long-term financing to this site. Finally, for 2024, we expect all of our efforts to consume between $130 million and $170 million in cash this year. With that, we conclude our remarks, and I would like to open the call for questions. Operator, please proceed.
Operator: Thank you. [Operator Instructions] Our first question comes from the line of Savi Syth with Raymond James. Please proceed with your question.
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