Eve Holding, Inc. Q3 FY2024 Earnings Call

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 third quarter 2024 earnings conference call. Our CEO, Johann Bordais, and CFO, Eduardo Couto, are joining me on the call today. And after their prepared remarks, we will open the call for questions, at which point Luiz Valentini, our Chief Technical Officer, will also join us for more technical questions. We have a deck with a few slides and additional features that show our achievements in the quarter, as well as a testing phase of our full-scale prototype. The deck is on our site at IR.eveairmobility.com, so please feel free to download it and follow along. Let me just start by saying that this presentation 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 forward-looking statements. We undertake no obligation to update publicly or revise any forward-looking statements 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 will now turn the presentation over to our CEO, Johann.

Thanks, Lucio. Good morning, everyone, and thank you for joining the call today. We had an eventful third quarter. We continue to advance the development of our program and reach important milestones. As a reminder, we completed the assembly of the prototype and rolled it out of the hangar for the first time back in July this year, and we have started to test the vehicle ever since. This is a full-scale engineering prototype with no cabin and cockpit. It has been made of composite material that will be piloted remotely in the command and control truck. This prototype will be used to validate and improve the accuracy of previous subscale and computer models and will also serve to build on the several rigs that we have for different individual components. We have installed the batteries and already performed various tests, which we will be talking about later on in this presentation. We are now preparing for the prototype to start the flight campaign. We expect to start receiving the lift motors by next month in December, so the flight test can start early next year. We will initially perform hover flights tied to the ground and gradually increase power and height. Then we'll move to the partial transition; this is when we engage the pusher without fully disengaging the lifters to continue controlling the aircraft originally. And only then will we move to the full transition flight. Another important milestone was the publishing of the base of certification by ANAC, the Civil Aviation Agency, which establishes the standard eVTOL requirements we will have to respect in order to fly commercially. And for the FAA, they published the SFAR in the United States, which we view as supportive to the industry. Because we're working closely with both flying agencies, we continue working on the constructive path to certification. Now on the services side, we launched the Eve TechCare, which is a fully integrated portfolio that includes all services for maintenance, logistics of spare parts, flight hour programs for pilot and mechanic training, and customer support. Last but not least, we conducted a successful five-day simulation of Vector, our air traffic coordination software, in Sao Paulo with very positive feedback from Revo, our partner and customer. Revo also indicated interest in the use of Vector flight operations for both the eVTOLs and their fleet of helicopters. Now, moving to the next slide, we are advancing with several tests in our engineering prototype. We completed the battery installation, and because our prototype has removable carbon fiber panels, this isn't an easy process. The panels are easily detachable to give engineering access to whatever part needed for maintenance or any services. And of course, the panels can then be easily readjusted and reinstalled. So with the battery on, we conducted high and low voltage tests to ensure that there is no leakage in the system. We also executed successfully the thermal runaway containment test in our energy pack. The goal here was to demonstrate the containment of a thermal-runaway event. As I mentioned before, we expect to receive the lifter motors in December. They are currently being assembled and tested. These include the motors themselves and the electronic components that will control each motor's thrust. Moreover, we are conducting auxiliary load tests in the tool boom section with different blade configurations and different shapes to maximize the performance equation, which is the thrust versus the energy consumption and vibration, as well as the noise emission. We have also integrated multiple systems of the eVTOL to make sure that they all operate smoothly amongst each other. Lastly, we integrated the command and control truck to the aircraft. The truck will house the pilots and the team of engineers who will measure and monitor several operating metrics during the flight. The truck is designed to track the eVTOLs during the test flight and is equipped with several sensors and cameras strategically placed throughout the fuselage for real-time flight performance data that are visual and diagnostic. The goal is to guarantee that all systems are working perfectly together. On the following slide, it shows some cameras that we just talked about and also the outside view of the truck. On Slide 9, we're glad to see that the certification environment is taking shape as well. The Brazilian Civil Aviation Authority, ANAC, just published the basis of certification for eVTOL in the country. This is an important milestone for the eVTOL industry and will allow us to progress towards ANAC type certification and seek validation with the FAA in the US. In parallel, the FAA issued a Special Federal Air Regulation, the SFAR, that details the final rules of advanced air mobility and covers the eVTOL. In general, we view these announcements as supportive of the industry. We're currently analyzing the 880-page technical document to evaluate the impact on our aircraft development and operations. The ANAC basis of certification establishes the first set of operational criteria for eVTOL in Brazil and follows Eve’s application for TC back in 2022. It is a standard process for developing a new certification basis and an important milestone in the project. Eve has progressed in eVTOL development in 2024; the publication of the certification basis by the Brazilian Aviation Authority in October is an important milestone, establishing the essential guidelines for eVTOL certification activities in the coming years. Eve can now advance the definition of the means of compliance by the Brazilian authorities and validation strategy with the FAA that will guide further detailing the vehicle and the flight test campaign. Our current path to certification includes the first flight of our engineering prototype in early 2025, followed by several flight tests for knowledge gained, and we will initiate the assembly of our conforming vehicles next year. With the first conforming prototypes ready, we expect to start our final development and certification flight test campaign in 2026, which will typically take 12 to 18 months to be completed, leading to an expected top certificate issuance in 2027. We believe that this is a realistic and achievable timeline based on our experience from previous programs. Now, moving to the next slide, we show here some highlights of our recent announcement on the customer services part of the business. We especially announced Eve TechCare, an all-inclusive portfolio of services and support to our customers aimed at increasing eVTOL availability and reducing operating costs. TechCare includes services such as health monitoring to run preventive maintenance and schedule eVTOL downtime and maintenance schedules, which will allow us to optimize the inventory management of components. The system integrates operators, suppliers, and service centers into an easy-use interface. We are also going to offer advanced training for pilots, maintenance crew, and ground handling personnel that will be powered by the JV between Embraer and CAE Training Services called ECTS. This is a long-standing and successful partnership with excellence in training for global operations since 2007. I believe the TechCare and Vector showcase our holistic view of the UAM market since the beginning and how it adds value to our customers as the industry scales. I have no doubt that this is one of Eve's most distinguished differentiators; we look at UAM as a complete approach. On the following slide are some additional details of our latest Vector simulation in São Paulo. We ran a five-day real-life exercise in one of the busiest helicopter markets in the world with our partner and customer, Revo. We used Vector to shadow and monitor a total of 45 helicopter flights that carry 100 paying passengers and average 8 to 10 minutes each. This is precisely the urban air mobility market that we're targeting. The exercise included operations in various scenarios including delays on departure or arrival, airspace weather constraints, in-flight deviations to alternate landing locations, and more. The goal was to validate the algorithms and protocols that are necessary for the eVTOL to conduct safe and reliable operations in high utilization use cases. This is the second exercise that we've conducted; the first one was in the UK about a year ago. Now, on to Slide 10, here's the total pre-order backlog visibility where we stand now with approximately 2,900 aircraft for a total value of $14.4 billion based on the list price. These are the non-binding letters of intent from 30 different customers spread over 13 countries in various businesses. We also have LOIs for Vector from 16 customers and secure contracts with 15 different customers for our TechCare suite of aftermarket products and services. This could bring up to $1.6 billion in revenues to Eve over the first few years of operation. Now I'd like to invite our CFO, Eduardo, to go over our financials, along with the milestone checklist.

Thanks, Johann. Now moving to Slide 9. I want to start with our most recent liquidity events. We have been very successful in attracting new capital at Eve to continue funding our development. In total, we raised $236 million since July in a mix of debt and equity. We believe that this balanced capital structure will maximize value for our shareholders. Our pro forma liquidity of $445 million in the third quarter 2024, including the industrialization and bank loans, is equivalent to three years of Eve's current cash consumption, which is above our peers and gives us confidence to advance the program to certification. Now at Slide 10, Eve is a pre-operational company, with our current financials reflecting mostly the costs associated with our program development. That said, I want to highlight some of our numbers. Eve invested $32 million during the third quarter in our program development, as R&D activities continue to speed up with more headcounts and high engagement from suppliers. We also deployed $9 million in SG&A during the quarter, reflecting a bigger workforce. We have been controlling corporate expenses to focus our resources on eVTOL development. Higher development expenses in the third quarter were partially offset by interest revenues from our invested cash with tier 1 banks and the mark-to-market gains of our warrants, resulting in a net loss of $36 million in the third quarter 2024. Moving to cash flow, our operations consumed $34 million in the quarter and $101 million in the first nine months of 2024, which is in line with our guidance. It's important to highlight that we drew half of our cash consumption or around $50 million from our pre-approved credit in line with the Brazilian Development Bank, significantly preserving our cash position. We ended up the third quarter with $280 million in cash, which is $73 million more than the previous quarter, due to the new equity raised in July. We still have approximately $25 million available from our R&D standby loan resulting in a total liquidity of $305 million. Adding both the new industrialization finance and the bank loan recently announced in October would increase our total current resources to $445 million. At Slide 11, we remain on track to deliver our milestones for 2024. We presented our assembled eVTOL in July and started several tests ahead of our first flight. In parallel, ANAC published the basis of certification as Johann already described, and we secured the manufacturing finance for our Brazilian Vector in October. We have consumed $101 million so far this year and expect to reach our guidance of $130 million to $170 million in cash in 2024. The higher Brazilian currency versus the US dollar has been helping us to stay at the low end of our guidance as we have a lot of development expenses in Brazilian currency. With that, we conclude our remarks, and I would like to open the call for questions. Operator, please proceed.

We will now begin the question-and-answer session. The first question comes from Savanthi Syth with Raymond James. Please go ahead.

Hey, good morning everyone. I appreciate all the details on what's been accomplished so far. It looks like maybe the updated outlook in terms of type certification may have slipped a little bit, maybe from the end of 2026 to 2027. I was curious about what was driving that and any implications for the timing of some of the revenue that could come in, like PDP and other revenue sources before type certification.

Alright, Savy, thank you so much for your question. Johann speaking here. As we mentioned during the presentation, we made some significant progress in the eVTOL development this year, including steady progress of the full-scale prototype, as we showed in several pictures, and several design advances with critical suppliers. We're just also coming out of a phase, which is joint definition with our suppliers that see and test each of the components, but also the integration of those components together. We went through multiple wind tunnel tests, and as we know, it's always challenging technology. At the end of the day, we want to bring the best value for our customers. Our goal is not to be the first one. For the last 13 months that I've been on the job, that's what I keep saying. I mean, we're not focused on being the first one. We're focused on being the right choice for our customers. The goal is to introduce a mature and reliable product that will be capable of meeting and exceeding the expectations of our customers. Given all that, the path to certification includes the first flight of our engineering prototype that we've been mentioning since we rolled out last year, in July at Farnborough. Of course, we have to be ready for the first flight, but it's not just about getting ready for the flight. It will be beneficial for everyone, and that's what we want. But we want to be ready also for the entire test flight campaigns. This will be in early 2025 for the first flight of the engineering prototype. Of course, we want to gain knowledge and will also start to assemble the initial conforming vehicle. Once we have the conforming prototype ready, then we will start the flight test campaign of the conforming prototype in 2026, which we know from our experience that it typically takes about 12 to 18 months to be completed and leads us to certification in 2027. As you can see, personally, I see this as a normal update for a very innovative and challenging program, given that now we have better visibility with the next steps.

In terms of the PDP, Savy, as I mentioned, it's Edu here. We are super engaged with our customers; they remain super supportive of Eve. They are excited, right, because we are advancing, and we are bringing them into this development. We are making sure that we are creating the right vehicle that the customers really want to operate. As we advance on those conversations and negotiations, we expect to start to firm the LOIs, right? We have almost 3,000 LOIs, with many customers engaged. We believe we're going to start to firm the LOIs very soon. Once we firm the orders, of course, there will be bigger down payments. There is a PDP schedule. So everything is normal; nothing has changed. We remain excited and are moving forward.

I appreciate the context. Regarding the $80 million to $90 million for the production facility, what is the timing for that capital expenditure? I'm aware that financing is secured, which isn't an issue. I'm interested in the timing and its implications for cash burn. You've mentioned in the past that cash burn will increase next year, but not significantly. Do you have any preliminary thoughts on cash burn into '26?

Yes. We secured the finance for our Brazilian facility. It's around $90 million. It's a very long-term finance. We're talking about 16 years, with a four-year grace period where we don't pay any interest and no amortization. So that's the type of finance that fits very well with our company and profile. The peak of the investments in the facility will happen in 2026. There will be investments next year, probably around $20 million, but the peak is in 2026, as we get closer to certification and enter into service. So that’s the profile, Savy.

Okay. So we should expect a similar maybe and a little more step-up in R&D as well for next year. So those are the two things that will drive the step-up.

Yes. This year, as I mentioned, we are burning around $130 million to $140 million. Next year, it may go up a little. In '26, it will likely be flat compared to '25, and that's pretty much where we may end up.

Very helpful. Thank you.

Hi everyone. Good morning. I have two questions on our side as well. Just a follow-up on the Taubaté plant. You comment on the release; you have half a module, one module, two modules. When we think about the CapEx that you guys comment about $80 million to $90 million, this is like what size exactly is the $120 million? Or can you go up to the $480 million? And then for the additional models, if that is the case, what is the additional CapEx there? Finally, second question on liquidity. Of course, you have a comfortable position for the next three years. But just wondering, given what happened to some peers in the industry, if you think about strengthening even more your liquidity in the short term, just to have a bigger cushion of cash if necessary? How are you guys thinking about new credit facilities? Or how should we think about that? Thank you.

Thanks, Marcelo. First, regarding Taubaté, our eVTOL facility, this $80 million to $90 million that we got is most of the investment that we're going to be making. With this $80 million to $90 million, we can secure half of the capacity, or 240 eVTOLs. To reach the full capacity of $480 million, we may need to add an extra shift and also put in some tooling and extra machines, which could require another $30 million or $40 million. However, most of the investment and half of the capacity, which is 240 eVTOLs, we already secured with the finance we have, giving us a lot of comfort. As we said from the beginning, we have this project together with Embraer that's very efficient in terms of capital investment. We hired engineers from Embraer and pay them only when they're working for us. Once their work is completed, they return to the Embraer pool. In terms of industrialization, we are using an existing facility of Embraer. We're just buying the tools and machines, and it's a very efficient approach. This is the reason we spent $80 million to $90 million while some competitors are spending hundreds of millions solely on industrialization.

In terms of liquidity, we feel super good. As I mentioned in my presentation, we closed the quarter with $450 million in liquidity, our highest ever. Eve has never had so much cash on its hands. We, as I said, control costs very seriously and focus our resources on development, which gives us almost three years of runway, the longest in terms of cash consumption in the market among all peers. We're feeling good. We have money for the years ahead. We're not planning new capital raises, but we are always evaluating. At this point, nothing is on the table; we are not looking for new funding in the short term.

Perfect. Thank you very much.

Hi, good morning everyone. Congratulations on the quarter and thanks for taking our questions. I wanted to touch on the SFAR regulations. You mentioned that this is supportive. I'm curious what you see as the #1 or #2 most supportive regulation, as it pertains to Eve or the eVTOL industry. What do you think is most significant?

Yes, good morning, Andres, this is Luiz Valentini. Thank you for the question. First of all, it's important for us to have the rules clear. We were with the draft of the SFAR for around a year, and it's very hard to develop the project. It's the same for us as for the rest of the industry. It's very challenging to move ahead at the pace that we are going without having clarity on what the rules will be. So having the final document out is beneficial for us to really have the rules in hand to be able to discuss with the authorities and set up our operation, including vehicle operation with the operators that we work with. I can specifically mention, for example, the issue about training. In the original draft of the SFAR, it was mentioned that flight hours would be required with an instructor on board, which would necessitate creating specific vehicles for training since our vehicle has only one command position per pilot. The final version of the SFAR now states that flight hours for training still need to be completed, but these do not have to be in dual-control aircraft; pilots can train in the simulator and then use the vehicle with an observer on board, while that observer does not necessarily have to have control. This simplification was a good move, and we believe it was a request that the industry made to the FAA to evolve the training requirements.

Got it. That's very helpful. I appreciate all the context. And as a quick follow-up: With certification now expected in 2027, I’m trying to understand what is driving that shift into 2027. Understanding that the test flights will ramp up in 12 to 18 months, but from a regulatory perspective, what are you seeing from ANAC and the FAA that makes it seem like certification is more realistic in 2027?

Yes. As Johann mentioned earlier, we believe that this is a timeline that fits our development. Together with the publishing of the certification basis last week by ANAC and our flight test program, which includes the first flight of the engineering prototype at the beginning of next year and then our conforming prototypes in 2026. We believe that this is a robust timeline that we can follow, considering all the challenges and novelties involved in this project. We are building on the experiences of Embraer in creating these timelines and establishing the process for vehicle development. However, we also have new technology that's being introduced and new requirements. We just mentioned the SFAR, in addition to the certification basis. All of these factors together shape the timeline that we just published as the more realistic one in our view.

Hi, how are you? Congrats on the quarter, guys. I wanted to fine-tune this a little bit because there's been a lot thrown out there and appreciate the additional funding. When we think about the flight test program and final development kicking off in 2026, does that mean with another 12 months to 18 months to complete it that EIS has pushed out about 1.5 years? Is that fair to say? And is that what's driving the additional funding?

Sheila, thank you for the question and the comment. But no, it's not 12 to 18 months, no pushout. No, it's really from '26 to '27. We're not timing to this stage, but we have to count on '27, and it's not again, it's up to 12 months pushback. That’s what we're looking at.

Okay. And then just on the LOIs: Obviously, we don't expect that to really move until you get closer to EIS, but they're flat from last quarter at 2,900 aircraft, but services revenue is picking up, up 30% Q-over-Q to $1.6 billion in the backlog. So just curious how you're selling that to your customers and how we should think about that shift in customer conversations as you build a lifetime revenue model.

Yes. We currently have 2,900 aircraft under LOI. This strategy has been developed over the past four years. We're traveling globally to showcase our solution. This approach emphasizes not just the vehicle, but guarantees the availability of the aircraft and the optimized operating costs as the key to success, especially at the beginning. We are focused on increasing the service in a few cities, making it operationally efficient, and then replicating this model as much as possible. Our portfolio that we're creating for our customers is significant. Customers appreciate that we are offering a solution that encompasses service support, which is vital, particularly since we're working with a new aircraft and ecosystem. They want to ensure they are supported by the OEM that has a vested interest in this operation. Yes, we have LOI and the service support is a major element of our solution, and this is the reason why we launched TechCare, which is the all-in-one services platform that customers have been requesting, based on the Embraer experience. It's a flat-hour program that can be customized to the operation of the customers. Further, we have been actively working on the ecosystem, and launched Vector, our UATM product. Last week, we were in São Paulo with Revo, shadowing their operation with helicopters, accomplishing over 45 flights that we executed in a couple of days. The intent was to demonstrate that our software is designed for operators, not just for eVTOLs, but for helicopter operations as well, optimizing their use based on various conditions including weather. This is going to be critical for eVTOL operations when we launch.

Thank you.

Yes, thank you so much and congratulations on the SFAR. Can you go through the diversion requirements and whether those are totally in line because they looked a little confusing? Additionally, what vertiport requirements are outlined there?

Yes, good morning Cai. Regarding the energy reserves, we believe that the FAA has provided a clear path that aligns with current operations. They are careful to base their regulations on what's already valid and works today, while adapting it where necessary for eVTOLs. Notably, it states that if an eVTOL can land vertically at any moment during the journey, then they can use the reserve standards currently used for helicopters: 20 minutes for VFR flights and 30 minutes for IFR. Operators with a 135 permit can also have approved routes and thus may not be required to adhere to the general 20-minute reserve, using predetermined landing zones instead. This approach is beneficial as it adapts operational requirements to a more structured urban operational reality, rather than having an arbitrary reserve standard.

Terrific. And on the issue of service, at one point, you were considering making service available to eVTOLs from your competitors, particularly Archer. Where are you in that process? Secondly, as you consider the service opportunity, who do you view as potential competitors?

Cai, thanks for the question. Indeed, we've been discussing with other eVTOLs, but primarily through our customers. The focus here is on ensuring that we have successful initial operations with our customers establishing service interlinks. We understand that a particular customer might choose various OEMs based on performance, depending on their operational needs. This is something that we're open to discussing, which we've been actively pursuing with Archer and others per customer requests. We recognize that we are shaping an industry. This is new territory, and we understand that the market will be large enough to accommodate multiple OEMs. We aim to foster collaboration, especially concerning standardization, such as with charging devices, to facilitate a robust power grid and eVTOL push into the market. We continue to engage in discussions with other OEMs. I think we are the only ones discussing it so explicitly from the very beginning. As the industry progresses and certification is acquired, the market will ask what the environment will look like at entry into service. We're preparing for this by leveraging Embraer’s extensive customer support and service experience built over the last 55 years. We have agreements with our suppliers, not only pertaining to prototype production but also to ensure service operation readiness. Eve’s service DNA uniquely positions us to deliver reliable operations day-to-day, and I believe this will differentiate us soon as we enter service.

Terrific. Thank you very much.

Good morning Johann and Edu. My first question is about the SFAR. Does the 20 minutes of battery reserve required by the FAA benefit the TAM and potential routes for your aircraft in the US?

This is Luiz Valentini. The 20-minute requirement is applicable only in the US; other authorities are looking at different requirements altogether. For urban mobility missions, our focus, we believe that the 20 minutes are unnecessary. The nature of urban operations means that pilots will have a more structured environment with known landing spots. Importantly, our typical missions are designed to last approximately 20 minutes, so adding an additional reserve isn't necessary; we can use predetermined landing zones instead. Each operation will have varying durations, but our strategy is founded on utilizing approved routes and established landing zones. This allows operators to tailor energy usage based on actual operational needs rather than broad estimates.

Great. Have you had new conversations with potential customers in the last couple of weeks about their orders now that there’s been a recent shakeout among competitors?

Thanks, Austin. We’re consistently flushing out our pipeline. We recently announced the arrival of a new CCO who brings a lot of energy and eagerness to talk to our customer base. Our business development team keeps in frequent contact with our prospects, including those who may not have viable paths forward after recent events among competitors.

Thank you. Good morning, everyone. Great to see the liquidity position continue to strengthen. I want to touch on the TechCare offering again. What is the significance of launching this offering almost three years ahead? Can we expect monetization to take place? If you can outline the milestones for the TechCare offering over the next two to three years as you prepare for operational launch, it would be beneficial to understand your objectives.

Great. Thank you so much for that question. It's crucial to recognize that this initiative is about ecosystem development, where a key component is support and services. To ensure that eVTOL operations are successful, we need to focus on availability and reliability. Therefore, we're developing our service infrastructure proactively; this is not something you can set up at the last minute before an aircraft's entry into service. The aim is to have our support system operational 12 months prior to the first delivery. Eve TechCare is a comprehensive solution. We want to ensure our technicians and support teams are strategically positioned where the operations will occur, whether that be in Brazil or the US. A 24-hour customer care center will be in place with trained individuals, processes, and IT systems that function reliably. We anticipate eVTOLs will have a high usage rate, projecting around 4,600 flight cycles annually. Hence, having the right support ready is critical. We also partnered with ECTS to ensure we have training services for pilots and maintenance technicians in place. This was essential to prevent the risk of failing to meet operational readiness at entry into service, which we all know would be detrimental. We need to avoid delivering numerous eVTOLs in the first year and then being hindered because necessary training, resources, or components weren't adequately prepared. Launching the TechCare suite now demonstrates to our customers that we are committed to ensuring our operations will be smooth. They recognize that it's not just about delivering a vehicle; it's also about the reliability of the support.

That makes a lot of sense. Good to see you ahead of the curve. I have no further questions and I’ll follow up offline. Thank you.

Thanks, Leslie, and I want to thank everyone who joined the call today. As you can see, we accomplished several important milestones this past quarter. We’re fully engaged and continue to progress on our suite of products and services for the UAM market, and there is a lot more to come in the next few quarters. We will continue updating you on our progress throughout the next few quarters, and we look forward to meeting you in the upcoming events. As always, if you have any questions, don’t hesitate to reach out to our team. Thanks, and have a good day.

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