Earnings Call Transcript - EVEX Q1 2025

Operator, Operator

Good day, and welcome to the Eve Holding, Inc. First Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, today's event is being recorded. I would now like to turn the conference over to Lucio Aldworth, Head of Investor Relations. Please go ahead.

Lucio Aldworth, Director of Investor Relations

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 first quarter 2025 earnings conference call. Our CEO, Johann Bordais, and CFO, Eduardo Couto, are joining me on the call today. After their prepared remarks, we're going to open the call for questions, at which point, Luiz Valentini, our Chief Technology Officer, will also join us for more technical questions. We have a deck with a few slides and additional pictures that show our achievements in the quarter as well as the testing phase of our full-scale prototype. The deck is on our website at ir.eveairmobility.com, so please feel free to download it and follow along. Let me first mention that today's conference call includes 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 forward-looking statements are based on current expectations and involve risks and uncertainties that could cause financial results to differ substantially from those expressed or implied in this conference call, and we undertake no obligation to update publicly or revise any forward-looking statement because of new information, future events or other factors. For more details of these risks and uncertainties, please refer to our SEC filings available on our website. With that, I will now turn the presentation over to our CEO, Johann.

Johann Bordais, CEO

Thanks, Lucio. Good morning to all and welcome to our first quarter 2025 conference call. We continue to move at a steady pace in the development of our eVTOL and we have reached important milestones in the quarter. I would like to highlight a few of those most important recent achievements. Starting with slide 2. We continue to perform several ground tests in our full-scale prototype and prepare it for its debut flight. As a reminder, this is a full-scale engineering prototype with no cabin or cockpit. It is made of composite material that will be piloted remotely in our remote pilot station, which we call the RPS. This prototype will be used to validate and improve the accuracy of previous subscale and computer models. It is also an important contribution to the setup of several rigs we are using for different individual components. Early this year, we tested the pusher motor after having installed it in the aft section of the full-scale prototype. We published a video of the test, and that is online for everyone to see and enjoy. As a reminder, we had already tested the motor in the lab environment and in the dynamometer to make sure it delivered the expected performance and the test after installation was important to ensure that the real-life performance was consistent with lab results and that the inverters were properly installed. We are now following the same protocol with the lifter motors, testing them in the dynamometers before installing them in their respective nacelles in the prototype. With that, we are confident that we will begin flying our prototypes this year. We will initially perform harder flights and gradually increase power and height. Then, we'll move to partial transition, which is when we engage the pusher without fully disengaging the lifters to continue controlling the aircraft vertically. Only then, we will move to a full transition flight. At the same time, we continue to make significant advancements with the rigs in what we call the Island Bird. This is a constructed eVTOL in which we integrate all the different components of an eVTOL into a physical system to ensure that all systems work together correctly. We will get into this in a moment. In parallel, we are highly engaged with our suppliers, who are already producing parts for the first of the series of five conforming prototypes that we will have for the certification campaign. Lastly, we have already prepared the assembly line at our site in Embraer in Sao Jose dos Campos, or the Risilda plant for our conforming vehicle. Now slide 3 lists some successful tests that we have performed on the aircraft this quarter. This is to ensure that it is airworthy. Not only do we need to make sure that a dedicated radio link between the eVTOL and the RPS has no latency and is not interrupted to prevent the loss of control, but we also need to test how well our cabling system insulates the aircraft from external electromagnetic interference. We measure how well the eVTOL structure withstands vibration tests to simulate turbulence and, more importantly, the structural integrity of our hull in adverse conditions. Lastly, we also ensure that all navigation-related equipment such as the GPS and altimeter are properly calibrated. The next few slides offer a good summary of what we're testing, what we have tested, and also accomplished so far this quarter. Slide 4 shows the lifter test in the dynamometer. As you can imagine, we need to perform several tests with each of the eight motors to ensure they deliver at least in the lab setting their intended thrust to support the aircraft in the takeoff and landing phase of the flight, remembering that this is the same protocol we used with the pusher motor, which means that we're getting close to flying. Slide 4 shows some of the parts of the Iron Bird. Here on the left, you see a picture of the Iron Bird simulator. This is the interface through which the pilot will control the entire system. As you can see, the simulator has approximately a 270-degree view and is connected with all the different rigs of the flight-critical components. For instance, the inceptor is connected to actuators and motors, and they physically react to all pilots' commands. This, in turn, is connected to the flight computer with our fly-by-wire system and avionics. The motors are connected to the battery with its own thermal management system. A curious fact is that all wires and cables replicate the composition, width, and length of the actual harness that we will have on the eVTOL. This assures a realistic simulation as much as possible. So not only does the Iron Bird help us to better integrate and understand the system and how they all work together, it also helps us troubleshoot potential problems on the ground. On top of this, it is important for the aftermarket benefit. The Iron Bird helps us to understand the material and component fatigue, and these are important inputs for an efficient maintenance program and the reliability of the aircraft. Another important fact is that the Iron Bird helps us expedite and reduce costs related to the certification campaign. Keep in mind that some of these tests can be performed on the ground, such as electrical systems and circuit breakers, and the Iron Bird becomes a very valuable tool. The next slides show the advancements that we have made on the digital and computer systems to reduce development time and costs. Slide 6 shows a different flight simulator that is used to validate the control law for the fly-by-wire system and was extensively used to develop the flight control. It is also an important tool to develop the ergonomics for the pilots and window positioning to maximize visibility. Slide 7 shows a digital rendering of the structure of the cockpit with all its systems, structural support, and wiring, remembering that this is an aircraft with a pilot plus four passengers and a luggage compartment. It is not only designed to be efficient to operate but to maintain as well. With that in mind, components are placed in strategic locations for easy access to facilitate any maintenance service. The next couple of slides show the level of engagement with our suppliers. We regularly meet with them and visit their sites. However, in the last couple of months, there was a very noticeable uptick in activity. As you can see in slides 8 and 9, we already have some components ready to go for the first of our series of certification-compliant aircraft. As you can see, the nose of the fuselage, the lightning system, actuators, seats, and windshield have already been produced. You can also see some of the tooling to manufacture these components, such as the negative for the carbon fiber structural parts and the autoclave that is used to cure these components and increase their resistance and durability. This increases our confidence level that we will be able to meet our ambitious targets in starting the assembly of the first of these conforming prototypes in the second half of 2025 and initiate a portion of the certification campaign early next year. Lastly, on slide 10, we can see the site where we will assemble this conforming prototype. To avoid any confusion, this is not our site in Sabate, where we will be manufacturing the commercial aircraft. This site is inside the Embraer main facility in Sao Jose dos Campos and will be used exclusively to assemble the conforming prototype for the certification campaign. We plan on deploying five eVTOLs for the certification campaign with an option for maybe six aircraft if needed. Needless to say, this site is strategically important for us because of its proximity to Embraer's engineering, which we think will be critical for the learning curve in the assembly process of these aircraft. The site is ready to be used, and we will now start installing the equipment and the tooling to manufacture our eVTOLs. As a reminder, these conforming prototypes will be as close to the new commercial version of the eVTOL as possible, and they will have all the systems, subsystems, and redundancy that are necessary for certification for commercial operation. In the end, advancements in these pre-production aircraft mean a leap when we're ready to go for entry into service. My last slide, which is slide 11, shows our total preorder backlog, which remains unchanged at approximately 2,800 aircraft for a total value close to $14 billion based on the list price. These are non-binding letters of intent from 28 different customers spread over nine countries and different businesses, from airliners to regional airliners, helicopter operators, ride-sharing platforms, and leasing companies. Because maintenance and support guarantee proper aircraft operation, we are highly focused on providing the best in class services and support to eVTOL operators. Therefore, we have also secured contracts with 14 different customers for our EVE TechCare suite of aftermarket products, which could bring up to $1.6 billion in revenue to Eve over the first few years of operation. Importantly, EVE TechCare customers have placed LOIs for services for around 1,100 aircraft, which is about 40% of our preorder book. As you can see, we also have 21 different customers for our air traffic management system, Vector, and I believe this reflects the market-leading value proposition that we bring to customers. Beyond that, together with our customers and authorities, we are also developing a strong network of partners in different areas such as infrastructure and energy to address one of the many challenges ahead of urban air mobility, which is to create a whole new ecosystem besides simply developing an aircraft. Now, I would like to invite our CFO, Eduardo, to go over our financials along with a checklist for our 2025 milestones.

Eduardo Couto, CFO

Thanks, Johann. Now moving to slide 12. EBITDA for a pre-operational company and our financials reflect mostly the costs associated with our program development. That said, I would like to highlight some of our numbers. We've invested $45 million during the first quarter in our program development, including our eVTOL, the service and support solutions, and the urban air traffic management software. We continue to accelerate our program development this year with more engineers from Eve and Embraer, as well as higher engagement with suppliers. That explains the higher R&D expenses in the quarter, and we also deployed almost $8 million in SG&A during the first quarter. Including R&D and SG&A, we've reported a net loss of $49 million in the first quarter of 2025. Now moving to cash flow. Our operations consumed $25 million in the quarter, which is lower than previous quarters as it included a temporary working capital gain as one of our invoices of $15 million from Embraer, related to the engineering development services that are typically paid at the end of the quarter, slipped to the beginning of the second quarter. We are comfortable with our guidance for the full year, which reflects our financial discipline, advantages of using Embraer's engineering team, as well as our increased efforts in program development. Finally, on liquidity, we ended the first quarter with $288 million in cash. This is down $15 million from the end of 2024 and also reflects an additional disbursement of credit lines from the Brazilian Development Bank of $9 million. These standby facilities continue to help Eve preserve a solid cash position throughout the year. The total liquidity of $411 million at the end of the quarter includes our cash and all undrawn standby facilities and is sufficient to sustain our operations through 2026. Moving to slide 13, we remain on track to deliver our milestones this year. As Johann detailed earlier, our first full-scale prototype is concluding the final test installations to start to perform its initial flights in 2025. In parallel, we're continuing talks with ANAC to detail the means of compliance, which are the specific tests that need to be conducted during the certification campaign. We are also continuing to be highly engaged with suppliers, working on the initial parts of our conforming prototypes. In parallel, the sites to assemble these aircraft are starting to receive the necessary equipment and tooling. Lastly, our cash consumption this year, despite the better first quarter, should stay within the guidance of $200 million to $250 million, probably closer to the low end of the range. With that, we conclude our remarks, and I would like to open the call for questions.

Operator, Operator

And today's first question comes from Savi Syth at Raymond James. Please go ahead.

Savi Syth, Analyst

Good morning, everyone. The R&D spend is a little higher than I would have expected. But obviously, you're kind of within how you're thinking about the cash spend. Do you still expect that pace to kind of step up? Or is this kind of the right level of spend for the rest of the year on R&D and not the SG&A as well?

Eduardo Couto, CFO

Yes, believe we should be around this level, Savi. You're right, we had a lot of engagement, not only in Embraer but also with suppliers. R&D was $44 million in the quarter. I believe it should stay at this level; probably will not accelerate further.

Savi Syth, Analyst

That's helpful. And then just on the certification aircraft build, I think Johann you mentioned maybe doing test flights as early as 2026. And I know you called out Embraer's site being prepared and partners building parts. Could you talk about what items you're still waiting on to start building that? I'm just trying to think about how much kind of early preparation and what might delay the start of that program if something does?

Johann Bordais, CEO

Sure. Thanks, Savi. We're reminding that we have two prototypes, let's call it, right? We have the engineering prototype, the one that we rolled out at the Farnborough Air Show at the end of last year. This is the one that we've been showing in videos. Then we have the first conforming prototype, the one of the series of five aircraft that we will use to certify the aircraft. This is the one that I showed in one slide about where the plant is going to be. It's going to be in what we call the Zirisilva plant in Farallima and Sao Jose dos Campos, not Tabate. As you can see, the floor is now ready to receive the tooling to start building the prototype. When it comes to the conforming prototype, everything is on schedule.

Operator, Operator

And our next question today comes from Austin Moeller at Canaccord. Please go ahead.

Austin Moeller, Analyst

Just my first question here, the $1.6 billion in services contract backlog, does that reflect any expectation of a battery upgrade in the future into existing aircraft with an STC or does that only assume replacements of existing battery types and maintenance?

Eduardo Couto, CFO

Indeed, this is including the replacement and the repair of the batteries, right, as it is in replacement. A little bit more on a yearly basis, right? It doesn't include upgrades.

Austin Moeller, Analyst

And on the certification prototype, so the prototype that you're building now, are you planning to fly that specific aircraft with a pilot? Or would that be on future aircraft since you're planning to build five as part of TC?

Johann Bordais, CEO

The conforming prototype, which we're starting to build this year and will fly next year, will have a pilot. It will be manned, yes. This is part of the certification process.

Operator, Operator

And our next question today comes from Sheila Kahyaoglu with Jefferies. Please go ahead.

Sheila Kahyaoglu, Analyst

Maybe one on the order book and one on free cash flow. So the order book, can you talk to us about discussions there? Just what's the latest on customer engagement front? How should we expect the order book and backlog to move forward as we think about timing with your first flight as well?

Eduardo Couto, CFO

Thanks, Sheila. The order book is something that we've worked on since the very beginning when we started to visit customers four years ago. I think the vote of confidence in the solution that we're developing is really right there in those 2,800 vehicles under LOI. Obviously, it is evolving. It's been a couple of years sometimes. The customers are signed and evolving on the corporate level, nothing to do with the product. We have a few customers like Zero, for example, who got purchased by Norwegian, and they're not prioritizing the eVTOL right now. But at the same time, we have others like this that have actually gone bankrupt. We're also bringing in other customers, and I think the strategy is really to keep a footprint around the world where we have customers in Japan, Australia, the Middle East, India, the US, and of course Brazil. So this is really at the same level. We're not chasing more LOIs just because we want numbers. We want to ensure that we're starting to work on where the first customer and the first operation will be and at the city level. So we're engaging with customers on ecosystem development. We're already doing this with our customers. Naturally, we will get into negotiations regarding firm and then firm orders.

Sheila Kahyaoglu, Analyst

And then maybe just on free cash flow. As we think about $425 million of usage in the quarter versus total cash consumption guide of $200 million to $250 million, can you provide a little color on the cadence of the burn as we progress throughout the year and how you're thinking about the $410 million of liquidity?

Eduardo Couto, CFO

Thanks Sheila for the question. As you mentioned, we consumed $25 million in the quarter. There was one invoice that kept to the beginning of the second quarter of $15 million. So if you adjust that, the consumption would have been around $40 million. If you annualize that, it would be around $160 million. We believe the quarters ahead will have higher cash consumption compared to the adjusted $40 million we should have had in the first quarter. That's why we believe we may be closer to the low end of the $200 million to $250 million range. So I think we are on track. Our total liquidity is $411 million, which includes around $290 million in cash and standby facilities of a little bit more than $100 million. So if we consume $200 million and have a little more than $400 million, that gives us adequate cash for 2025 and 2026. The certification is set for 2027. Therefore, we still have plenty of cash, but at some point we need to work on this liquidity for 2027. We have multiple options. So I don't think funding is a problem.

Operator, Operator

Our next question comes from Andres Sheppard with Cantor Fitzgerald. Please go ahead.

Andres Sheppard, Analyst

I want to touch on the five prototypes that you expect to build again for the certification campaign. Do we have a sense on roughly what the timing of that might be? And is that embedded in the cash consumption guidance for this year? Just trying to figure out how and when we should think about CapEx and cash consumption for these five aircraft.

Johann Bordais, CEO

Thanks, Andres. I see that you guys are focused on the prototype, obviously the conforming one, which I think is important. This is also why we showed you this quarter how we're progressing. There are parts coming from the suppliers. The facility is being prepared and is ready to receive the first tooling to assemble those five prototypes. It is really towards the end of this year that we will start to assemble the parts. You may not see a full aircraft already being assembled this year, but definitely parts of it.

Eduardo Couto, CFO

The cash focus is still that most of our cash goes to R&D for development, for paying the engineers. We have around 800 to 900 engineers engaged. Yes, the cost of the prototypes, the parts, and the initial assembly is there, but the majority is related to the development.

Andres Sheppard, Analyst

That's super helpful. I appreciate that. Just as a quick follow-up, can you maybe just remind us, in terms of your service and maintenance business segment, when and how do you expect to maybe commercialize? What's the latest there?

Johann Bordais, CEO

It's core and dear to my heart. This is something that since the very beginning of the whole project, we've thought about customer support and services because we know that it's not only about certification; it's also about operating. This will be the success of this vehicle, and customers are asking for two things: reliability and availability of the aircraft, as well as optimized operating costs. This is what we have built into our solution. I think what Embraer and the industry have done so far is that we are guaranteeing the face to the customer, which also ensures the operation. We're directly involved with the operation of the aircraft at the customer. What we've been doing now is focusing on the first aircraft. We want to ensure that when we enter service, we're well prepared. This also involves service and support, the right maintenance with the right training. Remembering that we have already signed the contract with ECTS, a joint venture between CAE and Embraer for the training of pilots and mechanics to ensure readiness for service. As you can see, we're working on all fronts to make sure that the operation will be seamless, with a few operators and cities because we want to ensure success. It will be a showcase, and then we'll be able to replicate with aircraft plus service and support, creating a complete solution for the operator.

Operator, Operator

And our last question comes from Amit Dayal with H. C. Wainwright.

Amit Dayal, Analyst

What's the progress on the software side for the services side of the business? Any update on how some of those applications are coming along?

Johann Bordais, CEO

Yes. I'll take advantage that we also have Luiz Valentini, our CTO, who will give you more color about this.

Luiz Valentini, CTO

Good morning, Amit. Thank you for the question. The software side for the services is a really important basis for how we will provide the services that Johann mentioned in the previous question. We are focusing on engaging with potential operators to understand their use and how they will manage the aircraft to ensure that the software not only performs the necessary functions but also is user-friendly, easy to maintain, and operate in all the bases where the vehicles will be operated. This is a very active effort that we have ongoing to make sure that as we have the vehicle progressing, like Johann mentioned, we also have these tools evolving and ready to go into service when the vehicle does.

Amit Dayal, Analyst

It looks like you're good at financing for maybe till the end of 2026, but beyond that, just wanted to see what options you may be entertaining and if any of those options include any strategic investors from the value chain that may not be Embraer, but somebody else. Just any color on how we should think about future financing options for you guys?

Eduardo Couto, CFO

Yes, we have several funding options. As I said, we are fully funded for 2025 and 2026. I think we are one of the best companies within the sector in terms of runway of funding. In terms of options, there are several, including the services and support software for which we have some grants that we are discussing with some authorities. We have a lot of different funding options, including debt from local ECAs to support payments to suppliers. We are also in discussions with the Brazilian Development Bank for some long-term facilities for development. There are several sources of funding that we can bring on top of what we already have. As I mentioned, we have plenty of funding for the upcoming quarters and years, but we have other options to enhance the liquidity we already possess.

Operator, Operator

And our final question today is a follow-up from Savi Syth of Raymond James.

Savi Syth, Analyst

I just had a clarification on the battery side. Is the battery that you're using in the prototype that's currently under testing going to be the same as the batteries being used for the certification aircraft that's being built later this year?

Luiz Valentini, CTO

The battery is not exactly the same. It will have a different design and therefore a different part number, we call it. However, it builds on the same technology and uses very similar cells to those that we will use for the commercial vehicle. We believe that we are taking advantage of the fact that the engineering prototype does not have to have the maturity and redundancies, which applies to the battery too. That's why the battery is somewhat different from the one that will be on the commercial vehicle. But it allows us to apply the learnings from it and work with the same supplier to develop what we have with this battery into what will be the battery for the commercial vehicle.

Savi Syth, Analyst

Okay. So the same supplier, so you'll have confidence on the production and everything?

Luiz Valentini, CTO

Right. As we progress with the test, we also evaluate the manufacturability of the solutions and things like that with the supplier that will supply the commercial vehicle battery. We believe that even though we are not using the same part, we are still building a pathway towards the maturity of the commercial component.

Operator, Operator

This concludes our question-and-answer session. I'd like to turn the conference back over to management for any closing remarks.

Lucio Aldworth, Director of Investor Relations

Thank you, everyone who joined the call today. As you can see, we accomplished several important milestones this past quarter. We will update you all on our progress over the next few quarters, and we look forward to meeting you all in the upcoming events we are attending. As always, if you have any questions, please don’t hesitate to reach out to me or my team. Thanks and have a good day!

Operator, Operator

Thank you, this concludes today’s conference call. We thank you all for attending today’s presentation. Have a wonderful day.