Eve Holding, Inc. (NYSE:EVEX) Q4 2022 Earnings Call Transcript

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Eve Holding, Inc. (NYSE:EVEX) Q4 2022 Earnings Call Transcript March 16, 2023

Operator: Greetings. Welcome to the Eve Air Mobility Fourth Quarter 2022 Earnings Call. . I will now turn the conference over to your host, Lucio Aldworth. 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 2022 earnings conference call. I have here with me co-CEOs, Gerard DeMuro and André Stein as well as our CFO, Eduardo Couto. After their initial remarks, we’re going to open the call for questions. We have prepared a deck with a few slides and additional information, and this is available at our Investor Relations website at ir.eveairmobility.com. So feel free to download it. Let me first start by mentioning that this presentation includes forward-looking statements or statements about events and circumstances that have not yet occurred. We have based these forward-looking statements largely 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 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, estimate, continues, anticipates, intends, expects and similar words are intended to identify these forward-looking statements. We undertake no obligation to update publicly or revise any statement because of new information, future events or other factors. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this presentation might not occur. Our actual results could differ substantially from those anticipated in our forward-looking statements. With that, I will now turn the presentation over to Jerry.

Jerry?

Gerard DeMuro: Thanks, Lucio. Good morning, and thank you to those joining the call today as well. We had a very eventful 2022, accomplishing a number of milestones for the program and for the company. We, as many of you know, are actually a product of Embraer’s technology accelerator, EmbraerX, and the first eVTOL concept was actually introduced in and being developed in EmbraerX in 2018. And we were then spun out and eventually, we merged with Zanite and went public in May of last year. Going public, Eve now has the autonomy and agility of a start-up, yet the resources and experience and the backing of Embraer, so that we feel we can be a major player in the OEM market. We listed on the New York Stock Exchange under the symbol EVEX last May, and we listed with net proceeds of about $355 million from the de-SPAC that included investments from our PIPE investors as well as United, which came along later in September.

Later in the year, we secured almost another $100 million worth of credit lines with the Brazilian National Development Bank. So that gives us a total liquidity of over $400 million. We believe this is enough to fund our major R&D efforts as well as our sales and support activities well into 2025. You will recall that operating with our critical mass, mostly in Brazil, gives us tremendous OpEx and CapEx advantages. Thus, we think we’ll be well set through the R&D program again through 2025. And our eVTOL program has matured significantly over the last year. We have been testing systems and subsystems to validate our design through sophisticated model-based engineering and very high fidelity simulations. We’re refining the final design, not only through the use of these advanced engineering tools, but we’re also using subscale models and advancing to full-scale commercially representative prototypes eventually in 2024.

This flexible approach allows us to thoroughly test and validate components separately. We are following an effective and efficient process proven over many years by Embraer, which has certified more aircraft in the last 25 years than any other aviation OEM. Our goal, of course, is a safe and reliable eVTOL with the lowest total cost of ownership, and that’s what drove us to a Lift + Cruise configuration that is truly optimized for the urban air mission. 2022 also saw us introduce our cabin mock-up at our customer advisory board last spring. We had great reviews, and it will also be available at our investor event this April in Melbourne, Florida. We also initiated our Type Certification process in 2022, which will be done through ANAC, the Brazilian Aviation Authority.

While the Type Certification will be done through ANAC in Brazil, it will also be followed by FAA to a bilateral agreement that ANAC and FAA have had for many years. And typically, this allows a much more efficient process with only limited additional testing and final endorsement of the certification process by FAA. We also began dialogue with EASA, and we intend to follow a similar approach there. But we think we have a significant advantage by being first in line with ANAC and using ANAC as our primary certification authority versus, for instance, multiple applicants at the FAA, all with unique configuration. Our plan remains to enter into service sometime in 2026. In 2022, we also ran a number of simulations with helicopters in Rio, in Chicago and most recently in India.

The goal of these simulations was to gather critical intelligence to help us scale the global UAM ecosystem. We also tested use cases of the eVTOL in actual congested urban areas. Now to the next slide, I’d like to call my Co-CEO, Andre Stein, to talk a little bit more about the program advancements in the last quarter.

Andre Stein: Thanks, Jerry. We made some real progress this quarter and intensify our supplier engagement. We shortlisted potential suppliers of critical systems, such as motors and batteries, and now have more detailed visibility as to the certifications of these components. With that, we can fine-tune our development, refine our flight-control laws, performance envelope, fly-by-wire systems and so on. It also gives us a much better sense of controllability of our aircraft and expected performance under different conditions. In parallel, we have been employing dedicated motor-propeller rigs to test under different conditions and other rigs for batteries and other components and systems. This part of our approach were test systems and components independently and incorporate them in our design, optimizing the configuration.

This allows us to quickly and efficiently evolve the design and reduce program development costs. All the steps mean that we are reaching a critical point in the maturity of our aircraft. I’m going to talk about this in a few moments. But besides having defined that the first production site to be in Brazil, which we announced late last year, we have concluded our manufacturing strategy with the support of Porsche to define model size, flow management and other logistics related specifically to the manufacturing process. Lastly, we defined the system requirement for the Urban Air Traffic Management software and successfully deployed an earlier version in our Chicago simulation last September. Our goal is to enable the safe management of aircraft flow within controlled aerospace and improve efficiency in operations and in vertiports by reducing waiting times and aircraft overall energy consumption.

We can achieve these by optimizing flight plans and integrating flight paths of different aircraft for a cohesive system. Now on to Slide 4. In the end, our strengths translate into the largest and most diversified backlog by number of customers and regions in the industry today. In total, we have nonbinding LOIs, that these are letters of intent, for 2,770 aircraft from 26 different customers spread over 12 countries and different business from to regional airlines to helicopter operators, ridesharing platforms and leasing companies. We believe this pipeline offers strong long-term revenue visibility, and it will help Eve to smooth cash flow consumption in the years to come as we start to convert the existing letters of intention into firm orders and collect predelivery payments, known as PDPs. Beyond that, we are developing a strong network of partners in areas, such as infrastructure and energy, addressing one of the largest challenges ahead of Urban Air Mobility, which is creating a whole new ecosystem beyond simply developing aircraft.

Now let me call Edu to talk about our financials. Edu?

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Eduardo Couto: Thanks, Stein. At Slide 5, Eve is a pre-operational company formed to develop its eVTOL in the Urban Air Mobility ecosystem. We expect to start to generate material revenues outside of predelivery payments once we start to deliver our eVTOLs, currently estimated for 2026. So our financial results for now reflect mostly the costs associated with our program development. I would like to start with the income statement highlights. We invested $18 million during the fourth quarter 2022 in our program development and $52 million in the full year. The majority was invested to develop our eVTOL and a portion for our service and support solutions and the development of our Urban Air Traffic Management System. We are the only eVTOL company with a complete solution, including the aircraft, maintenance and air traffic control.

In addition to R&D, we also deployed $9 million in SG&A during the quarter and $33 million in the year. Keep in mind that the Eve and Embraer teams dedicated to the eVTOL development have been growing as the program matures. Including R&D and SG&A, we reported a net loss of $20 million in the quarter and $174 million in the year. It’s important to highlight that our 2022 results include noncash and nonrecurring costs related to warrants issued to partners as well as some listing expenses of our IPO in 2022. This nonrecurring, noncash expenses were $111 million, so recurring loss for the full year of 2022 was $63 million. Now moving to cash flow. Our operations consumed $21 million in the quarter and a total of $60 million in the year. We ended the fourth quarter with $311 million in total liquidity, down from $330 million in the third quarter of 2022 without considering the recent long-term funding from the Brazilian Development Bank.

Now moving to Slide 6. Considering our current cash position, investments, including with Embraer and the credit lines from the Brazilian Development Bank currently signing, we have total liquidity of more than $400 million. Again, we feel comfortable that this is enough to carry our operations, development and certification efforts through 2025. I also want to call your attention to some of our cost competitive advantages. We have full access to 1,500 identified and skilled engineers from Embraer on a first priority and as-needed basis. This means we don’t need to bring hundreds of engineers into our P&L, which helps reduce our development costs. On top of that, most of our team is located in Brazil, where we have specialized engineers and more favorable cost rate.

In the end, our R&D dollars last longer in Brazil compared to U.S. and Europe, where our competitors are located. Lastly, we also have access to Embraer’s facilities, reducing investments related to infrastructure and CapEx in general. As Stein mentioned, our R&D efforts are intensifying. This will require an increase in our structure to support the expected development growth in the years ahead. For 2023, we expect Eve’s total cash consumption to be between $130 million and $150 million, which, considering our total liquidity above $400 million gives us good comfort to keep our eVTOL development in the years to come. With that, I conclude our financial highlights, and I would like to call Stein to talk about our development milestones.

Andre Stein: Thanks, Edu. During 2022, one of our focus was to put the necessary structures in place, engage the right people and fund the development and certification program for our aircraft as well as other products for the Urban Air Mobility market. With funding now secured, we are accelerating our program as planned with the milestones you see on Slide 7. The first, as I alluded to earlier, is the selection of the primary suppliers of the most critical components of our aircraft, such as propulsion systems and batteries, which will be completed in the first half of 2023. Also defined the suppliers, we continue to refine and validate our estimates for aircraft production, performance envelope and operating costs. The selection will also result in much more detailed specifications of these components, such as dimensions, weight, power output and the systems interface.

This is critical for us to define the final aircraft architecture at a complete system level, which we plan to also accomplish in the first semester of this year. With the final design established, we expect to begin fabrication of our prototype as planned in 2023. Last but not least, we plan to deploy the most recent version of our Urban Air Traffic Management in the second half to start testing in field trials with potential customers. With that, we conclude our prepared remarks, and we’d like to open for the call for questions. Operator?

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Q&A Session

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Operator: . Our first question comes from the line of Andres Sheppard with Cantor Fitzgerald.

Andres Sheppard: Congratulations on the quarter. I was wondering if maybe you can give us a little bit more color in terms of the flight — the test flights and particularly as the prototype is expected in the second half of this year. Can you give us a sense of how and when you expect to begin ramping up test flights?

Gerard DeMuro: Yes. Stein, do you want to take that one?

Andre Stein: Sure, sure. As you know, we came from a strong aviation background. As any aviation company, we do not disclose beforehand dates for first flights. There are a few reasons for that. One, it’s to assure that safety, it is the ultimate goal. So we don’t want to put additional pressure through the dates disclosure to the market. And the second is that our goal is and will continue to be the end goal to certify, develop and deliver the aircraft. So we are not disclosing first dates or first flights, but what I can say that we are on track according to the plan. We will start the assembly and manufacturing of the prototype this year, as we mentioned. And we will start by when at the right time, again, following our plan to assure the — our entry to the service and entry to the market are sure our final goal.

We believe a lot and having been done that in several previous programs to develop the things in right order, not necessarily not bring forward some of the most visible aspects of the development, but to really assure that we’re always maturing and moving ahead with the parts of the problem, the different parts of the problem.

Gerard DeMuro: Yes. Andre, if I could add one thing. This is Jerry DeMuro. A couple of thoughts to that. Our goal — we are using the term or you’ve heard the term commercially represented a prototype. We’re flying subscale models, doing a lot of model simulation, proof of concepts. And as we select, as Stein had said, as we select our vendors here, we can refine our models. And actually, when we fly, “what you’re defining as a prototype,” it will be as close to representative of the vehicle we intend to take into certification as we can possibly make it. That’s kind of our process. Subscale models, proof of concept vehicles and then something that we think is fairly representative of what we’re going to take forward. So that’s why the progression through the second half of this year after we define our critical suppliers, as Stein alluded to, we’ll make — we’ll refine that design, and that’s what we intend to fly — begin assembling at the end of the year and fly next.

Andres Sheppard: Understood. That’s very helpful and very comprehensive. I appreciate that. Maybe one last quick follow-up. On the liquidity side, right, so now $310.6 million as of Q4, including the lines of credit, total liquidity north of $400 million. Is the expectation — I know you’ve mentioned today that you believe that, that current liquidity is sufficient to fund operations designs and certifications into 2025. So I just wanted to clarify, does that include then — is the expectation is that, is that sufficient to fund certification with ANAC, the and EASA?

Gerard DeMuro: Sure. I’ll turn over the liquidity question in total to Edu. But the last part of your question, I think I can answer. We expect ANAC and FAA to be virtually simultaneous with — through the process that we described. FAA validating essentially the program that we’re working with ANAC because they will have a significant input into that program. EASA will follow sometime subsequent to that. So I would expect that EASA might be after the 2025 time frame. But the R&D efforts through 2025, we should have sufficient funding to get through that. Edu, do you want to add anything?

Eduardo Couto: No. Just to say that in terms of liquidity, we are feeling very good, right? We have more than $400 million in liquidity. And as we mentioned, we expect to consume this year between $130 million to $150 million. So that gives us multiple years of development, right? We already have the cash. So we are not concerned at all about the liquidity, and we feel very good.

Gerard DeMuro: Yes, Andre, one thing I would add to that. We have not yet begun to calculate into those liquidity figures, predelivery payments or progress payments, if you will, as we work through the definitization of the LOIs that Stein referred to. That will add to the cash balance. And — so again, we feel pretty good about getting through the first steps of certification. EASA will probably follow the first two.

Andres Sheppard: Wonderful. Congrats again on the quarter and all the accomplishments in 2022. I look forward to speaking again soon.

Operator: Our next question comes from the line of Savi Syth with Raymond James.

Savi Syth: Just a bit of more of a follow-up to the earlier question that Andres had. How long do you think the testing campaign with the kind of the close to commercial prototype will last before you’re ready to kind of assemble the kind of certification compliant model? I’m just kind of curious what — given that you’ve done so much kind of testing ahead of time with the subscale prototypes, if that might be faster than what we’ve seen at other competitors?

Gerard DeMuro: Good morning, Savi. Stein, do you want to get that one?

Andre Stein: Sure. So if you look at our previous programs, typically, it’s around 18 months for certification flight test campaign.

Savi Syth: Okay. Is that’s with this kind of prototype and then also then creating the final version that qualifies for certification, is that right? Or is this kind of prototype that you’re building will be qualified for certification testing?

Andre Stein: So I was referring to our previous experience, right, so from previous programs that typically what you see. In this case, as Jerry mentioned, we are doing more. So we have been trying proof-of-concept, we have been doing a subscale models, and we brought the flight-control laws, flight stimulator earlier on in the process. So there are different steps there, but that’s what we’ve seen in other programs. There are some additional steps here.

Savi Syth: Makes sense. Okay. And then just on the PDP collection front, or even kind of what — where do you need to be in the testing campaign, but before you can start firming the LOIs? And then how long after that do you think you can start collecting PDPs, like relation — in relation to all your milestones, I’m trying to figure out when we can see some of the firming and the actual PDPs coming in?

Andre Stein: Sure. So on that, I think one of — one very expressive milestone is actually the selection of the suppliers that we intend to do this year. That’s when we will have a more clear view on the actual costs, actual cost of the aircraft, and that will put us in a much better position to start firming orders. That is the big milestone.

Savi Syth: That’s very helpful.

Gerard DeMuro: So Savi, just to complement what Stein has said, as we move through this year, we will be identifying not only in refining the final configuration now that we have supplier data — the final supplier data, but we will also be working with some of our partners and identifying the launch customers. So we would expect some of that revenue to start to flow in the ’24 time frame. And then naturally, as you progress through the certification milestones, there would be additional payments prior to delivery.

Andre Stein: Yes. And one more point just to complement on that last line, Jerry. That’s an important aspect. I mean we have this big portfolio of customers, and we are working very closely with them to refine how the operation will be, what will be the necessary aspects of the operation, necessary infrastructure, and so on. So that allow us to be very assertive on that future deployment.

Savi Syth: Makes sense. And can I clarify in terms of headcount. How does that progress through that 2025 time frame? Are we at like peak headcount because you have that flexibility in the MSA to kind of switch out the type of engineering, kind of know-how and knowledge you need to get you through this?

Andre Stein: So I’ll give a first answer on that. We are not expecting to see a big increase in headcount with as we are, as you know, using Embraer for the majority of the development. So that’s where we are increasing the headcount. Typically, we’d expect to have around 800 people altogether at peaks.

Savi Syth: Got it. Perfect. I appreciate it.

Gerard DeMuro: Thank you, Savi.

Andre Stein: Thank you, Savi.

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