Eve Holding, Inc. (NYSE:EVEX) Q1 2024 Earnings Call Transcript May 7, 2024
Eve Holding, Inc. beats earnings expectations. Reported EPS is $-0.09, expectations were $-0.13. 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: Good morning and welcome to the Eve Air Mobility First Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Lucio Aldworth, Head of Investor Relations. Please go ahead and 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 first quarter earnings – 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 Technology Officer, will also join us for more technical questions. We prepare the deck with a few slides and additional pictures that show our achievements in the quarter, as well as the assembly of a full-scale prototype and that’s on our website at ir.eveairmobility.com. So please feel free to download it and tag along.
Let me first start the 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. 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.
Johann Bordais: Thanks, Lucio. Good morning everyone, and thank you for joining the call today. We had a successful start of 2024 with several important achievements, the most important one being the quick base advancement in the assembly of our full-scale prototype. We’re right on schedule and expect to conclude it in the second fiscal quarter. As you will see the next few slides, we already installed the pylons and nacelles to house the electric motors and started to install the composite skin of the aircraft. We are also preparing for another round of wind-tunnel test with the rotors on. This will start in a week and will roughly last three weeks. This will be used to validate and further refine our computer models before our ground test campaign starts in the second semester.
In parallel, we continue to down select suppliers and sign binding contracts. These define technical specifications for the component and commercial aspect with volumes and unit prices, and also the aftermarket support conditions. Just last month, we selected KAI, the Korea Aerospace Industries, and before that we had selected Aciturri for the wings and also Crouzet for the pilot control, or the joystick. We now have more than 90% of all suppliers selected and we’re working to define suppliers for the high-voltage system converter, skids, cabin interior, doors, lighting, transparencies, and other adoption like the landing gear, for example. Lastly, we presented Vector, our Urban Air Traffic Management software at the Airspace World in Geneva with full demonstration of its capabilities.
This is a strategically important tool to help scale the urban air mobility safely. I will go to next slide. It shows the stage of the assembly of our prototype. As you can see, it’s already looking like an eVTOL with a typical structures of an aircraft. Now, the wing and the empennage are fully joined to the fuselage, what we internally call the marriage, and they both have their internal harness installed. These are complex electronic and electric cable systems to carry signals to and from the mini sensors in the wings, control surfaces and flight computer. Also, the internal superstructure already has its electronic components and internal cabling as well. One interesting fact is that, as you can see in the Slide 3, we temporarily placed the mini composite parts of the skin of the prototype with update.
This allows our engineers to make any adjustment they want to do to make it perfect the placing of the parts. And once the parts are aligned, we have a perfect fit and then they’re installed permanently. Now moving to the next couple of slides, these have few pictures that it shows in better detail some of the structures of our eVTOLs, such as the starboard side wing and its pylons, and also the nacelle. The pylons are the structure that will support the lifters and are connected to the booms and wings. So in the essence, they will support the weight of the entire aircrafts during the takeoff and landing. This is when the thrust from the lifter will allow to vertical flight as you can imagine the pylons to be robust, lightweight and flexible.
And as mentioned before, we engage KAI to provide the pylons for our commercial aircraft. Each pylon will have an electric motor at the front and one in the rear and these will be housed by the nacelles. Those are the green structures that you can see on those pictures. Now Slide 5. It shows that we’ve already installed the composite skin of the cockpit, which gives the [indiscernible] and how is the funnel shape and how good the eVTOL will look. I’m a big fan. Also looking at the engineers that you can see on both pictures, it helps you to put them into perspective and give you a good sense of the size of the eVTOL. We now still need to install the actuators, the control surfaces of the wing and the empennage and we expect to conclude in the next few weeks.
And once we receive the electric motors in the second semester and successfully perform the necessary ground tests, we plan to start the test flight campaign later this year. Now getting to Slide 6, we can see here the latest addition to our component supplier list, which will start using the first five confirming prototypes. So far in 2024 we announced several suppliers FACC to provide the control surface and empennage, Aciturri for the wings, Crouzet for the pilot control inceptor or the joystick if you will. We also have signed the Thales for sensors and Honeywell for guidance and navigation, and lastly Recaro for the seats. And just recently we added KAI for the pylon to this list. Our suppliers’ team has been quite busy as you can see remembering that we announced the first three suppliers at the Paris Air Show last year and now we have more than 15 suppliers selected.
We have been using the best-of-breed approach to bring suppliers with experience in aviation and certification. Importantly, they will also support us for the certification campaign and throughout the eVTOL lifecycle. Lastly, these contracts have a defined price and quantity scheduled with a scale function with a reduction of the unit price as we reach the higher eVTOL volume of production. Commonly, we call it economy of scale. We still have a few suppliers to select, but these are not the critical ones, right? Like the skids or the landing gear, transparency, cabin interiors and lights and we expect to conclude this selection process very soon. Looking at this list, which will keep increasing, I am very confident of the level of safety for the certification and performance of our eVTOL.
Slide 7 shows Vector, our Urban Air Traffic Management software. On top of the naming of the product, we were part of the integrated demonstration in the NATS BOTG at the Airspace World in Geneva earlier this year. With that being a tier one ANSP, we showcased our work in the Urban Air Traffic Management to a global audience. As a reminder, we successfully conducted a five day exercise in the UK to test Vector with our partner FlexJet and Halo. This was used to validate and refine the software in the real world setting and we tested it under normal conditions and operation, but also under different conditions such as delays, bad weather, in-flight emergency and other potential unplanned operations. Vector will be an agnostic software to support fleet management and control of the airspace that we believe will help to scale the urban air mobility safely and globally.
On Slide 8 it shows the latest addition to our backlog. We signed an LOI, the letter of Intent with AirX for the complete package. AirX is the largest public helicopter air charter service in Japan and we will be collaborating with them to scale up the UAM there. Not only they are willing to purchase 50 of our eVTOL, but they are also subscribing to the services and operating support businesses along with the Vector to manage their fleet. On Slide 9, this brings us to the total backlog to 2,900 aircrafts and these are non-binding letter of Intent for 30 different customers spread over 13 countries and different businesses from the mainline to regional airlines to helicopter operators, ridesharing platform and living companies. We also have LOIs for Vector from 16 different customers and believe this reflects the market leading value proposition that we bring to our customers.
Importantly, the value of our backlog is now estimated at a $14.5 billion which is based on the list price of our eVTOL. We previously used a reference price to estimate the value of our backlog and using a list price is common practice in aviation and takes into account the different internal and external factors to define the standardized price practice in the sector. We will not disclose the aircraft price of each transaction and we will use the list price as a reference for the future transaction values. Beyond that, we are developing a strong network of partners in the 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.
And because aircraft don’t fly without proper maintenance and support, we are highly focused on providing the best-in-class services to eVTOL’s operators. We have also secured contracts with twelve different customers for maintenance, repair and overhaul, what we commonly call MRO. That will bring up to the $935 million in revenue to Eve over the five to ten years period. Importantly, these customers have placed LOIs for roughly 1,000 of our aircraft, which is about 35% of the order book. So we can potentially expand this business within our own customer base, just like we did in the past quarter with new – two new service contracts. Now I’d like to invite the CFO, Edu, to go over the financial and along with the milestone checklist.
Eduardo Couto: Thanks, Johann. Now moving to Slide 10. Eve is a pre-operational company developing its eVTOL and the ecosystem around it. Currently, our financials reflect mostly the cost associated with our program development. With that said, I want to highlight some of our numbers. Eve invested $27 million during the first quarter 2024 in our program as the development activities continue to speed up. The majority was invested in our eVTOL and a smaller portion in service and support solutions and the Urban Air Traffic Management system. We also deployed $6 million in SG&A during the quarter, which has been reasonably stable as we continue to control corporate expenses to focus our resources in the eVTOL development. Higher development expenses were partially offset by interest revenues and a mark to market gain in our warrants, resulting on a net loss of $25 million in the quarter, mostly flat versus the same period last year.
Now moving to cash flow, our operations consumed $36 million in the quarter, up $16 million versus the same period of 2023 due to higher development spending. We ended the first quarter with $223 million in cash, down just 19 from fourth quarter 2023 as we drew another $50 million from our pre-approved credit line with the Brazilian Development Bank. We still have around $60 million available from this line that we expect to access in the upcoming quarters, helping Eve to hold its cash position. Eve remains comfortable with total liquidity of $280 million as of the end of the quarter and we believe it’s enough to sustain our operations well into 2025. Now moving to Slide 11, we remain on track to deliver our milestones for 2024. As Johann pointed out earlier, we are advancing rapidly to conclude the assembly of our first full-scale prototype.
Once we conclude airframe assembly, we start ground tests in the second half of the year. In parallel, Brazil Certification Authority, ANAC, concluded its public hearing process in mid March to define the basis of certification. The agency will now compile all comments and align them with comments made by other certifying agencies and OEMs. We expect the basis of certification to be published in 2024. Lastly, we have started to prepare our first eVTOL manufacturing plant in an existing site of Embraer in Brazil. This is going to require new tooling, equipment and customization of the site, but this facility is already functional, saving us time and financial resources. We are also working to secure the necessary funding for the EBITDA industrialization through a long term financing.
All of our 2024 efforts will consume between $130 million to $170 million throughout this year. With that, we conclude our remarks and I would like to open the call for questions. Operator please proceed.
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