Good morning, ladies and gentlemen, welcome to the audio conference call that we review Embraer's Q3 2021 results. Thank you for standing by. As a reminder, this conference is being recorded and webcasted at ri.embraer.com.br. This conference call includes forward-looking statements or statements about events or circumstances which have not occurred. Embraer has based its forward-looking statements largely on its current expectations and projections about the future events and financial trends affecting the business and its future financial performance.
These forward-looking statements are subject to risks, uncertainties, and assumptions, including among other things, general economic, political, and business conditions in Brazil and in other markets where the companies present. The words believe, may, will, estimate, continues, anticipate, intends, expect, and similar words are intends to identify forward-looking statements. Embraer undertakes no obligations to update publicly or revise any forward-looking statements because of new information, future events, or other factors. In light of these risks and uncertainties, the forward-looking events and circumstances discussed on this conference call might not occur. The company's actual results could differ substantially from those anticipated in the forward-looking statements. Participants on today's conference call are Mr. Francisco Gomes Neto, President and CEO, Mr. Antonio Carlos Garcia, Chief Financial Officer and Procurement, and Mr. Eduardo Couto, Director of Investor Relations. I would like now to turn the conference over to Mr. Gomes Neto.
Please go ahead, sir.
Good morning, and thank you all for joining our Q3 call today. I hope that all of you are well and safe, and I thank you for your interest in our company. As you will see later in Antonio's presentation, our results for the quarter were in line with our internal expectations, and with cash generation coming in better than planned. The Q3 results continue to show that our strategic planning and its execution are showing tangible positive results for the company. Before we go into more financial details on the Q3, I'd like to touch on some highlights in each of our business segments. In the commercial aviation, we delivered 9 E-Jets in the Q3. So far in 2021, we have delivered 32 aircraft in line with our forecast for the year. We continued to show positive momentum.
On the order front, with another 16 aircraft in a firm order with SkyWest, leading to book-to-bill in excess of two to one this year. Also, within commercial aviation, a milestone was reached when Swiss Airline Helvetic Airways performed the first revenue generating flight of the E2 to London City Airport. The ability of the E2 to attend to this strategic airport will allow for further penetration of this family of jets in the European market. In executive aviation, we continue to see very good momentum on the demand front. In the Q3, this business registered records. Further, our portfolio of Phenoms and Praetors is sold out through 2022 and into the Q1 of 2023, leading to book-to-bill in excess of two to one.
This doesn't even include the deal we announced at NBAA in Las Vegas of a $1.2 billion sale of up to 100 Phenom 300E aircraft. Finally, we delivered the 1,500th Embraer executive jet in the Q3, showing our rapid growth within this industry, as it only took us 20 years to reach this milestone. When the rest of the industry players took on average 34 years to deliver that many aircraft. On the next slide, we start with the highlights from the defense and security. During the Q3, our subsidiary, Atech, delivered an updated version of the Brazilian Air Traffic Management System, which will be able to unify all flight plan processing in Brazilian airspace. Also, we delivered 6 Super Tucanos to different customers, underlining the continuing demand we see for this market-leading light attack and training aircraft.
We also continue to negotiate the C-390 production contract with the Brazilian Air Force, and we will share additional information regarding this matter once it becomes available. Services and Support continues its recovery along with commercial and business jet traffic globally. We recently were able to attend the MRO Europe event in person a few weeks ago. During the event, we had several sales announcements, including a full program support contract with KLM Cityhopper for its entire E195-E2 fleet, which at present is expected to be the largest E2 operator in Europe. We are also proud that Executive Aviation Services placed first again in Professional Pilot product support survey for 2021, and was 3rd place in the AIN survey. Finally, our OGMA MRO subsidiary in Portugal was honored with a top 10 ranking of MRO service centers in Europe for 2021.
A great sign as we expected to significantly grow this business in the coming years with exciting new business to ramp up. On the next slide, with respect to innovation, we continue to make progress on partnerships in the urban air mobility ecosystem through our subsidiary, Eve, in a segment with strong growth potential in the years to come. Further, our EmbraerX signed a multi-year agreement with Republic Airways for the use of Beacon's maintenance coordination platform. Although currently not very large in terms of financial results, we see a very interesting opportunity for Beacon to grow and add new customers over the next few years. EmbraerX also announced a partnership with Pyka, a Silicon Valley company, to accelerate the future of autonomous aerial agricultural operations. This quarter, we are going to start sharing some highlights regarding enterprise excellence.
We reached the lowest inventory level since 2018, with a reduction of 22% in the last twelve months. In terms of operational efficiency, we reached an increase of 6.5%, and also a reduction over 10% in the production lead time of our aircraft. I will now hand it over to Antonio Carlos Garcia to give further detail on the financial results, and I will return in the end. Thank you.
Thank you, Francisco, and good morning, everyone. I would like to start with our backlog. We ended the Q3 with a backlog of $16.8 billion. This is up 20% in six months and is the second consecutive quarter-over-quarter increase this year. Looking at each segment, we have a good sales activity in our commercial aviation business with another 16 firm orders from SkyWest, bringing total firming orders this year to 64 commercial jets. In executive aviation, a strong backlog continues across the entire portfolio with record Q3 sales and a book-to-bill ratio in excess of two to one. Backlog in service and support also grew from prior quarters level. In summary, our backlog has reached levels not seen since 2019. This give us confidence our Fit for Growth plans are working, and revenue and profitability will continue to increase.
Moving to deliveries. In the Q3, we delivered nine commercial jets and 21 executive jets for a total of 30 aircraft during the period. The 9 deliveries in commercial aviations represents a 29% increase compared to the Q3, 2020. Year to date, deliveries were at 32, a 100% increase over the same period last year. Of the 32 deliveries, 17 were E2s. Sales continue to perform very well, showing a recovery in our core markets. Executive Aviation delivered 14 light jets and seven large jets for a total of 21 aircraft in the Q3. Year to date, deliveries were at 54, a 25% increase over the same period last year.
We expect these positive trends to continue, with 2021 deliveries of commercial aviation jets reaching between 45-50 aircraft and executive jets between 90-95 aircraft by the end of this year. Turning to net revenue. Q3 net revenue was $958 million, up 26% from the same quarter last year. Commercial aviation revenue growth was driven by higher deliveries, while executive aviation growth was due to a more favorable mix of deliveries. Service and support growth was due to the expanded commercial, executive, and defense services. Defense also posts a revenue increase due to advances in our main programs and the deliveries of Super Tucanos. Year to date, net revenue was $2.9 billion, up 50% from last year. We had solid revenue growth as all four business units posted higher Q3 and year-to-date revenue compared to 2020.
We expect Q4 2021 revenues to remain strong, and we expect to end this year between $4 billion- $4.5 billion in revenue. Looking at SG&A, SG&A continues to trend favorably over the last Q7 . Year to date, SG&A was down $48 million or 15% compared to the same period in 2020. As a percentage of revenue, year to date, SG&A was at 9.1% compared to 16.1% in the first nine months of 2020, down a full seven percentage points. Selling expenses was up due to increased sales and market activities, demo flights, and in-person customer engagements. Although the trend is up, selling expenses is far below 2021 levels, 2020 levels, sorry, due to our focus on more cost-effective ways to reach our customers.
As a percentage of revenue, year to date, selling expenses was 5.2%, less than a half of the 10.8% level in the same period of 2020. General and administrative expenses were 36 this quarter, equal to the average of the last Q7. As a percentage of revenue, G&A has held steady at 4% in each of the three quarters this year. It's important to reinforce, we remain highly focused on SG&A efficiencies and apply lean principles to our SG&A functions. Moving on to EBIT and EBITDA, we are very encouraged by the continuing improvement in margin performance for the company. For the Q3, on a consolidated basis, our adjusted EBIT margin was 3.7% and our adjusted EBITDA margin was 8.3%, both up over nine percentage points compared to the same quarter in the prior year.
Year to date, margins are similar with adjusted EBIT at 3.8% and adjusted EBITDA at 8.9%, both of our last year. On a dollar basis, year to date, adjusted EBIT was $111 million compared to a loss of $177 million in 2020. Adjusted EBITDA was positively $258 million compared to a loss of $63 million in 2020. In our business segment, adjusted EBIT margin for the quarter were as follows: Commercial aviation was at 4.5%, improving from last year on higher deliveries and improved mix. Executive aviation was at 6.7%, driven by robust price discipline and consistent profitability. Defense and security was at 10%, resulting from a good mix of Super Tucano and KC-390 deliveries.
Service and support was also at 10.8%, with improved service contract performance. Additional expenses related to reintegration costs, ongoing arbitration costs, and other non-business related costs explain the total company margin is slightly below the business segment average. These improvements on EBIT and EBITDA margin are results of our Fit for Growth initiatives and enterprise efficiencies. This next slide shows our net, adjusted net income. For the quarter, adjusted net income was a loss of $1 million or $0.18 per ADS. Although negative, net income is trending up on a trailing 12 months basis, driven primarily by revenue growth and corporate efficiencies. As our top line grows, our fixed cost leverage and financial leverage will improve, providing additional positive impact on earnings. Moving on to investment and cash flow. I'd like to first highlight our remarkable cash flow recovery.
Q3 adjusted free cash flow was a positive $21 million, which was the 1st time in more than 10 years we generated positive free cash flow during the Q3, given the seasonality of the business. More efficient inventory management, better production planning, and strong sales in executive and commercial, and the down payments associated with the sales have led to our positive cash flow in the quarter. On a year-to-date basis, our adjusted free cash flow was negative $160 million. Although negative, this is far better than where we were this time last year. Looking to the Q4, we expect this positive cash flow trends to continue. Today we are taking the opportunity to increase our 2021 free cash flow guidance to positive $100 million or better.
We are very happy that only one year after the worst downturn in the aerospace history, Embraer generates positive free cash flow, emphasizing not only our top line recovery, but also results of our cost and working capital initiatives. To investment. Our total investment were $56 million in the Q3 and $145 million year to date, both in line with last year. This is important because it shows we continue to balance the need to invest in our future with the need to preserve cash. This next slide show our cash and liquidity position. We ended the quarter with $2.5 billion cash and cash equivalents, a slight increase from the prior two quarters. Our debt balance was at $4.3 billion, with net debt of $1.8 billion. Both are a slight decrease from three months ago.
Our average debt maturity decreased to 3.8 years. We expect to continue to generate cash in the Q4 and beyond, so our leverage will naturally decrease. We remain focused on generating cash, reducing our debt level and improve our credit metrics. Of course, lower debt levels will reduce our net interest expenses and have a positive impact on net income. As I mentioned earlier in my remarks, we are increasing our free cash flow guidance to positive $100 million or better. Guidance in all other metrics remain unchanged. With that, I conclude my presentation and hand it back to Francisco for his final remarks. Thank you very much.
Thanks, Antonio. The Q3 and year-to-date results reinforce our confidence in our strategy. During the last nine months, we have just seen the net revenue was up 50% from last year. SG&A expenses down 15% and adjusted EBITDA at 8.9%. All that means focus and discipline in executing our long-term strategic plan. In a year of recovery on top of sales and deliveries, the efficiency gains projects have proved to be a key element in improving the company's performance. The updated guidance with a positive free cash flow for the full year shows not only the good momentum of the company, but also the combined focus on the top line and higher profitability. Regarding ESG practices, we are also making progress on our journey.
This quarter we announced new ESG commitments, which include to be carbon neutral in our operations by 2040, using 100% energy from renewable sources and sustainable aviation fuel in our own flights. We will also work together with suppliers and the whole industry to achieve a net zero carbon emissions aviation by 2050. Developing products based on sustainable technologies such as electrification, hybrid propulsion and hydrogen. A final note regarding innovation. This quarter, we were awarded by the largest and most prestigious financing newspaper in Brazil, Valor Econômico, as the most innovative company in the country among all sectors. It is an incredible recognition for all of those who work to make Embraer a place of excellence in engineering, innovation, and technology.
Thanks to our great team for their focus and passion on creating disruptive and sustainable technologies and executing our strategic plan. Thank you all for your interest and confidence in our company.
Ladies and gentlemen, we'll now begin the question and answer session . Our 1st question comes from Josh Milberg with Morgan Stanley. One moment please, Mr. Josh. Florence Shalloo with MetLife, you may proceed.
Hi. Hello, everyone. Thanks for taking my question and congratulations for the results. I have two questions. One is regarding cost. If you are expecting any issue regarding the shortage of supply? Everyone is suffering in upcoming quarters, or any strategy in terms of inventories regarding that? The other one is regarding targets on leverage for next year, if you are expecting to back to the three times level? Thank you.
For the, for the first part, in regards to shortages. I would say we are for this, for this, to the end of 2021, we may have some issues, but the material is confirmed. Maybe they will not arrive in time. That's why we still keeping a range when we give the guidance. For our production planning for next year, we also have the confirmation from our partners, our suppliers. We are going to follow up in a daily basis because we know that the whole industry is being affected by the shortages. What we are doing, some extent we are also cautiously building up some material, especially where we do see more risks associated with this shortage, especially for next year. Your 2nd question, I was not able to understand. Could you repeat it?
It's about the leverage, Antonio, if we expect to reach a leverage of 3x next year.
We are confident that this year will be net debt for EBITDA around four, maybe slightly better. We are confident that we are going to reach the level next year at three. That's more or less our planning. Just to remind, one year ago, we were at 20, and we should close this year, I would say four or even likely below. Next year, I have no doubts that we are going to reach the three. Thank you.
Perfect. Thank you so much.
The next question comes from Josh Milberg with Morgan Stanley.
Hey, everyone. Thank you for the call and congrats on the results. I had several questions on the Executive Business. Just for starters, with that good book-to-bill that you mentioned and the strong backlog, I was hoping you could talk a little bit about the Executive pricing environment. We've gotten some input from the industry folk in recent months suggesting some meaningful upward moves, but it would be good to get your perspective on that. As a 2nd question, you mentioned being at the Las Vegas exhibition and I wanted to see if you could touch on the competitive landscape and if you're seeing any competitor product developments that could pose a threat longer term. Thank you.
No, thank you, Josh. I mean, the business jet industry has been really a good surprise for us, for all of us this year, right? I mean, the business jet industry is growing likely to reach 10% year-over-year in 2021. This is good for all of us. We have been doing very well with our team and enjoying this market with a good discipline in prices. Which has helped us, I mean, showing a good result in the Executive. We do believe we will. We are sold out until the Q1 2023, as we said before. We have a great.
I mean, regarding the competition, we do believe we have a great portfolio of products with the Phenoms. I mean, Phenom 100, the Phenom 300, that continues to be our best seller, but also doing very well with the Praetors, the 500 and the 600. We do believe in the market. I mean, as we have been in Las Vegas, we do believe that we are going to have a soft landing of the demand from 2022 and 2023 onwards with the growth, average growth, close to the pre-pandemic levels of one digit. So far, yeah, I think we are doing very well in the Executive market.
Okay. That's helpful. Good to hear that you sort of, you see a soft landing because, you know, this is an industry that's seen a number of false starts in recent years. You know, there's the issue of course of how much COVID has been boosting your performance there and the overall industry performance. If I might just squeeze one more question in on the commercial side. You know, just wanted to hear a little bit about how your campaigns have been evolving there and, you know, how you're seeing the 2022 delivery scenario at this point. Thank you.
Okay. Still about the Executive Jet, I mean, we have all the reasons to believe that this in this soft landing, I would say, right? I mean, is the wealth, the global wealth growth that, you know, the economic activity and the market liquidity. Also the pre-owned market, that is one of the lowest levels ever, right? We are below 5% in the normal levels. 5% on the Fleet in operation in the levels, normal levels, used to be, I mean, the double of that. This and also, you know, the first time users and first time buyers in this market also are good indicators that we are in a different level.
It's not that we are growing not only because of the COVID, but there are other reasons for that, right? Regarding the commercial, we are also, I mean, optimistic with the market. I mean, the E1, I mean 100% of our E175 fleet is already back in service. This aircraft has been fundamental to support the market recovery. Our market intelligence has indicated that there are over 500 aircraft in North America to be replaced in the next 10 years. Our E175 E1 is the only scope-compliant aircraft in production today. Good perspectives for E1. Also the, you know, the rightsizing post-COVID is going to benefit our E2s. I mean, we have strong sales activity.
I could say that, we have a triple digit number of aircraft under activity commercial discussions. This increased pressure from environment CO2 reduction puts our E2 in a very good position as we have, the most environmentally friendly aircraft in that category. Because of that, we are really optimistic also with the commercial aviation for the next years.
You're saying that, I mean, and just to, you know, add a point here, I mean, on the E2, you know, having this ESG angle, I mean that very sort of angle does not in any way kind of pose a threat to the E1, just given that the lack of alternatives at this point, even with oil prices being where they are from your standpoint.
Could you please repeat that please?
Well, I was just making the point that, I mean, you're highlighting the environmentally friendly, you know, driver of the E2 and just wanting to raise the question of, you know, E1 being sort of a last generation aircraft and high oil prices today. That in your view does not in any way threaten, you know, demand for the E1 just because there are no alternatives.
Well, I think short-term is the perspective we have for the E1s, but in parallel, we are still working in the new alternatives. I mean, the turboprop new generation is one of them. We have seen stronger interest from customers on that project. Everything is going well for a business plan for that aircraft, you know, to be approved by the second half of next year.
Wonderful.
We continue with the E175, E2 as well, so we have to continue working that project.
Okay. Really appreciate all the perspective.
Josh, just to complement one point here, in regards to the planning for 2022, you saw in my speech, we sold 64 commercial jets, and it should be somewhere, at least lighter above 60 aircrafts for next year, something like that. Just to give you a memory, it's still confirming with the suppliers, with the customer. Just to give you a perspective, it's more or less where is your sales next year.
Okay. That's good visibility. Really appreciate it.
Thank you, Josh.
Our next question comes from Ron Epstein, with Bank of America.
Hey, good morning, guys. A couple questions. The cash flow in the quarter clearly was good. In the past, it's been lumpy. I mean, how should we think about cash flow going forward? Is this a trend towards, you know, better cash flow on a more consistent basis, or is this more of a one-time thing?
Hello, Ron. This is Antonio speaking. Thanks for your question. As I mentioned in previous calls, we do see, I would say, the cash flow generation as a sustainable base. I would say in a midterm perspective, we should be able to show free cash flow, I would say 50% of our EBIT for the first beginning. That's more or less the $100 million that we are disclosing right now. Assuming the growth path we are and the recovery we are, that should be more or less following for the coming years. It's more what our projections are telling us. We are, I would say, quite diligent with our investments, with the new products. We know even into more details and, highly focused on cash generation for the legacy business. The new business, we need to find alternatives to not compromise the legacy business we have in the company here.
If I allow me to complement that, Ron, it's Francisco speaking now. We also continue to work on actions to, you know, to reduce inventory, to increase the turnover of our inventories, and to reduce the working capital in our operations. All of these activities, combined with the growth, will make us to believe that we will continue with this good performance in cash generation.
Got it. Got it. When you think about EBITDA margins, how should we think about where those could go as you work through the efficiency programs? Is there sort of like a notional target we could think about as investors?
Ron , for sure year-to-date and a no-brainer. We are close to 8.9 year-to-date. That should be, I would say, in the longer run, we do see ourselves between 10-15, but does not mean that we are happy with those numbers, but it's already a good sign for us. It's more or less in our long-term planning.
Okay. If we were to think a range of 10- 15, that's a reasonable range and potentially maybe even higher, depending on how things go.
Yeah, absolutely. we just see the recovery in the commercial aviation is slowing now coming back to 2023, 2024. Let's say it's more value to monetize, but it's going to take longer because of the recovery of the commercial jets.
Got it. Got it. Got it. Maybe on that front, on the commercial jet front, what are you seeing in terms of, you know, sales campaigns, activity? You know, as we start thinking about 2022, I know you haven't guided yet for 2022, so I'm not really asking you for that, just broadly, do you have a sense on how 2022 from an order activity front could appear for the E-Jets?
Well, Ron, I think as I said before, in the answer before, we see good perspectives for the E1, E175 E1s because of the quick rebound in the US market for domestic flights. Very good opportunities we have in the next years, and the E2s as well. As I said before, I mean, we are working in a lot of commercial campaigns. This, you know, this right sizing post-COVID, this increasing pressure from environment, this puts our E2 in a good position. You know, I mentioned also this first experience for the Helvetic Airways in the London City. I mean, many things are happening that we believe will put our E2 also in a good position for next year onwards. We are optimistic with both products.
Got it.
Ron, I just want to come back to the EBITDA margin issue.
Yeah.
It's important to mention if you see the Q3, and we try to give you guys information in order that you do the math, because we do, as you know, have some costs that we are handled in a central way in the corporation without affecting the margin of the business unit, like the integration of the commercial aviation, arbitration costs, and we are still restructuring the company. I would say we are today, without this, already above 10%. We are not adjusting because we don't want to disclose those numbers. Without this, we are already above 10% today.
Got it. Then maybe just one last question, if I may. There's been a lot of discussion around the potential of maybe a new turboprop, a new platform. Where does that stand?
Well, Ron, as also as I said before, I mean, we are seeing a very strong interest from customers. I mean, suppliers and also investors in that product. Everything is going very well for a business plan approval by the second half of next year. We are also very optimistic with the development of this product, of this new product.
Got it. Got it. Thank you very much.
You are welcome, Ron.
Our next question comes from Victor Mizusaki with Bradesco BBI.
Hi. 1st congrats for the solid results. I have two questions here. The 1st one is related to the guarantee deposits, right? I mean, we saw a material increase in the Q3. I'd like to know if it could make sense for us to assume that commercial aircraft delivers for 2022. I mean, if we compare what happened this year with warranty deposits and delivers? If we try to estimate what could happen in 2022, that maybe the company could deliver more than 60 aircraft next year, commercial aircraft. The 2nd question is related to provisions. I mean, the write-off that the company booked in the Q3. When we take a look on the audit figures, we can see a write-off of BRL 33 million? I don't know if you can give additional details. Thank you.
Hello, Victor. Thanks for your question. Let's say start from the answer to the provision side. We have some movements in our obsolete material that we are selling right now. That's why we did an adjustment in Q3. It's not a big issue. It will come back in the coming months as soon as we get the material sold and delivered.
I would say we do have a chance to be above 60, but we are continuous to discuss for our customer and especially the suppliers in order to make sure that we will be able to fulfill because the situation is not, let's say, first starting different industry like automotive, but we are seeing right now that assuming that we are picking up or competitors are picking up, that we may see more restrictions that we are seeing today. We do have space to be above 60 and we are going to give a guidance for 2022 in our next call.
Okay, thank you. Antonio, if I may, just a quick one. You mentioned some expense with the arbitration process with Boeing. Can you give any kind of update on this matter?
Yeah. Victor, unfortunately we are not able and allowed to give too much detail, that's why we are not adjusting the cost. You could do the math in a different way. What I can tell you, we are at the pro-process to continue. Next year will be more or less, I would say, a kind of important year for the arbitration. It's going to take more two years in my opinion.
Okay. Thank you.
You're welcome.
The next question comes from Marcelo Mota with JP Morgan.
Hi, everyone. Thank you for taking the questions. Two questions as well. 1st, if you guys could provide any update regarding Eve and the digital business. I mean, we all know the material fact that, you know, the negotiations are going. Just wondering how you guys feel about the negotiations. There have been any bottleneck or anything that might be leading to a lower than expected conclusion for that? The 2nd question is regarding services and support. I mean, the segment continued to show a very strong growth, continued to have solid margins. You announced several agreements during the quarter. Just wondering if you guys can provide us some expectations on how much this line could grow, or how much those new agreements have been adding to revenue, or how much they could add in revenues, you know, in the midterm?
Thank you, Marcelo, for the questions. The 1st one regarding Eve, what I can tell you is that the negotiations with our partners, Zanite, are ongoing, but we cannot comment further. You know, the company will keep the market informed of any relevant developments of this operation. About the 2nd one, yes, you're right. I mean, our service and support area is doing very well, is enjoying this, the return to operation of our aircraft, both in commercial and executive business. we have, yes, we have good plans to grow further in that area, not only with Embraer aircraft market, but also in the non-Embraer aircraft market.
We have, as we said, in the previous call, we signed an important contract with Pratt & Whitney for the GTF engine and maintenance in Portugal. It's a multi-billion contract, and this will allow us to grow that operation in Portugal. I mean, almost to triple their revenues in the next years, and this will help our service area at Embraer as well. Again, we have very good perspectives and opportunities to grow our service and support area.
Two digits growth.
Yeah, two digits growth every year, exactly, for the next five years.
Perfect. Thank you very much.
The next question comes from Noah Poponak with Goldman Sachs.
Hi, good morning, everyone.
Hi, Noah.
The commentary around being sold out next year on executive deliveries, at what level of delivery is that the case? You know, that being sold into the Q1 of 2023, how, what do you want that lead time to be on a sustainable basis?
Noah, thanks. Thanks a lot for the question. I mean, as I said, well, we are sold out through the Q1 2023, actually. Our team is doing a great job enjoying this good momentum in the market. We are working this production plan for next year, but we do believe it still in another two-digit growth for next year. As I said before, we believe in a soft landing of the demand from 2022, 2023 onwards. I mean, with a growth average closer to the normal pre-crisis that would be a one-digit growth. You know, because of many reasons, as I said before, the wealth growth, the pre-owned fleet and the new users and new buyers that are coming to this market. This is our view on the executive market.
Okay. You're planning for double-digit growth in units 2022 versus 2021?
Correct.
Can you tell us what do you happen to have the number on the exact book to bill in executive in the quarter? I know you said it was over two, but if you just happen to have the precise number, that'd be helpful.
Yeah. As I said before, it is an excess of two to one, the book to bill.
Okay. Just to confirm the cash flow conversion target, you're referring to 50%, that's EBITDA, as opposed to EBIT or EBITDA?
No. For the 1st beginning is EBIT operating results, 50% conversion. For the first beginning, we call it our EBIT margin with upside potential. I do see today in the short term is 50% what we generate in regards to EBIT, not EBITDA.
50%.
Yeah.
free cash flow to EBIT.
Yeah. We are still having a higher interest cost in our company. It was a company two, three years ago at $6 billion revenue. Today we are at $4 billion revenue, and we still have this issue of being able to generate enough, I would say, business size in order to be able to compensate the interest. That's why I give you.
Right.
For the time being these metrics. I promise you guys, I'm going to refine this number for the next call.
Okay, great. Okay, thanks so much.
Welcome.
The next question comes from Jack Ayers with Cowen and Company.
Hey, guys. Good morning. This is Jack on for Kai today. Thanks for the question. I guess just previously following up on the margin commentary. It looks like your guide implies EBITDA margin improving sequentially from Q3- Q4. I guess if you could just talk about you know or provide a framework for how we think about Q4 margin by segment, you know, like is it defense? BizJet, I think your guide implies Q4 BizJet though is sort of you know expanding here in Q4. If you could just provide some color around you know the key sort of moving pieces around margin there would be helpful. On just backlog and book to bill, specifically this quarter, if you could provide what the defense and commercial backlog was, that'd be great. Thanks.
Thanks, Jack, for your question. If you see today or year to date, either EBIT or EBITDA margin, we are at the, I would say, at the high end of our guidance. We do see for Q4 highly driven by executive aviation because we do have, I would say, more or less 6%-40% of the delivery is going to happen in Q4. That's the first point. Exec commercial aviation more or less close to breakeven. Service and support also with some upside potential. We do have the same, the defense at the same level. We are cautious on the EBIT and EBITDA margin guidance because we are still negotiating with the Brazilian Air Force, the contract, the current contract of the KC.
We may have some risks that I don't want to say, saying that we are going to improve it because we still have a challenge here to end of this year. That's why we decided to keep the EBIT and EBITDA guidance at the same level. For sure, today we are much better, but the high end, but we do have a challenge at the end of this fiscal year. In regards to the backlog, defense on the quarter, we have, I would say, added no new contract in defense. Just a moment here, then you ask defense and commercial. Commercial, we added the 50 SkyWest that we booked in Q3 on the backlog.
Got it. Thank you. I guess just a, as a follow-up to cash, it looks like you're increasing your cash guide for full year. What about 2022 cash, like how we should think about, you know, that growing off of this 2021 base, you know, is that really just a function of volume and deliveries?
Yeah, we do see for next year also this range between BRL 100 million- BRL 200 million. I don't want to give our guidance right now, but assuming that we are coming back to, I would say, not, pre-pandemic levels, but slightly below the pre-pandemic levels, we should be able to keep between BRL 100 million, BRL 200 million. We continue in the efficient programs, not only driven by delivery itself, but everything we are doing regards to inventory management, purchasing, improving the working capital, we still have, I would say, potential to improve this figure that we are seeing right now.
Great. Thank you so much.
Okay.
The next question comes from Matthias Rimedio with BlueBay Asset Management.
Hi, good afternoon. I think a big part of my questions have been addressed, but just piggybacking on the most recent one.
Again, just trying to think about your working capital into next year, as I see some offsetting forces. On the one hand, you have fairly low inventory levels right now, and we're seeing increases in a lot of input costs. To the extent that you see some upside in your potential deliveries next year, I would imagine inventories can be a bit of a drag on working capital. On the other hand, you're seeing better contracted liabilities. Again, just trying to understand perhaps the different push and pull dynamics of your working capital. If you could just comment a little bit on, again, you know, your expectations on inventories kind of going forward and if you think that can be offset by other work? Thank you.
Thanks for the question, Matthias. This is a good opportunity to me to share with you guys other activities we are doing. 1st of all, our five-year plan is focusing on the sales of the existing product portfolio. We do have, as I said before, the potential to almost double the revenues of the company in this period, focusing on the existing portfolio of products. Last year, we went through an important right-sizing program, this company. Also we started to focus on important initiatives to reduce the cost of our aircraft, to focus on improving our accounts receivable, and to increase the turns of our inventories.
We have the target to almost triple the turns of our inventory turnover in the next three to four years. Again, I mean, with all these activities to right-sizing the company, to reduce the cost of the products, to reduce the expense, to manage responsibly the SG&A of the company, going to a period of more growth that we expect from 2022 onwards, we expect that we'll improve our financial performance, either in the profitability and more specifically, in the cash generation as well, as stated by Antonio before.
Just to complete Francisco. Matthias, if you ask me today, we continue in the crisis mode here means, we know about inflation, high inflation in Brazil or worldwide with the raw material too. We have the contracts backing in regards to pass through, let's say, and we continue to run efficiencies in our production, in our back office in order to offset any additional deviation we may have. Additional.
Perfect. Thank you very much.
Thank you. Welcome.
The next question comes from Nick Fazioli with Jefferies.
Hi. Thank you guys for the call and congratulations on the results. Just a quick one here on the rating agencies. You know, after these strong results, the strong recovery, it's notable to us that the three agencies still have you on negative outlook. Doesn't seem to make any sense. We actually think that there's a credible path here back to investment grade. Just wondering what's the latest in terms of conversations with them, timing with the agencies? On liability management, you guys mentioned the level of interest expenses and sort of thinking about reducing gross debt. How would potential issuance fit into those plans? You know, maybe coming back to the market opportunistically with a new 10-year.
And specifically wanted to ask around the ESG agenda that you guys mentioned. Clearly we've seen a lot of Brazilian corporates focus on ESG and doing things like sustainability-linked bonds. Is that something that you guys are already starting to think about? Thank you.
Nick, thanks for the question. I start with the rating. We just take, for example, Fitch. We are one notch below investment grade. The last The report of this year, the tendency was negative. They already changed to stable, I do believe we are going with the new information we are providing, they are going to put in the positive trend. It's my hope that we get back our investment grade in 2022, most probably end of 2022. That's the first question. For sure, we are, in regards to liability management, we are discussing Q3 it will be the basis for the debt market to go to refinance our debts and increase the length or maturity level. That's also in our agenda. These bonds will be a red ESG bond, a green bond.
This concludes today's question and answer session. That does conclude Embraer's audio conference for today. Thank you very much for your participation, and have a good day.