Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis provide information that Eve's management believes is relevant to an assessment and understanding of Eve's consolidated results of operations and financial condition. The discussion should be read together with the audited consolidated financial statements for the year ended December 31, 2023 and 2022, and the related notes that are included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. The Company’s actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements in this Annual Report on Form 10-K and in our other filings with the SEC. Capitalized terms not defined have the same meaning as in the notes to the consolidated financial statements.
Discussions of results for the year ended December 31, 2021 and year-to-year comparisons between 2021 and 2022 that are not included in this Form 10-K can be found in our 2022 Annual Report on Form 10-K/A filed with the SEC on May 4, 2023.
Overview
Eve Holding, Inc. (together with its subsidiaries, as applicable, “Eve”, the “Company”, “we”, “us” or “our”), a Delaware corporation, is an aerospace company with operations in Melbourne, Florida and São Paulo, Brazil. The Company is a former blank check company incorporated on November 19, 2020, under the name Zanite Acquisition Corp. (“Zanite”) as a Delaware corporation that was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.
Eve’s goal is to be a leading company in the urban air mobility ("UAM") market by taking a holistic approach to developing a UAM solution that includes: the design and production of electric vertical take-off and landing vehicles (“eVTOLs”), a portfolio of maintenance and support services focused on Eve’s and third-party eVTOLs, and a new air traffic management system for eVTOLs, otherwise known as Urban Air Traffic Management (“UATM”) system designed to allow eVTOLs to operate safely and efficiently in dense urban airspace alongside conventional aircraft and drones. Eve’s mission is to bring affordable air transportation to all passengers, improve quality of life, unleash economic productivity, save passengers time, and reduce global carbon emissions. Eve plans to leverage its strategic relationship with Embraer to de-risk and accelerate its development plans, while saving costs by utilizing Embraer’s extensive resources.
Eve’s Business Model
Eve plans to fuel the development of the UAM ecosystem by providing a complete portfolio of UAM solutions across threeprimary offerings:
eVTOL Production and Design. Eve is designing and certifying an eVTOL purpose-built for UAM missions. Eve plans to market its eVTOLs globally to operators of UAM services, including fixed wing and helicopter operators, as well as lessors that purchase and manage aircraft on behalf of operators.
Service and Operations Solutions. Eve plans to offer a full suite of eVTOL service and support capabilities, including material services, maintenance, technical support, training, ground handling and data services. Its services will be offered to UAM fleet operators on an agnostic basis – supporting both its own eVTOL and those produced by third parties.
Urban Air Traffic Management. Eve is developing a next-generation UATM system to help enable eVTOLs to operate safely and efficiently in dense urban airspace along with conventional fixed wing and rotary aircraft and unmanned drones. Eve expects to offer its UATM solution primarily as a subscription software offering to customers that include air navigation service providers, fleet operators and vertiport operators.
To date, Eve has not generated any revenue, as it continues to develop its eVTOL vehicles and other UAM solutions. As a result, Eve will require substantial additional capital to develop products and fund operations for the foreseeable future. Until Eve can generate any revenue from product sales and services, it expects to finance operations through a combination of existing cash on hand, public offerings, private placements, and debt financings. The amount and timing of future funding requirements will depend on many factors, including the pace and results of development efforts.
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ServiceAgreements
Eve Sub has entered into the Master Service Agreement with ERJ and the Atech MSA with Atech (collectively, the "MSAs"), a Service Agreement with Eve Brazil, and the SSA with ERJ, EAH and Eve Brazil. Pursuant to the MSAs with ERJ and Atech, each of ERJ and Atech, either directly or through their respective affiliates, will provide certain services and products to Eve and its subsidiaries, including, among others, product development of eVTOL, services development, parts planning, technical support, AOG (Aircraft on Ground) support, MRO (Maintenance, Repaid and Overhaul) planning, training, special programs, technical publications development, technical publications management and distribution, operation, engineering, designing and administrative services and, at Eve’s option, future eVTOL manufacturing services. Eve expects to collaborate with ERJ and leverage ERJ’s expertise as an aircraft producer, which will help it design and manufacture eVTOLs with low maintenance and operational costs and design systems and processes for maintenance, develop pilot training programs, and establish operations. The services provided under the SSA include, among others, corporate and administrative services to Eve. In addition, Eve Sub has also entered into the Data Access Agreement with ERJ and Eve Brazil, pursuant to which, among other things, ERJ has agreed to provide Eve Brazil with access to certain of its intellectual property and proprietary information in order to facilitate the execution of the specific activities that are set out in certain of the statements of work entered into pursuant to the Services Agreements.
The aforementioned Services Agreements continue to be in full force and effect. Further information about such agreements is set forth in our prospectus, dated January 18, 2023, filed on January 20, 2023, pursuant to Rule 424(b) under the Securities Act, relating to the Registration Statement on Form S-1/A, as amended (File No.333-265337) (the “Prospectus”), in the section entitled “Material Agreements”.
Key Factors Affecting Operating Results
For further discussion on the risks attendant to the Key Factors Affecting Operating Results, see the sections entitled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” in this Annual Report on Form 10-K.
Brazilian Economic Environment
The Brazilian government has frequently intervened in the Brazilian economy and occasionally made drastic changes in policy and regulations. The Brazilian government’s actions to control inflation and affect other policies and regulations have often involved, among other measures, increases in interest rates, changes in tax policies and incentives, price controls, currency devaluations, capital controls, and limits on imports. Changes in Brazil’s monetary, credit, tariff and other policies could adversely affect our business, as could inflation, currency and interest-rate fluctuations, social instability and other political, economic or diplomatic developments in Brazil, as well as the Brazilian government’s response to these developments.
Rapid changes in Brazilian political and economic conditions that have occurred and may occur require continued assessment of the risks associated with our activities and the adjustment of our business and operating strategy accordingly. Developments in Brazilian government policies, including changes in the current policy and incentives adopted for financing exports of Brazilian goods, or in the Brazilian economy, over which we have no control, may have a material adverse effect on our business.
Inflation and exchange rate variations have had and may continue to have substantial effects on our financial condition and results of operations.
Inflation and exchange rate variations affect our monetary assets and liabilities denominated in Brazilian reais. The value of these assets and liabilities as expressed in US Dollars declines when the real devalues against the US Dollar and increases when the real appreciates. In periods of devaluation of the real, we report (i) a remeasurement loss on real-denominated monetary assets and (ii) a remeasurement gain on real-denominated monetary liabilities. For additional information on the effects of exchange rate variations on our financial condition and results of operations, see the section entitled “Item 7A. Quantitative and Qualitative Disclosures about Market Risk.”
Development of the UAM Market
Our revenue will be directly tied to the continued development and sale of eVTOL and related services. While we believe the market for UAM will be large, it remains undeveloped and there is no guarantee of future demand. We currently anticipate commercialization of our eVTOL services-and-support business beginning in 2025, followed by the commercialization and initial revenue generation from the sale of our eVTOLs beginning in the latter half of 2026, and our business will require significant investment leading up to launching passenger services, including, but not limited to, final engineering designs, prototyping and testing, manufacturing, software development, certification, pilot training, and commercialization.
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We believe one of the primary drivers for adoption of our UAM services is the value proposition and time savings offered by aerial mobility relative to traditional ground-based transportation. Additional factors impacting the pace of adoption of our UAM services include but are not limited to: perceptions about eVTOL quality, safety, performance and cost; perceptions about the limited range over which eVTOL may be flown on a single battery charge, volatility in the cost of oil and gasoline, availability of competing forms of transportation, such as ground or air taxi or ride-hailing services, the development of adequate infrastructure, consumers’ perception about the convenience and cost of transportation using eVTOL relative to ground-based alternatives, and increases in fuel efficiency, autonomy, or electrification of cars. In addition, macroeconomic factors could impact demand for UAM services, particularly if end-user pricing is at a premium to ground-based transportation alternatives or more permanent work-from-home behaviors persist following the COVID pandemic. We anticipate initial operations in selected high-density metropolitan areas where traffic congestion is particularly acute and operating conditions are suitable for early eVTOL operations. If the market for UAM does not develop as expected, this would impact our ability to generate revenue or grow our business.
Competition
We believe that our primary sources of competition are focused UAM developers and established aerospace and automotive conglomerates developing UAM businesses. We expect the UAM industry to be dynamic and increasingly competitive. Our competitors could get to market before us, either generally or in specific markets. Even if we are first to market, we may not fully realize the benefits we anticipate and we may not receive any competitive advantage or may be overcome by other competitors. If new companies or existing aerospace or automotive conglomerates launch competing solutions in the markets in which we intend to operate and obtain large-scale capital investment, we may face increased competition. Additionally, our competitors may benefit from our efforts in developing consumer and community acceptance for UAM products and services, making it easier for them to obtain the permits and authorizations required to operate UAM services. In the event our project experiences substantial delays, or our current or future competitors overcome our advantages, our business, financial condition, operating results and prospects would be harmed.
Government Certification
We plan to obtain authorizations and certifications for our eVTOL with the Agência Nacional de Aviação Civil ("ANAC"), Federal Aviation Administration ("FAA"), and European Union Aviation Safety Agency ("EASA") initially and will seek certifications from other aviation authorities as necessary. We will also need to obtain authorizations and certifications related to the production of our aircraft and the deployment of our related services. While we anticipate being able to meet the requirements of such authorizations and certifications, we may be unable to obtain such authorizations and certifications, or to do so on the timeline we project. Should we fail to obtain any of the required authorizations or certifications, or do so in a timely manner, or any of these authorizations or certifications are modified, suspended or revoked after we obtain them, we may be unable to launch our commercial service or do so on the timelines we project, which would have adverse effects on our business, prospects, financial condition and/or results of operations.
Initial Business Development Engagement
Since its founding, Eve has been engaged in multiple market and business development projects around the world. Examples of this include two concepts of operation ("CONOPS") with Airservices Australia as well as with the United Kingdom Civil Aviation Authority. Both of these market and business development initiatives demonstrate Eve’s ability to create new procedures and frameworks designed to enable the safe scalability of UAM together with our partners. Using these initiatives as a guide, Eve has launched CONOPS in Rio de Janeiro, Miami, Japan, and Chicago, and hopes to launch additional concepts of operation in the United States, Brazil and around the world.
In addition to our market development initiatives, Eve has signed non-binding letters of intent to sell over 2,850 of our eVTOL aircraft and we continue to seek additional opportunities for sales partnerships. In addition to these deals, Eve has been actively involved in the UAM ecosystem development by signing Memorandums of Understanding ("MOUs") with more than 28 market-leading partners in segments spanning infrastructure, operations, platforms, utilities, and others. In the future, we plan to focus on implementation and ecosystem readiness with our existing partners while continuing to seek UATM and support-services partnerships in order to complement our business model and drive growth.
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Fully-IntegratedBusiness Model
Eve’s business model to serve as a fully-integrated eVTOL transportation solution provider is uncertain. Present projections indicate that payback periods on eVTOL aircraft will result in a viable business model over the long-term as production volumes scale and unit economics improve to support sufficient market adoption. As with any new industry and business model, numerous risks and uncertainties exist. Our financial results are dependent on certifying and delivering eVTOL on time and at a cost that supports returns at prices that sufficient numbers of customers are willing to pay based on value arising from time and efficiency savings from utilizing eVTOL services. Our aircraft include numerous parts and manufacturing processes unique to eVTOL aircraft, in general and our product design, in particular. Best efforts have been made to estimate costs in our planning projections; however, the variable cost associated with assembling our aircraft at scale remains uncertain at this stage of development. The success of our business also is dependent, in part, on the utilization rate of our aircraft and reductions in utilization will adversely impact our financial performance. Our aircraft may not be able to fly safely in poor weather conditions, including snowstorms, thunderstorms, lightning, hail, known icing conditions and/or fog. Inability to operate safely in these conditions would reduce our aircraft utilization and cause delays and disruptions in our services. We intend to maintain a high daily aircraft utilization rate which is the amount of time our aircraft spend in the air carrying passengers. High daily aircraft utilization is achieved in part by reducing turnaround times at vertiports so we can fly more hours on average in a day. Aircraft utilization is reduced by delays and cancellations from various factors, many of which are beyond our control, including adverse weather conditions, security requirements, air traffic congestion and unscheduled maintenance events.
Recent Developments
Supply Agreement
On October 9, 2023, Eve Sub and ERJ entered into a supply agreement, under which ERJ has agreed to design, develop, industrialize, manufacture, test, provide support for certification at ANAC, EASA, FAA, Transport Canada (“TCCA”) or such other airworthiness authority and supply certain aeronautical products for use or installation on the advanced aircraft with electric vertical takeoff and landing vehicle capabilities, known as EVE-100 eVTOL, that is or will be designed and manufactured by the Company.
Components of Results of Operations
Revenue
Eve is a development stage company and has not generated any revenue. We do not expect to generate revenue from eVTOL sales until we obtain regulatory approval of and commercialize our first eVTOL. Projected revenue in 2025 is expected for Service and Operations Solutions and UATM fees. These eVTOL-related revenue sources are not solely dependent on Eve aircraft, which are not expected to begin production until 2025 and generate revenue until the latter half of 2026. Our ability to generate revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of our eVTOL.
Operating Expenses
Research and Development Expenses
Research and development activities represent a significant part of Eve’s business. Eve’s research and development efforts focus on the design and development of eVTOLs, the development of services and operations for its vehicles and those operated by third parties, as well as the development of a UATM software platform. Research and development expenses consist of personnel-related costs (including salaries, bonuses, benefits and stock-based compensation) for Eve’s employees focused on research and development activities and costs of consulting, equipment and materials, as well as other related costs, amortization, and an allocation of overhead, including rent, information technology costs and utilities. Eve expects research and development expenses to increase significantly as it increases staffing to support eVTOL aircraft engineering and software development, builds aircraft prototypes, progresses towards the launch of its first eVTOL aircraft, and continues to explore and develop next generation aircraft and technologies.
Eve cannot determine with certainty the timing or duration of, or the completion costs of its eVTOL aircraft due to the inherently unpredictable nature of its research and development activities. Development timelines, the probability of success, and development costs can differ materially from expectations.
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Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of personnel-related costs (including salaries, bonuses, benefits and stock-based compensation) for employees associated with administrative services such as executive management, legal, human resources, information technology, accounting and finance. These expenses also include certain third-party consulting services, business development, contractor and professional services fees, audit and compliance expenses, insurance costs, facilities costs, corporate overhead costs, depreciation, rent, information technology costs, and utilities. Selling, general and administrative expenses have increased as Eve ramped up operations and became a public company, which is required to comply with the applicable provisions of the Sarbanes-Oxley Act (“SOX”) and other rules and regulations. Eve has been incurring and will continue to incur additional costs for employees and third-party consulting services related to operating as a public company and to support Eve’s commercialization efforts.
New Warrants Expenses
Eve has issued or agreed to issue new warrants to potential customers, financiers and suppliers. The New Warrants issued upon the Closing, or subsequently agreed to, were recognized by Eve at their respective fair values on this date as an operating expense (since Eve has no current revenue or binding contracts in place). Refer to Note 11 for more details.
Change in Fair Value of Derivative Liabilities
The derivative liabilities relate to the Private Placement Warrants issued by the Company. At the end of each reporting period, the fair value of these warrants is remeasured based on the closing price of the Company's Public Warrants. If the price of the Public Warrants increases, the change in fair value of the Private Placement Warrants will be in a loss position and vice versa. Refer to Note 11 for more information.
Results of Operations
The following tables set forth statement of operations information (in thousands):
Year Ended December 31,
Operating expenses
Interest income from related party loan 4,385 1,650 -
Interest expense (252 ) - -
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Comparisonofyears ended December 31, 2023 and 2022:
Y-o-Y Changes for the Year Ended
Changes in $ Changes in %
Operating expenses
Research and development expenses 53,724 104 %
Selling, general and administrative expenses (9,752 ) (30) %
Financial investment income 6,599 130 %
Interest income from related party loan 2,735 166 %
Other (loss)/gain, net (1,066 ) (876) %
Loss before income taxes 47,007 (27) %
Income tax expense 635 68 %
Research and development expenses
Research and development expenses increased $53.7 million in the year ended December 31, 2023. This increase in research and development was primarily due to an increase in R&D’s team headcount, higher engineering expenses contemplated in MSA agreements with ERJ and Atech, and higher expenses related to cost of supplies for the development of theprototype vehicle, a full-scale model of Eve’s eVTOL, including batteries, motors, thermal management systems and propellers. Further, additional milestone payments and purchases of parts, equipment and supplies went to suppliers and outside contractors in connection with the continued development of the prototype vehicle.
Selling, general and administrative expenses
Selling, general and administrative expenses decreased$9.8 million in the year ended December 31, 2022, primarily related to the non-recurring nature of several expenses related to the Company’s IPO, including legal, consulting, and marketing expenses incurred in connection with the listing in 2022.
New Warrants expenses
Expenses related to New Warrants decreased $103.0 million in the year ended December 31, 2023, primarily related to the non-recurring New Warrants issued to Strategic PIPE Investors upon the Closing or thereafter, as described in Note 11. New Warrant expense in 2023 was related to contingencies for certain warrants being met during the year.
(Loss)/gain from change in fair value of derivative liabilities
Loss from change in fair value of derivative liabilities increased $20.0 million in the year ended December 31, 2023, related to the increase in value of the Company's Private Placement Warrants. The Private Placement Warrant value is based on the Company's Public Warrants trading price, which increased in value to $0.98 per warrant as of December 31, 2023, from $0.25 per warrant as of December 31, 2022.
Financial investment income
Financial investment income increased $6.6 million in the year ended December 31, 2023, primarily related to 12 months of financial investment income versus eight months in 2022. Eve has invested its cash in short fixed-income instruments of low risk at high-quality financial institutions, mostly in US Dollars.
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Interest income from related party loan
Interest income from related party loan increased $2.7 million in the year ended December 31, 2023, primarily due to 12 months of interest income in 2023 versus five months in 2022.
Other (loss)/gain, net
Other loss, net increased $1.1 million in the year ended December 31, 2023, primarily related to a net decrease in the BRL to USD exchange rate during the year ended December 31, 2023.
Interest expense
Interest expense increased $0.3 million in the year ended December 31, 2023, primarily due to the BNDES Loans that were secured in January 2023. The Company made draws on the loans beginning in the third quarter 2023.
Income tax expense
Income tax expense increased $0.6 million in the year ended December 31, 2023, primarily due to increased intercompany revenue at Eve Brazil on a standalone basis, partially offset by the reversal of the deferred tax asset valuation allowance at Eve Brazil. Intercompany revenue at Eve Brazil is eliminated upon consolidation.
Liquidity and Capital Resources
Eve has incurred net losses since its inception and to date has not generated any revenue from the design, development, manufacturing, engineering and sale or distribution of electric aircraft. We expect to continue to incur losses and negative operating cash flows for the foreseeable future until we successfully commence sustainable commercial operations.
As of the Closing of the business combination with Zanite Acquisition Corp., Eve received proceeds from the business combination and PIPE Investment of approximately $357.3 million. In addition, in September 2022, Eve received $15.0 million from United Airlines Ventures, Ltd. (“United”), in connection with a subscription agreement pursuant to which United agreed to subscribe for an aggregate of 2,039,353 shares of common stock and a warrant agreement pursuant to which the Company issued to United new warrants to acquire up to 2,722,536 shares of common stock, each with an exercise price of $0.01 per share.
As of December 31, 2023, Eve had cash of $46.9 million, investments in marketable securities of $111.2 million and a related party loan receivable of $83.1 million from EAH. Additionally, on January 23, 2023, the Company secured loans from BNDES for a total borrowing availability of R$490.0 million (approximately $101.2million, using the exchange rate on December 31, 2023). As of December 31, 2023, Eve had $26.1 million of debt outstanding, excluding debt issuances costs. The $75.1 million available to be drawn provides totalliquidity of approximately $316.3 million. The total liquidity is expected to be sufficient to fund Eve's current operating plan for at least the nexttwelvemonths.In addition, Eve will receive the proceeds from any exercise of any warrants in cash, other than a cashless exercise effected in accordance with the terms of such warrants.
Eve’s future capital requirements will depend on many factors, including:
• capital expenditures in the expansion of its manufacturing capacities;
• general and administrative expenses as Eve scales its operations;
• interest expense from any debt financing activities; and
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Eve intends to continue to use their liquidity primarily to fund its research and development activities and other personnel costs, which are our business’ principal uses of cash. In light of the significant number of redemptions that occurred during the business combination, the current trading price for shares of our common stock and the unlikelihood that we will receive significant proceeds from exercises of the warrants because of the disparity between the exercise price of the warrants and the current trading price of the common stock, these funds will likely not be sufficient to enable Eve to complete all necessary development of and commercially launch its eVTOL aircraft. Our future capital requirements will depend on many factors, including our revenue growth rate, the timing and the amount of cash received from our customers, the expansion of sales and marketing activities and the timing and extent of spending to support development efforts. Until Eve generates sufficient operating cash flow to cover its operating expenses, working capital needs and planned capital expenditures, or if circumstances evolve differently than anticipated, Eve expects to utilize a combination of equity and debt financing to fund any future capital needs. Currently, no decision has been made as to specific sources of additional funding and Eve may explore different potential funding opportunities including potential long-term debt finance lines with private and public banks, advances and pre-delivery down payments from customers as well as equity and convertible lines. Eve may be unable to raise additional funds when needed on favorable terms or at all. The sale of securities by selling securityholders pursuant to the Prospectus could result in a significant decline in the public trading price of the common stock and could further decrease the likelihood of raising additional funds successfully. If Eve raises funds by issuing equity securities, dilution to stockholders may result. Any equity securities issued may also provide for rights, preferences, or privileges senior to those of holders of common stock. If Eve raises funds by issuing debt securities, these debt securities would have rights, preferences and privileges senior to those of preferred and common stockholders. The terms of debt securities or borrowings could impose significant restrictions on our operations. The capital markets have in the past and may in the future, experience periods of upheaval that could impact the availability and cost of equity and debt financing.
In the event that Eve requires additional financing but is unable to raise additional capital or generate cash flows necessary to continue its research and development and invest in continued innovation, Eve may not be able to compete successfully, which would harm its business, results of operations and financial condition. If adequate funds are not available, Eve may need to reconsider its expansion plans or limit its research and development activities, which could have a material adverse impact on our business prospects and results of operations.
Financing Activities
BNDES Loan Agreement
As previously disclosed, on January 23, 2023, Eve Brazil entered into a loan agreement (the “Loan Agreement”) with BNDES, pursuant to which BNDES agreed to grant two lines of credit to Eve Brazil, with an aggregate amount of R$490 million (approximately $101.2 million), to support the first phase of the development of the Company’s eVTOL project. For additional information about the Loan Agreement, see the Company’s Current Report on Form 8-K filed with the SEC on January 30, 2023.
On December 21, 2023, the Company announced that Bradesco Bank had concluded that the first line of credit under the Loan Agreement aligned with the 2023 Green Loans Principles, which is a set of guidelines issued for structuring loan operations for sustainable purposes. As of December 31, 2023, a total of R$126.2 million (approximately $26.1 million) had been issued to the Company pursuant to the Loan Agreement.
Cash Flows
The following table summarizes cash flows for the periods indicated (in thousands):
Year Ended December 31,
Net cash provided (used) by investing activities 66,832 (258,476 ) -
Effect of exchange rate changes on cash and cash equivalents 487 - -
2023 Compared with 2022
Net Cash Used by Operating Activities
Net cash used by operating activities for the year ended December 31, 2023, was $94.5 million versus net cash used of $59.5 million in the year ended December 31, 2022. The change results principally from an increase in research and development expenses in 2023, as compared to 2022, partially compensated by higher accounts payable to ERJ.
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Net Cash Provided (Used) by Investing Activities
Net cash provided by investing activities for the year ended December 31, 2023,was $66.8 million versus net cash used of $258.5 million in the year ended December 31, 2022.The change results principally from net redemptions of investments to fund operations of $67.0 million in 2023 compared to investing capital contributions of $177.0 million and the related party loan of $83.0 million toEmbraerAircraftHoldings ("EAH") from Eve Sub during 2022.
Net Cash Provided by Financing Activities
Net cash provided by financing activities for the year ended December 31, 2023, was $24.9 million versus net cash provided of $352.7 million in the year ended December 31, 2022. The change results principally from the proceeds raised from the business combination with Zanite Acquisition Corp. and the PIPE Investment in May 2022.
Critical Accounting Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent liabilities and the reported amounts of expenses during the reporting period. Eve’s estimates are based on our historical experience and on various other factors that Eve believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material. While Eve’s significant accounting policies are described in more detail in Note 2 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K, Eve believes the following accounting policies and estimates to be critical to the preparation of Eve’s consolidated financial statements:
Valuation allowance of deferred taxes
The ability to realize deferred tax assets depends on the ability to generate sufficient taxable income within the carryforward period provided for in the tax law for each applicable tax jurisdiction. The assessment regarding whether a valuation allowance is required or should be adjusted is based on an evaluation of possible sources of taxable income and also considers all available positive and negative evidence factors. Our accounting for the valuation of deferred tax assets represents our best estimate of future events. Changes in our current estimates, due to unanticipated market conditions, governmental legislative actions or events, could have a material effect on our ability to utilize deferred tax assets. At December 31, 2023, valuation allowances against deferred tax assets were $395.9 million. Refer to Note 16 to our consolidated financial statements for additional information on the composition of these valuation allowances and information on the $1.7 million deferred income tax benefit resulting from the release of valuation allowances against deferred tax assets in Brazil.
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Credit Risk
Financial instruments, which subjects Eve to concentrations of credit risk, consist primarily of cash, cash equivalents, financial investments, and a related party loan receivable. Eve’s cash and cash equivalents and financial investments are held at major financial institutions located in the United States of America and Brazil. At times, cash account balances with any one financial institution may exceed Federal Deposit Insurance Corporation insurance limits ($250,000 per depositor per institution). Management believes the financial institutions that hold Eve’s cash and cash equivalents and financial investments are financially sound and, accordingly, minimal credit risk exists with respect to cash and cash equivalents and financial investments.
Eve also performs an ongoing evaluation of EAH, our counterparty for the related party loan receivable. No allowance for credit loss has been deemed necessary.
Emerging Growth Company Status
We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Section 107(b) of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the extended transition period to comply with new or revised accounting standards and to adopt certain of the reduced disclosure requirements available to emerging growth companies. As a result of the accounting standards election, we are not subject to the same implementation timeline for new or revised accounting standards as other public companies that are not emerging growth companies which may make comparison of our financials to those of other public companies more difficult.
We also take advantage of some of the reduced regulatory and reporting requirements of emerging growth companies pursuant to the JOBS Act, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments.
We will lose our emerging growth company status and become subject to the SEC’s internal control over financial reporting auditor attestation requirements upon the earlier of the last day of the fiscal year following the fifth anniversary of the date of the completion of Zanite's IPO on November 19, 2020, or (1) we have total annual gross revenue of at least $1.2 billion, (2) we are deemed to be a large accelerated filer, or (3) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three year period.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We are exposed to market risk for changes in the Brazilian interest rate CDI, related to our cash equivalents in Brazil that are invested in Bank Deposit Certificates (“CDB"), which are issued by financial institutions in Brazil and immediately available for redemption. As of December 31, 2023, approximately 2.8% of our consolidated cash equivalents and financial investments were indexed to the variation of the CDI rate.
The CDI rate is an average of interbank overnight rates in Brazil. A risk to financial investment income arises from rate fluctuations in the Brazilian interest rates.
The interest rates on the lines of credit made available by BNDES are fixed or fixed upon drawing the debt, which will reduce unexpected variability of the interest expenses.
Our investment policy is focused on the preservation of capital and supporting the Company's liquidity needs. The Company’s policy for managing the risk of fluctuations in interest rates on financial investments is to maintain a system to measure market risk, which consists of an aggregate analysis of variety of risk factors that might affect the return of those investments.
The exposure to interest rate risk as of December 31, 2023 was asfollows (USD, in thousands):
The positive and negative variations of 25% and 50% are applied to the most probable scenario rate.
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Foreign Currency Risk
The Company’s operations most exposed to foreign exchange gains/losses are those denominated in reais (labor costs, tax issues, local expenses and financial investments) arising from the subsidiary located in Brazil. The relationship of the real to the value of the US Dollar may adversely affect us, mainly due to the fact that 1% of total assets and 27% of total liabilities are in reais.
The Brazilian real has experienced frequent and substantial variations in relation to the US Dollar and other foreign currencies. As of December 31, 2023, the real appreciated against the US Dollar, closing at 4.8413reais per US $1.00.
The exposure of the financial instruments to foreign currency risk as of December 31, 2023 was as follows (USD, in thousands):
Assets
Liabilities
The positive and negative variations of 25% and 50% are applied to the most probable scenario rate.
Item 8. Financial Statements and Supplementary Data
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Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors
Eve Holding, Inc.:
Opinion on theConsolidated Financial Statements
We have audited the accompanying consolidatedbalance sheets of Eve Holding, Inc.and subsidiaries (the Company) as of December31,2023and 2022, the related consolidatedstatements of operations, comprehensive loss, equity, and cash flowsfor each of the years in the two-year period ended December31,2023, and the related notes (collectively, the consolidated financial statements).In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December31,2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December31,2023, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2022.
Miami, Florida
March8,2024
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
of Eve Holding, Inc.
Opinion on the Financial Statements
We have
audited the consolidated statements of operations, of comprehensive loss, of
equity and of cash flows of Eve Holding, Inc. (formerly The Urban Air Mobility
Business of Embraer S.A.) (the “Company”) for the year ended December 31, 2021,
including the related notes (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated
financial statements present fairly, in all material respects, the results of
operations and cash flows of the Company for the year ended December 31, 2021
in conformity with accounting principles generally accepted in the United
States of America.
Basis
for Opinion
These consolidated
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on the Company’s consolidated financial
statements based on our audit. We are a public accounting firm registered with
the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We
conducted our audit of these consolidated financial statements in accordance
with the standards of the PCAOB and in accordance with auditing standards
generally accepted in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement,
whether due to error or fraud.
Our
audit included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks.Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the financial
statements. Our audit also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our
audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Miami,
Florida
March
18, 2022, except for the effects of the restatement discussed in Note 2 (not
presented herein) to the combined financial statements, appearing as an exhibit
in Eve Holding, Inc.’s Form 8-K/A dated December 12, 2022, as to
which the date is December 7, 2022, and except for the consolidation and the
recapitalization of equity including EPS discussed in Note 2 (not presented
herein), appearing in Eve Holding, Inc.’s 2022 Form 10-K, as to which the date
is March 23, 2023.
We served as the Company's auditor from
2021 to 2022.
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EVE HOLDING, INC.
(FORMERLY EVE UAM, LLC)
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
December 31, December 31,
ASSETS
Current assets
Related party receivables 191 204
Non-current assets
Property, plant & equipment, net 547 452
Right-of-use assets, net 508 217
Deferred income tax, net 1,714 -
Other non-current assets 348 -
LIABILITIES AND EQUITY
Current liabilities
Derivative financial instruments 13,965 3,563
Non-current liabilities
Commitments and contingencies (Note 18)
Equity
The accompanying notes are an integral part of these consolidated financial statements.
Amounts may not add due to rounding.
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EVE HOLDING, INC.
(FORMERLY EVE UAM, LLC)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Year Ended December 31,
Operating expenses
Interest income from related party loan 4,385 1,650 -
Interest expense (252 ) - -
Net loss per share–basic and diluted $ (0.46 ) $ (0.68 ) $ (0.08 )
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
Year Ended December 31,
Derivative financial instruments - cash flow hedge - - (78 )
The accompanying notes are an integral part of these consolidated financial statements.
Amounts may not add due to rounding.
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EVE HOLDING, INC.
(FORMERLY EVE UAM, LLC)
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)
Common Stock
Other comprehensive loss - - - - (78 ) (78 )
Separation-related adjustment - - (708 ) - 32 (676 )
Issuance of common stock for exercised warrants 3,523 4 32 - - 35
Share-based compensation and issuance for vested awards 140 0 3,301 - - 3,301
Reclassification of Public Warrants to equity - - 10,580 - - 10,580
Distribution to Parent, net - - (1,373 ) - - (1,373 )
Issuance of common stock for exercised warrants 150 0 3 - - 3
Issuance of New Warrants - - 1,863 - - 1,863
Warrant expenses - - 480 - - 480
Share-based compensation and issuance for vested awards 115 0 3,004 - - 3,005
The accompanying notes are an integral part of these consolidated financial statements.
Amounts may not add due to rounding.
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EVE HOLDING, INC.
(FORMERLY EVE UAM, LLC)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
Cash flows from operating activities
Adjustments to reconcile net loss to net cash used by operating activities
Depreciation, amortization, and loss on disposal 184 25 108
Non-cash lease expenses 84 9 -
Unrealized (gain)/loss on exchange rate changes (9 ) - -
Long-term incentive plan expense - 1 150
Change in fair value of derivative financial instruments 10,403 (9,548 ) -
Deferred income taxes (1,714 ) - -
Non-cash tax expense 436 - -
Changes in operating assets and liabilities
Accrued interest on financial investments, net 564 (1,782 ) -
Accrued interest on related party loan receivable, net (391 ) (1,650 ) -
Cash flows from investing activities
Redemptions of financial investments 219,500 - -
Related party loan - (81,000 ) -
Expenditures for property, plant and equipment (168 ) (476 ) -
Net cash provided (used) by investing activities 66,832 (258,476 ) -
Cash flows from financing activities
Proceeds from issuance of debt 25,453 - -
Non-creditor debt issuance costs (243 ) - -
Tax withholding on share-based compensation (287 ) - -
Transaction costs reimbursed to parent - (15,754 ) -
Transfer from parent - - 14,263
Distribution to parent, net - (1,373 ) -
Proceeds from exercised warrants 3 - -
Effect of exchange rate changes on cash and cash equivalents 487 - -
Net (decrease) increase in cash and cash equivalents (2,264 ) 34,770 14,377
Cash and cash equivalents at the beginning of the period 49,146 14,377 -
Cash and cash equivalents at the end of the period $ 46,882 $ 49,146 $ 14,377
Supplemental disclosure of cash information
Cash paid for
Interest $ 77 $ - $ -
Supplemental disclosure of other non-cash investing and financing activities
Issuance of common stock for vested restricted stock units $ 1,366 $ 1,585 $ -
Additions to capitalized software transferred by parent $ - $ - $ 784
The accompanying notes are an integral part of these consolidated financial statements.
Amounts may not add due to rounding.
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EVE HOLDING, INC.
(FORMERLY EVE UAM, LLC)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, unless otherwise specified or per share amounts)
Note 1– Organization and Nature of Business
Eve Holding, Inc. (together with its subsidiaries, as applicable, “Eve,” “Eve Holding,” the “Company,” “we,” “us,” or “our”), is an aerospace company that is dedicated to accelerating the urban air mobility (“UAM”) ecosystem. Benefitting from a startup mindset and with a singular focus, Eve is taking a holistic approach to progressing the UAM ecosystem with an advanced electric vertical take-off and landing (“eVTOL”) project, a comprehensive global services and support network, and a unique air traffic management solution. The Company is organized in Delaware with operations in Melbourne, Florida and São Paulo, Brazil.
The Company is a former blank check company incorporated on November 19, 2020, under the name Zanite Acquisition Corp. (“Zanite”) as a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one or more businesses.
Business Combination
On December 21, 2021, Zanite entered into a Business Combination Agreement (the “BCA”), with Embraer S.A., a Brazilian corporation (“sociedade anonima”) (“ERJ”), Embraer Aircraft Holding, Inc., a Delaware corporation (“EAH”) wholly owned by ERJ, and EVE UAM, LLC, a Delaware limited liability company (“Eve Sub”), a former subsidiary of EAH, that was formed for purposes of conducting the UAM business. For transactions beyond the Business Combination (as defined below) and initial financing, ERJ and EAH are collectively referred to as “Embraer.”
On May 9, 2022, the closing (the “Closing”) of the transactions contemplated by the BCA occurred (“Business Combination”). Pursuant to the BCA, Zanite issued 220 millionshares of Class A common stock to EAH in exchange for all of the issued and outstanding limited liability company interests of Eve Sub (the “Equity Exchange”). As a result, Eve Sub became a wholly owned subsidiary of Zanite, which changed its name to “Eve Holding, Inc.”
Financing
On December 21, 2021, December 24, 2021, March 9, 2022, March 16, 2022, and April 4, 2022, in connection with the Business Combination, Zanite entered into subscription agreements or amendments thereto (as amended from time to time, the “Subscription Agreements”) with certain investors, including certain strategic investors and/or investors with existing relationships with ERJ (the “Strategic Investors”), Zanite Sponsor LLC, a Delaware limited liability company (the “Sponsor”), and EAH (collectively, the “PIPE Investors”), pursuant to which and on the terms and subject to the conditions of which, Zanite agreed to issue and sell to the PIPE Investors in private placements to close immediately prior to the Closing, an aggregate of 35.7 millionshares of Class A common stock at a purchase price of $10.00 per share, for an aggregate purchase price of $357.3 million, which included the commitment of the Sponsor to purchase 2.5 million shares of Class A common stock for a purchase price of $25 millionand the commitment of EAH to purchase 18.5 millionshares of Class A common stock for a purchase price of $185 million(the “PIPE Investment”). The PIPE Investment was consummated substantially concurrently with the Closing. Upon Closing, all shares of Zanite Class A and Class B common stock were converted into, on a one-for-one basis, shares of common stock of Eve Holding.
Accounting Treatment of the Business Combination
The Business Combination was accounted for as a reverse recapitalization, equivalent to the issuance of shares by Eve Sub for the net monetary assets of Zanite accompanied by a recapitalization. Accordingly, the consolidated assets, liabilities, and results of operations of Eve Sub became the historical financial statements of the Company. The assets, liabilities, and results of operations of Zanite were consolidated with Eve Sub beginning on the Closing date. For accounting purposes, these financial statements of the Company represent a continuation of the financial statements of Eve Sub. The net assets of Zanite were recorded at historical costs with no goodwill or other intangible assets recorded. Operations prior to the Business Combination are presented as those of Eve Sub.
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Both Embraer and Zanite’s sponsors incurred costs in connection with the business combination (“Transaction Costs”). The Transaction Costs that were determined to be directly attributable and incremental to the Company, and as the primary beneficiary of these expenses, were deferred and recorded as other assets in the balance sheet until the Closing. Such costs were subsequently recorded either as an expense of the Business Combination or a reduction of cash contributed with a corresponding reduction of additional paid-in capital if they were attributable to one or multiple sub-transactions of the Business Combination.
After the Closing, EAH did not lose control over Eve Sub as EAH still held approximately 90% of Eve Holding’s shares. Therefore, the transaction did not result in a change in control that would otherwise necessitate business combination accounting.
Use of Estimates
The preparation of consolidated financial statements in accordance with U.S. GAAP requires the Company’s management to make estimates and judgments that affected the reported amounts of assets and liabilities and allocations of expenses. These judgments were based on the historical experience, management’s evaluation of trends in the industry and other factors that were deemed relevant at that time. The estimates and assumptions were reviewed on a regular basis and the changes to accounting estimates were recognized in the period in which the estimates were revised. The Company’s management recognizes that the actual results could be materially different from the estimates.
Prior Period Reclassification
We have reclassified certain prior period amounts to conform to the current period presentation. These reclassifications had no effect on the reported results of operations.
Basis of Presentation
The Company’s consolidated financial statements included in this report reflect (i) the historical operating results of Eve Sub prior to the Business Combination on May 9, 2022, prepared on a carve-out basis, (ii) the combined results of Eve Sub andZanitefollowing the Closing, (iii) the assets and liabilities of Eve Sub at their historical cost, and (iv) the Company’s retroactive recast of the equity structure recapitalization including EPS for all periods presented.
Until the Closing date on May 9, 2022, the consolidated financial statements of Eve Sub reflect the assets, liabilities and expenses that management determined to be specifically attributable to Eve Sub, as well as allocations of certain corporate level assets, liabilities and expenses, deemed necessary to fairly present the financial position, results of operations and cash flows of Eve, as discussed further below. Management believes that the assumptions used as basis for the allocations of expenses, direct and indirect, as well as assets and liabilities in the consolidated financial statements are reasonable. However, these allocations may not be indicative of the actual amounts that would have been recorded had Eve operated as an independent, publicly traded company for the periods presented.
The accompanying consolidated financial statements are presented in US Dollars, unless otherwise noted, and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the accounting and disclosure rules and regulations of the Securities Exchange Commission (“SEC”).All intercompany balances and transactions were eliminated in consolidation. Certain columns and rows may not add due to rounding.
Note 2– Significant Accounting Policies
Change in Carve-Out Methodology
Prior to the separation from Embraer, Eve Sub has historically operated as part of Embraer and not as a standalone company. Therefore, a carve-out methodology was necessary to prepare historical financial statements since Eve Sub’s inception in 2017 until the Closing on May 9, 2022. For reporting periods prior to and for the year ended December 31, 2021, the management approach was used as the carve-out methodology. The management approach takes into consideration the assets that were being transferred to determine the most appropriate financial statement presentation. A management approach may also be appropriate when a parent entity needs to prepare financial statements for the sale of a legal entity, but prior to divestiture, certain significant operations of the legal entity are contributed to the parent in a common control transaction.
The Master Service Agreement (“MSA”) and Shared Service Agreement (“SSA”) were executed on December 14, 2021. Beginning January 1, 2022, Embraer started charging Eve Sub for most of the expenses Eve Sub previously carved out. Refer to Note 5 – Related Party Transactions for information regarding these agreements.On the Closing date, Embraer concluded that all relevant assets and liabilities were contributed to Eve Sub.Based on the direct charges under the MSA and SSA and the transfer of assets and liabilities to Eve Sub, the Company determined it to be appropriate to change the carve-out methodology to the legal entity approach.The legal entity approach is often appropriate in circumstances when the transaction structure is aligned with the legal entity structure of the divested entity.The Company applied the legal entity approach beginning January 1, 2022 until the Closing date May 9, 2022. For activity after the Closing date, no carve-out adjustments were necessary in preparation of Eve’s consolidated financial statements.
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The Company has recorded the impacts of the change in carve-out methodology from the management approach to the legal entity approachas adjustments (“Separation-Related Adjustments”) to the January 1, 2022 beginning balance sheet and not as a period activity attributable to the year ended December 31, 2022. The January 1, 2022 beginning balance sheet adjustments from the December 31, 2021 balances were as follows:
Separation-Related Adjustments
December 31, Separation-Related January 1,
ASSETS
Current assets
Related party receivables 220 - 220
Capitalized software, net 700 (700 ) -
Total non-current assets 700 (700 ) -
LIABILITIES AND NET PARENT EQUITY
Current liabilities
Derivative financial instruments 32 (32 ) -
Net parent equity
Accumulated other comprehensive loss (32 ) 32 -
Total liabilities and net parent equity $ 21,571 $ (708 ) $ 20,862
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Functional and Reporting Currency
Management has concluded that the US Dollar (“US Dollars,” “USD,” or “$”) is the functional and reporting currency of Eve. The balances and transactions of Eve Soluções de Mobilidade Aérea Urbana Ltda. ("Eve Brazil"), a direct wholly owned subsidiary of Eve based in Brazil, that were recorded in a Brazilian reais (“BRL” or “R$”) have been remeasured into the functional currency (USD) before being presented in the consolidated financial statements.
Foreign currency gains and losses are related to transactions with suppliers recognized in USD, but settled in BRL. The financial impact is recognized in “Other (loss)/gain, net” within the consolidated statements of operations.
Property, Plant & Equipment, Net
Property, plant & equipment, net are stated at historical cost less accumulated depreciation. Eve depreciates property, plant & equipment on a straight line basis. Expenditures for major renewals and betterments are capitalized, while minor replacements, maintenance, and repairs, which do not extend the asset lives, are expensed as incurred.
Valuation of Long-Lived Assets
Long-lived assets, which include property, plant & equipment and right-of-use assets, are reviewed for impairment when events or changes in circumstance indicate that the carrying amount of the long-lived asset group may not be recoverable.
Debt
Debt or borrowings from banks with an original maturity date falling within twelve months will be classified within current liabilities, as well as the current portion of any long-term debt. Debt or borrowings from banks with maturity dates greater than twelve months (long-term debt) will be classified within non-current liabilities, net of any current portion.
Debt Issuance Costs
Debt issuance costs include incremental fees and commissions incurred in connection with the issuance of debt. Generally, these costs are recorded as a contra-liability as a direct deduction from the carrying value of the associated debt liability and amortized over the remaining term of the debt instrument.
Research and Development Expenses
Research and development expenses ("R&D") are focused on design and development of our eVTOL, Service and Operations Solutions, and UATMprojects to achieve manufacturing and commercial stage. R&D costs are expensed as incurred and are primarily comprised of engineering services provided by related parties, personnel-related costs for employees focused on R&D activities, supplies, and materials costs.R&D expenditures for the UATM project are related to the development of software to be sold, leased, or otherwise marketed.These costs are expensed as incurred until technological feasibility is established.
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Stock Incentive Plans
Until December 31, 2021, Eve carved-out certain amounts related to the ERJ long-term incentive plan ("Embraer Plan"). The Embraer Plan has the objective of retaining and attracting qualified personnel who will make an effective contribution to Eve’s future performance. The plan is a cash-settled phantom shares plan, in which the amounts attributed to the services provided by the participants are converted into virtual share units based on the market value of ERJ’s shares. At the end of the acquisition period the participant receives the quantity of virtual shares converted into BRL, at the shares’ current market value. Eve recognizes the obligation during the acquisition period (quantity of virtual shares proportional to the period) in the same group as the participant’s normal remuneration. This obligation is presented within either "Other current payables” or "Other non-current payables" dependent upon the remaining vesting term. The fair value is calculated based on the market price of the shares and recorded as “Selling, general and administrative expenses” in the consolidated statements of operations. During 2022, Eve assumed obligations under the Embraer Plan towards certain employees transferred from Embraer to Eve. Eve has its own remuneration plan, the 2022 Stock Incentive Plan.
Eve's Stock Incentive Plan grants its eligible employees, contractors, and directors restricted stock units (RSUs) of our common stock. We recognize stock-based compensation expense in accordance with the provisions of ASC 718, Compensation - Stock Compensation. ASC 718 requires the measurement and recognition of compensation expense for all stock-based compensation awards made to employees, contractors, and directors to be based on the grant date fair values of the awards. Expense for awards with service and market conditions begins when a grant date has been determined. Expense for awards with performance conditions begins when a grant date has been determined and the performance condition is considered probable. We estimate the fair value of RSU awards with market conditions using the Monte Carlo simulation option-pricing model, which requires management to make assumptions and judgments.The fair value of the RSU’swithout market conditions equals Eve’s share price on the grant-date. The fair value of awards is recognized as expense over the requisite service period on a straight-line basis. Forfeitures by employees are accounted for when they occur and estimated for non-employees.
Income Taxes
For the US operations, the operating results and related tax positions are a component of either a legal entity and/or a larger group of entities that file tax returns. The tax loss carryforwards generated by the US operation are based on a hypothetical stand-alone income tax return basis and may not exist in the EAH consolidated financial statements. Eve Brazil files a separate income tax return in Brazil, thus, all income tax related balances are based on enacted Brazilian tax law.
The deferred income taxes are generally recognized, based on enacted tax rates, when assets and liabilities have different values for financial statement and tax purposes. Eve has calculated its income tax amounts using a separate return methodology. Under this method, Eve prepares the financial statements as if it will file separate returns with tax authorities. As a result, Eve’s deferred tax balances and effective tax rate as a stand-alone entity will likely differ significantly from those recognized in the actual consolidated return with Embraer. A valuation allowance is appropriate if it is more likely than not all or a portion of deferred tax assets will not be realized. The calculation of income taxes on a separate return basis requires a considerable amount of judgment and use of both estimates and allocations.
Eve accounts for uncertain income tax positions recognized in the consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to be recognized in the consolidated financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.
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Other Accounting Policies
See the following notes for other accounting policies impacting the Company's consolidated financial statements:
Note Title
3 Cash and Cash Equivalents
4 Financial Investments
8 Fair Value Measurements
11 Common Stock Warrants
13 Earnings Per Share
19 Segments
Recently Issued Accounting Pronouncements Not Yet Adopted
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2023-07, Improvements to Reportable Segment Disclosures (Topic 280). This guidance is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company does not currently expect the adoption of this ASU will have a material impact on the consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (Topic 740). This guidance establishes new income tax disclosure requirements in addition to modifying and eliminating certain existing guidance. Under the new guidance, entities must consistently categorize and provide greater disaggregation of information in the rate reconciliation. They must also further disaggregate income taxes paid. This ASU is effective for fiscal years beginning after December 15, 2024, although early adoption is permitted. The Company is currently evaluating the impact of adopting this new accounting guidance on our consolidated financial statements, but does not expect the adoption of this ASU will have a material impact on the consolidated financial statements and related disclosures.
Note 3 – Cash and Cash Equivalents
Cash and cash equivalents include deposits in Bank Deposit Certificates (“CDBs”) issued by financial institutions in Brazil that are immediately available for redemption and fixed term deposits in US Dollars with original maturities of 90 days or less.Balances consisted of the following:
December 31,
Note 4 – Financial Investments
Held to maturity (“HTM”) investments are recorded in the consolidated balance sheets at amortized cost. These investments include time deposits with original maturities of one year or less, but greater than 90 days.
Amortized Cost Unrealized Gains Unrealized Losses Fair Value
HTM securities, at cost:
Amortized Cost Unrealized Gains Unrealized Losses Fair Value
HTM securities, at cost:
No allowance for credit losses was recognized as of December 31, 2023 and December 31, 2022.
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Note 5 – Related Party Transactions
Relationship with Embraer
In December 2021, Eve and Embraer entered into the Master Service Agreement and Shared Service Agreement, and as a result, Embraer began charging Eve for R&D and SG&A support, respectively. The expenses reflected in the consolidated financial statements may not be indicative of expenses that will be incurred by Eve in the future.
Corporate CostsEmbraer incurs corporate costs for services provided to Eve. These costs include, but are not limited to, expenses for information systems, accounting, treasury, purchasing, human resources, legal, and facilities. These costs benefit Eve, but are not covered under the MSA or SSA. The corporate costs are allocated between the “Research and development expenses” and “Selling, general and administrative expenses” line items of the consolidated statements of operations as appropriate.
Transaction CostsDuring the year ended December 31, 2022, Embraer paid for Transaction Costs attributable to Eve Sub. The Transaction Costs comprised, but were not limited to, costs associated with legal, finance, consulting, and auditing services with the objective to effectuate the transaction with Zanite, as described in Note 1. Expenses directly related to the anticipated closing of the transaction with Zanite were capitalized and the remaining expenses were charged to the statement of operations as SG&A expenses.
Master Service Agreement and Shared Service AgreementIn connection with the transfer of the assets and liabilities of the UAM business to Eve Sub, Embraer and Eve Sub entered into the MSA and SSA on December 14, 2021. The initial terms for the MSA and SSA are 15 years. The MSA can be automatically renewed for additional successive one-year periods. The MSA established a fee so that Eve may have access to Embraer’s R&D and engineering department structure, as well as, at Eve’s option, the ability to access manufacturing facilities in the future. The SSA established a cost overhead pool to be allocated, excluding any margin, so that Eve may be provided with access to certain of Embraer’s administrative services and facilities such as shared service centers. In addition, on December 14, 2021, Eve Sub entered into a MSA with Atech Negócios em Tecnologias S.A., a Brazilian corporation (sociedade anônima) (“Atech”) and wholly owned subsidiary of Embraer, for an initial term of 10 years (the “Atech MSA”). Fees under the Atech MSA are for services related to Air Traffic Management, defense systems, simulation systems, engineering, and consulting services.
Development CostsDuring 2023, the Company entered into supply agreements with Embraer entities and joint ventures that Embraer is a party to for the purchase components and other materials consumed in development activities.
Related Party Receivables and PayablesCertain employees have transferred from Embraer to Eve. On the transfer date of each employee, all payroll related accruals for the employee are transferred to Eve. Embraer is responsible for payroll related costs prior to the transfer date. Eve recognizes a receivable from Embraer for payroll costs incurred prior to the transfer date in the "Related party receivables" line of the consolidated balance sheets. Fees and expenses in connection with the MSA, SSA, and other costs are payable within45days after receipt of the invoice and are recognized in "Related party payables" within the consolidated balance sheets.
Royalty-Free LicensesUnder the MSA and SSA, Eve has a royalty-free license to access Embraer’s intellectual property to be used within the UAM market.
LeasesEve enters into agreements with Embraer to lease corporate office space and other facilities. Refer to Note 17 for more information.
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Related Party LoanOn August 1, 2022, the Company entered into a loan agreement (the “Loan Agreement”) with EAH, a wholly owned U.S. subsidiary of Embraer, in order to efficiently manage the Company’s cash at a rate of return that is favorable to the Company for an initial term of 12 months. On August 1, 2023, Eve and EAH agreed to amend the Loan Agreement ("Amended Loan Agreement") to extend the term an additional 12 months to August 1, 2024 and increase the fixed interest rate to 5.97% per annum. The aggregate principal amount is still up to $81 million. All accrued interest prior to the amendment was paid. The date may be extended upon mutual written agreement by the Company and Embraer. Any outstanding principal amount under the Loan Agreement may be prepaid at any time, in whole or in part, by EAH at its election and without penalty. The Company may request full or partial prepayment of any outstanding principal amount under the Loan Agreement at any time.Interest income is recognized using the simple interest method.No credit losses were recognized related to the loan during 2023 and 2022.
Related Party Expenses
The following table summarizes the related party expenses for the presented periods:
Year Ended December 31,
Note 6 – Other Balance Sheet Components
Property Plant and Equipment
Property, plant and equipment consisted of the following:
December 31,
Development mockups $ 516 $ 419
Leasehold improvement 167 -
Construction in progress ("CIP") 9 44
Computer hardware 15 13
Total property, plant and equipment $ 707 $ 476
Less: Accumulated depreciation (160 ) (25 )
Total property, plant and equipment, net $ 547 $ 452
Depreciation expense for the year ended December 31, 2023, 2022, and 2021 was $0.1 million, less than $0.1 million, and $0, respectively.
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Other Current Payables
Other current payables are comprised of the following items:
December 31,
Income tax payable 1,141 -
Other Non-Current Payables
Other non-current payables are comprised of the following items:
December 31,
Advances from customers (a) $ 1,284 $ 800
(a) Advances from customers relate to customers who have signed non-binding Letters of Intent to purchase eVTOLs.
Note 7 – Debt
On January 23, 2023, Eve Brazil entered into a loan agreement (the “BNDES Loan Agreement”) with Banco Nacional de Desenvolvimento Economico e Social (“BNDES”), pursuant to which BNDES extended two loans to Eve Brazil with an aggregate amount of R$490 million (approximately $101.2 million), to support the first phase of the development of the Company’s eVTOL project. All USD approximations use foreign currency exchange rate data as of December 31, 2023.
The first loan (“Sub-credit A”), in the amount of R$80 million (approximately $16.5 million), was denominated in Brazilian reais by Fundo Nacional Sobre Mudança Climática (“FNMC”), a BNDES fund that supports businesses focused on mitigating climate change and reducing carbon emissions. Sub-credit A has maturity dates on a monthly basis from March 2026 through February 2035. The second loan (“Sub-credit B”), in the amount of R$410 million (approximately $84.7 million), was denominated in US Dollars, as adjusted on a daily basis by the US Dollar sale rate published by the Central Bank of Brazil as the “PTAX” rate. Sub-credit B has maturity dates on a quarterly basis from May 2027 through February 2035. A one-time fee of approximately $0.4 million was withheld from the initial draw by BNDES.
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The Company's long-term debt outstanding as of December 31, 2023 included:
Title Type Interest Rate Carrying Amount
Sub-credit B Term Loan (a) 12,937
Long-term debt principal $ 26,069
Unamortized debt issuance costs (b) (305 )
The long-term debt principal matures as follows:
Sub-credit A Sub-credit B
As of December 31, 2023, there is approximately $3.4 million and $71.7 million available to be drawn on Sub-credit A and Sub-credit B, respectively. The BNDES loans shall be drawn by Eve Brazil by January 23, 2026. Otherwise, BNDES may terminate the BNDES Loan Agreement and any loans shall be paid no later than February 15, 2035. The BNDES Loan Agreement provides that the availability of such loans are subject to BNDES' rules and regulations and, in the case of Sub-credit A, FNMC’s budget. In the case of Sub-credit B, the loan is subject to rules and regulations of BNDES' financing program, which is subject to funding by the Conselho Monetário Nacional, Brazil’s National Monetary Council. Additionally, the BNDES Loan Agreement provides that the borrowing of any amount under these loans are subject to certain conditions, including, among others, the promulgation of a new law (which condition only applies to the first line of credit), the receipt by BNDES of a guarantee from an acceptable financial institution, absence of any facts that would have a material adverse effect on the economic or financial condition of Eve Brazil, and approval of the project by the applicable environmental entities.
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Note 8 – Derivative Financial Instruments
As a result of the Business Combination, Eve began to consolidate Zanite’s assets and liabilities, which included derivative financial instruments related to the Private Placement Warrants. The Company uses the share price of its Public Warrants as the input for the recurring fair value measurement of Private Placement Warrants at the end of each reporting period within the "Derivative financial instruments" line item of the consolidated balance sheets. The Public Warrants are used to remeasure the fair value as they have similar key terms. Refer to Note 9 and 11 for additional information.
During the year ended December 31, 2023, a change in fair value of $10.4 million was recognized as expense within the “(Loss)/gain from change in fair value of derivative financial instruments” line in the consolidated statement of operations. The change in fair value is recorded under operating activities within the consolidated statements of cash flows.
Until December 31, 2021, the Company accounted for certain derivative instruments under the cash flow hedge accounting methodology to hedge against the payroll cash flow volatility attributable to a risk of foreign exchange rate fluctuation associated with highly probable forecast transactions that will affect income or loss for the year. Effective January 1, 2022, no hedging transactions existed as the derivative contracts were not transferred to Eve.
Note 9–Fair Value Measurements
The Company uses a fair value hierarchy, which has three levels based on the reliability of the inputs, to determine fair value. The Company’s assessment of the significance of an input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. Level 1 refers tofair values determined based on unadjusted quoted prices in active markets for identical instruments. Level 2 refers to fair values estimated usingother observable inputs for the instruments, either directly or indirectly, for substantially the full term of the asset or liability. Level 3 includes fair values estimated using unobservable inputs for the instruments used to measure fair value to the extent that observable inputs are not available.The carrying amounts of cash and cash equivalents, financial investments, related party receivables, related party loan receivables, other current assets, accounts payable, related party payables, and other current payables approximate their fair values due to the short-term maturities of the instruments.
The fair value of debt was estimated using a discounted cash flow model and other observable inputs. Therefore, deemed to be Level 2. Refer to Note 8 for the methodology for determining the fair value of Private Placement Warrants.
During the year endedDecember 31, 2023 and 2022,there were no changes in the fair value methodology and no transfers between levelsof the financial instruments.
The following table lists the Company’s financial liabilities by level within the fair value hierarchy.
Carrying Fair Value Carrying Fair Value
Amount Level 1 Level 2 Level 3 Amount Level 1 Level 2 Level 3
The Public Warrants were previously classified as liabilities. After the Closing, the Public Warrants were indexed to the Company's own stock. Thus, the Public Warrants were reclassified to equity based on the fair value at Closing,$10.6million.
Note 10 – Equity
The Company’s common stock and Public Warrants trade on the NYSE under the symbols “EVEX” and “EVEXW”, respectively. Pursuant to the terms of the Amended and Restated Certificate of Incorporation, the Company is authorized to issue the following shares and classes of capital stock, each with a par value of $0.001 per share: (i) 1,000,000,000 shares of common stock; and (ii) 100,000,000 shares of preferred stock. There were 269,359,021 and 269,094,021 shares of common stock issued and outstanding as of December 31, 2023 and December 31, 2022, respectively. Holders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders.Holders of common stock are entitled to receive such dividends, if any, as may be declared from time to time by the Company’s Board of Directors in its discretion out of funds legally available. No dividends on common stock have been declared by the Company’s Board of Directors through December 31, 2023, and the Company does not expect to pay dividends in the foreseeable future. The Company has shares of common stock reserved for future issuance related to warrants and share-based compensation. Refer to Notes 11 and 12 for more information, respectively.
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Preferred stock may be issued at the discretion of the Company's Board of Directors, as may be permitted by the General Corporation Law of the State of Delaware and without further stockholder action. The shares of preferred stock would be issuable for any proper corporate purpose, including, among other things, future acquisitions, capital raising transactions consisting of equity or convertible debt, stock dividends, or issuances under current and any future stock incentive plans, pursuant to which the Company may provide equity incentives to employees, officers, and directors and in certain instances may be used as an anti-takeover defense. As of December 31, 2023 and December 31, 2022, there was no preferred stock issued and outstanding.
In the event of a voluntary or involuntary liquidation, dissolution, distribution of assets, or winding-up, subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of the Company’s common stock will be entitled to receive an equal amount per share of all of our assets of whatever kind available for distribution to stockholders, after the rights of the holders of any preferred stock have been satisfied, if any.
Note 11 – Common Stock Warrants
Before the Closing, Zanite had 11,500,000 redeemable warrants available as part of the units sold in the initial public offering (the "Public Warrants") and 14,250,000 redeemable warrants in private placements (the "Private Placement Warrants"). The exercise period of the Public and Private Placement Warrants started 30 days after the Closing and will terminate on the earlier of five years after the Closing date, the date fixed by the Company to redeem all of the warrants, or the liquidation of the Company.
Warrants Classified as Equity
Public Warrants
Each Public Warrant entitles its holder to purchase one share of common stock at an exercise price of $11.50 per share, to be exercised only for a whole number of shares of our common stock. The Public Warrants became exercisable 30 days after the Closing (i.e., on June 8, 2022), provided that we have an effective registration statement under the Securities Act covering the shares of common stock issuable upon exercise of the warrants and a current prospectus relating to them is available (or we permit holders to exercise their warrants on a cashless basis under the circumstances specified in the warrant agreement) and such shares are registered, qualified or exempt from registration under the securities, or blue sky, laws of the state of residence of the holder. The Public Warrants expire five years after the Closing or earlier upon redemption or liquidation. Once the Public Warrants become exercisable, we may redeem the outstanding Public Warrants at a price of $0.01 per warrant, if the last sale price of our common stock equals or exceeds $18.00 per share for any 20 trading days within a 30 trading days period ending on the third business day before the Company sends the notice of redemption to the warrant holders. As of December 31, 2023, there are 11,499,879 Public Warrants outstanding.
Upon the Closing, all shares of Zanite Class A and Class B common stock were converted into, on a one-for-one basis, shares of common stock of Eve. As such, in a hypothetical change-in-control scenario, all holders of the stock would receive cash.
New Warrants
The Companyhas entered into warrant agreements with certain strategic private investment in public equity investors ("Strategic PIPE Investors") and United Airlines Ventures, Ltd. ("United"), pursuant to which and subject to the terms and conditions of each applicable warrant agreement. The Company has issued or has agreed to issue to the Strategic PIPE Investors and United warrants (the "New Warrants") to purchase an aggregate amount of (i) 24,095,072 shares of common stock with an exercise price of $0.01 per share ("Penny Warrants"), (ii) 12,000,000 shares of common stock with an exercise price of $15.00 per share, and (iii) 5,000,000 shares of common stock with an exercise price of $11.50 per share. Warrants with exercise prices of $15.00 and $11.50 per share are defined as Market Warrants.
Because the cash received for the common stock and New Warrants is significantly different from their fair value, management considers such warrants to have been issued other than at fair market value. Accordingly, such warrants represent units of account separate from the shares of common stock that were issued to the Strategic PIPE Investors and United in connection with their respective investment and therefore require separate accounting treatment.
Terms related to the issuance and exercisability of the New Warrants differ among the Strategic PIPE Investors and United and each New Warrant is independently exercisable such that the exercise of any individual warrant does not depend on the exercise of another. As such, management has concluded that all New Warrants meet the criteria to be legally detachable and separately exercisable and therefore freestanding.
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The New Warrants were recognized, measured, and classified by the Company as follows:
(a) Potential lender/financier: Market Warrants were issued to potential lender/financier counterparties at Closing, vested immediately, and do not contain exercise contingencies. These warrants were determined to be within the scope of ASC 815, Derivatives and Hedging, and equity-classified. Fair value was measured at the issuance date and recognized as New Warrants expense. As long as these warrants continue to be classified as equity, subsequent fair value remeasurement is not required.
(b) Potential customers: Market and Penny Warrants issued or issuable to potential customers of Eve were determined to be within the scope of ASC 718, Compensation-Stock Compensation, for classification and measurement and ASC 606, Revenue from Contracts with Customers, for recognition. In accordance with ASC 718, these warrants were determined to be equity-classified. The Penny Warrants can be separated into two categories: (i) contingently issuable warrants (the “Contingent Warrants”) and (ii) warrants that immediately vested upon Closing (“Vested Warrants”). The Contingent Warrants are measured at fair value on the grant date and will be recognized as variable consideration (a reduction of revenue) under ASC 606 when and if there are related revenue transactions or as New Warrants expense if there are not yet related revenue transactions. The Vested Warrants were accounted for akin to a non-refundable upfront payment to a potential customer and were recognized as New Warrants expenseas Eve has no current revenue or binding contracts in place. Market Warrants issued at Closing to potential customers vested immediately and have no contingencies.
(c) Potential suppliers: Penny Warrants issued or issuable to potential suppliers of Eve, which are subject to the satisfaction of certain specified conditions, are accounted for as non-employee awards under ASC 718 and were determined to be equity-classified. The fair value of these warrants will be recognized as expenseas products and/or services are received from the suppliers as if Eve paid cash for the respective transactions.
For the Contingent Warrants, the issuance and vesting of such warrants occurs upon the achievement of certain milestones, which include, as applicable, (a) receipt of the first type certification foreVTOLin compliance with certain airworthiness authorities, (b) receipt of the first binding commitment from a third-party to purchase aneVTOLjointly developed byEmbraerand a certain Strategic Investor, (c) being a supplier at entry into service, (d) completion of services related to an engineering services agreement with a certain Strategic Investor (e) receipt of binding commitments from certain Strategic Investors for an aggregate 700eVTOLs, (f) receipt of an initial deposit to purchaseeVTOLsfrom a certain Strategic Investor, (g) the mutual agreement to continue to collaborate beyond December 31, 2022 with a certain Strategic Investor, (h) the time at which tenvertiportsthat have been developed or implemented with the services of a certain Strategic Investor have entered operation or are technically capable of entering operation, (i) signature of services and support agreements, and (j) announcement of an investment and establishment of a concept of operations for use of the Company's eVTOL.
The New Warrants were measured at fair value on the grant date (May 9, 2022), except for cases where there has been a modification, where fair value is remeasured on the modification date. The fair value of Penny Warrants was calculated by subtracting $0.01 from Eve’s share price on the grant date. Market Warrants with an exercise price of $11.50 were estimated using the publicly traded Public Warrants as the terms are similar. The Company used a modified Black-Scholes model to value the Market Warrants with an exercise price of $15.00. The valuation model utilizes management judgment and pricing inputs from observable and unobservable markets with less volume and transaction frequency than active markets. Significant deviations from these estimates and inputs could result in a material change in fair value. Forfeituresof New Warrants within the scope of ASC 718, granted to non-employees, are estimated by the Company and reviewed when circumstances change. As of December 31, 2023, there were37,422,536New Warrants outstanding.
The following table summarizes the Black-Scholes model inputs and assumptions:
May 9,
Market Warrants with exercise price of $15.00 2022
Time (T) - Years 3.63
Strike Price (X) $ 15.00
Risk-free Rate (r) 2.85 %
Volatility (σ) 7.93 %
Dividend Yield (q) 0.00 %
Warrant Value $ 0.11
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Warrants Classified as Liabilities
Private Placement Warrants
Each Private Placement Warrant entitles its holder to purchase one share of common stock at an exercise price of $11.50 per share, subject to conditions as defined in the Warrant Agreement. The Private Placement Warrants have similar terms as the Public Warrants, except for the $0.01 cash redemption feature. However, in the event a Private Placement Warrant is transferred to a third-party not affiliated with the Sponsor (referred to as a non-permitted transferee), the warrant becomes a Public Warrant and is subject to the $0.01 cash redemption feature. If this occurs, the calculationchanges for the settlement amount of the Private Placement Warrants. Since the settlement amount depends solely on who holds the instrument, which is not an input to the fair value of a fixed-for-fixed option or forward on equity shares, the Private Placement Warrants are liability classified. As of December 31, 2023, there were 14,250,000 Private Placement Warrants outstanding.
Note 12 – Share-Based Compensation
2022 Stock Incentive Plan
In May 2022 (the “Effective Date”), the shareholders of the Company approved the 2022 Stock Incentive Plan (“the Plan”). The Plan will expire on the tenth anniversary of the Effective Date. The number of common stock shares reserved under the Plan automatically increases on January 1st of each calendar year (each, an “Evergreen Date”) prior to the tenth anniversary of the Effective Date, in amount equal to the lessor of (i) 3% of the total number of shares of Eve common stock outstanding on the December 31st immediately preceding the applicable Evergreen Date and (ii) a number of shares of Eve common stock determined by the plan administrator. As of December 31, 2023, the maximum number of shares of common stock reserved for issuance under the Plan is 16.8 million shares.
The awards that have been granted under the Eve 2022 Stock Incentive Plan consists of RSUs for the Company’s common stock, for eligible employees, contractors, and directors. The awards contain service, performance, and/or market conditions that generally vest over 1-5 years. The RSU’s will be settled by the Company with its own common stock upon achievement of the vesting conditions. There is neither repurchase obligations nor restrictions for the grantees to access the shares. The Company is allowed to net settle the award for statutory tax withholding purposes, but in no case exceeding the maximum statutory tax rates in the employees’ relevant tax jurisdictions. Therefore, the RSU’s are classified as equity. As the Plan was approved in2022, there was no share-based compensation activity for2021.
The following table summarizes the RSU activity for service-based awards for the year ended December 31, 2023:
The weighted-average grant date fair value of service-based awards granted during the years2023and2022was $7.71 and $9.73, respectively.
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The following table summarizes the RSU activity for awards with market conditions for the year ended December 31, 2023:
Vested -
For awards that are tied to market conditions, the grant date fair value was determined based on a Monte Carlo simulation model, which takes into account certain assumptions. The weighted-average assumptions used to value the awards are expected volatility of 53.5% and 49.3%, a risk-free rate of 4.3% and 3.4%, and an expected term of 4.8 years and 4.8 years for awards with market conditions granted during the years ended December 31, 2023 and 2022, respectively. The expected volatility is based on the average implied volatility of publicly traded peer companies in a similar industry with extensive trading history. The final award is determined by the market value of the Company upon vesting and may equal 0% to 200% of the initial award depending on achievement of the market condition. The weighted-average grant date fair value of awards with market conditions during the years 2023 and 2022 was $10.19 and $16.52, respectively.
Share-based compensation plan expense and tax benefits were as follows:
Year Ended December 31,
Share-based compensation expense $ 3,292 $ 3,301
During 2023, the service period for four directors was modified from three years to one. The incremental compensation expense related to this modification was $0.3 million. Additionally, one other award was modified for one employee. The modification affected the awards eligibility as the employee transitioned from employee to director. There was no incremental share-based compensation expense associated with this modification.
As of December 31, 2023, the Company had $9.0 million of total unrecognized compensation expense associated with nonvested awards issued under the Plan. The cost is expected to be recognized over a weighted-average period of 2.7 years.
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Note 13 – Earnings Per Share
Basic and diluted earnings per share is computed by dividing net loss by the weighted average number of common stock outstanding during the period. Diluted net loss per common stock reflects the potential dilution that would occur if securities were exercised or converted into common stock. The effects of any incremental potential common stock are excluded from the calculation of earnings per share if their effect would be anti-dilutive. Contingently issuable shares, including equity awards with performance conditions, are considered outstanding common shares and included in basic and diluted earnings per share as of the date that all necessary conditions to earn the awards have been satisfied. Public and Private Placement Warrants are considered for the diluted earnings per share calculation to the extent they are “in-the-money” and their effect is dilutive. The Company has retroactively adjusted the shares issued and outstanding prior to May 9, 2022, to give effect to the exchange ratio.
For the years ended December 31, 2023, 2022, and 2021, there were no securities outstanding whose effect would be dilutive to earnings per share. Therefore, the number of basic and diluted weighted-average shares outstanding were equal for each period.
Year Ended December 31,
Net loss per share basic and diluted $ (0.46 ) $ (0.68 ) $ (0.08 )
For the year ended December 31, 2023 and 2022, the basic and diluted weighted-average shares outstanding included penny warrants with either no or met contingencies, which have not been exercised of 6.9 million and 6.6million shares, respectively. There were no penny warrants outstanding as of December 31, 2021.
The following table presents potentially dilutive securities excluded from the calculation of diluted earnings per share as their effect would have been anti-dilutive. There were no potentially dilutive securities as of December 31, 2021.
December 31,
Unvested restricted stock units 1,132 918
Penny warrants subject to unmet contingencies 13,523 14,173
Warrants that are "out of the money" include Public, Private Placement, and Market Warrants issued to potential financiers and suppliers. Penny Warrants contain various contingencies agreed upon with the potential customers and suppliers. The terms and conditions of the potentially dilutive warrants can be referred to in Note 11.
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Note 14 –Research and Development Expenses
Research and development expenses consist of the following:
Year Ended December 31,
Note 15 – Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of the following:
Year Ended December 31,
Director & Officers insurance 2,257 2,585 -
Note 16 – Income Taxes
Loss before income taxes consisted of the following:
Year Ended December 31,
Income taxes consisted of the following:
Year Ended December 31,
Current income tax expense
U.S. federal $ 436 $ - $ -
U.S. state and local - - -
Total current income tax expense 3,282 933 -
Deferred income tax expense (benefit)
U.S. federal - - -
U.S. state and local - - -
Non-U.S. (1,714 ) - -
Total deferred income tax expense (benefit) (1,714 ) - -
Total income tax expense $ 1,568 $ 933 $ -
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A reconciliation of the statutory U.S. federal tax rate and our effective tax rate is as follows:
Year Ended December 31,
Statutory U.S. federal tax rate 21.0 % 21.0 % 21.0 %
State and local taxes (5.8 )% (31.1 )% 5.5 %
Permanent differences (2.4 )% (13.7 )% (2.8 )%
Foreign rate differential (0.4 )% (0.1 )% 8.2 %
Effective tax rate (1.2 )% (0.5 )% 0.00 %
The tax effects of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities consisted of the following:
Year Ended December 31,
Deferred tax assets
Deferred tax liabilities
Uncertain Tax Position - R&D Reserve (70 ) (70 )
Total deferred tax liabilities (202 ) (372 )
Net deferred tax assets $ 1,714 $ -
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Eve considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. For Eve Brazil, based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of its deductible differences. The valuation allowance increased $14.0 million during the year ended December 31, 2023 primarily due to the net operating loss for the year.
Eve has no history of tax audits, nevertheless the Company believes it has provided adequate reserves for all tax deficiencies or reductions in tax benefits that could result from federal, state and foreign tax audits. Eve regularly assesses the likely outcomes of these audits in order to determine the appropriateness of Eve’s tax provision. The Company had approximately $70 thousand of unrecognized tax benefits as of December 31, 2023 and 2022. There were no additions, reductions, or settlements of unrecognized tax benefits during 2023. Eve will recognize interest and penalties, if any, related to uncertain tax positions in income tax expenses. As of December 31, 2023 and 2022no interest or penalties have been accrued due to uncertain tax positions.
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The net operating losses for 2023 and 2022 were generated mainly due to expenditures with R&D projects, administrative expenses, and the step-up amortization. Under a separate tax return methodology, Eve US has $13.7 million of net operating losses that are deemed “hypothetical” losses of the Company for purposes of these financial statements. The "hypothetical" net operating losses of the Brazilian operation were written off since Eve Brazil files income tax returns and these losses cannot be utilized. Net operating losses do not expire in both jurisdictions where Eve operates (U.S. and Brazil).
In preparation for the Business Combination with Zanite (later renamed Eve Holdings Inc.), ERJ, EAH and Eve Sub entered into a Contribution Agreement under which ERJ contributed the UAM business assets and liabilities into Eve Sub in exchange for Eve Sub’s units and subsequently contributed these units into EAH in exchange for preferred and common stock of EAH. Since immediately after the contribution of the Eve Sub units into EAH, ERJ did not control more than 80% of all classes of stock of EAH, the contribution of assets was treated as a taxable transaction which gave rise to a step-up in the value of such assets.
The step-up of the assets was only recognized for US federal income tax purposes and will not be booked in the Company’s financial statements. Thus, a temporary difference exists and a deferred tax asset (“DTA”) was recognized.
In order to deal with the effects of the step-up, EAH and the Company entered into a customary TRA, and a TSA. The TSAgenerally applies if EAH and the Company are members of the same consolidated group, as defined under the Code. Under the Code, two corporations may form a consolidated tax group, and file a consolidated federal income tax return, if one corporation owns stock representing at least 80% of the voting power and value of the outstanding capital stock of the other corporation. The TSA governs certain matters related to the resulting consolidated federal income tax returns, as well as state and local returns filed on a consolidated or combined basis. Generally, the consolidated group’s parent would be liable for the income taxes of the group members (including the Company), rather than the Company being required to pay such income taxes itself. For periods in which the Company has taxable income that contributes to and increases the overall tax liability of the consolidated group of which EAH or an affiliate is the common parent (the “EAH Consolidated Group”), the TSA requires the Company to make payments to EAH equal to the tax liability it would have had had it been outside of the consolidated group. For periods in which the Company’s inclusion in the EAH Consolidated Group decreases the tax liability of the EAH Consolidated Group, tax benefits generated by the Company that are realized by EAH will be recorded in an off-book register and will apply to offset future payments due from the Company to EAH under the TSA. If any tax benefits that have accumulated during the period in which the Company is a member of the EAH Consolidated Group have not been applied to offset payments under the TSA at the time the Company ceases to be a member of the EAH Consolidated Group, such uncompensated tax benefits can be used to offset amounts payable by the Company to EAH under the TRA. For purposes of determining the amount of payments required to be made by the Company pursuant to the foregoing, and for determining the extent to which tax benefits generated by the Company that are realized by the EAH Consolidated Group may offset future payments under the TSA or the TRA, the TSA will generally disregard 75% of the tax benefits arising from tax basis in the assets of the Company created in the Pre-Closing Restructuring, consistent with the agreed sharing percentages for such tax savings under the TRA if the Company were not a member of the EAH Consolidated Group.
Since EAH beneficially owns, directly and indirectly, more than 80% of the outstanding shares of Eve Holding common stock, EAH and Eve Holding are expected to be members of the same consolidated tax group. Under the TSA, EAH will benefit from the anticipated future tax losses generated by the Company but will only credit these amounts against future liabilities owed by the Company. Based on terms of the TSA, no tax benefits would accrue to the Company based on a pro forma calculation of the Company’s stand-alone tax return and therefore no benefit has been assumed in the consolidated financial information under the TSA. As such, no pro forma adjustment related to the TSA is necessary. Once the Company begins to generate taxable profits at the consolidated level, amounts owed by the Company to EAH under the TSA will be offset and reduced by prior losses generated by the Company for which EAH had received a benefit.
The Company concluded that these agreements do not have impacts to the consolidated financial statements as of December 31, 2023.
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Note 17 – Leases
Leases primarily consist of office space, facilities, and equipment. A lease is deemed to exist when the Company has the right to control the use of identified property, plant or equipment, as conveyed through a contract, for a certain period of time and consideration paid. The right to control is deemed to occur when the Company has the right to obtain substantially all of the economic benefits of the identified assets and the right to direct the use of such assets. Eve recognizes right-of-use ("ROU") assets and a corresponding lease liability on the lease commencement date (the date in which the asset is available for use). Lease liabilities are recognized in Other current payables and Other non-current payables.
The Company uses its estimated incremental borrowing rate in determining the present values of lease payments. The incremental borrowing rate is the rate of interest the Company would have to pay to borrow, on a collateralized basis, an amount equal to the lease payments for a term similar to the lease term in a similar economic environment as the lease. Lease liabilities are measured at the present value of lease payments to be made during the lease term, which is measured based on the contract term and renewal options. Options to extend the lease term or terminate it early are considered when it is reasonably certain the options will be exercised. The Company had no leases during 2021.
The following is a summary of balance sheet components of leases with related and third parties as of December 31:
Supplemental balance sheet information 2023 2022
Operating lease ROU assets - related parties $ 474 $ 217
Operating lease ROU assets - third parties 34 0
Total operating lease ROU assets $ 508 $ 217
Operating lease liabilities - related parties $ 474 $ 217
Operating lease liabilities - third parties 36 0
Total operating lease liabilities $ 510 $ 217
Leases with Related Parties
Leases with related parties primarily relate to office space and facilities. The following is a summary of the components of operating leases with related parties for the years ended December 31:
Operating lease cost $ 113 $ 9
Supplemental information - Leases with related parties
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for operating leases $ 113 $ 9
Right-of-use assets obtained in exchange for lease obligations
Weighted Average Remaining Lease Term (Years) 3.6 4.8
Weighted Average Discount Rate 10.2 % 7.4 %
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