Eve Holding, Inc. quarterly report, Q1 FY2022

Business context and reporting period

Zanite Acquisition Corp. filed this unaudited Form 10-Q for the quarter ended March 31, 2022. It was a blank-check company pursuing a business combination and had not begun operating activities or generated operating revenue. The proposed transaction would acquire Eve UAM, LLC, a wholly owned Embraer subsidiary, and rename the combined company Eve Holding, Inc.; this filing is from Zanite, not Eve Holding.

Key financial metrics

MetricQ1 2022 / March 31, 2022Comparable period / prior year-end
Operating revenueNoneNone
Net income$5.40 million$11.75 million in Q1 2021
General and administrative expense$1.58 million$0.38 million in Q1 2021
Cash from operating activities$(0.60) million$(0.47) million in Q1 2021
Cash outside trust$24,678$475,339 at December 31, 2021
Trust investments$236.95 million$236.93 million at December 31, 2021
Total liabilities$30.53 million$36.37 million at December 31, 2021
Related-party promissory note$150,000 outstandingNone at December 31, 2021

Net income was driven primarily by a $6.95 million gain from the decrease in fair value of warrant liabilities, plus $21,121 of trust interest; it is not an indicator of operating profitability. The warrant liabilities were $16.62 million. Current liabilities were $5.86 million and management reported a working-capital deficit of approximately $5.75 million. Public shares subject to possible redemption were presented outside permanent equity at $236.90 million. The filing does not provide a meaningful operating margin; there was no operating revenue.

Material changes versus the prior comparable period

  • Net income fell by about 54% year over year, as the fair-value gain on derivative liabilities was lower ($6.95 million versus $12.12 million).
  • General and administrative expenses rose to $1.58 million from $377,151.
  • Operating cash use increased to $600,661 from $468,462.
  • Cash outside the trust declined by $450,661 during the quarter. Accounts payable and accrued expenses rose to $5.71 million from $4.74 million at year-end.

Transaction, outlook, and risks

  • The December 2021 merger agreement provided for 220 million newly issued shares valued at $10 per share as consideration for Eve. As of March 16, 2022, PIPE subscriptions totaled 34.73 million shares for $347.3 million; an April 4 amendment increased the stated total to 35.73 million shares for $357.3 million.
  • Strategic warrant agreements contemplated warrants for up to 35.65 million shares across the described agreements, with exercise prices including $0.01, $11.50, and $15.00; some issuances depended on closing or business milestones. These potential securities may dilute holders.
  • The company had until May 19, 2022 to complete a business combination. Management expected to close the proposed transaction before that date, but gave no assurance of completion. Failure to close or obtain financing could require liquidation; management said this raised substantial doubt about the company’s ability to continue as a going concern through the deadline.
  • Available operating cash was limited. The Sponsor had provided a non-interest-bearing facility of up to $2 million, of which $150,000 was drawn. Management noted that additional financing might be needed, including if redemptions were significant.
  • Other transaction-related costs included an $8.05 million deferred underwriting fee payable only if a combination closed, $300,000 of contingent due-diligence fees, and investment-banking fees tied to PIPE proceeds. A separate advisory agreement provided for a $5 million contingent fee under its terms.
  • The company reported no legal proceedings and no material changes to previously disclosed risk factors. COVID-19 could adversely affect its search or financial position, but the specific impact was not determinable. Disclosure controls were assessed as effective; no material internal-control changes were reported.

Important facts for investors to verify

  • Whether the proposed Eve combination closed by the May 19, 2022 deadline, and the final transaction terms, redemptions, and financing proceeds.
  • The conditions and timing for PIPE subscriptions and strategic warrants, including milestone triggers, price protections, and resulting dilution.
  • How the company funded expenses given $24,678 of cash outside trust, its working-capital deficit, and the Sponsor note.
  • The final amounts and treatment of contingent transaction fees and the deferred underwriting fee.
  • That reported earnings were substantially attributable to non-cash warrant fair-value changes rather than revenue or operating cash generation.