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Good morning, ladies and gentlemen, and welcome to the audio conference call from Embraer's Second Quarter of 2022 Financial Results. Thank you for standing by. We remind that Eve's results will be discussed on Eve's teleconference. [Operator Instructions] As a reminder, this conference is being recorded and webcasted at ri.embraer.com.br.
This conference call includes forward-looking statements or statements about events or circumstances, which have not occurred. Embraer has based these forward-looking statements largely on its current expectations and projections about future events and financial trends affecting the business and its future financial performance.
These forward-looking statements are subject to risks, uncertainties and assumptions, including, among other things, general economics, political and business conditions in Brazil and other markets where the company is present. The words believes, may, will, estimates, continues, anticipates, intends, expects and similar words are intended to identify forward-looking statements.
Embraer undertakes no obligation to update publicly or revise any forward-looking statements because of new information, future events or other factors. In light of those risks and uncertainties, the forward-looking statements, events and circumstances discussed on this conference call might not occur. The company actual results could differ substantially from those anticipated in the forward-looking statements.
It's important to mention that all numbers are presented in U.S. dollars as it is our functional currency. Participants on today's conference call are Mr. Francisco Gomes Neto, President and CEO; Mr. Antonio Carlos Garcia, Chief Financial Officer and Procurement; and Mr. Leonardo Shinohara, Director of Investor Relations.
I would like now to turn the conference over to Mr. Gomes Neto, who will proceed with the first remarks. Please go ahead, sir.
Good morning, and thank you all for joining our second quarter 2022 results call today. I hope that all of you are well and safe, and I thank you for your interest in our company. The second quarter results show a steady improvement in our financial results with our focus and discipline in the execution of our growth plan. Despite the challenging supply chain environment, which I will talk more about later, we were able to deliver solid results, and we have also maintained our focus on enterprise efficiency and innovation as key pillars of our growth strategy.
We reached a few order backlog of $17.8 billion in the second quarter 2022, the highest level since the beginning of the pandemic. And this number does not consider Porter's new order announced during the Farnborough Airshow last month.
And we are pleased to announce a reported adjusted net income of $39.4 million in this quarter. Before we go into more financial details on the quarter, I'd like to give you some quick highlights on our 2 key pillars. First, on innovation. Eve's IPO brought $377 million of gross proceeds, which will be used to accelerate the development, certification and commercialization of our Urban Air Mobility solution.
During the Farnborough Airshow, Eve announced Halo Aviation as a launch customer for each Urban Air traffic management solution. At the event, we also unveiled the Eve Cabin Mockup and updated the product design. Second, enterprise efficiency. We continue to work with great discipline to be more efficient at the entire company.
This quarter, we announced a partnership with Toyota to maximize efficiency in our production and accelerate the use of lean principles to reduce the production cycle lead time of our aircraft by 40% by the end of 2023.
Mainly due to our efficient initiatives, the financial performance continues to improve. Free cash flow increased 10% versus the second quarter last year, and our gross margin presented a substantial increase compared to the same period last year.
On the next slide, we will speak about our main ESG achievements announced in the second quarter. Embraer and Raizen signed a letter of intent with a commitment to develop sustainable aviation fuel production ecosystem. Embraer will become the first aircraft manufacturer to use soft debt will be distributed by Raizen, a global leader in bioenergy. We also announced a new purchase agreement to source 100% renewable energy in Brazil by 2024, a year ahead of our 2025 target. Embraer and Pratt Whitney had successfully tested a E195-E2 aircraft on 100% sustainable aviation fuel this quarter.
Finally, our annual 2021 report was published report brings the main highlights of the year on innovation, financial performance and the complete overview of Embraer's ESG actions in 2021. Important to note that our report is already in SASB framework, friendly for investors in our company.
On the next slide, we will talk about growth and see more details of business unit highlights in the quarter. In Commercial Aviation, during the Farnborough Airshow, we announced a firm order of 20 E195-E2 from Porter Airlines, now totaling 50 orders and 50 options, and an additional 8 E175-E1 firm order from Alaska Air.
On the P2F, passenger to freighter project, we signed a firm order for up to 10 aircraft for an undisclosed customer and an LOI with NAC for 10 freighters. Gross margin of 13.2% in Q2 '22 versus 4.5% in the previous year.
Executive aviation keeps up with momentum strong sales. We delivered 21 jets, being 12 light and 9 large. Backlog increased about 16% compared to the previous quarter and gross margin of 22% compared to 17.5% in the previous year.
On Defense, we are very pleased to have received in June the Netherland's Ministry of Defense's decision to sell us the C390 Millennium as a source to replace its cargo fleet. It is a clear demonstration of the increased interest in our aircraft from several companies recently. Gross margin of 28% in Q2 '22 versus 34.6% in the previous year.
Services and support continues to improve its results with a stable backlog and positive gross margin, which reached almost 32% in Q2 2022 versus 28% in the same period of 2021. We also signed a new contract with LOT Polish expanding the pool program to cover 44 aircraft.
I will now hand it over to Antonio to give further details on the financial results and I will return in the ending. Thank you.
Thanks, Francisco, and good morning, everyone. Let's talk about financial results. We delivered stronger results in the second quarter, reinforcing our confidence in our financial performance for the year. We continue highly focused in our pillars of deleveraging the company, driving profitability and efficiency.
Embraer delivered 32 jets in the second quarter, of which 11 commercial aircrafts and 21 executive jets. 12 large jets and 9 midsized jets according to our schedule. We reaffirmed all aspects of our 2022 financial and deliveries guidance with no material variation. Delivery is in a good pace and seasonally concentrated the second half of the year.
We have noticed some concern from the sell side reports about deliveries for the year. But just as a reminder, we are today just for the aircraft some commercial aviation behind our style. Despite the very challenging supply scenario, our plans have not changed, and we remain confident in the delivery of the aircrafts.
Firm order backlog ended second quarter 2022 at $17.8 billion, $0.5 billion more versus first quarter 2022. This is the highest quarter backlog since the beginning of the pandemic, 12% higher, driven by solid sales activities mainly in executive aviation. Revenues reached $1.019 billion in the quarter, down 10% compared to the second quarter '21 due to lower deliveries in Commercial and Defense segment, partially offset by our services and support business unit.
Before starting with EBIT and EBITDA, I want to mention that we reported consolidated gross margin of 21.9% in the quarter, was higher than the 18.2% reported in the second quarter of previous year '21 with a year-over-year improvement in most segments due to the product and service mix, pricing and overall operational performance, including tax efficiencies.
Adjusted EBIT and EBITDA were $81 million and $125 million, respectively, yielding adjusted EBIT margin of 8% and adjusted EBITDA margin of 12.2%. It's important to mention that our adjusted EBIT in second quarter '22 also includes commercial aviation, the integration and arbitration expenses of around $16.5 million. If we exclude all these extraordinary effects, adjusted EBIT margin would have been around 10% or $100 million in the second quarter '22. And EBITDA margin of around 14% excluded these effects. And please take into account we booked $21 million provision for bad debt in the second quarter, around $21 million in the quarter, cost impact the results here.
Quarterly G&A reached $42 million or an increase of $1 million compared to the second quarter '21 figures. Due to inflation, wage adjustment, but no increase in headcount. Selling expenses reached $66 million or an increase of $60 million compared to the second quarter '21 figures due to more active sales campaign in trade and events. It's important to mention the selling expense does not include $21 million of bad debt provision that we exclude in this graphic.
Talk about investments in the second quarter '22, Embraer invested a total of $42 million in product development and research, mailing product development, for example, 2 family freighter, effective aviation anti [indiscernible].
We invested also $30 million CapEx mainly for service and support expansion business. We continue to invest in our future. Another good news moving to free cash flow and net results. In regards to free cash flow, we continue highly focused and cash flow discipline for positive trends. Free cash flow in the second quarter '22 was a surplus of $91 million, represent a significant results, supported by the divestment of Evora's facility and optimization of working capital, driven by positive free cash flow year-to-date, even considering a production ramp-up and deliveries in the second semester.
Moving to adjusted net result was a profit of $39 million due to the better EBIT performance and interest reduction of $28 million in the second quarter '22 year-on-year basis.
The company finished the quarter with a total of $3.2 billion or $864 million leverage, in line with our liability management structure.
Embraer continues to deleverage the balance sheet. Reducing system net and gross debt and improve credit metrics. Moreover, reducing interest expenses. It's important to highlight that our net debt EBITDA last 12-month ratio is around 4x in the second quarter 2022. But in the next quarter, we will show a significant improvement because deliveries are concentrated in the second half, and we remain committed to improve our financial metrics.
With that, I finish my presentation and hand it back to Francisco for his final remarks. Thank you very much
Thanks, Antonio. To close, I would like to make some comments on the supply chain issues. This is a major short-term issue for the whole industry globally, and we can't undermine this challenging environment. To minimize the impact, we are working very close to our supply chain, having people on site and the main suppliers, developing other logistical groups and working on improvements in internal processes and cycles to absorb part of the challenges.
Having said that, we are cautiously optimistic about year-end results and very confident about the midterm future. The combination of innovation, enterprise efficiency and our fantastic people is very powerful and will make us grow sustainably. Thank you for your interest and confidence in our company.
[Operator Instructions] Our first question comes from Josh Milberg.
I had a couple of questions on the turbo prop project. And the first one is if you could just update us on the financial -- on its financial impact for this year? And if I'm not mistaken, you had talked about a potential $50 million effect this year that would be expense recognized in the P&L for the year as a whole. So I just wanted to kind of clarify if, in fact, that's how it's been treated? And if that's roughly still the magnitude of the impact to expect?
And then I was also just hoping you could give us a little bit of your updated thinking on the project. And maybe just touch base on what steps remain for it to be greenlighted? What kind of buy-in you're looking for -- buy in you're looking for from customers? And whether having a JV partner would be critical?
Hello, Josh. Antonio speaking. Thanks for your questions. I just want to answer a part of it. Firstly, what we are seeing regards to impact on our financial profit and loss this year for the TP is around $25 million. We are working hard in order to minimize because we are still not capitalizing those R&D costs. But for the profit and loss this year, it's $25 million and is already part of our forecast and also our guidance.
Josh, Francisco speaking. About the project, I'd like to say that we are very excited with this project. We are progressing well on tests, wind tests and other engineering activities. We expect to decide about the engine selection in the second half of the year, and we expect to approve the business case beginning of next year. And also even not having the business case approved, we announced last time in May -- last month in Farnborough show, that we have already 250 letter of intent -- 250-plus letter of intent of customers in our TP models.
Okay. So it sounds like everything is progressing as planned and that there are very good prospects for the project may be moving forward as of next year. Could you touch, Francisco, a little bit on the financing aspect of it?
We are working also in parallel with the engineering activities. We are working internally in alternatives to fund the project. So at the time that we expect to approve the business case next year, we will have the funding solution defined.
Josh, is not just to compromise there any financial metrics of the running business. We are evaluating for sure, with support from customers, from suppliers and also how we are going to, I would say, overcome the first 2 years with this development, but the idea is not to compromise our current business.
Our next question comes from Mr. Marcelo Motta.
It's a question regarding the deliveries during the presentation Embraer comment that around 4 aircraft on the commercial aviation were not delivered due to supply chain issues. So I just want to know if the company could provide additional color regarding if it was like part? The engine? The reasons behind this delay? And if those are already delivered now at the beginning of August? And if there is any other aircraft that is delayed as of now?
So thanks for your question. And it's appropriate, and I would use the opportunity to say more than U.S. me and U.S. gov here. For sure, the -- what you are missed at most is normally is engines, avionics and other small parts but they are concentrating 4 or 5 suppliers. And that was since beginning of the year, maybe you will recall this when we set the guidance.
And they might react quite negative, to be honest, or overreact. When they said 60 to 70 aircrafts or 100 to 110 executive jets, because at the time, we foresee already this tight situation that we are living. And that's why people are getting sicker with supply chain, but for Embraer, we saw this some months ago, is not a surprise, but finalizing the question through different aircrafts, they are going to be delivered right now in the month of August.
[Operator Instructions] Our next question comes from telephone. [Operator Instructions]
I'm curious, when we think about supply chain issues, do you see any scope for Embraer to maybe undertake some small acquisitions if you need it to secure critical supply? I did ask the same question of your Canadian competitor earlier this morning.
Francisco speaking. At this moment, we are working very close to our supply chain, very close. We have a small arm of people. I mean inside of the operations of our suppliers, of our service suppliers, of our sub suppliers, but we don't have any plans to acquire in any supply as a strategy to resolve this problem. We do believe we can resolve with this with a close collaboration with our supplier partners.
Okay. Great. And I apologize for all the background noise, just 1 very quick follow-up, if I may. Can you remind me whether you have any supply at this juncture coming from the Russian Federation? And that's it for me.
Antonio speaking here. We only have or we only had 1 supplier from Russia is titanium that we are partially already replacing by U.S. and European suppliers. Some months ago, we were at 85% buying demand in Russia for titanium. Now we are already below 60%, and our plan is really to try to eliminate this source of raw material. Apart of it, we buy nothing in Russia.
[Operator Instructions] Since there are no further questions, this concludes today's question-and-answer session. That does conclude Embraer's to conference for today. Thank you very much for your participation, and have a good day.