Archer Aviation - Q2 2023

Transcript

Operator (participant)

Hello, everyone. Thank you for attending today's Archer Aviation Second Quarter 2023 Financial Results Conference Call. My name is Sierra, and I will be your moderator today. All lines will be muted during the presentation portion of the call, with an opportunity for questions-and-answers at the end. If you would like to ask a question, press star one on your telephone keypad. I would now like to pass the conference over to our host, Andy Missan, with Archer. Please proceed.

Andy Missan (Chief Legal Officer)

Thank you, operator. Good afternoon, everyone, and thank you for joining us today to review Archer's second quarter 2023 operating and financial results. My name is Andy Missan, the Chief Legal Officer of Archer. On the call today are Adam Goldstein, our founder and CEO; Mark Mesler, our CFO; Tom Muniz, our COO, and Billy Nolen, who joined Archer in June as our Chief Safety Officer. Please note that during today's call, we will be making forward-looking statements. These statements involve risks and uncertainties that may cause actual results to differ materially from those contemplated by the forward-looking statements. For more information about these risks and uncertainties, please refer to our SEC filings under the caption Risk Factors, including our upcoming Form 10-Q filing for the quarter ended June 30, 2023.

Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this call, we may discuss both GAAP and non-GAAP financial measures. A reconciliation of certain GAAP and non-GAAP measures is included in our shareholder letter posted on our IR website. Now I'd like to turn the call over to Adam. Adam?

Adam Goldstein (Founder and CEO)

Thanks, Andy. Over the last seven earnings calls, you've heard me consistently reiterate Archer's strategy of finding the most efficient path to commercializing our world-class eVTOL aircraft as safely as possible. Every quarter, our team has continued to relentlessly execute against that plan, and I'm excited to announce that over the past 90 days, some of the largest stakeholders in aviation have publicly joined us in supporting our strategy. First, we're grateful to share multiple points of endorsement from across the United States government. I'm extremely proud to announce that just last week, the Federal Aviation Administration issued our Special Airworthiness Certificate for our first Midnight aircraft, allowing us to begin flying. With this certificate in hand, our team will ramp up both our flight schedule and our fleet size as we work towards our planned 2025 commercial launch.

This is a great milestone for Archer. I'm proud of the teams at both Archer and the FAA, who worked tirelessly to ensure our aircraft can begin flying on our desired timeline. This announcement comes on the heels of last month's Advanced Air Mobility Implementation Plan that the FAA published as the culmination of years of collaboration with Archer and other industry leaders. This innovative roadmap reinforced the government's commitment to U.S. leadership in this sector, as well as Archer's expected launch of our commercial service in 2025 by leveraging existing operating rules and infrastructure. Further, the FAA has laid out a plan for making the necessary enhancements to the country's air traffic control systems and operating rules to enable thriving, full-scale passenger eVTOL aircraft service by 2028, in time to showcase UAM at the Los Angeles Olympics.

The leader who directed and oversaw much of this implementation plan and commitment to the timeline for commercial launch by 2025 and full-scale operations by 2028 was no other than the distinguished FAA Administrator, Captain Billy Nolen, who announced his decision to leave the FAA to join Archer as our Chief Safety Officer back in June. With over 30 years of experience in safety, regulatory affairs, and flight operations, as well as senior executive roles at American Airlines and Qantas Airways, in addition to his service in the U.S. Army as an airplane and helicopter pilot and safety officer, Billy is the ideal person to guide Archer through the most efficient pathway to FAA certification and commercial deployment.

He has long been a staunch supporter of the eVTOL aircraft industry, spearheading our country's and the FAA's global leadership role in this important area, and his appointment as our chief safety officer underscores our commitment to safety and innovation. Before joining Archer, Billy conducted a thorough assessment of the competitive landscape. You'll hear shortly from Billy about why he chose to come to Archer and his belief in our approach of optimizing our design for certification and focusing on developing only the most critical enabling technologies in-house, while also partnering with leading suppliers. With Billy on board, I have already started to see him help us shape the future of transportation and make sustainable, efficient air travel an everyday reality.

Second, we are honored that just last week, the U.S. Air Force awarded Archer contracts with the largest contract value of any OEM in the eVTOL industry, with a value of up to $142 million. The DoD has made an unprecedented commitment to helping Archer accelerate our technology development.... This agreement was made possible through our long-standing partnership with the Department of Defense on a series of projects through the Air Force's AFWERX program, which has been assessing the transformational potential of the vertical flight market and eVTOL technologies for DoD purposes. In this new execution phase of our partnership, Archer will deliver aircraft to the Air Force. They will test these aircraft to support future missions in personnel transport and logistics support, rescue operations, and more.

These applications of our Midnight aircraft, we hope, will not only help save lives, but also accelerate our technology and operational learnings as we build a world-class consumer aircraft and service. Today, we're announcing that we have accelerated our plans and hope to deliver the first aircraft within the next six months, as early as Q4 2023. We believe this would be the first eVTOL aircraft in history to be delivered to a paying customer. Given the strength of the team that is working on this at Archer, we anticipate leveraging this contract as a platform for future partnerships with the other branches of the armed forces, which would increase the total value of our relationship with the DoD. In fact, just last week, we hosted representatives from the U.S. Marine Corps at Archer headquarters and our flight test facility to demonstrate the capabilities of our Midnight aircraft.

A lot of this was made possible by our recently assembled six-member Government Services Advisory Board, who was critical in helping to build our first step of this partnership with the military. I'm sincerely grateful for the support of the DoD, Captain Nolen, our Government Services Advisory Board members, and all of the Archer teammates and veterans for their continued service and support in ensuring the U.S. maintains its leadership position in aviation. Finally, I have long maintained that the eVTOL industry and Archer have been able to move as quickly as we are because of aviation and technology pioneers who for decades have pushed the envelope on what is possible, collectively transporting millions of people around the world with unparalleled levels of safety. Today, I'm excited to announce a strategic relationship with the biggest aerospace giant of them all, Boeing.

Boeing was actually one of the first to fly a fixed-wing VTOL aircraft, the V-22 Osprey, over 30 years ago, and today I'm excited to call them one of Archer's investors. Our collaboration with Boeing and its subsidiary, Wisk, will be focused on supporting the integration of Wisk's autonomy technology in future variants of our aircraft. For background, Wisk was co-founded by Google founder Larry Page, who was an early pioneer of the eVTOL industry and one of the sector's biggest advocates in pushing the development of flight autonomy technology. This collaboration could bring for Archer the potential to access world-leading autonomy technology while substantially reducing the cost of developing it ourselves. As the collaboration matures, we will share further details, but it is important to understand that this puts Archer in a unique position to be able to source autonomy technology from a leader in the industry.

This is a natural extension of our overall strategy of focusing our in-house research and development on the key enabling technology that cannot be sourced from the existing aerospace supply base. As part of this new collaboration, Archer, Boeing, and Wisk have agreed to settle the litigation between the parties and collectively look to the future. I look forward to working with Boeing and Wisk on a collaboration that looks forward to the growth and development of the AAM industry. That's not all. As part of the parties' collaboration, we are excited to welcome Boeing as an investor in today's $215 million funding round, alongside our other longtime strategic partners, Stellantis and United. The deep partnership we are seeing from Stellantis across the business is unrivaled.

From their continued willingness to provide us the capital we need to accelerate our business, to the support and energy CEO Carlos Tavares and CTO Ned Curic bring to the table, to their dozens of full-time Stellantis employees working alongside ours as we jointly build out the world's first high-volume eVTOL manufacturing facility in Georgia. We are seeing similar commitment from our partner, United Airlines, who is an integral player in our push toward our goal of achieving commercialization in 2025 as we work to fulfill United's billion-dollar order for Archer's Midnight aircraft. The team at United is working with us hand in hand in important launch markets such as New York City and Chicago, where United is developing innovative approaches to operating our aircraft within its Newark and O'Hare Airport hubs to enable a world-class customer experience door to door.

I'm proud to call Boeing, United, and Stellantis partners who are not merely partners in name, but partners who are truly invested in working towards a collective long-term success in eVTOL. Importantly, as part of this financing, we are grateful to have the support of major long-term financial investors such as ARK Invest, who share our long-term outlook for Archer and our role leading the eVTOL industry. As I reflect on these remarkable accomplishments, I want to extend my heartfelt gratitude to our incredible team, partners, and shareholders. Together, we are pioneering a new era of aviation, driving innovation and revolutionizing transportation for generations to come. Before I turn it over to Tom, let's take a step back for a second. In the last quarter alone, the U.S. military and government have both made an unwavering commitment that America will lead the way in commercializing eVTOL.

The FAA has validated the timeline for both Archer and Joby to bring our aircraft to market in the U.S. in 2025. We both proudly hosted more than 70 members of President Biden's AAM Interagency Working Group last month for a private flight test. Additionally, the Department of Defense has committed to nearly $300 million in contract value across the sector, providing incredible momentum for being the first country to bring eVTOL to market. When Midnight takes to the skies in the coming weeks, it will mark a new era in Advanced Air Mobility. Our team's hard work and dedication have brought us to this exciting moment. We can't wait to see Midnight and our industry soar. Thank you for joining us on this thrilling journey. I look forward to your questions later in the call.

I will now hand it over to Tom, who will dive into the technical aspects of our strategy and how those also have begun to bear fruit.

Tom Muniz (COO)

Thanks, Adam. This past quarter, we continued to execute our strategy, building momentum across our aircraft development, manufacturing, and certification efforts, with key progress toward our target of commercial launch in 2025. It is continuing to pay dividends. I couldn't be more pleased with our team's progress, and I'm excited to share updates with you in each of the key areas supporting our aircraft commercialization. First, on aircraft development, as Adam mentioned earlier, last week, the FAA issued a Special Airworthiness Certificate for our first Midnight aircraft.

This is the culmination of an extensive ground testing campaign over the past couple of months, as our flight test team has been hard at work getting the aircraft ready to fly safely. Now that we are certified to fly, we will steadily ramp up both our flight testing regimen and our fleet size and continue to march toward the final stages of our certification program and commercial launch. As we've discussed before, Midnight combines our proprietary electric powertrain and flight control software, along with extensive use of mature, certified components and systems from some of the best aerospace suppliers in the world.

This strategy of focusing on the key enabling technologies has allowed us to invest only where it's needed to ensure that our aircraft can achieve the performance required for commercial success, sufficient payload, range, fast charge and turnaround time, and speed without having to reinvent the wheel for more conventional aircraft components like flight control computers, where our supplier partners have the experience, IP, certification data, and scaled manufacturing expertise. As part of this broader strategy, we have also made pragmatic, commercially focused decisions in how we developed our core technology, which we like to call realistic innovation. Think of this as applying the design for certification, manufacturing, and commercialization recursively through our tech stack.

For example, our batteries leverage commercial cylindrical cells because we believe they deliver the best safety and reliability available, paving the way for a smoother path to certification, easier scale-up of manufacturing, and lower operating costs, translating into lower prices for consumers. We could have instead chosen a more exotic pouch cell for marginal gains in energy density, but the slight increase in performance this may have yielded would have been more than offset by the increased risk in safety, certification, manufacturability, and cost. Similarly, for our electric engines, while every aspect of the design was optimized for our aircraft, each part was also optimized for safety, reliability, and manufacturability, leveraging proven and scalable manufacturing processes from the automotive industry that will let us ramp up production while maintaining the highest possible quality standards.

With the airworthiness certificate now in hand, we expect to begin flying Midnight within the next couple of weeks. This first Midnight aircraft will be flown without a pilot on board, as we did for Maker, and will be used to gather data for internal design validation and in preparation for the final stage of our certification program. Data gathered from flying this aircraft will prepare us for having FAA pilots fly our aircraft next year in our full credit certification flight testing. This flight test data is complemented by extensive full credit component and system testing gathered in our world-class test lab facility, which is now online in San Jose. This facility has roughly a dozen custom-designed labs where we are putting each of the systems on the aircraft through their paces, gathering all of the ground test data needed for certification and high-volume manufacturing readiness.

These labs are largely focused on system integration, as our strategy of partnering with the best aerospace suppliers in the world means that we benefit from all of their existing component data and test capabilities, limiting the amount of testing and certification work required to get our aircraft certified and ready for mass manufacturing. This facility is also where we are doing final assembly of our fleet of conforming Midnight aircraft, which will be used for piloted flight testing next year. We are well underway in manufacturing our initial piloted conforming Midnight aircraft. Our supplier partners are currently fabricating the primary structure and many system components, leveraging their decades of experience in the aerospace industry. I want to thank all of our suppliers for their partnership and teamwork as we work together to bring Midnight to market.

We plan to start the final assembly of the first conforming piloted Midnight aircraft within the next two months at our state-of-the-art San Jose, California, manufacturing facility. Over the next year, we plan to build at least six of these aircraft to accelerate our certification flight testing efforts, we plan to hold our first piloted flight in early 2024. In Georgia, we are rapidly progressing the build-out of our high-rate production facility. Our team has cleared and graded our roughly 100 acre site in preparation for imminently pouring the foundation, and the broader construction efforts remain on track to enable occupying the factory next year, so that we can initiate our production ramp to produce deployment-ready aircraft for 2025.

I am sincerely grateful to our government partners across the state, from Newton County, the City of Covington, and the Georgia DOT, as well as our construction partners for their incredible support. On the certification front, we are progressively building momentum. I'm happy to report that the FAA has begun accepting our certification plans. As a reminder of where we are in the process, our teams are working closely with the FAA on our detailed certification plans, which detail exactly how our design complies with the airworthiness criteria set out in our Certification Basis. To give this more context, our certification plans are what allow the team to move forward with generating for-credit test and analysis data for the FAA to use to validate and certify our aircraft.

As I mentioned earlier, a key part of our strategy is that we have leveraged an extensive group of partners to supply components and bring our aircraft to market as efficiently as possible. That strategy has yielded a significantly simpler and more focused scope of certification work to do in the implementation phase of the certification program, meaning post-development of our certification plans. If we had chosen to reinvent the wheel on all the core components and systems on the aircraft, this intentional strategy has allowed the team to advance rapidly through our certification program to date, and it is why I believe that we will take the lead over the next 12 months in the race to bring the first commercial eVTOL aircraft to market here in the U.S. Needless to say, our strategy is paying off.

Much of that is due to the hard work of Administrator Nolen and the work he and his team did at the FAA before he joined us, collaborating with industry on the right framework to certify eVTOL aircraft. I'm excited to pass it over to Billy to share his unique perspective on this exciting time for Archer and the industry.

Billy Nolen (Chief Safety Officer)

Thanks, Tom. I'm very excited to be part of the team here at Archer, which I have over the last several years, come to believe will become the unambiguous leader among eVTOL manufacturers. During my time at the FAA, I led and oversaw the build-out of the first Advanced Air Mobility framework, which Adam spoke to earlier. With the understanding that the U.S. needs to move fast and with strong intent to maintain our leadership position in aviation and technology, it will fundamentally transform the way we move between and within America's cities. As a forcing function in this effort, I decided to choose the Los Angeles Summer Olympics in July 2028 as a target date for when the U.S. needs to have built out scaled Urban Air Mobility networks across our largest, most congested American cities.

My team originally felt that goal was ambitious, but over the last year, it became clear that the leaders in the eVTOL industry were well-positioned to be at real scale by 2028, contingent on the continued strong support that the FAA and the whole of U.S. government had pledged. Working backwards from scaled operations in multiple U.S. cities by 2028, my team at the FAA is further committed to enabling the leaders, including Archer, to certify and commercially launch their aircraft by early 2025 in order to start moving people in and around cities while showing the world the power of American innovation when catalyzed by a supportive regulatory environment.

In line with this, the Innovate28 plan that the FAA published last month explicitly notes that the agency is putting in place a plan to be ready by 2025 for initial operations in concert with industry. The plan goes on to provide significantly greater detail in this framework to certify, train, and integrate eVTOLs and eVTOL operators safely into the national airspace by leveraging existing operating rules and aviation infrastructure, while enabling future upgrades to enable continued growth across the industry. On the certification front, we're well on our way. Having received our Certification Basis from the FAA in 2021, we're now working to finalize our means of compliance with the FAA's airworthiness criteria prior to beginning For-Credit Testing, which we expect to commence in early 2024.

On training, in June, the FAA issued its proposed SFAR on eVTOL pilot training requirements and operational rules, providing a clear pathway for pilots to earn powered lift ratings specific to each type of aircraft they fly. Archer is working with the leading eVTOL OEMs, along with the General Aviation Manufacturers Association, to collectively provide industry input to the FAA over the next week. Finally, with regard to airspace integration, the FAA has released a thoughtful blueprint that covers air traffic routes, pilot communication, the use of the existing heliport infrastructure, and the build-out of new vertiport infrastructure, leveraging public-private partnerships.... Archer has already made substantial progress on infrastructure readiness and establishing partnerships with state and local governments, with the announcement of its planned routes in New York and Chicago in partnership with United Airlines. We're taking a data-based approach toward establishing the most efficient operational footprint.

It is clear that the DOT and the FAA have dramatically accelerated the pace of activity to further advance air mobility over the past few months. We applaud them for appropriately making AAM a top priority within the administration. More importantly, we are grateful to the administration for taking a whole-of-government approach to ensure the resources are in place for a safe ramp-up of the industry in the period from 2025 through 2028. By publicly committing to enable the industry to deliver on this timeline, the administration is signaling that they have provided the incentives and resources to execute this ambitious plan. In doing so, they will undoubtedly position the U.S. at the forefront of a new global industry.

I've been pleased with the continued collaboration between the FAA and companies like Archer, especially since my departure. I'm very excited to now be working with the Archer team as we approach the final stage of our path to commercialization. With that, I'll turn it over to Mark to give you a financial overview.

Mark Mesler (CFO)

Thanks, Billy. I'm excited about the progress our team has made on a number of fronts as we continue executing our strategy to create the most efficient path to market, both financially and operationally. The equity financing we just announced will help accelerate that strategy, I want to share more information about the participants and how we plan to use those proceeds. In our 2021 public offering, we raised substantial capital to develop our Midnight aircraft and get to commercialization. Over the last two years, as we have continued to hit our milestones, we've been grateful to see outsized interest from important strategic and financial partners who want to be a part of the Archer story. We decided to create an opportunity for them to participate and also further enhance our liquidity.

As Adam mentioned, today's equity investment round of $250 million was led by Stellantis, with $70 million as part of their previous commitment that they decided to accelerate and pull forward into this equity round. Our longtime partner, United Airlines, invested another $25 million into this round, joined by our new partner, Boeing, as Adam detailed earlier. ARK Invest, one of the leading investors in disruptive technologies, also invested another $44 million. High-quality financial investors who share the long-term outlook as Archer and our partners filled the balance of the round. This investment, combined with the remaining Stellantis commitment of $55 million, brings our total liquidity to over $675 million and brings our aggregate funding to $1.1 billion to date.

The funds raised will be used for the continued development of Midnight and related technologies, the build-out of our manufacturing and test facilities, working capital, and general corporate purposes. Beyond the capital this fundraise provides, we're proud of the outsized participation from our core partners, Stellantis and United. It continues to support Archer financially and operationally over the years. When we expanded our partnership with Stellantis earlier this year, they pledged to invest a total of $150 million of capital into Archer. As part of structuring that agreement, we worked jointly with the Stellantis team to develop a creative forward equity purchase framework that allows Archer to call that capital over time at our discretion, subject to certain business milestones, instead of taking on significant dilution then at a lower share price.

Our wins over the last several months and the performance of our stock price have made it an opportune time to draw down the initial $25 million tranche in June and on the $70 million tranche as part of this financing. In Q2, Stellantis also purchased 4.9 million shares of Archer stock in the open market to deepen our partnership even further. Beyond the financial support, Stellantis continues to be a great operating partner. They were key in helping us identify our Covington, Georgia, factory site out of hundreds of potential options across the U.S. due to its talent-proximate location and generous financial package from the state and local municipality. Stellantis has helped us resolve numerous supply chain issues, and there are now dozens of full-time Stellantis employees working on-site at Archer to help us as we continue ramping up our manufacturing operations.

Stellantis' commitment to pushing the boundaries on the future of mobility and Archer's role in it is second to none. In a similar vein, United's support has been unrivaled in our industry. As you remember, coupled with their initial investment in Archer, United agreed to purchase up to 300 aircraft from us that they plan to deploy across American cities with a focus on their important hubs. Just last August, they provided a $10 million pre-delivery payment against the first 100 aircraft, which is an important sign of conviction that we have not always seen in deals of this nature across the industry. Together with United, we have announced our first two commercial eVTOL routes that we plan to operate together, including United hubs at Newark, serving New York City, and O'Hare, serving Chicago.

We're very proud and fortunate to have the support of these two world-class partners, who are now joined by Boeing as we collaborate with them on autonomous flight. Let's switch to our financial performance for Q2. Our non-GAAP total operating expenses were $77.4 million. We landed towards the lower end of our estimate range at $75 million-$85 million. This led to an adjusted EBITDA loss of $76.3 million. Our operating expenses continue to be primarily driven by investments in headcount, aircraft parts and materials, and tooling and other non-recurring supplier costs.... With respect to our GAAP financials, the impact of our agreements with Boeing and Wisk, and the issuance of new warrants, resulted in non-cash charges to our P&L, which I will outline in our GAAP financials.

On a GAAP basis, total operating expenses for Q2 '23 were $181.4 million, which included $104 million of non-cash charges. These non-cash charges were comprised of $25 million for the vested portion of warrants provided in support of the Boeing-Wisk agreements I just discussed, $48 million for the unvested portion that is subject to certain vesting criteria and may never be realized for those agreements, $26.5 million of our standard stock-based compensation expenses, and $4.5 million of warrant expenses for our warrants issued to Stellantis. This drove a net loss of $184.1 million. We finished the quarter with $407.6 million of cash, cash equivalents, and short-term investments on our balance sheet.

Our net change in cash in Q2 '23 was $42.3 million, including the $25 million drawn in June from the Stellantis funding agreement. This cash was primarily used to fund non-GAAP operating expenses and CapEx. As I discussed on prior calls, in 2023, Archer is making some non-recurring investments alongside key suppliers to support the development and manufacturing setup of many of our Midnight components. This spending is also consistent with our overall strategy of creating the most efficient path to market, where we have focused on investing and hiring to support our key differentiating technologies and leveraging the existing aerospace industry supply base for the rest.

That framework allows us to avoid the ongoing structural spending of headcount to develop those other individual technologies and execute a lower operating cost development model, while de-risking our certification efforts and accelerating our time to market if we wouldn't have had to develop those technologies internally. Given that, in Q2, of the $77.4 million in non-GAAP operating expenses, the amount of non-recurring engineering and other investments was $12 million. Our overall spending framework for 2023 is similar, made up of our core operating expenses, non-recurring costs to establish our supply base, and CapEx. Non-recurring costs for Q1 2023 and Q2 2023 were $16 million and $12 million, respectively. These non-recurring costs will not be a material part of our expense structure in 2024 and beyond, as we will have completed most of that work this year.

Backing those amounts out of our current expense structure, we have core operating expenses of $61.5 million-$65.5 million, respectively, for Q1 2023 and Q2 2023. That level of current spending is our standard core structural spending that will persist into the future, and the non-recurring costs will not persist materially beyond 2023. I wanted to make this differentiation to share how our overarching strategy impacts our spending profile. Our June-ending cash balance of $407.6 million, combined with the capital that we raised today and the remaining $55 million from the Stellantis equity option previously discussed, provides us with more than $675 million of liquidity to get to commercialization in 2025.

In addition to this liquidity, we do see other opportunities for non-dilutive cash receipts in the form of pre-delivery payments from United and potential other future orders and spending offsets from the DoD contract that we announced last week. Finally, for Q3 '23, we anticipate a total GAAP operating expense of $42 million-$52 million. This is lower than our historical spending due to a one-time non-cash benefit of $58 million as a result of reversal of an unrealized expense relating to founder grants, offset by expected stock-based compensation and warrant expense of approximately $25 million. Total non-GAAP operating expenses for Q3 '23 is anticipated to be $75 million-$85 million. With that, operator, let's open it up for questions.

Operator (participant)

Absolutely. If you'd like to ask a question, please press star one on your telephone keypad. To remove your question, press star two. If you are using a speakerphone today, please pick up your handset before asking your question. Our first question comes from Edison Yu with Deutsche Bank. Please proceed.

Edison Yu (Head of Global Space & Aerial Mobility)

Hey, good afternoon, and congratulations. You guys have certainly been very busy.

Adam Goldstein (Founder and CEO)

Thanks, Edison.

Edison Yu (Head of Global Space & Aerial Mobility)

Starting off, Yeah, starting off, could you maybe talk about the, the role Boeing will have or could have going forward? Obviously, there was a pretty contentious lawsuit going on, and it's, it's been settled. What, what kind of role do you envision them having going forward?

Adam Goldstein (Founder and CEO)

Thanks for the question, Edison. This is Adam. First, I am thrilled to have the Boeing Company investment and to be working with them and Wisk on autonomy. Boeing support, I think, really can only help just further the growth and development of the entire AAM industry. If I think about the, you know, the relationships here, this is multifaceted. There's a number of components here that, you know, that, that went into this. One is, you know, Boeing's investment in our latest financing round. Two, the collaboration agreement between the parties, where we will work with Boeing and Wisk on autonomy for future versions of the Midnight aircraft. Three, there were warrants provided to Boeing and Wisk, and four, the settlement of all the litigation between the parties.

Hopefully, that puts it in perspective here, but we are, you know, really excited to, you know, to work with Boeing and Wisk on these future autonomy programs.

Edison Yu (Head of Global Space & Aerial Mobility)

Thanks. Following up on the, on the DoD opportunity, I know you, you landed one with the Air Force already, and, and you mentioned that the Marines visited last week. Do you have a sense of how big that opportunity can be going forward? Not, not trying to pin you down to any number, but it sounds as if there is quite a bit of upside. Curious, how do you, how do you think about that, that growing?

Adam Goldstein (Founder and CEO)

Yeah, no, I, I, I totally agree with you, Edison. The contract value itself, right? There's a stated number in there, which I think is really exciting, and it's the, you know, it's the largest, you know, contract that we've seen in the industry. It really is the I would think the bigger value here is really the opportunities that go beyond that. We now have a chance to showcase the vehicle and its capabilities to all the different branches of the armed services, which really opens us up to, you know, broader applications. There's also global applications of that as well. This also provides like a another channel for us to sell into, outside of, you know, the FAA-led civilian side.

It really does provide a nice diversification of revenue, and allows us to be able to get to market sooner than the than just purely on the civilian side.

Edison Yu (Head of Global Space & Aerial Mobility)

Got it. And if I could just sneak one in for, for, for Billy. I, I know you, you mentioned you kind of evaluated, you know, the entire competitive landscape. You have a very, obviously, very bold vision. How do you sort of see the, the ramp of the, the eVTOL industry from 2025 to 2028? Is it... You know, are we talking, you know, hundreds, thousands of aircraft across cities? What, what does the UAM sort of look like in your view by, by that date?

Billy Nolen (Chief Safety Officer)

Yeah. Thanks for the question. If you think back to the whole premise of Innovate28, it was indeed getting to that 2025. We're probably talking multiples of 10, 20, aircraft as you're in that 2025 timeframe, and then really scaling up from there. My estimation, you know, from my time sitting in the administrator's chair, was that we could certainly be into the hundreds of eVTOLs by the time we get to 2028, if not, in the thousands, there. We see that as this take off and as the market demand, which we're seeing globally, is, is kind of what we're projecting, which is why we really wanted to have this strong framework in place.

Edison Yu (Head of Global Space & Aerial Mobility)

Awesome. Congrats again. Thanks for taking the questions.

Billy Nolen (Chief Safety Officer)

Thanks, Edison.

Operator (participant)

Our next question comes from Andres Sheppard with Cantor Fitzgerald. Please proceed.

Andres Sheppard (Managing Director and Senior Equity Analyst)

Hey, guys. Good afternoon. Congrats on the quarter. Thanks for taking our questions, and congrats on all the recent announcements. Maybe a first question for Mark. Would you mind just walking us through again that $215 million investment? The $70 million investment from Stellantis, is that in addition to the prior $150, or that's part of that agreement? I think you broke it down further, $25 million from United. Just trying to reconcile the total amount, Mark, if you don't mind. Thank you.

Mark Mesler (CFO)

Yeah, sure. A couple points there, Andres. One, yes, that was an acceleration of the $70 million from the prior $150 million dollar commitment. As we got, you know, momentum around, you know, the DoD contract and some of the more recent announcements, they were anxious to get in with this round. We've only currently publicly disclosed those four investors, United at $25, Stellantis at $70, and Ark at $44, and the others are, we haven't disclosed. For the full, for the full $215.

Andres Sheppard (Managing Director and Senior Equity Analyst)

Okay, got it. That's helpful. Thanks, Mark. Maybe a question for Adam. Adam, in your CNBC interview prior to the Earnings Call, you alluded as to, you know, where you see the industry moving forward in maybe the later years as it pertains to autonomy. You know, I think you went in so far as to say you expect autonomy to maybe take a leading role later in the industry. I'm just wondering maybe you can expand on what you meant there and how you see now the collaboration with Wisk integrating and maybe some sort of timeline that you might be able to give us. Thank you.

Adam Goldstein (Founder and CEO)

Yeah. Archer's strategy has always been to find the most efficient path to market. In doing that, you know, we started by having a piloted vehicle. That's where, you know, the existing rules are. We can enter into service here, you know, in the very near future, and so we're really excited about that. As the industry scales, though, and really goes beyond, you know, where you start to have, you know, thousands, tens of thousands, hundreds of thousands of vehicles, you know, the need for autonomy really helps, you know, increase a lot of value to the, to the industry, one, because there's a less need for pilots, but two, there's an increased, you know, potential for safety. I think that really, you know, is a big deal.

I guess then the third one here is cost. You can also reduce cost by doing that. As the industry scales, there's an ability to add this capability. For us, why this is so interesting, if you think back to our, our strategy, our strategy has, has been to partner with the best groups that can help us get to market. We partnered with the tier one suppliers like Honeywell and Safran and Garmin, and this has really helped us get this help us find our efficient path to market. Then we look to the future, and we start thinking about future variants of the vehicle. You know, developing autonomy can be obviously a very expensive, you know, path, especially because the date of launching into services is also harder to predict.

This is a good way for us to leverage and work with a group that, you know, probably has the most experience in the world in flight autonomy and allows us to, you know, keep going down our path of having piloted vehicles come to market early, and then have an application and an ability to test these vehicles with autonomy, and ultimately scale as the technology becomes available.

Andres Sheppard (Managing Director and Senior Equity Analyst)

Got it. That, that's super helpful and super insightful. Thank you. Maybe if I could just squeeze one last one. Related to the Air Force and the DoD contract, you know, you've, you've quantified the worth of the contract so far, but I guess I'm wondering, do you expect the military to maybe open these Programs of Record for eVTOL, and, and in doing so, maybe open up a new market? I mean, there's opportunities here for, for growth within that contract, I would imagine. Just kind of curious how you're thinking about that partnership over the medium to longer term. Thank you.

Adam Goldstein (Founder and CEO)

Yeah. I mean, I, I believe that, you know, this contract is really just the start for the industry and will really evolve into a very sizable relationship, you know, with the U.S. military. Since we announced our first contract with AFWERX, we've seen outsized interest from pretty much every branch in the armed forces. As we mentioned, you know, we hosted the Marine Corps last week, and our, you know, one of the members of our government advisory board, Four-Star General Townsend, has been working with us to help crack the code on how to work with the U.S. Army, who, you know, which has the largest rotorcraft fleet in the world.

I do believe there is very real potential for the eVTOL industry, to move into, you know, multi-hundred million dollar or even billion-dollar programs of record, with the DoD over time.

Andres Sheppard (Managing Director and Senior Equity Analyst)

Wonderful. Thank you so much. Congrats again on the quarter. I'll pass it on.

Adam Goldstein (Founder and CEO)

Thanks.

Operator (participant)

Our next question comes from Savi Syth with Raymond James. Please proceed.

Savanthi Syth (Managing Director of Airlines Air Mobility)

Hey, good afternoon, everyone. If I might just follow up on, on Andres' question just before, with these investments, like, have you shared, like, the price point that they're being made or, or if there's any warrants associated with them?

Mark Mesler (CFO)

Hey, Savi, this is Mark. In the 8-K, it discloses the pricing of this. If we look at recent financing activity, some of our peers have priced it, you know, the 20% discount. We've observed with our bankers, other public follow-on rounds pricing at an average of 8%-8.5% discount. Our round, our round was actually oversubscribed, and we had a caller structure around it, where we priced ours at roughly a 5% discount, which are better terms than other deals getting done today.

Savanthi Syth (Managing Director of Airlines Air Mobility)

That's helpful. Thank you. Sorry, I missed that. Then just on the, you know, the certification-conforming aircraft in, in building that, are there anything that you need from the FAA in terms of accepting, you know, various, Certification Plans that you've submitted or clarifying kind of on rulemaking that's needed before you can start that? Or is it really a matter of just kind of getting production set up and, and moving forward?

Tom Muniz (COO)

Yeah. Hey, Savi, this is Tom. Maybe to, to give you a little context there, you know, our whole strategy around certification was to keep things as simple and easy as possible, and that's, like, why we took this approach of partnering with, you know, existing aerospace suppliers where we could to leverage their existing certification data, capabilities, et cetera. Then on our own, you know, path towards getting the TC, the, the big thing that we've been working through over the past six months is what you're asking about, getting those cert plans finalized. You know, the most important thing there is not necessarily checking the box that the cert plan's accepted, but more what's the content of those plans and what's the scope of testing.

To get at your question, specifically, what do we need to move forward? Once we have those Cert Plans agreed, then it's a matter of just executing the steps laid out in those plans, doing the tests, doing the analysis to get our TC, specifically around conformity. Each of those Cert Plans, which are, you know, very self-contained, those give the specific details of, you know, what's delegated, what's gonna be conformed to what standard to do what tests, and then it's purely an execution game. Again, because of the strategy we took, we feel very optimistic that we're going to have a very smooth path, and you'll really see us start accelerating here over the rest of the year into next year because we've laid forward this, you know, let's say, relatively simple path to go and execute. Hopefully, that's helpful context.

Savanthi Syth (Managing Director of Airlines Air Mobility)

That's super helpful, Tom. just a clarification, have you submitted all the Cert Plans, or is that, like, an iterative process? kind of where are you in the submission-

Tom Muniz (COO)

Yeah.

Savanthi Syth (Managing Director of Airlines Air Mobility)

part of it?

Tom Muniz (COO)

Yep, great question. We've submitted the majority of our certification plans. There's a couple remaining that we haven't submitted. Those are in less, let's say, critical areas, things that, things like noise, which we don't expect to be a driver, on the overall schedule. We also have started to get our cert plans formally accepted. First one was accepted, a couple weeks ago, and there are several others, in the queue that we expect to be accepted soon. We're really starting to build momentum, and very happy with the progress.

Savanthi Syth (Managing Director of Airlines Air Mobility)

Great. Thank you.

Operator (participant)

Our next question comes from Bill Peterson with JPMorgan. Please proceed.

Bill Peterson (Equity Research Analyst)

Yeah. Hi, good afternoon, thanks for taking the questions, nice to see all these announcements here. I wanted to talk first about the, the DoD contract maybe some clarifications around that first. Within that, the delivery for maybe end of this year or early next year, is that, is that one of the Conforming Aircraft, or is that something different? Then I think Mark might have said something like, this might be like OpEx offsets for some of these early, early aircraft. I believe you also, with the value of the, of the contract, I'm guessing there's some maintenance and repair. I guess, how should we build that through a model? You know, what's the timing for this, you know, I guess, for the entirety of the, the, the first announcement? How many years and so forth?

Mark Mesler (CFO)

Hey, Bill, this is Mark. The contract is a, is a multifaceted contract. It, it spans service, it spans training, and it spans hardware, and it spans some development work internally as well. You know, it's gonna be a combination of, of sort of cost reimbursement as well as, as revenue. I think as we, as we sit here today, that's still coming together in terms of the timing of how that's gonna play out. We think a preponderance of the development work will, you know, happen over the next few, prior to certification. I think the timing and everything we haven't discussed, so more to come as we work through that with the DoD.

Bill Peterson (Equity Research Analyst)

Is one of these aircraft a Conforming Aircraft, or is it an additional aircraft?

Tom Muniz (COO)

Hey, Bill, this is Tom. The first aircraft we'll be delivering is a non-conforming unit that'll be, you know, used for early operational testing. But then there are also deliveries of piloted Conforming Aircraft, next year, and beyond.

Bill Peterson (Equity Research Analyst)

Okay, that, that's helpful. you know, I don't know if this is for Billy or for, for Adam, but, you know, we, we hear the FAA is, is proposing reserve requirements for Powered Lift aircraft being consistent with larger aircraft, 30 minutes daytime, 45 minutes at night. want to make sure if that's really the case, and are these requirements built into the Certification Plan, for Archer?

Tom Muniz (COO)

Yeah, I'll, I'll chime in first and then, then let Billy give his thoughts. Hey, you're talking about the reserve requirements that came out in the draft SFAR that the FAA published, you know, a couple of months ago.

Bill Peterson (Equity Research Analyst)

Yeah

Tom Muniz (COO)

... just to help give everybody context here, that's, that's the first draft, right? The way the process works is that the FAA kind of works amongst themselves, without input from industry, you know, ex parte rulemaking, and then they publish initial thoughts. Over the last couple of months, you know, we've been working with others in the industry to share our perspective on what the right, you know, kind of balanced approach looks like, to get these rules in a state that obviously supports the required safety, but also, you know, efficient operations of the aircraft. The public comment period on this draft is closing in the next week or so. We'll be commenting along with all of our peers, as well as our industry associations, GAMA, NBAA, et cetera.

We think it's most likely we'll end up with more performance-based reserve requirements, similar to what EASA has published, rather than, you know, a generic, you know, VFR endurance kind of number. We have obviously looked at what our go-to-market path would be if the draft rules kind of stayed as they were. Even in that scenario, I'm happy to say we'd still be very comfortable with being able to operate all the missions we're targeting in cities. Yeah, Billy, anything else you want to add?

Billy Nolen (Chief Safety Officer)

Yeah, thanks, Tom. Hey, Bill, just to build upon what Tom was just saying. Clearly, during my time, the FAA always wants to hear from the industry. They're limited in the most early part of rulemaking, from having what they call ex parte communication, as you're probably well aware, right? This, as, as Tom spoke to, the comment period is, is closing. We've certainly assembled our comments, and we're joining the rest of the industry in getting there. We believe at the end of the day, we will find a middle ground that works. But again, as Tom spoke to, we are prepared either way. We're certainly have a strong position that we will convey to the FAA.

Bill Peterson (Equity Research Analyst)

Thanks for that. If I could speak one more, too. This Innovate28, and I'm sure this is something you probably were aware of, you know, when you were there, Billy, the, the document talks about, you know, the OEMs, operators, governments, you know, obviously a lot of local buy-in for infrastructure. What is the latest thinking around infrastructure, especially with, with, you know, buy-in from the public on, on new sites? I mean, trying to think, is this a risk to, to new sites coming online? How should we think about the infrastructure as we look towards 2028?

Billy Nolen (Chief Safety Officer)

Yeah, good, good question. You know, when we think about infrastructure, that was exactly why you want to have a forcing function like Innovate28, which gives the time for all of the stakeholders, right? We have the infrastructure in place today that can accommodate as things kick off in 2025. Everything is in place, low density, using, you know, current helicopter routes, using the current ATC infrastructure. As we scale up, we'll see the equipments that we will commit to on Archer's side. And we've also heard from the FAA in terms of how they will ensure that they can accommodate within the national airspace. At the same time, as the FAA is having conversations at the state and local level, so is Archer.

We're meeting with stakeholders across the country to make sure when we think about vertiports, when we think about current infrastructure, that not only can it accommodate us, but we're prepared to be at scale as we move into the future as well.

Bill Peterson (Equity Research Analyst)

Thanks, Billy, for the insights. Thanks, everyone.

Operator (participant)

Our next question comes from David Zazula with Barclays. Please proceed.

David Zazula (VP of Equity Research, Senior eVTOL Equity Research Analyst, and Transportation Associate)

Hey, good afternoon, and thanks for taking my question. First, first one is for Billy. Just, I think you talked about where you see the industry going forward. Can you maybe take us backwards and just, you know, compare what you expected the AAM process going into it with how it actually ended up? You know, what surprised you about it? And maybe, you know, if applicable, how that contributed to you choosing to come to Archer?

Billy Nolen (Chief Safety Officer)

If I, if I go back, the FAA had a lot of these parts were already in play. What, what I feel that I brought to it, right, was that idea of having a forcing function. That is, to have something that you could really coalesce around a mission with a point in time, and then be able to backward plan from that. What needs to be accomplished in 2020? Now we're in 2023. In 2023, 2024, 2025, and beyond, right? This is really was the genesis of 2028. If you ask what has surprised me, it, it really comes as no surprise at all. The FAA's got a great group of professionals there, and their ability to come together.

More importantly, what I would say on behalf of all of us here at Archer, and certainly I know Adam has already restated it, we just extend a note of thanks to the administration for pulling together this really whole of government approach, because we know that's what it's gonna take. We are certainly prepared to do our part. We know it takes us, the government, and, at the state and local level, all working together to make sure this happens.

David Zazula (VP of Equity Research, Senior eVTOL Equity Research Analyst, and Transportation Associate)

Great. Thanks very much. Then, you know, for Andy or Adam, is there any other color you can give us on the agreement with Wisk and Boeing? You know, specifically on the ability to use, you know, the autonomous technology, is that something you can implement in the next generation of aircraft if it is in fact not an autonomous aircraft? Do you need to kind of go full all in on autonomy to be able to use this technology?

Adam Goldstein (Founder and CEO)

Yeah, David, it's Adam. Maybe I can give you a sort of a high-level answer here. Archer has a lot of success working with strategic partners, and you can see that with our work with United or our work with Stellantis. So, you know, we start off finding ways to work together and then really growing the relationship from there. You know, we are bringing to market a piloted vehicle, and Boeing and Wisk have spent a lot of time, a lot of years, a lot of money building autonomy. There's this natural overlap, and at this stage, we are working together through that to see how to best implement this, and we will certainly provide you with more details and updates as that relationship matures.

David Zazula (VP of Equity Research, Senior eVTOL Equity Research Analyst, and Transportation Associate)

Good. Thanks very much.

Adam Goldstein (Founder and CEO)

Thanks.

Operator (participant)

Our next question comes from Josh Sullivan with The Benchmark Company. Please proceed.

Josh Sullivan (Managing Director and Senior Equity Research Analyst)

Hey, good afternoon. Congratulations on a number of fronts here.

Adam Goldstein (Founder and CEO)

Thanks, Josh.

Josh Sullivan (Managing Director and Senior Equity Research Analyst)

I know you're still working on Cert Plans, you know, but with the six Conforming Aircraft assumption for certification, do you have an assumption on the number of credit hours each aircraft's gonna need to execute to get the certification at this point?

Tom Muniz (COO)

Yeah, great question. This is Tom. We do have a very detailed flight test schedule that goes to each of those specific tail numbers and assigns the exact tests that we're gonna do. I don't recall the exact number of flight hours, you know, off the cuff here, but all of that is, like, very methodically planned out in advance. You know, you really have to do it that way, and make sure that each aircraft has the proper systems installed, properly conformed, as we were talking about earlier on the call, so that you can get credit for the testing.

Josh Sullivan (Managing Director and Senior Equity Research Analyst)

Got it. Then as far as the collaboration with Boeing, you know, when autonomous flight comes to commercial markets, up for debate, but how are your defense relationships looking at that, that partnership? You know, is that a faster avenue, you know, especially now that you're going to deliver an aircraft this year? And I guess what additional development would you need for, for a Midnight today on, on the defense side for, for autonomous operations? Just curious how that, that might develop.

Tom Muniz (COO)

That's a really interesting question, Josh. I don't have much more color that I can add. I do agree with you that there's lots of avenues and applications here that are interesting, and we're definitely exploring all of those, but I think I would say stay tuned on that one, and we'll give you more updates as those start to come about.

Josh Sullivan (Managing Director and Senior Equity Research Analyst)

Got it. Then just 1 last one. Anything precluding an international defense relationship with the Midnight at this point?

Tom Muniz (COO)

I don't believe so. I mean, I think the high level rules, the way, you know, people talk about it is, you know, anywhere the U.S. government sells to, you know, the different players, can sell to, so that's a pretty broad list.

Josh Sullivan (Managing Director and Senior Equity Research Analyst)

Got it. Thank you for the time.

Operator (participant)

Thank you for your questions. There are no questions waiting in queue at this time. I will conclude the conference call at this time. Thank you all for your participation. You may now disconnect your line.