Archer Aviation Inc (ACHR) 2024 Q1 法說會逐字稿

Good afternoon.

Thank you for attending today's Archer Aviation Q1 24 financial results conference call.

My name is Cole, and I'll be the moderator for today's call.

(Operator Instructions)

I'd now like to pass it over to our host, Eric Lentell.

Please go ahead.

Thank you, operator.

Good afternoon, everyone, and thank you for joining us today to review Archer's first quarter operating and financial results.

My name is Eric Lentell, Archer's General Counsel.

On the call with me today are Adam Goldstein, our Founder and CEO; Mark Mesler, our CFO and Tom Muniz, our CTO.

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.

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 will discuss both GAAP and non-GAAP financial measures.

A reconciliation of certain GAAP to non-GAAP measures is included in our shareholder letter posted on our Investor Relations website.

And now I'll turn the call over to Adam.

Adam?

Thanks, Eric.

At Archer, we remain steadfast in our focus on commercializing our Midnight aircraft.

We've designed Midnight in pursuit of bringing to market in electric aircraft with world-class design and cutting-edge performance capabilities that will make it the desired air taxi globally.

When I think back to 2019 when I first sat down with Tom Muniz, Geoff Bower to sketch out the vision for what became midnight, we were aligned on one single goal.

We designed an aircraft that would capture the market potential as soon as possible, meaning one that is both certifiable and manufacturable at scale, all while being purpose-built to addressing the congested 20 to 50 mile automobile commute corridors that gridlock our cities today.

We decided a 12-tilt-6 vehicle what's optimal for this mission and then we built a full-scale 3,500 pound max gross weight 40 foot wingspan aircraft called Nacre.

We separated that aircraft in 2022 and 2023 through the full flight envelope, including transition and high speed flight, and then use those lessons to inform the design of the next evolution our production aircraft Midnight.

Today, we are flying Midnight nearly every day and benefiting tremendously from all the lessons we learned from Nacre.

In Q1, our flight test team logged over 100 flights, putting us on pace to exceed our goal of 400 flights this year.

And we continue to be focused on accelerating the velocity of our flight tested, aiming for reaching 10 to 15 flights a day to mimic commercial endurance.

As we continue to expand the flight envelope, I couldn't be more excited to see the aircraft transition in the near future.

Midnight has a 6,500 pound max gross weight and a 47 foot wingspan, making it what we believe to be the largest eVTOL aircraft in the industry.

We intentionally designed Midnight at this site to maximize payload and provide necessary comforts such as air-conditioning.

I believe that our choice to build a higher payload vehicle will prove to be a differentiator as you commercialize this industry.

We are on a path to build six conforming Midnight aircraft to be used as part of our FAA certification program.

The first of those is in final assembly now and on track to begin piloting flights later this year.

Yesterday, we published a comprehensive video tour of our Integrated Test Lab and production facility in California.

Given our progress in engineering the aircraft and on our certification and flight test programs we decided to move forward with installing our high-scale automated battery pack manufacturing line earlier this year.

This line is capable of producing enough battery packs to support our planned production ramp in Georgia.

I am confident that we are leading the way in the industry with this capability and that our investment there will pay off for years to come.

We've also made similar investments across our supply chain, having spent over $50 million with our suppliers to ensure they are able to achieve our time line and the production throughput, we will need to support our aircraft manufacturing plant.

As these capital expenditures and upfront nonrecurring costs roll off, I expect we will naturally reduce our burn and cash needs meaningfully, as we shift into preparing for commercial launch heading into next year.

One key piece of the strategy has been our partnership with Stellantis.

As we have indicated, we are evolving our relationship to position Stellantis to be our contract manufacturing partner so that we can take advantage of their proven ability to produce vehicles at scale, which will in turn reduce Archer's cash outlay necessary to purchase materials and equipment as we start to scale production of our aircraft.

We believe this capital light strategy will put us in a unique position to rapidly scale production, while minimizing cash requirements.

I'm very pleased with how we have managed liquidity through this period where we have made what should be our most substantial CapEx and nonrecurring investments.

Our liquidity and cash position is nearly flat to where it was one year ago.

As the Founder, CEO and the company's largest shareholder, I am sensitive to when and how much capital we taken as we balance our need and desire to grow with potential dilution.

From the beginning, we've chosen a partner first approach with some of the world's greatest companies and investors like Stellantis, United Airlines, Abu Dhabi and Moelis.

We believe in the value of what we are doing and are willing and able to help us ensure we get the capital we need when we need it.

I continue to believe we are massively undervalued relative to the proprietary step change and technology we are creating and we'll remain opportunistic about how and when we've taken capital on our journey to commercialization.

I'm lucky to experience the day in and day out progress of making electric aviation a reality, but nothing tops getting to see the emotional reaction people have when they first experienced our aircraft, no matter where we are in the world.

I'm incredibly excited about turning those moments into an everyday reality.

Just last week, I was in DC to celebrate the opening of our DC office with Billy Nolan, who prior to coming to Archer was the acting FAA administrator and have now transitioned to be our Chief Regulatory Affairs Officer, overseeing a team of industry and government veterans who are working on important policy and regulatory issues our industry faces.

While in DC, I had the pleasure of meeting with lawmakers, the FAA administrator, Mike Whitaker, and his leadership team and senior administration officials at the White House to update them on our progress and to discuss the importance of the FAA reauthorization bill and the upcoming

[SVOD].

I'm grateful to administrator Whitaker and the leadership team for all of the progress our two teams have made together over the last several months to advance Midnight towards commercialization.

Tom will provide more detail on our certification progress, which we've also highlighted in our shareholder letter.

I want to now shift gears and take a moment to touch on the momentum we are seeing from commercializing flying cars all over the globe.

It has been a noticeable shift over the past 12 months.

Recently, I spent time abroad at the invitation of international regulators and partners new and perspective, and I can say what I've witnessed firsthand is that never before has the excitement in demand for urban air transportation and higher than it is today.

The world cities are growing increasingly congested, while alternative transportation options remain challenging to develop and implement and world leaders have taken note of the potential impact our industry can have on their cities.

I'm humbled by the opportunity that Archer and our industry have to contribute to making a difference by clustering in this new era of electrical aviation.

Just last month, Midnight made its debut in Abu Dhabi for the inaugural Abu Dhabi mobility, where the UAE government ratified what I believe to be the world's largest unified governmental sign of support for our industry outside of the United States.

As part of that, we signed a landmark framework agreement with the Abu Dhabi Investment Office, ADIO that sets out their plan to provide us with an unprecedented investment of several hundreds of millions of dollars to accelerate our launch of air taxis in the region.

Our team is proud to be partnering directly with the Director General of ADIO, his Excellency Badr Al-Olama with whom we've worked closely over the last year to get to this point under the leadership of (inaudible) who we were proud to host last month in the country's capital city.

Aviation in the UAE, like most other countries as regulated federally, so we are working in close coordination with the GCAA, the General Civil Aviation Authority to plan for the safe integration of our aircraft into the airspace across Abu Dhabi, Dubai and the seven Emirates.

I want to offer more insight into what these early operations are shaping up to look like.

There are existing skilled operators there who have meaningful experienced operating aircraft within the complex UAE airspace.

Rather than building a new operator to directly compete with local incumbents, we've chosen to take a more pragmatic approach to launching this market through working with commercial leaders there like Falcon Aviation and Air Chateau.

Falcon under the leadership of the Highness Dr. Sheikh Sultan of the UAE royal family has decades of experience transporting passengers within and across Dubai and Abu Dhabi via helicopters.

And Air Chateau is one of the country's newest and most forward-leaning helicopter operators located at the newly announced Al Maktoum International Airport, the future home of Emirates Airline and soon to be the largest airport in the world.

We remain focused on executing on a partner first approach, and we look forward to continuing to work with the GCAA, ADIO and the Department of Municipalities and transport to enable commercial operations of our air taxis in the country as soon as late 2025.

I recently also spent time in India, and I'm more convinced than ever that India could become the largest urban air mobility market in the world, just as it has already become one of the fastest growing electric vehicle markets.

We're proud to be partnering with Rahul Bhatia, one of Aviation's greatest pioneers in this company InterGlobe.

Through InterGlobe, Rahul has founded and helmed the third largest airline in the world, Indigo a nearly $20 billion Juggernaut holding two-thirds of the domestic Indian market, with an extensive in-country and global influence and respect towards innovative approach to customer and operational excellence.

In our sector, we are leading the way with maturing our plans and partners in what I'm sure can be one of the largest markets for eVTOL aircraft on there.

So I'm very happy with the work our team is doing.

I want to be clear that our partnership with InterGlobe is intended to extend far beyond a co-marketing arrangement or simple airport trips.

Beyond the airline InterGlobe is also the country's third largest hospitality player with extensive real estate portfolio as well as UPS's JV partner in the region.

As such, this year, we are working to finalize a comprehensive JV with InterGlobe, which is contemplated to not only purchase an initial fleet of up to 200 Midnight aircraft to begin operations in Delhi, Mumbai and Bangalore, but also to build up an extensive network of vertiports and service across the country to include fleet operations, maintenance and power equipment and train.

As you can imagine, InterGlobe also has a deep working relationship with India's Director at General of Civil Aviation, the DGCA, and our team has spent time planning our approach with the regulators, Director General, Mr. Vikram Dev Dutt as well as his broader leadership team to make sure we have a regulatory pathway to launch in India.

UAE and India are just the first of our announced international markets.

So look for us to continue sharing advancements here as we near commercialization.

Also, as I mentioned, the global demand for Midnight is clear, and I'm excited for us to share more advancements on the international front here soon.

Of course, a go to market strategy is only as good as our product, and I'm excited for Tom to share a deeper update on the next progression.

Tom has more experienced leading eVTOL top aircraft program than just about anyone in the world.

Midnight is the eighth full-scale eVTOL aircraft he has worked on, those aircraft have flown over 2000 flights combined.

Now that we have over 750 employees at Archer and given the progress with Stellantis and the contract manufacturing relationship that we're developing, we have elevated Tom to the role of Chief Technology Officer with 500 engineers under Tom's organization.

As part of that, we have recently shifted the manufacturing supply chain and quality departments to fall under a new production leader, [Tony Archer] having spent 23 years at Apple in leadership roles.

Tony has deep experience across complex hardware programs.

His fingerprint spanned nearly every major Apple product from the iPhone to the iPad to the Vision Pro from R&D prototyping and contract manufacturing with Apple's many CM partners.

I couldn't imagine a better deal than the combination of having Tom running engineering and Tony running production to see our program through commercialization.

With that, I want to step back and reflect on all the progress we've made today.

Electrification of aviation continues to increasingly emerge into the mainstream every day, which only further motivate my team here at Archer and underscores our collective commitment to pioneering advancements in transportation.

Our valuation today only captures a small fraction of incredible ambition we have to make sustainable aviation and everyday reality.

We stand at the forefront of a transformative era where imagination with innovation and dream take flight.

With that, I'll turn it over to Tom.

Thanks, Adam.

This past quarter, my team has successfully achieved an ambitious series of milestones across aircraft testing, FAA certification and manufacturing.

From the outset I've been clear that our strategy has been to keep the design for Midnight as simple as possible, while delivering industry-leading performance balanced with safety.

As you know, we decided to do this by partnering with what we believe to be the best suppliers in the aerospace industry rather than take on the cost and risk of vertically integrating every aspect of a novel aircraft program.

This pivotal decision continues to pay dividends that are more clear today than ever as we continue to make rapid progress towards commercializing Midnight.

This is most evident when you look at the strides we have made with our flight test program.

Our team continues to accelerate the cadence at which we are flying.

And as Adam mentioned, I'm incredibly proud that we see over 100 flights in Q1 and remain on track to exceed our goal of completing over 400 flights this year.

Most importantly, we've safely and steadily advanced midnight through the envelope expansion phase of its flight test program, and we have now entered the transition portion of the flight test campaign.

As a reminder, transition is the flight regime between hover and cruise, where the aircraft is flying forward with some lift being generated by both the wing and the propellers.

As you recall, our team completed the full transition of maker a couple of years ago generating and valuable data to support the Midnight aircraft we are flying now.

Over the coming weeks, we will continue to fly Midnight at incrementally faster airspeeds until we reach the full transition to cruise flight.

We are on track to accomplish the seminal milestone in the near future.

In parallel, our flight test team is starting to ramp up test planning and preparations for us to commence piloted flight testing, which we are on track to begin later this year.

On the testing and certification front, this past quarter, we significantly ramped up our testing efforts to drive both safety and flight readiness for upcoming piloted flight tests later this year as well as our ongoing certification program with FAA.

This past quarter has seen extensive testing across many different facets of the aircraft.

I'll take a few minutes to highlight some of the key initiatives to illustrate the type of work we're doing and the progress we're making.

Starting with materials testing as of this past quarter, we have now completed more than 60% of the FAA for credit testing for composite structural materials.

We also recently completed several structural component-level tests to validate our structural analysis methods.

This data supports not just our safety of flight efforts for upcoming piloted fly testing, but also our aircraft structures certification efforts.

This past quarter, we also successfully completed structural proof load testing of the fuselage for the piloted Midnight aircraft, ensuring that the structure can safely withstand the loads we expected to see in flight.

Moving on to landing gear.

The Midnight aircraft has the unique and highly beneficial capability of landing both vertically like a helicopter and conventionally like an airplane.

This gives Midnight a distinct operational and safety advantage over other eVTOL aircraft that can only take off and land vertically.

This ability provides additional use cases, increased safety of our operations and increased redundancy to the aircraft platform.

With our partner Mecaer we recently completed a multi-week test campaign where we functionally tested the landing gear to verify the design can withstand any possible lending scenario anticipated even for the harshest of imperfect landings.

These harsh lending conditions in part was defined as limit loads, which are loads that are extremely unlikely from a probabilistic standpoint, but possible by conservative definition.

Additionally, because Archer's meeting the certification criteria for both helicopter and normal aircraft category landings Part 27 and Part 23, respectively, we tested each landing configuration twice, once with representative tyre spin for conventional lending and once with a static tire for vertical landings.

While we performed this testing support safety of flight for the first pilot at Midnight.

The test procedures were reviewed and supported by both Mecaer and FAA designated engineering representatives or DERs.

Mecaer has established itself as an expert in this area through successful strategic partnerships with many other major aircraft OEMs that supply sophisticated certified products in the aerospace and defense sector.

The data reviewed indicates that the landing gear met or exceeded the design targets in all cases.

Additionally, because this test campaign directly geared for testing that will be done for certification credits, there is now a high degree of certainty that Midnight's landing gear will pass the certification testing process.

Another capability of Midnight that we believe will be a differentiator is the high-performance environmental cooling system from Honeywell that we are capable of integrating into Midnight, thanks to its size and payload capability.

We're making great progress on the test and certification of this system benefiting greatly from Honeywell deep certification experience.

Testing is progressing well and Honeywell's working on safety of flight declaration letters for several system components, indicating that they're safe to fly on the piloted aircraft.

Certification test plans are being completed now with FAA DERs engaged in every step.

So all these releases are likely to be final and can be used in our for credit testing for certification later this year.

We have tested several environmental control system components in our system integration lab here in California, and we expect to kick off testing of the entire system connected to the rest of the aircraft systems in our Iron Bird lab in the coming weeks.

Moving on to batteries, one of the most challenging tests our aircraft will face as part of its FAA type certification program is the battery pack drop test.

For this test we dropped Midnight battery packs multiple times from 50 feet at up to 100% state of charge to simulate extreme impact scenarios.

Not only did the battery pack passed the test, but they remarkably still functioned after each drop.

This is a testament to the safety and durability of Archer's proprietary pack design and our choice to cylindrical cells over more novel cell designs that could introduce risks into our program.

As a reminder, we announced earlier this year our SpaceX agreement with NASA to collaborate on battery cell safety testing, and we'll provide an update on this collaboration in the quarters to come.

Lastly, we've made significant progress on environmental and functional testing for many elements of our avionics and flight control system.

As a reminder, Midnight as a fly-by-wire aircraft, meaning that the pilot inputs go to a computer where software processes these inputs along with other aircraft information to decide what the engines and actuators should do to achieve the power content.

This makes our aircraft easier to fly and safer for passengers.

This system features components that are sourced from several leading suppliers, including site decks sourced from Crouzet.

These, as with several other components have deep certification heritage as they feature a design that is derived from what is found on the Airbus A220.

We've now successfully completed environmental qualification testing on the side sticks, flight guidance panel, display controller, Wi-Fi & LTE data link, audio processor, navigation systems, transponder, and radio altimeter.

On the process side of certification, this past quarter, we finalized additional issue papers with the FAA covering needs of compliance for our battery as well as occupant protection, enabling us to finalize our methods of compliance and test plans.

Last week, we had a productive face-to-face meeting with the FAA administrator and aviation safety leadership in Washington, D.C. They reiterated their support for certifying and implementing new advanced mobility aircraft like ours and shared that the SFR, which contains the operational rules for all of the industry, remains on track to be published as a final rule later this year.

This is great news as this effort remains right on schedule based on the target the FAA set about two years ago.

The FAA team also reiterated that our airworthiness criteria is on track to be published this month in the Federal Register.

On the manufacturing side, we are advancing the integration of the first mid-life aircraft that will be used for piloting testing at our integrated test lab and manufacturing facility here in California.

Primary structural parts and assemblies for the next two flight test aircraft are in production across our supply base, almost many other system components.

This past quarter, we also issued purchase orders for some long-lead items for our first production aircraft to be built in 2025, which signals our confidence in our design maturity and manufacturing readiness.

As we announced earlier this week, our battery pilot line has been completed at our California lab and manufacturing facility.

This state-of-the-art line is where we will build the batteries for the pilot test aircraft we will use for certification testing and where we will build battery packs for the first several years of production.

This high-volume manufacturing line will be capable of ramping up to 15,000 battery packs per year.

This is a great example of how our strategy to choose simple, robust designs optimized for safety and manufacturability is setting us up to have a scalable product and business.

We also remain on track to complete construction of our high-volume manufacturing facility in Georgia later this year.

We have now completed two of the most challenging phases of construction freighting of the site and pouring the foundations.

Because of the topography of the site, we had to move roughly 450,000 cubic yards of dirt to balance the site.

This required our team to navigate through large deposits of rock that required blasting.

Now that the foundations are complete, our team is focused on standing up the exterior walls, which are on track to be completed in June.

We shared some photos of this latest progress in our shareholder letter today.

Construction is scheduled to wrap up this fall, and we expect to receive our occupancy permits and start assembly of the first midnight aircraft in this facility before the end of the year.

As you can see, all of the building blocks that we've been working on for the past few years are coming together from flight testing to certification to manufacturing all in support of our North Star goal of getting to commercialization as quickly and efficiently as possible.

Thanks, Tom.

As you can see from what Adam and Tom have discussed and what we have disclosed in our shareholder letter.

We are making tremendous progress across all the key areas.

I previously discussed in detail how our operating expense structure during this phase of the commercialization process includes nonrecurring investments of key suppliers to enable the development and manufacturing setup of many of our Midnight components.

We have also discussed that approximately 80% of our parts are sourced from the existing aerospace supply base.

Recall that we believe that strategy allows us to execute our product development process of lower operating costs by allowing us to avoid the ongoing structural spending that would be necessary to develop those other technologies ourselves.

Additionally, once we transition into the commercial manufacturing phase of our program, we will not have to build out manufacturing capability, capacity and headcount to manufacture at scale the components that we are sourcing from our mature aerospace supply base.

And that capital-light strategy was further supported by our joint goal with Stellantis for them to be our contract manufacturing partner for our Midnight aircraft.

If you're working through this period of significant supply chain build-out and test aircraft manufacturing.

I wanted to provide an update and some transparency on how to be thinking about our quarterly spending profile.

Recall that our current quarterly spending profile is made up of our core expenses for ongoing operations.

In addition to nonrecurring investments with suppliers to establish Midnight supply base and materials expenses to build our first six conforming Midnight test aircraft.

Our total non-GAAP operating expenses for Q1 of '24 were approximately $89 million.

About $17 million of that amount is made up of nonrecurring investments to suppliers for material expenses for Midnight aircraft.

Backing out that is nonrecurring a material expense amounts, yield about $70 million to $75 million of normalized quarterly run rate core expenses to operate the business for about $280 million to $300 million annualized run rate spending.

That level of spending is our core structural operating spending that will persist through 2024 and into 2025.

As we complete the build-out of our supply chain and finalize the manufacture of our six test aircraft, we expect to see nonrecurring investments and mature expenses start to tail off in late 2024.

Within that context, we're always remaining highly disciplined with our spending to get to commercialization in the most capital efficient way possible.

We ended Q1 '24 with approximately $523 million of liquidity, which included $406 million of cash and cash equivalents on our balance sheet, combined with the remaining approximately $117 million of debt and equity proceeds available under various capital arrangements.

We also have another $6.7 million restricted cash.

Specifically quarter over quarter cash decreased by $59 million from $465 million to $406 million.

Switching to expenses on a GAAP basis, total operating expenses for Q1 '24 were $142.2 million, which included approximately $48.3 million of noncash equity related expenses, including $40.7 million of stock-based compensation and $7.6 million of warrant expenses.

Non-GAAP operating expenses, which are a proxy for cash expenses and they don't include non-cash equity related expenses were $89.1 million and within our estimates range of $75 million to $95 million.

As I outlined earlier, we incurred approximately $17 million of nonrecurring costs and material expenses for our suppliers during the quarter as we continue to build out our supply chain for Midnight and procure parts for the manufacture of our six conforming Midnight aircraft that we will use for FAA for credit flight testing.

Within that context, for Q2 2024, we anticipate total non-GAAP operating expenses of $80 million to $95 million.

One final note, capitalization and liquidity have always been and continue to be a top priority for us.

The strength of our liquidity is driven by a number of factors, including one, our capital light approach to commercialization.

For example, we are leveraging the existing aerospace supply base for the development and manufacture of 80% of our parts, allowing us not to have to invest in R&D resources and people and capital to manufacture those components.

Impact of this strategy is also manifesting itself in the construction of our high-volume manufacturing facility in Georgia, where we are only investing $65 million in the construction of the factory that will enable capacity of up to 650 aircraft per year.

As a reminder, that $65 million is being financed for factory loan with favorable commercial terms with our Georgia banking partners, Synovus.

Two, our business model where we will be selling aircraft from our approximate $3.5 billion backlog, allowing us to get periodic predelivery payments, help fund working capital for inventory purchases as we get closer to commercial production of aircraft similar to the $10 million PDP that we received from United on this first one aircraft last year.

We fully expect to announce further PDPs as we continue to mature our commercial arrangements with operators.

And finally, three by the strong partnerships we have forged with well-established companies, especially with Stellantis.

Stellantis has continues to be a great operating partner.

We also believe there are other partners with manufacturing, commercial and other strategic interests that similar capabilities to support Archer on our journey to leading this sector into commercialization.

In summary, it is these factors that put us in a position to continue to opportunistically and favorably capitalize the company as and when we need to.

And with that, operator, we will now open up for questions.

(Operator Instructions)

Edison Yu, Deutsche Bank.

Hey, good afternoon.

Thank you for taking our questions.

The international opportunities are clearly gaining a lot of momentum.

Can you give us a sense how we should think about the business model economics for places such as UAE or India.

And what would you say is a realistic range for the amount of aircraft you can placed R&D in the early years?

Hey, Edison, this is Adam.

So yes, I think you are correct, we are very excited about the international opportunities and even the entire GCC in the Middle East.

We haven't given any specific guidance on specific fleet sizes, but maybe here's a way for you to think about it.

One is the region is very leaned in and so I have increasing confidence that the GCC will be one of the first places that we deploy aircraft in the world.

And we've talked a lot about the UAE, specifically on that note.

As you look across the entire GCC, we actually believe that the market will be much bigger than people think you can see this happening in the airline industry.

So the region built up three of the largest and most revered airlines, Emirates, Qatar and Etihad.

But where I really get excited about the volumes is more on the India side.

And so I continue to believe that India has the potential to be one of the largest eVTOL markets in the world.

And so we're working with InterGlobe to set up all those operations.

So we'll start producing aircraft out of the factories in Georgia as soon as next year.

But there's definitely opportunities also to build local facilities.

And there's a lot of excitement for us to do that there as well.

Thanks.

And just a follow-up to that.

I know you mentioned hundreds of millions of support from the UAE.

Can you give us a sense what that might look like in terms of is that you needs to do something to make that happen as early as it milestone based and how or when that will start flying through?

Yeah, so I'll share some more specific details on that in the coming months, but it's a multiyear agreement, and it's focused on us reaching scale in the region and with our base being in Abu Dhabi.

It's a comprehensive framework agreement, and it's intended to make this move of ours very economically attractive and for us to accelerate things like subsidizing aircraft and operations and really enticing us to bring engineering to the region, the timing of investments specifically will be tied to our ramp-up of activity there.

Great.

Thank you.

Thanks, Edison.

Andres Sheppard, Cantor Fitzgerald.

Hey, guys, good afternoon and congratulations on the quarter and thanks for taking our questions.

Adam, I want to maybe build on that UAE and India market question.

I'm curious as to your vision as to entry into these markets, maybe I'm less interested obviously, the potential there is massive given the infrastructure in the market.

But just more curious on kind of how you see the potential to enter those markets in the near term.

And I guess, is there an opportunity to enter either these markets without TC.

Would that be something that would be feasible to try to understand.

Thank you.

Yeah, so I'll start and then I'll hand it over to Tom to talk about on the certification side, and I'll start with the UAE.

So first is we've done a lot of analysis with our partners and with the government on the UAE to identify dozens of routes, which make a lot of sense for us to commercialize the region.

And so our plan right now is to launch with initial interest city routes in Abu Dhabi as early as next year and then quickly expand to flights between Abu Dhabi and Dubai and then expand from there.

And of course, looking at across all seven Emirates as well.

So there are several kind of factors that we looked at.

One is the ecosystem there, it's been incredibly supportive.

So we are not going to go compete with local operators there who are well established, we are going to partner with them.

And so we've announced several of those partnerships, one with Falcon Aviation and the other with Air Chateau, both which have placed orders for Midnight aircraft.

With Falcon, they've also announced their first vertiports one is in Dubai at the Atlantis Hotel and Palm Jumeirah, and the other is in Abu Dhabi on the [Corniche] and both have operational helipads today.

So it's not like there's a huge gap of time that would take to launch there.

And so this obviously unlock the interest city routes, but it also helps unlock the service between the Emirates as well and we'll be sharing more of those specific routes too.

The next category to think about this really on the investment side.

So we've had big support from the investors as well.

So Abu Dhabi, sovereign wealth fund Mubadala has been an early Archer investor, and we've seen big support from them, but also support from other sovereign wealth funds within the region and Abu Dhabi Investment Office ADIO as well.

We are -- we announced that agreement, the landmark framework agreement that covers hundreds of millions of dollars of investment to accelerate our plans in the UAE.

And I believe we're the only ones in the sector to announce a deal like that.

And that comes with actual capital from the government to help us become operational.

The other side is really on the government's commitment so in the UAE, we've had the opportunity to show Midnight to His Highness Sheikh Hamdan bin Mohammed bin Zayed, Abu Dhabi royal family and His Highness Sheikh Hamdan Bin Mohammed Al Maktoum, the Crown Prince of Dubai and another a number of other members the ruling family.

And so we've seen a huge amount of support from really from the entire government there as well.

I'll have Tom just answer some of the certification timeline questions as well.

Yeah, absolutely.

So one thing keep in mind is that the state of design for the aircraft is the US, right.

That's the country where we're based and the framework that we're using to certify has been put together by the FAA.

So as Adam said, even with that being the case, we're seeing interest really across the globe from different regulators.

And the GCAA and UAE is one of those.

So we've been engaged with them and we're still engaging to talk about where we are in the certification process.

Our North Star is that we'll only put a safe airplane into market.

And we're very aligned with UAE GCAA on this and honestly, wherever in the world, we're aligned on that.

We think the process that we're marching down with FAA is really clear, and we're continuing to execute on that.

So I can't tell you exactly when we'll be to market in UAE or US or any other country.

But what I can tell you is that we'll be ready to bring safe aircraft to market as soon as next year.

Got it.

Thanks, guys.

That's super helpful and detailed.

Tom, maybe just to follow up on that, I guess would you see a situation where you could enter and operate in these markets without a type certificate.

Not that you wouldn't obviously get that just in the event of a potential delay in that process.

Could there be a possibility to enter these markets without yet having that type certificate.

Sure.

So obviously, I can't speak for the regulators that are in charge of that.

But what I can say is we continue to execute the CERT program FAA and us are working towards and other regulators push to bring aircraft like ours into the -- into their ecosystems into their countries.

They can leverage the data that we are gathering for that sort of effort.

So certainly there will come a point where we feel our craft is safe and ready to launch.

There will be a time that the FAA agrees and they've reviewed the data and so other regulators can need to determine their own mechanisms for making the same conclusion.

Got it, okay.

No, that's super helpful.

I appreciate that.

Maybe just one last one for Mark.

So you incurred I think you mentioned the stock-based comp and a one-time expense.

Should we consider that into future quarters as well or in another words, should we be thinking about that, but is that resolved or is there any other expenses that you could incur I guess, throughout the year?

Thank you.

Yeah, with respect to stock-based comp, Andres, our typical run rate in that $25 million to $35 million range.

So I think that's the range you could consider going forward.

Okay, wonderful.

Thanks, guys.

Congratulations on the quarter again and out, I'll pass it on.

Thanks, Andres.

Savi Syth, Raymond James.

Hey, good afternoon, everyone.

I was just kind of curious as you're building these aircraft and any insights and learnings as you build that kind of the next certification aircraft versus your first Midnight build?

Yes, great question.

Hey Savi, this is Tom.

Yeah, we're learning a ton building these first conforming aircraft.

So, I think it's really two categories of things.

The first is putting the aircraft together and learning about essentially the design and assembly process of the aircraft.

So if you remember, because of the strategy we've taken our manufacturing outside of batteries and electric engines is really just final assembly, integrating all of the LRUs we get from suppliers big aerospace companies we always talk about.

So certainly there's some learnings there those are just kind of the usual type things.

So this is like the eight a different aircraft have gone through the integration process for and you're not sure we get better and better at that every time.

But one thing that I think is important to keep in mind is we're not just building one aircraft here.

This building this fleet is really teaching us how to set up a scalable manufacturing process and overall production system.

So a lot of learnings are also coming from that side.

So things like setting up our manufacturing execution system that collects data as we build this aircraft, how that ties in implements all of our safety processes and our quality manual.

So all these things are really critical to both put us in a position to scale manufacturing and get our production certificate with the FAA to enable us to ramp up here in the coming years.

That's helpful color.

Thank you, Tom.

And then maybe Mark, just the Boeing with kind of adjustment this quarter, could you kind of give a little color on what that was?

And do we is that kind of fully settled there kind of more going forward.

That's fully settled, Savi, recall that was a series of agreements that we had with them for the technology resolution arrangement we had with them.

There was a final true up on a mark to market adjustment that we had to make as that period ended in February.

So you won't see any more of that.

That's the last adjustment we had to make.

Got it.

Thank you.

Austin Moeller, Canaccord.

Hi, good evening, Adam and Mark.

Just my first question here.

How much cash you expect to use on building the additional midnight prototypes needed for certification and how does that compare of the $520 million of existing liquidity?

Hey, Austin, this is Mark.

So we haven't disclosed what the cost of each of those aircraft are I mean they're early essentially prototype builds.

However, the cost of those is fully contemplated within the $520 million of liquidity going forward.

So we're pretty comfortable there.

Great.

And just to follow up on the certification process, how many flights do you think you'll need to conduct from now through 2025 to generate the data either needed for type certification or for the FAA pilots to feel comfortable with getting on board and doing their own flight?

Yeah, absolutely.

So as you referenced, there's kind of two categories of flights there so there's company testing until we do ourselves to gather data to prove to ourselves that the design is safe.

And then there's FAA pilots or designees flying a post, TIA.

TIA is an acronym stands for type inspection authorization that's basically the gate that enables the FAA to start flying on aircraft.

I don't have an exact number of flights or hours for you, but what I can say is for this fleet of six aircraft that we're building, each one has a very specific set of test objectives to go gather and their sequence quite logically into bins of objectives and things.

In terms of orders of magnitude, we're talking about like hundreds of hours of testing here, if not, you're now into something like 1,000 hours of testing across these activities.

Awesome.

That's very helpful.

Thank you.

Josh Sullivan, Benchmark.

Hey, good evening.

Just a follow-up on the cash question here.

What are the large tent poles left for the cash needed ahead of certification.

And you gave some quarters there during the comments, but when do you think cash is peak?

What was the last part of that, Josh?

Just when do you think the cash outlays peak heading into certification?

Lets recall, I mean, consistent with what we discussed in the past the big buckets through this period are the nonrecurring costs with our vendor base, the materials to build out the aircraft and some of the CapEx that has gone into building out our production facility here in California as well as the Covington, Georgia facilities.

I think you can think about it is these corridors that we're in right now are the peak spending quarters with respect to building out those that functionality and those capabilities.

So the guidance that I provided, in the $80 million to $95 million range as we sit here today, and our models show that we are sort of in our peak spending rates right now.

We've given the current construct of the company and where we are, I think that answers, -- I think material answers, which you're asking.

Yeah, it's good.

And then just as far as the cadence of recognizing the works related contracts, when should we see kind of that revenue really ramp?

Hey, Josh, so over the course of this year, there are a lot of programs that we have slated to recognize they range from anywhere from flight test to training work to test simulator work.

And so we are receiving different payments a long time last, I think fourth quarter we received a few million dollars.

And I think this year we've already received some additional cash as well.

And so it will be lumpy, that will come through there.

But in order of magnitude, I think it will start to increase as we go forward through to the end of the year.

Good.

Thank you for your time.

Bill Peterson, JP Morgan.

Yeah, hi.

Good afternoon and thanks for taking the questions.

I'd like to ask what remains to be achieved before the full transition.

And I guess what does near future meaning does that mean you expect this within the current quarter, the third quarter.

And then on piloted flight testing, it does appear at least relative to maybe this time last year, you are delayed relative to prior expectations this supposed to be even in early '24 or maybe first half now it's there later this year?

So I guess what has led to the delays and what gives you confidence you'll be able to do piloted testing before the end of the year.

What are you doing to train pilots and get ready for that?

Yes, absolutely.

Hey, Bill, this is Tom.

So first part of your question with regard to transitioning the first Midnight aircraft, just to give you some context or set the stage on that.

We transitioned maker for the first time a couple of years ago and took us a little under 12 months to get through that, which I was super happy with.

I think the team did great.

Midnight, we started flying in October, six or seven months ago, and you're asking for a little more precision on the date, we're getting pretty close to transition.

So I'm confident it will happen in the coming couple of months here.

So really excited about the progress they're learning a lot, ramping up flight testing in general.

Your question regarding piloted flight testing.

So basically, safety comes first and we're taking a thoughtful, methodical steps here, working towards that milestone of the engineering team that we have 500 or so folks, the vast majority are all working towards that goal.

And if you look at our shareholder letter, you can see the aircraft coming together.

You can see pictures of the Iron Bird, we're getting deep into testing, talked about getting safety of flight declaration letters from suppliers and doing our own testing.

So everything's coming together to make that happen this year.

What I like it to be faster, absolutely.

But do I think we're doing a great job, I think we're doing awesome.

So we'll fly when it's safe to find one already, but feel super good about the progress.

Hey Bill, this is Adam, just to add a little color on there.

This is the progress of starting a flight test campaign going through the full flight envelope, including transition is something all of the aviation companies have to go through, this is not a unique thing to Archer.

And so I know it gets talked a lot about with Archer because the difference between maker and Midnight they physically look different, even though they're both the 12-tilt-6 configuration, we use same aero model, we use largely the same flight control schemes.

So everyone's going through the same the same thing.

And so I actually believe the progress we have has been quite incredible transitioning maker within less than a year and will transition midnight even faster than that.

And so I know that's not as necessarily it's easy to understand with some of the programs we just happen to be very transparent about it.

And so we are -- you should expect to see, a lot of flight test content and we're really excited about where that program is today.

Okay, thanks for that.

And I know you have a lot of go-to-market opportunities and overseas opportunities.

Now, it does feel at least at a glance at some of your DoD efforts appear to be either deemphasized or in any case would be good to get an update on $142 million program.

I think in the second quarter last year, you'd expect to deliver actual aircraft to the DoD.

Are you still planning that I guess can you just update us on the milestones of the DoD.

How should we think about the opportunities with the DoD this year and maybe next year?

Sure.

So we submitted all the paperwork necessary to begin the delivery process to the DoD and expect to have our military air worthiness in June and then delivery afterwards.

But that being said, we are balancing the priorities of the entire program.

And in the near term, we actually believe we'll receive more cash from DoD programs that are not flight test related.

So for example, there's $5 million to $10 million of payments that we can receive from the DoD that are related to other items to testing items to training items, simulator work.

So we'll kind of take it as it comes but I think those are the what we're really trying to prioritize where a lot of the dollars will come from a lot more coming from some of those other items.

Okay, thanks.

If I could just it one more.

One of your peers talked about having a kind of full-scale testing capability.

I guess in terms of your testing for credit, do you have the tool you need or do your suppliers to your parts and systems have the test capability or do you need to access third parties.

Just trying to get a sense on your test capabilities, whether it be in-house or to partners to your full credit testing programs?

No, we have everything we need.

Obviously, nice advantage we have is that we've got this broad range of suppliers and all the capabilities and relationships they have a sort of leveraging all those but today we're executing nothing specific, no needs.

So let me give you, this is Adam, I'll give you just a little bit of color.

So the example that Tom talked about the inceptor right, the side sticks.

Those are made by a company called Crouzet which build side sticks for some of the large aviation programs.

Our side sticks are very similar to the side sticks used on the A220.

So Crouzet that has 4,000 people that work there.

So you think about if we were to do that in house, we would have, I don't know, 5 people, 10 people that did that.

So we get to leverage a company like Crouzet that as 4,000 people to go help do that.

So we have everything in place that we need in house as well as partnership with our investors and with our partners on the supply base, you can see the progress as we are to we show in the shareholder letter, the buckets keep increasing, where we're showing you things in progress and the stuff that's moving really fast and going really well, especially comes from the stuff that our partners are doing.

Because they have been through this process many, many times with very similar parts over many programs over many decades.

So hopefully that gives you a sense for where this is at.

I actually think this is the part of the program where we are most excited where we will accelerate and who knows maybe be the first one to actually get through it.

Yeah, no, thanks for that sharing insights, sir.

Leave it there.

Thanks, Bill.

David Zazula, Barclays.

Hey, afternoon.

Thanks for taking my questions.

Tom, I just wanted to dig in a little bit into the battery drop testing, whether there was anything unexpected or anything you learned during the battery truck drop testing and the feedback you've gotten from the FAA on the test and then when do you expect to transition to full credit testing on that one?

Yeah, absolutely.

So as we talked about in the shareholder letter and early in the script, better drop testing went really well.

So just to paint a picture, we take our whole battery pack it's like a 300 pound assembly, drop it from a crane tax at 55 feet because we have to account for drag and kind of rigging the guidance aircraft down and then have to impact concrete on the ground and not have anything catastrophically fail.

So we did several drops after each drop the battery pack, we were really surprised continue to function, meaning we can log on get data it was still working.

So huge confidence booster for our team that's one of the harder tests for us to pass.

So really great risk reduction for us getting through that.

To be clear that was for our own testing so now we have all the data that we need to do it for credit testing.

So as I mentioned earlier, we've advanced some of the issue papers around this topic and to tee up quite well to do that for credit testing with a lot of confidence that we'll be able to get through it here in the coming months.

I know we're up against time, but maybe quickly on the battery production, I mean, my simple math is that, that's enough for 23 batteries per year for everything coming out of Covington.

So is that the plan to be able to support additional facilities on your part.

Could you potentially be a battery outsourcer, what I guess what's the need to have that level of capacity from a battery facility?

Yeah, it's a great question so several thoughts.

The first thing is a lot of the automation that you see there is really driven by safety and quality first production volume.

So that production line is really similar to what you'd see in a state of the art automotive plant, supporting automotive levels of production.

But we need that robustness and quality control to be set up for building safe batteries for safe aircraft and to get our production certificate to be able to build these things ourselves.

So we need repeatability, we need all that traceability, and that's what that system gives us also gives us the ability to scale.

Absolutely, so one thing to keep in mind is when we're in production, we don't need battery packs just for new aircraft coming off the production line, but also for the fleet that's going to be out there in service needing battery replacements once maybe twice a year.

So that's the reason why if you do that math, it looks like more battery packs than 650 aircraft per year.

Hopefully, that makes sense.

Thanks, Tom.

We are out of time for questions, so I will pass it back to Adam Goldstein for closing remarks.

In closing our strategy is paying off from the outset, we've been clear that our approach is to keep the design of the Midnight as simple as possible while delivering industry-leading performance balanced to safety.

We're accomplishing this by partnering with what we believe to be supplier the best suppliers in the aerospace industry.

This capital-light strategy continues to pay dividends that are more clear today than ever, as we continue to make rapid progress towards commercializing electric aviation.

I want to take a moment to step back and appreciate not only the progress we at Archer making, but all the progress across the entire industry.

Our partner beta recently demonstrated a piloted transition flight and Vermont.

Our neighbors, still be recently announced their final airworthiness criteria with the FAA as we expect to also do here do so shortly.

The electrification of aviation continues to increasingly emerge into the mainstream every day.

Thank you for joining us.

That concludes today's call, thank you all for your participation.

You may now disconnect your lines.