Archer Aviation Inc (ACHR) 2022 Q1 法說會逐字稿

Hello, everyone, and thank you for joining the Archer Aviation in Q1 2022 Financial Results. My name is Terrence, and I'll be moderating your call today. To hand over to your host Andy Missan. (Operator Instructions)

I now have the pleasure of handing you over to Andy Missan. Please go ahead, Andy.

Good morning, everyone and thank you for joining us today to review Archer's first quarter 2022 operating and financial results. My name is Andy Missan, the Chief Legal Officer of Archer. On the call today are Adam Goldstein, our CEO; Mark Mesler, our CFO; and Tom Muniz, COO. We posted a shareholder letter detailing our Q1 2022 operating and financial results to our IR website. This call is being recorded and an archive will be available on our IR website.

Before we begin, I would like to remind everyone that during today's call, we'll be making forward looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual events or actual future results to differ materially from those expressed or implied in the forward-looking statements. These risks and uncertainties are described in the Risk Factors section of our annual report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 14, 2022, and our quarterly report on Form 10-Q for the 3 months ended March 31, 2022, which is expected to be filed with the SEC later today, available on the SEC's website and on our Investor Relations website. Except as required by law, Archer disclaims any obligation to update or make revisions to such forward-looking statements as a result of new information or future events.

Also, please note that on this call, certain financial measures are presented at on a non-GAAP basis. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in our shareholder letter posted on our investor relations website. We will begin with commentary and then we'll open up the call to questions.

And with that, I'd like to turn the call over to Adam.

Thank you for joining us today and for your continued interest in Archer, our operating and financial performance were consistent with our expectations, and we are on track to achieve all of our 2022 milestones. We remain well capitalized and well positioned as a leader in the eVTOL sector with key strategic relationships, a growing team of dedicated, experienced, and committed designers, engineers, and operators, and with a business plan and strategy that is unique, compelling, and clearly differentiated. Since we just spoke on our fourth quarter and year-end earnings call, we've continued to advance on many key initiatives, which I'll discuss later. But first I'd like to start by reiterating our vision and strategy for commercialization.

Archer is enabling a new form of transportation and our commitment to our goal is unwavering, bringing sustainable, safe, quiet, and accessible urban air mobility to the masses. We are building a transportation solution that will enable people to move freely, whether it is commuting to work or taking time to explore places previously inaccessible because of traffic limitations. From day one, we've anchored our business plan on driving to commercialization and with the support of our key strategic partners, United and Stellantis.

The aim of our production aircraft is to balance the performance necessary to be economically viable against the complexity that allows us to achieve certification and scale operations. That's why we chose to build a piloted plus 4 passenger vehicle that is designed to perform continuous rapid 25-mile to 50-mile missions throughout the day with minimal charging time required on the ground in between trips. This vision has never changed.

To make this vision a reality, our strategic development program uses our full skilled demonstrator aircraft maker to prove out our 12 tilt 6 configuration, advances our key enabling technologies and sets the roadmap for our production aircraft certification program. Maker has proven that our configuration was the right choice.

Our flight test program began in December, and we have and will continue to use the data for Maker to inform the design of our production aircraft. In parallel, we are rapidly advancing our production aircraft through the preliminary design phase while working with the FAA to finalize our G2 means compliance to the G1 certification basis we agreed to last year. Our executive team and board are fully aligned behind this approach, which is about efficiency, effectiveness, and safety as we drive to commercialization.

Since the beginning of the year, we have made significant progress on our production aircraft design. We have finalized key system architectures, advanced the development of our critical propulsion and flight control technologies and matured our supply base, including the selection of several key suppliers. A major technical achievement this quarter was defining our aircraft OML or outer mold line. This was a critical milestone that involved extensive aerodynamic design optimization using computational fluid dynamics to verify that our performance targets will be met with some margin. Having the OML defined unlocks detailed structural part design and the release of long lead tooling to build our certification test aircraft.

We also made significant progress on meeting our aircraft structural and system weight targets. This is extremely important as weight is the most critical factor in meeting our performance requirements. It's the only parameter that shows up in every performance equation and eVTOL aircraft are especially unforgiving when it comes to weight creep. Our weight status shows our design closing with sufficient weight margin. This means that we're hitting our payload weight target for a pilot plus 4 passenger vehicles. We can also carry enough battery energy to meet our range requirements and maintain sufficient weight margin to absorb the inevitable weight growth that occurs as the program reaches maturity. Since the success of our first hover, Dr Geoff Bowe, our Chief Engineer, who was the Chief Engineer for Airbus Vahana, and the engineering team have been analyzing the valuable data from that flight and have been making a number of updates to the aircraft, as well as conducting numerous ground tests. This has included installing and testing the tilt rotor system to ready Maker for our first transition flight this year.

We plan to fly it routinely through the remainder of the second quarter and the rest of the year, we will share the results of those flights with the air force as part of our deliverables under the agility prime agreement. With respect to overall plan and timing, we remain on track for completing our first transition flight before the end of the year as we previously announced, which will result in the full flight envelope expansion in less than 12 months. This would be a significant accomplishment for the industry demonstrating our technical leadership and our capability to deliver on our development roadmap. Tom Muniz, our COO, who has experience with taking 6 different aircraft from design concept all the way through the transition flight is here today to discuss more in the Q&A session.

As we mentioned in our shareholder letter, we have established with United airlines, a joint eVTOL advisory committee. This committee is focused on advising on maintenance and operational concepts to recommend Archer for its all-electric aircraft aimed at driving towards best-in-class operational standards. We believe United's outstanding track record in airline operations and their existing collaboration with Archer make them an ideal stakeholder to advise the company about the scope and build out of maintenance and operational plans.

Finally, I'd like to close by sharing just a little bit about my philosophy as CEO. As we grow, my goal is to ensure we continue to operate as an engineering led company with a unified goal of commercialization. Critically important to commercialization is that we all work together for progress as an industry. Certainly, we compete, but we are really pioneers breaking new grounds, embracing new trails in the air together. So, industry success also depends on collaboration. As our peers make progress, look for us to congratulate them and champion them. We remain on track to meet our 2022 goals; we are a well-capitalized growing company with a singular mission to advance the benefits of sustainable mobility for all.

With that, let me turn it over to Mark for an update on our financials, and then we'll take questions.

Thanks, Adam, and thanks to everyone participating on the call. As Adam just discussed and as we have outlined in our shareholder letter, Archer is making significant progress in a number of critical areas that are advancing our efforts to achieve our commercialization goals. While clearly, we are focused on our aircraft technology and certification, we are also maturing the capabilities that we will need to engage in commercial operations, such as with our supply chain manufacturing, as well as operating an urban air mobility network.

We are making excellent progress, externally it is very compelling to see that the overall eVTOL industry is starting to be recognized as more than just an interesting technology experiment, in fact, a significant business sector. Since we last convened, there have been a number of events and publications specific to the industry. For example, there have been eVTOL specific financial conferences that have brought many of the eVTOL companies together with other industry players and investors to share ideas and discuss issues common to all companies and we are scheduled to participate in additional ones later this year. Research analysts’ coverage has expanded for the industry with a couple of new industry reports recently initiated.

And finally, there was a 60 minutes piece on the eVTOL industry highlighting several of our peer companies and the FAA regulatory environment. All of these developments continue to educate stakeholders and investors on the critical drivers for the industry. And that definitely helps each of us as industry participants, to tell our individual stories better. Our market is projected to be very large in the future, and that market will be supported by a number of companies, so we need to continue to support and do more on the education front to expand investor and consumer understanding and interest in our space.

As we think about what it will take to support a fast-growing company tackling a large market opportunity, we are also making strides to further build operating infrastructure and financial discipline that will help the company establish an operating rhythm that is married with financial rigor around planning, budgeting and capital allocation. Since our last call, we've made several key leadership hires across our accounting and finance function. In our accounting team, we have onboarded leaders to support our financial close process, procurement process and SEC reporting.

Additionally, we have hired key financial planning and analysis leaders to drive our 5-step planning process, to continue to build out our financial and operating model and to help drive the execution of the business to achieve our target business model. We are very pleased with the progress that we are making to build a world class accounting and finance team and the critical financial process to enable the business. With the build out of our finance team, we have worked with our engineering and operating teams to continue to align on how to allocate investment across our critical differentiating technology development areas, such as powertrain, battery, software, our technical and production aircraft, the certification process and our data science capabilities.

As we focus on the execution of our 2022 goals, these remain critical areas that we are clearly continuing to invest in throughout the year. Pivoting to our financial performance for Q1 2022, non-GAAP total operating expenses were $39.6 million which was slightly above the upper end of our outlook range of $30 million, primarily due to accelerating some engineering program spending from Q2 2022 into Q1 2022. Non-GAAP operating expenses increase sequentially by $6.5 million as expected, as we hired more people to staff our engineering programs and build out the requisite infrastructure to support the growth of the business as well as investing in engineering development materials for both our technical demonstrator and production aircraft programs.

We incurred a loss on adjust EBITDA of $39.1 million and the sequential expansion of that loss relative to Q4 2021 of $6.7 million was primarily driven by our increase in non-GAAP operating expenses. On a GAAP basis, total operating expenses for Q1 2022 or $65.3 million has included $24.5 million of stock-based compensation and $1.2 million of warrant expenses for our warrants issued to Stellantis. These results were $1.3 million above the high end of our Q1 2022 outlook of $64 million, primarily because of the acceleration of some engineering program spending and stock-based compensation.

We ended the quarter with $704 million of cash and cash-equivalents on our balance sheet. We used $39.8 million of cash in the quarter, in addition to moving $2.6 million to restricted cash to support various letters of credit for commercial basis. Annualizing our Q1 2022 burn rate and comparing that to our cash balance, our cash to burn ratio is 4.4 times. We continue to lead the sector based on this metric. Clearly, we remain well capitalized.

Finally, let's look at our Q1 2022 outlook estimates. We anticipate total GAAP operating expenses of $80 million to $86 million and total non-GAAP operating expenses of $47 million to $53 million. This reflects expected stock-based compensation, warrant expense and other onetime expenses of approximately $33 million.

To close out, the business is focused on delivering on our 2022 goals on our path to commercialization. And we are investing in the key areas of engineering, certification and proactive element to support those goals. Beyond that, we have a financial and operating team with the experienced financial discipline and processes to efficiently and appropriately allocate capital. Archer continues to be well positioned to execute on our business plan and achieve that kind of growth that will further solidify our position as a leader in the eVTOL sector. With that operator, let's open it up for questions.

(Operator Instructions) Our first question comes from Peter Peterson from JPMorgan.

It's Bill Peterson from JPMorgan. First on certification, I was hoping you can comment on the -- there was an article published over this week by Eric current, it talks about a potential shift in certification from small aircraft, to powerlift and the article made it to appear that the eVTOL companies were kind of caught off-guard. I'm wondering if, if you've had any discussions with the FAA on the shift or if there is a shift, what are the next steps and how we should think about the potential ramifications if there is sort of a shift in this certification requirements?

Thanks for the question, Bill. This is Adam Goldstein. So, we actually support the FAA's effort to put a more comprehensive certification framework in place for the industry. We don't actually believe the rule transition, which what you're referring to, is the transition from 21-17a to 21-17b, we don't believe that this will have a material impact on our certification timeline. But this is a complex process, so maybe what I can do is just level set here on exactly what happened and try to explain it in a digestible way.

So, part 21 contains the overarching procedures for how aircrafts are certified. 21-17 talks about which regulations are applicable for the vehicle being certified, 21-17a handles traditional aircraft and 21-17b handles special aircraft to which there are no standard air-worthiness regulations, therefore the applicable regulations can just be efficiently pulled together from other rule parts. So, the change from 21-17a to 21-17b was really done in order to more easily tie the vehicle air-worthiness regulations, so like the things that you need to do for airplanes to be safe, to the operational regulations, so things like pilot training.

So, our vehicle and other eVTOLs will now be classified as powered lift aircraft under 21-17b and the FAA is going to publish operating rules for powered lift, tying the aircraft to the operating regulations, so the rational for doing this, was really to streamline policy framework to support the commercialization of these vehicles. So hopefully that gives you a sense for what's happening, so our strategy has always been to design an aircraft in parallel with establishing and agreeing to our G1 cert basis and our G2 means of compliance really ensuring that the regulations that we are designing to are comprehensive and have been pulled from the applicable rule parts for a particular aircraft design.

So based on this change, we actually don't see any material impact on our air-worthiness rules or regulations or on our timeline. So, we're still working with the FAA to understand the full extent of the change, but now in our view today, this is largely just an administrative change. And in fact, we think this could streamline important aspects of the efforts to bring these vehicles into commercial service.

The second question, it's something we haven't really talked about in a while, but it's related to the eco-system and the infrastructure, things like charging infrastructure, you know where these things can take off and land. Just kind of hoping you could help us understand what's in these are more likely or maybe what parts of the city, things like airports to downtown that are going to be come to market first in terms of infrastructure -- frankly, the conversations I have pointed infrastructure, maybe even potentially be a gating item, as we move into the back half of the decade.

That's a good question. There have been a lot, there's been a lot of interest from cities, not just in the US, really, all of the world, in wanting eVTOL to come to their market. So, I think there is a real push for sustainable forms of transportation and different forms of transportation that can come help alleviate traffic and congestion.

And so we've seen it really all over the country, just different inquiries from different local municipalities and different groups reaching out. I do believe the industry will have a big presence in the beginning with airport routes, I mean we saw that in the traditional ride share terrestrial transportations. So I think today, the ride share, on the ground market, trips to the airport really still represent 20% to 30% of their total business.

So I think it makes sense that airports will likely represent a good starting place and a decent chunk of the business as we mature the industry. The good news about that is there is already infrastructure at the airports, to support these vehicles. There would need to be additional charging infrastructure that would need to be put in place, but there's a lot of infrastructure that's already in place at airports.

So in is early in the development of the infrastructure market, as it relates to urban air mobility, but we do believe that existing helipads, land parcels and really retrofitted rooftops do make logical places for real estate and infrastructure to be built, and we're having ongoing discussions with different large infrastructure providers, as well as looking at infrastructure opportunities on our own.

Our next question comes from Edison Yu from Deutsche Bank.

First, it seems like there's a lot going on in the second half of the year was wondering if you could go into a little bit more detail and on timeline for flight testing and sort of how you define a successful campaign.

Yes, absolutely. Edison, this is Tom. Thanks for the question. So, as you know, we had a really successful first hover flight back in December and at that flight, we got a lot of really valuable data, we use to validate the aero model and other performance of the aircraft. So since then, we have not been flying because we made this strategic decision to upgrade the aircraft in preparation for transition flights later this year specifically, we've been focused on installing our tilt rotor system, which is used to control the vehicle through that transition flight.

For the past couple of months, we have been focused on getting through ground tests and we've gotten lots of data and are now in final preparation to return to flight later this quarter into the second half of the year. So right now, we plan to be back in the air late this month into early June.

And then the second half of the year, we'll be working into a much more real cadence of flying, up to multiple times per week. Just to give you a sense of what to expect. As Adam mentioned earlier, this is actually the sixth aircraft that I was taken from concept through transition flight over the past decade. So, I've been super happy with the progress of the team. And just want to reiterate that we're on track for our first full transition this year. And I'm super confident we'll get it done.

Understood. And then on the more production side. Could you maybe update us on the progress of the pilot line and also how you're thinking about components subsystem procurement and assembly?

Yes. So, one of the goals that we laid out for this year was to announce our site selection for our manufacturing facility and so we have been in extensive talks and going through that process we been working with Stellantis in terms of everything from manufacturing site selection through the setup of the factory itself and really trying to make that as efficient as possible. We started with hundreds of different locations across the country, and I've narrowed that down to just a few. And so, we are still on track to announce that, and so we are making -- we are in kind of final selections here, as we are down through the last couple sites that we've been looking at. So that's what's on track from the manufacturing side. On the pilot line side, we are building out a new lab space here in North San Jose and we will be -- in that lab space, we will be manufacturing our low-rate initial production facility there where we will produce 10 vehicles, to we start to be used in the certification process. So that lab will be built out through this year, and we will start the production of those vehicles next year.

So, as it relates to just overall supply chain, just sort of maybe reading into your question a little bit, we are at the stage of our development cycle where we're not really a mass consumer of parts today, we are building technical demonstrators, or designing the production aircraft and we're negotiating long term agreements with the supply base. So today we're not really seeing material impacts on the business that I think you're hearing across really kind of the rest of the world and other industries with the supply chain delays but what we were doing is getting ahead of our, any of the long lead time items just to reduce risk. So as we look at our manufacturing operations our goal is to really lock in quantities and pricing through the RFX, but at this point we are not seeing any major delays, any of the foundational suppliers that we're speaking with.

The next question comes from Andres Sheppard from Cantor Fitzgerald.

And congrats on another great quarter. I just wanted to follow up on that last question regarding the kind of the timeline for the test lights. I just want to make sure I understood that correctly, so in the past, you had referenced the second half of the year. I know it sounds like the first cruise flight that's expected next month, just to make sure I got that right, kind of going forward, Tom, I think you alluded to the frequency of which you expect to kind of keep conducting test flights for the remainder of the year and for early next year. I'm just wondering if you can maybe add a little more color there if you don't mind.

Yes, sure. Happy to clarify, Andres. So, we are planning to continue our flight test campaign, resuming in hover, but then going into flight where we translate and fly around, working up towards a complete transition flight, meaning taking off vertically, accelerating forward then flying with lift only generated by the wing, that's what we consider full transition flight before the end of this year, as we previously said. So, in the coming weeks here, we'll get back to our flight test campaign, and then it'll be a progressive ramp up where we do expect to be flying very regularly with a cadence of several flights per week. Again, working up to that first full transition flight end of the year. So, a little context, fly test is very step-by-step rigorous approach we take the envelope expansion is what it's called, in very small increments, increasing speed and other capabilities, working towards that full transition flight.

And Andres, this is Adam, just kind of adding in here. If you took a step back and looked at the industry over past 10 years, we have seen several groups' transition vehicles and from my understanding far from some of those groups it's taken between 18 months and 24 months for most groups to be able to transition an aircraft and some groups that have been at it for years and still are trying to transition the aircraft. Our stated goal to transition the aircraft this year would put us at a transition timeline at 12 months.

And so I think that will be probably the fastest anyone's done it in the eVTOL industry. And so, it's quite a technical feat, so sort of the zoomed-out version of what we are stating here, is actually a very aggressive flight-test campaign that we feel really confident in really being able to achieve this year, that we will show our really technical capabilities off with what we're very excited to do.

Got it. That's very helpful and thorough. A quick follow up, can you just remind us, what are some of the key KPIs from the advisory committee that you announced with United last month? Like what are some maybe things that we can look for, or what are some of the things that you kind of expect from that joint committee.

Yes sure, so United has been a really great partner to Archer, and it really goes beyond just being an investor and buying planes. They're helping us with all the operational side too, so, the most important area of focus for Archer will always be safety but we also want to consider cost and maintainability. So, we set up this committee really to leverage the expertise of United's really deep history and maintenance and operating strategies.

So I believe, direct operating cost is going to be a major factor in eVTOL and maintenance will be basically the driver of direct operating cost. So one aspect of the committee will be focusing on reviewing the production aircraft designed for maintainability. So, we're going to look at things like anything from access panels, charge port locations, or commonly placed components, things like that. And United is participating in our design reviews to help us focus on improving in those areas.

So if we think about just stepping back, we have a, a big direct operating cost that we're going to be heavily focused on, direct maintenance cost will be a large component of our direct operating cost. So that's really kind of one of the areas of focus for us to make sure we can drive a long-term profitable business and you know, this committee is really set up to help guide us through best practices.

Wonderful, Adam. Maybe one last one, if I may. You guided OpEx for next quarter of $80 million to $86 million on a GAAP basis. Now most of that is due to the stock-based compensation looks like but there are some one-time expenses. So, I'm just wondering if maybe you can elaborate on, on what those are.

Yes, I think it's primarily one -- sorry. Hey Andre, this is mark. It's primarily onetime expense. And that has to do with the separation of Brad from the company. It reflects the AK that was issued.

Got it. Understood. Great. Congrats again. I'll pass it on.

Next question comes from David Zazula from Barclays.

I just -- following up on that you did have a board member resigned recently and he put out a statement saying that yes, the vision of the board was different from his vision, can you comment on the current state of the visions of the board and you know, how it's progressed and how any kind of delta might have developed there?

Yes, David this is Adam. So the vision of the company really has always been intact and unwavering since day one. And so I tried to make that really clear in the remarks today, really in the opening here, the goal was really to build a vehicle, take it to commercialization, that's safe, that's quiet and that's affordable really to the masses. And so, we are on track to complete that vision. And the goal is to get a vehicle into service get certified by the end of 2024. The board supports that, the executive team supports that, so there's really been no change there to that at all. So hopefully that really clarifies that.

And then for Tom, you'd worked really hard towards having the first flight in December and it seems like it's going to be probably about 6 months between then and the next flight. Can you help us out what data you were trying to achieve? That's helped you in the follow-on tests in between such a gap in between the first and the follow-on flight. Like what, why was it important to get that flight, and then not fly again until now?

Yes, sure. Happy to add more context there. So the flight we did in December was hover and basically gave us enough information to validate that the aircraft was performing as expected in that flight condition. But at that point we did not have the aircraft in a physical state and with the software where it was capable of flying the full mission envelope through transition. So, when we looked at the data from that first flight, we could have chosen to keep doing more hover flights in that configuration.

But we were confident enough that we just decided to move to the next phase of the program, which was installing the tilt rotor system. As I mentioned earlier, along with some software upgrades that make the vehicle capable of the full transition envelope. So there was a process getting all of that hardware and software completed and installed. And then the last couple months have been all about testing and preparation for more flying. So, like I mentioned earlier, we're really close to continuing the flight test campaign, end of this month, early June. That's what it's looking like today. And then based on where we stand in the maturity of the vehicle, we're in great shape to get through first transition before the end of the year.

(Operator Instructions) Our next question comes from Josh Sullivan from Benchmark Company.

Just on the manufacturing site selection, how was your view evolved or your needs evolved? You've got Airbus, they've announced they're going to do some contract manufacturing with Spirit and that's a traditional aerospace sort of relationship. Obviously, eVTOLs are going to be more automotive like in volumes, but curious on what Stellantis is saying or what they're advising what needs to be more automotive, what needs to be more traditional aero manufacturing, and then just kind of your thoughts on, on contract manufacturing in general.

Yes. So that's a good question. So, a big part of the site selection really goes down to our broader strategy of our volumes. When, where, how much, how do we move these vehicles around? Because the range of the vehicles are less than 100 miles, it's not like we're going to fly them to their final location. So, we'll typically transport them through some other mode. So, lots of considerations in terms of how that rolls up to our site selection for manufacturing. So, a lot of the core focus though that we have was based around the volumes that we're trying to build. So we put out there the volumes, which will start in the low hundreds and scale up to you know, a few thousand here by the end of the decade.

So we are finding a factory that we can build and design around those stated volumes. And then shift our focus also to thinking about the different components we want to manufacture in house versus stuff we want to do out-house. So, we have been working with Stellantis to leverage some of the automotive capabilities that you don't traditionally find in aerospace. So, a good example of that could be things like paint. So, it might take you 5 to 7 days to paint general aviation aircraft of a similar size, but the autos can paint a vehicle in closer to 7 hours.

And so we have spent time with Stellantis, gone out to their factories, see how they do it, see the type of automation that they have, and really try to figure out where it makes sense for investment in automation that will be economical for us and not overspend in areas that don't make sense for automation. And so that's really been a lot of them the focus for us.

So there are other things like high scale composite manufacturing where the autos do a great job when they manufacture a lot of vehicles. And so that's kind of area that we've looked at. So, we'll do a lot of the assembly of the vehicles in house. And we'll focus on manufacturing, just some of the kind of key kind of really key pieces of IP, sort of parts of our powertrain or different kind of key in-house stuff that we'd like to you know, we'd like to focus on.

Got it. And then just on the rule transition from 21-17a to 21-17b, what are your broader thoughts on the readiness of the FAA for passenger eVTOL transport maybe if you could baseball inning sort of context just where you think the regulatory environment is at this point.

Yes. Part of Archer strategy, really since the beginning was to design a vehicle that could be certified in a timeframe that make sense and we really tie our capital strategy to that as well. So, we raised enough capital that could get us through the timeline that we thought was estimated that, that it would take. So I don't think anybody thought would be a clear straight line and this would have been an easy process, but at the same time we are certifying a vehicle that I don't think is so outrages that it is going to be gigantic towards in turns, so for us, this change from 21-17 a to 21-17b is one of those, I would say, not necessarily expected cause you don't know what you don't know, but in the sense a minor change like this, in our view, there's going to be a bunch of them.

So the whole goal in Archer's strategy from the very beginning was making sure we designed an aircraft in parallel with establishing our, our G1 cert basis in G2 and really making sure that you know, we could design around the existing regulations and not do things that would make the FAA uncomfortable. And so, to date, that strategy I think has been very effective and change like this, we don't think impact us and there likely could be more changes down the road. I mean, I think that would be probably expected, but given our strategy, I think we'll be able to continue to navigate those changes and stay within our timeline.

Follow-up question from Bill Peterson from JPMorgan.

I think you spoke to it a bit and it was certainly sent in the shareholder letter, but in terms of the preliminary design review you mentioned the OML being the major achievement, where a longer lead time things, what are the milestones that were accomplished. And then I guess, can you get, share any more specifics on what was left to be done in the second half?

Yes. Absolutely, just to give a little context, you were following a very traditional aerospace development process that involves these phase-gates, right, conceptual design review, CODR, preliminary design review, PDR. Next one, after that will be critical design review CDR. At each of these milestones the vehicle maturity, maturity of the design and the production systems around it is continuing to increase. So, they're just really good markers in time to assess holistically how the program is developing. So the OML is a really great accomplishment.

Yes. As we mention earlier, that unlocks our ability to kick-off tooling in support of manufacturing our first aircraft, production aircraft next year, but in addition to that, like Adam mentioned in his opener we've also just made a lot of progress in maturing the design to the point where we're now shifting or after PDR, which is coming up in a couple months, we are now shifting into the detailed design phase, actually producing the drawings and detailed engineering definition that we'll build off of. So, the great news at this point is the design has come together really well and we are on track, actually in a better spot than we hope even for key performance metrics like the vehicle weight, payload, range, so overall the design came in great with sufficient margin and we’re really happy with all the, the work the team's done.

Yes. Maybe just the last one, more housekeeping but in terms of spend, OpEx and CapEx. Wondering how we should think about the trajectory, I guess maybe within that, what on OPEX side what's related to personnel versus tooling or materials really in this market environment investors are really keen to understand the cash, maybe you can provide a snapshot or what, based-off the first quarter, any additional color you can provide would be helpful.

Yes. Bill, this is Mark. So, with respect to, I think the first question was thinking about, how the trajectory of OpEx for the rest of the year, is that correct?

Well, I mean OPEX and CapEx, I mean literally the cash burn, but then the OpEx, as we think about the one-off, onetime nature versus fixed, like personnel growth and things like that.

Yes, sure. So, I need some OpEx being lumpy. For the most part, we've gone through a very detailed bottoms up budget for the year and I don't think there's going to be significant one-off items, however, there could be lumpy from quarter to quarter depending on if we're doing a big buy for, for some parts for engineering or something like that, so I would continue just to model the payroll and the OPEX, you know more in a linear fashion. With respect to CapEx, the CapEx that we've had for the first quarter was pretty light. You can see it was less than a million bucks. You should expect something more significant that in the second half of the year, especially when we are starting thinking about breaking ground the factory for putting CapEx into that. So happy to, happy to talk a little bit more detail around that. But that's how I will think about it.

The final question comes from Andres Sheppard from Cantor Fitzgerald.

What are some of the kinds of the best practices in US reporting in place, to try to help mitigate some of the increasing cost of batteries as a result of supply chain disruptions. I know, I know we've addressed this in the past, but maybe just kind of remind us, your thoughts on the kind of macro there?

Yes, so our goal really, I guess, from a big picture inflation perspective. Our goal is really to have the majority of the suppliers that we need for the aircraft under contract this year. So, we started the RFX process early in the year and have been getting RFPs back from the supply base, and we have actually seen a lot of interest from suppliers as many of them view urban air mobility as this big potential market. But that being said, we are seeing costs come back higher than expected in many areas.

We do have a strong market position and we do have a strong capital position and that's really enabled us to still negotiate, I think pretty favorable terms, both on the upside case and on the downside, the kind of protection case, so for example, in many of the negotiations that we're seeing now, we are able to put in NPE or not to exceed prices, but at the same time, we're able to tie the price of let's say like raw materials to an indices. So, when the prices eventually do come back down, we can see the benefit from that as well.

So gives us both the upside protection and the downside protection, and then as it relates to batteries, we have this partnership with Stellantis and you probably see them in the new, they are very active on the battery sell side. And so, they give us a very large potential to help us mitigate costs, the buying power of a top auto OEM in the world. Have the ability to significantly move the needle in price negotiations.

Got it. That's super helpful. Congrats on the quarter.

Today's Q&A session has come to the end, I will hand over to Adam Goldstein, CEO for any final remarks.

Okay. Well, thanks again for joining us today and I really want just to re-iterate the principals of Archer delivering on our 2022 goals. I look forward to speaking with everybody again on our next quarterly update.

This do conclude today's call, thank you for joining. You may now disconnect your lines.