Archer Aviation Inc. Q2 FY2023 Earnings Call

Hello, everyone. Thank you for attending today's Archer Aviation Second Quarter 2023 Financial Results Conference Call. My name is Sara, and I will be your moderator today. I would now like to pass the conference over to our host, Andy Missan, with Archer. Please proceed.

Thank you, operator. Good afternoon, everyone, and thank you for joining us today to review Archer's second quarter 2023 operating and financial results. My name is Andy Missan, the Chief Legal Officer of Archer. On the call today are Adam Goldstein, our Founder and CEO; Mark Mesler, our CFO; Tom Muniz, our COO; and Billy Nolan, who joined Archer in June as our Chief Safety Officer. Please note that during today's call, we will be making forward-looking statements. These statements involve risks and uncertainties that may cause actual results to differ materially from those contemplated by the forward-looking statements. For more information about these risks and uncertainties, please refer to our SEC filings under the caption Risk Factors, including our upcoming Form 10-Q filing for the quarter ended June 30, 2023. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this call, we may discuss both GAAP and non-GAAP financial measures. A reconciliation of certain GAAP to non-GAAP measures is included in our shareholder letter posted on our IR website. And now I'd like to turn the call over to Adam.

Thanks, Andy. Over the last seven earnings calls, you've heard me consistently reiterate Archer's strategy of finding the most efficient path to commercializing our world-class eVTOL aircraft as safely as possible. Every quarter, our team has continued to relentlessly execute against that plan. And I'm excited to announce that over the past 90 days, some of the largest stakeholders in aviation have publicly joined us in supporting our strategy. First, we're grateful to share multiple points of endorsement from across the United States government. I'm extremely proud to announce that just last week, the Federal Aviation Administration issued our special airworthiness certificate for our first midnight aircraft, allowing us to begin flying. With this certificate in hand, our team will ramp up both our flight schedule and our fleet size as we work towards our planned 2025 commercial launch. This is a great milestone for Archer, and I'm proud of the teams at both Archer and the FAA, who worked tirelessly to ensure our aircraft begins flying on our desired timeline. This announcement comes on the heels of last month's Advanced Air Mobility implementation plan that the FAA published as the culmination of years of collaboration with Archer and other industry leaders. This innovative roadmap reinforced the government's commitment to U.S. leadership in this sector, as well as Archer's expected launch of our commercial service in 2025 by leveraging existing operating rules and infrastructure. Further, the FAA has laid out a plan for making the necessary enhancements to the country's air traffic control systems and operating rules to enable full-scale passenger eVTOL aircraft service by 2028, in time to showcase UAM at the Los Angeles Olympics. The leader who directed and oversaw much of this implementation plan and commitment to the timeline for commercial launch by 2025 and full-scale operations by 2028 was none other than the distinguished FAA administrator, Captain Billy Nolan, who announced his decision to lead the FAA to join Archer as our Chief Safety Officer back in June. With over 30 years of experience in safety, regulatory affairs, and flight operations, as well as senior executive roles at American Airlines and Qantas Airways, in addition to service in the U.S. Army as an airplane and helicopter pilot and Safety Officer, Billy is the ideal person to guide Archer through the most efficient pathway to FAA certification and commercial deployment. He has long been a strong supporter of the eVTOL aircraft industry, spearheading our nation's and the FAA's global leadership role in this important area, and his appointment as our Chief Safety Officer underscores our commitment to safety and innovation. Before joining Archer, Billy conducted a thorough assessment of the competitive landscape. You'll hear shortly from Billy about why he chose to come to Archer and his belief in our approach of optimizing our design for certification and focusing on developing only the most critical enabling technology in-house while also partnering with leading suppliers. With Billy on board, I have already started to see him help us shape the future of transportation and make sustainable, efficient air travel a reality. Second, we are honored that just last week, the U.S. Air Force awarded Archer contracts with the largest contract value of any OEM in the eVTOL industry, with a value of up to $142 million. The DoD has made an unprecedented commitment to helping Archer accelerate our technology development. This agreement was made possible through our long-standing partnership with the Department of Defense on a series of projects through the Air Force's AppWorks program, which has been assessing the transformational potential of the vertical flight market and eVTOL technologies for DOD purposes. In this new execution phase of our partnership, Archer will deliver aircraft to the Air Force, and they will test these aircraft to support future missions in personnel transport, logistics support, rescue operations, and more. These applications of our midnight aircraft, we hope, will not only help save lives but also accelerate our technology and operational learnings as we build a world-class consumer aircraft and service. Today, we're announcing that we have accelerated our plans and hope to deliver the first aircraft within the next six months, as early as Q4 2023. We believe this would be the first eVTOL aircraft in history to be delivered to a paying customer. Given the strength of the team that is working on this at Archer, we anticipate leveraging this contract as a platform for future partnerships with the other branches of the Armed Forces, which would increase the total value of our relationship with the DoD. In fact, just last week, we hosted representatives from the U.S. Marine Corps at Archer headquarters and our flight test facilities to demonstrate the capabilities of our midnight aircraft. A lot of this was made possible by our recently assembled six-member Government Services Advisory Board, who is critical in helping to build our first step of this partnership with the military. I'm sincerely grateful for the support of the DoD, Captain Nolan, our Government Services Advisory Board members, and all of the Archer teammates and veterans for their continued service and support in ensuring the U.S. maintains its leadership position in aviation. Finally, I have long maintained that the eVTOL industry and Archer have been able to move as quickly as we are because of aviation and technology pioneers who for decades have pushed the envelope on what is possible, collectively transporting millions of people around the world with unparalleled levels of safety. Today, I'm excited to announce a strategic relationship with the biggest aerospace giant of all, Boeing. Boeing was actually one of the first suppliers of fixed-wing military aircraft, the V-22 Osprey, over 30 years ago. And today, I'm thrilled to call them one of Archer's investors. Our collaboration with Boeing and its subsidiary Wisk will be focused on supporting the integration of Wisk's autonomy technology in future variants of our aircraft. For background, Wisk was co-founded by Google founder Larry Page, who is an early pioneer of the eVTOL industry and one of the sector's biggest advocates in pushing the development of flight autonomy technology. This collaboration could bring for Archer the potential to access world-leading autonomy technology while substantially reducing the cost of developing it ourselves. As the collaboration matures, we will share further details, but it is important to understand that this puts Archer in a unique position to be able to source autonomy technology from a leader in the industry. This is a natural extension of our overall strategy of focusing our in-house research and development on the key enabling technology that cannot be sourced from the existing aerospace supply base. As part of this new collaboration, Archer, Boeing, and Wisk have agreed to settle the litigation between the parties and collectively look to the future. I look forward to working with Boeing and Wisk on a collaboration that focuses on the growth and development of the AAM industry. But that's not all. As part of the parties' collaboration, we are excited to welcome Boeing as an investor in today's $215 million funding round alongside our other long-time strategic partners, Stellantis and United. The deep partnership we are seeing from Stellantis across the business is unrivaled, from their continued willingness to provide us the capital we need to accelerate our business to the support and energy CEO Carlos Tavares and CTO Ned Kerrick bring to the table to the dozens of Stellantis employees working alongside ours as we jointly build out the world's first high-volume eVTOL manufacturing facility in Georgia. We are seeing a similar commitment from our partner, United Airlines, who is an integral player in our push towards our goal of achieving commercialization in 2025 as we work to fulfill United's billion-dollar order for Archer's Midnight aircraft. The team at United is working with us hand-in-hand in important launch markets such as New York City and Chicago, where United is developing innovative approaches to operating our aircraft within its Newark and O'Hare airport hubs to enable a world-class customer experience door to door. I'm proud to call Boeing, United, and Stellantis partners who are not merely partners in name but partners who are truly invested in working towards collective long-term success in eVTOL. Importantly, as part of this financing, we are grateful to have the support of major long-term financial investors such as ARK Invest, who share our long-term outlook for Archer into our role leading the eVTOL industry. As I reflect on these remarkable accomplishments, I want to extend my heartfelt gratitude to our incredible team, partners, and shareholders. Together, we are pioneering a new era of aviation, driving innovation, and revolutionizing transportation for generations to come. Before I turn it over to Tom, let's take a step back for a second. In the last quarter alone, the United States military and government have both made an unwavering commitment that America will lead the way in commercializing eVTOL. The FAA has validated the timeline for both Archer and Joby to bring our aircraft to market in the U.S. in 2025. And we both proudly hosted more than 70 members of President Biden's AAM Interagency Working Group last month for a private flight test. Additionally, the Department of Defense has committed to nearly $300 million in contract value across the sector, providing incredible momentum for being the first country to bring eVTOL to market. When midnight takes to the skies in the coming weeks, it will mark a new era in advanced air mobility. Our team's hard work and dedication have brought us to this exciting moment, and we can't wait to see midnight and our industry soar. Thank you for joining us on this thrilling journey, and I look forward to your questions later in the call. I will now hand it over to Tom, who will dive into the technical aspects of our strategy and how those are beginning to bear fruit.

Thanks, Adam. This past quarter, we continued to execute our strategy, building momentum across our aircraft development, manufacturing, and certification efforts with key progress toward our target of commercial launch in 2025. With each passing quarter and each milestone hit on schedule, we continue to prove our steadfast strategy and execute the most efficient path to market, optimizing our aircraft for certification, manufacturing, and commercial operations. This is continuing to pay dividends. I couldn't be more pleased with our team's progress, and I'm excited to share updates with you in each of the key areas supporting our aircraft commercialization. First, on aircraft development. As Adam mentioned earlier, last week, the FAA issued a special airworthiness certificate for our first midnight aircraft. This is the culmination of an extensive ground testing campaign over the past couple of months as our flight test team has been hard at work getting the aircraft ready to fly safely. Now that we are certified to fly, we will steadily ramp up both our flight testing regimen and our fleet size and continue to march toward the final stages of our certification program and commercial launch. As we have discussed before, midnight combines our proprietary electric powertrain and flight control software along with extensive use of mature certified components and systems from some of the best aerospace suppliers in the world. This strategy of focusing on the key enabling technologies has allowed us to invest only where it's needed to ensure that our aircraft can achieve the performance required for commercial success: fishing payload, range, fast charge, turnaround time, and speed without having to reinvent the wheel for more conventional aircraft components like flight control computers, where our supplier partners have the experience, intellectual property, certification data, and scaled manufacturing expertise. As part of this broader strategy, we have also made pragmatic commercially focused decisions in how we developed our core technology, which we like to call realistic innovation. Think of this as applying the design for certification, manufacturing, and commercialization recursively through our tech stack. For example, our batteries leverage commercial off-the-shelf cells because we believe they deliver the best safety and reliability available, paving the way for a smoother path to certification, easier scale-up of manufacturing, and lower operating costs, translating into lower prices for consumers. We could have instead chosen a more exotic pouch cell for marginal gains in energy density, but the slight increase in performance this may have yielded would have been more than offset by the increased risk in safety, certification, manufacturability, and cost. Similarly, for our electric engines, while every aspect of the design was optimized for our aircraft, each part was also optimized for safety, reliability, and manufacturability, leveraging proven and scalable manufacturing processes from the automotive industry that will let us ramp up production while maintaining the highest possible quality standards. With the airworthiness certificate now in hand, we expect to begin flying in the next couple of weeks. This first midnight aircraft will be flown without a pilot on board, as we did for Maker, and will be used to gather data for internal design validation and in preparation for the final stage of our certification program. Data gathered from flying this aircraft will prepare us for having FAA pilots fly our aircraft next year during our next stage of certification testing. This flight test data is complemented by the extensive ground testing and certification component and system testing gathered in our world-class facility in San Jose. This facility has roughly a dozen custom-designed labs where we are putting each of the systems on the aircraft through their paces, gathering all of the ground test data needed for certification and high-volume manufacturing readiness. These labs are largely focused on system integration as our strategy of partnering with the best aerospace suppliers in the world means that we benefit from all of their existing component data and test capabilities, limiting the amount of testing and certification work required to get our aircraft certified and ready for mass manufacturing. This facility is also where we are doing the final assembly of our fleet of conforming midnight aircraft, which will be used for piloted flight testing next year. We are well underway in manufacturing our initial piloted conforming midnight aircraft, and our supplier partners are currently fabricating the primary structure and many system components, leveraging their decades of experience in the aerospace industry. I want to thank all of our suppliers for their partnership and teamwork as we work together to bring midnight to market. We plan to start the final assembly of the first conforming piloted midnight aircraft within the next two months at our state-of-the-art manufacturing facility in San Jose, California. Over the next year, we plan to build at least six of these aircraft to accelerate our certification flight testing efforts, and we plan to hold our first piloted flight in early 2024. In Georgia, we are rapidly progressing the build-out of our high-rate production facility. Our team has cleared and graded our roughly 100-acre site in preparation for imminently pouring the foundation, and the broader construction efforts remain on track to enable occupying the factory next year so that we can initiate our production ramp to produce deployment-ready aircraft for 2025. I am sincerely grateful to our government partners across the state from Moultrie County, the City of Cartersville, and the Georgia Department of Transportation, as well as our construction partners for their incredible support. On the certification front, we are progressively building momentum. I'm happy to report that the FAA has begun accepting our certification plans. As a reminder of where we are in the process, our teams are working closely with the FAA on our detailed certification plans, which detail exactly how our design complies with the various criteria set out in our certification basis. To give this more context, our certification plans are what allowed the team to move forward with generating test data for the FAA to use to validate and certify our aircraft. As I mentioned earlier, a key part of our strategy is that we have leveraged an extensive group of partners to supply components and bring our aircraft to market as efficiently as possible. That strategy has yielded a significantly simpler and more focused scope of certification work to do in the implementation phase of the certification program, meaning post-development of our certification plans, than if we had chosen to reinvent the wheel on all the core components and systems on the aircraft. This intentional strategy has allowed the team to advance rapidly through our certification program to date and is why I believe we will take the lead over the next 12 months in the race to bring the first commercial eVTOL aircraft to the market here in the U.S. Needless to say, our strategy is paying off. Much of that is due to the hard work of administrator Nolan and the work his team at the FAA did before he joined us, collaborating with industry on the right framework to certify eVTOL aircraft. I'm excited to pass it over to Billy to share his unique perspective on this exciting time for Archer and the industry.

Thanks, Tom. I'm very excited to be part of the team here at Archer, which I have over the last several years come to believe will become the unambiguous leader among eVTOL manufacturers. During my time at the FAA, I led and oversaw the build-out of the first advanced air mobility framework, which Adam spoke to earlier. With the understanding that the U.S. needs to move fast and with strong intent to maintain our leadership position in aviation and technology that will fundamentally transform the way we move between and within America's cities, I decided to use the Los Angeles Summer Olympics in July 2028 as a target date for when the U.S. needs to have built out scaled urban air mobility networks across our largest, most congested American cities. My team originally felt that goal was ambitious, but over the last year, it became clear that the leaders in the eVTOL industry were well-positioned to be at real scale by 2028, contingent on the continued strong support that the FAA and the whole of U.S. government had pledged. Working backwards from scaled operations in multiple U.S. cities by 2028, my team at the FAA has further committed to enabling the leaders, including Archer, to certify and commercially launch their aircraft by early 2025 in order to start moving people in and around cities while showing the world the power of American innovation when catalyzed by a supportive regulatory environment. In line with this, the INNOVATE-28 plan that the FAA published last month explicitly notes that the agency is putting in place a plan to be ready by 2025 for initial operations in concert with industry. The plan goes on to outline significantly greater detail in this framework to certify, train, and integrate eVTOL operators safely into the National Airspace by leveraging existing operating rules and aviation infrastructure while enabling future upgrades to allow continued growth across the industry. On the certification front, we're well on our way. Having received our certification basis from the FAA in 2021, we are now working to finalize our means of compliance with the FAA airworthiness criteria prior to beginning test operations, which we expect to commence in early 2024. Along with this, in June, the FAA issued its proposed standard on eVTOL pilot training requirements and operations, providing a clear pathway for pilots to earn powered lift ratings specific to each type of aircraft they fly. Archer is working with the leading eVTOL OEMs along with the General Aviation Manufacturing Association to collectively provide industry input to the FAA over the next week. Finally, with regard to airspace integration, the FAA has released a thoughtful blueprint that covers air traffic routes, pilot communication, the use of existing heliport infrastructure, and the build-out of new vertical infrastructure, leveraging public-private partnerships. Archer has already made substantial progress on infrastructure readiness and establishing partnerships with state and local governments with the announcement of its planned routes in New York and Chicago in partnership with United Airlines, and we're taking a data-based approach toward establishing the most efficient operational footprint. It is clear that the DOT and the FAA have dramatically accelerated the pace of activity to further advance air mobility over the past few months, and we applaud them for appropriately making advanced air mobility a top priority within the administration. More importantly, we are grateful to the administration for taking a whole-of-government approach to ensure resources are in place for a safe ramp-up of the industry in the period from 2025 through 2028. By publicly committing to enable the industry to deliver on this timeline, the administration is signaling that they have provided the incentive and resources to execute this ambitious plan. In doing so, they will undoubtedly position the U.S. at the forefront of a new global industry. I've been pleased with the continued collaboration between the FAA and companies like Archer, especially since my departure. And I'm very excited to now be working with the Archer team as we approach the final stage of our path to commercialization. With that, I'll turn it over to Mark to give you a financial overview.

Thanks, Billy. I'm excited about the progress our team has made on a number of fronts as we continue executing our strategy to create the most efficient path to market, both financially and operationally. The equity financing we just announced will help accelerate that strategy, but I want to share more information about the participants and how we plan to use those proceeds. In our 2021 public offering, we raised substantial capital to develop our midnight aircraft and get to commercialization. Over the last two years, as we have continued to hit our milestones, we have been grateful to see outsized interest from important strategic and financial partners who want to be a part of the Archer story. So we decided to create an opportunity for them to participate and also further enhance our liquidity. As Adam mentioned, today's equity investment round of $250 million was led by Stellantis with $70 million as part of their previous commitment that they decided to accelerate and pull forward into this equity round. Our long-time partner, United Airlines, invested another $25 million into this round, joined by our new partner, Boeing, as Adam detailed earlier. ARK Invest, one of the leading investors in disruptive technologies, also invested another $44 million. High-quality financial investors who share the long-term outlook as Archer and our partners filled the balance of the round. This investment, combined with the remaining Stellantis commitment of $55 million, brings our total liquidity to over $675 million and brings our aggregate funding to $1.1 billion to date. The funds raised will be used for the continued development of midnight and related technology, the build-out of our manufacturing and test facilities, working capital, and general corporate purposes. Beyond the capital this fundraising provides, we're proud of the outsized participation from our core partners, Stellantis and United, who continued to support Archer financially and operationally over the years. When we expanded our partnership with Stellantis earlier this year, they pledged to invest a total of $150 million of capital into Archer. As part of structuring that agreement, we worked jointly with the Stellantis team to develop a creative forward equity purchase framework that allows Archer to call that capital over time at our discretion, subject to certain business milestones, instead of taking on significant dilution then at a lower share price. Our wins over the last several months and the performance of our stock price have made it an opportune time to draw down the initial $25 million tranche in June and on the $70 million tranche as part of this financing. In Q2, Stellantis also purchased 4.9 million shares of Archer's stock in the open market to deepen our partnership even further. Beyond the financial support, Stellantis continues to be a great operating partner. They were key in helping us identify our Covington, Georgia factory site out of hundreds of potential options across the U.S. due to its approximate location and generous financial package from the state and local municipalities. Their support helped us to resolve numerous supply chain issues, and there are now dozens of full-time Stellantis employees working on-site at Archer to help us as we continue ramping up our manufacturing operations. Their commitment to pushing the boundaries of the future of mobility and Archer's role in it is second to none. In a similar vein, United's support has been unrivaled in our industry. As you remember, coupled with their initial investment in Archer, United agreed to purchase up to 300 aircraft from us that they plan to deploy in major American cities with a focus on their important hubs. Just last August, they provided a $10 million pre-delivery payment against the first 100 aircraft, which is an important sign of conviction that we have not always seen in deals of this nature across the industry. Together with United, we have announced our first two commercial eVTOL routes that we plan to operate together, including United hubs at Newark servicing New York City and O'Hare servicing Chicago. We are very proud and fortunate to have the support of these two partners, who are now joined by Boeing as we collaborate with them on our flight testing. Now let's switch to our financial performance for Q2. Our non-GAAP total operating expenses were $77.4 million. We landed towards the lower end of our estimate range of $75 million to $85 million. This led to an adjusted EBITDA loss of $76.3 million. Our operating expenses continue to be primarily driven by investments in headcount, aircraft parts and materials, tooling, and other non-recurring supplier costs. With respect to our GAAP financials, the impact of our agreements with Boeing and Wisk and the issuance of new warrants resulted in noncash charges to our P&L, which I will outline in our GAAP financials. On a GAAP basis, total operating expenses for Q2 '23 were $181.4 million, which included $104 million of noncash charges. These noncash charges were comprised of $25 million for the vested portion of warrants provided in support of the Boeing Wisk agreements I just discussed, $48 million for the unvested portion that is subject to certain investment criteria and may never be realized for those agreements, $26.5 million of our standard stock-based compensation expenses, and $4.5 million of expenses for our warrants issued to investors. This drove a net loss of $184.1 million. We finished the quarter with $407.6 million of cash, cash equivalents, and short-term investments on our balance sheet. Our net change in cash in Q2 '23 was $42.3 million, including the $25 million drawn in June from the Stellantis funding agreement. This cash was primarily used to fund non-GAAP operating expenses and capital expenditures. As I discussed on prior calls, in 2023, Archer is making some nonrecurring investments alongside new suppliers to support the development and manufacturing setup of many of our midnight components. This spending is also consistent with our overall strategy of creating the most efficient path to market, where we focus on investing and hiring to score our key differentiating technologies and leveraging the existing aerospace industry supply base for the rest. That framework allows us to avoid the ongoing structural spending of headcount to develop those other individual technologies and execute a lower operating cost development model while derisking our certification efforts and accelerating our time to market. In Q2, of the $77.4 million in non-GAAP operating expenses, the amount of nonrecurring engineering and other investments was $12 million. Our overall spending framework for 2023 is similar, made up of our core operating expenses, nonrecurring costs to establish our supply base, and capital expenditures. Nonrecurring costs for Q1 '23 and Q2 '23 were $16 million and $12 million, respectively. These nonrecurring costs will not be a material part of our expense structure in 2024 and beyond as we will have completed most of that work this year. Backing those amounts out of our current expense structure, we have core operating expenses of $61.5 million and $65.5 million, respectively, for Q1 '23 and Q2 '23. That level of current spending is our standard core structural spending that will persist into the future, and the nonrecurring costs will not persist materially beyond 2023. I wanted to make this differentiation to share how our overarching strategy impacts our spending profile. Our June ending cash balance of $407.6 million, combined with the capital that we raised today, and the remaining $55 million from the Stellantis equity option previously discussed provides us with more than $675 million of liquidity to get to commercialization in 2025. In addition to this liquidity, we do see other opportunities for nondilutive cash receipts in the form of pre-delivery payments from United and potential future orders and spending offset from the DoD contract that we announced last week. Finally, for Q3 '23, we anticipate a total GAAP operating expense of $42 million to $52 million. This is lower than our historical spending due to a one-time noncash benefit of $58 million as a result of the reversal of an unrealized expense relating to the founder grants, offset by expected stock-based compensation and warrant expenses of approximately $25 million. Total non-GAAP operating expenses for Q3 '23 is anticipated to be $75 million to $85 million. And with that, operator, let's open it up for questions.

Our first question comes from Edison Yu with Deutsche Bank.

Congratulations on all your hard work. To begin, could you discuss the role Boeing will play in the future? There was a significant lawsuit that has now been resolved, so what kind of role do you see them having moving forward?

Thanks for the question, Edison. This is Adam. So first, I am thrilled to have Boeing Company as an investor and to be working with them on autonomy. I think their support can only help further the growth and development of the entire AAM industry. But if I think about the relationship here, this is multifaceted. There are a number of components that went into this. One is Boeing's investment in our latest financing round, as well as the collaboration agreement between the parties, where we will work with Boeing and Wisk on autonomy for future versions of the midnight aircraft. Three, there were warrants provided to Boeing and Wisk to settle all the litigation between the parties. So hopefully, that puts it in perspective here, but we are really excited to work with Boeing and Wisk on these future autonomy programs.

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

Yes, I totally agree with you, Edison. The contract value itself has a stated number, which I think is really exciting, and it's the largest contract that we've seen in the industry. But the bigger value here is really the opportunities that go beyond that. We now have a chance to showcase the vehicle and its capabilities to all the different branches of the armed services, which really opens us up to broader applications. This also provides another channel for us to sell into outside of the FAA-led civilian side. So it does provide a nice diversification of revenue and allows us to get to market sooner than purely following the civilian side.

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

Yes. Thanks for the question. If you think back to the framework of INNOVATE-2020, it was about getting to that 2025 date. So we're probably talking multiples of 10 to 20 aircraft in the 2025 timeframe and then really scaling up from there. My estimation from my time sitting in the administrator's chair was that we could certainly be into the hundreds of eVTOL by the time we get to 2028, if not the thousands. So we see this as the taking off of the market demand globally, which is why we really wanted to have the strong framework in place.

Our next question comes from Andres Sheppard with Cantor Fitzgerald.

Congrats on the quarter. Congrats on all the recent announcements. Maybe a first question for Mark. Would you mind just walking us through again that $215 million investment? So the $70 million investment from Stellantis, is that in addition to the prior $150 million, or is that part of that agreement? And then I think you broke it down further $25 million from United. I'm just trying to reconcile the total amount, Mark, if you don't mind.

Yes, sure. So a couple of points there, Andres. One, yes, that was an acceleration of the $70 million from the prior $150 million commitment. As we gained momentum around the DoD contract and some of the more recent announcements, they were anxious to invest in this round. We've only currently publicly disclosed those four investors United at $25 million, Stellantis at $70 million, and ARK at $44 million. The others we haven't disclosed for the full $215 million.

Okay. Got it. That’s helpful. And then maybe a question for Adam. Adam, in your CNBC interview prior to the earnings call, you alluded to where you see the industry moving forward in maybe the later years as it pertains to autonomy. I think you went so far as to say you expect autonomy to maybe take a leading role later in the industry. I’m just wondering maybe you can expand on what you meant there and how you see the collaboration with Wisk integrating and maybe some sort of timeline that you might be able to give us?

Yes. So Archer's strategy has always been to find the most efficient path to market. And in doing that, we started with a piloted vehicle. That’s where the existing rules are; we can enter into service here in the very near future. But as the industry scales, and really goes beyond having thousands, tens of thousands, hundreds of thousands of vehicles, the need for autonomy will increase. Autonomy helps increase a lot of value to the industry, one because there's less need for pilots. Two, there's an increased potential for safety. That really is a big deal. The third benefit is cost, helping to lower costs. So as the industry scales, there's an opportunity to add this capability. For us, why this is so interesting is that our strategy has been to partner with the best groups that can help us get to market quickly. We partnered with top-tier suppliers such as Honeywell, Safran, and Garmin. This has been key in our success. Then we look to the future and consider how to develop autonomy in a way that avoids excessive costs and delays. We’re working with groups that have the most experience in the world in flight autonomy, which keeps us on track to bring our piloted vehicles to market early while allowing us to test these vehicles with autonomy as the technology matures.

Got it. That’s extremely helpful and insightful. If I could just ask one last question. Regarding the Air Force and the DoD contract, you’ve provided the estimated value of the contract so far. However, I’m curious if you anticipate the military opening these programs of records for eVTOL, which could potentially create a new market. I see opportunities for growth within that contract, so I’d like to know your thoughts on that partnership over the medium to long term.

Yes, I believe that this contract is really just the start for the industry and will evolve into a sizable relationship with the U.S. military. Since we announced our first contract with AppWorks, we've seen outsized interest from pretty much every branch of the armed forces. As we mentioned, we hosted the Marine Corps last week, and one of the members of our government advisory board, General Townsend, has been working with us to help us navigate how to collaborate with the U.S. Army, which has the largest rotorcraft fleet in the world. There is a very real potential for the eVTOL industry to move into multi-hundred million dollar or even billion-dollar programs of record with the DoD over time.

Our next question comes from Savi Syth with Raymond James.

If I may just follow up on Andre's question just before. With these investments, have you shared the price point at which they're being made or if there's any warrants associated with them?

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

That's helpful. Sorry, I missed that. Regarding the certification of conforming aircraft, are there any additional requirements from the FAA concerning the various certification plans you have submitted or any clarification needed on the rulemaking before you can proceed? Or is it primarily about getting production set up and moving ahead?

Savi, this is Tom. So to provide some context here, our whole strategy around certification was to keep things as simple and easy as possible. That's why we took this approach of partnering with existing aerospace suppliers to leverage their existing certification data capabilities. The big thing we've been working through over the past six months is getting our certification plans finalized. The most important thing is not just checking the box but the content of those plans and determining the scope of testing. Once we have those plans agreed upon, then it's simply a matter of executing the steps laid out in those plans, performing the tests needed to obtain the necessary certification. Because of the strategy we've taken, we feel optimistic about having a very smooth path forward, and you'll really see us start accelerating here over the rest of the year and into next year because we've laid out a relatively simple plan.

That's super helpful. And just a clarification — have you submitted all the plans or is that an iterative process? Where are you in that submission part?

Great question. We’ve submitted the majority of our certification plans. There are a couple of remaining that we haven’t submitted, but those involve less critical areas, like noise, which we don’t expect to slow down the overall schedule. We have begun to get our plans formally accepted. The first one was accepted a couple of weeks ago, and there are several others in the queue that we expect to be accepted soon. We are really starting to build momentum and are very happy with the progress.

Our next question comes from Bill Peterson with JPMorgan.

Nice announcement here. I wanted to talk first about the DoD contract and maybe some clarifications around that. Within that, so the delivery for maybe the end of this year or early next year, is that one of the conforming aircraft or is that something different? And then I think Mark mentioned something like this might provide op-ex offsets for some of these early aircraft. I believe you also have values for the contract, so I'm guessing there are maintenance and repair tasks involved. How should we roll that through a model, and what's the timing for this whole first announcement—how many years do you think that will last?

Bill, this is Mark. So the contract is multifaceted; it spans service, training, and hardware, and includes some internal development work as well. It will be a combination of cost reimbursement and revenue. As we sit here today, that’s still coming together in terms of the timing. The majority of the development work will happen before certification, but the timing of everything has not been fully discussed yet, so stay tuned.

Bill, this is Tom. The first aircraft we'll be delivering is a nonconforming unit that will be used for early operational testing. There are also deliveries of piloted conforming aircraft planned for next year and beyond.

Okay. That's helpful. I don't know if this question is for Adam, but we hear the FAA is proposing reserve requirements for power lift aircraft being consistent with larger aircraft—30 minutes daytime and 45 minutes at night. I just wanted to make sure if that's the case and if those requirements are built into the certification plan for Archer?

Yes. I'll chime in first, and then let Billy add his thoughts. You're talking about the reserve requirements that came out in the draft that the FAA published a couple of months ago. So just to provide context, that's the first draft, and the way the process works is that the FAA operates internally for a time, and then they publish their initial thoughts. We’ve been working with others in the industry to discuss what we believe is the right balanced approach. The public comment period on this draft is closing soon, and we’ll be providing our comments along with our peers and industry associations. It’s likely that we’ll end up with more performance-based reserve requirements rather than just a broad endurance number. Importantly, we’ve assessed what our go-to-market path would be if those draft rules remain unchanged, and we still believe we can operate all our planned missions in cities under those conditions. Billy, would you like to add anything?

Yes, to follow up on Tom’s point. The FAA always wants to hear from the industry, and they’re limited in the early part of rulemaking from having what they call ex parte communication, as you know. As Tom mentioned, the comment period is closing. We have assembled our feedback, and we’ll be joining the rest of the industry in providing our comments. We believe ultimately, we can find a middle ground. We have clear plans in place regardless.

If I could sneak one more in, too. So this, no, I’m sure that’s something you’re probably aware of when you were at the FAA, but the document talks about the OEMs, operators, and governments and obviously, the need for local buy-in for infrastructure. What is the latest thinking around infrastructure, especially with public buy-in for new sites? Is there a risk concerning new sites coming online? How should we think about infrastructure as we look towards 2025?

Yes, good question. When we think about infrastructure, this is specifically why you want to have a forcing function like INNOVATE-2028. It gives a timeline for all stakeholders. We have infrastructure in place today that can accommodate our rollout in 2025. Everything is in place using existing helicopter routes and current airport infrastructure. As we scale up, we have the commitments necessary to ensure that we can grow effectively. The FAA is having conversations at the state and local level, as is Archer

Thanks, Billy, for the insight. Thanks, everyone.

Our next question comes from David Zazula with Barclays.

First one is for Billy. Just I think you talked about what you see the industry going forward. Can you maybe take us backwards and just compare what you expected the AAM process going into it with how it has actually ended up? What surprised you about it? And if applicable, how that contributed to your decision to come to Archer?

Yes. If I go back, the FAA had many of these parts already in place. What I feel that I brought to it was the idea of a forcing function, which allows us to coalesce around a mission with a target in mind that can help guide us through the steps necessary for successful implementation. If you ask what has surprised me, there has been no surprise with the team at the FAA; they come together very well. I just extend a note of thanks to the administration for pulling together the entire government and a collaborative approach, as we know that’s what it takes. We are prepared to do our part, but we need the government and state/local levels working hand in hand.

Great. And then for Andy or Adam, is there any other color you can provide on the agreement with Wisk and Boeing? Specifically, regarding the ability to use the autonomous technology, is that something you can implement in the next generation of aircraft if it is not an autonomous aircraft? Or do you need to go full in on non-autonomy to utilize this technology?

Yes, David, it’s Adam. Archer has a lot of success working with strategic partners, and you can see that with our work with United, we work with Stellantis, and so on. We start off finding ways to work together and then grow the relationship from there. We are bringing to market a piloted vehicle, and Boeing and Wisk have spent a lot of time, years, and money developing autonomy, so there is a natural overlap. We are exploring how to best implement this moving forward and will certainly share more details as that relationship matures.

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

Congratulations on a number of fronts here. I know you're still working on plans, but with the six conforming aircraft assumption for certification, do you have an assumption on the number of flight hours each aircraft is going to need to complete to achieve certification at this point?

Great question. This is Tom. We do have a detailed flight test schedule planned that designates specific tail numbers for each test we’re going to perform. I don’t recall the exact number of flight hours off the cuff here, but all of this has been methodically planned out in advance. You have to do it that way to ensure that each aircraft has the proper systems properly installed to achieve conformity.

Got it. And then as far as the collaboration with Boeing relates to when autonomous flight might come to commercial markets, how are your defense relationships looking at that partnership? Is that a faster avenue, especially now you're going to deliver aircraft this year? What additional development would you need for a midnight today on the defense side?

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

Got it. And then just one last one. Is there anything precluding an international defense relationship with the midnight at this point?

I don't believe so. The general rules are that anywhere the U.S. government sells, those different players can sell too. That’s a pretty broad list.

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