BETA Technologies, Inc. Q3 FY2025 Earnings Call

Welcome to the Beta Technologies Third Quarter 2025 Earnings Conference Call. I will now turn the call over to Devon Rothman, Head of Investor Relations. Please proceed.

Thank you, operator, and good morning, everyone. My name is Devon Rothman, and I lead Investor Relations here at BETA Technologies. We appreciate you joining us for our third quarter 2025 earnings call. Joining me today are Kyle Clark, our Founder and Chief Executive Officer; and Herman Cueto, our Chief Financial Officer. Following their prepared remarks, we will open the call for Q&A. Before we begin, I'd like to remind everyone that earlier this morning, we issued a press release announcing our third quarter financial results. We also published our Q3 investor presentation. You may access this information on the Investor Relations section of beta.team. Additionally, please note that today's discussion of our business, operations, and financial performance will include forward-looking statements under federal securities law. These statements are based on our current expectations and assumptions and involve risks and uncertainties that may cause actual results to differ materially. For a detailed discussion of these risks and uncertainties, please refer to our filings with the SEC, including our IPO prospectus dated November 3, 2025, and our Form 10-Q for the third quarter that will be filed later this morning. We do not undertake any obligation to update our forward-looking statements. During the call, we will reference both GAAP and non-GAAP financial measures. Reconciliations between historical non-GAAP and the nearest GAAP measure can be found in our earnings materials posted on our Investor Relations website. Our slide deck for today's call is also available on the site for those who wish to follow along. With that, let me turn the call over to Kyle.

Thanks, Devon. Good morning, everyone. First, I'd like to say thank you to the folks that helped us through a successful IPO. Fidelity has been with us from the very first round, along with Amazon, Chuck Davis, John Abele, TPG in our Series B and more recently, Larry Culp and the entire GE Aerospace team, and of course, the overwhelming support from all of you throughout the IPO process. This support has made it possible for us to enter the public markets with a uniquely aligned and world-class group of investors. Since this is our first earnings call, before we dive into our quarterly numbers and updates on our aircraft, our charge network progress, GE Aerospace and GE programs and new orders from Embraer Eve, I'd like to take a few minutes to introduce myself and our company, our mission and specifically how we think about redefining aviation and why this team has earned the credibility it has and is uniquely capable of changing the way people fly. My name is Kyle Clark. I'm an engineer, a pilot and the founder of BETA. BETA began as my senior thesis in college more than 20 years ago and has shaped my life's work ever since. I still spend as much time as possible designing, flying and building airplanes. It's all I've ever wanted to do. Prior to BETA, many of the team members here and I spent our professional careers designing and building high-reliability power electronics and control systems for organizations like the National Nuclear Labs, Raytheon, Tesla and many others, helping them to electrify and control things that once seemed impossible, like the Patriot missile system. In every case, we created systems that were far superior to what they replaced. Throughout those years, I kept refining the idea that would become BETA, thinking about how electric aviation could serve the industry in a practical and impactful way. When I met Martine Rothblatt of United Therapeutics in 2017, I felt like two missions were aligning. We shared the belief that electric aviation could reshape the future of flight and even more importantly, save lives by enabling large-scale transport of organs. Martine became our first customer, helping define early focus on cargo, medical and logistics. For the first time, the work we had been doing with others converged with a mission of our own, one that had the potential to make a real difference. The electrification of aviation is inevitable. The electric aircraft that we are certifying are safer than their traditionally fueled counterparts. Electric aircraft are less expensive to operate, quieter, more sustainable and have a higher reliability and dispatch rates than complex legacy aircraft. But these advantages and others aren't just things that come for free because the aircraft are electric. They come from a disciplined engineering approach, a product philosophy rooted in simplicity, reliability and pragmatism. Our dedication to simplicity through design and first-principle physics is the foundation of our entire business and the reason electric aviation will deliver on its full promise. Here are the guiding principles of BETA's business. BETA owns and controls the enabling technologies for electric aviation. This includes the batteries, motors, flight controllers and chargers. We work extremely close with the customers and the regulators. We have earned their respect and they have earned ours. We offer a full stack solution to our customers, everything they need to operate from the aircraft to the batteries to the data systems to the training to a global charging network. Our aircraft and designs are a platform for new technologies such as advanced batteries, fuel cells, hybrid, and autonomy. We have put all the hooks and flexibility into our aircraft to adopt these improvements. We understand and respect physics. This has enabled us to hold every meaningful world record in electric aviation, range, payload, and both speed records. We're a show not tell business that's focused on keeping our promises and hitting our milestones. We let our accomplishments speak for themselves. We focus on safety, performance and reliability through simplicity. At the very core of BETA are the people. We are a team of scientists, engineers, aviators, and builders. We fly what we build. We expose the issues early. We believe in data, integrity, and honesty. We are intensely connected to the mission. And the financial success of this business and the economic benefits to our customers are directly aligned with our mission of creating a sustainable aviation future. Now that we've established who we are, let's talk about what we do here at BETA. We design and build both electric conventional takeoff and landing airplanes and vertical takeoff and landing powered-lift aircraft. We also sell high-performance systems that power them, the motors, batteries, flight computers and sensor systems. We manufacture, sell and install thermal management and charging infrastructure. We're the only OEM with a certified charger and a nationwide interoperable and multimodal charging network. And now we're expanding that footprint internationally. The mature propulsion and charging products are producing positive contribution margin today, and these technologies are sought after by the most respected aerospace and defense companies in the world. We fly what we build. Our family of electric aircraft has logged more than 100,000 nautical miles across three continents in 10 countries landing over more than 380 airports. We've flown in the rain, the sleet, the snow, the fog, dust in every class of airspace from class Golf to busy class Bravo airspace across a wide range of payloads. And we've done it with more than 10 times as many different pilots in the left seat than any other company in our sector. Nobody has as much real-world data as we do, not even close. When we go out and fly, I typically close our briefs by saying, let's go expose the issues. The data produced in these flights is critical feedback to our engineers, our manufacturing teams and for training our AI models. We've executed real-life flight missions on our aircraft with United Therapeutics, UPS, Bristow, Air New Zealand and many others, including the U.S. Military. This real-world flying with executives and chief pilots from these companies has resulted in a deposit-backed commercial aircraft backlog of $3.5 billion and a component backlog that just crossed $1 billion, mostly due to a major deal with Embraer Eve Air Mobility. This aircraft backlog doesn't include the post-sale services and aftermarket components, which makes the total backlog about four times higher. We sell aircraft at a good margin, but that isn't the insight to our business. The beautiful thing here is that BETA gets both the aircraft sale and high-margin recurring revenue from battery and aftermarket sales. This is highly unique for airframers, even among electric aircraft developers. All the while, our customers get a lower cost of operation and ever-increasing performance. This model is an entirely new paradigm for aviation. The philosophy of simplicity and pragmatism is clearly reflected in our certification strategy. We've taken a strategic stepwise buildup approach to certification, which is also unique within our industry and rooted in a deep understanding of how the FAA works and the current regulatory readiness to certify new and novel technologies. It started with the propeller in partnership with Hartzell, which we achieved a full type certification last summer. In parallel, but phase shifted, we went on to the electric aircraft engine, the H500A, then the CX-300, which is being certified as a Part 23 FAA airplane. We presently are building conforming articles for this program. And again, in parallel, but phase shifted, the A250 vertical takeoff and landing aircraft, which has a closed G1 certification basis. Each of these steps are done so that the success and certification of one builds directly into the next. Another piece of our strategy is shown at the bottom of this slide, where the propeller and engine are ported directly into the CX-300 airplane. And then the designs, conformities and requirements of the CX-300 airplane, they complete over 80% of the A250 powered-lift aircraft. The commonality between these models streamlines not only certification through the reuse of artifacts but also production systems and pilot and maintenance training. Our dedication to simplicity and first-principle physics has positioned us to be the leading voice in the industry, especially when it comes to working closely with the regulators. In addition to leading BETA, I chaired the Gamma Electric Propulsion and Innovation Committee, an industry group comprised of top subject matter experts in new technologies, specifically around electric propulsion and autonomy. This position has given BETA the unique opportunity to work directly with the FAA as well as international authorities as we develop policy for our industry. Through our work with the FAA, I've seen firsthand their focus, commitment and a renewed prioritization of safely bringing electric aviation into the national airspace. Major thematic shifts led by this administration have resulted in the Powered-Lift type certification advisory circular being published this past summer and a transformative executive order, American Drone Dominance, which mandates the implementation of an eVTOL integration pilot program, or EIPP. This will allow us to launch commercial operations next summer. Our industry has seen remarkable political, regulatory and commercial tailwinds recently. I believe it's a product of the flying we're doing all over the world, demonstrating that electric aviation is fundamentally better. The world now recognizes that the United States is leading the AAM industry, and maintaining that leadership is essential to realizing the full benefits to our GDP, our national security and our planet. The current administration through the Department of Transportation and ultimately, the FAA has cleared the path for near-term operations domestically. Here at BETA, we put a high value on transparency and intellectual honesty. I want to spend a moment outlining five key performance indicators that we'll be using on a regular basis to share with you our progress. The first KPI is our backlog. You should expect this to steadily increase as exposure to the company and the aircraft grows. Today, the combined number of orders stands at 891 aircraft with hundreds more in active negotiation. These are deposit-backed orders. The second KPI is real-world flying. We measure nautical miles flown by our BETA electric aircraft. Our aircraft are out flying every day on three continents. These miles don't just represent a number. They represent exposure, experience, safety and reliability and produce extremely valuable data for our engineering certification and service efforts. I don't believe anyone in the industry has even flown half as many miles. And yes, the units are nautical miles. Our third major KPI is our charging network. It's large and growing. It covers the majority of the East Coast into the Southeast, has nodes out West, and we're actively filling in those gaps. Note that these are sites. Some of these sites have multiple chargers on site. They are multimodal, which means you can charge cars, trucks and vans, and interoperable, which means it's usable by anyone flying. We also track charging cycles, which exercises our mobile applications, billing, data management and customer experience. We have over 62,000 so far this year. The fourth KPI we acutely track is the production readiness of all of our facilities, both at our primary manufacturing facilities, making composites, metallics, welding, paints and coatings as well as our final assembly facility like this one I'm in now, the 188,000 square foot production facility. We exercise these lines intermittently at max rate to ensure that we expose the issues of rate production early. Our KPI for production readiness will be defined as our maximum demonstrated aircraft output on a monthly basis. We plan to provide guidance for 2026 rate in our year-end call. And fifth is arguably our most important metric to track as a new OEM, our certification progress and the completion steps to our primary product. We are in the last stages of certification now for the H500A, and we just hit another first this quarter when we became the first OEM to begin for credit testing with the FAA on an electric engine certification project. I believe we're on track to be the first electric engine certified stand-alone in the United States. On the CX-300, which is the Part 23 airplane, we're building conforming articles now, and we're working in partnership with the FAA, who has a great team deployed to support this. And the ALIA A250 aircraft, which has a clean and clear certification basis. We will add to these KPIs in future years as production ramps and our industry matures. Now on to the quarterly update. It's been a big quarter, and we have big goals. And the pace we set for ourselves to deliver on these goals plus the drive that meets or exceeds it is what makes this team different. We've had several key accomplishments this quarter that position us to successfully deliver on those KPIs we discussed in this coming year. In addition to our successful financing and the certification milestones I mentioned, we've proven our aircraft in demanding real-world operations that position us to lead the deployment of aircraft into the eVTOL integration pilot program. We now have 10 BETA-supported state applications in play for DOT review and BETA chargers have been specified in applications that have the potential to add 57 charge sites. We are conducting demos with Republic Airways in the Midwest and other major operators in the Pacific Northwest. We're carrying cargo with Bristow in Norway and operating with Air New Zealand down under. Over the summer, one of the Air New Zealand pilots was the first pilot to earn their FAA commercial license in any advanced air mobility aircraft. And of course, it was in BETA's ALIA. After comprehensive flight test campaigns on multiple prototypes in the past few years, this quarter, we've been flight testing our first ALIA VTOL aircraft built in our production facility and on our production tooling. I've personally flown this aircraft model many times in New York and Vermont and it flies beautifully. The team here at BETA never ceases to amaze me with their ability to keep promises. We delivered our first products to General Dynamics this quarter. The undersea propulsion work we're doing with General Dynamics in support of DARPA is indeed classified, but it serves as a powerful validation of our core technologies. The simplicity and performance of our systems are being trusted for some of the most demanding applications and missions in the world. Our vision is to deploy charging to every suitable airport and vertiport in the world and own the flow of energy into the future of aviation. This quarter, on the charge network development, in addition to commissioning several chargers and thermal management systems in Michigan, we also won the contract to electrify the Abu Dhabi airports, and we recently installed, commissioned and tested the first aircraft chargers in the UAE. Like our certification, our market entry strategy is stepwise. I believe that deploying chargers in Abu Dhabi will lead to airport-to-airport electric cargo and medical flights before urban air mobility really takes hold. With our recent order from e-Smart Logistics in the UAE, a leading provider to global cargo airlines, BETA will be the one to provide these steps. This quarter, our relationship and technical work with the GE Aerospace team grew once again. GE Aerospace continues to be a mentor and a supporter of our certification work and a great partner to BETA. This relationship is rooted in complementary technical expertise and a strategic alignment to field hybrid electric power systems. We completed Phase 1 of our joint development CT7-based turbo generator program, and we even increased our scope of work. Beyond the technical and specific program work, the financial relationship has grown as well. GE Aerospace participated in both our Series C private placement investment round and again in the IPO. This past quarter, we delivered all the motors necessary for Eve to enter their next phase of flight test campaign. I've spent significant time in Brazil this past year, and I can attest to the fact that Eve has amazing people and a great development process. I'm confident they will deliver with their thorough, methodical, and comprehensive approach. Embraer is a world-class company, and Eve's genetics are closely tied. However, they don't do propulsion. They come to us for this, and we're proud to partner with Eve. Although this production supply deal is in the works for the last year, we said little about the total scope and positive impact to BETA. Earning this production contract for motors and aftermarket services is worth more than $1 billion in revenue over the next 10 years alone. This wasn't included in our financial model shared with the sell-side analysts and represents a transformative upside to our backlog. I believe this is a testament to our industry-leading motor designs for safety-critical applications vetted by the most respected airframers in the world. The motor we're selling to Eve is the H500B, which we're testing now and proving a significant increase in power and power density. You see the data point occupies the top right corner of this comparative chart. We're excited to begin this next phase of our business as a public company and humbled by the support we've received in the process. By drastically lowering the cost of aviation through electrification, the growth potential in the TAM expands and is nearly unbounded. There's a ton of work ahead of us, but we love what we do, and we're excited for the work. This is a team that thrives on engineering a vision into reality, solving challenges and delivering results. Lastly, I just want to say thank you again to our existing investors, and thank you to our new investors who joined us in the IPO. We're excited to partner with you and build the future of aviation. With that, please let me introduce our CFO, Herman Cueto. Herman is a trusted colleague and a friend. He comes from a background of manufacturing and assembly of high-quality products within a very regulated environment. He has extensive experience in the things that matter most to BETA and has earned the unwavering respect of his team and his peers here at BETA. Herman, please brief us on the financial results this quarter and our cash position.

Thank you, Kyle, and good morning, everyone, and thank you again for joining. When Kyle and I first met, our initial conversation was about strategic costing, the cost of an input when it enters a process versus when it leaves and all the factors that explain why. As someone who grew up in the business and having had the privilege of working cross-functionally my entire career, in that moment, I knew that BETA was a place where engineering and finance were truly in lockstep, a place where a deep understanding of things like materials, labor and overhead drives a strategic approach to building a better, safer, cleaner and more cost-effective product for our customers. And that leads us to the question we focus on every day. How do we leverage engineering data and financial insights to develop products that meet the financial outcomes we're aiming for, outcomes that ensure not only BETA wins, but that our customers do as well. The last six months have been transformative for BETA, strategically, operationally and financially. Through the third quarter and into the fourth, we advanced our strategy and significantly strengthened our balance sheet, reinforcing the foundation we need as we continue moving with purpose through certification and industrialization. Our current balance sheet gives us the longest runway in the industry. At BETA, we have an incredible opportunity to build a world-class business alongside a world-class team, partners and customers. We've already achieved many of the near-term milestones, but the truth is we're just getting started. Turning back to the third quarter and adding a bit of context to the strategy Kyle just outlined. Beyond engineering services, BETA is the only company in our space actively monetizing our enabling technologies with a positive contribution margin. Two examples of how we do that organically today are: one, through the sale of our electric propulsion systems; and two, the sale of products and services that we have pioneered through our network of charging infrastructure. I'm happy to report revenues of $8.9 million in the third quarter, which was a significant increase to Q3 of last year. Our results were ahead of our expectations as we benefited from motor sales that were originally planned for the fourth quarter of 2025. Sales in the third quarter to legacy aerospace companies like Embraer Eve were made possible by the earlier-than-expected commercialization of our propulsion technology, a commercial milestone we reached ahead of our internal schedule. We also saw strong growth in engineering services revenue as well as continued expansion in priority access fees from our charging network. Year-to-date revenue through Q3 was $24.5 million, again, a significant increase over the first nine months of the previous year, reflecting strength in both product and service revenues. In Q3, operating expenses totaled $86.8 million, including $56.4 million invested in research and development to support aircraft design and certification. Additionally, we invested $30.4 million in supporting functions that make up selling, general and administrative expenses. On a year-to-date basis, our Q3 operating expense totaled $256.7 million with $170.5 million invested in research and development and $86.2 million invested in selling, general and administrative. Adjusted EBITDA for the third quarter of negative $67.6 million also positively beat our expectations and is a reflection of our efforts to closely manage expenses. Through nine months year-to-date, adjusted EBITDA was negative $200.7 million. We ended the quarter with $687.6 million in cash. This reflects the proceeds of our latest private financings, including the $300 million investment from GE. Subsequent to quarter end, we received approximately $1.1 billion of net proceeds from our IPO, which will be captured in our Q4 results. Taken together, BETA is well funded to continue pursuing our certification and industrialization targets. On the theme of industrialization and vertical integration, in the third quarter, we invested $13 million in capital expenditures. And through the first nine months, we invested $25.7 million. This efficient use of capital supports the expansion of our manufacturing capacity, testing facilities and other resources for aircraft development. It's important to highlight that the lion's share of capital expenditures required for industrialization has already been completed. Principally, the construction of our 188,000 square foot production facility that was designed to support up to 300 aircraft per year has been online since late 2023. And just for reference, in 2023, our capital expenditures were $153 million, highlighting the early investment in industrialization. Looking at the full year 2025, we expect revenue to be in a range of $29 million to $33 million and adjusted EBITDA to be in the range of negative $295 million to negative $325 million. As you heard from Kyle, BETA is building for the future, and to stay at the forefront of innovation in electric aviation, it's essential that we continue setting ourselves up for financial success, both today and in the years ahead. Our go-to-market strategy is intentionally designed to financially capture the full product life cycle from initial aircraft sales to the significant long-term service and aftermarket revenues that follow. We are continuously innovating and pushing the boundaries of what electric aviation can be. And by strengthening our balance sheet, staying disciplined and focused and executing against our strategy, we are positioning BETA for long-term enterprise profitability and success. Thank you, everybody. And with that, I turn the call back over to the operator to begin Q&A.

Our first question comes from Anthony Valentini with Goldman Sachs.

Kyle, I appreciate all the color you provided. I think the transparency is going to be really welcomed by the entire industry here. I just want to focus a little bit on the certification metrics that you guys provided. And it might be helpful just to kind of like talk through the metrics here. I'm looking at Page 15 and beyond in the deck. Are these numbers provided to you by the FAA? Or are these metrics that you guys are kind of coming up with on your own just to give people an idea of how far along you are?

Anthony, thanks for the question. So we decided to track metrics that are directly aligned with FAA order 8110 as opposed to coming up with our own stages. So these stages directly track to the FAA. The second thing that we did is we ensured that these metrics are measuring not just BETA's progress or the FAA's progress, it's actually a simulation of both. For example, in the CX300, you see the tracking, for example, our compliance planning. But for additional color, we've submitted 13 of 20 plans. So nearly 70%, 65% completed of the submissions, and the FAA has accepted 6 of those plans for certification. So what we're doing is we're looking at it as both parties have to show up and agree to a final acceptance as opposed to just tracking what we've done on our end, knowing that this particular industry due to the regulatory oversight requires that we both show up. And I could go into each detail on each piece. But largely, one of the things that I think we should mention also is that in the implementation phase, which is about half of the total certification time in our estimation, will be broken up into four discrete metrics in the coming quarters as we work through these TIA aircraft and do the company conforming builds matched with the SOI Phase 3, which is a stage of involvement for software audits that both have to converge to the same place in the same time in order to enter the last stage of implementation, which is the flight test. So again, like the percent complete is based on what has been accepted, not what's been submitted.

Got it. Okay. That's incredibly helpful. A follow-up on that. In terms of the engine, I think when we were going through the process, you guys had mentioned that you were targeting end of 2025, early 2026 on the motor. And now I'm noticing that it's early 2026. Did it get kicked to the right a little bit because of the government shutdown? Or can you just talk a little bit about that?

Yes, we are currently tracking towards early 2026. We are in the durability endurance testing phase, which is the most time-consuming part of the process. This phase requires thousands of testing hours, and we are maximizing our testing efforts. We plan to complete this in the first half of next year. For credit testing, we have developed numerous conforming articles and currently have 11 FAA-conformed articles. When we refer to TIA testing in airplanes, these fully conformed articles are equivalent to the electric engine testing we are doing now. We have initiated the longest tests first and are also conducting additional tests. It's worth noting that we have conducted these tests before, but this is the first time we are doing them in front of the FAA. We have vetted the tests internally multiple times, and the FAA is now formally witnessing them.

Our next question comes from Kristine Liwag with Morgan Stanley.

Congratulations on the IPO, and thank you for the color you provided on the prepared remarks, Kyle. So maybe on the EIPP that you noted, you said you could have flights as early as next summer. Can you provide more details on what this pilot project could look like? What types of operations do you intend to support? And is this with the CTOL or both the CTOL and the VTOL?

Yes. Great question, Kristine. The CTOL will go first, followed by the VTOL. The FAA, along with the DOT and the White House, issued the executive order earlier this summer, and the FAA clarified this with the DOT in September. Applications will be submitted next week, and these applications will be made at the state level, which includes an operator, the aircraft provider, and the chargers. We are involved in approximately ten applications with various states, some of which are collaborating with multiple states. We expect to be selected before March of next year. We have positioned ourselves to deliver our first aircraft within 90 days of selection, which requires us to effectively manage our supply chain, production, labor, and tooling. Currently, there is ongoing work to determine the level of maturity and certification for these aircraft. We are advanced in our preparations for cargo medical logistics, focusing initially on rural access before transitioning to urban passenger operations with the vertical takeoff and landing aircraft. This is a phased approach, similar to the rest of our business, and we are involved in a variety of applications that are set to begin as early as June of next year.

Super helpful color. And you said that the VTOL will follow after the CTOL. So with the June 2026 for the CTOL, how much faster or how quickly could you get the VTOL to also be in this program?

Yes. The design of the certification manufacturing process for both the stepwise approach and the EIPP has nearly a 12-month delay between the CTOL and VTOL. Our first CTOL was produced last November, and the first VTOL in August. We have the engineering and production resources organized to support this timeline, learning from how the motor conforms to the CTOL and then applying that knowledge to the VTOL. We can provide solid data on this once we gauge the level of conformity and maturity required for these applications. I believe we will reach this milestone sooner by concentrating on cargo medical logistics since the FAA’s safety-focused approach favors applications with lower risks, which is where we are beginning. So the timeline is about a year shifted, possibly even less.

We'll go next to Ron Epstein with Bank of America.

Congratulations on the IPO. Maybe following up on some of your comments, Kyle, on supply chain and labor. How are you thinking about that with regard to the ramp? How are you thinking about recruiting personnel to have enough people on the floor to build aircraft? And then two, what challenges do you foresee in the supply chain in order to ramp the way you want to?

Yes. Great question. So the first part of it is a heavy focus on vertical integration to manage our supply chain. So we are largely in control of our own destiny when it comes to delivering the products from our primary manufacturing, which is, of course, the welding machining composites. There was post recently, you may have seen, that we've achieved a conformity of our composites in our own composite shop. We also leverage supply chain to kind of come together to create our composite structure. That has been a big focal point. In parallel with that, we focused on magnet semiconductors and batteries. For semiconductors, for example, we pre-bought both the safety critical semiconductors for controls and also our power semiconductors for everything we needed through development certification and initial deliveries. So there are certain strategies in certain places, vertical integration, pre-buy. We have also focused on our labor. So we had a pretty phenomenal turnout at a recent Career Day where we had to shut the doors at around 600 people who showed up to attempt to work here at BETA. We have no lack of access to really, really good talent when it comes to building things. But one piece of like really important insight is we're not doing this without focusing on the economics of our product, the cost of build materials, for example, where we continue to focus on reducing the total touch time, labor and floor time of every single component. Recently, we took our fastened wing, which had 14,000 fasteners, 580 parts, took six weeks to build, and we redesigned it to be a bonded wing, which reduced it to less than 250 parts went to 0 fasteners, it took four days to build. And of course, it's significantly less expensive. And by the way, it lost 18 pounds and became stiffer. So that's what we're applying to the major commodities that drive our cost of build materials. And of course, cost generally directly tracks with the reliance on labor. So vertical integration, pre-buy in some cases and focusing on reduction of labor has given us a strategy that we're seeing our ability to produce the aircraft that we promised.

That's great. Great. And then maybe just one last follow-on from one of your comments. In your prepared remarks, you talked about deposited backlog. Can you mention why you framed it that way, deposited backlog as opposed to just backlog?

Yes. Thank you. It's actually a really big deal for us. We have to plan our production around something that has high-level surety. Naturally, engagements with customers starts with memorandum of understanding, letters of intent, then may go to term sheet. At some point in that with those kind of preorders, you get to the point where you get a deposit. So it's a financial commitment from these businesses that we want to buy n number of aircraft for x dollars. That is where we trigger a backlog kind of checkmark. So that deposit backlog, each of those are tied to some financial commitment. The last phase, which we're in now, and this is one of the things we're tracking very acutely internally, is converting those deposit-backed backlogs to actual serial numbers with a delivery date so that we can start exercising our progress payments. So that's one step further than the deposit-backed backlog. So those APAs, or aircraft purchase agreements, exactly solidify that schedule, and then we start getting those milestone payments. I'm sure Herman can talk to the recognition of revenue on that, but that's an important cash management tool for us.

Yes, Ron. When we discussed working capital a couple of months ago, we established a process where we receive a deposit upon the firm order about a year before we start manufacturing, followed by another deposit three months prior to manufacturing. Altogether, this totals around 50% of the aircraft's selling price, putting us in a strong position regarding working capital. Ultimately, we receive the final payment upon delivering the aircraft to the customer, and we recognize the full revenue once the customer approves it. This approach to revenue recognition is straightforward and practical.

We'll go next to Sheila Kahyaoglu with Jefferies.

Congratulations on the IPO. Maybe two questions on the partnerships you announced. So the first on DB and the undersea propulsion systems, can you discuss the timing of that opportunity and how we think about overall marine for BETA?

Sure. So that program, much like our other propulsion programs, started because, in this case, DARPA and GD got wind of what we were doing and had hosted them here. I toured them personally around the business, showed them all the technologies. What really triggered the initiation of that program was BETA's ownership of the software, the hardware, the control electronics, the electromagnetics, putting that all together into something that could meet the national security needs because of that full ownership. But the second part was the performance and the performance of our propulsion systems won us that job. Now it started with a relatively small job and for round numbers, $3 million to $5 million. The next phase of that particular program is approximately 10 times greater than that, and the next phase is 10 times greater than that. So it's a classified program, so I can't speak specifically to the technologies, but that's the progression over the next two and a half years of that program. And I was just down at DARPA headquarters getting some classified briefs on the extension of that. So because of the successful deliverables that we just had, we've been exposed to two more major programs that are both classified as well. So to answer the second part of your question, we are expanding our undersea applications. And as I mentioned in the prepared remarks, like people in the air, I'm a pilot, as you know, I think we flew together. We did. That was an awesome flight in the electric airplane. We can't tolerate failures in the air. We can't tolerate a system that we don't understand every part of it. You can't tolerate those failures when you're under the sea, when you're under the Arctic ice shelf ever. And if there are any issues, you need to have a backup system or redundancy that allows you to continue the mission. So although the tech is just a little bit different, of course, the cooling systems are different, the requirements are actually remarkably similar for those different types of applications. So I think you will see us expand into more marine applications, specifically the safety-critical and mission-critical undersea work.

Got it. No, really neat stuff. And then maybe one on the Eve partnership just because it progressed this quarter to a full-on agreement. And I think you mentioned $1 billion in the backlog for it. So just how do we think about that? And are there more to come?

Yes, absolutely. There are more opportunities ahead. Those relationships take time to develop. We have identified about five key relationships in particular. These airframers typically begin assessing the market, and during that process, they might choose a different partner, face some successes and some setbacks, but eventually return to considering our propulsion systems due to our certification path, performance, and our reliability as a future production partner. We provided several motors to Brazil, enabling Eve to commence their flight test program, which led to us securing the production contract. Currently, we have a contract solely for the pusher. This contract was awarded following a comprehensive risk evaluation of our production capabilities in Vermont, our quality management systems, and our certification strategy. I want to commend the meticulousness and thoroughness of their engineering and supply chain teams. We gained valuable insights while collaborating with them.Regarding the deal itself, it's estimated to be around $1 billion based on their existing backlog, with a 60-40 distribution between the initial sale of motors and the service fees tied to the motor's usage, culminating in approximately $1 billion.

Our next question comes from John Godyn with Citigroup.

Congratulations. Kyle, you made a comment that there were hundreds more aircraft in active negotiation when you were talking about the backlog. And I was just hoping to kind of spend an additional second on that and understand what the contours of that may look like? Is that CTOL? Is that VTOL? Is that engines? Like you just mentioned, there were some other airframers interested. Existing customers? New customers? Whatever you can share? I feel like you wouldn't have made that comment if there wasn't some visibility and confidence to it.

Yes. I want to highlight a public instance from the Paris Air Show involving Republic Airways, the second-largest regional carrier in the country. We allow people to track our flights. Early this morning, around 3:00 a.m., I noticed our aircraft landing after a continuous 70-hour mission. They were flying in tough weather conditions, and this relates to one of our customers we are attempting to transition from a Memorandum of Understanding into deposit-backed orders, which would add a few hundred aircraft to our backlog. This transition will begin with conventional takeoff and landing (CTOL) and move towards vertical takeoff and landing (VTOL). In our backlog, particularly over the last quarter, most orders are for CTOL aircraft, with intentions to shift towards VTOL. The current infrastructure supports this, pilot licensing is straightforward for existing pilots, and the routes suit their needs, especially starting with cargo and logistics. Regarding aircraft performance, it’s important to note that our CTOL aircraft currently has a payload margin. It means that while we advertise a capacity of 1,250 pounds, it can actually carry more, even under its maximum gross takeoff weight limit, due to an initial conservative engineering decision that we plan to improve in the next aircraft release. I mention this to illustrate that when we claim we can handle a mission, we're able to exceed that. Therefore, CTOL orders are a logical choice for our customers based on their operational economics, which is where we see the most growth in our backlog.

Yes, that's great. It sounds like there's a lot of activity out there. And given that you're willing to kind of offer some of those KPIs, I feel like it's likely, and it sounds like you would say we should see more orders every quarter for the next few quarters. It sounds like there's a lot of activity. Is that what we should expect every quarter kind of some more of these orders coming in?

Yes. That's what we expect. We're seeing those orders come in. Given our success, we have more leverage on pricing because the orders are coming in with urgency for securing production slots through Purchase Agreements. We are not just counting the aircraft; we are focusing on the quality of the orders regarding the terms we agreed to, including pricing, as well as other secondary and tertiary terms in those contracts. We also consider the quality of the operators we're working with. We receive many inquiries about Maintenance, Repair, and Overhaul services and pilot training. As you might know, we focus on large, credible operators who already have these services in place and can be successful partners, especially during the initial phases of these launches. So yes, you should see increased orders, but also keep in mind the quality of the orders we are pursuing and how these engagements can generate near-term revenue through the traditional takeoff and landing aircraft that will support the vertical takeoff and landing.

Great. And if I could slip just one more in. You had that comment that the aftermarket backlog was four times the size of the backlog, if I heard that correctly. That may not be perfectly quantified, but I just thought that was a fantastic data point. Do you guys have any plans to maybe dig into that, elaborate on that, firm that up? Is there a way to kind of do that contractually? I think the aftermarket piece is obviously a big part of the story, and that was just a great data point.

Certainly. The aftermarket backlog is three times larger than the aircraft sales. The total backlog is four times greater because it comprises one unit plus three times that amount. While I strive to be precise with my terminology, the total backlog indeed stands at four times higher. To provide additional context, in some contracts, we have a fixed price for the aftermarket battery. In other agreements, such as the one with Air New Zealand, we operate on a leased aircraft model where payment is based on energy usage by the hour. This backlog will manifest in two ways: through the sale of aftermarket products on a per unit basis, which includes a core refund for returned batteries and a charge for battery overhauls; and through energy payments by the hour. We are being careful not to venture too far into per flight hour payments, but that’s where these agreements come into play to ensure we are protected, offering customers lower operational costs and improved battery performance. We estimate that for each $4 million to $4.5 million airplane, there’s approximately $13 million in aftermarket backlog.

Yes. As we have mentioned before, the aircraft is designed for operational use over a span of 20 years and can fly for 35,000 hours. If the aircraft is utilized as intended, the battery will need to be replaced approximately once a year. In the presentation we provided today, you can see the significant and enduring aftermarket revenue represented in what we refer to as the double whale back chart. This revenue stream lasts for nearly 20 years, making it an important aspect of our business and offering a strong gross margin opportunity. It is crucial to highlight the durability of that aftermarket revenue.

Our next question comes from Chris Pierce with Needham.

I'd love to hear the early learnings you guys are getting from customer deployments and how this might help with more linear adoption. Like I mean, do you see partners being in orders as they turn over their fleets? Or are they already running new routes to see sort of how they can expand their operating envelope? Kind of whatever you could share on that?

Yes. We are gaining valuable insights from our overseas deployments. While we fly extensively in the U.S., one key takeaway from Europe is the significance of reserves. Effective air traffic control and managing aircraft in high-traffic areas are crucial. It's essential to have sufficient reserves and a clear understanding of them. For instance, we utilize a state of charge estimator in the battery, which tends to be somewhat conservative for safety reasons in accordance with FAA guidelines. So when you believe there are 45 minutes of flight time left, you might actually have 60 or even 120 minutes in some instances. Training our pilots to understand how to maximize their range under different conditions has been a beneficial learning experience, which helps shape both our technology and pilot training programs. Another important point is related to maintenance requirements. Initially, during our early deployments, we would send a team of maintainers, pilots, a flight test engineer, and someone to manage the chargers. Now, we’ve streamlined that down to sending just a pilot overnight. This shift stems from understanding what the pilot truly needs to safely complete their mission and subsequent ones—what needs inspection and maintenance. It turns out there’s very little that needs to be done. We’ve made numerous cross-country flights, and during our latest trip, the only maintenance required was adding a bit of air to the tires. This has been a remarkable validation that electric aviation can provide a safer and more reliable experience in real-world conditions. We’ve also gained insights into charging and flight planning, though there haven’t been any significant revelations. We’ve encountered minor technical challenges, such as flying in adverse weather. We addressed a few small leaks with seals around gaskets, but overall, these experiences reinforce that aviation is a serious business, requiring appropriate reserves and careful flight planning. This data is vital for us.

And how are they thinking about what are they telling you, hey, this is great for our existing routes. This creates new routes we hadn't been able to consider before. Like what are you kind of hearing as far as how they might integrate the aircraft into their kind of route planning?

Yes. There are two main advantages to implementing it. First, it aligns with their existing route planning, where the CTOL is beneficial. By reducing the cost of carrying packages, they are addressing an attrition issue with their current aircraft, which are aging and hard to maintain. They urgently need this airplane to support the feeder fleet they operate today. Additionally, some larger new orders perceive it as an enhancement to their current business for several reasons. One interesting aspect is addressing a gap in the pilot pipeline. The aircraft features dual control side-by-side seating, which enables a pilot to transition from primary training to a low-risk environment like cargo and logistics, flying with an experienced captain. As the pilot gains experience, they can advance to the left seat and eventually take on regional airline transport or corporate flying. This is a current gap that many of our customers recognize, and they see potential in using the CTOL aircraft to fill it, offering new services to their clients while also training their pilots. There is significant interest in our aircraft.

Our next question comes from Andre Madrid with BTIG.

You've given a lot of color on the milestones to look ahead for on the CTOL and the VTOL variants. But can we maybe just dive a little deeper into mVTOL, the military variant? I mean, what should we be looking out for? And could you fill us in on some of the recent updates there?

Yes. I won't go into too much detail, but I'll highlight some key points. Our collaboration with General Electric begins with the MV-250, a military version of the 250. This is an autonomous, unmanned hybrid aircraft that outperforms current vertical takeoff and landing aircraft. In terms of performance, it can travel farther and faster than a helicopter. This approach presents a new argument for the military compared to our previous focus on reliability, fuel efficiency, low thermal signatures, and low noise. We now have a product that offers capabilities beyond what is currently available. We are aware that China is deploying these types of aircraft, and if we find ourselves in a conflict in the South China Sea or nearby regions, we will need a long-range support vehicle for our forces, initially for aerial cargo logistics and potentially for other uses. The three elements of this aircraft are its autonomy, of which BETA owns 100%, our partnerships for external autonomy—such as with Near Earth Autonomy—and our experience with hybrid aircraft. We're partnering with GE, which produces the world's best engines, and we have integrated our generator to create a turbo generator for our aircraft. The design utilizes the same wing, boom, motors, and flight control systems as our civil aircraft. Whether transporting medical supplies, passengers, or military goods, the goal is to provide a system that is safe, reliable, lightweight, and high-performing. The main adjustment involves modifying the fuselage to fit the mission's specific loads, whether they involve passengers or military cargo. One significant advantage of the military application is the removal of the pilot, which saves more weight than just the pilot alone. Eliminating the safety features required for human flight results in considerable weight savings. Overall, this can lead to an aircraft that has about twice the performance capabilities. While I could go into the technical details, it fundamentally comes down to the weight reduction achieved by not needing to accommodate a pilot. This allows for commonality in the key components like the wing and motors, while modifying the fuselage and adding a turbo generator leads to enhanced performance and improved ranges. As an American, I believe it’s crucial to equip our troops with superior technology compared to our adversaries. Our aim is to develop a logistics support aircraft that effectively links strategic locations and supplies our forces with essential materials. We are making progress in assembling all these elements, and you can expect to see more developments from us soon. While I won't detail our plans for next year just yet, we will share updates very soon.

Well, I'm looking forward to that, and you're right, I was pretty surprised on the performance. That's great to hear. Another follow-up, if I could squeeze it in. I mean, a peer of yours recently announced that they're supplying an electric powertrain for a strategic partnership between the U.S. and the foreign contractor. I mean you mentioned the opportunity to serve as a merchant supplier for commercial customers, but with the rise in allied defense spending, I mean, how are you guys looking at the international defense opportunity as a merchant supplier?

Yes. Well, our team spent the last week replying to an RFI and RFP with a foreign ally. So it is not lost on us that Europe is drastically increasing their percentage of their GDP on military spending, and that drones, drone warfare and troop support is a necessary thing in the future of fights. So we are there as well. We are actively engaging with those folks. I personally went and met with the commander of Europe, NATO, and we kind of talked through the time lines of this stuff. And I think that I can't speak for our competitors, but I know that we are right there in the conversation and proving that this thing flies on a regular basis in Europe and people are seeing it down under and even over in Asia.

That concludes the question-and-answer portion of today's call. With that, I will now turn the call back over to Kyle for closing remarks. Please go ahead.

Awesome. Thank you, operator. Appreciate it, and thanks for everybody who stuck around this long through our earnings call. I just want to kind of provide a heartfelt sincere appreciation for the people here at BETA, the employees, the contractors, our suppliers who have just really accelerated this company from an R&D company into something that's delivering real product now. So thank you, everybody. It's incredibly meaningful to the mission that we're trying to pursue. And I think that we are trying to kick this off in the right way as a serious A&D company that keeps our promises, focuses on results, reports things after they happen. And we have a strategy that is stepwise pragmatic. And before people think about what to do with BETA stock, I think it's important to look a little bit deeper. And I think each of the people who have dug into BETA have realized that there is quite a foundation being built for the future of aerospace, both in technology, in people, in infrastructure for manufacturing and all the pieces that go into a long-term enduring business that's going to step up and up and up and grow into a leading supplier and producer of aircraft and other high-reliability technical products that help our U.S. military, help our GDP and ultimately close in our mission of creating a sustainable aviation future. So thank you, everybody. Really appreciate the time.

This concludes today's BETA Technologies Third Quarter 2025 Earnings Conference Call. Please disconnect your line at this time, and have a wonderful day.