Archer Aviation Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 9, 2023

There are 11 speakers on the call.

Operator

Afternoon. Thank you for attending today's Archer Aviation Q3 2023 Financial Results Conference Call. My name is Cole, and I'll be the moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I'd now like to turn the conference over to our host, Andy Misson.

Operator

Please go ahead.

Speaker 1

Thank you, operator. Good afternoon, everyone, and thank you for joining us today to review Archer's Q3 2023 operating and financial results. My name is Andy Mittson, Chief Legal Officer of Archer. On the call today are Adam Goldstein, our Founder and CEO Mark Mesler, our CFO and Tom Yoon is our COO. During today's call, we will be making forward looking statements.

Speaker 1

These statements involve risks and uncertainties that may cause actual results to differ materially from those contemplated by the forward looking statements. For more information about these risks and uncertainties, please refer to our SEC filings under the caption Risk Factors. Any forward looking statements that we make on this call are based on assumptions as of today, and We undertake no obligation to update these statements as a result of new information or future events. During this call, we will discuss both GAAP and non GAAP financial measures. A reconciliation of certain GAAP to non GAAP measures is included in our shareholder letter posted on our IR website.

Speaker 1

And now I'd like to turn the call over to Adam. Adam?

Speaker 2

Thanks, Andy. I founded Archer just over 5 years ago. This month, our team completed the maiden flight of our 3rd generation Evitaal aircraft, Midnight. People often ask how we've been able to make My goal since day 1 was to find the most efficient path to commercialize EVTOL. We've been able to get to this point only because of our relentless focus on that goal.

Speaker 2

Launching any new industry is difficult, mainly because there's no playbook to do so And bringing to market the 1st electric aircraft is incrementally harder. Being at the forefront of the industry means we often are setting the standard for the first time. Archer was the 1st eVTOL aircraft company to announce it was going public, the 1st to launch a significant partnership with a major airline, and I believe the 1st company to build an electric aircraft specifically around a tailored business model. We are writing the playbook for the urban air mobility industry. Today, I want to talk about the latest chapters in that playbook, including the progress we've made on our aircraft as well as the pieces of our commercialization plan we unveiled this quarter and plan to continue to mature during the Q4 the next year.

Speaker 2

On the engineering front, Archer has built and now flown what we believe to be the world's most advanced UB TAL, which delicately balances performance and cost, design for certification, manufacturability and scaled operations from the outset. To date, we have logged flights over 4 years across 3 generations of aircraft, including 2 years of full scale flight testing with Maker. We incorporated the years of learnings from Test Wine Maker into the Midnight program and we're now able to see the benefits of those efforts taped to the sky. This quarter, we continued rapidly advancing our flight test program by beginning to fly our production designed aircraft Midnight. The Midnight aircraft, to our knowledge, is the largest all electric VTOL in the world, weighing over £6,000 Substantially larger than our competitors' aircraft, which are closer to £4,000 or less.

Speaker 2

This is important because we continue to believe The only way to achieve £1,000 of payload is to fly a £6,000 or greater aircraft. We believe that our competitors will eventually need to scale up to the next size after several redesign cycles in order to support a comparable table. The Archer team designed Midnight That weighed under the leadership of our COO and Head of Engineering, Tom Neen and our Chief Engineer, Jeff Stout. Tom and Jeff have designed, built, flown 7 different EBITDALLs apiece, understand firsthand The complexities of EdenTall trade offs, the requirements necessary to carry a total payload of 4 passengers and a pilot. When the Midnite took off earlier this month, Archer's COO, Tom Nimes remarked that after seeing 7 eVTOL first flights, The Midnight First Flight was by far the best first flight he's ever seen.

Speaker 2

We'll hear from Tom in a moment and he'll tell you more about why it was the best First flight, please see how we got to this point and how we're working hand in hand with the FAA to ensure timely certification of midnight, so we can begin commercial service in 2025. To enable certification, we are ramping up to produce a fleet of 6 midnight aircraft to you in our for credit session with the FAA. With our rapid progress on the aircraft development front, We're seeing significant demand for Midnight, both domestically and abroad. In the U. S, our teams are focused on building out launch networks across a number of America's largest city.

Speaker 2

We remain on path to make New York City our first launch market in partnership with the City of New York, the Economic Development Council, Mayor Adams' Office and the Port Authority of New Jersey and New York. Our aim remains to begin this New York City service with United Airlines, our partner who has placed an up to $1,000,000,000 order for up to 200 aircraft. United has already made a $10,000,000,000 pre delivery payment against the first half of this order and it's the only airline in the world to make a deposit on this side. I'm grateful to our counterpart, Mike Lufkinen at United, We truly pioneered strategic relationship between traditional airlines and eVTOL OEMs and we're proud to continue working with him as he takes on his key role as CDP and Chief Financial Officer at UHipe. Congratulations, Mike.

Speaker 2

Over the coming weeks months, you can expect to hear more about how New York City is embracing this new form of transportation, and we'll share more details about how we're working across the other major U. S. Cities to bring EV Tall to market. Earlier this year, we announced alongside Governor JB Pritzker and the Chicago Mayor's Office that Archer will help the State of Illinois And City of Chicago achieved its goal of 100 percent clean energy usage over the coming years. In Miami, I first met There is Suarez over 2 years ago and I remain incredibly excited about what all electric air taxis will look like in South Florida in partnership with HIM and the state.

Speaker 2

In Georgia, where we are bringing up our high volume manufacturing facility with our partners to want this, We have an unparalleled opportunity to help decongest Atlanta, one of the biggest metros in the country. And we just spent several days in North Texas with Governor Greg Abbott, Ross Perot Jr. And former President George W. Bush to discuss how urban air mobility will fundamentally evolve the fabric of cities by Dallas, Houston and Fort Worth. Finally, right here at home, I'm grateful for the leadership of Governor Newsom And the legislators who have now signed SB 800 into law, establishing the Advanced Air Mobility and Aviation Electrification Committee to assess, Among other things, pathways for feasible implementation of electrification goals for the aviation industry.

Speaker 2

This is critical to enable us to reach our goal of launching our service in 2025 and being available across the San Francisco Bay Area in Los Angeles by the LA Olympics in 2028. Internationally, I'm seeing strong demand for Archer's aircraft all across the globe, from heads of state, civil aviation authorities and economic development agencies. There are several factors we look at when we think about working with the new region. We want to focus on markets that are large and growing, where we can help attack a fundamental problem with congestion and time savings in that country. We look for top level government and regulatory support to align stakeholders at all levels efficiently.

Speaker 2

And we look for support from like minded commercial partners in the region that can help us navigate the right way to do business in the country. Last month, I have the honor of announcing our first international market, which meets all these criteria and more. The UAE, home to the burgeoning cities of Dubai and Abu Dhabi, and more importantly, a steadfast commitment to innovation and clean transportation. We, of course, have been deeply familiar with the UAE for years, Sante Nubaba, Abu Dhabi's sovereign wealth fund as an investor since we went public in 2025. A few weeks ago, we deepened our collaboration with the UAE As we announced with the Abu Dhabi Investment Office, Audio, a government entity responsible for economic development across the country, Plans for audio to provide incentives for us to launch electric air taxis and build out an international hub in the country.

Speaker 2

I had the pleasure of traveling to Abu Dhabi to sign this agreement with His Excellency, Badr Al Olamah, Adio's Director General alongside His Highness Sheikh Hamdan Bin Mohammed Bin Zayed Al Nayyan, some of the UAE's most prominent innovators across multiple transportation sectors. This planned strategic initiative is multifaceted and includes plans to launch air taxi services across Dubai and Abu Dhabi as well as an opportunity to bring R and D to the country. We recently hosted UAE Civil Aviation Authority, the General Civil Aviation Authority, GCAA, here in Kelleher, where they were able to see Midnight in our manufacturing facility. We're proud to have their strong support to certified Midnight alongside the FAA to enable commercial entry as soon as possible, as well as the partnership of Falcon Aviation, one of the country's leading rotorcraft operators and Gal Amrock, an MRO leader across the country, both of whom we announced and will use it. In celebration of the strategic initiative to bring Archer to the UAE, We have worked with our long time investor of Mubadala, Abu Dhabi's Sovereign Wealth Fund, to showcase our midnight aircraft to the region for the first time at next week's Dubai Air Show, as well as the conference on Aviation and Alternative Fuels hosted by the GCAA the following week in Dubai.

Speaker 2

I'm the CEO of the UAE initiative. I'm excited about our announcement earlier today that Archer and InterGlobe Enterprises, India's foremost air travel and hospitality conglomerate, plan to launch an electric air taxi service together across India in 2026. Earlier this week in New Delhi, my team held a signing ceremony with Azakul Bhatia, the Group Managing Director of InterGlobe, to announce our plans to work with InterGlobe to bring safe, sustainable and low noise electric air taxi services to some of the most highly populated cities in the world. As part of the initiative, we will work with InterGlobe to set up an entity and we'll work with select in country business partners to operate Archer's aircraft, enhancing build Vertiport infrastructure and trained pilots and other personnel needed for these operations. InterGlobe and Archer also anticipate the purchase of up to 200 of our midnight aircraft as we bring up operation.

Speaker 2

India is an incredibly important market for EBITDA and it has the potential to be one of the largest in the world with Delhi, Bengaluru and Mumbai being our initial focus where congestion cost cities over $22,000,000,000 annually. In these cities, traffic congestion contributes to 20% to 25% of the outdoor pollution. I hope that Archer can be a part of reducing that over the next decade. I founded Archer to help give back time to millions of people and to make cities smarter, better, cleaner, more efficient places to live. Now that Monet is flying and we are well along the pathway to commercialization, It's clear that major cities around the world have the same goals as Archer does, and we're excited to work with them to bring electric air taxis to market.

Speaker 2

With that, I'll hand it over to Tom to talk about the latest progress with Midnight. Thanks, Adam. My team and I were thrilled to see Midnight take to the skies for the first time few weeks ago. This was the 7th full scale eVTOL first flight that I've helped lead and I can confidently say that it was the most special one yet for several reasons. First, LinKnight is the only flight program which the team and I have intentionally designed to certify and bring to market.

Speaker 2

After spending almost 15 years of my career in this space, almost all of those focused purely on R and D, I'm proud to say that we are now closer than ever to bringing a certified aircraft to market. 2nd, Moon Knight is the largest eVTOL for which I've led a program with a max gross weight of over £6,000 and a wingspan of almost 50 feet. And lastly, our team did an exceptional job of Pulling together to make it happen and they delivered a safe and flawlessly executed flight. Moonrise first flight was an important milestone And it was just one of many big wins we have had recently as we continue executing our design certification and commercialization strategy, moving on almost 2 years of flight testing experience and data from our Maker aircraft. Our strategic plan to use Maker as a technical and certification test bed Continues to pay dividends.

Speaker 2

We intentionally designed Midnight to share the same configuration as Maker so that we benefit directly from all of the previous Aircraft Performance Learnings and Data. This enables us to model and simulate moonlight flight behavior more accurately. Given that foresight, we've been able to apply a tremendous amount of efficiencies from Maker's flight test program directly to midnight. This in turn truncates and actually accelerates our feedback loops as we advance midnight through its flight test program. Over the coming months, we will drive midnight through the full flight envelope, first without a pilot onboard, and then we expect to begin piloted flight testing into next year.

Speaker 1

Our suppliers continue to accelerate manufacturing of

Speaker 2

parts for our piloted conforming Midnight aircraft. We'll begin the final assembly integration of the piloted aircraft early next year, so that we can start flight testing in the middle of the year. We plan to have the majority of the systems on the first piloted aircraft as well as the aerodynamic shape conform to the type design. We continue to be on path to building a fleet of 6 aircraft that we can use in company testing and most importantly, full credit testing with the FAA. When I started our R and D program for Maker at Midnight, We made an incredibly important product decision to partner with leading suppliers to provide many of the key systems and components on our aircraft Rather than vertically integrate everything, I made this decision based on 15 years of experience across 7 eTalls with the strong belief that this path of leveraging the best partners in the industry will significantly reduce our certification scope and in turn Provide the fastest path to market, but also provides an aircraft with exceptional performance and operating economics.

Speaker 2

By leveraging key products with certification heritage from companies such as Honeywell, Garmin and Safran, we take advantage of many years of prior work our partner, and also leverage the decades of experience their teams have as we collaborate to bring midnight to market. Because of this unique strategy, my team at Archer can maintain laser focus on system integration testing and certification. It also means that on the manufacturing side, our supplier partners deliver turnkey conforming hardware directly to our final assembly facilities and Certification Test Labs. Again, this dramatically reduces scope and costs and simplifies our certification path. As we've discussed before, the one area we did intentionally choose to develop in house is our powertrain.

Speaker 2

This past quarter, we have continued to progress the maturation of our designs and production capabilities. We are beginning to transition from prototype style manufacturing to pilot production, and the team is working tirelessly to commission equipment to support our battery and engine production. In the same vein of partnering for a faster lower risk path to market, this week we announced a first of its kind partnership with Beta We accelerate an interoperable charging system across the electric aviation industry. The goal of this collaboration is to spur the widespread rollout as an interoperable electric charging network that follows the standards outlined by GAMA and supports the broad electrification of vehicles. Notably, this GaNDA Inverse Standard is harmonized with Europe's standard, UroK EV-three zero eight.

Speaker 2

These charging systems are already in use at 14 locations across the Eastern U. S. And development work is underway to install them at another 55 locations along the East and Gulf coasts as well as the Archer's flight test facilities in California. On the certification front, I'm excited to share that earlier this week, we met with a broad group at the FAA to review the latest arothemes criteria in our certification basis. This discussion was the culmination of the FAA's work to finalize our proposed error readiness criteria, which was published in the Federal Register last year.

Speaker 2

This is a pivotal moment as we and our partners at the FAA now have a clear blueprint for the finalized erogenous As a reminder, we are one of only 2 eVTOL companies for whom the FAA has published draft airworthiness criteria in the federal register and my understanding is that the FAA is now on the cusp of publishing our final rule. While we have made tremendous progress collaborating with the FAA in many areas of our needs of compliance and certification plans over the past year, Much of the progress has been provisional, pending our final rule of publication in the Federal Register. This is why we have not given precise numbers for the exact status of the percentage of MOCs or SER plans accepted as we feel that it doesn't accurately and transparently reflect the status. Our team has carefully analyzed the updated airworthiness criteria and I'm happy to report that so far we don't anticipate any changes which would require a change to the Midnight design in order to comply. I want to give a special thanks to the policy team at the FAA for working tirelessly through this complex process to get us to this point.

Speaker 2

As a notable example of our other recent progress with the FAA, We recently completed a critical week long full credit review with the FAA of all aspects of our software certification, including the plan for certification for our flight control software. We passed this formal audit with flying colors having fewer findings across all of the data review. Lastly, we're thrilled that the Senate has confirmed a new permanent FAA administrator, Michael Whitaker, who comes from the eVTOL industry. While there are many critical priorities for him to address, we were pleased to see his public comments supporting the prior administration's goal of getting initial eVTOL aircraft into service in 2025. And now, I'll turn it over to Mark.

Speaker 1

Thanks, Tom. As we advance to our goal of beginning commercial operations in 2025, not only I'm excited about the technical and commercial progress Archer is making. I am pleased to see proof points that our overarching strategy of Two concrete examples that our strategy is working, manifest themselves in the construction of our high volume factory in Covington, Georgia and our operating expense structure compared to the industry. Let me provide further color on

Speaker 2

each of these proof points.

Speaker 1

Recall that we are building our high volume manufacturing facility on approximately 100 Acres in Covington, Georgia. As part of our capital light path to market and as Tom discussed, We are leveraging the mature aerospace industry supplier base to develop and build most of our components for midnight. We are only developing key differentiating technologies in house, primarily our powertrain. We will essentially be performing final assembly and test work at our Georgia factory similar to the automotive industry manufacturing process. Phase 1 of the factory, when completed next summer, It will be roughly a 303,000 square foot factory with a capacity to assemble and test up to 6 50 aircraft per year.

Speaker 1

Our construction costs for this phase of the factory will be about $65,000,000 Of the announced manufacturing plans in the industry, We believe that we have the highest factory unit output for a smaller factory footprint than others. Further, Our factory construction cost is a fraction of others that have been announced. This data validates our capital light development and manufacturing strategy. Last quarter, I discussed in detail how our current operating expense structure includes quarterly non recurring investments alongside and key suppliers to support the development and manufacturing setup of many of our midnight components. That framework allows us to execute a lower operating cost develops model by avoiding the ongoing structural spending of headcount to develop those other individual technologies.

Speaker 1

Further, We do not have to build out manufacturing capability, capacity and headcount to manufacture the components we are sourcing from mature aerospace supply base. The factory metrics that we are achieving with construction cost, size and output of our Georgia factory are an outcome of that strategy. Finally, we believe this strategy also de risks our certification efforts and time to market should we have developed those technologies internally. Our quarterly 2023 spending profile is made up of our core expenses for ongoing operations in addition to non recurring investments with vendors to establish our Slide 8. Our total non GAAP operating expenses for the 1st 3 quarters of 2023 were approximately $225,000,000 Included in those expenses were about $45,000,000 of non recurring investments and spending at vendors.

Speaker 1

Backing those non recurring amounts out, yields about $180,000,000 of normalized core expenses to operate the business, On average about a $60,000,000 per quarter run rate. That level of spending is our core structural operating spending that will persist into 2024 and we'll see non recurring investments start to tail off in 2024. Taking stock of everything Archer has achieved over the past 5 years across Technology development, culminating in the Midnite's flight test campaign, our certification progress that has put us in a leadership position in the industry In building our factory in Georgia, we are achieving this with a lower expense structure than other leaders in the industry. Now let's get to our financial performance for Q3 of 2023. On a GAAP basis, total operating expenses for Q3 2023 were $46,200,000 which were at the middle of our Q3 'twenty three estimates.

Speaker 1

These expenses included $59,100,000 of the non cash credit for certain RSU grants that were forfeited for our prior estimates for the quarter. That non cash credit was partially set by $31,700,000 in stock based compensation expenses and $4,400,000 of foreign expenses for our warrants issued to Stellantis. We achieved a net loss of $51,600,000 for the quarter. Non GAAP operating expense for the quarter were $66,900,000 which were below the lower end of our estimates range of $75,000,000 to $85,000,000 due to the timing of vendor related expense. The $66,900,000 included approximately $10,000,000 of non recurring vendor spending.

Speaker 1

We incurred an adjusted EBITDA loss of $64,800,000 a non GAAP measure, which is outlined and reconciled in our shareholder letter. Our Our operating expenses continue to be primarily driven by investments in headcount, aircraft parts and materials, cooling, testing and other non recurring supplier costs in We had approximately $600,000,000 of available liquidity in the business. That liquidity is made up of the $461,400,000 of cash and cash equivalents and $7,300,000 of restricted cash on our balance sheet at the end of the quarter. Stellantis' $70,000,000 investment, which we received on October 16, and the remaining $55,000,000 from the Stellantis equity option previously discussed. Recall that we have other opportunities for non dilutive cash receipts in the form of pre delivery payments from United and other potential future orders from our DoD contract for which we received our first approximately $1,000,000 payment in Q3 of 2023.

Speaker 1

Finally, for Q4 'twenty three, we anticipate total GAAP operating expenses of $100,000,000 to $110,000,000 Total non GAAP operating expenses for Q4 2023 are anticipated to be between $75,000,000 to $85,000,000 including $10,000,000 to $15,000,000 of non recurring spending at vendors. For 2023, This yields $300,000,000 to $310,000,000 of non GAAP operating expenses, which includes $55,000,000 to $65,000,000 of non recurring spending at vendors. Operator, we will now open the call up for questions.

Operator

Thank you. We will now begin the Q and A session. Our first question is from Bill Peterson with JPMorgan. Your line is now open.

Speaker 3

Yes. Hi, good afternoon. Thanks for providing all the details. I noticed in the shareholder letter, it looks like you have the aircraft It's no longer going to be completed in the Q4 and Manflight looks like it's been pushed also by a quarter or so. Can you provide some more information on this delay and Potentially any implication on the certification timeline?

Speaker 4

Hey, Bill, this is Tom. Happy to answer that. So you're referring to the 1st conforming piloted aircraft that we talked about on the call and we've talked about in the past. I think what we've said before is we're Still on track to fly that aircraft early to mid next year with delivery to flight tests kind of on the earlier side next year. Still on track to that, so really no substantive change from our end there.

Speaker 3

Okay. I'm just comparing the Q2 to Q3,

Speaker 5

it's deck. So it just it does look like

Speaker 3

it's about a quarter delay on both sides. In any case, I wanted to ask about the Air Force. I think last quarter again you were expecting to deliver an aircraft Towards the end of this year, early next year, I might have missed it, but what is the latest expectation to delivering aircraft to the U. S. Air Force?

Speaker 4

Hey, Bill. This is Adam. So we started to execute on the Air Force contract. We received our first payment of nearly $1,000,000 in this quarter which was relating to an advanced simulator that we're building. So we're still working hard on that delivery and our goal is still to deliver that aircraft here

Speaker 2

in the coming months. But I don't have anything new to update beyond that.

Speaker 3

Okay. If I can sneak in one more. So you talked about the advantages of working with 3rd parties Like Honeywell and other ones you mentioned and a lot basically it seems like all these guys have gone through FFA cert. So I guess as a percentage of Bill, materials or some other metric. How many of these third parties actually gone through certification?

Speaker 3

Just trying to get a feel for The risks of dealing with 3rd parties versus doing more of this on your own.

Speaker 4

Sure. So the bulk of

Speaker 1

the suppliers we work with

Speaker 4

that you're referring to here are the sort of best of the best Commercial Aerospace Supplier. So like I said earlier on the call, companies like Honeywell, Safran, Garmin, these are groups that have Hardware flying an aircraft for all the large commercial airliners fly today. So, we're super confident in their ability Deliver in our strategy there and putting it in a little more broader context, what that does for us is let us focus on the system and aircraft level work, with them delivering components that come with all the search heritage, prior test data, etcetera.

Speaker 6

Thank you.

Operator

Our next question is from Savi Syth with Raymond James. Your line is now open.

Speaker 7

Hey, good afternoon. I know you've chosen to kind of go with Beta's charging solution as you announced recently. I was Curious what your view is of the pros and cons of beta system versus what Joby announced recently and Also, how difficult it might be to switch between the 2?

Speaker 4

Sure. It's a great question. So, we've been working with a broad group of other eVTOL companies on this for the last many months. And the way we thought about it is, It's going to be really important to have an infrastructure system that works for all groups and something that's very standard because That's what's going to get the investment to really deploy across airports across the country

Speaker 2

and around the world.

Speaker 4

We chose to go with Well established standard in CCS versus a bespoke process because that's really what we think the whole industry makes sense including our partnership with Kiama and all the groups there. As I mentioned on the call, it's also what the European group has proposed in their EUROKE standard. So we think that makes a lot of sense. I did take a quick look at what Joby had proposed. From our first look at that, it looks to be Essentially optimized for their particular aircraft and architecture for something that's more generally useful applicable.

Speaker 4

So we're So super happy with our path and we're going to make the right decision on that.

Speaker 7

I appreciate that. And then Just on the certification, I realized just until the FAA can accept the G1, a lot of it might be Conditional, but I was curious on Arch's front just where you are in terms of submitting some of your plans?

Speaker 4

Sure. So, yes, like you hinted at, the right way to think about this is that It's largely dependent on Erwin's criteria being finalized. And so we're one of 2 companies for which draft Airworthiness criteria has been published, but our own and to our belief nobody else's have been finalized. So until that's complete, there are parts of our MOCs and cert plans that we just can't agree to with the FAA because that higher level framework needs to be in place. Again, this is true for everybody in the industry.

Speaker 4

As we said before, we actually have submitted all of our cert plans. I think that was 1 or 2 quarters ago. But in terms of getting those finalized and where we are,

Speaker 2

I just don't think it

Speaker 4

makes sense to share specific percentages Because actually it could be somewhat misleading, again, because all this is contingent on getting those final Readiness criteria published. So good news there is, as I mentioned earlier, we expect the FAA to publish those final rules soon. And that really unlocks our path forward to finalizing MOCs and CER plants over the coming months.

Speaker 7

Appreciate that. Thank you.

Operator

Our next question is from Andreas Sheppard with Cantor Fitzgerald. Your line is now open.

Speaker 6

Hey guys, good afternoon. Thanks for taking our questions and congratulations on the quarter. I wanted Sue, maybe just touch on the India announcement. That looks like to be pretty significant. It looks like it Includes an order to finance up to 200 aircraft.

Speaker 6

And then it looks like you're also exploring some other use cases I think you mentioned logistics, cargo, it's a couple

Speaker 5

of them. Curious to get

Speaker 6

your thoughts there. Just trying to better understand kind of how you're approaching that Relationship and particularly that market, obviously that's a huge market there. And are you intending to maybe use the Archer Direct business Model here as opposed to the UAM? Just trying to get

Speaker 4

a better feel for how you're thinking about it. Thank you. Yes, Andres, this is Adam. So, yes, we are very excited about the partnership that we announced with Raul Bhatia and Interglobe. InterGlobe is India's largest travel conglomerate and its largest its largest owner of Indigo, which is the market leading airline in India and I believe the 9th largest airline in the world by passenger volume.

Speaker 4

Fun fact, the former Group CEO of Inigo of InterGlobe is actually Mike Whitaker, the new FAA administrator. So I thought that was interesting. InterGlobe is a it's a conglomerate though that has leadership in aviation, real estate, hospitality. So they really are an ideal partner for us. When we look at these markets, we're really thinking about markets that have the potential for a very large business, a market where there is regulatory support and markets that have in country partners And the potential for also in country financial support.

Speaker 4

And so India has that and we have that with Interglobe specifically. And so we thought that was Especially compelling. If you look at how other large companies have operated internationally, There's some interesting parallels that I think that we can draw. So for example, internationally, we will likely share in the ownership of the operations as well. So InterGlobe has a business partnership with UPS where InterGlobe is the operator in country.

Speaker 4

And so I can imagine a similar type of relationship where Archer and Indigo or Archer and InterGlobe have Partnership and their shared operations in country.

Speaker 6

Got it. No, that's super helpful and thanks for that fun fact. I did not know that myself. Maybe as a follow-up Question for you or maybe Tom. Regarding the piloted test flights, so it looks like we're targeting mid-twenty 24 to begin those.

Speaker 6

I'm curious, how do you anticipate that test flight program kind of ramping up? How long Would you anticipate that to take until you feel confident enough to enter into service? I'm trying to get a sense of How long will the piloted test flight have to run through until it's you're Confident enough to enter into service. Is that something that will take weeks, months? Just trying to get a better feel for that.

Speaker 6

Thanks again.

Speaker 4

Yes, absolutely. So the first thing to keep in mind there is we need to prove the aircraft is safe to ourselves. And so we'll do that through an extensive campaign of company flight testing, not just with that 1st aircraft, but with this fleet of 6 aircraft that we're building. And that will take months to go through that testing. But then back to the fleet of 6 conforming aircraft that we mentioned, 6 is not an arbitrary number there.

Speaker 4

That's essentially designed based on our detailed Certification flight test campaign, where we go through and plan exactly what tests we need to do, what aircraft we will use for those tests and essentially mirror The specific configuration and which systems are conformed on which aircraft to achieve the goals in that test campaign. So Hard to pin down exactly how long that will all take, but we have a pretty detailed plan and yes, we're excited to start flying with the pilot next year.

Speaker 6

Got it. That's super helpful. Thanks guys. Congrats again on the quarter. I'll pass it on.

Operator

Our next question is from Edison Yu with Deutsche Bank. Your line is now open.

Speaker 8

Thanks for taking our questions. I just wanted to come back on the 6 aircraft. Can you give a sense of how much time you need to actually build these things? And also, do you need to have 6 all at once? Does one go up and then one flying, you build another one?

Speaker 8

Just how to sequence There's 6 aircraft in the timeline.

Speaker 4

Sure. So we've got parts In production for these first aircraft across our supply base today and not just for the very first one, but in some cases parts for The second and third. Those aircrafts and those parts arrive at our facility here in San Jose to be assembled together, And that process obviously takes time. So there will be some parallel manufacturing of those aircraft, where you're doing the assembly of 1st and second, second and third at the same time, etcetera. But then tying it again back to the flight test plan, The aircraft have very specific objectives and so we're mirroring the you can think of it as maturity or essentially which Systems are conformed on each of those aircraft to mirror what we need to accomplish those flight test goals.

Speaker 4

So it'll take us The majority of next year to produce those 6 aircraft, we don't need them all at once, but they're staggered essentially at the optimal way to support our flight test campaign.

Speaker 8

Understood. And then unrelated to that more of A financial question. I know you got the first DoD payment. Can you give us a sense of how that ramps up? It's essentially, there's a big payment with the delivery and how that stream kind of comes in.

Speaker 1

Yes. Hey, Edison, this is Mark. So we are still in the process of working out the specific Accounting with some advisors on the accounting treatment and where that actually lands in the P and L geography, but we do anticipate deliverables throughout 2024 and actually in the rest of 2023 and receiving payment for those deliverables. A lot of it was outlined in our shareholder letter around what the bulk of the work will be focused on with respect to 2024, which we'll be focusing on Work with the Air Force on training pilots, specifically using the mobile flight simulator, that we've just received our first payment for, assessing flight controls and then improving really improving the Air Force and the personnel's understanding of the operational capabilities of the aircraft for future use. So, a lot of that will be delivered or most of that will be delivered largely next year.

Speaker 1

Some of that will be delivered later this year as well. So it will be the revenue or I should say the cash received for those will be somewhat prorated you could think about over the course of the next 4 to 5 quarters. Great. Thank you.

Operator

Our next question is from David Zaslow with Barclays. Your line is now open.

Speaker 5

Hey, good afternoon and thanks for taking my question. I guess, can I ask if you could give any color that you have on the Terms of the agreement with Beta, specifically is there any revenue stream that would be flowing towards them as part of You're using the charging infrastructure? And then I just associated with that, with a multimodal solution, do you feel like you're giving up anything in the way of Your recharge time and capability with something that's more broadly able or do you feel like you're still at the same ballpark The numbers you put together 2 years ago.

Speaker 4

Yes, sure. Happy to talk about that. So in terms of the last part of your question, our operational capabilities, just to be super clear, the path we've chosen Aligning with Beta and Gamma and the rest of the industry absolutely supports our operational goals of turnaround time, fast charging, etcetera. With regard to the first part of your question and specific partnership with Beta, we have purchased some equipment for them specifically around the Charging and Cooling Equipment. Their team has done

Speaker 2

a phenomenal job. They've made a bunch

Speaker 4

of great investments in that space. And really by partnering with them and the rest of the industry, We were positioned really well to help scale and distribute this aircraft at all these locations around the country and the world. That's really the driving force behind it. That make sense?

Speaker 5

It does. Yes. Thanks very much. And then I guess a A broader one, maybe I'm not sure how much you can talk about it, but there's certainly been a lot of news about people that are in the electric vehicle business Kind of ramping down expectations, having difficulty with supply chains, having difficulty with the IRA, just a general Slowing of that business, is any of that impacting you and your supply chain or any of the materials that you need to be able to ramp up the Archer aircraft in the timeline you've

Speaker 4

Hey, David, this is Adam. So, no, we have not seen an impact From the broader EV market slowdown impacting the EVTOL supply chain, I think that's probably The volumes that we are working with are

Speaker 2

much smaller and we use different suppliers. So for example, I don't Believe anybody like in the EV space is using Honeywell or Safran or Garmin as examples. So we have not seen any impact from that.

Speaker 5

Great. And then if I could just squeeze one more in a little. You had talked about airworthiness and progress there. Is there anything you talked about specifically in terms of the battery certification plan? I understand Your batteries may be a lower risk of certification than some other designs that are out there, but any color you can provide on the battery certification process?

Speaker 4

Sure. We're still super happy with our choice to use Flunderful Cells. We think that Basically provides both a more robust, economical system as well as a safer system. So super happy with that. Can't give any updates on the battery certification details because that's still a working area for us in FAA.

Speaker 5

Thanks Tom. Good luck in the queue.

Operator

Our next question is from Austin Moeller with Canaccord. Your line is now open.

Speaker 9

Hi, good evening.

Speaker 1

Hey Austin.

Speaker 9

So just my first question here, With the announcement of the India agreement, does that essentially bring your backlog if you include United to around 500 aircraft. And should we expect at some point that you'll be able to draw some pre delivery payments off those off that backlog to generate some cash?

Speaker 4

Austin, this is Adam. So we don't quote a backlog From the different agreements that we have, really the strategy that we put in place for especially the international side has been to partner with some of the largest Providers, the governments, the regulators that will allow us to launch these networks, There certainly is the potential for additional pre delivery payments that come forward, but a lot of the market is still developing. And so we focus very heavily on on the partnership side, to develop those relationships, so we can figure out the most efficient way to really just deploy the vehicles as they come off the manufacturing lines. As we continue to mature those relationships, we will certainly provide updates and keep you up to date.

Speaker 9

Okay, great. That's helpful. And then just, if we think about the regulatory Side of the equation, what is the latest that you've heard in your conversations with FAA officials on the number of pilots that will be required to be able to operate the aircraft and pilot training relative So what's already permitted with helicopters? Thank you.

Speaker 4

Yes. So we haven't heard any updates On the progress of the ASVAR, so I think you're referring to the content in there that referenced potential need to have dual flight controls for some aircraft. Just to make sure you have the right context there, that was not around the commercial operation of these aircraft As much as the training capability for pilots. So we shared our position along with Gamma and the rest of the industry on that. That phase now in the rule making process for that, so no object to share

Speaker 2

and obviously can't speak on behalf of that phase.

Speaker 6

Okay, great. Thank you for the details.

Operator

Our next question is from Josh Sullivan with Benchmark. Your line is now open.

Speaker 1

Hey, good evening.

Speaker 10

Just on the InterGlobal shared model, the InterGlobal shared model, how should we think about that flowing through Archer's Revenue model, I think you mentioned financing for 200 aircraft, but it sounds like there's a shared service aspect to it. Give us a little color on how that might flow through Archer's model when it's executed?

Speaker 4

So there is a we've talked about our overall operating model where we have the ability to sell planes and then we have the ability to Operate planes ourselves. In the international markets, it will likely be a mix of Shared operations

Speaker 2

as well as selling planes. So the interglow relationship is still early and we don't have any additional color to drive there, But there certainly is an opportunity for the ability for us to share in the operations there and really work with them to stand up

Speaker 4

Yes, the entire Air Taxi division.

Speaker 10

Got it. And maybe one for Mark, just on the non reoccurring costs that you're Expecting the tail off in 2024. What should we expect the cadence of that to look like and maybe the magnitude as well?

Speaker 1

Yes, we talked about it previously. We've I mean the cadence is generally after The first half of the year, we'll see that or it will start dropping off at the beginning of the year and then tail off such that We said as the current pace is that they will drop off by the end of the year. Clearly, that's dependent on timing of execution with our supply chain and partners, But I'd also like to highlight that as those drop off, We will be investing in other areas of the business clearly as we're ramping up manufacturing and quality. We'll be investing into The 6 for materials and the 6 conforming aircraft and other areas of the business. Thank you for your time.

Operator

Thank you, Josh. There are no further questions at this time. So I'll turn the call back to Adam Goldstein for closing remarks.

Speaker 4

Thank you, everyone, who's joined the call today as well as the entire Archer team for the relentless execution and what has been another great quarter. Our production designed aircraft Midnight took flight for the first time and we're on track to rapidly advance the full wind borne flight over the coming months, paving the way for us

Speaker 2

to begin for credit testing with the FAA.

Speaker 4

Our commercial team is now in full swing both domestically and abroad From our U. S. Launch cities with United Airlines to our newly announced international launch markets of India and UAE to our industry leading contract with the U. S. Air Force.

Speaker 4

We ended the quarter with nearly $600,000,000 in liquidity and I couldn't be more excited about the quarter ahead. Thank you again to our team and everyone on the call today.

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Earnings Conference Call
Archer Aviation Q3 2023
00:00 / 00:00