Hello everyone, and thank you for joining the Archer Aviation Inc. Q1 12022 financial results. My name is [indiscernible] and I will be moderating you call today. Before I hand you over to your host, Andy Missan [Operator Instructions]. I now have the pleasure of handing you over to Andy Missan. Please go a head, Andy.

Good morning, everyone and thank you for joining us today to review Archer's first-quarter 2022 operating and financial results. My name is Andy Missan, the Chief Legal Officer of Archer. On the call today are Adam Goldstein, our CEO. Mark Mesler, our CFO, and Tom Muniz, our COO. We posted a shareholder letter detailing our Q1 2022 operating and financial results to our IR website. This call is being recorded and an archive will be available on our IR website. Before we begin, I would like to remind everyone that during today's call, we will be making forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause the actual events or actual future results to differ materially from those expressed or implied in the forward-looking statements. These risks and uncertainties are described in the Risk Factors section of our annual report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 14th, 2022 and our quarterly report on Form-10-Q for the three months ended March 31, 2022, which is expected to be filed with the SEC later today, available on the SEC's website and on our Investor Relations website. Except as required by law, Archer disclaims any obligation to update or make revisions to such forward-looking statements as a result of new information or future events. Also, please note that on this call, certain financial measures are presented on a non-GAAP basis. Reconciliations of these non-GAAP financial measures in the most directly comparable GAAP measures are included in our shareholder letter posted on our Investor Relations website. We will begin with commentary and then we'll open up the call to questions. And with that, I'd like to turn the call over to Adam.

Thank you for joining us today and for your continued interest in Archer. Our operating and financial performance were consistent with our expectations and we are on track to achieve all of our 2022 milestones. We remain well capitalized and well-positioned as a leader in the eVTOL sector, with key strategic relationships, a growing team of dedicated, experienced, and committed designers, engineers, and operators, and with a business plan and strategy that is unique, compelling, and clearly differentiated. Since we just spoke on our fourth quarter and year-end earnings call, we've continued to advance on many key initiatives, which I will discuss later. But first, I'd like to start by reiterating our vision and strategy for commercialization. Archer is enabling a new form of transportation and our commitment to our goal is unwavering, bringing sustainable, safe, quiet, and accessible, Urban Air mobility to the masses. We are building a transportation solution that will enable people to move freely, whether it is commuting to work or taking time to explore places previously inaccessible because of traffic limitations. From day one, we've anchored our business plan on driving to commercialization, and with the support of our key strategic partners, United and Stellantis. The aim of our production aircraft is to balance the performance necessary to be economically viable against the complexity that allows us to achieve certification and scale operations. That's why we chose to build a piloted plus four-passenger vehicle that is designed to perform continuous rapid 25-to-50-mile missions throughout the day with minimal charging time required on the ground in between trips. This vision has never changed. To make this vision a reality, our strategic development program uses our full-scale demonstrator aircraft, Maker to prove out our 12-tilt-6 configuration, advances our key enabling technologies, and set the roadmap for our…

Thanks, Adam. And thanks to everyone participating on the call. As Adam just discussed, and as we have outlined in our shareholder letter, Archer is making significant progress in a number of critical areas that are advancing our efforts to achieve our commercialization goals. While clearly we are focused on our aircraft technology and certification, we are also maturing the capabilities that we will need to engage in commercial operations, such as with our supply chain manufacturing, as well as operating an urban air mobility network. We're making excellent progress. Externally, it's very compelling to see that the overall eVTOL industry is starting to be recognized as more than just an interesting technology experiment, in fact, as a significant business sector. Since we last convened, there have been a number of events and publications specific to the industry. For example, there have been eVTOL -specific financial conferences that have brought many of the eVTOL companies together with other industry players and investors to share ideas and discuss issues common to all companies and we are scheduled to participate in additional ones later this year. Research analyst coverage is expanding for the industry, with a couple of new industry reports recently initiated. And finally, there was a 60 minutes piece on the eVTOL industry, highlighting several of our peer companies in the FAA regulatory environment. All of these developments continue to educate stakeholders and investors on the critical drivers for the industry. And that definitely helps each of us as industry participants to tell our individual stories better. Our market is projected to be very large in the future. And that market will be supported by a number of companies. So we need to continue to support and do more on the education front to expand investor and consumer understanding and…

With that Operator, let's open it up for questions

[Operator Instructions] Our first question comes from Peter Peterson from JP Morgan. Please go ahead, Bill.

Yes. Hi, it's spoke Peter Symptom, Jason, JP Morgan. Thanks for taking my questions. First on certification, I was hoping you can comment on NERC or published sort of this week by Air current and it talks about potential shift in certification from small aircraft to powered lift. And the article made it appear that the eVTOL companies were caught off guard. I'm wondering if you've had any discussions with the FAA on the shift, if there is a shift. What are the next steps? And how we should think about the potential ramifications if there's a shift in the certification requirements.

Thanks for the question, Bill. This is Adam Goldstein. We actually support the FAA 's effort to put a more comprehensive certification framework in place for the industry. We don't actually believe the rule transitioned, which what you're referring to is the transition from 2117A to 2117B. We don't believe that this will have a material impact on our certification timeline. But this is a complex process. So maybe what I can do is just level-set here on exactly what happened and try to explain it in a digestible way. Part 21 contains the overarching procedures for how aircraft are certified. 2117 talks about which regulations are applicable for the vehicle being certified. 2117A handles traditional aircraft and 2117B handles special aircraft, for which there are no standard airworthiness regulations, therefore, the applicable regulations can just be efficiently pooled together from other role parts. The change from 2117A to 2117B was really done in order to more easily tie the vehicle airworthiness regulations, so like the things you need to do for airplanes to be safe, to the operational regulations, so things like pilot training. So our vehicle and other eVTOL s will now be classified as powered lift aircraft under 2117B and the FAA is going to publish operating rules for powered lift time the aircraft to the operating regulations. The rationale for doing this was really to streamline policy framework to support the commercialization of these vehicles. Hopefully that gives you a sense for what's happening. So our strategy has always been to design an aircraft in parallel, with establishing and agreeing to our G1 CRT basis and our G2 means of compliance. Really ensuring that the regulations that we're designing to our comprehensive and have been pulled from the applicable rural parts for our particular aircraft design. So based on this change, we actually don't see any material impact on our airworthiness rules or regulations, or on our timeline. So we're still working with the FAA to understand the full extent of the change, but in our view today, this is largely just an administrative change. And in fact, we think this could streamline important aspects of the efforts to bring these vehicles into commercial service.

Thanks for that color there. Appreciate it. Second question. s something we haven't talked about in a while, but it's related to the sort of ecosystem and the infrastructure, things like charging infrastructure, where you'd, where they can -- can take off in land, it's kind of hoping you could help us understand what do these or more likely or maybe what parts of the cities, things like airports to downtown that going to be come to market first in terms of infrastructure. Frankly, the conversations I have pointed infrastructure, maybe actually get a gaining -- a gaining item as we move into the back half of the decade.

It's a good question. So there have been a lot -- there's been a lot of interest from cities, not just in the U.S. but really all of the world in wanting EBITDA to come to the market. So I think there is a real push for sustainable forms of transportation and different forms of transportation that can come help alleviate traffic and congestion. And so we've seen it really all over the country, just different inquiries from different local municipalities and different groups reaching out. I do believe the industry will have a big presence in the beginning with airport routes and we saw that in the traditional rideshare in the terrestrial transportation. So I think today the rideshare on the ground market trips to the airport really still represent 20% to 30% of their total business. So I think it makes sense that airports will likely represent a good starting place and a decent chunk of the business as we mature the industry. The good news about that is there is already infrastructure at the airports to support these vehicles. There would need to be additional charging infrastructure that would need to be put in place, but there's a lot of infrastructure that's already in place at airports. So it is early in the development of the infrastructure market as it relates to the Urban Air Mobility. But we do believe that existing helipads, land parcels, and really retrofitted rooftops do make logical places for real estate and infrastructure to be built. And we're having ongoing discussions with different large infrastructure providers as well as looking at infrastructure opportunities on our own.

Thanks [indiscernible] fair to say, I'll pass it on, but certainly will link you if there's some more questions that don't get asked.

Thanks, Bill.

Our next question comes from Edison Yu from Deutsche Bank, please go ahead. Go ahead, Edison.

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

Yes, absolutely. Hey Edison, this is Tom. Thanks for the question. So as you know, we had a really successful, first hover flight back in December. And at that flight, we got a lot of really valuable data. We used to validate the aero model and other performance of the aircraft. Since then, we have not been flying because we made that strategic decision to upgrade aircraft in preparation for transition flights later this year. Specifically have been focused on installing our tilt rotor system, which is used to control the vehicle through that transition flight. For the past couple of months, we've been focused on getting through ground tests and we've gotten lots of data and are now in the final preparation to return to flight later this quarter into the second half of the year. So right now we plan to be back in here late this month into early June. And then the second half of the year, we'll be working into much more relocating to flying up to multiple times per week. Just to give you a sense for what to expect. As Adam mentioned earlier, this is actually the sixth aircraft that I'll have taken from concept through the transition play over the past decade. So I've been super happy with the progress of the team and just want to reiterate that we're on track for our first full transition this year. And I'm super-confident we'll get it done.

Understood. And then on the more production side, could you maybe update us on the progress of the pilot line and also how you're thinking about components, subsystems, procured, and assembly.

One of the goals that we laid out for this year was to announce our site selection for our manufacturing facility. And so we have been in extensive talks and going through that process. We've been working with Stellantis in terms of everything from manufacturing site selection through the setup of the factory itself and really trying to make that as efficient as possible. We started with hundreds of different locations across the country and have narrowed that down to just a few. And so we are still on track to announce that and so we're making really the final selections here as we're down through the last couple of sites that we're looking at. That's what's on track from the manufacturing side. On the pilot line side, we are building out a new lab space here in North San Jose and we will be -- in that lab space, we will be manufacturing our low-rate initial production facility there, where we will produce 10 vehicles to really start to be used in the certification process. So that lab will be built out through this year and we will start the production of those vehicles next year. As it relates to just overall supply chain, I think just maybe reading into your question a little bit, we are at the stage of our development cycle where we're not really a mass consumer of parts today.

We're building technical demonstrators. We're designing the production aircraft and we're negotiating long-term agreements with the supply base. So today we're not really seeing material impacts on the business that I think you're hearing across really kind of the rest of the world and other industries with big supply chain delays. But what we're doing is getting ahead of our, any of the long lead time items just to reduce risk. So as we look at our manufacturing operations Our goal is to really lock in quantities and pricing through the our effects process. But at this point, we're not seeing any major delays any of the foundational suppliers that we're speaking with.

Appreciate the insights.

That next question comes from Andres Sheppard, from Cantor Fitzgerald. Please go ahead, Andres.

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

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

And hey, Andres. This is Adam just adding in here. If you took a step back and looked at the industry over the past 10 years, we've seen several groups transition vehicles. And from -- my understanding from far from some of those groups, it's taken between 18 and 24 months for most groups to be able to transition in aircraft. And some groups have been at it for years and still are trying to transition aircraft. Our stated goal to transition the aircraft this year would put us at a transition timeline at 12 months. And so I think that will be probably the fastest anyone has done it in the eVTOL industry. And so it's quite a technical fit. So sort of the doomed out version of what we're stating here is actually a very aggressive flight test campaign that we feel really confident in really being on [indiscernible] this year that we will show our really technique capabilities off what we're very excited to do.

Got it. Thanks guys. That's very helpful and thorough. Quick follow-up. Can you just remind us, what are some of the key KPI from the advisory committee that you announced with United last month, like, what are some maybe things that we can look for or what are some of the things that you kind of expect from that joint committee?

Yes. Sure. So United has been a really great partner to Archer and it really goes beyond just being an investor and buying planes. They're helping us with all the operational side too. So the most important area of focus for Archer will always be safety. But we also want to consider cost of maintainability. So we set up this committee really to leverage the expertise of United's really deep history and maintenance and operating strategies. So I believe our direct operating cost is going to be major factor in an eVTOL and maintenance will be basically the driver of direct operating cost. So one aspect of the committee will be focusing on reviewing the production aircraft design for maintainability. So we're going to look at things like anything from access panels, chart port locations, or commonly placed components, things like that. And United is participating in our design reviews to help us focus on improving these areas. So if we think about just stepping back, we have a big direct operating costs that were going to be heavily focused on. Direct maintenance costs will be a large component of our direct operating costs. So that's really kind of one of the area of focus is for us is to make sure that we can drive the long-term profitable business. And this committee is really set up to help guide us through best practices.

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

I think it's primarily one -- sorry. Hey, Andres, this is Mark. It's primarily one-time expense, and that has to do with the separation of Brett from the company. We -- it reflects the 8-K that was issued.

Got it. Understood. Great. Thanks so much, guys. Congrats again. I'll pass it on.

Thanks, Andres.

Our next question comes from David Zazula from Barclays. Please go ahead, David.

Hey. Thanks for taking my question. Following up on that, you did have a board member resign recently and he put out a statement saying that the vision of the board was different from his vision. Adam, can you comment on the current state of vision for the -- of the board and how it's progressed and how Andy dealt or might have developed there?

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

Thanks. Tom. You've worked really hard towards having the first flight in December, and it seems like it can be probably about six months between men in the next flight. Can you help us out what data you were trying to achieve, that's helped you to follow-on tests in between such a gap in between the first on the follow-on flight, like why was it important to get that flight then and then not fly again until now.

Yes. Sure. Happy to add more context there. The flight we did in December was a hover and basically gave us enough information to validate that they aircraft was performing as expected in that flight condition of an at that point, we did not have the aircraft in a physical state and with the software where it was capable of flying the full mission envelope through transition. So when we looked at the data from that first flight, we could have chosen to keep doing more hover flights in that configuration. But we were confident enough that we just decided to move to the next phase of the program, which was installing the tilt rotor system as I mentioned earlier, along with some software upgrades that make the vehicle capable of the full transition envelope. So there was a process getting all of that hardware and software completed and installed. And then last couple of months have been all about testing and preparation for more flying. So like I mentioned earlier, we're really close to continuing the flight test campaign ended this month. Early June, that's what's looking like today. And then based on where we stand and the maturity of the vehicle, we are in great shape to get through first transition for the end of the year.

Great. Thanks, Tom.

[Operator instruction] Our next question comes from Josh Sullivan from Benchmark Company, please go-ahead Josh.

Hey, good morning.

Good morning, Josh.

Just on the manufacturing site selection. How is your view of the needs above -- you've got Airbus. They've announced they're going to do some contract manufacturing with Spirit, and that's a traditional aerospace sort of relationship. And obviously the calls are going to be more automotive like in volumes, but curious on what's [indiscernible] is saying or what they're advising? What needs to be more automotive, what needs to be more traditional aero manufacturing? And then just kind of your thoughts on contract manufacturing in general.

So it's a good question. So a big part of the site selection really goes down to our broader strategy of our volumes. When, where, how much, how do we move these vehicles around? Because the range of the vehicles are less than a 100 miles. It's not like we're going to fly them to their final locations, that will typically transport them through some other modes. So lots of considerations in terms of how that rolls up to our site selection for manufacturing. So a lot of the core focus though that we have was based around the volumes that we're trying to build. So we put out there the volumes which will start in the low hundreds and scale up to a few thousand here by the end of the decade. So we are finding a factory that we can build and design around those stated volumes and then shift our focus also to thinking about the different components we want to manufacture in health versus stuff you want to get out health. We have been working with Stellantis to leverage some of the automotive capabilities that you don't traditionally find in aerospace. So a good example of that could be things like paint. It might take you five to seven days to paint a general aviation aircraft of a similar size, but the autos can paint a vehicle in closer to seven hours. And so we have spent time with Stellantis, gone out to their factories to see how they do it, to see the type of automation that they have, and really try to figure out where it makes sense for investment in automation that will economical for us and not overspend in areas that don't make sense for automation. And so that's really been a lot of the focus for us. There are other things like high-scale composite manufacturing, where the autos do a great job and they manufacture a lot of vehicles, and so it's another area that we've looked at. We'll do a lot of the assembly of the vehicles in-house and we'll focus on manufacturing just some of the key -- really key pieces of IP s, so parts of our power train or different key in-house stuff that we'd like to focus on.

Got it. And then just on a real transition from 2117A to B, what are your broader thoughts on the readiness of the FAA for passenger eVTOL 's transport? Maybe if you could put it in the baseball innings context, just where you think the regulatory environment is at this point.

Yeah. Part of Archer 's strategy really since the beginning was to design a vehicle that could be certified in a time frame that made sense. And we really tied our capital strategy to that as well. So we've raised enough capital that could get us through the timeline that we thought was estimated that it would take. So I don't think anybody thought it would be a clear straight line and that this would be an easy process. But at the same time, we are certifying the vehicle that I don't think is so outrageous that there's going to be gigantic twists and turns. For us, this change from 2117A to 2117B is one of those I would say not necessarily expected, because you don't know what you don't know, but in a sense, a minor change like this in our view, there's going to be a bunch of them. So the whole goal in Archer 's strategy from the very beginning was making sure that we designed an aircraft in parallel with establishing our G1 basis in G2 and really making sure that we could design around the existing regulations and not do things that would make the FAA uncomfortable. And so to date, that strategy I think has been very effective and changes like this we don't think impact us, and there likely could be more changes down the road. I think that would be probably expected, but given our strategy, I think we'll be able to continue to navigate those changes and stay within our timeline.

Got it. Thank you for the time.

And a follow up question from Bill Peterson from JP Morgan. Please go ahead, Bill.

Yes. Thanks for taking the follow-up question. I think you spoke to it a bit and it'll certainly come of the shareholder letter, but in terms of the preliminary design interview, you mentioned OML being the major achievement one of the longer lead time things. But what other milestones were accomplished? And then I guess, can you share any more specifics on what must to be done in the second half?

Yeah, absolutely. So just to give a little context. We're following a very traditional aerospace development process that involves these phase gates, right? Conceptual design review, CPMC, RDR, preliminary design review, PDR. Next one after that will be critical design review, CDR. At each of these milestones, the vehicle maturity, maturity of the design, and the production system around it is continuing to increase. So they're just really good markers and time to assess holistically how the program is developing. So the all in all that is a really great accomplishment. Yes, as you mentioned earlier that unlocks our ability to kick off tooling in support of manufacturing our first aircraft, for our production aircraft next year. But in addition to that, like Adam mentioned in his opener, we've also just made a lot of progress maturing the design to the point where we're now shifting, after PDR which is coming up in a couple of months, we're now shifting into the detailed design phase, actually producing the drawing in detailed engineering definition that we'll build off of. So the great news at this point is the design has come together really well and we're on track actually in a better spot than we hoped, even four key performance metrics like to vehicle weight, payload, range. So overall, the design is coming here, the great with sufficient margin and just really happy with all the work the team has done.

Yeah. Thanks for the additional colo. Maybe like this last one more housekeeping but in terms of spend OpEx and CapEx I'm wondered how we should think about the trajectory beyond the quarter. I know you guide one quarter at a time, but how to think about the trajectory, I guess maybe within that what -- on OpEx side, what's related to personnel versus tooling or materials. Really in this market environment, investments are really keen to understand, the cash, but I know you provided like a snapshot of what you based off the first quarter, but any additional color you can provide will be helpful. Thanks.

Hey Bill. This is Mark. So with respect to -- I think your first question was thinking about how the trajectory of OpEx for the rest of the year. Is that correct?

Well, I mean, OpEx and CapEx, I mean, as it relates to cash burn, but then the Outbacks, how to think about more one-off, onetime in nature versus, let's call it fixed OpEx and personnel and personal growth and things like that.

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

Thanks for the additional color, and we'll look forward to following the progress.

Our final question comes from Andres Sheppard from Cantor. Please go ahead, Andres.

Hey guys, thanks again for taking my follow-up as well. Adam, I'm just wondering if you can maybe comment on what are some of the best practices that you guys are putting in place to try to help mitigate some of the increasing cost of batteries as a result of supply chain disruption. I know we've addressed it in the past, but maybe just remind us your thoughts on the macro there.

Yes. So our goal really, I guess from a big picture of inflation perspective, our goal is really to have the majority of the suppliers that we need for the aircraft under contract this year. So we started the RFx process early in the year and have been getting our feedback from the supply base. And we've actually seen a lot of interest from suppliers as really many of them view urban air mobility as this big potential market. But that being said, we are seeing costs come back higher-than-expected in many areas. We do have a strong market position and we do have a strong capital position. And that's really enabled us to still negotiate pretty favorable terms, both on the upside case and on the downside protection case. So for example, in many of the negotiations that we're seeing now, we are able to put in NTEs or Not to Exceed Prices. But at the same time, we're able to tie the price of, let's say, like raw materials to in [indiscernible]. So when prices eventually do come back down, we can see the benefit from that as well. So it gives us both the upside protection and the downside protection. And then as it relates to batteries, we have this partnership with Stellantis and you've probably seen in the news they are very active on the battery cell side. And so they give us a very large potential to help us mitigate costs. Buying power of a top auto OEM in the world have the ability to significantly move the needle in price negotiations.

Got it. That's super helpful. Thanks again, guys congrats on the quarter.

Thank you.

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

Okay, we'll thanks again for joining us today, and I really want to just reiterate the principles of Archer delivering on our 2022 goals. I look forward to speak with everybody again on our next quarterly update.

This concludes today's call. Thank you for joining. You may now disconnect your lines.