Good afternoon. Thank you for attending today's Archer Aviation Q2 '24 Operating Financial Results Conference Call. My name is Bethany and I will be the moderator for today's call. [Operator Instructions] I'd now like to pass the conference over to our host, Eric Lentell with Archer Aviation. Please go ahead.

Good afternoon, and thank you for joining Archer's earning call. This is Eric Lentell, Archer's General Counsel. On the call with me today are Adam Goldstein, our Founder and CEO; Mark Mesler, our CFO; and Tom Muniz, our CTO. On the call, we will be making forward-looking statements. Those forward-looking statements are based on assumptions as of today and we undertake no obligation to update the statements as a result of new information or future events. 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 those risks and uncertainties, please refer to the risk factors in our SEC filings. We will also discuss both GAAP and non-GAAP financial measures on today's call. A reconciliation of those GAAP to non-GAAP financial measures is included in our shareholder letter and earnings release from today. And with the legalese out of the way, I'll turn the call over to Adam.

Thanks, Eric. Since founding Archer, we've been focused on finding the most capital and time efficient path to bringing electric aircraft to market. Our team is unified around the same goal of commercializing our Midnight aircraft, which is designed to safely and quietly carry passengers above traffic on short, emissions-free flights across cities all over the world. Over the last few years, our team has been hard at work putting in place the building blocks to make those flights an everyday reality. On this call, I will focus my discussion on the maturity of our engineering, the expanded manufacturing partnership with Stellantis, and our go-to-market progress, all centered around the goals commercializing Midnight over the next 18 months. This quarter, we accomplished so much, so please take the time to read our shareholder letter we released earlier today. In June, we completed Midnight's first transition flight. Let's remember, Midnight is an approximately 6,500-pound maximum takeoff weight aircraft. It is, I believe, the largest eVTOL aircraft ever successfully transitioned. It's one thing to accomplish this with an approximately 4,000-pound aircraft. We've done it for years with Maker, but it's far more challenging to do this with a 6,500-pound vertical takeoff and landing aircraft, which we think is critical to supporting a sufficient payload for aerial ride sharing and other use case economics. As Midnight continues to mature, we are rapidly advancing our certification efforts. In the U.S., we've reached two key regulatory milestones this quarter, both of which are necessary to unlock a viable path to achieve FAA certification. First, the FAA finalized Midnight's airworthiness criteria, enabling us to move forward with the final stages of the type certification process. Alongside this, we have shared that we have started to build our fleet of six aircraft with systems that conform to…

Thanks, Adam. The Archer team continues to execute at an impressive pace. As Adam discussed, in June, we successfully completed Midnight's first transition flight. The team accomplished this goal in a little over seven months from Midnight's first flight last fall. This was almost twice as fast as the time it took us to transition Maker. Having helped to lead eight full-scale of eVTOL programs over the course of my career, I can confidently say our rapid progress is a testaments to the talent and experience of our team. The transition flight was just one of many test flights our team completed this past quarter. Year-to-date, we've completed over 230 flights, and we're on track to reach our goal of 400 flights this year. In fact, in a recent week, we completed 26 flights. The team is also working towards our goal of demonstrating a commercial operations-like flight cadence with Midnight. That means flying upwards of 15 times in one day. As Adam mentioned, we also delivered our first Midnight aircraft to the United States Air Force as part of our AFWERX contracts signed last year. The American aerospace industry has a long and storied history of working with the U.S. military to progress key technologies that go on to benefit consumers here and around the world. Our flight test efforts with AFWERX are a key step towards exploring different use cases for the aircraft and are just a subset of our broader contract with AFWERX, working towards leveraging our technology and aircraft to ensure the United States DoD continues to lead the way with the world's most advanced technology. On the certification front, this past quarter has been especially productive for Archer. The FAA not only issued our Part 135 Airline Ops Certificate, they also published Midnight's Airworthiness Criteria…

Thanks, Tom. On our last earnings call, I discussed how capitalization and liquidity are top priorities for us and how the strength of our liquidity position is being driven by our ability to raise capital in the public markets and our strong relationships with our partners. We've been thoughtful in implementing capitalization mechanisms, and today's announcements of our capital raise and the key contract manufacturing arrangement terms with Stellantis are testaments to our ability to continue to ensure we have the funding necessary to secure our path to market. As Adam mentioned, we are focused on finding the most capital and time efficient path to market. A major part of this is our efficient R&D path driven by our partnerships with Tier 1 aerospace suppliers. However, today I want to dig into the key details of our relationship with Stellantis to help show the capital-wide aspect of our manufacturing strategy. The capital-wide approach to manufacturing includes considerations across the manufacturing footprint, CapEx, and labor cost. The way you should be thinking about the contract manufacturing framework that we have put in place with Stellantis is that the goal is for Stellantis to cover a majority of our capital needs across our manufacturing operations through our ramp to 650 aircraft, substantially de-risking our ability to ramp production. Importantly, this is not just about the financial contribution for us. Stellantis produces six million vehicles a year and brings extensive experience in scaling manufacturing across complex systems. It's hard to put a value on that. Tom spoke about our goal for ramping the factory, and I will provide some color on how we plan to achieve profitability in that scenario. Assuming a $5 million ASP on our direct aircraft sales, our target gross margin is in the 40% to 50% range at a…

Thank you. [Operator Instructions] Our first question comes from a line of Savi Syth with Raymond James. Please go ahead.

Hi, good afternoon, everyone. This is quite the update with a lot to digest here, but maybe I can ask you on the Midnight flying that you've done. Could you talk about how many of those flights, you've done are on the Midnight aircraft, and a little bit more color on the kind of the type of flying that you've done and - if that's leading to any learning that as you build the next aircraft here?

Yes. Hi Savi, I'll be happy to chat about that. As I mentioned earlier on the call, and we put in our shareholder letter, we've really ramped up the flight test cadence, these last couple quarters. So you can see - we've flown a couple hundred times so far already. Those flights are across both maker and Midnight. Most of the flying we're doing today is with Midnight. That's where all the lessons are coming from. As an example, today we actually did six flights on Midnight. So as to why we're doing the flying and what we're learning from that, there's really two main goals. The first is gathering data to support our upcoming pilot flights. We are learning a lot about the aircraft as we fly, its handling qualities, control laws, those sorts of things. But then the other thing we're learning, both from maker and Midnight, is the operational learnings. So as I talked about, we're working to ramp up the cadence of operations even further, with the goal of demonstrating, the type of operation we do commercially, which will be flying up to 15 times per day. So in order to do that we have to put a bunch of systems through their paces. Our battery cooling infrastructure, working to pull data off the aircraft super efficiently, all those things and all that sports both piloted flight testing, as well as the certification and ultimate operations. Hopefully that helps.

That's a helpful color. I appreciate it. If I might ask Mark just on today's capital raise that you're able to talk a little bit more about who the participants are and just how you are thinking about now with the capital raise, and the contract manufacturing kind of agreement and principle. Just how you're thinking about capital needs over the next kind of maybe year or two?

Yes, I'll let Adam provide some color on it, and then I can give you some details.

Sure. Savi, so the capital raise participants were a bunch of institutional investors, as well as some of our strategic partners, including Stellantis and United Airlines. So think kind of some of the big funds that exist across the U.S. and the globe. When I think about the just overall frameworks for capital raising, really I'll give you a high level framework to how we're managing the business. And I think that will help you understand the cash burn and ultimately even the manufacturing ramp up. So Mark talked about historically the core expense base here at Archer, and that's around $75 million to $80 million per quarter. When you exclude the one-time expenses from materials and upfront non-recurring engineering costs that are required to stand up the supply chain. And so this relationship with Stellantis was designed so that they will cover the manufacturing labor costs and CapEx to scale production. So my goal is, that unless we start a new aircraft program, which we do not have any plans to do, the cost structure will not materially increase. And then, when we think about the manufacturing ramp, and how that really impacts cash flow, the goal is really to start from a modest perspective. And we provided a chart in the shareholder letter that shows a few aircraft where we'll start with. And we stay at the several dozens of aircraft level for the first couple of years, deploy them and then ultimately scale up. And Mark also mentioned at the 250 aircraft level, it's our goal to hit a target gross margin of 40% to 50%. So if you assume a $5 million ASP, a 50% gross margin at the 250 volume level, Archer should be cash flow positive at that point. So really the key to all of this has been about Archer just starting and getting launched. Hopefully that gives you a sense for how we're thinking about it.

No, I appreciate all that detail and that's a lot of detail on the release here. Thanks.

Thank you. Our next question comes from the line of Bill Peterson with JPMorgan. Please go ahead.

Yes, good afternoon. Thanks for providing all the details, including how to think about the future financial model and commercialization plans. My first question is on the on the GCA. I just want to get a sense, do you still feel like UAE might be the first market? And what does the GCA do in terms of, I'd say resources towards certification? How might that vary versus the FAA? I mean, are they looking at every top programs? I mean, we're aware of at least one other program, but how should we think about the certification in that region?

Hi Bill, this is Adam. So yes, we do think there is an interesting opportunity to launch internationally, particularly in the UAE. So just to kind of step back for a second, we've been supported directly by the national government through the Abu Dhabi Investment Office, as well as the regulators. And they've spent time with us here in California, working on the right pathway to launch commercially as soon as next year. And then, we have really strong partners there as well. So Falcon, Aviation Air Chateau are two of the, are the only two urban air mobility operators in Dubai and Abu Dhabi. So both of them today fly helicopters in the two cities, as well as the corridor in between them, but they charge thousands of dollars on those routes. So it's really expensive just due to the high operating cost of helicopters. So collectively those two plan to deploy a large number of Midnight aircraft, and they can slot those directly into the routes that they're operating today. So, we're working to electrify and ready the infrastructure there in Abu Dhabi and Dubai. So our strategy is really to work with the leaders of the international markets, and that's been paying off. We've also previously announced a relationship with Etihad on the training side to work with some of the local partners on simulators and training pilots via their academy. We've had a lot of support at the highest level there, and that support through the Abu Dhabi Investment Office, has really unlocked our ability for the aviation regulator there, the GCA, to start working with us, on an expedited deployment path under the same airworthiness criteria that the FAA published earlier this year. So the whole goal is to get through that, and maybe I'll let Tom give a sort of little bit more color as well.

Yes, I would say the way to think about this is, we've got a really well-established certification framework and pathway that the U.S. FAA has put together. We've been executing on for the last several years. And so, our state of design of the aircraft is still the United States, still working with the FAA, but the GCAA is one of the regulators that's come to us interested in working on how, could they essentially validate the data that we're already generating, based off of our existing FAA-CERT program. So, we're engaged with them now, on where we are in that process and the one thing that I think we're really aligned on with them is, regardless of those details, we'll only take a safe airplane to market. And so, right now it's just us continuing to execute, and get the data and it's just another place to share the data with.

Yes, thanks for that. I wanted to also follow-up on the test flight campaign. So especially I think you're between, I guess, what needs to happen or what needs to be completed between now and piloted flights. Are there more modifications to the powertrain, motors, rotors, things like that? And then I guess when we think about the flight testing, what are they, just could you elaborate more on what you're doing beyond the transition flights that you did in June?

Yes, of course. So to your first question, there's no modifications that need to be made. We're essentially in the process of integrating and bringing up the aircraft we will use, for those first piloted flights. So as I mentioned, we had the delivery of the first wing for that aircraft. We started to integrate systems. We're starting to do the functional testing. The next phase will be shipping the aircraft to Salinas where we do our flight testing campaign, completing ground tests. Basically the whole context there is, this is like real deal piloted flight testing. So again, safety comes first. We're going to be flying these aircraft thousands of feet above the ground, a hundred miles an hour. These are not like demo flights or tethered flights we're doing. This is like real deal, flight testing. So in terms of the flight testing we've done to-date with Midnight, now that we've completed expanding the transition envelope, the learnings are, as I mentioned, two categories. First is engineering focused that's largely around aircraft controls. So things that will feed into the final software that goes on the airplane, how we control through transition, how we control different speeds. And then, the other main learnings, as I mentioned, to Todd's question are operational. So getting our ground support equipment spooled up, able to recharge the aircraft very quickly in between flights, all those things that matter, both when we get into the certification flight test, and then also in commercial ops.

Thank you.

Hi Bill, this is Adam. Yes, maybe if I can just add one more piece of color. The area I think that's most important in these aircraft programs is being really mature in your design. And that's been the key. And so what we have felt comfortable with and what we've talked about building these six conforming aircraft, is that we feel very comfortable in the design and maturity of that design. And so, I know a lot of the programs you get stuck in this loop where you're constantly trying to figure out, how to close your design and that can cause large, large delays. We feel comfortable in the design we're at today. And that's why we feel confident in the flight test program ahead and going forward. And we've shown already what the capabilities of this aircraft can do. And now it's really just an execution game for us to get through putting the aircraft through all the paces, to bring it up and ultimately start flying the piloted conforming aircraft.

Great. Thanks, Adam.

Thank you. Our next question comes from the line of Edison Yu with Deutsche Bank. Please go ahead.

Hi, thanks for taking my question and congratulations on the progresses. So my first question is, about the land use funding, the labor and the catalyzed cost. Can you walk us through like operationally how this works? Like, for example, who's conducting the hiring of workers and setting volume schedules? And how will that cash flow like, flow through the income statement? Is that will be kind of SVC in a COGS or?

Sure. This is Adam. I'll start. From a high level perspective, the way you should be think about this launch relationship is kind of twofold. One is reduce cash burn as we ramp production at the factory. And then two, is to increase the likelihood that we reach our target production levels that allow us to get to profitability. So, I think we saw - we've all seen with the startup EV industry, they struggled to ramp volumes. And so, I think this relationship here is set up to help us reduce risk there. So we focused on two key areas, which were labor and CapEx. The good news is that we've already absorbed a lot of the CapEx that was needed to build out the factory. So there's not a ton left that helps us get through that initial ramp. And then, there will be additional opportunities to spend more CapEx as we look at, introducing things like automation. So that's kind of the primary function, how we started it. Now, Stellantis has had people working at Archer here for quite some time. So there are dozens of Stellantis employees that are already mixed into the Archer team across engineering, manufacturing, design, supply-chain quality. And what we're doing here is really looking at the next step, which is on the manufacturing side. So, we are working together to really spool up a lot of the manufacturing plants, which we have been doing now for quite some time. But then ultimately what's going to happen from the labor perspective is that Stellantis will help pay for the labor and Archer will reimburse Stellantis with stock over time, as those expenses are incurred. So effectively, it's a way for Archer to reduce its cash burn needs and increase the odds of success. I think that the net of that is extremely impactful to us at this point. You can think about it like an Apple Foxconn type relationship, where Archer will be Apple in that scenario where we are focused on design of the aircraft and Stellantis will focus heavily on the labor side of scaling.

Hi, this is Mark here. Your specific question around the accounting of that, we're still working with our - I mean we just came to these key contract terms recently with our partner Stellantis. So we're still working also through the accounting for those with our accounting partners. So, we can give you more data as that becomes available.

Okay. Got you. Yes, I think the second question is, you have a lot of announced orders now. So could you give us a sense of how many deposits will be paid this year and how much that will ramp up in 2025 to 2026?

Sure. So this is Adam. The way we have structured a lot of our aircraft sales has been there's an initial 1% to 2% down payment. And then the goal is to collect up to 50% in pre-delivery payments, as we get close to the delivery of the aircraft. And so, the way we're going to slot and go to collect those different payments, really have to do on a market-by-market basis in terms of our ability to work with the local regulator, and get through the certification process. So you can think about it like the increase in pre-delivery payments will ultimately really result in a placement, or a slot that these different orders will be connected to. And so, as it becomes more clear the different geographies, I think that will become much more clear of when those pre-delivery payments will get paid. So as we've mentioned the UAE is a good example of this, where there is increasing level of transparency, or an increasing path to us getting to market. So I would expect the level of pre-delivery payments to start to pick up, considerably as we get closer to the launch dates.

Okay. Got you. Yes. Thank you so much.

Thank you.

Thank you. Our next question comes from a line of Austin Moeller with Canaccord. Please go ahead.

Hi. Good evening Adam and Mark.

Hello. Good day Austin.

My first question here, when we think about Los Angeles, how many aircraft just sort of ball parking, are you expecting to scale to in the LA area by either like the 2028 Olympics or the Super Bowl, just when we think about operations?

Hi Austin. So what's interesting about Los Angeles is when Billy Nolen was the administrator at the FAA, he put out a goal for the, what he called Innovate 2028, which was for the mass use of eVTOLs at scale at the LA Olympics in 2028. So that was a goal that the FAA had put out there. And so what's really cool about this announcement, is we're starting to work towards that goal, especially with some of those key assets that will likely be involved in the LA Olympics. And so, the way that Billy had framed it, was the goal was to be able to use hundreds of eVTOLs at a given time. Now that doesn't necessarily mean it'll just be Archer that that would be the only one that's doing that. So the way that we're going to really target this is, stand up a lot of the operations from the infrastructure perspective, work with the different local communities, to get their buy-in and support as we go do this. And then ultimately deploy as many aircraft as we can. But the way I would think about it is - it is a global showcase of America's leadership in aviation at a point that I think will be extremely well received. But that's really the 2028 time frame. But even in 2026, you have the ability to showcase a similar type of scenario at the World Cup, which will be held in Los Angeles. And then you even have a Super Bowl that will likely be - it will be in LA even before that. So lots of opportunities to showcase the aircraft across that network, to get a lot of community involvement and support for the industry. And of course, LA is probably the number one place for traffic in the U.S. And so, there will be likely a very large demand for the aircraft.

Great to see Innovate 2028 coming to life. Another question, what kind of decibel levels are you recording in the latest test flights of the Midnight? And has it improved since the prior prototypes like Maker?

Sure. Hi, Austin, this is Tom. Basically, all the acoustic testing so far has been in line with predictions. I forget the exact number off the top of my head, so I don't want to provide it right now. But essentially, our models that we tuned with Maker are yielding estimates in line with what we expect for Midnight. And we still expect it to be significantly quieter than helicopters. We have data to show that both in takeoff and landing. And then, obviously in forward flight where I've heard Midnight by myself, it's practically silent when in cruise. So it's super cool.

Excellent. I'll pass it back there. Thank you.

Thank you. Our next question comes from the line of Josh Sullivan with The Benchmark Company. Please go ahead.

Good evening.

Good evening, Josh.

With 10 aircraft anticipated here in '25, and 50 and '26, how's the pilot training certification framework coming together?

Sure. Well, I mentioned on the call that the FAA is making good progress on the SFAR. And that's really the main piece of data that we need to give you a firm answer on that in the sense that that regulation, will define the training requirements. On the Archer side, though, we on our airline team are standing up our own formal pilot training capability. So there's an entire team that's focused on developing the training syllabus for that, as well as doing the work, putting together simulator hardware to support that program. But until the SFAR comes out, it's a little bit hard to say all the details.

And then just switching over to the order book, looking at the order book versus the production schedule, what percentage of the book, are you leaving open for new customers entering the backlog, or for the first couple of years here booked out at this point? And then what percentage of production are you thinking about dedicating to Archer versus direct sales and the partnerships?

Hi, Josh, it's Adam. So the direct sales model is quite compelling, because it gives us an ability to generate cash flow relatively early in the company's life cycle. And so, I think that's really important to building the long-term Archer Air platform that can be scaled globally. So that was really key to the beginning part of the entire strategy that we had here at Archer. So, we've been working to partner with really the most prominent and largest companies and groups in the international markets. And as we have made those connections and formed those agreements, it's been - really quite helpful to be introduced really to those countries at such a high level. And so, what I think will really play out, is there will be an opportunity to introduce aircraft across many different countries at relatively low levels, take time to learn, and then ultimately scale them up. So I actually think by putting a handful of aircraft in many different countries will ultimately lead to a much faster ramp, than just targeting one or two places in the very beginning. So that's been the strategy on how to do that. And there has been some countries that have leaned in very heavily. So example, UAE, we've obviously talked a lot about, but the broader GCC has also leaned in pretty heavily as well. So you've seen a lot of action and support from Saudi Arabia as well as an example. So as these countries continue to lean in, we will continue to form more partnerships that can allow us to put the just base level frameworks, in place to allow us to scale to these larger numbers in the outer years.

All right. Thank you for your time.

Thank you. [Operator Instructions] Our next question comes from the line of David Zazula with Barclays. Please go ahead.

Thanks for taking my question. Adam, I mean, this is a pretty monumental step in the relationship between you and Stellantis. Obviously, they've been a critical partner up until now, and this only further enhances that relationship. What can you say publicly about your conversations as a shareholder with them, as far as how comfortable they are in taking the increased equity stake in Archer. And how much of a stake they're willing to take, and then how comfortable you are with the portion of the company owned by strategic investors?

Thanks for the question, David. So when I started Archer, what was just absolutely critical to me was that I was able to build a vehicle and deploy it. And so, there's a lot of founders out there that will build hardware companies, and there's ways to generate a personal financial return from doing that and never actually get a product to market. But that's been not my goal at all. My entire goal has been to deploy a product that can have global scale, and just create real impact. And so that's really what I've been optimizing everything towards. And so, the relationship with Stellantis has been geared towards helping us get to market. And it's really focused across those two areas that I talked about, which was a capital light way to get to market, and while finding the fastest path to commercializing. So increasing the likelihood that we could reach our production levels and ultimately get to profitability. That's what this does. And so for me, really, everything is about just increasing those odds. So that really means we need more capital. And so, that helped by doing that by offsetting a lot of the cost we have here going forward. And then, also increasing just the production capabilities. So this was a huge, huge announcement for us, and at least for me, from my perspective, and dramatically increases the odds that we get to market. If you just take a step back and look at what's happened, David, we went in, and Archer's a relatively newcomer into the industry. We started in 2018. A lot of the competitors started 10 years before that. And you look at what we've done from the pacing of, even just engineering accomplishments. I mean, we've now built and flown, that's our second generation aircraft that's been through a full transition. I mean, a lot of the companies that even started before us have still yet to even fly in aircraft. So that was, I'm super proud of that. Now we're building this fleet of piloted conforming aircraft. I don't see anybody else in the world, saying they're building piloted conforming aircraft even right now. And then we have the factory that's put in place that can ramp and scale. We have a partner that's going to help pay for all of that. And then, we have a pretty clear path now and how to get to market, with a huge indicative order book, backlog. So, we're ready. And this is the time. This is the point where I think Archer assumes a leadership position in the world. And I think people are going to wake up, and really see in the very near term here that eVTOL is coming to market and will be scaled up here. And I think Archer leads that charge.

Thanks. That is helpful color around the announcement. Tom, can I follow-up on one of Bill's questions earlier? Could you put maybe a finer point about what for credit testing you're doing? What types of components you've done for credit testing on and what the plan is for kind of system level for credit testing this year?

Yes, absolutely. So if you go to our shareholder letter, we've got a chart in there that I've been updating the last couple of quarters. So the areas that we're doing for credit testing are obviously areas where we have certification plans that are approved, and we're just executing with that. So the like main category of things there, just broad brush strokes, are the system components that are coming from our supply base. So as we've talked about over and over, our whole strategy was to make as much of the aircraft, as simple and low risk as possible. And we've done that by partnering with all the companies who've mentioned Safran, Garmin, Honeywell, et cetera. So just kind of pointing you to the chart, you can see in which of these systems we are in which stages. And then in those areas, there's some examples of things we're doing like, SOI to hardware and software audits with Honeywell. All or a big chunk of the environmental for credit testing completed, for most of our flight control system and flight tech avionics. So that's kind of where we're in. If I take a step back, this is really that system and component level testing that all needs to be done, before we ultimately get to for credit flight testing. So the goal is to be doing that next year with these piloted aircraft that, we've mentioned are in production.

Awesome. Very helpful. Thanks very much.

Thank you. There are no additional questions waiting at this time. I would like to pass the conference back to the CEO, Adam Goldstein, for any closing remarks.

I'd like to thank everyone who joined today's call and also the entire Archer team and our partners that have really helped us relentlessly execute and maintain our leadership position in the industry in bringing electric aircraft to market as early as next year. Our capital efficient approach has helped us maintain a strong liquidity position. As we enter the second half of 2024, I am really excited about the quarter ahead. Thanks again for joining us today.

That concludes the Archer Aviation Q2 '24 operating financial results conference call. I hope you all enjoy the rest of your day. You may now disconnect your line.