Good afternoon. Thank you for attending the Archer Aviation Q1 2023 Quarterly Results Call. My name is Matt, and I'll be your 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. [Operator Instructions] I would now like to pass the conference over to our host, Andy Missan, Chief Legal Officer of Archer. Please go ahead.

Thank you. Good afternoon, and welcome to Archer's first quarter 2023 conference call. Joining me today are Adam Goldstein, our Founder and CEO; Tom Muniz, our COO; and Mark Mesler, our CFO. Please note that during today's call, we will be making forward-looking statements. These statements involve risks and uncertainties that may cause actual results to differ materially from those contemplated by the forward-looking statements. For more information about these risks and uncertainties, please refer to our SEC filings, including the risk factors discussed in our most recently filed annual report on Form 10-K. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this call, we may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our shareholder letter posted on our IR website. And now, I'd like to turn the call over to Adam. Adam?

Thanks, Andy. 2023 is a landmark year for the leaders in our industry. Efforts are shifting to building the conforming aircraft that will be used as part of certification testing in advance of commercialization in 2025. I want to reiterate Archer strategy: build an aircraft with the most efficient path to certification and manufacturing at scale. Our aircraft design has focused on optimizing for the UAM business case, a safe, sustainable, quiet aircraft that can perform rapid, short distance, back to back trips for four passengers plus a pilot. We believe that UAM will initially be the largest market segment for electric aircraft. Our execution has and continues to focus on leveraging our team's industry-leading expertise to make simultaneous progress across all work streams: technology, certification, manufacturing and commercial operations. The substantial progress we've made to-date gives us high confidence that we will be in a position to begin commercial operations in 2025 with the ability to rapidly scale. Last quarter, I spoke in detail about our recently announced manufacturing partnership with Stellantis, one of the world's largest automakers whose iconic brands include Jeep, Ram and Maserati. Remember, that agreement with Stellantis involves us joining forces to build our Midnight aircraft as well as Stellantis providing additional capital to Archer to help ensure we get through to commercial operations with scalable manufacturing. Today, I'll share some exciting updates on our joint efforts to stand up those manufacturing capabilities, including progress on our manufacturing facilities in San Jose, California and in Covington, Georgia. Our collaboration with Stellantis goes back to 2020, and it's built on our shared goal of developing a sustainable urban air mobility industry supported by high volume manufacturing with a focus on quality, efficiency, profitability, and above all else, safety. Stellantis initially became an investor in Archer in…

Thanks, Adam. These last couple of months have been very exciting for the team as we've hit some key milestones on our path to bringing Midnight into service in 2025. Most importantly, I'm very excited to announce that production of our first Midnight aircraft is now complete. Just last week, the aircraft was delivered to our flight test facility in Salinas and reassembled. You can see a picture of the aircraft in Salinas on the cover of our shareholder letter. This is right on schedule and means we are on track to begin flight testing of this aircraft this summer once it completes all its necessary ground tests. This is a huge milestone for us and the industry. We plan to fly this Midnight aircraft extensively throughout the second half of this year, paving the way for piloted flight testing of the fleet of conforming Midnight aircraft we are building to support "for credit" flight testing with the FAA. We remain on track to begin pilot operations in early 2024. As we've discussed before, our team of leading engineers have been hard at work over the past couple of years developing Midnight's proprietary electric propulsion system. We believe that the advanced performance and safety of Midnight's batteries and electric engines, coupled with its design for high rate manufacturing, is a key differentiator and advantage for Archer. Our strategy of realistic innovation led us to optimize the design of our batteries and electric engines to facilitate a more streamlined certification process and support our plan to ramp up manufacturing to allow us to deliver hundreds of aircraft per year shortly after getting to certification. The past few months have seen this strategy deliver dividends as the team has made great strides on the engineering certification and manufacturing of these key systems.…

Thanks, Tom. While Adam and Tom highlighted the great progress we are making on our efforts to commercialize in 2025, it's important to note that we are doing so in a financially disciplined manner. To commercialize this industry in any meaningful way, we must not only receive type certification of our aircraft, but also have a mature supply base and manufacturing capabilities that will allow us to launch this industry and capture the forecast of demand for sustainable urban air mobility. I would like to recognize the tremendous work and support we are getting from our foundational suppliers. They are moving and innovating at a pace that is allowing us to track to our commercialization efforts in 2025. We cannot achieve that goal without their hard work and commitment to this new industry and Archer. As we continue to progress our manufacturing operations and mature our commercialization efforts, we also remain focused on maintaining a healthy cash runway. We get questions every quarter about the liquidity necessary to get to commercialization, and we've been very consistent with communicating our comfort around being sufficiently capitalized to get there. We ended Q1 '23 with $450 million of cash and short-term investments on our balance sheet. Additionally, as we discussed in detail last quarter, Stellantis has committed $150 million of equity capital that we can draw upon between now and the end of 2024 in three tranches as we needed based on us achieving certain milestones, giving us a total of around $600 million. We structured that agreement in order to give us flexibility as to when we take the investment in an effort to minimize potential dilution to our shareholder base. It's also worth revisiting the fact that we previously announced an LOI with Synovus, our banking partner in Georgia, to finance…

[Operator Instructions] The first question is from the line of Bill Peterson with J.P. Morgan. Your line is now open.

Yes. Good afternoon, and thanks for taking the questions. Nice progress in the quarter. My question is on the government opportunities, the DoD across the branches and maybe other government organizations. Given it sounds like San Jose site really can't build that many units, when you're building high volume in Georgia, I know in the past you talked about maybe 50-50 split between aircrafts sales and network, how can we -- how should we be thinking about the additional government opportunities within that mix, especially in the context that maybe building network may take longer just given lack of infrastructure and obviously awareness and things like that? Just trying to figure out how to think about the go-to-market.

Thanks, Bill. This is Adam. So, we've been working with the DoD for several years. I'm just trying to put it on context for you. We've had -- we've been working them across several different programs, ranging from acoustics to autonomy. And as we've gotten deeper in with the DoD and really expanded our relationship, we've also seen the DoD really expand their relationship across the whole industry. And so, there's been a lot of discussion around use cases and how can we use these vehicles within the DoD. And one of the things that's, I think, been attractive and that we've heard a lot of comments on has been Archer's payload capabilities. And so that has really increased the volume of conversations that we've been having. And so that's really what's been driving a lot of this kind of deepening activity that Archer has put out there. So, we decided to form this government advisory board where we have a range of -- some of the who's who from the different branches, really deep experience, folks that have worked deep into the budget process to the strategy side, across all the different branches. And we're now kind of figuring out the best strategy on how to go and really pursue the different DoD opportunities. As it relates to our ability to deliver vehicles, one of the things that was super critical to Archer from the very beginning was building a platform that was manufacturable and scalable from day one. And so, we've built a facility that gives us the ability to flex up our production volumes. So, in the first phase, we can build up to 650 planes. And there is a second phase to the Georgia Covington facility that will enable us to build up to 2,300 planes per year. So, we have plenty of capacity that we can deliver if the demand is there. So, I think for now what we should do is we're going through doing our work, we put this advisory board together, we're working closely with the DoD, and as the opportunity start to materialize, I think we'll become a lot more clear on the size and timing around them.

Okay. Thanks for that. And maybe the next question is for Mark. I appreciate that you think as -- how you look at it today, the [indiscernible] kind of cash and then take into account $150 million from Stellantis. But just hoping you can kind of just put some numbers around this. Beyond this quarter, how should we think about the OpEx and CapEx trajectory for this year? And I believe you talked about a few one-time items in this year rolling off. Does that basically mean that OpEx should directionally go down an absolute basis next year as some of these one-time expenses don't occur? Just try to get more comfort around your cash burn.

Yes, sure, Bill. So, if you look at Q1 and how we guided Q2, we landed at the midpoint of our guidance for Q1. Q2, we provided the same guidance on non-GAAP expenses and GAAP expenses. And we did provide that there was roughly $16 million of non-recurring costs within Q1. As I said on last quarter, that is a number that's fairly consistent quarter-to-quarter on our current outlook. So, yes, as we -- as I said, when you look at -- go into 2024, those non-recurring costs will not persist. There will be a small uptick in base level spending as we continue to build out the team et cetera. But you can expect these non-recurring costs to roll off. So, the numbers that I've given you are probably -- are fairly directionally correct quarter-to-quarter. I don't see a -- we're not giving forward annual guidance. I don't see us materially changing spending increasing at quarter-over-quarter.

Okay. Thanks. That's good color. Thanks.

Thank you for your question. The next question is from the line of Andres Sheppard with Cantor Fitzgerald. Your line is now open.

Hey, good afternoon, everyone. Congratulations on the quarter and all the announcements, and thanks for taking our question. Adam, I just wanted to maybe follow-up on Bill's first question regarding the relation with the DoD. I think congrats on that expansion. I was just wondering if maybe you can give us a little color on kind of how that relationship has materialized in the last few years? Maybe a little more color on kind of what's been done and what is perhaps expected to now be done? Thanks.

Yes, sure. So, as we've always stated from the beginning, Archer's goal has been to find the most efficient path to market. That's what we've always been focused on. We tried to have a very clear line of sight with the smallest amount of distraction as possible. And so, we've been working to commercialize the civilian passenger market. We think it's the biggest market and the market that we're kind of cordially focused on. There have been opportunities along the way to partner with the DoD on lots of different areas. Autonomy, we've done several different programs on autonomy and acoustics as an example. And so it's been helpful as it progressed some of the capabilities within the aircraft. But it's also really enabled the DoD's ability to just see broadly or broader into our overall program. So, we've been maturing the design now on the commercial side and we feel very comfortable with where we're at. We feel comfortable with certification timeline. We feel comfortable with our ability to manufacture the vehicles. So, from our perspective, it got -- became interesting to start looking at ways to dual track our path to market. And so, we become more open to having those conversation. And then there were several key kind of technical benefits to our vehicle that the DoD was very interested in. One was payload, that's a good example. Another one was the ability to move the vehicles around logistically. So, some of the groups have built vehicles that are much harder to move around logistically. First, we've thought through a lot of these different items as it's related to our ability to scale manufacturing and then ship the vehicles all over the world because obviously they fly very short distances, so we wouldn't necessarily fly them to their final destination. So, when you took all these things together, it really has enabled to just increase the conversations and the seriousness of the conversations. And so, it's become a much more interesting market for us, because of the phase that we're in the program and because we've become so comfortable with the design and engineering phase with the Midnight vehicle.

Got it. Okay. No, that's super helpful. Follow-up question, a bit of curveball. Wondering if we can maybe get your thoughts on the announcement of Billy Nolen retiring from the FAA. What impact if at all might that take on certification? Thanks.

Sure. So first, we're very thankful for the time that Billy Nolen has given and for his service at the FAA and for his leadership there. So we think with Billy Nolen stepping down, there's obviously a period of time now where a new person will come into play. But the good news is that we've seen very widespread support on the regulatory side. So, it's not even just in the FAA. And we've had recently Secretary Buttigieg spin out to see many of the different eVTOL OEM players. We've seen very broad support on Capitol Hill. And we've seen the whole FAA say that AAM is a top three priority. So, I mean there are several companies that continue to make significant traction with the FAA, and Archer is now really heading into this testing phase as a lot of the rulemaking part is kind of nearing the back half of that process. So, we feel confident that it will have little to no disruption in terms of our progress. And so, if we feel comfortable with where that's all at.

Got it. Very helpful again. Congrats on the quarter. I'll pass it on. Thank you.

Thank you for your question. The next question is from the line of Edison Yu with Deutsche Bank. Your line is now open.

Hey, thanks guys. Congrats on the progress. One follow-up on the defense opportunity. Is there any potential chance that you'll get some contra R&D or something before deliveries occur with the DoD, something along those lines?

Yeah. Hey, Edison. This is Adam. Yeah, that is certainly a possibility. So, the accounting nature of the different opportunities that we're looking at I think differ in terms of the different programs that we're considering. So, there's certainly a possibility for that. There also is possibility for early revenue opportunities as well. And so, we look at it as a way to diversify the path to commercialization. And so, we think it's a good opportunity, but we'll give more color as details start to emerge.

Understood. And then, on Stellantis, I'm curious if you could share perhaps some of the early learnings you discovered. Obviously, they've been doing this for a very long time and [with high scale] (ph). Are there things that you guys, kind of, encountered that said, oh, this is -- we wouldn't have known this without Stellantis, something -- any key takeaways you got there?

Hey, Edison. This is Tom. It's a great question. I would say the reality is we're both learning from each other. So, to set the broad context here, Stellantis is really interested and it's becoming a big part of their business long term. So, as much as we're benefiting from their experience in industrial engineering and automation, they're also learning about the right solutions that make sense for the problems we're trying to solve today. And as we said before, we're taking a very phased approach here. We're early days. We're using traditional processes. We're being very thoughtful with where we're deploying capital and automation, trying to balance getting to market using our resources most effectively. So I don't know if I have any like super great example for you, but hopefully that sort of overall description is helpful.

Sure. And if I could sneak one more in. As part of the relationship with Stellantis, I believe you guys have stated in the original release that they will be looking to make open market purchases of the stock. I'm curious, is that still, in your view, their intention? And what's the outlook there, if you have any?

Hey, Edison. This is Mark. We can't comment specifically on any potential activities of Stellantis. However, I will draw attention to the fact that they did file a 13D -- Form 13D with the SEC two days ago where they actually indicated their intention or reiterated their intention to make open market purchases of our stock. So that is a document that is required for them to even be able to do that.

All right, great. Thanks for the color.

Thank you for your question. The next question is from the line of Savi Syth with Raymond James. Your line is now open.

Hey, good afternoon, everyone. Just on the certification front, I was curious looking at kind of based on the comments from other companies and stakeholders made in the kind of notice of airworthiness criteria that was in the public register. What are some of the main areas of concern or contention with the kind of FAA certification process of standards and kind of how do you expect that to impact your process?

Yes. Hi, Savi. This is Tom. Happy to answer that. To maybe just to set the stage, you're referring to comments on our airworthiness criteria that were published last fall after we got our [stage for] (ph) G-1, so these are the high level rules, yes. So, as you said, there was about six week, two months public comment period. FAA got a bunch of comments. The last many months the FAA team has been working through those. And everything that we've heard so far is that we shouldn't really expect significant changes. If you think back to about a year ago, our original G-1 from 2117A, 2117B, was kind of a similar timeframe here and we saw very few changes. An example was they added a bird strike requirement, but we had already been designing for that. So it wasn't any substantive impact for us. So all the data we have so far is that we shouldn't expect a much change, but we haven't gotten the official documents. We expect them soon. So, we'll happily share more once we have the data.

That's helpful. And just to follow-up on that part of it. With the subject-specific certification plans that you've submitted, have any of those been accepted by the FAA?

No. None of them have been accepted so far, but there are a handful that are pretty close to being accepted. And overall, I would say, really the thing that matters for us is driving down the risk through the conversations and working sessions with the FAA. And from that perspective, what we've seen so far is a lot of alignment and, I would say, benefit from the simplified approaches that we're taking that's getting us into rooms with these FAA subject matter experts that are saying quite quickly, "Oh, okay, we understand what you guys are doing. We've seen this before. This is easy to understand." And the trend is that that's paving the way for to have an efficient path forward here. So hopefully that's good color.

Yes, that's very helpful. Thanks. And maybe Mark, just a question on the liquidity front. Is there a certain liquidity level that you're kind of comfortable maintaining, especially [indiscernible] other potential avenues of funding you might consider in case certification slips?

Hey, Savi. This is Adam. So maybe let me just take a crack at that. I'm the largest shareholder. So, I think about it a lot as well. And I think we are in a pretty unique position here, right? We have the flexibility from Stellantis. We have a large order with United. They've already given us some pre delivery payments with the potential for additional pre delivery payments, plus we raised a lot of capital. So, we're just going to be strategic about how we think about capital. We don't need capital today, but we do have optionality here built in. So, I think about dilution versus capital as well on a regular basis and I think we are just in a fortunate position to be able to manage that over a pretty significant period of time.

Makes sense. Thank you.

Thank you for your question. The next question is from the line of David Zazula with Barclays. Your line is now open.

Hey, thanks for taking my question. I want to come back to, and I think others have as well, Bill's original question, and just hit on another angle. I guess, my original understanding of kind of the mission intent of Archer was to produce aircraft in order to become the greatest and largest operator of urban air mobility aircraft. And just -- as I heard, Adam, you described the mission today, maybe I'm just parsing words too much, but it sounded like you were focusing a little bit more on the production side and less on the Archer air side. So, I guess, is that an evolution you're thinking? Are there other opportunities that are -- you're looking at that are better than you'd originally thought? Or is it just same as it ever was?

Thanks, David, for the question. So, from the beginning, we've always said we've looked at kind of have a dual strategy of selling some aircraft through Archer Direct and also operating some aircraft through the UAM business. And so, we've kind of put out a high level target there of 50-50 from that standpoint. So nothing has changed from that, and maybe it's parsing words too much. But what I think the DoD opportunity represents is just more potential upside in the Direct side of things. It gives us the ability to sell into the DoD. And if there are great opportunities that we can take advantage of given our ability to flex up the manufacturing capabilities that we have, we'll certainly take advantage of that. So I think we'll reserve the right to sell more vehicles if we find an interesting opportunity to do that. So I would say, at this point, we're not changing our outlook from saying kind of 50-50 split. And the reason we've always said 50-50 split is we think this will be capital-intensive business where we will generate cash flow on the manufacturing side to help pave for the way for the long-term view of building the UAM vision. And so maybe there's an opportunity to help finance that through like broader sales, that's certainly a potential. But I think today we'll kind of keep that same framework in place of a 50-50 split.

Thanks. That's very helpful. And then maybe for Tom, noticing that there is one plant non-conforming aircraft, not that I'm wishing ill upon it, but certainly, if there were any casualties or complications with that aircraft, you wouldn't be the first in the industry to see those. So I guess, are there contingency plans or what would the impact be if something happened to that aircraft through the testing process? How would that ultimately impact your certification timeline?

Yes. Hi, David. Happy to answer that. So, the first Midnight aircraft that's entering flight test here in the next couple of months, the strategy with that vehicle is to reduce risk and accelerate our path to market with piloted conforming aircraft. So, we see it as this great opportunity to gather data, do the type of testing we're going to need to do "for credit" later as early as possible to learn and reduce risk. So, we take a very rigorous approach to flight testing. Today, we don't talk about it much, but we still fly Maker on a very regular basis with our very professional flight test team, and that's the same team that's going to be executing flight tests with Midnight going forward. So, it's all part of this broader strategy to get to piloted flight early next year, which we remain on track to do. And then get into the "for credit" testing working towards our TC. So, that's how that fits into the overall arc. And yes, we're basically just executing into the strategy.

I guess, as I hear that, it's important, but there are other avenues to perform the test that you're planning. Is -- I guess, is that the summary there?

Hey, David. This is Adam. So here's how to think about it. The factory in San Jose is coming online right now. That factory has the ability to build tens of planes. So, this first non-conforming plane is only months ahead of the production plans that are also getting built. So we're in the process where we're spooling that factory up right now. So I mean, even in the ultimate worst case scenario, there's a factory that can build planes like that is building planes right behind that. So, we don't really -- we're obviously taking a very rigorous approach to flight testing, but I think from a very negative framing of the question, there still is a factory there that's ready to produce -- that is producing or will be producing vehicles right after the non-conforming aircraft rolls off the line.

Thanks. Much appreciated.

Thank you for your question. There are no additional questions waiting at this time. So, I'll turn the call back over to Adam Goldstein, CEO and Founder of Archer, for closing remarks.

Thank you everyone for joining us today on the call. 2023 is really going to be an amazing year and there're so many catalysts to come. This is one of the most exciting times to be building an aerospace. And we thank you very much for your participation.

That concludes the conference call. Thank you for your participation. You may now disconnect your lines.