Q3 2021 Archer Aviation Inc Earnings Call
[music].
Hello, and welcome to the Ark his dad cool jazz 2021 earnings call.
My name is <unk> and I'll be today's call operator.
Following the presentation today, we will have a Q&A session. If you would like to register a question. Please press star followed by the number one on your telephone keypad.
I'll now turn the call over to Archie Chief Legal Officer, Andy Nelson said, Andy. Please go ahead.
Hello, everyone and welcome to <unk> third quarter 2021 financial results Conference call.
Im Andy Missan Archer Chief Legal officer, joining me on today's call are anchored co founders and co Ceos.
Got it.
As well as our CFO Min Liu.
The shareholder letter detailing our Q3 financial results and business overview on our IR website. This call is being recorded and archived will be available on our IR website.
Before we begin I would like to remind everyone that during today's call. We will make forward looking statements.
These forward looking statements are subject to risks and uncertainties that could cause 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 filings with the Securities and Exchange Commission, including in our proxy statement prospectus filed with the SEC pursuant to rule 424 phase III under the Securities Act of $19 33 on October 26 2021.
Except as required by law <unk> disclaims any obligation to update or make revisions to such forward looking statements.
Please note that on this call certain financial measures are presented on a non-GAAP basis reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in our shareholder letter posted on our IR website. We will begin with commentary and then we'll open up the call to questions and with that I'd like to turn over the call.
Correct.
Thanks, Andy we're pleased to be speaking with you today during our first earnings call as a public company.
Earlier today, we released the shareholder letter that provides a more detailed update on archer, including our vision and market. Our 2021 milestone so far our <unk> financials.
Our financial outlook for <unk>.
And our business outlook for the coming years, we encourage everyone to review this letter.
Our goal was to be highly specific with our accomplishments and future plans and we will use this shareholder letter as a vehicle for getting this information out to the world.
We will not repeat the entirety of the shareholder letter on this call, but we will summarize some of the key highlights.
When we started this company we wanted to tackle two important problems. The first is helping the world move to a sustainable form of transportation.
Over the next several decades, a majority of all transportation will move to electric which we hope to be a contributor too.
The second is a way to reduce traffic congestion inside of cities, where today half of the world. This.
Everyday in the U S. There are more than 1 billion trips that are contributing to air pollution and people spend approximately one hour per day behind the wheel.
In order to help this traffic problem you have to use the Z axis, meaning you have to either travel above or below the ground.
We believe our <unk> aerial transportation service above ground is the answer.
<unk> has developed plans that demonstrate the technology is here today to make this work.
And we believe will be one of the first EV toll manufacturers to achieve FAA type certification.
Archer's near term focus is on designing certifying and manufacturing and E VTOL aircrafts.
That aircraft or unlock a diversified business model across both consumer and commercial categories.
Our core focus is to design, an incredible transportation service for the masses, we will operate these aircrafts ourselves over and Archer network to move people quickly and safely in an around cities.
On the commercial side, we have Archer direct where we will sell aircraft directly to large operators.
<unk> will help accelerate our mission of advancing the benefits are sustainable air mobility and provide diversity to our revenue and timing of cash flows.
With that I will pass it over to Adam to talk about some of our major accomplishments this year.
Adam Thanks, Brett.
<unk> has had an exciting year, so far with a lot of accomplishments, we closed our spec transaction raising $858 million in gross proceeds and began trading as a public company on the New York Stock Exchange, We received our signed FAA <unk> certification basis. The first major step in the FAA certification process.
Progress with the FAA is going well and we believe this positions Archer for being one of the first to market in the U S.
We assembled an outstanding board of directors and continue to hire some of the most talented people in the world for our industry.
We secured and strengthened excellent relationships with global leaders and innovators, such as United Airlines Atlantis REIT in the United States Air Force.
On the partnership front earlier this year, we announced our agreement with United Airlines, who placed an order for $1 billion of our aircrafts with an option for an additional $500 million of aircraft. In addition, United Airlines has already begun supporting us on our design process pilot and maintenance crew training and helping us as we develop our go to market strategy for Citi launches.
<unk>. Another major partner has played a critical role in <unk> progress in 2021.
We are working to identify key commodities in our supply chain at Archer can access through this partnership which we believe will be critical in our process to scale manufacturing.
<unk> is also playing a crucial role in helping our select and standup power manufacturing plant.
In June of 2021, we unveiled to the world maker, our full scale E VTOL aircrafts.
We are pleased to announce that we have relocated maker from our design and development facilities to the hangar facility from which we will conduct our maker test flights.
The aircraft is currently undergoing preparations for its hover flight, which we anticipate will take place by the end of this year.
Next.
We intend to unveil the first generation of our production aircraft in 2023.
It will be a piloted aircraft that can carry up to four passengers. We recently completed our conceptual design review of this aircraft and we are currently in the preliminary design stage of the aircraft development throughout.
Throughout the program, we will continue to work closely with the FAA in an effort to achieve certification as efficiently as possible.
While we are very proud of our achievements to date, we recognize that we still face tough challenges ahead on our path to commercialization.
However, we believe that if we continue our journey with this pace purpose talent and relentless us we will accomplish our mission and lead the world into the age of urban Air mobility.
We thank our shareholders employees business partners advisors, and our board of directors for all their contributions and support so far.
In our shareholder letter we provided additional details on these updates in more including forward looking business guidance with that I want to pass it over to Andy Missan, Our chief legal officer for an update on the with litigation.
Prior to joining Archer, our general counsel of Fitbit. During my tenure there I led the litigation efforts in connection with job on trade Secret litigation, which has a lot of similarities to what we're seeing in the with litigation.
We are very pleased with the progress of the risk mitigation Cigna.
Significantly after extensive discovery as part of risk motion for preliminary injunction with can we provided no evidence not a single document not a single witness that we ever received a used any of with trade secrets. Accordingly on August 24, 2021, the court issued an order denying <unk> motion for preliminary infer.
Function, concluding as follows quote.
Risk Mischaracterizes really advanced the evidence and quote.
And then another quote.
The judge said, despite getting robust early discovery, including access to engineering documents risk was not able to demonstrate that any of its particular trade secrets was misappropriated closed.
The court's opinion reinforces what we've been saying all along that with claims are without merit and nothing more than an attempt to stifle competition.
We are also very pleased with the court's order on September 14, 2021 to nine with motion to dismiss our counterclaims for torturous interference destination and unfair business practices.
And denying <unk> motion. The court found that quote Archer has presented sufficient evidence that it is a reasonable prospect of succeeding on the merits close quote.
We believe that these two court rulings on the underlying evidence put us in a very favorable position in the litigation. We look forward to proceeding in court both to defend ourselves against risk claims and to hold with accountable for its actions described in our counterclaims with that I will pass it over to Ben for an update on our Q3 financial results.
Thanks, Andy I want to thank everyone for joining and listening to our first earnings call as a public company.
As you've heard from Brett and Adam earlier, we are very excited about what we're building here and our ability to execute on that visit we exited the quarter with $796 million in cash and cash equivalents.
Our third quarter capital expenditures were $1 1 million.
Our third quarter non-GAAP operating expense was $29 million.
Driven by investments across our engineering team and in our make our aircraft offset by lower marketing and legal costs. This.
This resulted in an adjusted EBITDA loss of $28 million.
Our third quarter GAAP operating expense was $176 million, which included stock based compensation of $103 million, reflecting a one time vesting of the first tranche of the founder grant, resulting from the achievement of our first performance milestone. These grants are structure to align with maximizing shareholder interests through significant stock price appreciation.
Jason or achieving certain performance milestones.
Going forward the stock based compensation expense for these grants will be based on the likelihood of divesting of the remaining three tranches in.
In the quarter, we recorded a non cash warrant expense of $39 million related to the vesting of the second tranche of the United warrants.
All of that in our first quarter of 2021, we recorded a $78 million noncash warrant expense tied to the vesting of the first tranche of the United wants.
The remaining two tranches will be expense as we receive the remaining milestones.
We also recorded a non cash warrant expense in the third quarter of nearly $6 million related to divesting of certain tranches of the <unk> warrants the remaining constant and these warrants will be expense as we meet the remaining performance and time based vesting criteria underlying these warrants.
Now in terms of our fourth quarter outlook, we anticipate total GAAP operating expense of $65 million to $70 million.
And non-GAAP operating expense of $35 million to $40 million.
With respect this reflects expected stock based compensation and warrant expense of approximately $30 million as we record a larger than normal stock based compensation expense in the fourth quarter to reflect restricted stock units and stock options that can only be granted to existing employees under any effective registration statement, which is.
Which we expect to occur in the fourth quarter.
Now in summary, we're very excited about where we are and how far we have come along.
There will be challenges ahead, and we look forward to addressing them as we execute on our vision to bring sustainable urban air mobility to the masses and with that we're ready to begin the Q&A portion of today's call. Operator, Please open up the lines for questions.
Thank you the question and answer session is now open.
And if you wish to ask a question. Please press star followed by the number one on your telephone keypad.
The first question we have on the phone lines comes from Josh Sullivan of the benchmark company side. Josh. Please go ahead when you're ready.
Good evening.
Can you hear me Hello.
Yes, just a question on the overall design thought process with the <unk> issue paper established and now that youre in the process of finalizing the <unk> paper with the FAA. How are you approaching the assembly of the second maker is it an exact duplicate or has the <unk> process enhanced your.
Any thoughts I guess, either on maker or the preliminary thoughts on the four passenger aircraft as well.
Yeah, Hey, this is Brad thanks for the answer Josh question here so.
As we look at our roadmap.
Can you, maybe just kind of starting from the beginning to where we're headed.
We've now have built seven generation subscale aircrafts that are flown over 1000 1000 test hours.
We then developed maker that we unveiled in June.
That just got shipped to our flight test facility last month.
<unk> is a full scale electric vertical takeoff and landing.
Demonstrator vehicle, we intend to use a vehicle to help accelerate our path of our production aircraft and to market.
So this aircraft is important as we're thinking about key underlying technologies that we're developing the system architectures and other related certification efforts.
As you mentioned, we're building two aircrafts for maker.
And then in parallel of that over the last year, we've been designing our production aircraft. So this production aircraft is a piloted for passenger aircraft now.
Tend to certify with FAA and bring to market.
The updates as it relates to the FAA progress. So the intake board process that we started early last year that we got through in the <unk>, one certification and even the <unk> means of compliance work. We're doing now are all for the production aircrafts.
So the maker aircrafts will stay in the same form. It is now I think we made a lot of the right decisions on that aircraft. We've learned a lot of great things that will help us influence and accelerate our production aircraft.
Element plan in flight testing, we plan for a production aircraft.
To get through the <unk>.
Certification basis.
In 2022, this coming year.
We plan to unveil that aircraft in 2023, the <unk> processor fundamental here as were our core thesis here at Archer's designing for.
Certification and manufacturing, it's really important to get those steps right. So we're designing the right vehicle for the market with the FAA.
Thanks for all the detail there.
Maybe a question on the demand side the mobile booking system you guys are going to be launching in 2023. What are your current thoughts on the needed internal Archer fleet size to get to a critical critical scale just to make that booking system successful initially.
Yes, it's a great question.
At a very high level. This is what we get really excited about waking up every day, we get a chance to and Vince and somewhat Retrans formed wave you will fly every single day.
To do this under FAA part 135.
As you mentioned, we plan to operate our our own aircraft here.
<unk> integrating some of the OEM traditional OEM work in some of these key technologies to build a really enhanced aircraft for our consumers.
We plan to operate this across basically a few core principles. The first is just making sure. We can operate the aircraft really safely everyday for consumers. These are a new type of electric aircraft can be really important for the folks maintaining them at operating that know how these aircraft function and how they need to be safe.
We can build a great service for customers by doing this and hopefully we think we can build a really profitable business long term and it gives us a very large business to be in.
We're going to build.
Applications as it relates to the bookings and second process for users to really make sure. It's really seamless experience for users and think through all of the different underlying things around checking in and luggage and multi modality of different trips are getting tuned from we're going we plan to release, our mobile booking application app.
'twenty three and we plan to receive our part 135 certificate as it relates to running these operations in 2024, we putting out guidance in the near term that we will be.
Targeting roughly 50% of our aircraft fleet to through our Archer direct platform partners, such as United Airlines.
That we announced a commercial agreement with earlier this year, we plan to operate the other 50% of your own network and cities that we've announced such as Los Angeles and Miami.
Got it.
Maybe just one final one for me as far as expanding the head count to meet milestones engineering certification et cetera.
Do you think Youre ahead of schedule or is the market just with the inflationary issues out here, causing any hurdles for you.
It's definitely a really competitive market across areas such as <unk> <unk> development.
<unk> aerospace and even like the automotive electrification side of things is a big push for us overall.
One of the things that were.
Most proud about here as a team we've assembled we literally put together some of the best folks in the world folks like Jeff Greenwood, which is the chief test pilot here at Archer previously Chief Test pilot Bell helicopter.
Our motor team is led by a group of folks that are ex lucid motor leads or ex Tesla inverter leads we have some put together some of the the best of when the World I think it really speaks to the attractiveness of the opportunity here at Archer, we have a chance to come in.
Really interesting electrification design process to build a new type of transportation for folks that people get really excited about the overall mission of what we're doing with.
Were capitalized really well, we have good partners like United behind Us for Lantus, and <unk>, and we're making incredible progress on both our technology and developing the right technologies, which we think are important to make this product work and we're leading a lot of the.
As of today, a lot of the certification work with the FAA, which is really important to get through that process to bring a product to market.
Yes.
Great. Thanks for the time.
Thank you.
The next question comes from David <unk> of Barclays, Sir David.
Please go ahead.
Hey, Brett Adam Thanks for taking my question.
I guess.
First one as far as the method of compliance or <unk> certification that you guys are anticipating because my understanding is it's difficult to at least at this point show.
Tangible progress towards that but maybe talk a little bit about what you think about in terms of.
Anything you might be able to share in the upcoming year as far as milestones.
We run into investors that.
Just can't believe you guys.
Being relatively newer to the market are able to achieve that certification. So quickly so I guess what.
What should we be monitoring.
As we are looking at.
Clients in the upcoming year.
Yes. Thanks, David This is Adam that's a really great question.
I think I'll echo some of the points that Brett made as well on the team front, so aircrafts who's leading our certification effort has the long history of.
Certifying vehicles.
Similar nature, and we have high confidence in our strategy.
As it relates to quickly moving through the certification process.
As we have mentioned before.
One of our core strategies here at Archer is really all about designing and really certifying and manufacturing in EBIT all aircraft and so that's really been our philosophy from that.
From the very beginning so our team really worked very tirelessly to achieve <unk> certification basis.
And we believe to the best of our knowledge. We are one of only two companies in the world to have achieved this.
And now that we have the aircraft certification requirements established we've focused a lot of our efforts on this <unk> paper and so.
We are working on the compliance for the for the G tube with the FAA and we've been doing that.
Sensor earlier in this year there are obviously some other steps that will come after that as it relates to compliance ground testing and flight testing that will need to help achieve our type certificate in late 2024, but we're making considerable progress there I think the main reason we've been able to move so quickly here through the certification process.
<unk> has been well established really our core business model. We have designed the vehicle around that business model. So these 25 mile nominal mission trips that the vehicle can do back to back all throughout the day with minimal charging time on the ground and then we've reduced risk everywhere else possible across the.
Aircraft and that has enabled us to really just move super quickly through that and I think throughout this year, you will see evidence of that with some of our <unk>.
Additional accomplishment that we have as it relates to the certification process.
Okay. Thanks.
Can you talk a little bit about how you think the design of your aircraft and keeping it more conceptual at this stage puts you in a good position to react to partner with the FAA during the certification process.
Yes.
Yeah. So one of the things that we did was we really tried to focus on making sure. We designed from the very beginning but vehicle that could go through the faa's process as smoothly as possible. So it's very tempting when you're building a new H Tech company to add.
<unk> features that could be very value enhancing but also could add a significant amount of risk to the platform. So for example.
A lot of groups asked us why we didn't put retractable landing the plane.
We didn't do that because we felt that to be by its way onto the vehicle. That's a totally new system that would have to be put onto the vehicle and certified in a challenging and we didn't feel like it helped increase our business case significantly enough to do that so we've reduced risk there.
Also one of the one of the biggest struggles across the whole industry is going to be across the weight and the weight of the aircraft and so it's very tempting to go and use.
New types of materials added manufacturing that can help reduce weight or that can help.
Scale parts.
Very very quickly, but that's a new.
Process that doesn't have a lot of history in making its way through the certification process. So we simplified our material selection and have.
Really stuck with kind of core technologies that we know can be certified but we have high confidence can get through the process and I think that's really helped lead to our speed.
And if I could just squeeze one last one in.
Ben.
It seems like expenses are coming up a little bit in the fourth quarter relative to third quarter can you maybe talk about.
What you are expecting to get new capabilities.
Ore expense line items that you're thinking about building out is here and maybe looking at facilities or other things to support the design of the aircraft.
Great. Thanks, David So you saw that we are guiding our non-GAAP opex this quarter of $35 million to $40 million that is up from the $29 million. This past quarter, We're obviously building and scaling a very big company and we're going to grow very quickly. So a lot of the investments that we're making it is across all the engineering talent and the hiring across multiple disciplines from EBITA for additional aerospace as well.
<unk> electric.
Electric battery and I think Brett I named some of the key hires and we will continue to make some really important strong additions to the team. We're also going to invest and obviously our vehicles into our R&D.
And so we're going to be basically scaling a business and a company that will be able to develop and design and commercialize any VTOL aircrafts.
Great. Thanks, Congrats on the first quarter.
Thanks, David.
Thank you David.
We now have Andres Sheppard of Cantor Fitzgerald.
Andreas Your line is open.
Hey, good afternoon, everyone.
Good afternoon.
Hey, Congrats again on the first quarter.
My questions have been answered, but maybe a couple of quick clarification questions. So just want to make sure I'm getting this right. So you.
Our hoping or expecting to receive that.
Q2 issue paper in 2022, and then the type certification that's before the end of the year in 2024 correct.
Yes, that's correct.
Okay, Great and then any sense I see you noted you are in the final stages, but any sense on when you might finalized.
The manufacturing site.
Yes, we haven't publicly guided to when we're going to put that out what we have said is that we will select decided to begin construction of the manufacturing facility in 2022, I will say that we've had considerable progress. This year. We've also been working with <unk> one of our big.
OEM and supply chain partners, who have been assisting us in the manufacturing down select process that we started in and basically every state here in the U S.
We are in the finishing stages of this whole entire plan, but we're making great progress. There's a lot of good areas that we've looked at kind of across the U S and we feel very comfortable in being able to hit.
Hit this milestone next year.
Awesome Thats very helpful and maybe one more from me and I realize I don't think <unk> disclosed to us either so totally understand it fair to able to share but any.
Rough timeline on when you expect the six.
Second maker to be kind of assembled and ready for test flight.
Yes. Good question, we've we've started.
Simply work on maker too.
And we expect that to be rotated into flight testing in 2022.
Maker one.
We will continue to.
Do flight tests.
Starting here in the year and all throughout 2022 as well so we will have two vehicles.
In operation to able to do flight testing next year.
Awesome, Thanks, very much guys and again congrats on the quarter.
Okay.
Thank you we now have Jacqueline Li from Deutsche Bank, Jack Glenn. Please go ahead, when you're ready.
Hello can you hear me.
Yes, we can hello.
Okay. Thanks, good morning.
Everybody. So this is Jack Lu from Deutsche Bank's speaking on behalf of Edison.
So my question is could you go over how much vertical integration you feel it's necessary to achieve economic scale.
Thank you.
Yes, great question.
So this really hits on some of our.
Key enabling technologies that we're developing in house and a.
I'll name a few here that we're spending a lot of time on that we think are really important to build a really viable aircraft and business here.
<unk> is across the electric powertrain. So this encompasses electric motors and battery systems.
Second is flight control software.
The third is system stimulation.
The fourth is aircraft design or VTOL aircrafts designed to be specific and lastly is manufacturing.
We think those areas here are really important to get right across this new type of aircraft that we bring to market. We've made considerable progress on these on these areas with the maker of aircraft that will begin the first Hubbard test flights before end of year and then full crew slate next year.
And we're really spent a lot of time and money internally on getting on.
In these areas I touched a little bit on some of our powertrain electric powertrain work around battery system Glitch motors are making considerable progress here. There are no battery systems and motors today that you can purchase.
That are fully certified we have very different requirements definition in automotive.
What's really important here to get these things get these areas right as it relates to the performance of the aircraft needs Hope, we built a really great business and low cost business for consumers, but also making sure we hit of the requirements that the FAA are imposing on us to bring the <unk> aircraft to market.
Being able to get our <unk> certification basis approved this year really paves the work here for requirements setting. So we can build battery systems and motors to the REIT requirements. The FAA as opposed on us. So we can bring a really safe aircraft to market.
Thank you Thats pretty helpful. Congrats.
Oh no.
Thank you.
Thank you we now have a question from Carlos <unk> with <unk> capital.
Please go ahead.
Hey, guys.
Congrats on the business combination as well as continuing to build the team.
Adam I think you may have already touched on this but my question is.
For the planes you plan to operate.
I was hoping you could touch on what the.
The range of your typical flight will be on a daily basis, and how many times per day.
Do you think you can achieve that and then more importantly, how how these assumptions sort of led to your vehicle design. Thanks.
Sure.
Thanks, Kyle so.
When we took a step back and we looked at this industry is our belief that the bulk of the demand will be centered around urban air mobility missions and those of our missions that are in and around cities, where consumers people are spending time on the ground.
Typically 60, $75 90 minutes, and we want to be able to replace those.
With missions that we can fly in 510, 15 minutes, and we think thats, where theres going to be a considerable amount of time and so when we looked at really the market.
Bulk of that traffic that sits there today really is within 50 miles and so we think the typical nominal mission that will be flying is around 25 miles and so what we did was design a vehicle that could fly that mission a typical 25 mile mission back to back with minimum time on the ground minimum time and charging.
So we could generate as many miles flown per day with many passengers as possible and so that was really the key in terms of us designing our aircrafts picking the configuration, we did picking the payload that we did because we think that's where the bulk of the market is going to be again, it's always very tempting to look at.
Going further.
And having the ability to travel far but when you look at the the demand we think it really sits in that urban air mobility mission and that's what we're really focused our efforts.
Thanks.
Yes.
Thank you Carl.
We now have the final question on the phone lines from Ron Epstein of Bank of America. Please go ahead, when you're ready.
Good afternoon guys.
Just wanted to maybe follow up on some some of the supply chain stuff have you guys made any announcement yet.
Who are going to be some of your outside suppliers more.
More specifically the one I'm thinking about is.
How are you going to take care of flight control.
And flight control software.
Given what the aircrafts going to do the transition from vertical to horizontal float.
That can be a tricky thing so I'm just wondering how you guys are thinking about that.
Hey, Ron it's Brett.
Great question.
We think long and hard about internally is like what are the things that we need to be doing internally and what are the things that we can partner with great suppliers out there that do this really well here in aerospace today.
We haven't we have numerous partners we've selection now for the aircraft across certain avionics and different systems that we will continue to announce over the next couple of years.
We will also have a numerous areas that we feel like are really important as discussed earlier.
It require us to make investments internally to do really well areas like electric powertrain. Some software system simulation aircraft design on the fly control software itself.
As you're right. It's one of the harder areas here to certify a fly by wire system.
We have.
A really good grasp on what to do here, we haven't fully guided to exactly how.
How we're going to do that I think it was some of this is really from a competitive perspective really important for us to keep here in house.
The person, leading our flight control system.
<unk> is a <unk>.
Named Sergio for Arab recently ran this for Gulfstream fly by wire program. The <unk> hundred 50, most notably so we have a really strong team here and we've been building in house to help lead this area of our certification and development.
<unk> and.
It's certainly going to be a really important focus item for us when we take a step back we think some of the flight control system work.
Battery systems and electric motor.
Are some of the really important areas to really get right for this new type of aircraft to bring to market and we're steadfast in making sure that we're highly disciplined in working with the right groups and doing things right internally to bring.
And are an aircraft to market as soon as possible that hits our <unk>.
Safety and cost and noise considerations.
Great. Thank you very much.
Thank you Ron.
Thank you as we have no further questions on the line.
I will conclude today's call.
Thank you for joining you may now disconnect your lines.
Yeah.