Q2 2023 Archer Aviation Inc Earnings Call
We believe this would be the first aircraft in history to be delivered to a paying customer.
Given the strength of the team that is working on this at Archer, we anticipate leveraging this contract as a platform for future partnerships with the other branches of the armed forces, which would increase the total value of our relationship with the Dod.
In fact, just last week, we hosted representatives from the U S. Marine Corps at Archer headquarters and our flight test facility to demonstrate the capabilities of our midnight aircraft.
A lot of this was made possible by our recently assembled six member government services Advisory Board, who was critical in helping to build our first step of this partnership with the military.
Surely grateful for the support of the Dod Captain Nolan Our government service Advisory Board members and all of the Archer teammates and veterans for their continued service and support and ensuring the U S maintained its leadership position in aviation.
Finally, I have long maintained that the <unk> industry and Archer have been able to move as quickly as we are because of aviation and technology pioneers who for decades have pushed the envelope on what is possible collectively transported billions of people around the world with unparalleled levels of.
Okay.
Today I'm excited to announce a strategic relationship with the biggest aerospace giant of them all following.
Boeing was actually one of the first to fly a fixed wing VTOL aircrafts. The V 22, osprey over 30 years ago and today I'm excited to call them one of archers investors.
Our collaboration with Boeing and its subsidiary Whisk will be focused on supporting the integration of whisks autonomy technology in future variants of our aircraft.
For background Wisc was cofounded by Google founder, Larry Page, who was an early pioneer of the <unk> industry and one of the sectors biggest advocates and pushing the development of flight autonomy technology.
This collaboration could bring for Archer the potential to access world, leading autonomy technology, while substantially reducing the cost of developing it ourselves.
The collaboration matures, we will share further details, but it is important to understand that this puts archer in a unique position to be able to source autonomy technology from a leader in the industry.
This is a natural extension of our overall strategy of focusing our in house research and development on the key enabling technology that cannot be sourced from the existing aerospace supply base.
As part of this new collaboration Archer Boeing and risk have agreed to settle the litigation between the parties and collectively look to the future.
I look forward to working with Boeing and risk on the collaboration that looks forward to the growth and development of the industry.
But that's not all.
As part of the parties collaboration we are excited to welcome bowling as an investor in today's $215 million funding round alongside our other long time strategic partners <unk> and United.
The deep partnership we are seeing from <unk> across the business is unrivaled.
From their continued willingness to provide us the capital we need to accelerate our business to the support and energy CEO , Carlos Tavares and CTO Ned correct bring to the table to their dozens of full times to launch its employees working alongside ours as we jointly build out the world's first high vol.
<unk> manufacturing facility in Georgia.
We are seeing similar commitment from our partner United Airlines, who is an integral player in our push towards our goal of achieving commercialization in 2025, as we worked to fulfill United 1 billion order for archers midnight aircrafts.
The team that United is working with US hand in hand, and an important launch markets, such as New York City, and Chicago, where United is developing innovative approaches to operating our aircrafts within its Newark, and O'hare airport hubs to enable a world class customer experience door to door.
I'm proud to call Boeing United <unk> partners, who are not nearly partners in name, but partners, who are truly invested and working towards a collective long term success and EBITA.
Importantly, as part of this financing we are grateful to have the support of major long term financial investors, such as Ark invest who share our long term outlook for Archer and our role leading the EBITA industry.
As I reflect on these remarkable accomplishments I want to extend my heartfelt gratitude to our incredible team partners and shareholders. Together, we are pioneering a new era of aviation driving innovation and revolutionizing transportation for generations to come.
Before I turn it over to Tom let's take a step back for a second.
In the last quarter alone.
I did take the military and government have both made unwavering commitment that America will lead the way in commercializing <unk>.
The FAA has validated the timeline for both Archer and Jody to bring our aircraft to market in the U S. In 2025.
And we both proudly hosted more than 70 members President Biden AA Inter agency working group last month for a private flight test.
Additionally, the department of Defense has committed to nearly $300 million in contract value across the sector, providing incredible momentum for being the first country to bring <unk> to market.
When midnight takes to the skies in the coming weeks, it will mark a new era and advanced Eric mobility.
Our team's hard work and dedication have brought us to this exciting moment and we can't wait to see midnight and our industry store.
Thank you for joining us on this thrilling journey and I look forward to your questions later in the call I will now hand, it over to Tom who will dive into the technical aspects of our strategy and how those also have begun to bear fruit.
Thanks, Adam this past quarter, we continued to execute our strategy building momentum across our aircraft development manufacturing and certification efforts with key progress toward our target of commercial launch in 2025.
With each passing quarter and each milestone hit on schedule, we continue to prove our steadfast strategy and execute the most efficient path to market optimizing our aircrafts for certification manufacturing and commercial operations.
And it is continuing to pay dividends I couldn't be more pleased with our team's progress and I'm excited to share updates with you in each of the key areas supporting our aircraft to commercialization.
First on aircraft development as Adam mentioned earlier last week, the FAA issued a special airworthiness certificate for our first win that aircrafts.
This is the culmination of an extensive ground testing campaign over the past couple of months as our flight test team has been hard at work getting the aircraft ready to fly safely.
Now that we are certified to fly we will steadily ramp up both our flight testing regimen in our fleet size and continue to March towards the final stages of our certification program and commercial launch.
As we've discussed before when that combines our proprietary electric powertrain and flight control software along with extensive use of mature certified components and systems from some of the best aerospace suppliers in the world.
This strategy of focusing on the key enabling technologies, we're allowed us to invest only where needed to ensure that our aircraft can achieve the performance required for commercial success, especially payload range fast charging turnaround time and speed without having to reinvent the wheel for more conventional aircraft components.
Like flight control computers.
Our supplier partners have the experienced IP certification data and scaled manufacturing expertise.
As part of this broader strategy. We have also made pragmatic commercially focused decisions in how we developed our core technology, which we like to call realistic innovation.
This is applying the design for certification manufacturing and commercialization recursively through our tech stack for example, our batteries leverage commercial cylindrical cells, because we believe they delivered the best safety and reliability available.
Being away for a smoother path to certification easier scale up of manufacturing and lower operating cost translating into lower prices for consumers.
We could have instead chosen a more exotic pouch cells from marginal gains in energy density with a slight increase in performance with me have yielded would've been more than offset by the increased risks and safety certification manufacture ability and cost <unk>.
Similarly for our electric engines, while every aspect of the design with the optimized car aircrafts. Each part was also optimized for safety reliability and manufacturer ability leveraging proven and scalable manufacturing processes from the automotive industry that will let us ramp up production, while maintaining the highest possible quality standards.
With the airworthiness certificate now in hand, we expect to begin falling in the next in the next couple of weeks.
First midnight aircraft will be flowing without a pilot onboard as we did for maker and will be used to gather data for internal design validation and in preparation for the final stage of our certification program.
Data gathered from flying this aircraft will prepare us for having FAA pilots fly our aircraft next year and our four credit certification flight test them.
This flight test data complemented by extensive for credit component and system testing gathered in our World class Test facility, which is now online in San Jose.
This facility has roughly a dozen custom design labs, where we are putting each of the systems on the aircrafts through their paces gathering all of the ground test data needed for certification and high volume manufacturing readiness.
These labs are largely focused on system integration as our strategy of partnering with the best aerospace suppliers in the world means that we benefit from all of their existing component data and test capabilities limiting the amount of testing and certification work required to get our aircraft certified and ready for mass manufacturing.
This facility is also where we are doing final assembly of our fleet is confirming the nine aircraft, which will be used for pilot and flight testing next year.
We are well underway in manufacturing our initial piloted can hormone midnight aircraft.
Our supplier partners are currently fabricating the primary structure many system components leveraging their decades of experience in the aerospace industry I want to thank all of our suppliers for their partnership and teamwork as we work together to bring midnight to market.
We plan to start the final assembly of the first conforming piloted midnight aircrafts within the next two months at our state of the Art, San Jose, California manufacturing facility.
Over the next year, we plan to build at least six of these aircrafts to accelerate our certification flight testing efforts and we plan to hold our first pilot at quite an early 2024.
In Georgia, we are rapidly progressing the build out of our high rate production facility or.
Our team is cleared and graded or roughly 100 acre site in preparation for eminently pouring the foundation and the broader construction efforts remain on track to enable occupying factory next year so that.
We can initiate our production ramp to produce deployment already aircraft for 2025.
I am sincerely grateful to our government partners across the state from Newton County is coming on the Georgia Dock.
As well as our construction partners for their incredible support.
On the certification front, we are progressively building momentum I'm happy to report that the FAA has begun accepting our certification plans as a reminder of where we are in the process. Our teams are working closely with the FAA on our detailed certification plan, which detail exactly how our design complies with the <unk> criteria.
And our certification basis.
To give us more context, our certification plans are what allowed the team to move forward with generating four credit test and analysis data for the FAA to use to validate and certify our aircrafts.
I mentioned earlier, a key part of our strategy is that we have leveraged an extensive group of partners to supply components, and bringing our aircraft to market as efficiently as possible.
That strategy has yielded a significantly simpler and more focused to scope of certification of work to do in the implementation phase of the certification program, meaning post development of our certification plans.
Then if we had chosen to reinvent the wheel on all of the core components and systems on the aircraft.
This intentional strategy has allowed the team to advance rapidly through our certification program to date.
And then just why I believe that we will take the lead over the next 12 months and the race to bring the first commercial and VTOL aircrafts to market here in the U S.
Needless to say our strategy is paying off.
Much of that is due to the hard work of administrator Nolan and the work he and his team did at the FAA before he joined US collaborating with industry on the right framework to certify E VTOL aircrafts.
Im excited to pass it over to Billy to share his unique perspective on this exciting time for Archer and the industry.
Thanks, Tom.
We're excited to be part of the team here at Archer, which I have over the last several years, it's come to believe will become the unambiguous leader among EBITA manufacturers.
During my time at the FAA I led and oversaw the build out of the first advanced Air mobility framework, which Adam spoke to earlier.
With the understanding that the U S needs to move fast and with strong intent to maintain our leadership position in aviation in technology that will fundamentally transform the way we've moved between and within Americas City.
As a forcing function in this effort I decided to choose the Los Angeles Summer Olympics in July 2028, that's a target date for when the U S needs to have built out scaled urban air mobility networks across our largest most congested American cities.
<unk> originally felt that goal was ambitious but over the last year. It became clear that the leaders in the EDA industry, we are well positioned to be at real scale by 2020, a contingent on the continued strong support that the FAA and the whole of U S government has pledged.
Working backwards from the scale of operations and multiple U S cities by 2028 my team at the FAA further committed to enabling a leader, including Archer to certify and commercially launch the aircraft by early 2025 in order to start moving people in and around cities, while showing the world the power of.
<unk> innovation when catalyzed by a supportive regulatory environment.
In line with this the innovate 28 plan that the FAA published last month explicitly that the agency is putting in place a plan to be ready by 2025 initial operations in concert with industry.
Plan goes on to provide significantly greater detail on this framework to certify train and integrate even called an EBITA operators safely into the national airspace by leveraging existing operating rules and aviation infrastructure, while enabling future upgrades to enable continued growth across the <unk>.
Yeah.
On the certification front.
Well on our way having received a certification basis from the FAA in 2020. One we're now working to finalize our means of compliance with the Faa's Air worthiness criteria.
Third to beginning for credit testing would you expect to commence in early 2024.
Training in June the FAA issued its proposed eschar on EBITA pilot training requirements and operational.
<unk> a clear pathway for pilots to earn powered lift ratings specific to each type of aircraft they fly.
<unk> working with the leading with Vitol Oems along with the General Aviation manufacturers Association to collectively provide industry input to the FAA over the next week and finally with regard to aerospace integration DSA is released a thoughtful blueprint that covers air traffic route pilot.
The indication the use of existing <unk> infrastructure and the build out of new vertical area infrastructure leveraging public private partnerships. Arthur has already made substantial progress on the infrastructure readiness and establishing partnerships with state and local governments with the announcement of its planned route in New York and Chicago.
Cargo in partnership with United Airlines, and we're taking a database approach toward establishing the most efficient operational footprint.
It is clear that the Dod and the FAA have dramatically accelerated the pace of activity to further advance our mobility over the past few months and we applaud them for appropriately, making AAM a top priority within the administration.
More importantly, we are grateful to the administration for taking a whole of government approach to ensure the resources are in place for safe ramp up of the industry.
Period from 20 to 25 through 2028.
Publicly committed to enable the industry to deliver on the timeline. The administration is signaling that they have provided incentives and resources to execute this ambitious plan in doing so they will undoubtedly position the U S.
More front of a new global industry.
<unk> been pleased with the continued collaboration between the FAA and companies like Archer, especially since my departure and I'm very excited to now be working with the Archer team as we approach the final stage of our path to commercialization.
With that I'll turn it over to Mark to give you a financial overview.
Thanks Billy.
I'm excited about the progress our team has made a number of fronts as we continue executing our strategy to create the most efficient path to market both financially and operationally.
The equity financing, we just announced will help accelerate that strategy, but I wanted to share more information about the participants and how we plan to use those proceeds.
And our 2021 public offering we raised substantial capital to develop our midnight aircrafts and get to commercialization.
Over the last two years as we've continued to hit our milestones would've been grateful to see outsized interest from important strategic or financial partners, who want to be a part of the Archer story.
Decided to create an opportunity for them to participate and also further enhance our liquidity.
As Adam mentioned today's equity investment round of $250 million with Redbox provides us with $70 million as part of their previous commitment that they decided to accelerate and pull forward into this equity round.
Our longtime partner United Airlines invested another $25 million into this round joined by our new partner Boeing.
Is that M detailed earlier.
Ark invest one of the leading investors in disruptive technologies also invested another $44 million.
High quality financial investors, who shared our long term outlook as Archer and our partners.
The balance of around.
This investment combined with the remaining largest commitment for $55 million brings our total liquidity to over $675 million and brings our aggregate funding of $1 $1 billion to date.
The funds raised will be used for the continued development of midnight and related technology, the buildout of our manufacturing and test facilities working capital and general corporate purposes.
Beyond the capital of this fund rate provide we're proud of the outside participation from our core partners for launches and United.
Continued to support Archer financially and operationally over the years.
When we expanded our partnership with salons us earlier this year.
Pledge to invest a total of $150 million of capital and the Archer.
As part of structuring that agreement, we work jointly with the slots of teams to develop a creative forward equity purchase framework allows parcher call that capital over time at our discretion subject to certain business milestones instead of taking on significant dilution than at a lower share price.
Our wins over the last several months and the performance of our stock price have made at an opportune time to draw down the initial $25 million tranche in June and on the $70 million tranche as part of this financing.
In Q2 thoughts. It's also purchased four 9 million shares of <unk> stock in the open market to deepen our partnership even further.
Beyond the financial support so August continues to be a great operating partner.
Kian, helping us identify our Covington, Georgia factory site out of hundreds of potential options across the U S theater with a talent proximate location and generous financial package from the state and local municipalities.
A lot of this has helped us resolve numerous supply chain issues and are now dozens of full time employees working on site at Arthur to help us as we continue ramping up our manufacturing operation.
A lot of commitments are pushing the boundaries on the future of mobility and <unk> role in it is second to none.
In a similar vein.
<unk> has been unrivaled in our industry.
As you'll remember coupled with their initial investment in Archer United agreed to purchase up to 300 aircraft from us that they plan to deploy a cost American cities with a focus on their important hub.
Just last August they provided a $10 million pre delivery payment against the first 100 aircrafts, which is an important sign of conviction that we have not always seen in deals of this nature across the industry.
Together with United We have announced our first two commercial <unk> haul routes that we plan to operate together, including United Hub that Newark, serving New York City, and O'hare serving Chicago.
We're very proud and fortunate to have the support of these two world class partners for now joined by Boeing as we collaborate with them on apartments flight.
Now, let's switch to our financial performance for Q2.
Our non-GAAP total operating expenses were $77 $4 million, we landed towards lower end of our estimates range of $75 million to $85 million.
This led to an adjusted EBITDA loss of $76 3 million.
Our operating expenses continue to be primarily driven by investments in head count aircraft parts and materials and tooling and other nonrecurring supplier costs.
With respect to our GAAP financial impact of our agreements with Boeing and with the issuance of new warrants resulted in noncash charges to our P&L, which I'll outline our GAAP financials.
On a GAAP basis total operating expenses for Q2, 'twenty three were $181 4 million, which included $104 million of non cash charges.
These noncash charges were comprised of $25 million for the vested portion of warrants provided in support of the Boeing whisker agreements I just discussed.
$48 million for the Unvested portion that is subject to certain vesting criteria and may never be realized for those agreements.
$6 $5 million of our standard stock based compensation expenses and $4 $5 million of warrant expenses for our warrants issued as a philosophy.
This drove a net loss of $184 1 million.
We finished the quarter with $407 $6 million of past tax equivalents and short term investments on our balance sheet.
Our net changing cash in Q3 was $42 $3 million, including the $25 million drawn in June from this plant that's funding agreement.
This cash was primarily used to fund non-GAAP operating expenses and Capex.
As I discussed on prior calls in 2023, Archer's, making some nonrecurring investments alongside new supplier to support the development and manufacturing setup of many of our components.
This spending is also consistent with our overall strategy of creating the most efficient path to market.
Or are you focused on investing in hiring to support our key differentiating technologies and leveraging the existing aerospace industry supply base for the rest.
That framework allows us to avoid the ongoing structural spending of head count to develop those other individuals technologies and execute a lower operating cost development model, while de risking our certification efforts and accelerating our time to market. If we would've had to develop those technologies internally.
Given that in Q2 of the $77 4 million and non-GAAP operating expenses the amount of nonrecurring engineering and other investments were $12 million.
Our overall spending framework for 2023, a similar made.
Made up of our core operating expenses nonrecurring cost to establish our supply base and Capex.
Nonrecurring costs for Q1, 'twenty, three in Q2, 'twenty, three or $16 million and $12 million respectively.
These nonrecurring costs will not be a material part of our expense structure in 2024 and beyond as we will have completed most of that work this year.
Backing those amounts out of our current expense structure, we have core operating expenses of $61 5 million and $65 $5 million, respectively. For Q1, two three in Q2 'twenty three.
That level of current spending as our standard core structural spending that will persist into the future and the nonrecurring costs will not persist materially beyond 2023.
Wanted to make this differentiation to share how our overarching strategy impact our spending profile.
Our June ending cash balance of $407 $6 million combined with the capital that we raised today and the remaining $55 million from the largest equity option previously discussed provides us with more than $675 million of liquidity to get to commercialization in 2025.
In addition to this liquidity, we do see other opportunities for non dilutive cash receipts in the form of pre delivery payments from United and potential other future orders and spending offset from the Dod contract that we announced last week.
Finally for Q3 dollars 23.
We anticipate a total GAAP operating expense of 42 million to $52 million.
This is lower than our historical spending due to a onetime noncash benefit of $58 million as a result of the reversal of an unrealized expense relating to the founder grants.
Offset by expected stock based compensation and warrant expense of approximately $25 million.
Total non-GAAP operating expenses for Q3, 'twenty three is anticipated to be $75 million to $85 million.
And with that operator, let's open it up for questions.
Absolutely.
If you'd like to ask a question. Please press star followed by one on your telephone keypad.
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And if youre using a speakerphone today, please pick up your handset before asking your question.
Our first question comes from Edison Chu with Deutsche Bank. Please proceed.
Yeah.
Hey, good afternoon, and congratulations you guys have certainly been very busy.
Thanks, Edison just starting off could you.
Starting up so could you maybe talk about the role Boeing will have or could have going forward. Obviously, there was a pretty contentious lawsuit going on and it has been settled what kind of role do you envision them having.
Going forward.
Thanks for the question Edison This is Adam so first.
I am thrilled to have the Boeing company investment and to be working with them and with gone autonomy. So Boeing support I think really can only help just to further the growth and development of the entire industry.
But if I think about the.
The relationship here. This is a multifaceted and so theres a number of components here.
That went into this.
One is boeing's investments and our latest financing round to the collaboration agreement between the parties, where we will work with Boeing and whisked autonomy for future versions of the midnight aircraft.
Three there were warrants provided to Boeing in the west and for the settlement of all litigation between the parties. So hopefully that puts it in perspective here, but we are really excited to.
To work with Boeing and whisk on on these future autonomy programs.
Thanks, Ed and following up on the on the Dod opportunity I know you landed on what the Air Force already and then you mentioned that the Marines visited last week do you have a sense of how big that opportunity can be going forward not trying to pin you down to any number but it <unk>.
As if there is quite a bit of upside and I'm curious how do you how do you think about that.
Growing.
Yeah.
Totally agree with you Edison.
The contract value itself right Theres, a state a number in there, which I think is really exciting and it's the.
It's the largest.
Contract that we've seen in the industry, but it really is the I would think the bigger value here is really the opportunities that go beyond that so we now have a chance to showcase.
Vehicle and its capabilities to all of the different branches of the armed services, which really opened us up to.
Broader applications and then Theres also a global applications of that as well. This also provides another channel for us to sell into.
Side of.
The FAA led civilian side. So it really does provide a nice diversification of revenue.
And allows us to be able to get to market sooner.
And then just purely on the civilian side.
Got it and if I could just sneak one in for Bill.
I know you mentioned kind of evaluated.
Competitive landscape you have a very obviously very bold vision.
How do you sort of see the ramp of the EDA industry from 2025 to 2028 is it.
Talking.
Hundreds of thousands of aircraft across cities, what's the what do you I am sort of a look like in your view.
By that date.
Yes.
Thanks for the question if you think back to the whole premise of innovate 2020 was indeed getting to that 2025. So we're probably talking multiples of 10 20.
Aircraft that Youre in that 2025 time frame and then really scaling up from there.
My estimation from my time sitting in administrators here was that we could certainly be into the hundreds of EV told you by the time, we get to 2028, if not in the thousands are there. So we see that as this take off and as the market demand, which we're seeing globally.
Kind of what we're projecting which is why we really wanted to have the strong framework in place.
Congrats again, thanks for taking the questions.
Our next question comes from Andres Sheppard with Cantor Fitzgerald. Please proceed.
Hey, guys good afternoon congrats.
Congrats on the quarter, thanks for taking our questions and congrats on all the recent announcements.
Maybe a first question for Mark.
Do you mind, just walking us through again that $215 million.
Investments, so the $70 million investment from still Lantus.
Is that in addition to the prior 150 or that's part of that agreement.
Thank you broke it down further $25 million from United I'm, just trying to reconcile that the total amount of Mark if you don't mind. Thank you.
Yeah sure. So a couple of points there Andres one yes that was an acceleration of the $70 million from the prior.
$150 million commitment as we got momentum around that.
The Dod contracting some of the more recent announcements.
They were they were anxious to get in with this round.
We've only currently public publicly disclosed those those for investors for United at 25.
Sponsors at 70 and arc at 44.
Others, we haven't disclosed.
So that for the full $2 15.
Okay got it.
That's helpful. Thanks, Marc and then maybe a question for Adam.
I mean, you're a CNBC interview prior to the the earnings call you alluded.
Where you see the industry moving forward and maybe the later years as it as it pertains to two autonomy I think you went in so far as to say you expect the economy to maybe take a leading role of weighted in the industry. I'm. Just wondering maybe you can expand on what you mean, there and how you see now the collaborations.
Ratio with Wisc.
Integrating and maybe some sort of timeline that you might be able to give us. Thank you.
Yeah. So archer strategy has always been to find the most efficient path to market and in doing that we started by having a pilot a vehicle.
So that's where the existing rules or we.
We can enter into service here.
In the very near future and so we're really excited about that as the industry scales, though and really goes beyond.
Where you start to have thousands tens of thousands hundreds of thousands of vehicles.
The need for autonomy really helps.
Increase a lot of value to the to the industry, one because there's less need for pilots, but two there is an increased.
Potential for safety and so I think that really.
It was a big deal so I guess in the third one here is costing you can also reduced cost by doing that so as the industry scales.
There is a there is an ability to add this capability now for US why this is so interesting. If you think back to our strategy. Our strategy has has been to partner with the best groups that can help us get to market. So we partner with the tier one suppliers like Honeywell and Stefan and Garmin.
And this has really helped us get this you know.
Help us find our efficient path to market, but then we look to the future and we start thinking about future variants of the vehicle and developing autonomy can can be obviously, a very expensive.
Very expensive path, especially because the date about launching into services. It's also harder to predict. So this is a good way for us to leverage and work with a group that probably has the most experience in the world and flight autonomy and allows us to keep going down a path of having piloted vehicles come to market earlier.
And then have an application or the ability to test these vehicles with autonomy and ultimately scale as the technology becomes available.
Okay.
Got it that's super helpful and Super insightful. Thank you, maybe if I could just squeeze one last one.
Related to the Air Force and the Dod contract you've quantified the worth of the contracts, so far but I guess I'm wondering.
Do you see that do you expect the military to maybe open these programs of records for <unk> and in doing so maybe open up a new market I mean, there's opportunities here for for growth within that contract I would imagine so just kind of curious how youre thinking about that really that partnership over the medium to longer term. Thank you.
Yeah, I mean, I I believe that this contract is really just the start for the industry.
We will really evolved into a very sizeable relationship with the U S military since we announced our first contract with at <unk>, we've seen.
Outside interests from pretty much every branch and the armed forces and as we mentioned we hosted the Marine Corps last week and are now.
One of the members of our government Advisory Board four Star General Townsend.
It has been working with us to help crack the code on how to work with the U S Army, who which has the largest aircraft fleet in the world. So I do believe there is very real potential for <unk> industry.
To move into multi $100 million or even $1 billion programs of record with the Doj overtime.
Wonderful. Thank you so much congrats again on the quarter I'll pass it on.
Thanks.
Our next question comes from Savi <unk> with Raymond James. Please proceed.
Hey, good afternoon, everyone.
If I might just follow up on <unk> question, just before and with these investments.
Are you have you shared like at the price point that there'd be made or if theres any warrants that are associated with them.
Hey, Savi this is.
Mark.
And the 8-K.
Closes the pricing of this if we if we look at recent financing activity.
Some of our peers are priced at 20% discount.
We've observed with our bankers other public follow on rounds pricing at an average of eight to eight 5% discount or Ryan our round was actually oversubscribed.
We had a collar structure around it where we priced ours its a roughly a 5% discount which are which are better terms than other deals are getting done today.
That's helpful. Thank you sorry, I missed that.
And then just on the <unk>.
Is it instead of vacation confirming aircrafts in building that.
Are there anything that you need from the FAA in terms of accepting various.
So the vacation plans that you have submitted or just clarifying kind of.
And rulemaking that's needed before you can start that you are or is it really a matter I'm just kind of getting production.
Set up and moving forward.
Hey, Savi this is Tom.
So maybe.
Maybe just to give you a little context there.
And our whole strategy around certification was to keep things as simple and easy as possible and that's why we took this approach of partnering with.
Existing aerospace suppliers wherever we could to leverage their existing certification data capabilities et cetera.
But then on our own.
<unk> towards getting the T C.
The big thing that we've been working through over the past six months is what you are asking about getting those served plan finalized and.
The most important thing there is not necessarily checking the box with the serve plans accepted but more what's the content of those plants or scope of testing so to get at your question specifically, what do we need to to move forward. Once we have those surplus degreed then it's a matter of just executing the steps are laid out in those plans doing the <unk>.
Test doing the analysis to get our T C.
Specifically around conformity each of those start plans, which are.
Very self contained.
Give the specific details of whats delegated what's going to be conformed to what standard to do what tests and then it's purely an execution game.
So again because of the strategy. We took we feel very optimistic that we're going to have a very smooth path and you'll really see us start accelerating here over the rest of the year into next year, because you've laid towards us.
Are they relatively simple path to go and execute.
That's helpful context.
That's super helpful. John and just a clarification have you submitted all of the safety plans or is that like in the area of process out.
So that's kind of where are you in in the summer we find that.
Yeah, Great question. So we have submitted the majority of our certification plans.
There's a couple remaining that we havent submitted those are in less let's say critical areas things that things like noise, which we don't expect it to be a driver on the overall schedule.
We also have started to get our surplus formally accepted. So first one was accepted a couple of weeks ago and there are several others in the queue that we expect to be accepted soon so we're really starting to build momentum very happy with the progress.
Great. Thank you.
Our next question comes from Bill Peterson with Jpmorgan. Please proceed.
Yes, hi, good afternoon, and thanks for taking the questions and a nice series of announcements here I wanted to talk first about the Dod contract and maybe some clarifications around that first.
Within that so as.
The delivery for maybe end of this year early next year is that is that one of the conforming aircraft or is that something different and then I think mark might have said something like this might be like opex offsets.
For some of these early early aircraft I believe you also with the value of the of the contract I'm guessing, there's some maintenance and repair so I guess, how should we roll that through our model and whats the timing for this.
Yes for the entirety of the first announcements, how many years and so forth.
Hey, Bill this is mark so the contract is it is a multifaceted contract it spans a.
Service it spans training and it spans hardware and expand some development work internally as well so.
It's going to be a combination of of cost reimbursement as well as revenue I think as we sit here today, that's still coming together in terms of the timing of how that's going to play out.
We think a preponderance of the development work will happen over the next few prior to certification, but I think the timing everything we havent discussed.
So more to come as we worked through that with the Doj.
And it's one of these aircraft are conforming aircraft or is that an additional aircraft.
Yeah, Hey, Bill this is Tom so the first aircraft will be delivering is nonconforming unit that'll be used for early operational testing.
There are also deliveries of piloted conforming aircraft next year and beyond.
Okay. That's helpful.
I don't know to stability for Adam but.
Here. The FAA is proposing river reserve requirements for power lift aircraft being consistent with larger aircraft 30 minutes data on 45 minutes a night.
Make sure. It is absolutely the case and are these requirements built into the certification plan.
Sure.
Yes, all kind of in first and then than liability give his thoughts, but youre talking about the reserve requirements that came out in the draft as far that the FAA published a couple of months ago.
Just to help give everybody context here, that's such a first draft right and the way the process works is that the FAA kind of works amongst themselves.
But from industry.
Ex parte rulemaking and then they publish initial thoughts and so over the last couple of months.
We've been working with others in the industry to share our perspective on what the right kind of balanced approach looks like skippy.
Skip these rules.
State that obviously supports the required safety, but also efficient operations of the aircraft.
So the public comment period on this draft is closing in the next week or so so we will be commenting along with all of our peers as well as our industry associations gamma and be double way et cetera.
It most likely will end up with more performance based reserve requirements similar to what he also does publish rather than.
Generic VFR endurance kind of number.
But we have obviously looked at what our go to market path would be the draft rules kind of stayed as they were and even in that scenario I'm happy to say, we'd still be very comfortable with being able to operate all the missions. We're targeting in cities. So yes, Billy anything else went out.
Yes, Thanks, Tom Hey, Bill just to build upon what Tom was just saying so clearly during my time, the FAA always wants to hear from the industry. They are limited in those early part of rulemaking from having what they call ex parte communication as you're probably well aware right. So this is Tom spoke to the comments here.
At closing we.
Certainly a similar comment and we're joining the rest of the industry in getting there. So we believe at the end of the day, we will find a middle ground that works, but again as Tom spoke to we're prepared either way, but we're certainly yeah.
Have a strong position that we will come back to the other.
Thanks for that if I could sneak one more too. So this innovate 28 I'm sure. There's some you probably are aware of when youre durability, but.
The document talks about the Oems operators governments.
Obviously, a lot of local buying for infrastructure. So what is the latest thinking around infrastructure, especially with buy in from the public on new sites. So.
Just trying to think if there's a risk to two new sites coming online how should we think about the infrastructure.
As we look towards 2028.
Yeah. Good. Good question you know when we think about infrastructure. So that was exactly why you want to have a forcing function like elevate 2028, which give the time for all of the stakeholders right. So we have the infrastructure in place today that can accommodate that things kick off in 2025 everything is in place low density using.
Currently helicopter routes using the current ADC infrastructure as we scale up we will see the equipment that we will commit to an archery side and we've also heard from the FAA in terms of how they will ensure that they can accommodate within the national airspace at the same time as the FAA is having conversations at the state and local.
Level of forward Archer, we're meeting with stakeholders across the country to make sure. When we think about Virtu ports. When we think about current infrastructure that not only kind of accommodate up but we're prepared to be at scale as we move into the future as well.
Thanks for the insight thanks, everyone.
Our next question comes from David <unk> with Barclays. Please proceed.
Hey, good afternoon, and thanks for taking my questions.
Well.
So Billy.
Just.
I think you've talked about what do you see the industry going forward can you maybe take us backwards and just compare what you expected the yeah.
Process go.
Going into it with how it actually ended up what surprised you about it maybe if applicable how that.
Contributed to you Susan.
Come to Archer.
Yeah. So if I go back that far had all a lot of these parts were already in place what what I feel that I brought to it right was that idea of having a forcing function that is to have something that you could really coalesce around admission with a point in time, and then be able to backward plans on that.
What needs to be accomplished in 2000 and now we're in 'twenty, three and 'twenty three 'twenty four 'twenty five and beyond right. So this is really was the Genesis of 2028. If you ask what has surprised me. It really comes as no surprise at all the FAA has got a great group of professionals in their ability to come together, but more important.
What I would say on behalf of all of US here at our carrying sort of I know Adam has already restated it.
We just extend the note of thanks to the administration for pulling together this really hold our government and approach because we know that's what it's going to take we are certainly prepared to do our part, but we know it takes us the government and the at the state and local level all working together to make sure. This happens.
Great. Thanks, very much and then Britt.
Andy Roddick is there any other color you can give us on the agreement with risk and Boeing.
Specifically on the ability to use data.
This technology is that something you can implement in the next generation of aircraft.
It is in fact, not an autonomous aircraft or do you need to kind of go full all in autonomy to be able to use this technology.
David It's Adam maybe I can give you a sort of a high level answer here.
Archer has a lot of success working with strategic partners and you can see that with our work with United while work with forlorn tests and so we start off finding ways to work together and then really growing the relationship from there. So we.
We are bringing to market a pilot of the vehicle and Boeing and West have spent a lot of time a lot of years a lot of money doing autonomy. So there's just natural overlap and at this stage. We are working together through that to see how to best implement this and we will certainly provide you with more details and updates as that relationship matures.
Okay. Thanks very much.
Thanks.
Our next question comes from Josh Sullivan with the Benchmark company. Please proceed.
Hey, good afternoon, congratulations on number of fronts here.
I know you're still you're still working on surplus, but with the six conforming aircraft assumption for certification do you have an assumption on the number of credit hours. Each aircraft is going to need to execute to get to a certification at this point.
Great question.
This is Tom.
So we do have a very detailed flight test schedule that goes to each of those specific tail numbers and assign exact tests that we're going to do I don't recall the exact number of flight hours off the cuff here, but.
But all of that is like a very methodically planned out in advance and.
You really have to do it that way.
And make sure that each aircraft has the proper systems installed properly can informed as we were talking about earlier on the call. So that you can get credit for the testing.
Got it.
And then as far as the collaboration with Boeing.
When autonomous flight comes to commercial markets up for debate.
But how are your defense relationships looking at the partnership.
Is that a faster avenue, especially now youre going to deliver in aircraft this year.
Guess, what additional development would you need for midnight today on the defense side for autonomous operations, just curious how that might develop.
That's a really interesting question Josh.
Much more color that I can add I do agree with you that there is lots of avenues and applications here that are interesting and we are definitely exploring all of those but I think I would say stay tuned on that one and we'll give you more updates as those start to come about.
Got it.
And then just one last one anything precluding an international defense relationship with the midnight at this point.
Yeah.
I don't believe so I mean, I think the high level rule the way people talk about it is anywhere the U S government sells too.
The different players consulting so that's a pretty broad list.
Got it.
Thank you for the time.
Thank you for your questions.
There are no questions waiting in queue at this time, so I will conclude the conference call. At this time. Thank you all for your participation you may now disconnect your line.
Yes.
Yeah.