Archer Aviation Inc. (NYSE:ACHR), a leader in urban air mobility, reported a robust first quarter in 2024, with significant strides in the development and testing of their flagship electric aircraft, Midnight. During the earnings call, CEO Adam Goldstein and COO Tom Muniz outlined the company's progress, including the surpassing of flight test goals and advancements in manufacturing and international partnerships. Archer's financial health was also a topic of discussion, with a strong liquidity position highlighted and anticipation of increased revenue recognition throughout the year.
Key Takeaways
- Archer Aviation exceeded its flight test goal for Midnight, logging over 100 flights in Q1 and aiming for 10 to 15 flights per day.
- Six conforming Midnight aircraft are being developed for the FAA Certification program, with the first in final assembly.
- Strategic partnerships, including those with Stellantis (NYSE:STLA), Falcon Aviation, and Air Chateau, are set to bolster manufacturing and international expansion.
- Archer's liquidity remains robust at approximately $523 million, with a normalized quarterly run rate core expense between $70 million and $75 million.
- The company's manufacturing facility in Georgia is on track for completion this year, enhancing battery production capabilities.
Company Outlook
- Archer plans to deploy aircraft in the UAE as early as next year and is engaged in a comprehensive joint venture with InterGlobe in India.
- The company is focused on building a network of vertiports and services across India to support up to 200 Midnight aircraft.
- Archer expects revenue recognition to increase throughout the year as various programs ramp up.
Bearish Highlights
- The company anticipates peak spending on certification in the current quarters.
- Revenue recognition is described as "lumpy" and dependent on the progress of various programs and certifications.
Bullish Highlights
- Archer's Midnight is the largest eVTOL aircraft in the industry, with a 6,500 pound max gross weight and a 47-foot wingspan.
- The company is confident in their technology and believes they are undervalued relative to their advancements.
- International demand for Archer's aircraft is strong, with support from investors and the government in the UAE.
Misses
- There is no specific mention of Q1 financial metrics such as revenue or earnings per share.
Q&A Highlights
- The transition of the first Midnight aircraft is scheduled within the next couple of months, with piloted flight testing to follow later in the year.
- Archer has submitted necessary paperwork for DOD military airworthiness and expects approval in June.
- The company is prioritizing cash flow from non-flight test-related DOD programs and leveraging partnerships with top suppliers.
Archer Aviation's Q1 earnings call painted a picture of a company rapidly advancing in the urban air mobility space. With a focus on safety, simplicity, and strategic partnerships, Archer is poised to lead the charge in commercializing electric aviation. As the company continues to hit milestones and expand its global footprint, the industry and investors alike will be watching closely.
InvestingPro Insights
Archer Aviation Inc. (ticker: ACHR) has been making significant headway in its ambitious urban air mobility projects, as reflected in its recent Q1 2024 updates. However, a closer look at the company's financial health and market performance through InvestingPro data can provide a deeper understanding of its current position and future prospects.
InvestingPro Data highlights a market capitalization of approximately $1.22 billion, signaling a substantial size in the urban air mobility market. Yet, the company's P/E ratio stands at a negative -2.65 for the last twelve months as of Q1 2023, indicating that it is not currently generating profits relative to its share price. Furthermore, Archer Aviation's return on assets is deeply negative at -81.18% for the same period, suggesting challenges in utilizing assets to generate earnings.
Despite these financial metrics, an InvestingPro Tip points out that Archer holds more cash than debt on its balance sheet, which aligns with the company's reported strong liquidity position of around $523 million. This could provide some financial flexibility as the company navigates the costly process of aircraft certification and manufacturing expansion. Another InvestingPro Tip highlights that Archer's stock price movements are quite volatile, which could be of interest to investors looking for short-term trading opportunities or those who are considering the timing of their investment in relation to market fluctuations.
For more detailed analysis and additional InvestingPro Tips on Archer Aviation, including insights on cash burn rate, gross profit margins, and valuation implications, interested readers can explore the full suite of tips at https://www.investing.com/pro/ACHR. There are 11 tips in total available on InvestingPro, and users can take advantage of an exclusive offer using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Full transcript - Archer Aviation (ACHR) Q1 2024:
Operator: Good afternoon and thank you for attending today's Archer Aviation Q1 2024 Financial Results Conference Call. My name is Cole and I will be the 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. I'd now like to pass it over to our host, Eric Lentell. Please go ahead.
Eric Lentell: Thank you, operator. Good afternoon everyone and thank you for joining us today to review Archer's first quarter operating and financial results. My name is Eric Lentell, Archer's General Counsel. On the call with me today are Adam Goldstein, our Founder and CEO; Mark Mesler, our CFO; and Tom Muniz, our COO. 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 under the caption Risk Factors. 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 will discuss both GAAP and non-GAAP financial measures. A reconciliation of certain GAAP to non-GAAP measures is included in our shareholder letter posted on our Investor Relations' website. And now, I'll turn the call over to Adam. Adam?
Adam Goldstein: Thanks Eric. At Archer, we remain steadfast in our focus on commercializing our Midnight aircraft. We've design Midnight in pursuit of bringing to market an electric aircraft with world-class design and cutting edge performance capabilities that will make it the desired air taxi globally. When I think back to 2019, when I first sat down with Tom Muniz and Geoff Bower to sketch out a vision for what became Midnight, we were aligned on one single goal to design an aircraft that would capture the market potential as soon as possible, meaning one that is both certifiable and manufacturable at scale, all while being purpose built to addressing the congested 20 to 50-mile automobile commute corridors that gridlock our cities today. We decided a 12-Tilt six vehicle was optimal for this mission. And then we built a full scale 3,500 pound Max gross weight 40-foot wingspan aircraft called Nacre. We shepherded that aircraft in 2022 and 2023 through the full flight envelope, including transition and high speed flight, and then use those lessons to inform the design of the next evolution, our production aircraft Midnight. Today, you're flying Midnight nearly every day and benefiting tremendously from all the lessons we learned from Nacre. In Q1, our flight test team logged over 100 flights, putting us on pace to exceed our goal of 400 flights this year. And we continue to be focused on accelerating the velocity of our flight tested, aiming for reaching 10 to 15 flights a day to mimic commercial endurance. As we continue to expand the flight envelope, I couldn't be more excited to see the aircraft transition in the near future. Midnight's has a 6,500 pound max gross weight and a 47-foot wingspan, making it what we believe to be the largest eVTOL aircraft in the industry. We intentionally designed Midnight at this size to maximize payload and provide necessary comforts such as air conditioning. I believe that our choice to build a higher payload vehicle will prove to be a differentiator as you commercialize this industry. We are on a path to build six conforming Midnight aircrafts to be used as part of our FAA Certification program. The first of those is in final assembly now and on track to begin piloted flights later this year. Yesterday, we published a comprehensive video tour of our Integrated Test Lab and production facility in California. Given our progress in engineering the aircraft and on our certification and flight test programs, we decided to move forward with installing our high scale automated battery pack manufacturing line earlier this year. This line is capable of producing enough battery packs to support our planned production ramp in Georgia. I am confident that we are leading the way in the industry with this capability and that our investment there will pay off for years to come. We have also made similar investments across our supply chain, having spent over $50 million with our suppliers to ensure they are able to achieve our timelines and the production throughput we will need to support our aircraft manufacturing plant. As these capital expenditures and upfront non-recurring costs roll off, I expect we will naturally reduce our burn and cash needs meaningfully. As we shift into preparing for commercial launch heading into next year. One key piece of the strategy has been our partnership with Stellantis. As we have indicated we are evolving our relationship to position Stellantis to be our contract manufacturing partner so that we can take advantage of their proven ability to produce vehicles at scale, which will in turn reduce Archer's cash outlay necessary to purchase materials and equipment as we start to scale production of our aircraft. We believe this capital-light strategy will put us in a unique position to rapidly scale production, while minimizing cash requirements. I'm very pleased with how we have managed liquidity through this period where we have made what should be our most substantial CapEx and non-recurring investments. Our liquidity and cash position is nearly flat to where it was one year ago. As the Founder, CEO, and the company's largest shareholder, I am sensitive to when and how much capital we take in as we balance our need and desire to grow with potential dilution. From the beginning, we have chosen a partner-first approach with some of the world's greatest companies and investors like Stellantis, United Airlines, Abu Dhabi, and Moelis (NYSE:MC), who believe in the value of what we are doing and are willing and able to help us ensure we get the capital we need when we need it. I continue to believe we are massively undervalued relative to the proprietary step change in technology we are creating, and we'll remain opportunistic about how and when we've taken capital on our journey to commercialization. I'm lucky to experience the day in and day out progress of making electric aviation a reality. But nothing tops getting to see the emotional reaction people have when they first experience our aircraft, no matter where we are in the world. I'm incredibly excited about turning those moments into an everyday reality. Just last week, I was in D.C. to celebrate the opening of our D.C. office with Billy Nolan, who prior to coming to Archer was the acting FAA administrator and have now transitioned to be our Chief Regulatory Affairs Officer, overseeing a team of industry and government veterans who are working on the important policy and regulatory issues our industry is facing. While in DC, I had the pleasure of meeting with lawmakers, the FAA Administrator, Mike Whitaker, and his leadership team and senior administration officials at the White House to update them on our progress and to discuss the importance of the FAA Reauthorization Bill and the upcoming SVOD. I'm grateful to Administrator Whitaker and his leadership team for all of the progress our two teams have made together over the last several months to advance Midnight towards commercialization. Tom will provide more detail on our certification progress, which we've also highlighted in our shareholder letter. I want to now shift gears and take a moment to touch on the momentum we are seeing from commercializing flying cars all over the globe. There has been a noticeable shift over the past 12 months. Recently, I spent time abroad at the invitation of international regulators and partners, new and perspective, and I can say what I've witnessed firsthand is that never before has the excitement in demand for urban air transportation and higher than it is today. The world cities are growing increasingly congested, while alternative transportation options remain challenging to develop and implement and world leaders have taken note of the potential impact our industry can have on their cities. I'm humbled by the opportunity that Archer and our industry have to contribute to making a difference by clustering in this new era of electric aviation. Just last month, Midnight made its debut in Abu Dhabi for the Inaugural Abu Dhabi Mobility, where the UAE government ratifies what I believe to be the world's largest unified governmental sign of support for our industry outside of the United States. As part of that, we signed a landmark framework agreement with the Abu Dhabi Investment Office, ADIO, that sets out their plan to provide us with an unprecedented investment of several hundreds of millions of dollars to accelerate our launch of air taxis in the region. Our team is proud to be partnering directly with the Director General of ADIO, his Excellency [Indiscernible], with whom we've worked closely over the last year to get to this point. Under the leadership of [Indiscernible], who we were proud to host last month in the country's capital city. Aviation in the UAE, like most other countries, is regulated federally, so we are working in close coordination with the GCAA, the General Civil Aviation Authority to plan for the safe integration of our aircraft into the air space across Abu Dhabi, Dubai and the seven Emirates. I want to offer more insight into what these early operations are shaping up to look like. There are existing skilled operators there who have meaningful experience operating aircraft within the complex UAE airspace. Rather than building a new operator to directly compete with local incumbents, we've chosen to take a more pragmatic approach to launching this market through working with commercial leaders there like Falcon aviation and Air Chateau. Falcon, under the leadership of the Highness Dr. Sheikh Sultan of the UAE Royal family, has decades of experience transporting passengers within and across Dubai and Abu Dhabi via helicopters. And Air Chateau is one of the country's newest and most forward-leaning helicopter operators located at the newly announced Al Maktoum International Airport, the future home of Emirates Airlines and soon to be the largest airport in the world. We remain focused on executing on a partner-first approach, and we look forward to continuing to work with the DCAA, ADIO, and the Department of Municipalities & Transport to enable commercial operations of our air taxis in the country as soon as late 2025. I recently also spent time in India and I'm more convinced than ever that India could become the largest urban air mobility market in the world, just as it has already become one of the fastest-growing electric vehicle markets. We're proud to be partnered with Rahul Bhatia, one of Aviation's greatest pioneers in this company, InterGlobe. Through InterGlobe, Rahul has founded and helmed the third largest airline in the world, Indigo, a nearly $20 billion Juggernaut, holding two-thirds of the domestic Indian market, with an extensive in-country and global influence and respect for its innovative approach to customer and operational excellence. In our sector, we are leading the way with maturing our plans and partners in what I'm sure can be one of the largest markets for eVTOL aircraft. So, I'm very happy with the work our team is doing there. I want to be clear that our partnership with InterGlobe is intended to extend far beyond a co-marketing arrangement or simple airport trips. Beyond the airline, InterGlobe is also the country's third largest hospitality player with an extensive real estate portfolio as well as UPS' JV partner in the region. As such, this year, we are working to finalize a comprehensive JV with InterGlobe, which is contemplated to not only purchase an initial fleet of up to 200 Midnight aircraft to begin operations in Delhi, Mumbai, and Bengaluru, but also to build out an extensive network of vertiports and service across the country to include fleet operations, maintenance, and pilot recruitment and training. As you can imagine, InterGlobe also has a deep working relationship with India's Director at General of Civil Aviation, the DGCA, and our team has set time planning our approach with the regulators Director General, Mr. Vikram Dev Dutt as well as his broader leadership team to make sure we have a regulatory pathway to launch in India. UAE and India are just the first of our announced international markets. So, look for us to continue sharing advancements here as we near commercialization. Also, as I mentioned, the global demand for Midnight is clear, and I'm excited for us to share more advancements on the international front here soon. Of course, a go-to-market strategy is only as good as our product, and I'm excited for Tom to share a deeper update on the Midnight's progression. Tom has more experience leading eVTOL aircraft program than just about anyone in the world. Midnight is the eighth full-scale eVTOL aircraft he has worked on, and those aircraft have flown over 2,000 flights combined. Now, that we have over 750 employees at Archer and given the progress with Stellantis and the contract manufacturing relationship that we are developing, we have elevated Tom to the role of Chief Technology Officer with 500 engineers under Tom's organization. As part of that, we have recently shifted the manufacturing supply chain and quality departments to fall under a new production leader, Tony [Indiscernible]. Having spent 23 years at Apple (NASDAQ:AAPL) in leadership rules, Tony has deep experience across complex hardware programs. His fingerprint span nearly every major Apple product from the iPhone to the iPad to the Vision Pro from R&D prototyping and contract manufacturing with Apple's many CM partners. I couldn't imagine a better deal than the combination of honing Tom running engineering and Tony running production to see our program through commercialization. With that, I want to step back and reflect on all the progress we've made to-date. Electrification of aviation continues to increasingly emerge into the mainstream every day, which only further motivates my team here at Archer and underscores our collective commitment to pioneering advancements and transportation. Our valuation today only captures a small fraction of the incredible ambition we have to make sustainable aviation in everyday reality. We stand at the forefront of a transformative era for imagination innovation and dreams take light. With that, I'll turn it over to Tom.
Tom Muniz: Thanks Adam. This past quarter, my team has successfully achieved an ambitious series of milestones across aircraft testing, FAA certification and manufacturing. From the outset, I've been clear that our strategy has been to keep the design for Midnight as simple as possible while delivering industry-leading performance balanced with safety. As you know, we decided to do this by partnering with what we believe to be the best suppliers in the aerospace industry rather than take on the cost and risk of vertically integrating every aspect of a novel aircraft program. This pivotal decision continues to pay dividends that are more clear today than ever as we continue to make rapid progress towards commercializing Midnight. This is most evident when you look at the strides we have made with our flight test program, our team continues to accelerate the cadence at which we are flying and as Adam mentioned, I'm incredibly proud that we flew over 100 flights in Q1 and remain on track to exceed our goal of completing over 400 flights this year. Most importantly, we've safely and steadily advanced Midnight through the envelope expansion phase of its flight test program, and we have now entered the transition portion of the flight test campaign. As a reminder, transition is the fight regime between hover and cruise, where the aircraft is flying forward with some lift being generated by both the wing and the propellers. As you recall, our team completed the full transition of Maker a couple of years ago, generating invaluable data to support the Midnight aircraft we're flying now. Over the coming weeks, we will continue to fly Midnight at incrementally faster airspeeds until we reach the full transition to cruise flight. We are on track to accomplish the seminal milestone in the near future. In parallel, our flight test team is starting to ramp up test planning and preparations for us to commence piloted flight testing, which we are on track to begin later this year. On the testing and certification front, this past quarter, we significantly ramped up our testing efforts to drive both safety and flight readiness for our upcoming piloted flight tests later this year as well as our ongoing certification program with the FAA. This past quarter has seen extensive testing across many different facets of the aircraft. I'll take a few minutes to highlight some of the key initiatives to illustrate the type of work we're doing and the progress we're making. Starting with material testing. As of this past quarter, we have now completed more than 60% of the FAA for credit testing for composite structural materials. We also recently completed several structural component level tests to validate our structural analysis methods. This data supports not just our safety of flight efforts for our upcoming piloted fly testing, but also our aircraft structures certification effort. This past quarter, we also successfully completed structural proof load testing of the fuselage for the piloted Midnight aircraft, ensuring that the structure can safely withstand the loads we expect it to see in flight. Moving on to landing gear. The Midnight aircraft has the unique and highly beneficial capability of landing both vertically like a helicopter and conventionally like an airplane. This gives Midnight a distinct operational and safety advantage over other eVTOL aircraft that can only kick off and land vertically. This ability provides additional use cases, increased safety of our operations and increased redundancy to the aircraft platform. With our partner, Macair [ph], we recently completed a multi-week test campaign where we functionally tested the landing gear to verify the design can withstand any possible landing scenario anticipated, even for the harshest of imperfect landings. These harsh landing conditions, in part was defined as limit loads, which are loads that are extremely unlikely from a probabilistic standpoint, but possible by conservative definition. Additionally, because Archer is meeting the certification criteria for both helicopter and normal aircraft category landings, Part 27 and Part 23, respectively, we tested each landing configuration twice, once with representative tire spin for conventional landing and once with a static tire for vertical landings. While we performed this testing to support safety of flight for the first pilot at Midnight, the test procedures were reviewed and supported by both Macair and FAA designated engineering representatives or DERs. Macair has established itself as an expert in this area through successful strategic partnerships with many other major aircraft OEMs that supply sophisticated, certified products in the aerospace and defense sector. The data review indicates that the landing year met or exceeded the design targets in all cases. Additionally, because this test campaign directly mirrored the testing that will be done for certification credit, there is now a high degree of certainty that Midnight's landing gear will pass the certification testing process. Another capability of Midnight that we believe will be a differentiator is the high-performance environmental cooling system from Honeywell (NASDAQ:HON) that we are capable of integrating into Midnight, thanks to its size and payload capability. We're making great progress on the test and certification of this system, benefiting greatly from Honeywell's deep certification experience. Testing is progressing well, and Honeywell is working on safety of flight declaration letters for several system components, indicating that they are safe to fly on the piloted aircraft. Certification test plans are being completed now with FAA DERs engaged in every step. So all these releases are likely to be final and can be used in our full credit testing for certification later this year. We have tested several environmental control system components in our system integration lab here in California, and we expect to kick off testing of the entire system connected to the rest of the aircraft systems in our Iron Bird Lab in the coming weeks. Moving on to batteries. One of the most challenging tests our aircraft will face as part of its FAA type certification program is the battery pack drop test. For this test, we dropped Midnight battery packs multiple times from 50 feet at up to 100% state of charge to simulate extreme impact scenarios. Not only did the battery passed the test, but they remarkably still functioned after each drop. This is a testament to the safety and durability of Archer's proprietary pack design and our choice to clinical cells over more novel cell designs that could have introduced risk into our program. As a reminder, we announced earlier this year our SpaceX agreement with NASA to collaborate on battery cell safety testing, and we'll provide an update on this collaboration in the quarters to come. Lastly, we've made significant progress on environmental and functional testing for many elements of our avionics and flight control system. As a reminder, Midnight is a fly-by-wire aircraft, meaning that the pilot inputs go to a computer where software processes these inputs along with other aircraft information to decide what the engines and actuators should do to achieve the pilot's intent. This makes our aircraft easier to fly and safer for passengers. This system features components that are sourced from several leading suppliers, including side sticks sourced from Crouzet. These, as with several other components have deep certification heritage as they feature a design that is derived from what is found on the Airbus A220. We've now successfully completed environmental qualification testing on the side sticks, flight guidance panel, display controller, Wi-Fi and LTE Datalink, audio processor, navigation systems, transponder, and radio optimeter. On the process side of certification, this past quarter, we finalized additional issue papers with the FAA, covering needs of compliance for our battery as well as occupant protection, enabling us to finalize our methods of compliance and test plans. Last week, we had a productive face-to-face meeting with the FAA administrator and aviation safety leadership in Washington, D.C. They reiterated their support for certifying and implementing new advanced our mobility aircraft like ours and shared that SFR, which contains the operational rules for all of the industry remains on track to be published as a final rule later this year. This is great news as this effort remains right on schedule based on the target the FAA set about two years ago. The FAA team also reiterated that our air worthiness criteria is on track to be published this month in the Federal Register. On the manufacturing side, we are advancing the integration of the first Midnight aircraft that will be used for piloted testing at our integrated test lab and manufacturing facility here in California. Primary structural parts and assemblies for the next two flight test aircraft are in production across our supply base, along with many other system components. This past quarter, we also issued purchase orders for some long lead-items for our first production aircraft to be built in 2025, which signals our confidence in our design maturity and manufacturing readiness. As we announced earlier this week, our battery pilot line has been completed at our California Lab and manufacturing facility. This state-of-the-art line is where we will build the batteries for the pilot test aircraft we will use for certification testing and where we will build battery packs for the first several years of production. This high-volume manufacturing line will be capable of ramping up to 15,000 battery packs per year. This is a great example of how our strategy to choose simple, robust designs, optimized for safety and manufacturability is setting us up to have a scalable product and business. We also remain on track to complete construction of our high-volume manufacturing facility in Georgia later this year. We have now completed two of the most challenging phases of construction, rating of the flight and pouring the foundations. Because of the topography of the site, we had to move roughly 450,000 cubic yards of dirt to balance the site. This required our team to navigate through large deposits of rocks that record blasting. Now, that the foundations are complete, our team is focused on standing up the exterior walls, which are on track to be completed in June. We shared some photos of this latest progress in our Shareholder Letter today. Construction is scheduled to wrap up this fall, and we expect to receive our occupancy permits and start assembly of the first tenet aircraft in this facility before the end of the year. As you can see, all of the building blocks that we've been working on for the past few years are coming together, from flight testing to certification to manufacturing, all in support of our North Star goal of getting to commercialization as quickly and efficiently as possible.
Mark Mesler: Thanks, Tom. As you can see from what Adam and Tom have discussed and what we have disclosed in our Shareholder Letter, we are making tremendous progress across all the key areas. I previously discussed in detail how our operating expense structure during this phase of the commercialization process includes non-recurring investments to key suppliers to enable the development and manufacturing setup of many of our Midnight components. We have also discussed that approximately 80% of our parts are sourced from the existing aerospace supply base. Recall that we believe that strategy allows us to execute our product development process with lower operating costs by allowing us to avoid the ongoing structural spending that would be necessary to develop those other technologies ourselves. Additionally, once we transition into the commercial manufacturing phase of our program, we will not have to build out manufacturing capability, capacity and headcount to manufacture at scale the components that we are sourcing from our mature aerospace supply base. And that capital-light strategy is further supported by our joint goal with Stellantis for them to be our contract manufacturing partner for our Midnight aircraft. As we are working through this period of significant supply chain build-out and test aircraft manufacturing, I wanted to provide an update and some transparency on how to be thinking about our quarterly spending profile. Recall that our current quarterly spending profile is made up of our core expenses for ongoing operations, in addition to non-recurring investments with suppliers to establish Midnight supply base and material expenses to build our first six conforming Midnight test aircraft. Our total non-GAAP operating expenses for Q1 of 2024 were approximately $89 million. About $17 million of that amount was made up of non-recurring investments with suppliers and material expenses for Midnight aircraft. Backing out those non-recurring and material expense amounts, yields about $70 million to $75 million of normalized quarterly run rate core expenses to operate the business were about $280 million to $300 million of annualized run rate spending. That level of spending is our core structural operating spending that will persist through 2024 and into 2025. As we complete the buildout of our supply chain and finalized the manufacture of our six test aircraft, we expect to see non-recurring investments and mature expenses start to tail off in late 2024. Within that context, we're always remaining highly disciplined with our spending to get the commercialization in the most capital-efficient way possible. We ended Q1 2024 with approximately $523 million of liquidity, which included $406 million of cash and cash equivalents on our balance sheet, combined with the remaining approximately $117 million of debt and equity proceeds available under various capital arrangements. We also have another $6.7 million of restricted cash. Specifically, quarter-over-quarter cash decreased by $59 million from $465 million to $406 million. Switching to expenses. On a GAAP basis, total operating expenses for Q1 2024 were $142.2 million, which included approximately $48.3 million of non-cash equity-related expenses, including $40.7 million of stock-based compensation and $7.6 million of warrant expenses. Non-GAAP operating expenses, which are a proxy for cash expenses and they don't include non-cash equity-related expenses were $89.1 million and within our estimates range of $75 million to $95 million. As I outlined earlier, we incurred approximately $17 million of non-recurring costs and material expenses with our suppliers during the quarter as we continue to build out our supply chain for Midnight and procure parts for the manufacturer of our six conforming Midnight aircraft that we will use for FAA for credit flight testing. Within that context, for Q2 2024, we anticipate total non-GAAP operating expenses of $80 million to $95 million. One final note. Capitalization and liquidity have always been and continue to be a top priority for us. The strength of our liquidity is driven from a number of factors, including: one, our capital-light approach to commercialization. For example, we are leveraging the existing aerospace supply base for the development and manufacture of 80% of our parts, allowing us not to have to invest in R&D resources and people and capital to manufacture all those components. The impact of this strategy is also manifesting itself in the construction of our high-volume manufacturing facility in Georgia, where we are only investing $65 million in the construction of the factory that will enable capacity of up to 650 aircraft per year. As a reminder, that $65 million is being financed for a factory loan with favorable commercial terms with our Georgia banking partner, Synovus (NYSE:SNV). Two, our business model, where we will be selling aircraft from our approximate $3.5 billion backlog, allowing us to get periodic predelivery payments to help fund working capital for inventory purchases as we get closer to commercial production of aircraft, similar to the $10 million PDP that we received from United on the first 10 aircraft last year. We fully expect to announce further PDPs as we continue to mature our commercial arrangements with operators. And finally, three, by the strong partnerships we have forged with all established companies, especially with Stellantis. Stellantis has continued to be a great operating partner. We also believe there are other partners with manufacturing, commercial and other strategic interests that have similar capabilities to support Archer on our journey to leading this sector into commercialization. In summary, it is these factors that put us in a position to continue to opportunistically and favorably capitalize the company as and when we need to. And with that operator, we will now open up for questions.
Operator: [Operator Instructions] Our first question is from Edison Yu with Deutsche Bank. Your line is now open.
Edison Yu: Hey, good afternoon. Thank you for taking our questions. The international opportunities are currently gaining a lot of momentum. Can you give us a sense how we should think about the business model economics for places such as UAE or India? And what would you say is a realistic range for the amount of aircraft you can place there in the early years?
Adam Goldstein: Hey, Edison, this is Adam. So, yes, I think you are correct, we are very excited about the international opportunities, and even the entire GCC in the Middle East. We haven't given any specific guidance on specific fleet sizes, but maybe here's a way for you to think about it. One is the region is very leaned in and so I have increasing confidence that the GCC will be one of the first places that we deploy aircraft in the world and we've talked a lot about the UAE specifically on that note. As you look across the entire GCC, we actually believe that the market will be much bigger than people think you can see this happening in the airline industry. So, the region built three of the largest and most revered airlines, Emirates, Qatar, and Etihad. But where I really get excited about excited about the volumes is more on the India side. And so I continue to believe that India has the potential to be one of the largest eVTOL markets in the world. And so we're working with InterGlobe to set up all those operations. So, we'll start producing aircraft out of the factories in Georgia as soon as next year. But there's definitely opportunities also to build local facilities and there's a lot of excitement for us to do that there as well.
Edison Yu: Thanks. And just a follow-up to that. I know you mentioned hundreds of millions of support from the UAE. Can you give us a sense of what that might look like, in terms of is that you need to do something to make that happen? Is there a milestone-based and how or when that will start flying through?
Adam Goldstein: Yes, so I'll share some more specific details on that in the coming months. But it's a multiyear agreement. And it's focused on us reaching scale in the region and with our base being in Abu Dhabi. It's a comprehensive framework agreements. And it's intended to make this move of ours very economically attractive, and for us to accelerate things like, subsidizing aircraft and operations, and really enticing us to bring engineering to the region. The timing of investments, specifically will be tied to our ramp up of activity there.
Edison Yu: Great. Thank you.
Adam Goldstein: Thanks Edison.
Operator: Our next question is from Andres Sheppard with Cantor Fitzgerald. Your line is now open.
Andres Sheppard: Hey, guys, good afternoon, and congratulations on the quarter. And thanks for taking our questions. Adam I want to maybe build on that UAE and India market question. I'm curious as to your vision as to entry into these markets, maybe I'm less interested, obviously the potential there is massive given the infrastructure in the market, but just more curious on kind of how you see the potential to enter those markets, in the near-term? And I guess, is there an opportunity to enter either of these markets without a TC? Would that be something that will be feasible to try to understand? Thank you.
Adam Goldstein: Yes, so I'll start and then I'll hand it over to Tom to talk about on the certification side. And I'll start with the UAE. So, first is we've done a lot of analysis with our partners and with the government on the UAE to identify dozens of routes, which make a lot of sense for us to commercialize the region. And so our plan right now is to launch with initial interest city routes in Abu Dhabi as early as next year, and then quickly expand to flights between Abu Dhabi and Dubai and then expand from there. And of course, looking at across all seven Emirates as well. So there's several kinds of factors that we look at. One is the ecosystem there, it's been incredibly supportive. So, we are not going to go compete with local operators there who are well-established, we are going to partner with them. And so we've announced several of those partnerships, one with Falcon Aviation and the other with Air Chateau, both which have placed orders for Midnight aircraft. With Falcon, they've also announced their first vertiports, one is in Dubai at the Atlantis Hotel in Palm Jumeirah, and the other is in Abu Dhabi [Indiscernible]. And both have operational helipads today. So, it's not like there's a huge gap of time that will take took to launch there. And so this, obviously unlock the inter-city routes, but it also helps unlock the service between the Emirates as well. And we'll be sharing more on those specific routes too. The next category to think about is really on the investment side. And so we've had big support from the investors as well. So, Abu Dhabi Sovereign Wealth Fund, [Indiscernible] has been an early Archer investor, and we've seen big support from them, but also support from other sovereign wealth funds within the region. And Abu Dhabi investment of its ADIO as well. We are -- we announced that agreement -- that landmark framework agreement that covers hundreds of millions of dollars of investment to accelerate our plans in the UAE. And I believe we're the only ones in the sector to announce a deal like that. And that comes with actual capital from the government to help us become operational. The other side is really on the government commitment. So, in the UAE, we've had the opportunity to show Midnight to His Highness, Hamdan bin Mohammed bin Zayed of the Abu Dhabi Royal family and His Highness Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, the Crown Prince of Dubai, and another -- number of other members there of the ruling family. And so we've seen a huge amount of support from really from the entire government there, as well. I'll have Tom, you know, just answer some of the certification timeline questions as well.
Tom Muniz: Yes, absolutely. So, one thing, one thing to keep in mind is that the state of design for the aircraft is the U.S., right? That's the country where we're based. And the framework that we're using to certify has been put together by the FAA. So, as Adam said, even with that being the case, we're seeing interest, really across the globe from different regulators, and the GCAA and UAE is one of those. So we've been engaged with them. And we're still engaging to talk about where we are in the certification process. Our North Star is that will only put a safe airplane into market. And we're very aligned with the UAE GCAA on this, and honestly, wherever in the world, we're aligned on that. We think the process that we're marching down with FAA is really clear and we're continuing to execute on that. So I can't tell you exactly when we'll be to market in UAE or U.S. or any other country. But what I can tell you is that we'll be ready to bring safe aircraft market as soon as next year.
Andres Sheppard: Got it. Thanks, guys. That's super helpful and detailed. Tom, maybe just to follow-up on that, I guess, would you see a situation where you could enter and operate in these markets without a type certificate? Not that you wouldn't obviously get that just in the event of a potential delay in that process, could there be a possibility to enter these markets without yet having that type certificate?
Tom Muniz: Sure, so obviously, I can't speak for the regulator's that are in charge of that. But what I can say is, you know, we continue to execute the CERT program that the FAA and us are working towards, and, as other regulators push to bring aircraft like ours into the, into their ecosystems into their countries, they can leverage the data that we are gathering for that sort of effort. So, certainly there will come a point where we feel our craft is safe and ready to launch, there will be a time that the FAA agrees, and they've reviewed the data and so other regulators kind of need to determine their own mechanisms for making the same conclusion.
Andres Sheppard: Got it. Okay. No, that's super helpful. I appreciate that. Maybe just one last one for Mark. So, you incurred -- I think you mentioned the stock base calm and a one-time expense. Should we consider that into future quarters as well? Or, in other words, should we be thinking about that, but is that resolved? Or is there any other expenses that you could incur I guess throughout the year? Thank you.
Mark Mesler: With respect to stock based comp Andres, our typical run rates in that $25 million to $35 million range. So, I think that's the range, you could consider going forward.
Andres Sheppard: Okay, wonderful. Thanks, guys. Congratulations on the quarter again, and I'll pass it on.
Adam Goldstein: Thanks Andres.
Operator: Our next question is from Savi Syth with Raymond James. Your line is now open.
Savi Syth: Hey, good afternoon, everyone. I was just kind of curious as you're building these aircraft, and any insights and learnings as you build to kind of the next certification aircraft versus your first Midnight build?
Tom Muniz: Yes, that's great question. Hey, Savi, this is Tom. Yes, we're learning a ton building these first confirming aircraft. So, I think it's really two categories of things. The first is putting the aircraft together and learning about essentially, the design and assembly process of the aircraft. So, if you remember, because of the strategy, we've taken, our manufacturing outside of batteries and electric engines it's really just final assembly, integrating all of the LRUs we get from suppliers, big aerospace companies who always talk about. So, certainly, there's some learnings there, those are just kind of the usual type things. So, this is like the eighth different aircrafts have gone through the integration process for and here at Archer, we get better and better at that every time. But one thing that I think is important to keep in mind is we're not just building like one aircraft here, this -- building this fleet is really teaching us how to set up a scalable manufacturing process and overall production system. So, a lot of learnings are also coming from that side. So things like setting up our manufacturing execution system that collects data as we build this aircraft, how that ties in, implements all of our safety processes and our quality manual. So all these things are really critical to both put us in a position to scale manufacturing, and get our production certificate with the FAA to enable us to ramp up here in the coming years.
Savi Syth: That's helpful color. Thank you, Tom. And then maybe Mark, just the Boeing (NYSE:BA) adjustment this quarter, could you kind of give a little color on what that was? And do we is that kind of fully settled? Do we expect kind of more going forward?
Mark Mesler: That's fully settled, Savi, recall that that was a series of agreements that we had with them for the technology resolution arrangement we had with them. There was a final true-up mark-to-market adjustment that we had to make as that period ended in February. So, you won't see any more of that. That's the last adjustment we had to make.
Savi Syth: Got it. Thank you.
Operator: Our next question is from Austin Moeller with Canaccord. Your line is now open.
Austin Moeller: Hi, good evening, Adam and Mark. Just my first question here, how much cash you expect to use on building the additional Midnight prototypes needed for certification? And how does that compare to the $520 million of existing liquidity?
Mark Mesler: Hey, Austin, this is Mark. So, we haven't disclosed what the cost of each of those aircraft are. I mean, they're early essentially prototype bills. However, the cost of those is 40 contemplated within the $520 million of liquidity are going forward. So, we're pretty comfortable there.
Austin Moeller: Great. And just to follow-up on the certification process, how many flights do you think you'll need to conduct from now through 2025 to generate the data either needed for type certification or for the FAA pilots to feel comfortable with getting on board and doing their own flight tests?
Tom Muniz: Yes, absolutely. So, as you referenced, there's kind of two categories of flights there. So there's the company testing, that's what we do ourselves to gather data to prove to ourselves that the design is safe. And then there's FAA pilots or designees flying a post, TIA. So, TIA is an acronym stands for Type Inspection Authorization. That's basically the gate that enables the FAA to start flying on their aircraft. I don't have an exact number of flights or hours for you, but what I can say is for this fleet of six aircraft that we're building, each one has a very specific set of test objectives to go gather. And they're sequenced quite logically into bins of objectives and things. In terms of orders of magnitude. We're talking about, like hundreds of hours of testing here, I guess not into something like 1,000 hours of testing across these activities.
Austin Moeller: Awesome. That's very helpful. Thanks.
Operator: Our next question is from Josh Sullivan with Benchmark. Your line is now open.
Josh Sullivan: Hey, good evening. Just follow-up on the cash question here. What are the large tentpoles left for the cash needed ahead of certification? You gave some corridors there during the comments, but when do you think cash is peak?
Adam Goldstein: What was the last part of that Josh?
Josh Sullivan: Just what when do you think the cash outlays peak heading into certification?
Adam Goldstein: Let's recall -- I mean, consistent with what we discussed in the past the big buckets through this period are the non-recurring costs with our vendor base materials to build out the aircraft and some of the CapEx, that has gone into building out our production facility here in California, as well as the Covington, Georgia facilities. I think you can think about it is these corridors that we're in right now are the are the peak spending quarters with respect to building out those -- that functionality and those capabilities. So, the guidance that I provided in the $80 million to $95 million range as we sit here today, and our model show that we are we are, sort of, at our peak spending rates right now, given the current construct of the company and where we are, I think that answers -- I think, materially answers which are which are asking.
Josh Sullivan: Yes, that's good. And then just as far as, you know, the cadence of recognizing the works, related contracts, when should we see kind of that that revenue, really ramp?
Tom Muniz: Hey, Josh, so, over the course of this year, there are a lot of programs that we have slated to recognize, they range from anywhere from flight test to training work to simulator work. And so we are receiving different payments a long time. Last, I think fourth quarter, we received a few million dollars, and I think this year, we've already received some additional cash as well, and so it'll be lumpy, that will come through there. But in order of magnitude, I think it'll start to increase as we go forward through to the end of the year.
Josh Sullivan: Thank you for the time.
Operator: We have a question from Bill Peterson with JPMorgan. Your line is now open.
Bill Peterson: Yes. Hi, good afternoon, and thanks for taking the questions. I'd like to ask what remains to be achieved before the full transition? And I guess what does near future mean? Does that mean expect us within the current quarter, the third quarter? And then on piloted flight testing, it does appear at least relative to maybe this time last year, your you are delayed relative that prior expectations. And this is supposed to be even an early 2024 or maybe first half now it's there later this year? So, I guess what has led to the delays? And what gives you confidence you'll be able to do piloted testing before the end of the year. What are you doing to train pilots and get ready for that?
Tom Muniz: Yes, absolutely. Hey, Bill this is Tom, so first part of your question with regard to transitioning the first Midnight aircraft. Just to give you some context for setting the stage on that, we transitioned maker for the first time a couple years ago, and it took us a little under 12 months to get through that, which I was super happy with. I think the team did great. Midnight, we started flying in October, six or seven months ago, and you're asking for a little more precision on the date. We're getting pretty close to transition. So, I'm confident it will happen in the coming -- couple months here. So, really excited about the progress there, learning a lot, ramping up flight testing in general. Your question regarding piloted flight testing. So, basically, safety comes first and we're taking thoughtful, methodical steps here working towards that milestone. The engineering team that we have 500 or so folks, the vast majority are all working towards that goal. And so if you look at our Shareholder Letter, you can see the aircraft coming together, you can see pictures of the Iron Bird, we're getting deep into testing, talked about getting safety of flight declaration letters from suppliers, and you know, doing our own testing. So everything's coming together to make that happen this year. Would I like it to be faster? Absolutely. But do I think we're doing a great job? I think we're doing awesome. So, we'll fly when it's safe to fly and when we're ready, but feel super good about the progress.
Adam Goldstein: Hey, Bill, this is Adam, just to add a little color on there. This is the progress of you know, starting a flight test campaign, going through the full flight envelope, including transition is, is something all of the aviation companies have to go through, this is not a unique thing to Archer. And so I know it gets talked a lot about with Archer, because the difference between maker and Midnight, they physically look different, even though they're both a 12-12-6 configuration, we use the same aero model, we use largely the same flight control schemes. So, everyone's going through the same the same thing. And so I actually believe the progress we have has been quite incredible transitioning maker within less than a year, and we'll transition Midnight even faster than that. And so I know, that's not as necessarily as easy to understand with some of the programs, we just have to be very transparent about it. And so we are -- you should expect to see a lot of flight test content and we're really excited about where that where that program is today.
Bill Peterson: Okay, thanks for that. And knowing you have a lot of go to market opportunities and overseas opportunities. Now, it does feel, at least at a glance said some of your DoD efforts appear to be either deemphasize or in any case, it'd be good to get an update on the $1402 million program. I think in the second quarter last year, you'd expected to deliver actual aircraft to the DOD, are you still planning that? I guess, can you just update us on milestones of DOD? How should we think about the opportunities with the DOD this year, and maybe next year?
Tom Muniz: Sure, so we submitted all the paperwork necessary to begin the delivery process to the DOD, and expect to have our military air worthiness in June, and then delivery afterwards. But that being said, we are balancing the priorities of the entire program. And in the near-term, we actually believe will receive more cash from DOD programs that are not flight test related. So, for example, there's $5 million to $10 million of payments that we can receive from the DOD, that are related to other items, to testing items to training items simulator work. So, we'll kind of take it as it comes. But I think those -- we're really trying to prioritize where a lot of the dollars will come from, and a lot of them are coming from some of those other items.
Bill Peterson: Okay, thanks. If I can just take it one more, one of your peers talked about having a kind of full scale testing capability, I guess, in terms of your testing for credit. Do you have the tooling you need? Or do your steer suppliers for your parts and systems as a test capability? Or do you need to access third parties just try to get a sense on your test capabilities, whether it be in house or to partners to your full credit testing programs?
Tom Muniz: No, we have everything we need. Obviously, nice advantage we have is that got this broad range of suppliers and all the capabilities and relationships, they have a sort of leveraging all of those, but now today, we're executing nothing specific needs.
Adam Goldstein: Let me give you -- this is Adam, I'll give you just a little bit of color. So, the example that Tom talked about what the inceptor right, the side sticks. Those are made by a company called Crouzet, which builds side sticks for some of the large aviation programs. Our side sticks are very similar to the side sticks used on the A220. So Crouzet that has 4,000 people that work there. So you think about if we were to do that in house, we would have I don't know, five people 10 people that did that. So we get to leverage a company like Crouzet that has 4,000 people to go help do this. So, we have everything in place that we need in house as well as partnership with our with our investors -- with our partners and the supply base. You can see the progress as we are we show in the Shareholder Letter, the buckets keep increasing, where we're showing you things in progress, and the stuff that's moving really fast and going really well, especially comes from the stuff that our partners are doing because they have been through this process many, many times with very similar parts over many programs over many decades. And so hopefully that gives you a sense for where this is at. I actually think this is the part of the program where we are most excited where we will accelerate and who knows maybe be the first one to actually get through it?
Bill Peterson: Yes, no, thanks for that sharing insights. Sure. Leave it there.
Adam Goldstein: Thanks Bill.
Operator: We have a question from David Zazula with Barclays. Your line is now open.
David Zazula: Hey ,afternoon, thanks for taking my question. Tom, I just wanted to dig in a little bit into the battery drop testing, whether there was anything unexpected or anything you learned during the battery drop testing, and the feedback you've gotten from the FAA on the test? And then when you expect to transition to full credit testing on that one?
Tom Muniz: Yes, absolutely. So as we talked about, in the Shareholder Letter, and early on as gripped, better drop testing went really well. So, just to paint the picture, we take our whole battery pack, it's like a 300 pound assembly, drop it from a crane actually up 55 feet, because we have to account for drag and kind of rigging the guides aircraft down, and then have to impact concrete on the ground, and not have anything catastrophically fail. And so, we did several drops. After each drop the battery pack, we were really surprised continue to function, meaning we could log on get data, it was it was still working. So huge confidence booster for our team. That was one of the harder tests for us to pass. So really great risk reduction for us getting through that. To be clear, that was for our own testing. So now we have all the data that we need to do it for credit testing. So, as I mentioned earlier, and we've advanced some of the issue papers around this topic, and to tee up quite well to do the four credit testing with a lot of confidence that we'll be able to get through it here in the coming months.
David Zazula: I know we're up against time, but maybe quickly on the battery production. I mean, my simple math is that that's enough for 23 batteries per year for everything coming out of Covington. So is that the plan to be able to support additional facilities on your part? Could you potentially be a battery outsourcer? What I guess what's the need to have that level of capacity from a battery facility?
Tom Muniz: Yes, that's a great question. So several thoughts. The first thing is a lot of the automation that you see there is really driven by Safety and Quality, versus production volume. So that production line is really similar to what you'd see in a state-of-the-art automotive plant, you know, supporting automotive levels of production. But we need that robustness and quality control, to be set up for building safe batteries for safe aircraft, and to get our production certificate, you know, to be able to build these things, ourselves. So, we need repeatability. We need all that traceability. And that's what that system gives us. Also gives us the ability to scale. Absolutely. So one thing to keep in mind is when we're in production, we don't need battery packs just for new aircraft coming off the production line, but also for the fleet that's going to be out there in service needing battery replacements, once maybe twice a year. So that's the reason why, if you do that math, it looks like more battery packs than 650 aircraft per year. Hopefully that makes sense.
David Zazula: Thanks Tom.
Operator: We are out of time for questions. So, I will pass it back to Adam Goldstein for closing remarks.
Adam Goldstein: In closing, our strategy is paying off. From the outset, we've been clear that our approach is to keep the design of Midnight as simple as possible, while delivering industry leading performance balanced with safety. We're accomplishing this by partnering with what we believe to be supplier -- the best suppliers in the aerospace industry. This capital-light strategy continues to pay dividends that are more clear today than ever, as we continue to make rapid progress towards commercializing electric aviation. I want to take a moment to step back and appreciate not only the progress we at Archer are making, but all the progress across the entire industry. Our partner beta recently demonstrated a pilot in transition flight in Vermont. Our neighbors [Indiscernible] recently announced their final air worthiness criteria with the FAA as we expect to also do here do so shortly. The electrification of aviation continues to increasingly emerge into the mainstream every day. Thank you for joining us.
Operator: That concludes today's call. Thank you all for your participation. You may now disconnect your line.
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