Lilium N.V.

So, good afternoon and good morning to everyone. Welcome to Lilium's Q3 2021 Business Update conference call. My name is Björn Scheib and I'm the Head of Investor Relations at Lilium. Before we start, let me just go through a couple of housekeeping items. This is a virtual conference call and for the moment, all participants are in listen-only mode. Management will first provide an update on our business progress during the third quarter of 2021. A brief question-answer session then will follow the formal presentation. We've scheduled the call for approximately 45 minutes, including Q&A time. Please note that this conference call is being recorded and a recording will be posted on Lilium's investor relations page soon after the event. As a reminder, after yesterday's market closing, we posted on our website our shareholder letter and the third in our series of blogs, which explains the key milestones on the way to aircraft certification. We warmly invite you to read these communications. Before handing over to our CFO, Jeff Richardson, let me just give a reminder of the Safe Harbor language and other cautionary statements that will govern today's presentation and are described in more detail on the first two slides of today's presentation. Specifically, I want to remind you all that our presentation will include forward-looking statements and any forward-looking statements or comments we make about Lilium's future expectations, beliefs, plans, objectives, financial condition, assumptions, performance, projections, forecasts or other characterization of future events or circumstances that are subject to risks, uncertainties and other factors that could cause Lilium's actual results to differ materially from such statements. For more information on these risks, uncertainties and other factors, please refer to the cautionary statements in our shareholder letter and the risk factors discussed in our filings with the US Securities and Exchange Commission. All forward looking statements that we make during this call are qualified by this cautionary statement. you should not place undue reliance on forward-looking statements which speak only as of today and which we assume no responsibility to update. With this, now let me turn over to Jeff, our CFO, to begin the presentation. Jeff?

Thank you, Bjorn, and good morning, everyone. We appreciate you joining us today. With me on this call today are our co-founder and CEO, Daniel Wiegand, Chief Operating Officer Yves Yemsi, and Chief Technology Officer Alistair McIntosh. Let me remind you first of our overall mission at Lilium. We're aiming to offer a sustainable and accessible mode of high-speed transport. With Lilium's unique all-electric jet technology, we're working to decarbonize regional air transportation. In mid-September this year, we took a big step on this journey. With your support, we completed the business combination with Quell and related private placement financing and the listing on NASDAQ. This sets the cornerstone for the development of the Lilium Jet, an all electric vertical takeoff and landing aircraft offering leading capacity to move people and things, low noise and high performance with zero operating emissions. Many people contributed to this accomplishment. In particular, I would like to thank Bailey Gifford, Tencent, BlackRock, PIMCO, LGT, Atomico, Honeywell, Palantir, Ferrovial, and F2 Institute for their support. Gross proceeds to the company from the transaction amounted to $584 million. On October 27th, 2021, our registration statement on form F1, which registers the shares pursuant to the pipe financing, was declared effective by the SEC. Research analysts from three investment banks have already initiated coverage. Piper Sandler, Oppenheimer, and Barclays, and further coverage is expected. Looking now at our company's financials, In terms of cash utilization, we're on track to achieve our communicated budget target for fiscal year 2021. Operational spending for the year through September 30th was on budget at $141.5 million. Operational spending for Q3 2021 amounted to 56.6 million. As of September 30th, we had approximately 529 million of cash on hand. In the coming fiscal quarter, we expect cash spending will increase as we progress through preliminary design review milestone, our engineering and flight testing activities accelerate, and we ramp up activities with our aerospace suppliers. We expect the total cash spend to be in line with our previously communicated estimate of $221 million for fiscal year 2021. At this time, we are finalizing our 2022 budget. We are closely monitoring the COVID situation, supply chain disruption, and broader inflationary environment, which could put pressure on our unit costs in the future, as well as the non-recurring payments to our supply chain for tooling and engineering services. Looking on the commercial side, our aircraft and the prospect of emission-free regional aviation continue to advance. In Florida, Lilium's network plans recently received a further boost with Palm Beach County's decision to approve the development of a vertiport to be built by Ferrovial at Palm Beach International Airport for the exclusive use of Lilium. To our knowledge, this is the first permitted vertiport by a local government in the United States. Lilium and Ferrovial continue to expand the partnership outside of Florida. Ferrovial, a Lilium investor and global leader in the development and operation of transportation infrastructure, recently announced plans to deploy a network of 25 vertiports in the United Kingdom and more than 20 vertiports across Spain. Ferrovial intends to design these vertiports for the specifications of the Lilium jet and for use by Lilium's future operating partners and customers. The expanded partnership and development is expected to give Lilium access to two additional key European markets, representing millions of additional potential customers. Meanwhile, Lilium's planned German eVTOL network continues to grow. with Stuttgart Airport announcing plans this October to join the planned southern German network. The recent collaboration announcement with ABB on charging infrastructure, as well as the planned $1 billion commercial agreement announced earlier with Azul Brazilian Airlines for the sale of 220 of our jets and the establishment of a co-branded network in Brazil, further confirm our strong business case and global reach. The Lilium jet is now entering into an important development phase with PBR underway. Let me hand it now over to Yves, who can tell you about that.

Thank you, Jeff, and thank you all for joining us here. Since 2017, Lilium has been in dialogue with regulators at the European Aviation Safety Agency, EASA, and the Federal Aviation Authority, FAA, to ensure that the program aligns with certification requirements. We started our formal aircraft development program in 2019, and we have been applying a rigorous aerospace program development plan. Lilium is one of only a handful of companies that has received the certification basis, CRI A01, which was granted to us by EASA in 2020. This certification basis lays out the airworthiness requirements to which the lithium jet must comply to be viable for commercial operation. As Jeff highlighted this November, we entered the Preliminary Design Review Phase . During this phase, we seek to gain sufficient confidence that the aircraft architecture will meet the airworthiness requirements, will deliver performance and operation requirements which are derived from our business cases, and that it will be produced at the right quality. Performing a rigorous PDR enables us to identify at an early stage in the development program those specific areas which might require further preliminary design work. And external aviation experts participate in the PDR. So what comes next? Completion of PDR will give the green light for our engineering teams to launch detailed design activities and for our procurement teams to engage significant amounts of financial commitments. Because indeed, we will accelerate the selection and contracting of suppliers wherever possible with established Tier 1 aerospace suppliers in order to further reduce the program risk. Since each subsystem will need to meet aerospace quality standards. So completing PDR is a meaningful milestone in the aircraft program development. The subsequent milestones on the road to certifications are outlined in detail in the development blog that we recently published on our investor relationship website, which I invite you to consult if you're interested. So regarding our suppliers. In recent months, we have ramped up the contracting of suppliers for the Liomjet program. and we have already secured under contract a number of critical components, including our avionics and flight controls with Honeywell, fuselage and wings with Acituri, and carbon composites with Toray. We are working actively to mitigate supply chain disruption and inflation, which we are seeing in several areas in the supply chain, including raw materials and electronic components. The post-COVID disruption in the supply chain is a major challenge for the whole aerospace industry, as it puts pressure on prices and lead times, and we have therefore reinforced our procurement teams. As announced in July, we have signed an agreement with Germany-based Custom Cells for the production of lithium-ion batteries, and preparations for a series production ramp-up are already progressing. We expect delivery of the first battery cells from custom cell series production lines next year to support the development program at Lilium. In developing our battery system, safety remains our top priority. We are therefore performing a number of tests at cells and module level. Meanwhile, we are preparing to introduce state-of-the-art digital solutions for key activities of the program. Our close collaboration with Palantir enables us to develop powerful and dedicated data analytics solutions, which will contribute to enable or de-risk the development and production of our lithium jet. For example, our flight test campaign has become more efficient with tighter feedback loops by leveraging Palantir's Enterprise Operating System . My colleague and CTO Alistair can tell you more about how the demonstrator flight tests are going.

Thank you, Eve, and thank you to everyone for joining us today on the webcast. Our latest fifth generation technology demonstrator continues to progress in its test campaign. The first flight actually took place in July earlier on this year, and the aircraft has since completed around 25 flights. We are really, really happy with the performance of the aircraft. It's proven to be extremely reliable for a technology demonstrator at this stage and pays tribute to the engineering and the quality of work that has gone in. The flying thus far has covered multiple aspects of the flight envelope. This has included full exploration of the GPS position-controlled hover envelope at a ground speed of 19 kilometres an hour in forward, rearward and lateral or sideways flight. We have also stepwise expanded the airspeed envelope up to 74 kilometres an hour with full manoeuvrability demonstrated. Climbing descent at rates of 30 feet per minute, 30 degree bank angles, acceleration and deceleration have been incorporated. Also within these flights, we've flown with combined inputs. And what I mean by that is combinations of climb with acceleration, descents whilst performing banked turns. So we've used a number of different piloting techniques. And indeed, we've also used a number of different pilots. I really strongly recommend, if you haven't done so already, to take the time and look at our demonstrator flight videos, which you'll find on the Lilium news page or on our YouTube channel. So next we plan to take the test campaign to Spain. This will permit us to expand the flight envelope and more reliable weather conditions and test higher cruising speeds and also allow us to fly from full transition from the vertical to the horizontal case. We expect to receive the permit to fly in Spain in early to mid 2022. So with that, I'll now hand over to our CEO, Daniel Wiegand. So Daniel, over to you.

Thank you, Alistair, and good morning, everyone. It's a pleasure and very exciting for me to speak to you today on our first earnings call as a public company. We have made great progress on all of the key areas of our business and our company is adapting in line with these developments. As part of our organizational evolution, Yves Yenzy, who is on the call today, has been appointed Chief Operating Officer, overseeing program management, procurement, supply chain and manufacturing. Yves brings to the role a wealth of experience. He spent 16 years at Airbus, where he most recently was head of quality for the successful Airbus A350 program and senior vice president procurement at Airbus Defence and Space. The new COO organization will further integrate important activities which are necessary to drive the development, certification and industrialization of our first lithium jet aircraft. The procurement organization has been further enhanced with the appointment of Martin Schübel as our SVP procurement. In the past, Martin led procurement organizations both at BMW Group as well as Airbus Helicopters. Alex Asili, an early investor in Lidium and previously Chief Strategy Officer, was appointed Vice Chairman, overseeing commercialization, marketing, culture and organizational design. In this expanded role, Alex will further leverage his expertise as an entrepreneur and founder of several successful hardware tech companies, including tech pioneer Jawbone and women's health technology innovator Alvi. We have also strengthened our supporting functions where necessary to adapt to the requirements of a listed company. Within our finance organization, for example, controlling and accounting functions have been strengthened, in particular with the appointment of Oliver Vogelgesang as SVP Finance and Controlling. Oliver was most recently SVP Controlling for the Airbus A320 program. And in addition, our capital market orientation has been enhanced with the appointment of Björn Scheib, as our head of investor relations and capital markets, whom you've already had a chance to meet here on the call. Björn brings a wealth of capital markets, entrepreneurial and ESG experience to this role, having led the investor relations function of Daimler AG during their multiple stages of transformation. As of today, the company has a workforce of around 750 people, of which roughly two-thirds are working on areas directly related to aircraft design, development and certification. So we are entirely focused on the first airplane. We are now approaching the point where we have the required headcount and competencies, especially in aerospace experience, within our organization to deliver on our game-changing program. Having received tens of thousands of applications in the first three quarters of 2021, we attracted and recruited more than 150 employees, many for key roles, over this timeframe. We are pleased with the development of our organization and will begin to decelerate headcount growth next year as we move towards around 950 employees. Nevertheless, we will continue to target world-class talent from aerospace, automotive and technology. Now let me summarize some of our key achievements of the last quarter. We have progressed our aircraft development program as planned into the preliminary design review. Our fifth generation technology demonstrator has performed extremely well in flight testing while consistently extending its flight envelope. The ecosystem of our top tier partners and suppliers such as Honeywell, Palantir and Ferrovial has grown from strength to strength with global infrastructure leader ABB recently stepping on board. Our commercial network plans have been boosted in Europe and Florida with infrastructure partners stepping up to advance our rollout, and we have announced plans for a $1 billion commercial deal with the Brazilian airline Azul for 220 of our Lilium jets. All these achievements were only possible thanks to our incredible team here at Lilium, who with their passion, skill, and extremely hard work, move us one step closer every day to make our vision of sustainable regional aviation for everyone a reality. In 2022, we will be entering an exciting next phase in our program as we progress into the detailed design of the Lilium jet, intensify the collaboration with aerospace suppliers and commercial partners still further, and fly our demonstrator in transition to horizontal wing-borne flight. In the weeks and months ahead, we will continue to inform you of our progress And now let me hand over again to Jeff, who will open the floor for your questions. Thank you.

Thank you, Daniel. So now we have time to take your questions. Please introduce yourself with your name and company. As a reminder, to ask a question during the session, please press star one on your telephone. If you're watching the webcast in parallel, please mute the sound of your laptop while you're asking your question. We will now begin the Q&A session. Our first question is from Alex Potter at Piper. Great.

Hi, guys. Can you hear me?

Yes. Perfect.

So, yes, Alex Potter, Piper Sandler. Okay, so it's encouraging to hear about the development in the UK and Spain. This is the first time I've heard you speak so specifically about those markets. How far along would you say you are in the planning process relative to the work that you've already done in Germany and Florida? I guess you have specific locations, routes, and what's the go-to-market approach? Will it be your own network similar to what you're doing in Florida and in Germany?

Great question, Alex. With those markets, as you know, Ferrovial takes the lead on the infrastructure side. So what we do is work with them on looking at density of routes and use their experience together with ours in predicting what would be the best ones. For those markets, I think we're earlier in the planning stage. We've identified the routes and Ferrovial has identified the location. So the next step in that is for them to begin their permitting process. In terms of a network versus leasing it out, we're open to both. But I think the early thoughts are likely network. Next question. Does that answer your question, Alex? Yes. Perfect. Thanks, Jeff. Cool. Next question is from Colin Rush at Oppenheimer.

Thanks so much, guys. You know, it was great to see the video of the test flight. And I'm curious about Some of the dynamics around optimizing the powertrain and the power system for incremental thrust and incremental payload. Obviously, you guys are working towards locking in the design here, but I'm curious about the rapid pace of innovation around some of those technologies and how quickly and how effectively you might be able to integrate them into into the design, notably looking at some of the power electronics and the batteries that we're seeing evolve fairly quickly here.

I think that one's for you, Alistair. Thank you. So currently at this stage in the program, as alluded to earlier, we're going through our preliminary design review phase. which is really locking down our architecture for our first go-to-market aircraft. And we're making good progress in that field. So we have a good architecture around about our battery system and our power electronics. The positive part is obviously in the design that we're looking at here, we have great access to very readily upgrade the batteries further down the line as and when they become available. So we're keeping very close to battery technology. It's actually been part of the leaders in this. We're driving through the demand. So as these developments come online, it should be relatively straightforward for us at a later future point in time to be able to bring them in as upgrades at appropriate points once we've done the relevant certification activity.

Perfect. Thanks so much, guys.

Next question is from David at Barclays.

Hey, this is David at Barclays. Hey, really exciting to read about the different phases of the blog post you guys made. I guess I'm wondering about the flexibility you have inherent in this design review phase. Are there any components still considered to be at risk of redesign, or do you feel like you have the major components relatively locked down? I guess you talked a little bit about it, but maybe touch a little bit upon that and, you know, whether you think this design phase and moving to the critical design review is tethered to, you know, kind of finalization of the MOC SCVTOL.

Thanks. Alistair, I think that one's yours also.

Thank you. A very pertinent question at this point in the programme. I think, again, if you refer to the blog that we put out as well, it kind of puts the preliminary design review into context of the overall programme. The PDR is a very intensive period. As I said earlier, we have a review team that come in and really put us through our paces, both independently as an internal team, but also with... external aerospace experts. What this actually allows us to do then is gain confidence in the architecture that we currently have. And moving forward on that, they're clearly, like any programme, there'll be findings and issues that come out. Again, very typical of my past experience in gas turbines and equally with EVE on the aircraft side. So we'd expect to have some sort of findings and some sort of issues, but really then that's back into the design team and we just keep working those through as part of the overall program. So that's kind of where we're at at the moment. A little bit too early at this stage in time, given that we are mid-PDR process, it wouldn't really be prudent for me to second guess what the independent review team will find. But I think the engineering team that we have are well positioned to pick up any of those and run them to ground quite quickly.

Great. Thanks, Alistair.

Next question is from Adam from Forsyth.

Hi there. Adam Forsyth from Longsborough Research. Two questions have been made. First one just almost following on a bit from the last one and also given the comments on the supply chain in the shareholders' letter. I wonder if you can say yet what type of motor you're using, and in particular if it's a permanent magnet synchronous motor. And if it is, what's your rarer sourcing strategy? And then the second question, just following Frances' comments on the next stage of testing, particularly for the transition, I'm wondering in terms of pilot training, are you going to be looking at candidates with a fixed-wing background or more with a rotary background? And how do you see the issues of training for the transition? Is that really the area where you need automation to deal with issues around that? Thanks.

Why don't we do Alistair for the first question and Daniel for the second question?

I was going to suggest I could perhaps on the motor side, perhaps if it's on the supply chain side of things, I think it was too early yet to comment on the supply. Perhaps on the transition, what I would say is when we've got extensive experience, we've been flying transition on our previous generations of technology demonstrators. We're just now going through the phase of bringing the fifth demonstrator to that level. We have great simulation models. We have our own simulators in-house as well, which we have developed, including actually having our EASA pilots, so the regulator coming in and experiencing those as well. So there's a lot of training actually going on. And one of the activities that we've currently been doing with the flight demonstrator that we're currently using is also to train pilots. So we've currently trained seven pilots and we'll continue that process. So as we get through to the point of actually flying transition, we're confident that that should be relatively straightforward. It will be well experienced before actually doing it in reality, in real life through the flight test program.

Adam, thanks for joining and good question. On the pilot side, we have announced a partnership with Lufthansa here in Germany, our biggest airline in Germany. about the pilot training. They have started this year to establish a pilot training program for us so we can train the pilots and do type ratings for these pilots so they can actually fly our airplane. We are focused on fixed wing pilots. In this case, the aircraft behaves Like a fixed-wing airplane, it has a control allocation like a fixed-wing aircraft. And to your question for the transition flight, here the airplane has to meet, for certification purposes, the same handling quality requirements as it does in cruise flight. So fixed-wing pilots will feel at home in this design. And the reason we do this... Obviously, the market is much bigger for fixed-wing pilots.

Yes. Our next question is from Tristan at XM.

Yes, good morning, everyone. Thanks for taking my question. I have two. The first one is a human resources question. You've increased your workforce by about 25% over the past three months. Can you indicate us quickly where it goes or what you use these people for? Where do you want to go in terms of additional recruitment for the next 12, 18 months? And a lot of people, especially in Europe, are complaining about difficulty to access skilled labor in our space. Do you see constraints today in recruiting the skills that you require to complete your development and start production? And the second question is on the PDR, on the previous chart that you communicated, it looks like your target was to... complete PDR maybe in day 21 or 22 before moving to a detailed component design. Is it still the right ambition or do you think it could be achieved a bit later in 2022? Many thanks.

Great questions. Daniel, why don't you take the org design question and Yves will take the question on PDR.

Yes, happy to. Thanks for joining. So I want to correct maybe that the 150 people who joined are not just in the last three months, but over the entire year, 2021. So the 25% growth is not just in two or three months. Most of the growth going forward between the 750 people where we are right now and towards the 900-950 people next year will go into the aircraft program. There will still be a lot of engineering, quality management and supply chain roles that we're going to be filling. At the moment, We were not concerned on filling these roles. I mean, there is a general, of course, competition on great talent, but we've been extremely successful in the last 12 months and we're seeing no changes on the recruitment numbers or on the incoming interest in applicants on the talent side at the moment.

Okay, thank you, Tristan. Regarding the question on PDR, I think it's, I go back to what Alistair explained. We are, we have entered the PDR phase in November. It's a very thorough review process, mostly first involving engineering and then these reviews feeding into the program. So it's at this stage early and premature to draw conclusions because I have not access to the reports from the technical activities. However, you know, it is not unusual at this stage of the program to find a few systems that require further work, and we're going to deal with as we find these issues and moving forward the next stage is going to be effectively on our way to CDR where it's going to be progressing the design work and also contracting the supply chain so that's going to come and that's going to be the bulk of the activities of 2022 and we have the right teams in place to do that now That's clear, many thanks

I think that was the last question. So with that, I think we've come to the end of our Q3 business update. Thank you once again for joining us. We look forward to speaking again shortly.