Archer Aviation Inc.

Good afternoon. Thank you for attending today's Archer Aviation Company Q425 Financial Results Conference Call. My name is Tamia, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad. I would now like to pass the conference over to your host, Kate Kuehl, Head of Investor Relations. You may proceed.

Welcome to Archer's Earnings Call. This is Kate Keywell, Archer's Head of Investor Relations. Today we will be making forward-looking statements that are based on current assumptions. We don't undertake any obligation to update those assumptions as a result of new information or future events. Risks and uncertainties may cause our actual results to differ materially from those contemplated by these statements. For more information about potential risks and uncertainties, review the risk factors in our SEC filings. Today, we will also be discussing both GAAP and non-GAAP financial measures. A reconciliation of those measures is included in our shareholder letter and earnings release from today. Now, I'll turn it over to Adam. Adam?

Thanks, Kate. We are building a next generation aerospace company with civil and defense applications. We have formed an ecosystem with some of the best partners in the world, from Anduril to SpaceX to NVIDIA. We have great momentum, and I'm excited to walk you through it today. I published a more detailed shareholder letter that I encourage everyone to read. I'm going to keep my remarks relatively brief and dedicate most of this call to Q&A from analysts and retail investors. Last year, our pilots took midnight through its CTOL campaign. Flights over 50 miles, over 30 minutes of flight time at altitudes above 10,000 feet and speeds exceeding 150 miles per hour. And we have now begun midnight's piloted VTOL flight test campaign. We will continue to expand our piloted midnight fleet and the flight envelope throughout 2026, enabling us to begin TIA activities with the FAA as soon as this year. As we expand our flight test program, we are simultaneously preparing to be ready for air taxi operations. We are on track to begin deploying midnight this year, both in American cities as part of the White House's eVTOL integration pilot program or EIPP, and in the UAE as part of our commercial launch program. Before we go into our plans for the UAE this year, I want to acknowledge the current geopolitical situation in the Middle East. Our team and partners in the region are in our thoughts, and their safety will always be our top priority. We will continue to monitor the situation closely. Despite that current uncertainty, we remain focused on rapidly progressing our commercialization strategy in the UAE. I am pleased to share that Archer is the first eVTOL manufacturer to establish a restricted type certificate program with the GCAA, which sets us up to deliver additional midnight aircraft to the country this year for piloted and passenger carrying operations, while simultaneously building out our network of certified vertiports across Abu Dhabi. While our team is hard at work commercializing the United States and the UAE, our global backlog continues to grow. Our order book is in the billions, with seven of the world's largest airlines choosing to partner with us. Some new partners include Saudi Arabia's PIF and the Serbian government. The commercial momentum is real, and it is built on a certification strategy that we've been executing against for seven years. This quarter, the FAA confirmed its final acceptance of 100% of Midnight's means of compliance. I believe this makes us the first eVTOL company to achieve this level of progress with the FAA. Completing Midnight's means of compliance unlocks the ability to finish the next phase, finalizing its remaining certification plans. We expect those to get there in the coming quarters, clearing the path for TIA work to begin on the program as soon as this year. Our partnership with Anduril is central to our defense strategy. We are designing an autonomous hybrid electric VTOL aircraft built for dual use, a loyal wingman for defense, and cargo or medevac for commercial customers. We remain optimistic about winning a major defense contract this year. We are always looking for opportunities to apply the proprietary technologies we have developed for our commercial aircraft to other adjacent applications. In November, we announced our first third-party powertrain deal with Anduril and Edge Group to power their Omen autonomous air vehicle. Anduril spent five years searching for a propulsion solution for Omen, and I'm proud they chose ours. Beyond commercial aircraft and defense, we see a third opportunity, software. We partnered with Palantir for next-generation air traffic control, movement control, and route planning. We are working with NVIDIA to integrate their IGX-4 platform into Midnight for safety critical autonomy applications, and we are working with SpaceX's Starlink to bring high-speed, low-latency connectivity to our aircraft. We plan to unveil our first software product in this category later this year. Executing across all of these fronts requires exceptional leadership. I want to highlight Benjamin Lyon, who has integrated fully into his role at Archer as President of Aircraft OEM. Benjamin is a longtime pilot who spent decades at Apple shaping some of the most complex hardware programs they ever built, then served as CTO at Aptiv, one of the world's leading industrial technology companies. He is exactly the kind of operator you want driving a program towards commercialization, and his impact on our engineering, manufacturing, and certification velocity is tangible. Tom Muniz continues to support the Midnight Program, but has now taken a leadership role in developing our hybrid aircraft. Together, Benjamin and Tom represent exactly the caliber of leadership the opportunity requires. We ended Q4 with approximately $2 billion in liquidity. While this is a strong position, I try to be ruthless about cutting anything that does not earn its place. My job is to drive execution, fly aircraft, deploy them in cities, complete certification, scale manufacturing, and deliver to the customers who are waiting. Thank you to our team, our partners, the government agencies, and our shareholders that all play a part in our success. Deep tech is extremely challenging and you give us the ability to pursue it. I do not take your support for granted and we will work every day to continue to earn it. With that, I'll hand it over to Priya.

Thanks, Adam. On today's call, I'm not going to walk through all the detailed financial results, as those are set out in our earnings release. Instead, I'll briefly discuss the key highlights, our liquidity position, capital allocation priorities, and overall financial discipline. First, with respect to liquidity, as Adam highlighted, we closed the quarter with a very strong balance sheet and total liquidity of approximately $2 billion, which is the highest watermark in Orchard's history. Our financial strength allows us to think and act beyond a single program. With respect to our priorities for deploying capital, it is very straightforward. In the near term, commercializing Midnight remains our number one priority. This includes progressing certification activities, scaling manufacturing, and advancing market launch efforts. Beyond the Midnight platform, as we position Archer as a category leader Our next investment priority is in adjacent opportunities, such as the hybrid aircraft program and our software platform. These efforts meaningfully expand our long-term optionality and total addressable market. Our focused capital allocation carries through to day-to-day execution, with Q4 spending tightly aligned to the guidance we outlined in the last earnings call. We are moving steadily towards industrialization and market entry. That naturally requires increased but disciplined spend. For Q1, we estimate our adjusted EBITDA loss to be in the range of $160 to $180 million. This step up in investment is deliberate and is a direct reflection of the meaningful progress we are planning for the year. We will continue to provide transparency on spend trajectory and liquidity as we continue to execute against our key priorities. And with that, I will turn it back over to Adam.

Thanks, Priya. I want to first start by addressing some of the retail questions. And the first question is, how's the pathway for Archer to be the main air taxi service for the summer 2020 Olympics? Well, the Summer 2028 Olympics is the most important commercialization milestone for Archer because it represents an unslippable date for us, and it's driving the regulators, and it's really driving us towards making decisions and ultimately making progress. But it's not just certification that has to be ready for the launch. It really is all about the infrastructure, the supply chain, the technical progress, all just converging at the same time. And just last quarter, you saw us invest in the Hawthorne Airport. And our team is on the ground every day there working through initial flight operations, pilot training. And so this is a very important event for the administration. And so we are coordinating at the highest levels to make sure that this goes off smoothly. And with that, I'll turn it back to the operator to open up for questions.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason at all you would like to remove that question, please press star followed by 2. Again, to ask the question, please press star 1. The first question comes from Edison Yu with Deutsche Bank. You may proceed.

Hi. Thank you for taking our questions. I wanted to start off on EIPP. Can you give us a sense of what the next milestones are and the sequencing of events that need to happen before you start to fly the aircraft?

Sure. Thanks, Edison. So just to take a quick step back on the EIP program, we view this really as a big moment for the industry. I like to call it our Waymo moment. If you think about the first time you saw a Waymo, it felt like science fiction to you, but Now the goal is to have half a million people in cities, in the biggest cities in the country, start to see these aircrafts as part of your everyday commute, just like they started to see Waymills every day. And that's what I think the EIPP has the power to do for air taxis. So seeing new aircraft flying over major cities will be exciting at first, but we do need to get people comfortable with them and ultimately accept them as an everyday outcome. And that is how we're going to drive consumer acceptance across the industry and, in turn, regulatory approval. And so all that is on track, and Archer is on track to participate in that event. For the EIPP, we've had a lot of inbound interest from the municipalities, and then ultimately we've submitted the applications, and there's roughly a dozen or so municipalities that we've partnered with, including Southern California, Texas, and Florida. And now we are looking forward to the DOT announcing the finalists later this month And then once the finalists are announced, we'll begin working directly with the selected localities to establish the initial operational plans. And then we'll focus on public flights as soon as the second half of the year. So it's really back to the DOT's hands at this point. We're waiting for them on next steps.

Understood. And then in terms of the piloted vertical full transition, I think in the letter you mentioned kind of the next few months are the test campaign will ramp up. I guess, what is the, I guess, broader plan for the number of aircraft, for the levels of flying that you would do for the rest of the year?

Hey, Edison, this is Tom. Well, just maybe to take a step back, you know, as you mentioned earlier, we're now in the piloted VTOL and transition part of our flight test, and that's all kind of in support of and on track for the EIPP work that Adam mentioned earlier on the call. And just to kind of remind everybody, this comes on the back of all the VTOL flying we've done on midnight without a pilot on board over the last several years and the extensive CTOL campaign that we did last year. So we believe we're in a strong position with the testing that we've done. We also are really glad we invested time in that detailed CTOL campaign as having the ability to do both those conventional takeoff and landings and vertical takeoff and landings. we think is a huge advantage for the product and a big differentiator, obviously for the business case, safety case, things we've talked about. So our goal is with this aircraft and the others that are coming online to efficiently get through the transition testing in support of the IPP, but then we'll get right into TIA activity, all of this with the goal of being certified for the Olympics.

Understood. And if I just sneak one in on the, I think you mentioned the first one to get the 100% on the MOC. Can you just maybe walk us through maybe the last couple of kind of percentage points? It seems like the industry in general has struggled a little bit to get to those last pieces. What do you think held that up and why were you able to get through that?

Yeah, so that's a good question. So I would say it's definitely fair to say the last few percent were the hardest to close. But I think the fact that we, from the very beginning, take in really best practice approaches or conventional approaches to topics like lightning strike, gust loads, occupant production, those sort of things that are all enabled by us having a larger, heavier aircraft meant we were able to get through those topics with the FAA. And, you know, we did that instead of by sort of pushing back, we were able to just accept sort of the, again, the best practice approach. So I think that's what enabled us to get through it.

Great, thank you.

Thank you. The next question comes from Savi Seats with Raymond James. You may proceed.

Hey, good afternoon. Can I ask, I'm sure it really depends on, you know, all the activity that you plan on doing this year, but just curious at a high level maybe, you know, where that EBITDA can step up as you go through the year, and maybe any kind of commentary on CapEx expectations for 2026.

Yes, Avi. Thanks for the question, Trio. So, you know, you know that we don't give annual or multi-year guidance, but I'll walk you through the flavors of where spending is going to work. So, at the core of it, you know, we're investing in three focused areas. The first is you can expect the supply chain readiness and manufacturing capacity. And that's to ensure that we can aggressively ramp up midnight production and deploy it. Second, as we've talked about, in development of our dual-use hybrid aircraft, as we believe the opportunity is now to win contracts from the US and its allies as they pursue this new vertical lift form factor. And third, of course, is our development of AI autonomy software platform. So while all these three result in spending being elevated in 2025, We think there are a lot of near-term opportunities to win awards on the defense side that could offset some of the spending or early revenues on the software side and the air taxi side as part of our launch edition program. So, you know, the goal really long-term here is to have a diversified set of opportunities that can allow us to get to meaningful long-term sustainable revenue. And as in how we progress through the quarters, we'll keep providing our quarterly guidance, but hopefully that gives you again a framework to think about where are we deploying capital.

That's helpful, Priya. Thank you. And then just on the GCA side, you know, could you explain a little bit more about what the key features are of a restricted flight approach? Like what is and isn't included in that versus kind of a full certification?

Sure. Hey, Savi. This is Adam. So our progress in the UAE is obviously continuing, and given the kind of current geopolitical situation, we're just mindful of it and, you know, how fast to push and how to support our partners best over there. And obviously, you know, safety for people is going to be important and safety for partners over there is going to be really important. But with that as a backdrop, you know, we aligned with the GCAA on a pathway to commercialization. And we chose the restricted type certificate really because it was more of a recognized alternative than some of the other choices, such as like a type qualification. And it just really gives you broader operational flexibility and a scalable foundation to bring, you know, midnight to market in the Middle East. But we really have to kind of wait and see how all that plays out here. And I think there's more details to come on that.

Appreciate that. I'll turn it back.

Thank you. The next question comes from Andre Shepard with Dena Roche- Cantor Fitzgerald, you may proceed.

Cantor Fitzgerald, Hey everyone, congratulations on the quarter and all the great progress. Cantor Fitzgerald, Adam I wanted to maybe circle back to EIPP for a minute, you know, obviously with the projects now in the application stage. I'm just curious, like, how are you thinking about those projects? Like, what would you call a success? And particularly the California project, is that maybe where most of the attention is focused on? Or just kind of how are you thinking about winning those projects? And what would you characterize as a successful EIPP entry? Thank you.

Thanks, Andres. I think the EIPP kind of win will largely be an industry win. where we have lots of aircraft flying around in multiple cities and getting the general public comfortable with what we're doing. So I think that's really the number one takeaway that can come from this. There are a lot of very interesting cities and states that have applied. And so I'm hopeful California and Texas and Florida ultimately get picked. But of course, we have to wait and see what happens. Any one city or location is not going to actually determine a success or failure of this. So we have lots of options here that can get picked. Of course, we are hopeful that the Huntington Beach location does get picked given our plan to ramp operations ahead of the Olympics. But there are lots of great opportunities across many other cities that we think will also be great opportunities as well. So I would say showcasing the aircraft, showing what they can do, having multiple operators doing this, getting the general public comfortable with this, and ultimately getting everybody comfortable with this industry just as they have gotten comfortable with Waymo's in their cities.

Got it. Thanks, Adam. That's super helpful. I appreciate all that detail. And maybe just as a quick follow up, I wanted to touch on, you know, so I see that you recently conducted a piloted VTOL flight on the new aircraft. And apologies if I missed this earlier, but can you maybe just walk us through your flight plans for this year and kind of how you expect to ramp up those flight hours throughout this year and, again, ahead of EIPP and UAE? Thank you.

Yeah. Hey, Andres. It's Tom. So, yeah, we're super excited that we're now in that piloted VTOL phase. So what you expect to see over the coming weeks and months is just additional flying and working out towards full piloted transition. Obviously, after that, then we get into TAA and on with certification, but also in support of the Olympics.

And maybe this is a good chance for Benjamin to comment here.

There were a lot of lessons that we've learned in flight tests, and I think it'd be good for Benjamin to comment on some of those. Thanks, Adam. You know, one of the learnings we got from the CTAL campaign was that it was actually the software update cycle that paced our progress. And that's because for our first piloted campaign, we wanted to stick with a well-understood path. So we used traditional aerospace methods. And we learned along the way that about half the time taken was due to manual steps that could actually be easily automated using best software practices from Silicon Valley. So as part of preparing for the VTOL campaign, we actually made updates to our software infrastructure. Like one such example is we now automatically deploy software updates to the midnight aircraft. And as you can imagine, the team is very proud of having reduced multi-month long cycles into often just a few days while maintaining the highest standards of safety. Thanks, Benjamin.

Thanks, guys. Super helpful. I appreciate all that. And congrats again on the recent success. I'll pass it on.

Thank you. The next question comes from Amit Dayal with HC Wright. You may proceed.

Thank you. Good afternoon, everyone. So, Adam, can you provide any color on how many aircraft will you have available for the certification and testing and then for the EIPP program?

Sure. I'll give you a flavor of that in a moment. Thanks for the question. We're in the late stages of building that initial fleet of midnight aircraft that we've talked about, and we're going to deploy those in 26 and 27 for our flight testing, our TIA activities, and then also as part of our EIPP and the international launch program. And so the focus of those aircraft is really to get us through the pilot-to-VTOL transition testing and then ultimately to demonstrate air taxi ops under the EIPP and launch programs. And then, of course, we need to, you know, use that to get it to TIA and then ultimately type certification. But in parallel, we're also really stepping up our manufacturing and supply chain capacity to put it in a position to allow us to aggressively ramp aircraft builds as we get into 27 and 28 as we ready for the commercial ops in Los Angeles for the Olympics and beyond.

Understood. That's where I was going next, Adam. So from a manufacturing perspective, what else needs to be sort of put in place for you guys to be you know ready to sort of meet the timelines you just talked about and any any color on how much capex is going towards that effort

Yeah, it's a good question. And so, you know, as we go through the certification process, we are, you know, really focused on making sure we have, you know, the right aircraft that's designed for a great consumer experience, very, very safe, and that can carry, you know, the appropriate amount of payload, but can also be mass manufactured. And I talked a little bit about that in the shareholder letter. It's very challenging balancing, you know, the performance certification side of it, as well as manufacturing ramp. So the good news is, you know, we've already stood up Georgia, you know, the Covington plant. We've invested pretty heavily in CapEx, pretty heavily in a lot of the, you know, NRC and tooling. And so, you know, while our spend has been elevated here, I think we are in pretty good position here to actually ramp once we get through the certification program.

Okay, understood. That's all I have for now. Thank you.

Thanks.

Thank you. Next question comes from Austin Mahler with Canaccord. You may proceed.

Hi. Good afternoon, Adam and Priya. So just my first question here, is the 100% means of compliance completion on the FAA side, does that mean that you're essentially close to or through critical design review and we shouldn't expect any more aircraft changes? I know that you had changed the landing gear last year.

Yeah. Hey, Austin. This is Tom. I mean, the reality is I can't say we won't make any further design changes until we get through all the cert testing. And, you know, the reality is there's pros and cons there. It's actually an opportunity for us to make improvements, you know, where we have time and bandwidth in the program. But like that being said, we're really comfortable with the architecture of the aircraft, and we don't see any technology issues today. One thing I can also say is the approach to design for certification from the very beginning Like I mentioned, you know, it's meant we have a larger and heavier aircraft than some of our competitors. It's really positioned us well. And so, you know, Adam kind of touched on this earlier. The challenge here is making sure that the design has the right performance, the right cert path, and the manufacturing path to actually launch the product. And we're really comfortable with where those are coming together.

Okay. And if we just think about the Iran operation and the first use by the Pentagon of one-way attack drones, should we think about a midnight rotorcraft drone as potentially competing on future phases of like the drone dominance program? Or do you think it would be more in line with like a collaborative combat aircraft type program specifically set aside for rotorcraft where they're looking for something attributable?

Yeah, I think the conflicts have really reinforced what's always been true, Austin, which is that air dominance is just the decisive factor and it's key to military superiority. And so what we're seeing now and what you're asking about is really the beginning of a generational shift in how nations are thinking about aerial warfare. And that shift we think will play out over a multi-decade period of time. But I think one thing is clear is that simply hybridizing an air taxi to get some additional range or payload is It may get you some short-term win, but it's divergent from what the administration really and what America's allies want and what they're demanding. And so that's why we partnered with Anduril to build an autonomous hybrid VTOL aircraft with dual-use capabilities, both civil and defense applications. But on the military side, we think the demand is going to be for a loyal wingman, and that's for armed reconnaissance attack helicopters. And so due to the sensitive nature of it, though, I can't share much more details at this point. But our hope is that we can show the aircraft this year, which will translate into some really key wins. And, you know, to really help accelerate our progress there, we opened up a new hub in Bristol, UK, where we've already hired 20-plus seasoned engineers.

That's a very helpful call, I think, Sam. Thanks.

Thank you. As a quick reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. The next question comes from David Zazula with Barclays. You may proceed.

Hey, good afternoon, and thanks for taking my question. Adam, in your first question response, you said that the Olympic 2028 date was driving the regulators. If you could unpack that statement a little bit. What do you mean? Do you mean resource allocation? What was behind that statement?

Sure. Back in 2022, the FAA was the one that put out the goal of being able to fly eVTOL aircraft en masse in one city at the LA 28 Olympic Games. They called it Innovate 2028. So it really was an FAA program kind of concept to begin with. Since then, you've seen this administration be heavily leaned into the Olympics, wanting to show all the great things America has done, the re-industrialization of America, um america's leadership in aviation and so it's become you know a big uh i think selling point for the olympics in general and so it really has been one i think an exciting thing for everybody to rally behind and people to be proud in america that we're leading in aviation and also an important point for the administration to make sure that we get this done but what it did was create an unslippable date and so it's a date that everybody knows things have to be done by And so, you know, in this industry, it's tricky, right? You know, we've had, you know, some companies have been around for a long time and we keep putting out dates and us too. And the challenge is how do you get anybody to sort of stick to these dates? The way to do that is to align everybody to some unslippable date. And I think the Olympics has done that. It's really just forced everybody to get moving to make sure that all these, you know, challenging things that we have to get done are getting done. So hopefully that gives you a perspective, but I think a lot of it has to do with the culture and really the excitement that is around the games.

Helpful. And then you got us a little bit about deployment earlier, maybe specifically for what you have in production right now. Can you just give us the breakdown of what you expect to be kind of UAE-based versus what you have based on the testing plan for this year?

Sure. I think it's a little bit difficult for us to predict too much stuff in the UAE right now, just sort of given the, you know, the ongoing conflict. You know, our goal was to keep getting through, you know, some of the testing and the, you know, the certification progress over there, as well as, you know, the certification process, testing, and EIPP over in the U.S. So, I think we'll have to wait and see kind of how that plays out to determine, you know, the volumes that we're going to put in each of the different locations. So I would say let's wait and see how that turns out.

Thanks, Al.

Thanks.

Thank you. The next question comes from Chris Pierce with Needham. You may proceed.

Hey, good afternoon, everyone. Just one quick one on EIPP and then one on design. I guess if we think about the The application that you put out there, is CTOL involved or should we only expect you guys to see VTOL flights? And is there a possibility we could see VTOL flights, you know, up, down, even though we don't have full transition at that time and that's enough to help sort of move the industry forward? I just kind of want to make sure to be on the right page of what we might be looking for later in this year.

Hey, Chris. We do expect to be through the full flight envelope at that point. And so I would expect us to certainly see VTOL full transition flights. But because the aircraft was designed to do both VTOL and CTOL, we have the capability to do both. I think that's what's unique about the aircraft. And so there's an opportunity to do both.

Okay. And then the letter talks about the benefits of four-bladed design. And I know you had a two-bladed design prior. Is it just that you didn't know what you didn't know? And I guess... You talked about software before. Is there some sort of four-bladed design gives you increased confidence in transition flight, or is that the wrong way to think about it and those aren't that correlated?

I think it goes back to just the broader philosophy of trying to balance performance, certification, and manufacturability. And so that is what is, you know, that's where all the work of the industry is going into right now. And I think it's It's very doable to build an aircraft that can fly really far or fly really high or fly really fast. But once you try to certify that, a lot of the case falls apart because the FAA is extremely rigorous in terms of the standards that they make you have. And so what we do is we look at different trades. And so all three are possible and can be done. You can use a two-bladed propeller, a three-bladed propeller, or a four-bladed propeller. You can even probably use a five-bladed propeller. They just all come with different trades. And so what we mentioned in the letter was a two-bladed propeller had more of a weight penalty on the trade versus a four-bladed propeller had more of a drag penalty. So one gives you more range, one gives you more payload. We optimized around payload, which is why we chose the four-bladed propeller. And we just used that as an example to help show there are literally thousands of trades that go on like that throughout these programs. And so some could be design trades where they're industrial designs for better looks, where it can look, but it might hit your performance. Some might be payload. Some might be range. Some might be speed. So those are just trying to give you a flavor for how we think about design here. But any of them are possible. We went with the four-bladed option because we thought it optimized for what we needed to make sure we could build a proper business case around.

Okay. Thanks, and good luck.

Thanks.

Thank you. There are currently no more questions at this time, so I'll pass it back over to the team for closing remarks.

Well, thank you very much for attending the call. We certainly have a lot of work ahead of us, but I could not be more excited about where we are headed. Every day our team shows up with the same urgency that we had on day one, and that is not changing. I do not take your support for granted. We will keep earning it every day. Thank you very much.

This concludes today's conference call. Thank you for your participation. You may now disconnect your line.