Good morning, and welcome to J.P. Morgan's 51st annual TMC conference. My name is Bill Peterson. I cover cleantech at the firm, including Archer Aviation. We're really pleased to have Mark Mesler, who's the CFO of Archer, join us here this morning. He's gonna, you know, share some kinda intro comments, introduce himself as well as the company, what they do, and then we'll move on to Q&A, and we're happy to take questions from the audience. We just ask you to use the microphone as this is, you know, webcast. You know, Mark, thanks for coming to our conference, and yeah, over to you. Thanks, Bill. Thanks for everyone for coming out as well. As Bill said, Mark Mesler, CFO of Archer Aviation. Been with Archer for probably about a year and a half now. I've spent most of my time, most of my career in Silicon Valley in hard tech, so Archer Aviation's a natural fit for me. The company itself, Archer Aviation, is designing and manufacturing an electric vertical takeoff and landing aircraft. You'll hear eVTOL as sort of the moniker that's given in the market. When we came to market, we wanted to de-develop the most expeditious path to market. We didn't want this to be a science experiment, and we didn't wanna fly the highest or go the fastest. We used a data-driven approach to develop what the use cases are for an aircraft in the market, and we also used that data to inform us on what the design of the aircraft would look like as well. We're innovating very rapidly at pace to get to market in 2025. Our aircraft is focused on a specific mission, which is in the 20 to 50-mile use case. Again, that was a data-driven decision. We hired some really smart data scientists from UberPOOL early on. We did a lot of analysis of how commuters move through urban areas during the day, and we clearly, the data showed, as we all feel, that there are thousands of commutes in any given city in a day that's less than 50 miles. It probably takes an hour to an hour and a half. We used that data to, one, identify what the use case is, which is that 20-50-mile mission, but help us inform the technology that we're deploying as well. The 20-50-mile use case for our aircraft also informed the type of batteries that we're putting in there, the passenger and payload size. We're focused on a 4-passenger plus 1 pilot payload. We're also focused on battery and engine technology to support that mission. Our batteries can charge in 10 minutes to support a rapid back-to-back 20-mile mission. We've also had some great partners to help us along the way. We have a really good partnership with United. They've given us a $1 billion contract for 200 aircraft that will be deployed within their network. We also have a partnership with Stellantis, who's the, you know, the manufacturer of Jeep, Ram, Maserati nameplates. Produces over 500,000 cars per month. They're a very good operational partner. They're also an investor. Finally, we've been able to attract some of the best and brightest talent in the world. This sector, not only Archer, but this sector got very well capitalized. With the De-SPAC dynamic in 2021, we were able to raise close to $1 billion, and what that did was brought a lot of great talent into the company and into the sector. We've got some of the best aerospace and defense engineering minds in the world. We've got some of the best propulsion minds in the world. We've got our head of propulsion came from Tesla. We've got folks from Lucid, Polestar, et cetera. As we sit here today, we're very focused on getting to commercialization in 2025. We're working through the certification process, and we just shipped our first production aircraft to our test site in Salinas, California, which is gonna begin flight testing later this summer. That's the background. Yep. Why don't we actually pick up one of the points you were mentioning. At an investor event held in Palo Alto last year, you know, the team spent a ton of time talking about the advantages and, you know, about the propulsion system, the electric motors that you're designing, the battery technology. You know, what makes this differentiated relative to the competition? I guess to that point, what are you, what are you doing in-house, and where are you really leveraging external partners on the, on the build of the plane? Yeah. Sure. As I said, in that quest to develop the most expeditious path to market, we had to quickly make a decision on what we were going to design internally and what we were going to just source from a very mature aerospace supply base. We early on decided that propulsion is a key differentiator. Propulsion enables the vertical takeoff and landing capability and the power that's needed in that vertical takeoff and landing capability, and it also enables payload. We also believe that, you know, for this business to hunt, you need to have a four-passenger payload type of configuration. What we're doing is we decided to develop in-house our propulsion systems and leverage some of the great work that's been done by others in the EV space. For example, our engine technology is developed in-house. It's a key differentiator versus those that are out there. As an example, a Cessna 172 combustion engine weighs about 135 kilos. It has 29% efficiency. Our aircraft engines weigh about 25 kilos, have 95% efficiency. The efficiency and the performance of our aircraft engines are enabling that business model. If we were to go out and source something similar just from the aerospace supply base, we would be, we'd have a probably 40% higher weight ratio on that, on those engines. We're able to save weight in the design of the aircraft. Aircraft weight is everything. I mean, we're scraping and scrapping for every gram out of the way of the aircraft to enable payload. Similarly with our battery technology, we are sourcing our batteries from a company called Molicel, but they are very high power batteries, and we are able to configure them into a battery pack. There's 6 battery packs in our aircraft. We're able to configure them such that they were able to be about 30% less weight than would be in a typical off-the-shelf sort of configuration. Those design decisions that we made and sourcing that internally, developing that internally with really, really high quality folks. Dr. Michael Schwekutsch heads up our propulsion team. He headed up the Tesla Model 3 propulsion team at Tesla. He was with the Apple special projects group as well. He's done a great job in designing that tech for us. That is a key differentiator. We're extremely proud of that. It does, though, get back to that most expeditious path to market, that it does enable our payload and it does support the back-to-back 20-50-mile missions and allows us to charge our batteries within 10 minutes. Yeah. Similarly on the software side, what are you doing internally versus externally in areas like avionics or navigation? You know, How do you guys parse that out? Yeah. If our propulsion team is about 100 of the 600 people that we have on board, our software team is approaching that size as well. Software is focused on those items that are idiosyncratic to our technology. It's focused on our flight, our flight controls. It's focused on our battery management system as well as our engine management system. We're able to support some of the more standard commoditized software through the aerospace and defense base, such as flight operating systems. Lastly on technology, you built out your test labs and capabilities in San Jose in recent quarters. Where does that stand today? What kind of tests can you, will you be performing there? I guess, what will that site be used for long term after your Georgia site begins, I guess, or ramps in higher volume? Yes, sure. Our overall manufacturing strategy has been to get to scale very fast. We talked about the most expeditious path to commercialization. We believe that commercialization not only is just getting an aircraft to market, but getting aircrafts at scale to market. Not just 10s of aircraft, but hundreds and thousands of aircraft to market, which is why we've partnered with a shop like Stellantis, who manufactures automotive, you know, every day at scale. With respect to our strategy, we are building out our San Jose test lab and pilot manufacturing facility. It's actually coming online as we speak. It's right around the corner from us. The strategy around that is that our engineers will be manufacturing, you know, tail 1 through tail 6 for our certification aircraft. The test labs there can test raw materials as they're coming in, components as we're developing them, as well as full software-in-the-loop type of tests. What we're not doing there are things that are better done outside of us, like crash testing and icing testing and things like that. We would not do that in San Jose. Our Covington, Georgia facility, which we broke ground on about 1 month ago, is our scale manufacturing facility. We look at our aircraft manufacturing process as very similar to an automotive manufacturing process. We don't look at it as really an aerospace and defense process. We've got carbon, we've got wiring harnesses, we've got batteries, we've got engines, very similar to an automotive manufacturing process. That is coming online. Our partner, Stellantis, is helping us bring that online. We're using the San Jose facility around the corner from us to do the initial production of our certification aircraft, of which we will build six of those. Once that process moves to Covington, Georgia, which will be next year, that manufacturing process, we're actually gonna take that the area of the factory that we're doing manufacturing the test aircraft and we're gonna be moving our expanding our powertrain manufacturing there. That powertrain and propulsion, we're gonna continue to own that process, continue to own not only the design, but the manufacturing of it, and we'll be able to produce hundreds of aircrafts' propulsion systems in San Jose. Great. Moving on to certification, this is, I mean, really the critical thing on everybody's mind. Where are you in the certification process? You know, what's left to be accomplished? You know, what kind of timeframe should investors be thinking about for, you know, in this case, type certification of the aircraft? Sure. Certification is clearly key to getting to market for any aircraft manufacturer. We've done a lot of work with the FAA to get to where we are, which is we're industry leading in terms of certification. I think there's one other player which is very close to us, or we're close to them, however you wanna look at it. Just to step back, there are two parts to the certification process. You work with the FAA to generally outline what you're going to test and how you do it. That's a big paper chase. First part is the G-1, where which is the means of compliance. That's like 30 pages. You get into. Sorry, the certification basis is the G-1. The means of compliance is like 300 pages. You get into the subject-specific certification plans, which are like 3,000 pages. So we've submitted 15 of our 18 subject-specific certification plans, and that along with the means of compliance, which we're working on right now, will largely tell the FAA what we're going to test. So we're almost through that process of telling the FAA what we're gonna test. The conforming aircraft, which we're going to start building later this year, are the aircraft that we'll be using to test all of those subject-specific certification plans. I know there's a lot of words I'm throwing around with respect to certification. Sorry, I'm knee-deep in certification, but, you know, as an investor, if you're looking at this space, it's, you're gonna wanna understand where folks are in the certification process. We're just about through telling the FAA what we're going to test. We got a couple final agreements to get with them, alignment on, and then next year, we'll start testing those. Specifically the 18 subject-specific certification plans which we're agreeing to with the FAA currently. Yeah, you guys have talked about the, I guess, the first non-conforming followed by six conforming aircraft, first of which later this year. What are these aircraft used for? You know, what would this first aircraft, what it'll be used for and what would be different for the conforming aircraft? Sure. You know, the difference between a conforming versus a non-conforming aircraft is generally that the conforming aircraft have been manufactured in a space or in a system that has been approved by the FAA for certification. Non-conforming aircraft just means you didn't apply those same FAA principles to the manufacturing process or they weren't in place. The non-conforming aircraft is the one I alluded to earlier, which was our first production build that we are now testing in our Salinas facility. That is gonna do a full flight envelope testing. You know, for us, a full flight envelope is taking off, it is transitioning from hover into forward flight, and then it'll transition from forward flight to a hover and then to landing. All of the tests in between. That aircraft, the non-conforming Midnight, is going to be running through those tests. It's really a prelude to the work that we're going to be doing with the 6 conforming aircraft. The reason we have 6 conforming aircraft is because we have to get through those 18 subject-specific certification plans. Those 18 specific, those SSCPs for short, have very specific tests that we're going to be going through. Like, you know, the propulsion tests, the environmental control system tests, the airframe tests, et cetera. Those 6 conforming aircraft will actually be checking the box across all of those 18 subject-specific certification plans. We've got a very experienced team that has gone through this before from the aerospace and defense industry. Our COO and chief engineer have both taken each individually 7 eVTOL aircraft from design to testing. We're excited to get to work later this year in starting to build those conforming aircraft. Next year, Q1 of next year is where we'll really start the type certification testing process. Do you have a thought or a view that what would be the largest challenge or challenges to certification? You know, what gives you confidence that you can achieve, you know, certification by the end of the year, 2024 or early 25? You know, I'm not sure I'd call it a challenge as what, when you're representing something in front of the FAA that they haven't seen before. If you go through those 18 subject-specific certification plans, there's probably 3 that they haven't really seen before, and that's around the electric propulsion system and the battery tech. We started very early on with them to get them up to speed on how we were deploying, how we were using that battery and propulsion technology. I think us taking an early run at the FAA with respect to those areas are giving us an advantage or giving us some a little bit of a head start in terms of when we get to the actual for-credit testing. They're gonna be very well familiar with our tech. They'll understand how we're deploying it, and then they understand the tests that we'll be running. Yep. Wanna talk about the partnerships, both on, let's say, the market side in United, but also on the manufacturing side of, you know, in terms of Stellantis. First of all, Can you signify the importance of that, you know, again, on, first on the demand side, and then on the supply side, what is the key about Stellantis as part of your, you know, manufacturing strategy? Sure. We, you know, this is a heavy lift. We're creating as much as we're creating a company, we're creating a new industry along with some other players in the industry as well. We felt it was very important to have some high-quality partners to help us do that. The good news is, early on, we were able to partner with United. United is an investor in the company, as well as a really good operational partner and customer. United has, as I mentioned earlier, they've given us a large order for our aircraft that, as we get through the certification process, they'll start taking delivery of and deploying into routes that we're helping them develop. In addition, they also think about, help us think about how to operate these things within, you know, standard airports, et cetera. We have recently announced with United, jointly with United, our first eVTOL point-to-point route is the Newark Liberty International Airport to downtown Manhattan. Then about a month ago, we announced Chicago O'Hare to Downtown Chicago route with United. Those will be United-branded routes. We'll be helping them operate them as we both get up to speed on how to operate UAM networks. They help us with the day-to-day tactical stuff as well. Like, if we're landing behind the TSA, which is if you think about what a really good use case for the aircraft is, okay, you hop on an aircraft, you go through TSA in downtown Manhattan, it flies you out to Newark, and you get on the other side of TSA, so you don't have that friction in your commuting process, and you land at a gate very close to where you're gonna take your, you know, your business class or your Polaris class trip elsewhere in the U.S. They help us think through how are we gonna get spots at gates? How are we gonna get past TSA? They've also helped us with looking at our aircraft design and saying, "You know what? For maintenance purposes, you're gonna have to really move that access plate down to the bottom here because your, you know, your maintenance crew is not gonna be able to access, you know, the engine there. They've just been a great partner. All that learning that they've had for years in the business, they're, you know, helping us where it's needed on our side as well. Stellantis, very similar. Awesome operational partner. As I said, they build 500,000 cars a month, 6 million-9 million a year. They're embedded with us. I walk around my office, and I see guys with Jeep shirts on all the time. I'm a Jeep guy, so I go up and talk to them. They're embedded with us, helping us think about how to build these things at scale. How to... What are the right process steps for this assembly process? What are the right, what are the right ways to think about this sub-assembly? Who should we be going out and talking to about sourcing components for the aircraft? They help us think about not only the very tactical day-to-day manufacturing, but then how to design for scale. How to design the factory in Georgia for scale. They've just been a great partner too. Again, it's difficult to build an industry with just one person or one company or a handful of companies, but by bringing in really good, high-quality partners to help us do that, it's been invaluable for us. It's been invaluable. I want to pause here and see if there's any questions from the audience before moving on with additional questions. Maybe coming back to the United thing further. Two things on that. Just to be clear, it doesn't really exist today, right, to go behind the fence at TSA, I don't believe. There's probably more heavy lifting on that side. That's correct. In the next few years. Okay. That's correct. How do I guess maybe, and this could be not only United Airlines with the first two routes, but how in general are you looking at the routes? What, what have you done that would make a particular route attractive? Maybe you could explain more about the type of tools that you have or maybe the tools you have alongside of United Airlines on how you would assess, you know, what makes a good route. Yeah, that's a good question. We, as I said at the outset, we've taken a very data-driven approach to the market. We have an internal application that we call Prime Radiant. It was developed by a data scientist from Uber Elevate, who was one of the first 10 people to join the company. We can see people's mobility through pick the top 50 MSAs in the world and how they move through the cities. One of the first things that surfaced in that analysis is that high-value routes in most of the major cities in the world are those routes from downtown to the airport. There's clear ability to pay, there is clear demand. The routes that we've announced with United are following that paradigm. None of what we do is random in terms of picking routes, though. As Bill's question was like, how do you think about route development off of that? We think about it in two phases of going into a market. This is on the urban air mobility side and building out the urban air mobility networks. There's the trunk routes, which we call the city center to the airports. Those are probably some of the highest traveled, highest throughput routes in all the major cities. There's also fairly robust routes beyond that. You know, think Greenwich, Connecticut to downtown Manhattan or some suburb in Boston to downtown Boston. Those are also very beefy and meaty routes. Our Prime Radiant software helps us map out what those look like. We've mapped out a full network in California right now. California's got, you know, great weather. You've got clear ability to pay. There's a lot of demand. You've got big companies like Google and Facebook that have employees who are living outside of the areas. We've actually used Prime Radiant to develop what these trunk and branch routes look like across probably the top 25, top 50 MSAs in the US and the world. That's the strategy that we deploy. It's not random. What you have to do is that's what the data says. We also have a... Our head of infrastructure then goes out and looks at what's on the ground that supports that data. He's Bryan Bernhard. He's our Chief Infrastructure Officer. He was with WeWork for nine years and helped them build out all of that hard infrastructure. You know, they scaled very fast with hard infrastructure, and he's doing that same thing for us, thinking about, we call them vertiports. You know, what does a vertiport in Greenwich look like? Or if we've mapped out the Bay Area network going out to Livermore, which is a city in the East Bay, what does that look like? Is the, you know, does the Google Map, the Google satellite that we looked at when we were mapping out that route, is there really a space to put a vertiport there? We go very deep on how to map these routes out. Start with the data, and then we put boots on the ground to go validate that data. Clearly, I mean, that doesn't always play out, but, you get pretty close. In a prior talk, you discussed the importance of infrastructure. One, to, you know, obviously find new infrastructure, but maybe it's also important not to lose existing infrastructure. You know, what, how do you see this playing out? Will this be owned by Archer? Do you think it's gonna be public, you know, used by anybody? You know, are you gonna have your own sort of lounge there? Like, how should people think about the infrastructure problem? I'll call it a problem because, look, I mean, a lot of these jurisdictions, there's gonna be probably some red tape along with that in building stuff. That's absolutely correct. I think it's all of the above. I don't think there's gonna be one formula that is gonna or one size fits all for each location. For instance, in New York City, the heliport on Thirty-Fourth Street, you know, that's a Port Authority managed property that I don't think they're gonna give exclusivity to any one operator. You know, you're not gonna create a monopoly for your consumers. However, if I wanted to go out to a place in Long Island and invest in that area, I might be able to cut a deal with, you know, with the local municipality that I could get, I could get, you know, unique access to that area. I think it's across the board. To be clear, like, we don't wanna own all of our aircraft assets on our balance sheet. I don't wanna own all of our vertiport assets on my balance sheets. As much as I have partnerships with United and Stellantis, I'm clearly gonna have a partner on the infrastructure side as well. We look at it as being very opportunistic of where we think those high-value vertiports or access locations to our aircraft would be. We could be very opportunistic about how we invest in those. I think there's gonna be other areas where it's just gonna be you're not you may never have unique access, nor do you maybe not want to have unique access to that, and it's gonna have to be shared. Yep. Again, I wanna see if there's any questions before moving on. Okay. Let's speak more about Stellantis. You know, you announced them as a toll manufacturer. How does the cost-sharing work? Who's in charge of what? Who's in charge of CapEx? Who's in charge of, you know... How do the economics work under that scenario? Sure. I think there's two different phases to that relationship. The relationship that is desired between us two is for them to be a contract manufacturer for us at scale. Clearly in that relationship, the contract manufacturer would own the assets, would own the technology around producing those assets, and we would enter into a sort of like a cost-plus relationship with them. That, I think that's... You know, we haven't defined on what, when that, what exactly that cut-over point is. Currently, they are contributing IP and people to help us think through the first phase and how that scales into the second phase. The first phase, the Georgia factory, the San Jose factory, et cetera, the cost of those are generally being borne by Archer by design. We've always had that in our plan. You know, when and if we cut over to that new paradigm where they're our contract manufacturer, when that happens, you know, we'll, you know, figure out who owns what at that point. The good news is that we've come to an agreement that our goal is for them to be our contract manufacturer at scale, you know? We'll, we will get out of that business and just turn it over to them. Yeah. What is the latest thinking on these aircraft in terms of direct sales to somebody like United? You mentioned you could operate for them, but versus, you know, developing your own network. How does that look through time, I guess? I should have mentioned probably at the beginning what our business model is, as investors you guys would be interested in that. We are actually a hybrid business model in terms of going to market. We will sell these aircraft like the contract we have with United. When you think about that's a direct, a direct capital asset sale to an operating partner. I would recognize revenue generally when I sold that to them in a contract agreement. We also, though, think that there's real value in the Archer brand and the Archer customer experience. One of the things that I haven't talked through is our aircraft. If you saw it's an extremely elegant design. I've got a crazy design. Our head of design came from Mazda, and as much as he says aircraft is designed mathematically, he talks about the organic expression of humanicity, you know, in this aircraft, which as a finance guy, just sort of like say, "Hey, that's cool," but I don't understand what he's talking about. That said, the aircraft is beautiful. I would encourage you to go out and look at the aircraft online. Our Midnight production aircraft is not only beautiful for eVTOL, it's a beautiful aircraft in general. I mean, this thing could be in like a Westworld or Blade Runner movie, and it would not be out of place. I actually forgot where I was going because I got onto the design for this. What question was I answering? Well, I mean, you know, sales at first- Oh, yeah. followed by network. Yep. You know, how does that go through time? We also want to operate these because we want to own the brand. We look at the direct sales will help fund that build-out of the UAM. As we were talking about earlier, the UAM is gonna be not easy to build out. It's not gonna be day one where you have this massive network that you can sell into. We are gonna be developing those over time. We feel that the direct sales model to operators in the U.S. and outside the U.S. as well will create capital. That capital can help us continue to build out the UAM networks as well. We do think probably long term that that's probably where the value is in the company. You can create an annual recurring revenue stream within these large cities once you gain customer adoption and customer acceptance. That's how we look at the business model. Knowing what you know about the bill of materials, and I guess the best you can on the manufacturing process, in your pricing arrangements, how should we think about gross margins for a direct sale? You know, for the network, how do the unit economics work and how should, you know, we think about the unit economics on that and how the margin structure looks there? Sure. We've done a lot of work on this and continuing to do a lot of work on this. We're probably gonna hold an analyst day later this year and talk through more detail of the unit level economics. Loosely, our initial evaluations and modeling shows that we think that on the direct sales side, our target gross margins when we're, you know, at hundreds of aircraft per year, are probably in the 50%+ range. Very different from current aerospace and defense, but we look at this as a, you know, it's a new technology being deployed. And if you just look at the ASPs from our contract with United, they support a gross margin of 50%+. The UAM side is a little bit less. It's probably about in the 40% plus range. That's because you've got incremental costs that you're bearing there. You've got the cost of the pilots. You've got the cost of insurance for the aircraft. You've got financing costs. As I said, I don't wanna hold these on my balance sheets, so there will be a financing partner to help us. You've got maintenance costs, et cetera. While it's a lower gross margin business, it is an ongoing repeatable scaling business as well. You have annual recurring revenues from those networks that you're putting together. That's how you can think about the unit level economics. We talked about on an earnings call, I think two quarters ago, a typical rideshare from or a typical cab from Newark Liberty International to downtown is about $100. No matter how you slice it's $100 plus tip. I've been on cabs, I've been in Ubers, it's always around that, you know, $100-$120. That equates to roughly $6 per seat mile. When we came out of the gate with on our IPO process, we were targeting to be able to make money in the $3-$4 per seat mile. We've just seen the market, I think, converge or change. We'll price to what the market will bear to be, you know, at least in the high value areas like that, those routes or those commuter trips from Newark to and probably JFK the same, is in that $6 per seat mile. We'll clearly price to what the market will bear. You know, if we're in that $3-$4 per seat mile, $4 per seat mile, I'm in that targeted 40% gross margin range, with taking into account all the costs to operate the vehicle as well. There's one caveat there, landing fees. Landing fees are something that is still being sussed out by the industry. There are landing fees in New York right now that we feel are, don't support a long-term cost model. The landing fees at all of these locations are going to be 'cause it's all across the board right now across the U.S. That's the one area that we don't have dialed in our model, and we gotta continue to work that. Yeah. Maybe the last question. In terms of the balance sheet, I mean, you talked about raising, I guess it'd be the second most of the eVTOL guys. You have some options with Stellantis. How should we think about the need, if there is any, to raise capital between now and certification, and what options would you have in that scenario? Sure. I think that, taking the partnerships that we're gonna have to think about on the infrastructure side, there are two vectors of financing that we are always thinking about. One is clearly how do we keep the business capitalized, but there's also the capitalization around the aircraft that we'll be deploying into our networks. I'm actively working with. I came from cleantech. You always finance your cleantech assets that you were deploying into your fleet. We're working that same vector for our aircraft assets. I know I'm out of time, I'll just finish up. On the growth side or on the corporate side, as we said on our last earnings call, we're pretty well capitalized between now and getting to commercialization in 2025. You know, we'll be opportunistic as we get closer to 2025 if there's some attractive financing mechanisms we might take advantage of. The good news is right now we don't need to do that. Yeah. Well, unfortunately we're out of time, but thanks for sharing the insights, and we'll look forward to following the progress. Thanks, Mark. Yeah. Thanks, Bill. Thanks everyone for coming.