Archer Aviation Inc. (ACHR) Earnings Call Transcript & Summary

Hello, everyone. Thank you for joining us, and welcome to the Archer Aviation Second Quarter Financial Results Conference Call. [Operator Instructions] I will now hand the conference over to Kate Kiewel, Head of Investor Relations.

Welcome to Archer's earnings call. This is Kate Kiewel, 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 earnings release from today. Now, I'll turn it over to Adam. Adam?

Thanks, Kate. Today marks an important inflection point for Archer. So let me spend some time walking you through the rationale for the exciting transaction we announced with Boeing earlier today. We entered into agreements to acquire 3 highly innovative Boeing-owned companies, Wisk Aero, Insitu and SkyGrid in exchange for Boeing taking a strategic equity stake in Archer. We anticipate closing the transaction by the end of the year. This partnership will help accelerate the evolution you've heard me talk about for a long time. Archer has diversified aerospace and defense platform with a physical AI product portfolio that will span air taxis, unmanned aircraft systems from Group 2 to Group 5, purpose-built AI for aviation and the vertical technology stack for autonomous flight. Let me walk you through how we got here. I founded Archer with one goal, finding the most efficient path to commercializing air taxis and built a world-class team to do it. We remain incredibly focused on this goal as air taxi will always be core to our mission. And Midnight is well on its way. We went from an unknown in 2018 to the front of the pack on FAA certification today. Defense, as I've been saying for the last 18 months, is becoming one of the largest near-term markets for the VTOL industry. We first announced our partnership with Anduril at the end of 2024. Palmer Luckey, one of the founders, had come to me with a concept for an autonomous, dual-use loyal wingman for attack reconnaissance helicopters like Apache, and they chose Archer's team to build it alongside them. Since then, our teams have been building this aircraft together. Archer took all our learnings from years of eVTOL development, airframe design, rotors, powertrain and actuation systems, knowledge from the Midnight program and put it into something new, a clean sheet, autonomous hybrid aircraft platform for both commercial and defense. Last month at Farnborough, we jointly revealed the Halo/Thunder platform, and I'm confident it is revolutionary, not evolutionary. Unlike what many others are doing, this is a clean-sheet, first-principles approach targeting both commercial use cases, including logistics, humanitarian, medical and maritime as well as multi-decade defense programs of record with Allied forces. This is why for the past year, we've been assembling a world-class Halo/Thunder team focused on developing this platform. With this transaction with Boeing, we can utilize Wisk's incredible talent to round out that team. Wisk traces back to Larry Page, who gave this industry a start nearly 20 years ago, and they're right down the road from us here in Silicon Valley. Their engineers have spent nearly 2 decades building some of the most advanced autonomy, flight control and sensor technology in the industry, designed from the start for autonomous flight. The opportunity is clear to me, deploy and harden the technology on Halo/Thunder first and fold it into future iterations of the air taxi when the FAA is ready to certify autonomy. I'm confident that our planned acquisition of Wisk can accelerate the Halo/Thunder program at a fraction of the time it would have taken us to achieve the same results organically. As part of this transaction, we will also acquire Insitu, one of the most trusted and reputable intelligence, surveillance and reconnaissance, ISR, drone manufacturers in the U.S. It is profitable today with over $200 million in annual revenue across 35 countries. They have built more than 4,000 Group 2 and 3 UAS to date. Those UAS have flown nearly 2 million flight hours autonomously, giving it one of the largest data sets of its kind. And that data will feed directly into our autonomy development. Insitu will give Archer an immediate, sizable revenue base to grow from. The key driver of this transaction was the relationship we've built with Boeing, especially former Wisk CEO and now VP of Product for Boeing Commercial, Brian Yutko. Boeing is synonymous with American-built aviation and the deal structure shows how leaned in they are on our future together, all stock with a lockup, a collaboration across many new fronts, committed future equity investments in Archer, warrants at exercise prices far in excess of our current price. For both companies, the core of this deal is the opportunity to jointly drive innovation across aerospace, defense and autonomy and deliver long-term value for shareholders. I want to thank Kelly Ortberg and the Boeing leadership for the trust and belief in Archer as the right long-term partner. Importantly, I've tasked my team with integrating these companies in a thoughtful, synergistic way that will not structurally increase our overall cash burn. The focus is clear. On the other side of this deal is a stronger Archer with an end-to-end physical AI platform for aerospace and defense. Last quarter, I called Archer a dual-threat company, a nod to our air taxi and dual-use autonomous VTOL aircraft program. This quarter, we shared more on the strategy for the third key pillar of our diversification approach, purpose-built AI for aerospace and defense. We introduced ZEE, the world's leading aviation specific foundation model. ZEE is a unified intelligence platform built on ADS-B, ATC communications, maps and charts, aircraft movements, terrain and weather data. And just last week, we announced that ZEE has delivered a breakthrough in aviation safety, highly accurate real-time prediction of airport surface trajectories. To bring this technology safely into the aviation ecosystem, our teams are working with the government agencies and customers to rigorously validate ZEE in the real world. We couldn't be more excited to pair ZEE with SkyGrid, and we believe, together, those technologies can deliver a next-gen air traffic management product that can play a critical role in modernizing air spaces around the world. I see a clear path to significant AI revenue, and the team is heads down building toward it. Now let me circle back to Midnight. Through it all, air taxi remains a top priority and the program made tremendous progress this quarter. This quarter, we flew multiple piloted aircraft on an almost daily basis across our fleet. And oftentimes, those aircraft flew multiple times a day in testing across piloted VTOL and CTOL flights, including our first intercity flights here in California. And over the next few months, you can expect us to begin flying in the L.A. area based out of the Hawthorne Airport and subsequently commence operations under the White House's eIPP later this year in Texas. We also continued our industry-leading progress against our FAA certification program for Midnight. I believe we remain the only industry OEM to be out of policy and in the fourth and final phase of the FAA's type certification process with a fully accepted means of compliance. Notably, this quarter, the FAA approved our quality management system, which hardens our ability to perform FAA for-credit conformity findings across the aircraft as well as its components and systems. We're actively working with the FAA on for-credit testing this year. On the infrastructure front, we co-launched ACES, the American Consortium for Electric Skyways, alongside BETA and Macquarie. It's an industry-first approach to deploy interoperable charging infrastructure across the U.S. and align OEMs on a unified approach, which is critical for scale and to lower cost for consumers. I'm proud to take this on arm-in-arm with Kyle and the team at BETA and look forward to welcoming many others who want to join the mission. We are executing all of this from a continued position of financial strength with $1.6 billion in liquidity. I started Archer to change the way the world moves. Nearly a decade in, I've never been more confident or more all-in. With that, I'll turn it over to Priya.

Thanks, Adam, and good afternoon, everyone. Building on Adam's remarks, the last few months, culminating with today's transaction announcement, are truly an inflection point for Archer. With the planned acquisitions of Wisk, Insitu and SkyGrid, coupled with our recent unveiling of Halo, ZEE and ACES, we're rapidly advancing our diversified multi-platform strategy across air taxis, UAS and AI to lead the next generation of aerospace and defense. We strongly believe we are uniquely positioned in the sector as we look ahead, both in terms of product portfolio breadth and depth as well as both near-term and long-term revenue generation potential. Insitu today is a profitable business, generating more than $200 million of revenue in year. That, in addition to our existing air taxi platform, our Halo/Thunder platform and aviation-focused AI solutions, will significantly change the profile for Archer and our path to meaningful revenue in the years to come. We're not just an air taxi company anymore. In parallel with our focus on growing our top line, we remain focused on managing our net cash burn. We expect the planned acquisition to bring meaningful synergies across all platforms, Midnight, Halo/Thunder and ZEE. We will remain disciplined about investment across each of our platforms. Let me share the framework we will use to maintain that discipline quarter-over-quarter. First, advancing Midnight to certification and scaled operations remains a top investment priority. We expect to generate near-term revenue through early operations, both in the U.S. and internationally, and scale thereafter following certification. Second, for Halo/Thunder, our Group 5 UAS platform with Anduril, we've already been investing in technology development over the past 24 months. And as Adam discussed, we're excited about the potential for the autonomy capabilities from Wisk to further accelerate the development time line. We are focused on getting this platform to market as soon as possible as it carries a total TAM greater than $100 billion in the decades ahead. Midnight and Halo development time lines with their individual peaks and troughs align well, allowing us to stay focused on efficiently and synergistically leveraging our engineering talent across air taxi and UAS platforms. Third, for ZEE and its product portfolio, our near-term goal is for our AI solutions to be revenue generating and profitable as early as next year, with the potential for a significant ramp in the back half of 2027 and beyond. Finally, we expect Insitu to contribute positive free cash flow after closing, allowing the business to operate on a self-funding basis and potentially offset spend in other areas of our business if we are able to grow their business as we expect. Taken together, this framework gives me the confidence that we can grow the top line across our business while post acquisition close and through integration, keep cash burn relatively flat from where it stands today. Now let's switch gears to the results from the current quarter. I'm happy to report on very strong financial results for Archer. I'll focus on 3 key highlights. First, we continue to maintain a very healthy balance sheet with $1.6 billion in liquidity at the end of Q2. Second, we grew revenue to $5 million for Q2, which is a 213% increase over last quarter. This was driven by our growth in operations at the Hawthorne Airport in L.A. Third, we met our spend guidance. Q2 adjusted EBITDA was a loss of $177 million, which is on the lower end of our guidance range of $170 million to $200 million and only a slight increase quarter-over-quarter. These results are an early indication of our ability to grow the business while staying measured in our use of cash, which is exactly what we must do in this next phase for Archer. For Q3, we estimate our adjusted EBITDA loss to stay within the same range of $170 million to $200 million as we continue to mature the Midnight flight test program including our operations under the eIPP, continued development of Halo and advance our AI solutions. Looking ahead, in addition to these key priorities, our focus will be on closing the transaction with Boeing as soon as possible with a target of end of the year and then integrating the business efficiently and effectively. It all comes back to the old adage, execution matters, and we are committed to delivering against the framework I laid out, maturing our diversified product base to fuel a growing top line, all while controlling spend. And with that, I will turn it back over to the operator.

[Operator Instructions] Your first question comes from the line of Savi Syth from Raymond James.

Just with the announcement of Halo and Thunder -- can you hear me?

You're back now, Savi.

Okay. Great. Sorry about that. Could you -- with Halo and Thunder platform versus the Midnight platform, I was wondering if you could kind of compare and contrast like some of the technical differences there and kind of what it might mean, kind of, from a parts procurement, production scaling, as you work on those 2 kind of platforms in parallel and just how much you can kind of share between the 2?

Savi, this is Tom. Happy to answer that. The way to think about Halo and Thunder is this is a clean-sheet new platform targeted at a totally different mission than Midnight. So this new aircraft is targeted at flying heavier payloads much further, much faster than we can do with Midnight, and that's all around the different market that we see both in the defense side. We're a partner with Anduril on the civil side. And so in order to do that, though, we've been able to leverage a bunch of the core, I'll call them, like technology building blocks that have been put together for Midnight. So those are things like our batteries, electric motors, et cetera. But then obviously, the one new piece of technology is the hybrid system in this aircraft. So by going hybrid, that's how we're able to unlock the ability to travel much further, faster, more payload, et cetera. In terms of how we're executing on this, still early in the development of the Thunder/Halo platform. Target is to be in the air next year and then working towards customer deliveries in '29 and kind of scaling 2030 kind of from there. But progress has been tremendous so far. Interest has been fantastic. So really excited about it.

That's helpful, Tom. And just maybe with the acquisitions announced today, I was wondering if you -- and it's a broader question just beyond the Halo/Thunder. Just how do you envision day 1 to day 365 post-merger in getting the engineering teams from the different businesses to start working together and when you can start realizing some of the synergies or some of the benefits in accelerating some of these developments?

Savi, this is Adam. So if there ever were 2 eVTOL companies that could come together, it would be Archer and Wisk. And the reason is we both built 12-tilt-6 architectures but we approached it from a different perspective. So Archer focused on finding the most efficient path to commercialization, while Wisk focused on autonomy and advanced fly controls. And so there's really nice overlap, but there's also complementary aspects that make a lot of sense for these companies coming together. So there's going to be an exploratory period to figure that out. We see it as an incredible enhancement in capabilities and so we're excited to dive in. And there's also a lot of capability overlap and synergies working with in situ as well. So Archer obviously has a lot of experience in VTOL products and new-VTOL products. And so as we look at the ISR drone market, that is a large but growing significantly market. And so there's an opportunity to take a lot of our core technologies there and keep building for that market as well. So still early in a lot of this exploration, but that's just a general framework of how we're thinking about it.

Your next question comes from the line of Andres Sheppard from Cantor Fitzgerald.

Congratulations on the quarter. It was great to see everyone at the Farnborough Airshow last month. Adam, lots to unpack here and certainly, a lot of great developments. I guess it's clear that Archer no longer is an eVTOL company, but really in aerospace, defense and advanced air mobility platform. So I guess my first question maybe to build on the last question is, in terms of the synergies and overall structure for the company, what are the key synergies that investors should be aware of? How will you prioritize the eVTOL business with the drone business, and what are you most excited about today's announcement?

Thanks, Andres. There's a lot of synergies here across the platforms, but there's also a really nice strategic rationale here, where you have the large market of civil passenger-carrying aircraft has an incredibly large TAM but also, I would say, some difficulty predicting exactly how fast it will scale and exactly when it will scale. And so we're going through obviously the certification process, which is very rigorous. And we're doing very well at that. And so as we've looked at accelerating our path towards revenue, the defense side of the business becomes very attractive as there are pathways to launch autonomous products in different air space that are just much easier to get to market more quickly. And so if you think about sort of the portfolio strategy here, there's ability to generate revenue, generate cash flow, use that cash flow to help really get us to profitability much sooner and reduce our burn across the civil markets, which can allow the overall strategy to build much better products and build a much bigger company for the long term while minimizing the dilution. And so again, this is still early days in us figuring out the exact strategy on how to deploy it. But I think that general framework is how we're thinking about it and the enhanced capabilities we get from the Wisk platform, Insitu platform and SkyGrid platform gives us a really nice go-to-market that we did not have before.

Excellent. That's super helpful. Maybe just a quick follow-up. Coming back to your recent unveil of your first dual-use aircraft jointly built with Anduril. Just help us understand how are you thinking about commercialization of Thunder and Halo and how might those be complementary to Midnight?

Thanks, Andres. So we're building the core platform, the base platform, which we call Halo, and that will have all of the kind of basic functionality that, that aircraft needs to operate. We can then take that aircraft and give it to Anduril, which will ultimately missionize that aircraft. And so that's something that Archer is not doing. That's something that Anduril is going to be doing for the ultimate end defense products. There, of course, will be different programs of record that, that platform will go after on the Thunder side. But on the Halo side, there are customers that we will go after that have needs, that have a similar use case without any of the defense capabilities. So think search and rescue or offshore energy, areas where you need to carry more payload, much longer distances than what the Midnight platform would be. So we've already announced an earlier customer, which is Marubeni and there's been a ton of inbound and we've had a lot of interest with existing customers we've been working with to find new solutions. So the goal will be to find ways to take that platform and build it as quickly as they can, but also really try to minimize the spend on that platform by leveraging a lot of the core capabilities that we've already built from Midnight platform. So another great example is the flight control system, where we are leveraging a lot of the work that we had started with Midnight, but now we can also enhance with Boeing. So ultimately, the goal is a low-cost platform that can really scale significantly. And by having civil and defense capabilities, you get really both those benefits.

Your next question comes from the line of James Kirby from JPMorgan.

Congrats on the transactions. Maybe just following up, asking in a different way from the previous question. Where do you see Insitu fitting into the longer-term portfolio of Archer? And maybe just could you just speak to the extent you can on the revenue growth drivers in that business?

In the ISR world, the revenues that you see today are largely a result of the macro environment and the sales that happened from years ago. So when you look forward from here, it seems very clear that there will be an increased demand for ISR drones, not just overall, but even new capabilities. And so there is a broad set of new products that are being requested. And I think there is a huge market growth potential across the broader ISR world. So in the very near term, there will be revenue and cash flow that will be generated from the existing product portfolio. But there's a whole new suite of products that can be built, that could be expanded and generate significantly higher revenue given the macro environment we live in today.

Okay. Got it. I appreciate it. And then for my second question, I wanted to ask you to unpack the collaboration agreement with Boeing a little bit more. It seems from the shareholder letter and the press release that they'll retain the Wisk autonomous stack for their future aircraft essentially. Does it go further than that in the sense of what you guys are building at Archer with the ZEE platform and now SkyGrid on top of that as well as what you're doing with the Halo/Thunder platform? Does Boeing -- is there more avenues behind just the Wisk autonomous stack?

So the transaction was set up where Archer will own the IP, but we will share the back with Boeing as it relates to products built specifically around flight control systems, autonomy and several other areas. The concept is really one of partnership. So Boeing took all stock in the transaction, they locked up the stock, and we will work together on -- through a collaboration agreement on enhancing and developing that product portfolio and also future products. Boeing, of course, has an entire suite of plans on both the civil and defense side. So there are lots of areas that I'm sure that they are interested in, in developing. From the Archer perspective, it gave us the ability to have a head start on a lot of the core autonomy stack, the pathway to certifying the autonomy stack on the civil side and a pathway to deploying the flight autonomy on the defense side. And so it's really a win-win here where by Archer developing this platform across flight controls, flight control computers, full autonomy, Boeing can benefit, too. And by them taking all stock, it's really a win-win across the transaction.

Your next question comes from the line of Austin Moeller from Canaccord Genuity.

So for the Insitu acquisition, should we be thinking about this from the context of Boeing already manufactures a variety of like Group 1 through Group 3 or Group 4 drones under that product line and also the EOIR gimbal payloads that go on them, and you can now combine those products with the Group 5 Thunder drone and also incorporate the gimbal payloads on to Thunder, the green version of the Thunder airframe that you could sell commercially or internationally to other MODs?