ARCHER AVIATION INC. This Quarterly Report includes forward-looking statements. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. See the section titled "Special Note Regarding Forward-Looking Statements" in this Quarterly Report. Our actual results could differ materially from such forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those set forth in Part I, Item 1A, "Risk Factors" in our Annual Report and in Part II, Item 1A, "Risk Factors" in our Q1 2022 10-Q, which are restated under "Risk Factors" in our Post-Effective Amendment No. 1 to Form S-1 filed with theSEC onJuly 1, 2022 . The following discussion should be read in conjunction with our financial statements and related notes thereto included elsewhere in this Quarterly Report and the audited financial statements as of and for the year endedDecember 31, 2021 set forth in our Annual Report. Overview
We are designing and developing electric vertical takeoff and landing ("eVTOL") aircraft for use in urban air mobility ("UAM") networks. Our mission is to unlock the skies, freeing everyone to reimagine how they move and spend time.
Our eVTOL aircraft will be fully electric and will emit zero carbon emissions during operations. The goal of our eVTOL aircraft design is to maximize safety while minimizing operating costs and noise. We look to accomplish that goal through the use of a distributed electric propulsion system with inherent redundancy and far fewer parts than a typical internal combustion propulsion system found in similarly sized aircraft or rotorcraft today. The reduced number of parts not only translates into fewer critical parts on the aircraft from a safety perspective, but will also significantly reduce the maintenance requirements versus internal combustion propulsion systems found in similarly sized aircraft and rotorcraft today. We continue to work to optimize our eVTOL aircraft design for both manufacturing and certification by using advancements in key enabling technologies such as high-energy batteries, high-performance electric motors, an advanced fly-by-wire flight control system, and a lightweight and efficient aircraft structure. The development of an eVTOL aircraft that meets our business requirements demands significant design and development efforts on all facets of the aircraft. We believe that by bringing together a mix of talent with eVTOL, traditional aerospace and automotive backgrounds, we are building a team that will allow us to move through the design, development, and certification of our eVTOL aircraft with theFederal Aviation Administration ("FAA") in an efficient manner, thus allowing us to achieve our end goal of getting to commercialization as soon as possible.
Our Planned Lines of Business
Upon receipt of all necessary
Archer UAM
We plan to operate our own UAM ecosystem initially in select majorU.S. cities. Our UAM ecosystem will operate using our eVTOL aircraft, which is currently in development. We project that the cost to manufacture and operate our eVTOL aircraft will be such that it will be able to enter the UAM ride-sharing market at a price point that is competitive with ground-based ride sharing services today. We will continue to evaluate our go-to-market strategy based on, among other things, estimated demand, readiness of the required infrastructure, and the scale of our UAM aircraft fleet.
Archer Direct
We also plan to selectively sell a certain amount of our eVTOL aircraft to third parties. We have entered into a Purchase Agreement (the "United Purchase Agreement") withUnited Airlines, Inc. ("United") for the conditional purchase of up to$1 billion worth of aircraft, with an option for another$500 million worth of aircraft. We will look to determine the right mix of selling our eVTOL aircraft versus using them as part of our UAM ecosystem based on, among other factors, our capital needs, our volume of manufacturing, our ability to ramp Archer UAM operations, and the purchase demand from our Archer Direct customers. 26 -------------------------------------------------------------------------------- Table of Contents To date, we have not generated any revenue from either of these planned categories, as we continue to design, develop, and seek the governmental approvals necessary to operate our eVTOL aircraft and Archer UAM. We will use the net proceeds from the Business Combination for the foreseeable future to continue to fund our efforts to bring our eVTOL aircraft to market. The amount and timing of any future capital requirements will depend on many factors, including the pace and results of the design and development of our aircraft and manufacturing operations, as well as our progress in obtaining necessaryFAA certifications and other government approvals. For example, any significant delays in obtaining suchFAA certifications and other government approvals will likely require us to raise additional capital above our existing cash on hand and delay our generation of revenues.
Business Combination
OnSeptember 16, 2021 (the "Closing Date"),Archer Aviation Inc. , aDelaware corporation (prior to the closing of the Business Combination (as defined below), "Legacy Archer"),Atlas Crest Investment Corp. , aDelaware corporation ("Atlas"), andArtemis Acquisition Sub Inc. , aDelaware corporation and a direct, wholly-owned subsidiary of Atlas ("Merger Sub"), consummated the closing of the transactions contemplated by the Business Combination Agreement, datedFebruary 10, 2021 , as amended and restated onJuly 29, 2021 , by and among Atlas, Legacy Archer and Merger Sub (the "Business Combination Agreement"), following approval at a special meeting of the stockholders of Atlas held onSeptember 14, 2021 . Unless otherwise specified or unless the context otherwise requires, references herein to Legacy Archer refer to Archer prior to the Business Combination and references herein to "New Archer" refer to Archer following the Business Combination. Pursuant to the terms of the Business Combination Agreement, a business combination of Legacy Archer and Atlas was effected by the merger of Merger Sub with and into Legacy Archer, with Legacy Archer surviving the merger (the "Surviving Entity") as a wholly-owned subsidiary of Atlas (the "Merger," and, collectively with the other transactions described in the Business Combination Agreement, the "Business Combination"). Following the consummation of the Merger on the Closing Date, the Surviving Entity changed its name fromArcher Aviation Inc. toArcher Aviation Operating Corp. , and Atlas changed its name fromAtlas Crest Investment Corp. toArcher Aviation Inc. and it became the successor registrant with theSecurities and Exchange Commission (the "SEC"). Prior to the closing of the Business Combination, Atlas' Class A common stock and public warrants of Atlas were listed on theNew York Stock Exchange ("NYSE") under the symbols "ACIC" and "ACIC WS," respectively. Our Class A common stock and public warrants are currently listed on the NYSE under the symbols "ACHR" and "ACHR WS," respectively.
Impact of the Ongoing COVID-19 Pandemic
InMarch 2020 , theWorld Health Organization declared the outbreak of COVID-19 a global pandemic. The rapid spread of COVID-19 caused volatility and disruption in financial markets and prompted governments and businesses to take unprecedented measures such as travel restrictions, quarantines, shelter-in-place orders, and business shutdowns. The impact of the ongoing COVID-19 pandemic continues to evolve due to, among other reasons, the emergence of additional variants or strains of COVID-19. As such, the full magnitude of the ongoing pandemic's effect on our financial condition, liquidity, and future results of operations is uncertain. Management continues to actively monitor our financial condition, liquidity, operations, suppliers, industry, and workforce, but currently does not anticipate any material impairments as a result of the ongoing COVID-19 pandemic and will continue to evaluate the impact of the COVID-19 pandemic on an ongoing basis. See Part I Item 1A, "Risk Factors" in our Annual Report and Part II, Item 1A, "Risk Factors" in our Q1 2022 10-Q for more information.
Components of Results of Operations
Revenue
We are still working to design, develop, certify, and bring up manufacturing of our eVTOL aircraft and thus have not generated any revenues from either of our planned lines of business. We do not expect to begin generating significant revenues until we are able to complete the design, development, certification, and bring up of manufacturing of our eVTOL aircraft.
Operating Expenses
Research and Development
Research and development activities represent a significant part of our business. Our research and development efforts focus on the design and development of our eVTOL aircraft, including certain of the systems that are used in it. As part of those activities, we continue to work closely with theFAA towards our goal of achieving certification of our eVTOL aircraft on an 27 -------------------------------------------------------------------------------- Table of Contents efficient timeline. Research and development expenses consist primarily of personnel-related costs (including salaries, bonuses, benefits, and stock-based compensation) for employees focused on research and development activities, costs associated with developing and building prototype aircraft, associated facilities costs, and depreciation. We expect research and development expenses to increase significantly as we progress towards the certification and manufacturing of our eVTOL aircraft. We cannot determine with certainty the timing, duration or the costs necessary to complete the design, development, certification, and manufacturing bring up of our eVTOL aircraft due to the inherently unpredictable nature of our research and development activities. Development timelines, the probability of success, and development costs may differ materially from expectations.
General and Administrative
General and administrative expenses consist primarily of personnel-related costs (including salaries, bonuses, benefits, and stock-based compensation) for employees associated with administrative services such as finance, legal, human resources, information technology, associated facilities costs, and depreciation. We expect our general and administrative expenses to increase in absolute dollars, primarily as a result of operating as a publicly-traded company, including expenses to comply with the rules and regulations applicable to publicly-traded companies, as well as additional expenses customary for a publicly-traded company, such as directors' and officers' liability insurance, director fees, and additional internal and external accounting and legal fees and expenses. At this time, we are unable to estimate the costs of defending the ongoingWisk Aero LLC ("Wisk") litigation or any potential settlement or award of damages related thereto and thus, we have not established any related reserves. For a description of our material pending legal proceedings, see Note 7 - Commitments and Contingencies of the notes to the consolidated condensed financial statements included in Part I, Item 1 of this Quarterly Report.
Other Warrant Expense
Other warrant expense consists entirely of non-cash expense related to the vesting of warrants issued in conjunction with the execution of the United Purchase Agreement and the United Warrant Agreement.
Other Income, Net
Other income, net consists of miscellaneous income and expense items, including the change in fair value of our warrant liabilities.
Interest Income (Expense), Net
Interest income (expense), net primarily consists of interest income from our
cash and cash equivalents and short-term investments in marketable securities,
net of interest on notes payable.
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Results of Operations
The following tables set forth our consolidated condensed statements of operations for the periods indicated:
Three Months Ended September 30,
2022 2021 Change $ Change %
(In millions)
Operating expenses:
Research and development (1) $ 47.0 $ 23.1 $ 23.9 103 %
General and administrative (1) 40.8 114.1 (73.3) (64) %
Other warrant expense 6.0 39.1 (33.1) (85) %
Total operating expenses 93.8 176.3 (82.5) (47) %
Loss from operations (93.8) (176.3) 82.5 (47) %
Other income, net 1.3 0.1 1.2 1200 %
Interest income (expense), net 1.5 (0.5) 2.0 (400) %
Loss before income taxes (91.0) (176.7) 85.7 (49) %
Net loss $ (91.0) $ (176.7) $ 85.7 (49) %
Nine Months Ended September 30,
2022 2021 Change $ Change %
(In millions)
Operating expenses:
Research and development (1) $ 112.3 $ 44.6 $ 67.7 152 %
General and administrative (1) 121.0 143.1 (22.1) (15) %
Other warrant expense 6.0 117.3 (111.3) (95) %
Total operating expenses 239.3 305.0 (65.7) (22) %
Loss from operations (239.3) (305.0) 65.7 (22) %
Gain on forgiveness of PPP loan - 0.9 (0.9) (100) %
Other income, net 15.8 0.1 15.7 15700 %
Interest income (expense), net 1.6 (0.5) 2.1 (420) %
Loss before income taxes (221.9) (304.5) 82.6 (27) %
Net loss $ (221.9) $ (304.5) $ 82.6 (27) %
(1) Includes stock-based compensation expense as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(In millions)
Research and development $ 6.7 $ 0.8 $ 19.0 $ 2.2
General and administrative 19.5 102.0 57.3 102.5
Total stock-based compensation expense $ 26.2 $
102.8 $ 76.3
Comparison of the Three and Nine Months Ended
Research and Development
Research and development expenses increased by$23.9 million , or 103%, for the three months endedSeptember 30, 2022 , compared to the same period endedSeptember 30, 2021 , as we invested in people and materials to advance our technology development. Specifically, the increase was primarily due to an increase of$12.4 million in costs related to professional services and tools and materials to support our increased research and development activities, an increase of$7.9 million in personnel-related expenses due to a significant increase in our workforce from the prior year period and an increase of$5.9 million in stock-based compensation expense primarily related to new restricted stock units granted since the prior year period and 2022 quarterly bonus equity awards to be granted in the subsequent fiscal quarter. The increase was partially offset 29 -------------------------------------------------------------------------------- Table of Contents by a decrease of$5.2 million in warrant expenses related to the warrants issued toFCA Italy . See Note 9 - Stock-Based Compensation for further details on our stock-based compensation and warrants. The remainder of the increase was made up of other immaterial items. Research and development expenses increased by$67.7 million , or 152%, for the nine months endedSeptember 30, 2022 , compared to the same period endedSeptember 30, 2021 . The increase was primarily due to an increase of$28.8 million in personnel-related expenses due to a significant increase in our workforce from the prior year period and an increase of$16.8 million in stock-based compensation expense primarily related to new restricted stock units granted since the prior year period and 2022 quarterly bonus equity awards. See Note 9 - Stock-Based Compensation for further details on our stock-based compensation. In addition, there was an increase of$16.8 million in costs related to professional services and tools and materials to support our increased research and development activities. The remainder of the increase was made up of other immaterial items.
General and Administrative
General and administrative expenses decreased by$73.3 million , or 64%, for the three months endedSeptember 30, 2022 , compared to the same period endedSeptember 30, 2021 . The decrease was primarily due to a decrease of$85.4 million in stock-based compensation expense related to the restricted stock units granted to our founders immediately prior to closing of the Business Combination pursuant to the terms and conditions of the Business Combination Agreement (the "Founder Grants"). The decrease was partially offset by an increase of$3.5 million in professional service expenses mainly due to legal fees and expenses, an increase of$2.9 million in stock-based compensation expense primarily related to new restricted stock units granted since the prior year period and 2022 quarterly bonus equity awards to be granted in the subsequent fiscal quarter, and an increase of$2.5 million in personnel-related expenses due to a significant increase in our workforce from the prior year period. See Note 9 - Stock-Based Compensation for further details on our stock-based compensation. The remainder of the decrease was made up of other immaterial items. General and administrative expenses decreased by$22.1 million , or 15%, for the nine months endedSeptember 30, 2022 , compared to the same period endedSeptember 30, 2021 . The decrease was primarily due to a decrease of$53.2 million in stock-based compensation expense related to the Founder Grants. The decrease was partially offset by an increase of$12.8 million in personnel-related expenses due to a significant increase in our workforce from the prior year period, an increase of$8.1 million in stock-based compensation expense primarily related to new restricted stock units granted since the prior year period and 2022 quarterly bonus equity awards, and an increase of$6.2 million in general and administrative expenses as we invested in people and infrastructure to support our growth and maturity as a public company. See Note 9 - Stock-Based Compensation for further details on our stock-based compensation. The remainder of the decrease was made up of other immaterial items.
Other Warrant Expense
Other warrant expense decreased by$33.1 million , or 85%, and$111.3 million , or 95%, for the three and nine months endedSeptember 30, 2022 , respectively, compared to the same periods endedSeptember 30, 2021 . The decrease in both of these periods was due to the vesting of United warrants associated with specific milestones. See Note 9 - Stock-Based Compensation for further details on our other warrant expense.
Gain on Forgiveness of PPP Loan
InApril 2020 , we obtained a loan of approximately$0.9 million pursuant to the Paycheck Protection Program under Division A, Title I of the CARES Act (the "PPP Loan"), with interest accruing on the PPP Loan at a rate of 0.98% per annum. InJune 2021 , we received forgiveness of the PPP Loan and accrued interest in full, resulting in a gain of$0.9 million recognized during the second fiscal quarter of 2021. There was no comparable activity during the three and nine months endedSeptember 30, 2022 . Other Income, Net
Other income, net increased by
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Other income, net increased by $15.7 million for the nine months ended
September 30, 2022 , compared to the same period ended September 30, 2021 .
primarily due to a gain of $14.8 million recorded from a change in fair value of
our warrant liabilities. See Note 3 - Summary of Significant Accounting
Policies.
Interest Income (Expense), Net
Interest income (expense), net increased by$2.0 million and$2.1 million for the three and nine months endedSeptember 30, 2022 , respectively, compared to the same periods endedSeptember 30, 2021 , primarily due to interest income from our cash and cash equivalents and short-term investments in marketable securities, net of interest expense recognized for theSilicon Valley Bank term loans we entered into inJuly 2021 .
Liquidity and Capital Resources
As ofSeptember 30, 2022 , our principal sources of liquidity were cash and cash equivalents of$112.5 million and short-term investments in marketable securities of$488.1 million . We have incurred net losses since our inception and to date have not generated any revenues. We expect to incur additional losses and higher operating expenses for the foreseeable future. We believe that our existing cash and cash equivalents will be sufficient for at least the next 12 months to meet our requirements and plans for cash, including meeting our working capital requirements and capital expenditure requirements.
In the long term, our ability to support our working capital and capital expenditure requirements will depend on many factors, including:
•the level of research and development expenses we incur as we continue to develop our eVTOL aircraft;
•capital expenditures needed to bring up our aircraft manufacturing capabilities, including for both the build out of our manufacturing facilities and component purchases necessary to build our aircraft;
•general and administrative expenses as we scale our operations; and
•sales, marketing and distribution expenses as we build, brand and market our eVTOL aircraft and UAM network.
Until such time as we can generate significant revenue from our business operations, we expect to finance our cash needs primarily through existing cash on hand.
The following includes our short-term and long-term material cash requirements
from known contractual obligations as of
Notes Payable
We have short-term and long-term debt obligations of
Leases
We lease office, lab, hangar, and storage facilities in the normal course of
business. Under our operating leases as noted in Note 7 - Commitments and
Contingencies to the consolidated condensed financial statements, we have
current obligations of
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Cash Flows
The following table summarizes our cash flows for the periods indicated:
Nine Months Ended September 30,
2022 2021
(In millions)
Net cash used in operating activities $ (133.2) $ (59.5)
Net cash used in investing activities $ (491.2) $ (3.0)
Net cash (used in) provided by financing activities $
(7.1)
Cash Flows Used in Operating Activities
We continue to experience negative cash flows from operations as we are still working to design, develop, certify, and bring up manufacturing of our eVTOL aircraft and thus have not generated any revenues from either of our planned lines of business. Our cash flows from operating activities are significantly affected by our cash investments to support the growth of our research and development activities related to our eVTOL aircraft, as well as the general and administrative functions necessary to support those activities and operations as a publicly traded company. Our operating cash flows are also impacted by the working capital requirements to support growth and fluctuations in personnel-related expenditures, accounts payable, accrued interest and other current liabilities, and other current assets. Net cash used in operating activities during the nine months endedSeptember 30, 2022 was$133.2 million , resulting from a net loss of$221.9 million , adjusted for non-cash items consisting primarily of$76.3 million in stock-based compensation primarily related to the Founder Grants and$6.0 million in other warrant expense related to the United warrants (see Note 9 - Stock-Based Compensation), partially offset by a gain of$14.4 million primarily due to a change in fair value of our warrant liabilities. The net cash provided by changes in our net operating assets and liabilities of$13.3 million was primarily related to a$10.3 million increase in other long-term liabilities mainly due to the$10.0 million pre-delivery payment from United (see Note 9 - Stock-Based Compensation) and a$5.9 million increase in accrued expenses and other current liabilities mainly due to legal fees and expenses, partially offset by a$3.2 million increase in prepaid expenses, primarily due to prepaid research and development-related expenses. Net cash used in operating activities during the nine months endedSeptember 30, 2021 was$59.5 million , resulting from a net loss of$304.5 million , adjusted for non-cash items consisting primarily of$117.3 million in other warrant expense related to the vesting of United warrants and$104.7 million in stock-based compensation primarily related to the vesting of one-quarter of the Founder Grants that were granted immediately prior to closing pursuant to the terms and conditions of the Business Combination Agreement. The net cash provided by changes in our net operating assets and liabilities of$16.2 million was primarily related to a$16.9 million increase in accounts payable mainly related toWisk litigation costs, parts and materials used in our research and development activities, and advertising and marketing activities.
Cash Flows Used in Investing Activities
Net cash used in investing activities during the nine months endedSeptember 30, 2022 was$491.2 million , driven by purchases of short-term investments of$487.6 million and purchases of property and equipment of$3.6 million within the period. Net cash used in investing activities during the nine months endedSeptember 30, 2021 was$3.0 million , driven by purchases of property and equipment within the period.
Cash Flows (Used in) Provided by Financing Activities
Net cash used in financing activities during the nine months endedSeptember 30, 2022 was$7.1 million , consisting of the repayment of theSilicon Valley Bank term loans for$7.5 million , offset by$0.4 million proceeds from the exercise of stock options. Net cash provided by financing activities during the nine months endedSeptember 30, 2021 was$822.1 million , consisting primarily of$600.0 million in proceeds from the PIPE Financing,$201.8 million net proceeds from the Business Combination, and$20.0 million in proceeds from the issuance of debt. 32
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Critical Accounting Policies and Estimates
Our consolidated condensed financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted inthe United States of America ("U.S. GAAP"). The preparation of these consolidated condensed financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected. For a discussion of our critical accounting policies and estimates, see "Critical Accounting Policies and Estimates" included under Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report. There have been no material changes in our policies from those previously discussed in our Annual Report.
Recent Accounting Pronouncements
See Note 3 - Summary of Significant Accounting Policies to the consolidated condensed financial statements included elsewhere in this Quarterly Report for a discussion about accounting pronouncements recently adopted and recently issued not yet adopted. Credit Risk Financial instruments, which subjects us to concentrations of credit risk, consist primarily of cash, cash equivalents, and short-term investments. Our cash and cash equivalents are held at major financial institutions located inthe United States of America . At times, cash account balances with any one financial institution may exceedFederal Deposit Insurance Corporation insurance limits ($250 thousand per depositor per institution). Management believes the financial institutions that hold our cash and cash equivalents are financially sound and, accordingly, minimal credit risk exists with respect to cash and cash equivalents. Our short-term investments consist of high quality, investment grade marketable securities and are held at a major financial institution located inthe United States . We have established guidelines regarding diversification of our investments and their maturities that are designed to preserve principal and achieve liquidity requirements. We review these guidelines and modify them as necessary based on updated liquidity needs and changes in our operations and financial position.
Emerging Growth Company and Smaller Reporting Company Status
Section 107(b) of the Jumpstart Our Business Startups Act of 2012 ("JOBS Act")
provides that an emerging growth company can take advantage of an extended
transition period for complying with new or revised accounting standards. Thus,
an emerging growth company can delay the adoption of certain accounting
standards until those standards would otherwise apply to private companies.
Atlas initially elected, and now we have elected, to take advantage of the
extended transition period to comply with new or revised accounting standards
and to adopt certain of the reduced disclosure requirements available to
emerging growth companies. As a result of the accounting standards election, we
are not subject to the same implementation timeline for new or revised
accounting standards as other public companies that are not emerging growth
companies which may make comparison of our financials to those of other public
companies more difficult.
We have also elected to take advantage of some of the reduced regulatory and
reporting requirements of emerging growth companies pursuant to the JOBS Act so
long as we qualify as an emerging growth company, including, but not limited to,
not being required to comply with the auditor attestation requirements of
Section 404(b) of the Sarbanes-Oxley Act and exemptions from the requirements of
holding non-binding advisory votes on executive compensation and golden
parachute payments.
Additionally, we are a "smaller reporting company" as defined in Item 10(f)(1)
of Regulation S-K. Smaller reporting companies may take advantage of certain
reduced disclosure obligations, including, among other things, providing only
two years of audited financial statements. We will remain a smaller reporting
company until the last day of the fiscal year in which (1) the market value of
our shares of common stock held by non-affiliates equals or exceeds $250 million
as of the end of that year's second fiscal quarter, and (2) our annual revenues
equaled or exceeded $100 million during such completed fiscal year or the market
value of our shares of common stock held by non-affiliates equals or exceeds
$700 million as of the end of that year's second fiscal quarter.
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