Archer Aviation Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Archer is developing electric vertical takeoff and landing (eVTOL) aircraft and planned urban air mobility services. It had not generated revenue from either planned business line.
Financial results and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $47.0 million | $23.1 million | $112.3 million | $44.6 million |
| General and administrative | $40.8 million | $114.1 million | $121.0 million | $143.1 million |
| Other warrant expense | $6.0 million | $39.1 million | $6.0 million | $117.3 million |
| Net loss | $91.0 million | $176.7 million | $221.9 million | $304.5 million |
| Basic and diluted loss per share | $0.38 | $2.00 | $0.93 | $4.50 |
With no revenue, gross margin is not applicable. Operating loss was $93.8 million for Q3 and $239.3 million for the nine months. Nine-month other income was $15.8 million, including a $14.8 million gain from changes in warrant fair value; this helped reduce the reported net loss.
- Liquidity at September 30: $112.5 million cash and cash equivalents, $488.1 million short-term investments, and $2.9 million restricted cash. Current assets were $615.3 million versus current liabilities of $43.8 million.
- Cash flow, nine months: $133.2 million used in operations, compared with $59.5 million used in 2021. Investing used $491.2 million, primarily reflecting $487.6 million of short-term investment purchases and $3.6 million of property and equipment purchases. Financing used $7.1 million, including $7.5 million of debt repayments.
- Debt: SVB term-loan principal was $12.5 million; balance-sheet debt net of discount and issuance costs was $11.7 million, including a $9.4 million current portion. The loans carry a floating rate of at least 8.5% and are scheduled to be repaid through 2023.
- Equity and compensation: Accumulated deficit was $595.5 million. Stock-based compensation was $76.3 million for the nine months, including $48.5 million related to founder grants.
Changes versus the prior comparable period
- Q3 net loss narrowed by $85.7 million year over year; nine-month net loss narrowed by $82.6 million. Lower warrant expense and lower founder-grant compensation were important factors.
- R&D expense rose 103% in Q3 and 152% for the nine months, reflecting increased personnel, professional services, tools, and materials as development activity expanded.
- G&A expense fell 64% in Q3 and 15% for the nine months, mainly because founder-grant stock compensation was substantially higher in 2021. The 2022 periods still included significant non-cash stock compensation.
- Operating cash use more than doubled year over year for the nine months. The large investing cash outflow primarily reflected purchases of marketable securities, not solely operating investment or aircraft development spending.
- Cash and cash equivalents declined from $746.6 million at year-end 2021, while the company held $488.1 million of short-term investments at September 30, 2022.
Outlook, risks, and unusual items
- Management said cash, cash equivalents, and short-term investments were expected to fund the current operating plan for at least 12 months from issuance of the financial statements. Archer expects ongoing losses and higher operating expenses; it expects R&D expense to increase significantly as it pursues aircraft certification and manufacturing.
- Archer’s plans to manufacture and operate aircraft depend on FAA certification and other government approvals. Delays could postpone revenue and increase capital needs; management cautioned that additional financing may be necessary and may not be available on acceptable terms.
- United made a $10.0 million pre-delivery payment for 100 aircraft. Its conditional purchase order covers up to 200 aircraft, with an option for 100 more; purchases depend on certification and agreement on material terms. No related revenue had been recognized by September 30.
- Wisk Aero’s trade-secret and patent litigation remained pending, with trial scheduled for August 2023. Archer had not accrued a loss because an amount or range was not considered probable or reasonably estimable; an adverse outcome could materially affect the company. Archer’s separate lawsuit against Boeing was stayed pending the Wisk case. The U.S. Attorney’s Office told Archer in January 2022 it did not intend to continue its investigation or bring charges.
- Management concluded disclosure controls and procedures were not effective at September 30 because of material weaknesses involving staffing and expertise, risk assessment, accounting processes and controls, segregation of duties, and IT general controls. Remediation was ongoing; management nevertheless stated the interim financial statements fairly presented the company’s results and position.
- Available-for-sale investments had $1.2 million of unrealized losses, primarily attributed to interest-rate changes; no other-than-temporary impairment was recorded.
Important facts for investors to verify
- Progress and timing of FAA certification, aircraft development, and manufacturing readiness, including any changes to expected capital requirements and cash runway.
- Whether United’s conditional aircraft order and pre-delivery payment lead to binding purchase terms, deliveries, and recognized revenue.
- Operating cash burn and investment portfolio liquidity, credit quality, maturities, and sensitivity to interest rates.
- Developments in Wisk litigation and the potential financial or operational effect of an adverse outcome.
- Progress in remediating material weaknesses and whether controls are independently assessed as effective.
- Future dilution and compensation expense from outstanding RSUs, founder awards, warrants, and the equity-plan share reserves.