Archer Aviation Inc.: Form 10-Q for the period ended Jun 30, 2024

The following discussion should be read in conjunction with our consolidated condensed financial statements and related accompanying notes included elsewhere in this Quarterly Report and the audited consolidated financial statements as of and for the year ended December 31, 2023 set forth in our Annual Report. The following discussion 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.

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 are designed to be safe, sustainable, and quiet. Our production aircraft, Midnight, which we unveiled in November of 2022, is designed around our proprietary 12-tilt-6 aircraft configuration. This means that it has 12 propellers attached to 6 booms on a fixed wing with all 12 propellers providing vertical lift during take-off and landing, and the forward 6 propellers tilting forward to cruise position to provide propulsion during forward flight with the wing providing aerodynamic lift like a conventional airplane.

Midnight is designed to carry 4 passengers plus a pilot optimized for back-to-back short distance trips of around 20-miles, with minimal charging time between trips. We are working to certify Midnight with the Federal Aviation Administration (“FAA”) so that we can then enter into commercial service as soon as possible. In August 2023, we received the Special Airworthiness Certificate from the FAA for our first Midnight aircraft and began its flight testing program in October 2023.

Midnight is the evolution of our demonstrator eVTOL aircraft, Maker, which through its flight test program has helped validate our proprietary 12-tilt-6 aircraft configuration and certain key enabling technologies. The design of Midnight marries what we believe to be cutting-edge electric propulsion technology with state-of-the-art aircraft systems to deliver the key attributes of our eVTOL aircraft:

• Safety. High redundancy and simplified propulsion systems make for a significantly safer aircraft compared to a helicopter. Midnight has no single critical point of failure, meaning that should any single component fail, the aircraft can still safely complete its flight.
• Low noise. With its intended cruising altitude at approximately 2,000 feet, the design of Midnight is such that the noise that reaches the ground is expected to measure around 45 A-weighted decibels, approximately 100 times quieter than that of a helicopter. During forward flight, the aircraft’s tilt propellers spin on axes that are aligned with the oncoming air flow, rather than edge-wise to the flow, as is the case with traditional helicopters - further decreasing noise levels. Since Archer’s aircraft is spinning 12 small propellers rather than one large rotor, it can also spin them at significantly lower tip speeds, resulting in much lower noise levels.
• Sustainable. Midnight is all electric, resulting in zero operating emissions. Archer is committed to sourcing renewable energy wherever possible to power its aircraft. Archer’s design and engineering teams are working to integrate materials into this aircraft that have their own unique sustainability stories.

We continue to work to optimize our eVTOL aircraft design for both manufacturing and certification. 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 commercial aerospace, as well as electric propulsion backgrounds, we have built a team that enables us to move through the design, development, and certification of our eVTOL aircraft with the FAA in an efficient manner, thus allowing us to achieve our end goal of bringing to market our eVTOL aircraft as efficiently as possible.

Our Planned Lines of Business

Upon receipt of all necessary FAA certifications and any other government approvals necessary for us to manufacture and operate our aircraft, we intend to operate two complementary lines of business: Archer UAM and Archer Direct.

Archer UAM

We plan to operate our own UAM ecosystem initially in select major 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 our ability to scale of our aircraft fleet.

Archer Direct

We also plan to selectively sell our aircraft to third parties and are continuing to develop our order pipeline. In 2021, we entered into a purchase agreement (as further amended, the “United Purchase Agreement”) with United Airlines, Inc. (“United”) for the conditional purchase of up to $1.0 billion worth of aircraft, with an option for another $500.0 million worth of aircraft. In August 2023, we entered into two new contracts with the United States Air Force, worth up to $142.0 million, which includes the purchase of aircraft, as well as the sharing of additional flight test data certification related reports, pilot training, and the development of maintenance and repair operations.

As we get closer to commercialization, we will look to determine the right mix of selling our aircraft versus using them as part of our UAM ecosystem based on, among other factors, our capital needs, our manufacturing volumes, our ability to ramp Archer UAM operations, and the purchase demand from our Archer Direct customers.

To date, we have not generated revenue from either of these planned categories, as we continue to design, develop, and seek the governmental approvals necessary for our eVTOL aircraft to enter into service. We will use our cash and cash equivalents 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 necessary FAA certifications and other government approvals. For example, any significant delays in obtaining such FAA 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.

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 revenue 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 manufacturing bring up 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 the FAA towards our goal of achieving certification of our eVTOL aircraft on an 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, depreciation, and non-cash technology and dispute resolution agreements expense. We expect our general and administrative expenses to increase as we hire additional personnel and consultants to support our operations and comply with applicable regulations, including the Sarbanes-Oxley Act and other SEC rules and regulations.

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 Warrant to Purchase Shares Agreement with United.

Other Income (Expense), Net

Other income (expense), net consists of miscellaneous income and expense items, including the change in fair value of our warrant liabilities.

Interest Income, Net

Interest income, 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.

Results of Operations

The following table set forth our consolidated condensed statements of operations for the periods indicated:

(In millions)

(In millions)

NM=Not Meaningful.

(1) Includes stock-based compensation expense as follows:

(In millions)

Comparison of the Three and Six Months Ended June 30, 2024 and 2023

Research and Development

Research and development expenses increased by $26.5 million, or 41.9%, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, as we invested in people and materials to advance our technology development. The increase was primarily due to an increase of $11.1 million in costs related to professional services and tools and materials to support our increased research and development activities, an increase of $10.7 million in personnel-related expenses due to a significant increase in our workforce from the prior year period, and an increase of $4.4 million in stock-based compensation expenses. The remainder of the increase was made up of other incidental items.

Research and development expenses increased by $44.2 million, or 34.2%, for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, as we invested in people and materials to advance our technology development. The increase was primarily due to an increase of $21.2 million in personnel-related expenses due to a significant increase in our workforce from the prior year period, an increase of $12.2 million in costs related to professional services and tools and materials to support our increased research and development activities, and an increase of $10.1 million in stock-based compensation expenses. The remainder of the increase was made up of other incidental items.

General and Administrative

General and administrative expenses decreased by $86.7 million, or 73.4%, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The decrease was primarily due to a $73.0 million charge for the Wisk Warrant during the three months ended June 30, 2023, a decrease of $11.5 million in stock-based compensation expense associated with the Founder Grants, and a decrease of $8.3 million in professional service expenses mainly due to legal fees and expenses. The decrease was partially offset by an increase of $3.4 million in stock-based compensation expenses. See Note 7 - Commitments and Contingencies and Note 9 - Stock-Based Compensation to our consolidated condensed financial statements for further details on our commitments and contingencies and stock-based compensation, respectively. The remainder of the increase was made up of other incidental items.

General and administrative expenses decreased by $72.1 million, or 44.5%, for the six months ended June 30, 2024, compared to the six months ended June 30, 2023. The decrease was primarily due to a decrease of $62.7 million in the charge for the Wisk Warrant, a decrease of $17.3 million in professional service expenses mainly due to legal fees and expenses, and a decrease of $5.1 million in stock-based compensation expense associated with the Founder Grants. The decrease was partially offset by an increase of $6.3 million in stock-based compensation expense, and an increase of $5.0 million in personnel-related expenses due to significant increase in our workforce from the prior year period. See Note 7 - Commitments and Contingencies and Note 9 - Stock-Based Compensation to our consolidated condensed financial statements for further details on our commitments and contingencies and stock-based compensation, respectively. The remainder of the increase was made up of other incidental items.

Other Warrant Expense

There was no other warrant expense recognized for each of the three months ended June 30, 2024 and 2023.

Other warrant expense decreased by $2.1 million, or 100.0%, for the six months ended June 30, 2024, compared to the six months ended June 30, 2023. The decrease was primarily due to the vesting of United warrants associated with specific milestones during the six months ended June 30, 2023. The warrants associated with the specific milestones fully vested in the first quarter of 2023. See Note 9 - Stock-Based Compensation to our consolidated condensed financial statements for further details on our warrants.

Other Income (Expense), Net

Other income (expense), net increased by $15.9 million and $39.2 million for the three and six months ended June 30, 2024, respectively, compared to the same periods ended June 30, 2023. The increase was primarily due to changes in fair value of our warrant liabilities. See Note 3 - Summary of Significant Accounting Policies to our consolidated condensed financial statements for further details.

Interest Income, Net

Interest income, net increased by $1.0 million, or 24.4%, and $4.7 million, or 82.5%, for the three and six months ended June 30, 2024, respectively, compared to the same periods ended June 30, 2023. The increase was primarily due to interest income from our cash and cash equivalents.

Liquidity and Capital Resources

As of June 30, 2024, our principal sources of liquidity were cash and cash equivalents of $360.4 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, together with the gross proceeds of approximately $55.0 million from the sale of shares of Class A common stock to Stellantis N.V. (“Stellantis”) received on July 1, 2024, 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.

On October 5, 2023, we entered into the Credit Agreement with Synovus Bank, as administrative agent and lender, and the additional lenders (the “Lenders”) from time to time. We may request the Lenders to provide multiple delayed term loan advances (together, the “Loan”) in an aggregate principal amount of up to $65.0 million for the construction and development of our manufacturing facility in Covington, Georgia. The Loan under the Credit Agreement shall accrue interest from and including the date the applicable advance is made but excluding the repayment date at a rate of the secured overnight financing rate (“SOFR”), plus 2.0% subject to a SOFR floor of 0.0%. We are required to make interest-only payments for 36 months on the Loan starting on November 14, 2023, followed by monthly interest and principal payments for the remaining maturity, with any outstanding principal, interest and other then outstanding indebtedness due at maturity. The Credit Agreement matures on the earlier of October 5, 2033 or the date on which the outstanding Loan has been declared or automatically becomes due and payable pursuant to the terms of the Credit Agreement. Our obligations under the Credit Agreement are jointly and severally guaranteed by our current and future wholly-owned domestic subsidiaries, and are secured by cash, general intangibles, instruments, securities, financial assets, security entitlements and other property maintained in a money market account at Synovus Bank.

In November 2023, we filed a shelf registration statement on Form S-3 with the SEC and a related prospectus supplement pursuant to which we may, from time to time, sell shares of our Class A common stock, having an aggregate value of up to $70.0 million pursuant to a Controlled Equity OfferingSM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”), as the sales agent (the “First ATM Program”). During the three and six months ended June 30, 2024, we sold 3,705,137 and 10,275,033 shares of Class A common stock for net proceeds of $14.2 million and $48.1 million, respectively. The First ATM Program was completed in May 2024.

Under the Sales Agreement, we paid Cantor a commission rate of up to 3.0% of the gross proceeds from the sale of any shares of Class A common stock pursuant to the First ATM Program.

In May 2024, we filed a shelf registration statement on Form S-3 with the SEC and a related prospectus (the “Second Shelf Registration Statement”). The Second Shelf Registration Statement permits the offering of an aggregate of up to $95.0 million of shares of our Class A common stock or preferred stock, debt securities, warrants to purchase our Class A common stock, preferred stock or debt securities, subscription rights to purchase our Class A common stock, preferred stock or debt securities and/or units consisting of some or all of these securities, in one or more offerings and in any combination. In connection with the Second Shelf Registration Statement, pursuant to which we may offer and sell shares of our Class A common stock having an aggregate offering amount of up to $70.0 million (the “Second ATM Program”) pursuant to the Sales Agreement. The $70.0 million of Class A common stock that may be issued and sold pursuant to the Second ATM Program is included in the $95.0 million of securities that may be issued and sold pursuant to the Second Shelf Registration Statement. During the three months ended June 30, 2024, we sold 7,767,900 shares of Class A common stock for net proceeds of $25.2 million. As of June 30, 2024, we had $44.2 million remaining eligible for sale under the Second ATM Program.

Under the Sales Agreement, we will pay Cantor a commission rate of up to 3.0% of the gross proceeds from the sale of any shares of Class A common stock pursuant to the Second ATM Program.

On June 27, 2024, pursuant to the forward purchase agreement (the “Stellantis Forward Purchase Agreement”) entered into on January 3, 2023 with Stellantis, we elected to draw down the $55.0 million remaining available under the Stellantis Forward Purchase Agreement associated with Milestone 3 (as defined in the Stellantis Forward Purchase Agreement). In accordance therewith, on July 1, 2024, we issued 17,401,153 shares of Class A common stock to Stellantis at a price of $3.16 per share, for gross proceeds of approximately $55.0 million.

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, pre-delivery payments, equity financing and debt financing.

The following includes our short-term and long-term material cash requirements from known contractual obligations as of June 30, 2024:

Notes Payable

See Note 6 - Notes Payable to our consolidated condensed financial statements for further details on our debt.

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 our consolidated condensed financial statements, we have current obligations of $5.9 million and long-term obligations of $16.2 million.

Cash Flows

The following table summarizes our cash flows for the periods indicated:

(In millions)

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 six months ended June 30, 2024 was $167.0 million, resulting from a net loss of $223.4 million, adjusted for non-cash items consisting primarily of $63.5 million in stock-based compensation, a gain of $30.3 million due to a change in fair value of our warrant liabilities, and a $5.6 million non-cash charge for the Wisk Warrant. The net cash provided by changes in our net operating assets and liabilities was $7.2 million.

Net cash used in operating activities during the six months ended June 30, 2023 was $120.8 million, resulting from a net loss of $297.2 million, adjusted for non-cash items consisting primarily of a $73.0 million non-cash charge comprised of a $25.0 million non-cash charge associated with the initial vested share tranche and a $48.0 million non-cash charge for the unvested portion of the Wisk Warrant that is contingent and may never be realized, relating to the Technology and Dispute Resolution Agreements (see Note 7 - Commitments and Contingencies to our consolidated condensed financial statements for further details), $52.2 million in stock-based compensation primarily related to the Founder Grants, a loss of $15.6 million due to a change in fair value of our warrant liabilities, and $8.7 million of research and development warrant expenses related to the warrants issued to Stellantis (see Note 9 - Stock-Based Compensation to our consolidated condensed financial statements for further details). The net cash provided by changes in our net operating assets and liabilities of $25.8 million was primarily related to a $12.8 million increase in accrued expenses and other current liabilities mainly due to professional service fees and expenses and an $8.2 million increase in accounts payable due to timing of payments.

Cash Flows Provided by (Used in) Investing Activities

Net cash used in investing activities during the six months ended June 30, 2024 was $38.2 million, driven by purchases of property and equipment within the period.

Net cash provided by investing activities during the six months ended June 30, 2023 was $445.5 million, driven by proceeds from maturities of short-term investments of $465.0 million, partially offset by purchases of property and equipment of $19.5 million within the period.

Cash Flows Provided by Financing Activities

Net cash provided by financing activities during the six months ended June 30, 2024 was $100.8 million, driven by proceeds from shares issued under the First ATM Program and Second ATM Program of $73.3 million, and proceeds from issuance of debt of $25.8 million.

Net cash provided by financing activities during the six months ended June 30, 2023 was $17.8 million, driven by proceeds from issuance of Class A common stock to Stellantis with an aggregate value of $25.0 million, partially offset by the repayment of term loans to Silicon Valley Bank, a division of First-Citizens Bank, for $5.0 million and payments for taxes related to net share settlement of equity awards for $3.5 million.

Critical Accounting Policies and Estimates

Our audited consolidated financial statements and accompanying notes set forth in our Annual Report on Form 10-K filed with the SEC on February 29, 2024 have been prepared in accordance with accounting principles generally accepted in the United States (“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 our consolidated condensed financial statements for a discussion about accounting pronouncements recently adopted and recently issued and not yet adopted.

Credit Risk

Financial instruments, which subject us to concentrations of credit risk, consist primarily of cash, cash equivalents, and short-term investments. Our cash and cash equivalents are held at several long-standing financial institutions located in the United States. At times, cash account balances with any one financial institution may exceed Federal Deposit Insurance Corporation insurance limits ($250 thousand per depositor per institution). We have not experienced any losses due to these excess deposits and believe this risk is not significant. Our short-term investments consisted of high quality, investment grade marketable securities and were held at a major financial institution located in the 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.

Interest Rate Risk

We are exposed to market risk for changes in interest rates applicable to our borrowings and investments in money market funds. The Loan under the Credit Agreement accrues interest from and including the date the applicable advance is made but excluding the repayment date at the secured overnight financing rate (“SOFR”), plus 2.0% subject to a SOFR floor of 0.0%. Additionally, we had cash, cash equivalents, and restricted cash totaling $367.1 million as of June 30, 2024. Cash equivalents were invested in money market funds. The primary objectives of our investment activities are to preserve principal and achieve liquidity requirements. We do not enter into investments for trading or speculative purposes. A hypothetical 100 basis point change in interest rates applicable to the Loan under the Credit Agreement or with respect to our investment portfolio would not have a material impact on the fair value of our borrowings and investment portfolio for the periods presented and our future interest income and expense.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Quarterly Report, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2024, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management, including the Chief Executive Officer and Chief Financial Officer, recognizes that our disclosure controls and procedures or our internal control over financial reporting cannot prevent or detect all possible instances of errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Investing in our securities involves risks. The following risk factors supplement and, to the extent inconsistent, supersede the risk factors disclosed in Part I, Item 1A, “Risk Factors” in our Annual Report. Risk factors describing the major risks to our business can be found under Part I, Item 1A, “Risk Factors” in our Annual Report. You should consider carefully the risks and uncertainties described therein, together with all of the other information in this Quarterly Report, including Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated condensed financial statements and related notes, before deciding whether to purchase any of our securities. Our business, results of operations, financial condition, and prospects could also be harmed by risks and uncertainties that are not presently known to us or that we currently believe are not material. If any of these risks actually occur, our business, results of operations, financial condition, and prospects could be materially and adversely affected. Unless otherwise indicated, references in these risk factors to our business being harmed will include harm to our business, reputation, brand, financial condition, results of operations, and prospects. In any such event, the market price of our securities could decline, and you could lose all or part of your investment.

The dual-class structure of our common stock has the effect of concentrating voting power with certain shareholders of our Class B common stock, which could limit other shareholders’ ability to influence the outcome of important transactions, including a change in control.

Shares of our Class B common stock have ten votes per share, while shares of our Class A common stock have one vote per share. Our founders, as well as certain other stockholders, hold the issued and outstanding shares of our Class B common stock. These shares currently represent a majority of the voting power of our capital stock on an outstanding basis. For so long as the shares of Class B common stock represent at least 9.1% of all outstanding shares of our capital stock and if voted together, the holders of our Class B common stock would be able to control matters submitted to our shareholders for approval, including the election of directors, amendments of our organizational documents and any merger, consolidation, sale of all or substantially all of our assets or other major corporate transactions. The holders of our Class B common stock may have interests that differ from other shareholders and may vote in a way which may be adverse to other shareholders or with which our other shareholders may disagree. This concentrated control may have the effect of delaying, preventing or deterring a change in control, could deprive our shareholders of an opportunity to receive a premium for their capital stock as part of a sale, and might ultimately affect the market price of our Class A common stock.

We expect shares of our Class B common stock will represent less than 10.0% of all outstanding shares of our common stock during the year ending December 31, 2024 and, as such, pursuant to the terms of our certificate of incorporation, we anticipate each outstanding share of Class B common stock will be automatically converted into Class A common stock on December 31, 2024.