Lilium N.V. (NASDAQ:LILM) Q4 2023 Earnings Call Transcript

Lilium N.V. (NASDAQ:LILM) Q4 2023 Earnings Call Transcript February 27, 2024

Lilium N.V. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and thank you for standing by. Welcome to Lilium’s Full Year 2023 Business Update Conference Call. At this time, all participants are in listen only mode. [Operator Instructions] Please be advised that today’s conference is being recorded. I’d now like to hand the conference over to your first speaker today, Rama Bondada, Global Head of Investor Relations at Lilium. Please go ahead.

Rama Bondada: Good afternoon and good morning, everyone. My name is Rama Bondada, I am Lilium’s Global Head of Investor Relations. For our last webcast, we chose to give you a deep dive on Liliam’s battery technology. It gave us an opportunity to give this key technology the attention it deserves and enabled us to answer many of your questions. For today, we’re happy to return to a more traditional format and give you a broader update on our overall progress and positioning. There’ll be time for questions after the presentation. Please note that a recording of the conference call will be posted on Liliam’s Investor Relations page soon after the event. As a reminder, this morning we posted our FY and Q4 2023 shareholder letter on our website.

We invite you to take a look. Before handing over to our first speaker, let me just point out that our presentation will include forward-looking statements within the meaning of the United States federal securities laws that are subject to risks, uncertainties, and other factors that could cause Lilium’s actual results to differ materially from such statements. Please refer to the cautionary statement in our shareholder letter and the risk factors discussed in our filings with the U.S. Securities and Exchange Commission for more information on these risks. With us on the call today, we have our Chief Executive Officer, Klaus Roewe, our Chief Executive Officer, Oliver Vogelgesang, our Chief Commercial Officer, Sebastien Borel. So without further ado, let me hand you over now to Klaus.

Klaus?

Klaus Roewe : Thank you, Rama. Great to join you all on this call. It’s been a while. And we’ve achieved a lot since we last spoke. Ladies and gentlemen, Lilium has again taken significant strides towards certification, production, and entry into service of the revolutionary Lilium Jet. We are proud of what we accomplished in 2023 and the strategic partnerships that we signed both on the operational side with suppliers and with customers for our commercial market entry. Let me start by reminding you one of our most outstanding recent achievements. First of all, we received design organization approval. Liliam has applied for an alpha-designed organizational approval in 2017. And underwent an extensive investigation and review for each core process of the design organization.

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Q&A Session

During this multiyear period, we underwent four separate audits that ultimately validated that Liliam has the appropriate organization, resources, documentation, and safety procedures to design aircraft according to the highest safety standards. Under Liliam’s design organization approval, Liliam is qualified to design and be a type certificate holder for aircraft developed according to EASA’s rules for eVTOL aircraft. Liliam thus becomes the first company to be qualified to be a full-time certificate holder for aircraft certified under these rules, which represents the highest safety level globally for eVTOL aircraft. So what practical advantages does design organization approval bring for Liliam? Holders enjoy special privileges when working with EASA.

This includes having compliance, documents accepted by EASA without further verification, and being authorized to perform activities independently from EASA as part of an agreed certification program. But simply, it means that we can do a lot of the testing on our own because EASA knows we have the procedures in place to provide evidence with a required detail and transparency. As such, Liliam’s design organization approval is expected to streamline the process towards obtaining Type Certification of the Liliam jet. So where do we currently stand with regard to the Type Certification process? Right now, our focus is on delivering first manned flight of the Liliam jet, which is targeted to occur later this year. For that, we first need to permit to fly that allows for the heightened safety requirements of piloted flight.

And to obtain the permit to fly, we have to demonstrate to EASA through extensive testing that the aircraft is safe to fly through what is called the Safety of Flight Campaign. As part of this campaign, we will be testing multiple aircraft systems, including aero-structures, propulsion systems, flight controls, avionics, battery packs and integration on an individual sub-component level. We will be performing these activities over much of this year as we prepare for first manned flight. We are able to do this because we have a full range of advanced test capabilities on-site, including the recently opened propulsion unit test bed. The testing will be shared with the EASA, helping us not only to demonstrate the aircraft’s safety, but also to provide EASA with evidence of how the Lilium Jet will conform with the EASA’s SC-VTOL rules.

We will commence testing for safety of flight substantiation in the coming weeks under our DOA and expect to be among the leading group of eVTOL companies pursuing type certification. This is probably a good time to also remind you that unlike most of the eVTOL industry, we are certifying to the highest level of safety in the commercial aerospace industry as per EASA rules. This is known as a 10 to the minus 9 level of safety, which means only one aircraft lost for 1 billion flight hours. In addition, the Lilium Jet design does not allow for any single point of failure. The build in redundancy on all critical systems makes the Lilium Jet the safest aircraft by design. This is complemented by stringent operating rules and best-in-class pilot interface and training.

This is the same level of safety used for large commercial aircraft such as the Airbus A320 and to put this level of safety into context, the total A320 family, which is the best-selling large commercial aircraft in the world since its introduction in 1987, has about 310 million flight hours as of September 2023. Helicopters are certified at 10 to the minus 8 or 10 to the minus 7 level of safety or one aircraft lost every 10 or 100 million flight hours, which is what the current FAA eVTOL rules are guiding towards. This means that our aircraft will be certified to a 10 or 100 times higher level of safety than an FAA-only certified eVTOL. Safety is paramount to us, and we will remain in line and at the best pace dictated by our regulators. In this industry, we unfortunately have seen what happens when safety is sacrificed for speed to market.

As a team of company leaders that have designed, tested, certified and delivered safe aircraft over the last several decades, safety will remain the utmost priority at Lilium. Secondly, moving on to another proud achievement at the end of last year, we signed an MoU with Lufthansa to collaborate on eVTOL opportunities. With the current fleet of over 700 commercial aircraft, Lufthansa is Europe’s largest airline by revenue and is in the top four worldwide. Our collaboration with Lufthansa therefore represents an exciting opportunity to bring Lilium Jet flights to Lufthansa group customers. Based on this breakthrough agreement with one of Europe’s foremost commercial airlines, Lilium and Lufthansa will explore innovation opportunities in aviation, discussing areas such as ground and flight operations, future aircraft maintenance and crewing and flight training.

Both of our companies also want to analyze the opportunities for collaboration with third parties like airports and regional partners on an advancement of infrastructure such as vertiports, airspace integration and the definition of required operation processes. According to our projections, the European market is expected to account for an amount of around 9, 200 eVTOL aircraft through 2035. Lufthansa has been at the forefront of some of Europe’s most important aviation initiatives, especially in the area of environmental sustainability, and we are honored to be working with them. Third, our next major achievement, we started assembly of the first Lilium Jet. In December 2023, the first complete fuselage built and assembled by supplier Aciturri arrived at Lilium’s production facilities.

Since then, the fuselage has been matched up with the first set of canards and wings delivered by Aernnova. Our first Lilium Jet is due to move into our final assembly line shortly. Aircraft number two is already advancing with the fuselage now an assembly with Aciturri and assembly of the wings and canards underway at Aernnova facilities. In parallel, Lilium teams are also diligently focused on preparing an efficient Lilium Jet production ramp up at our main campus. Let me just add a few words about this Lilium campus. We have 175, 000 square feet manufacturing and testing facilities co-located together with our company headquarters on the Wessling Airport grounds. Closed proximity supports efficiency and connectivity between our engineering, operations, supply jets, and production teams.

As well as production halls for aerostructures, propulsion units, and batteries, the campus includes our Lilium Jet final assembly line and a host of testing facilities such as the propulsion test hangers I just mentioned, battery testing equipment, electrode magnetic chamber, acoustic test chamber, flight simulators, and cabin design center. We recently started installing the state-of-the-art assembly equipment for the serial production of the Lilium Jet propulsion units. For designing construction of this assembly line, we’ve partnered with the German automation and robotics company, Schnaithmann Maschinenbau involved. They’re also supporting us with workflow design as well as jigs and tools for our aerostructures facilities and final assembly line.

Schnaithmann based near Germany’s automotive hub Stuttgart is a global leader in designing and supplying automated scalable industrial solutions with long standing partnerships in high volume industries, especially automotive. Propulsion, aerostructures assembly lines are in the same building next to the Lilium Jet final assembly line. While gearing up towards delivering the first set of aircraft and serial production, we are also preparing the ground for production at scale, which takes me to our battery strategy and another milestone. In 2023, we announced that we will implement a multi-sourcing strategy for battery cells. Extending our partnership with Inobat will represent the pillar of our multi-sourcing strategy for cell production. It will contribute towards setting a healthy supply of Lilium battery cells for entry into service of the Lilium Jet and the years thereafter.

Inobat will build Lilium high-performance cells at its facilities in Slovakia with support from its investor Gotion High-Tech. Gotion is one of the world’s largest battery manufacturers, whose battery cells are due to be installed in up to 80% of the Volkswagen Group’s future electrical vehicles. Gotion’s largest shareholder outside China is Volkswagen. As part of the agreement, Inobat will build Lilium Jet battery cells at existing Volta I and future Volta II plants in Voderady, Slovakia. The Volta II plant will be Inobat’s first gigafactory with up to 4 gigawatt hour of production capacity. Gotion High-Tech, which holds a 25% stake in Inobat will contribute resources and manufacturing know-how to ramp up the capacity at Inobat’s Volta II plant.

Lilium will retain its valuable intellectual property rights as the Lilium Jet battery technology. While it’s important that we secure supply of battery cells, through our Inobat partnership. It’s also worth noting that many battery cell suppliers are actually very keen to work with Lilium. Business hikers and aircraft manufacturing tend to be a lot less volatile than automotive. So we provide an opportunity for some stability and capacity utilization for diversified high end battery producers. Turning now to our current supply chain. Today, CustomCells continues to deliver Lilium Jet battery cells in increasing quantities. These cells are being used for performance testing and integration into our initial battery packs that will be used in our test aircraft.

We are making good progress towards initial serious production of the battery packs and energy system. We recently selected suppliers for the advanced materials used in the battery packs designed to meet the EASA stringent safety rules. The first-high voltage electrical harnesses for the Lilium Jet were completed in October ‘23. In the coming weeks, the remaining harnesses are scheduled for delivery to the Lilium final assembly line for installation on the first Lilium Jet aircraft. And just a reminder, we are not a full vertically integrated aerospace OEM. Our suppliers are some of the largest and most advanced aerospace suppliers. And we believe this gives us success to some of the best aerospace engineering and manufacturing minds in the eVTOL industry.

I’d like to finish our discussions on the progress with the Lilium Jet battery and energy system by drawing your attention to the webinar we hosted last November. In it, our Co-Founder and Chief Engineer for Innovation and Future programs, Daniel Wiegand, explained the energy demands of the Lilium Jet, the existing technology that will meet those demands and how Lilium and our partners are preparing to scale up production. He also dispels some myths about flight physics and battery technology. I recommend watching the webinar if you want a fuller understanding of the energy concept of our aircraft. Let me now hand over to our CFO, Oliver Vogelgesang. Over to you, Oliver.

Oliver Vogelgesang : Thanks, Klaus. And good morning and afternoon to everyone joining us today. Great to have this opportunity to exchange with you. Let me start by highlighting our major achievement on the funding side in 2023. We successfully raised $292 million in additional capital. The funding was supported by numerous new and existing sophisticated investors, including leading Germany technology investors, Earlybird, BIT Capital, UVC Partners and Frank Thelen. This is a big deal. These investors are very smart and perform significant due diligence, which included extensive site visits with us, our supply chain and technology partners. In our view, this level of interest and inspection is the ultimate testament to the strong progress we are making.

And as Klaus has discussed, we have made significant progress since these funding rounds to bring us much closer to first manned flight. We have met our milestones and achieved the goals we have promised to our investors who have been with us for a long time. They know the value of the technology we possess, the return potential of our business model, and they invested again with us last year. And now we are even further along and closer to the end goal. We continue to have constructive discussions to ensure we have strong liquidity as we execute on our key milestones to certification and full commercialization. We also received our first customer pre-delivery payments for the Lilium Jet ahead of expectations. The capital enabled us to continue our program development at pace.

Our cash investments have been very much focused on key activities essential for the Lilium Jet development. Klaus just talked about several of these activities, certification, testing, preparation towards first manned flight, securing the production ramp-up and managing entry into service. As a result of our prudent approach to cash management at the end of 2023, Lilium’s unaudited liquidity amounted to EUR 198 million. Our liquidity was therefore higher than expectations, with adjusted cash spend lower than the guidance we had provided back in July. Three main items broke our lower cash usage, resulting in a higher cash balance at the end of the year. First, cost controls that we launched in the first half of the year began to come through in the second half, and it’s worth pointing out again, this area of savings did not affect the pace of our program plan.

Second, we began to receive pre-delivery payments ahead of schedule. There’s usually a few weeks or months of delay between an announcement of a deal and the collection of PDPs. A third area that draws lower cash usage is simply timing. Some suppliers’ payment shifted into 2024. Looking ahead now into the year 2024, we expect a cash usage of between EUR 170 million to EUR 180 million in the first half of the year. On the funding front going forward, few things to keep in mind. First, we are at advanced levels of discussion on funding with government agencies in our home countries, including other regions of Europe and in the US. In addition, we continue to collect PDPs. We remain at advanced discussions with large aircraft fleet operators and airlines for very sizeable fixed orders.

Third and most important is the support we continue to receive from our largest shareholders who remain committed to our business over the long term. And finally, we are continuing to have advanced discussions with potential strategic partners. With that, let me hand over to Sebastien Borel, our Chief Commercial Officer, for a more detailed update on our commercial achievements. Over to you, Seb.

Sebastien Borel: Thank you, Oliver. And thank you all for joining us here today. Let me start by talking about a key announcement we made at the Singapore Air Show last week. Lilium proudly unveiled the eVTOL Industries’ first dedicated Aftermarket Service Organization named Lilium POWER-ON. Alongside supporting our sales effort, we expect the aftermarket to be a key source of recurring revenues and profitability for Lilium after entry into service. According to our estimates, the Lilium Jet Services market will reach at least $5 billion by 2035. The newly established Lilium POWER-ON business will offer the full aircraft manufacturer’s services portfolio, including training services, maintenance operations, material and battery management and global distribution, flight operations support, ground service equipment, and digital solutions.

For efficient spare parts logistics, Liliam signed a strategic collaboration agreement with the AJW Group. AJW Group is a world leading provider of aircraft components parts, repair and supply chain solution with offices located globally. As a further pillar in our services strategy, Liliam also signed last week an agreement with StarCharge, an innovative smart energy solution provider with an initial order of 120 chargers for certification testing and MRR services. This will also be delivered to our customers to build vertiports. StarCharge will therefore develop, customize and provide the chargers for Liliam use in ground and flight testing as well as for its aircraft maintenance and delivery center activities. The charging system provided by StarCharge deliver outstanding fast charge performance and will be fully compatible with the combined charging system standards, CCS, used for the Liliam Jet which supports compliance with established standards.

The chargers will feature a liquid cooled charging cable for high performance charging, suitable for all types of landing infrastructure and which will lead to a reduction in charging times of up to 20%. Liliam also has previously signed agreements for flight training with Lufthansa Aviation Training and Flight Safety International and Digital Aircraft Health Management Solutions with Palantir. We are therefore well positioned to provide multiple services as part of the Lilium POWER-ON business. Turning now to our network development, we made several important announcements in key markets. Earlier this month Liliam designated the future Orlando International Airport Vertiport as a network hub for Liliam Jet operators in Central Florida. Located in the center of the state, the network is strategically placed to cater to the nearly 80 million annual visitors that the region attracts.

Coupled with the world-class airport and the rapidly expanding community of Lake Nona, the airport city is expected to become a true multi-model hub for many forms of transportation. Lilium also announced its support for proposals to designate Greater Orlando Aviation Authority as the advanced air mobility test site for the state of Florida. And back in January, we announced a strategic collaboration with airport operator Fraport to explore planning and approval steps for the implementation of commercial eVTOL operations at key airports in Germany. Fraport is active at 30 international airports across four continents, including Frankfurt, Germany’s busiest airport. The Fraport partnership will complement Lilium’s partnership already agreed with airports across Germany, including the airport of Stuttgart, Munich, Nuremberg, Cologne-Bonn and Düsseldorf.

On the sales side, last year, on top of Lufthansa, Lilium also signed an MoU with the CITIC Offshore Helicopter Company, a major helicopter operator in China. The agreement provides a basis for our two companies to strategically collaborate on the establishment of an eVTOL operation network in China. As part of the agreement, Lilium and CITIC will develop services in the region based on market demand and eventually offer regular eVTOL services. This will commence in the Greater Bay area with additional services planned across Guangdong-Hong Kong-Macau Greater Bay, Hainan Island, and Tianjin in the future. We also opened a private sale in the U.S. market through a partnership with EMCJET. EMCJET, an industry-leading aircraft brokerage and management company, is set to be the exclusive Lilium dealer in Texas for private sales.

This announcement is the first step in unlocking the U.S. private aviation market, the largest general business aviation market in the world. We also launched private sales in the Middle East with ArcosJet announcing a binding purchase agreement for 10 Lilium Jets expected to be delivered through 2026 and 2027. The agreement followed the appointment of ArcosJet as an exclusive authorized dealer for private sales of the Lilium Jet in the Middle East. Lilium’s approach for regional air mobility is also a perfect fit for island nations across the globe, such as the Philippines, a country with more than 7, 000 islands. At the Singapore Air Show last week, Lilium announced the signing of the Memorandum of Understanding with PhilJets, a leading aviation provider of global services in the Asia-Pacific region.

The agreement includes the intent to purchase 10 Lilium Jets as well as a future strategic collaboration on eVTOL network across the Philippines and other Southeast Asia countries, such as Cambodia. So to summarize our commercial success, we’re excited about what we’ve accomplished in the past month in terms of new sales opportunities and the launch of our services business, Lilium POWER-ON. We are also very excited about our ongoing discussion with large online customers to provide a cost-effective solution, both for point-to-point connections and first-to-last mile experience. We look forward to sharing our success on this front with you in the coming months. And now, let me hand you back to Klaus for closing comments. Thank you.

Klaus Roewe : Thank you, Seb. As you can see, we continue to deliver our key milestones as we progress to our first manned flight target procure in late ‘24, with the Lilium Jet targeted to enter into service in ‘26 after the Type Certification is obtained. We have made strong progress in our certification process with design organization approval. We are well into assembly of our first Lilium Jet and will be keeping the market abreast on the progress of the program over the course of the year. On the commercial front, the uniqueness and compelling use cases for the Lilium Jet has resulted in around 45 firm orders, and we continue to convert MoUs into firm orders with pre-delivery payments. Our partnership with Lufthansa paves the way for early adaptation of our eVTOL technology in the mass commercial market.

Also, on the adoption front, our newly formed Aftermarket Service Business sets us with a safe and reliable network to maintain our accustoms Lilium Jet fleets while being additive to our profit streams in the future. We continue to have discussions with airlines on large fleet orders and hope to show your progress on this in the coming months. We remain of the view that safety is paramount in this new emerging aviation technology. We have a team that has extensive experience of certifying commercial aircraft to the highest safety standards. On the financing front, we have already begun collection of pre-delivery payments. We are continuing our discussions with the German government and other regions and countries on funding options. And most important to us on the financing front is the continued long-term support of our largest shareholders as we progress to entry into service.

Finally, I’d like to say a word about what we are doing to protect our value intellectual property. As of February 2024, Lilium had filed a total of 103 patent applications before the European Patent Office and German Patent Office. To help secure and protect our core technologies and intellectual property globally, we filed many of these patent applications in other jurisdictions such as the U.S. and China. Around 75% of all our patent applications relate to propulsion, energy and battery technology with a remainder protecting our technological breakthroughs in aerostructures, flight controls and avionics. This value and know-how, together with the approved competency to design aircraft according to the higher safety standards and the progress we have made towards bringing to market a significantly superior product giving Lilium a sound foundation for the future.

With that, I will conclude our prepared comments. Operator, can you please open the call to questions?

Operator: [Operator Instructions] And it comes from the line of Bill Peterson from JPMorgan.

Bill Peterson: Yes, hi. Good morning and thanks for taking the question. I was hoping maybe just starting up at a high level to try to bridge the timeframe of what you’re doing now in terms of assembling the first aircraft with the second one in the queue all the way through Type Certification to try to get a sense for just the timing and the milestones along the way. So I guess first, how many aircraft do you need to build? And I guess when you think about, you’re getting ready for flight testing at the end of the year, what are the key sort of step-by-steps that you can take internally given you have the DOA in place that allows you some delegated authority versus what other tasks are certified by EASA? And I guess just holistically, what do you think the most challenging or most challenging parts of the certification will be?

I assume it’s been propulsion, but if you could just kind of level set us since we haven’t had a conversation in the public forum in quite some time.

Rama Bondada: Yes. Thanks, Bill. Klaus, pass over to you.

Klaus Roewe : Yes. Okay. Thanks, Rama. And hi, Bill. Good to have you here. Great question. So we have started the assembly of the first aircraft and this aircraft is going to serve as an integration test bench. Aircraft 2 is just following and before the end of the year we will have three aircraft assembled or in assembly. And the other three are going to follow next year. The first flight as you may know and we said is planned to occur before the end of the year. If we cut it short, let’s say the first flying aircraft by summer will leave the assembly line. It will do its power on so means being put under its own electrical power. We’ll then have to go through quite an extensive ground testing. In parallel to testing on aircraft, we are also doing a lot of component testing on propulsion, on energy, on avionics.

Also on our CELAP which is basically a simulator, integrated simulator. We are going to pull all those data together. We have the EASA witnessing a part of the test as you say with the DOA. We have a lot of delegation to do our testing and basically put results in front of the EASA. But for sure we also want them to witness some of the critical tests. We are going through this, then wrapping everything up and before the end of the year we should then go into flight. You rightly mentioned, I would say the more sophisticated part of the test and assembly activities. It’s for sure all around our very innovative propulsion systems. But we are well into test. We already had the so -called Fed First engine to test running by the end of last year.

And we have since added quite a few to it. We are also going through some very extensive wind tunnel testing. We did the first big campaign last year. We just do another one right now which is all helping us for the final calibration of our flight control laws. And for sure we are doing still a lot of battery testing. The testing by the way in the meantime is moving not only to pure functional testing. It’s also going a lot into maturity testing because before we go into flight. We have to get the so-called permit to flight granted by the EASA and we have agreed a very comprehensive test program with them, which in the end all has to be put in front of them and then they will give us the right to take off. We cannot do it on our own, but even guys like Airbus they still get the permit to flight from EASA.

So lots of testing going into it. We are looking forward. We are really delighted because every time I’m going down into our production or test hangers, I’m seeing something different. I see people super engaged and there’s always something to learn, even for an old guy like me when we do our testing and that’s a fascinating time.

Bill Peterson: Yes, thanks for that. And I appreciate the cost savings measures you took with the cash control and the guidance you posted for the first half of the year. But I guess, maybe for Oliver, can you share some more information on what will be in OpEx, what will be in CapEx in terms of new construction or buildings you may need or equipment and how to think about the trajectory in the second half of the year and into next year, especially considering it sounds like you’re going to potentially unlock more PDPs after flight testing. So should we assume that the use of cash actually goes down in ‘25? Any sort of color on the cash trajectory, use of cash, sources of cash would be very helpful?

Rama Bondada: Thanks, Bill. Just real quick, on the 2025, we’re not guiding quite that forward yet, but I’ll hand over the rest of the question over to Oliver.

Oliver Vogelgesang : Thank you, Bill. I expected this question. Bill, yes, as we said in the call, our budget for the first half and that is the guidance we give is around EUR 170 million to EUR 180 million. You could expect the second half to be in a similar ballpark. So I don’t want to be over precise on that one. But having said this we closed the year with nearly EUR 200 million and it will bring us quite far throughout this year. However, of course, we are preparing to cash in additional money. And here in first instance, I would like to mention, I cannot be too detailed, sorry for that. But as discussed before, we expect to sign some binding orders. So we will see the PDP ramping up. And we are in dialogue with existing shareholders and we get an amazing support with our largest and oldest investors here is incredible.

I cannot disclose too much. We are in discussion with new investors and we have the government discussion in Germany but also in different countries. So overall I think we are well underway for the first half of this year. We are covered and then we of course are working on getting additional money into the company and my target is not to close this year with liquidity which is significantly less than what we had last year. But again I cannot go into more details. I hope this gives you a little bit of framing in order to update your model.

Bill Peterson: Yes, no. Thanks for the second half color and yes, a lot going on here so really appreciate the update this morning. Thank you.

Operator: And the question comes to the line of Alex Potter from Piper Sandler.

Alex Potter: Perfect thanks. Maybe Oliver just very quickly just kind of a housekeeping question or a definitional question. When you talk about the cash spend guidance in the first half, is that net of PDP expectations or is that just your own operational cash spend plan?

Oliver Vogelgesang : Seb, sorry. I take it directly, Rama, sorry.

Rama Bondada: It’s fine. That’s our spend. That is what we use, intend to use for the first half. It is not a net cash, flow it is our cash spend. It is basically our SG&A our head count related costs. It covers the CapEx and it covers the supplier NRCs and you can imagine the more we move towards building our first aircraft and we also need to think on our serious production because you’ve heard that in ‘26 we will start to deliver our aircraft to our customers, so I think that the growth of cash spent compared to what we had last year is mainly related to the production ramp-up and to supplier energy.

Alex Potter: Okay. Very good. So maybe another question, just obviously you’re getting, having some success moving MoUs into firm orders with PDPs. I’m interested in knowing how you think that will inform your mix of deliveries. Once we’re actually in service, we’re starting to build the unit maybe in 2026, 2027, 2028, in those first couple of years, how do you think the mix of deliveries will look maybe just in broad terms what percentage is going to be going to private aviation, what percentage is going to be larger airline orders. Obviously, the pricing implications could be different but the volume implications will also be different. Has that mixed consideration changed at all over the last several months or quarters?

Rama Bondada: Thanks also for the question. I think this is a good one for Sebastien.

Sebastien Borel: Yes, hello, everyone good question indeed. As you know, the premium market is a healthy market which will stay steady over the years who will always continue to sell to the premium market and so since we’re starting with this and since we will introduce then the shuttle edition which serves six passengers, scheduled operation, you will see the growth and therefore more and more shuttle coming in and the premium staying steady you’re looking at your 50 to 100 premium a year, 150 if it continues to grow and have the discussion — the current discussion going very well. So steady premium and high net worth individuals purchases and the shuttle edition growing tremendously in the next few years.

Alex Potter: Okay, very good. That’s super helpful. Then maybe one last one, if I can sneak it in. Is there any additional regulatory clarity on certification in the United States? I know that you’re obviously making great progress with regard to EASA, the two organizations have slightly different certification protocols. Just any additional clarity you can provide on certification in the United States or progress towards certification in the United States would be helpful. Thanks.

Klaus Roewe : Yes. Hi, Alex, Klaus speaking. So as you know, we have since quite a while our SC-VTOL in place requirements and we also have since I think June last year our G-1 paper which basically sets the scene for us in terms of what we have to do regarding an EASA certification but also FAA certification. On top, the part IAM has been also released. So we also know the operational rules. In the US, we are a little bit behind, but that’s not only for us. That’s true for everybody because the so -called SFAR rules for the operations have not been finally finished. And to my knowledge, also our friends, competitors from the US, the G-1 papers, the updates have not been published on the [inaudible] register. So I would dare to say, formally, we are even the most advanced company, not only having it from both jurisdictions, from the outside FAA, but I think we are also at least as advanced as everybody else, if not more advanced in the United States.

Operator: And the next question comes from Austin Moeller from Canaccord Genuity.

Austin Moeller: Hello. Good morning. So just my first question with the announcement about the aftermarket business. I know we’re not there yet, but how are you thinking about the aftermarket business as a percentage of total revenues within your mix once we get to production? And what the margin profile would look like for the aftermarket versus the OEM sales?

Rama Bondada: Seb, you want to take this question?

Sebastien Borel: Yes. I mean, obviously, the recurring revenue we grow as we introduce the aircraft starting in 2026, and we have given estimates of what the revenue could look like by 2035 provided that we’ve looked into the number of flight hours that we expect out of our customers and the number of aircraft flying that way. I think Oliver you may have a better picture in terms of how much that represents from a revenue perspective compared to the OEM sale.

Oliver Vogelgesang : I have to unmute. Thanks, Seb. And hi, Austin. Great question. I just want to give you a little bit of the talk tick theory on this business. So you can imagine it is service business so it starts to kick in after the first deliveries. We see it ramping up then and this is interesting. It is ramping up over proportionally. You can imagine the main driver for this business is the exchange of the batteries and the more aircraft you have in the universe. Of course, the more often you need to exchange the batteries. So this is the portion I would say with the strongest growth potential. It starts a bit later. To give you an exact percentage, I cannot do it right now to disclose all the business plan details.

But having said what I wanted to mention before, it starts, I would say, to be visible in ‘27 with the first battery exchanges. But then in the year 2030, we gave you an idea it’s beyond the $5 billion revenue line and it will grow over proportionately after that. I don’t know if it helps you for your modeling, but on the margin, I would like to say it is a high margin business. So we expect to get even higher margins compared to the OEM business. It’s a low risk business. So therefore it is one of our key priorities to really get a grip on this business. And yes, that’s what I can say for the time being, Austin.

Sebastien Borel: And Austin, just to clarify, that’s over $5 billion in revenue in 2035. And on the margin front, I think for a good example, you could kind of think of, if you look at the other aerospace aftermarket companies that do proprietary sole source products, that’s kind of what we’re looking at for margin profile.

Austin Moeller: Okay, that’s helpful. And then just to follow up, I know you’ve already started collecting PDPs. You’re aiming to collect additional PDPs once you get some manned test ride under the belt with the aircraft. But are you confident that with 730 aircraft in the backlog that potentially those PDPs, if you collect them, 30% to 50% of the price of an aircraft, that might be able to replace like a supplemental equity raise, for example?

Rama Bondada: Oliver, do you want to take that one?

Oliver Vogelgesang : I’m good. Austin, on the PDPs, it’s important to understand what are the triggering points. In a classical aerospace business, you have two years in advance of delivery, typically one year in advance of delivery. What we try here, but not every contract is the same, yes, but what we try and that the trend we see is that the important program milestones, especially on the premium sales, are the elements which trigger the PDP payment. Can we achieve 30% or more? So far what we saw on the 45 firm orders, yes, we can. Will it be the same with the big airlines? We will explore and we will come back to you later, but I think what is important to collect the PDPs is to achieve the first flight as a key milestone, the type certificate as a key milestone, and this will trigger a significant PDP payment.

And therefore it is one more argument why we have the entry into market strategy as we select it and focus in the first two or three years, basically in the premium segment, because it is a higher aircraft price. We get higher PDPs and we can link them primarily to those milestones.

Sebastien Borel: Maybe I just can add, this is Sebastien again. In the commercial discussion we have given the maturity we have, especially on the aftermarket actually, we provide a lot of data on how we’re going to be supporting them and a lot of, I would say, level of comfort understanding how we can provide in those details solution. The percentage of PDP being provided prior to delivery is not a hot question in the discussion we have commercially. It’s much more about the demand and the network and working together. And you mentioned 700 aircraft under MoU. We also have cooperation agreement where we haven’t stated number of aircraft. And so you can imagine that there’s a lot of silent activities going on which is not only converting what we have. We also have a lot of discussions. So obviously the world is pretty big and we’re talking to a lot of people right now.

Operator: And the next question comes from the line of Savanthi Syth from Raymond James.

Savanthi Syth: Hey, good afternoon, everyone. Just as a follow-up to kind of Bill’s line of questioning here, what’s your approach to kind of building these aircraft? Are they going to be fully compliant, one through six, or kind of certain aspects of it? And just I know cruise flight or manned flight is kind of the target for your end, but do you expect to start flying these? And how many flight hours do you think you might get this year on these kind of certification conforming aircraft?

Klaus Roewe : Yes, maybe I take it. Hi, Savi. That’s nice to have a question. So we are going to start with a manned flight. So we are not even provisioning an aircraft to be remote-controlled. As I said before, we foresee a total fleet of six aircraft, three to be completed by this year. It will be the first flight, will be in the last part of the year, so we won’t count hundreds of flight hours this year. The overall flight test program as we speak is foreseen to be something between 800 to 1, 000 flight hours. And this is what you need to learn to understand your aircraft and also run through all the certification tests. And the aircraft will not be identical for a simple reason. You allocate certain tests to certain aircraft because you have to instrument them accordingly.

So I think there will be no two aircraft will be the same. The aircraft itself, yes. But as we are targeting certain tests on certain aircraft, the instrumentation will be different. There will be some overlap because we need to have redundancy and fall back in case an aircraft is under maintenance so that we can continue the flight test. But this is well laid out and it’s, I would say, very similar to what I did when we certified the A320neo. We had a similar size of aircraft, flight test aircraft, and also the same philosophy, some being very heavily instrumented and then specialization on certain instrumentation depending on the flight test purposes. Does it answer your question?

Savanthi Syth: Yes, that super helpful. Yes, it did. Just on the follow up, if I might, you have a lot of Tier 1 suppliers contributing here. What’s their role in the certification process? I know you talked about doing a lot of components testing this year. Are these already certified components so that you can move faster or just, what’s the kind of benefit of using these kinds of Tier 1 suppliers?

Klaus Roewe : Yes, so suppliers, it’s either we certify or supplier is doing a lot of the certification work. And then the aircraft comes with a so-called DDP, which is the Declaration of Design and Performance, which offsets a lot of work that we have to do. So basically what we are doing, we do vast tests on our deliverables, which is a propulsion system, the battery system and also the total aircraft. But for sure, we are also making vast use of tests which are performed by our suppliers. And as we have the who is who of experienced suppliers assembled around us, we can really make lots of use of what they are doing, because they for sure have the components first and they have done similar qualifications and certifications before means, they have all the tests means, they have the people who know how to run those tests.

They have the people to know how to compile the necessary reports. So that is really of great help for us. So like we are discharging a last part of the development work, we can also discharge a large part of the certification work to our suppliers. Ultimately for sure it all flows into the type certificate of the Lilium Jet. So we have to sum it up, but the physical doing is to a large extent also offset by our suppliers.

Operator: And it comes from a line of Griffin Boss from B. Riley Security.

Griffin Boss: Hi, thank you for taking my questions. So first, can you just give some more color on what level of performance you are expecting to achieve with your prototype propulsion systems? And then what gains you are expecting with the next iteration? And when that next iteration might occur?

Klaus Roewe : Yes, hi Griffin. So on the propulsion system. We expect right from the beginning the performance that we need because otherwise we wouldn’t be able to lift off the aircraft and to go to transition flights and to go to high speed flights. And the same is true for the battery system. And for sure, as we’ve said several times in the past, we foresee over the years a lot of improvement coming in with the battery system. And as we speak, we are already discussing with some suppliers about next generation batteries, which we are going to bring in a couple of years after entry into service. Whilst I would say, as we speak, we don’t see necessarily a need to upgrade the propulsion system as such. And you may know also when you look into conventional aircraft, you are largely not changing.

So what conventional aircraft are doing, they optimize the gas generator. They try to squeeze some 1% or 2% points out of the efficiency of the compressor of the turbine as we have an electrical motor that runs as an efficiency well above 90%. Honestly, there is not so much of the gain to be expected on the propulsion system side. On the battery side, that’s by definition a completely different story because we believe by the end of the decade or perhaps even before our operating range, which at the starting point is 175 kilometers would be well above 200 kilometers with the next battery generation that we already have line of sight of.

Griffin Boss: Got it. Okay. Thanks for that, Klaus. And then just on the battery front, just clarification here, do you expect any differences in performance from primary and secondary battery suppliers?

Klaus Roewe : No. The batteries we are working on and the first one we get and we get more than a 1, 000 a month as we speak is from CustomCells here in Germany. But we have engaged into a partnership. with Inobat and Gotion in Slovakia, and they will also start delivering batteries by mid of the year. We always look into refining the battery recipe a little bit, but we are basically looking into, if I cut it a bit short, into the same type of battery. However, we are also looking with Gotion and others on what next generation batteries are. And we see still a good trajectory with high silicon content batteries, but we are also looking into lithium metal batteries already. So the whole battery industry is going to move forward.

And I think we are really clearly at the forefront with our high -silicon and content-pre-lithiated batteries. And we will be so for quite a while, but it doesn’t mean we are satisfied. So we are going on. But initially our intention is dual sourcing also to derisk our supply chain. And then when working with new suppliers like with Inobat and Gotion for sure also see what they have in their laps and what they can provide. And then to say, okay, the next generation for sure we are going to make use of what our suppliers are going to deliver us.

Operator: [Operator Instructions]

Rama Bondada: Nadia, as we wait for additional questions, I think this is a good opportunity for us to take some questions from a Lilium shareholder on the Say Technologies platform. This question comes from Trevon P. Is there any concern that competitors making it to market faster will harm your progress or future profitability? I think the Lilium Jet is a better design, but I wonder if timing and flight heritage will be important. Klaus?

Klaus Roewe : Yes, thanks for the question and anyway, great to have our valued retail shareholders with us and asking questions. Honestly, I’m not really concerned about it because the Lilium Jet features a couple of USPs. We are the only aircraft flying regional. We are the only Jet aircraft. We are one of the very few aircraft that are being certified to the highest safety levels. So we will be eligible to basically deliver in every country of the world. We have some areas like EASA country where others not certifying to the SC-VTOL standards will not be eligible to deliver. And I would also say, especially in the premium segment, I wouldn’t dare to say we are without competition, but maybe we are without competition because our value proposition, I would say the uniqueness, the attractiveness, the performance, and lastly, the safety of the product really stands out so that we don’t perceive necessarily a lot of competition.

On the other side, when we are going to entry into service in ‘26 and maybe some of our competitors are going to do, I believe there will be such a storm in the market there will be such a demand that it’s more a supply-driven market than a demand-driven market. And everybody will have to ramp up their production and by my past experience, I can tell you I know what it means. So we are not going to expel hundreds and thousands of aircraft immediately. So I’d rather believe it would be more the distribution market for a couple of years and Lilium being in a very comfortable position because we are not another me too product like many others is. We are a USP and we also have a good trajectory in terms of developing our product further where others will just have limits in terms of range extension that we don’t have.

So I’m not concerned. I’m wishing everybody well. So yes, we are kind of in a competition But I would not say Lilium is not in the first place in this competition. So I’m really not worried about it. And again, it will be a more sales or a supply-driven market than the demand-driven market.

Rama Bondada: Great. Thanks Klaus. Nadia, do we have any other questions?

Operator: From at this moment, we do not have any further questions on the phones.

Rama Bondada: Great. Well, so then I guess we are going to end. This concludes our 2023 business update. We look forward to speaking with you before our next quarterly update in May. Please check our website for industry and industry events we will be attending and, in the meanwhile, if you have any questions, please reach out to the Lilium Investor Relations team. And once again, thank you so much for your participation today. And have a great day.

Operator: That does conclude our conference for today. Thank you for participating. And you may now all disconnect. Have a nice day.