Q2 2022 Joby Aviation Inc Earnings Call
Good afternoon, and thank you for holding.
My name is Alex and I will be your conference operator today.
To Dolby Aviation second quarter 2022 conference call.
At this time all participants are in a listen only mode.
As a reminder, today's call is being recorded and a replay of the call will be available on the Investor Relations section of the company's website.
Please note that some of the company's discussion today will include statements regarding future events and financial performance and statements of belief expectation and intent.
These forward looking statements are based on management's current expectations and involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied.
For a more detailed discussion of these risks and uncertainties. Please refer to the company's filings with the SEC and the Safe Harbor disclaimer contained in today's shareholder letter.
The forward looking statements included in this call are made only as of the date of this call and the company does not assume any obligation to update or revise them.
This call will also include references to the company's adjusted EBITDA, which is a non-GAAP financial measure.
A reconciliation of this non-GAAP financial measures to the most directly comparable GAAP measure is included in today's shareholder letter, which is posted in the Investor Relations section of the company's website.
On the call from management today are Joel Bender, Vert, founder and Chief Executive Officer, Paul Shearer Executive Chairman did he ate papadopoulos head of aircraft development and.
In manufacturing and that field Chief Financial Officer.
After their prepared remarks, we will open the call up for questions.
I will now hand, the call over to Mr. Burke.
Thank you operator, good afternoon, everyone and thank you for joining us for today's call.
Exactly one year ago today, we became a public company and I am tremendously grateful for the trust our investors have put in us and I'm incredibly proud of our team and the progress we have made since then.
During the second quarter of this year, we made important progress in all three of our key focus areas.
Vacation scaling for early manufacturing and pre <unk>.
Caring for our commercial operations.
We continue to spend wisely, and we remain well capitalized and well positioned to achieve our goals.
We started the quarter off with a real win we were granted our part 135 air carrier certification by DSA several months ahead of schedule.
It's one of the three regulatory approvals, we need to launch our commercial operation alongside of types of again kind of production significantly.
On the type certification side, the FAA recently advised <unk> company that they would be following a part of 'twenty. One 2017 be powered lift certification framework rather than the planned part 23 small aircraft framework.
The FAA it was very clear when they announced this change that they did not expect this to me any delay in certification and that we would be granted credit for the work we have undertaken to date.
This was important to hear given we first signed the stage four G. One certification basis back in May of 2020 and have been making progress against it ever since.
We were the first television toll company to sign this document and I'm pleased to announce today that we became the first company to sign a revised version of it under the new certification framework last month.
Not only does this mean that the FAA sentiment around timing has borne out. It also means we've been able to maintain our momentum on tight certification during the quarter.
I also think it's worth being clear that we do see some benefit from the change.
With the revised certification path, we have reaffirmed our aircraft is the right design for the market and for the regulation.
Of course, there is still work to be done to define how the rules for operating our aircraft will work under the revised approach.
But yesterday has also committed to making sure these will be ready for us drawing on both existing helicopter and airplane rules.
The rule, making process for these special federal aviation regulations or as far as has been fast tracked and the FAA has stated publicly that it aims to publish a notice for public rulemaking before the end of the year.
In today's shareholder letter, we lay out a clear and simple guide to the type certification process and we encourage you to review it.
We wanted to provide a way for you to track our progress quarter to quarter and we hope that this guy can become a yardstick for the industry.
While we're on the topic of certification I should touch briefly on our recent acquisition of avionics.
Acquiring this business allows us to rapidly scale up our software testing and verification resources with a team of around 80 people that have experience on aerospace certification programs of all types in the U S and Europe .
We're excited to be combining their expertise with that of the jewelry team and look forward to talking more about software certification in due course.
Before I hand, it over to Dave I'd like to touch on two other important updates from the quarter.
First our relationship with the U S Air Force and the agility Prime program in particular, which continues to go from strength to strength.
We see this as a very important two way relationship that delivers a great deal of value for both sides, whether that's providing the armed forces with a front row seat to the development of this new technology or the access to facilities and funding that we benefit from.
Into the second quarter, we have signed contracts with the department of defense with a potential future value of around $30 million.
As we announced earlier this week, we were able to expand this contract during the quarter, increasing the potential future value to more than $75 million and broadening our engagement on flight test operations to include the U S Marine Corp.
While the funding opportunity is very welcome. This work also provides us with meaningful opportunities to build up our operational capabilities and deploy our aircraft into service prior to commercial certification, which we think is important given there are elements of certification that are outside of our control.
Finally, I'd like to touch on a couple of recent events first the Farnborough Air show, where we announced that we have applied for a concurrent validation of our U S type certification with U K Civil Aviation Authority.
We believe we're the first E V toll company to apply for such a validation and we're excited about the opportunity. It opens up to start operation in the U K shortly after the U S.
Second the White House summit on advanced Air mobility that I was fortunate enough to speak out last week.
At both events the topic on everybody's lips with sustainability, whether that's hydrogen or electric which I think has a significant role to play in the future of aviation or today's E toll technology.
And rightly so we need to be taking radical action today, if we're going to achieve the environmental footprint reduction we need to see.
For our part we've been working with the U S Department of Energy's National Renewable Energy laboratory to complete what we believe is the first lifecycle assessment of an E VTOL aircrafts environmental footprint, including manufacturing operation and ultimately environmentally conscious disposal or redeployment.
We will continue to refine the analysis as.
As we scale our manufacturing, but the initial results are very positive.
We expect our aircraft will have a lower environmental footprint than the vast majority of other existing modes of transport and we expect to have a comparable or smaller climate footprint than electric vehicles on the ground assuming both are charged with renewable energy, which is a sourcing commitment we've made for our aircraft operations wherever.
Possible.
We achieved this low footprint by putting a considerable amount of thought and effort into designing for sustainability from the very beginning.
Whether that's the efficiency of our aircraft in flight, where the manufacturing processes we employ.
And it's important to note the roll the battery players in all of this.
Given the environmental footprint battery cell manufacturing, it's just not plausible so imagine an aircraft for which the battery must be swapped out every 500 or 1000 flights.
That's not just environmentally unsustainable, it's actually potentially less sustainable in an aircraft powered by fossil fuels.
Instead, we purposefully selected a cell and a design, which we knew would achieve a considerably longer life of border aircraft and we've already demonstrated on the bench that it can power more than 10000 Representatives flight cycles, which is how we get favorable lifecycle climate impact and we won't stop striving to do even better.
Even after those 10000 cycles the cells can still deliver important utility by being repurposed into energy storage systems and deployed across Joey's Sky Sport network balancing the demands placed on communities electricity infrastructure and reducing operating costs.
Yeah.
After ourselves finished their second life on our Skype words, we've partnered with Redwood materials to recognize the value of our end of life batteries and reincorporate. The critical metals contained within the back into the battery supply chain.
We've built similar principles into our airframe manufacturing processes, using automation and additive techniques, where possible to reduce material waste and we're working with third parties to recycle excess titanium aluminum and carbon fiber.
By taking steps like this early enough in our journey towards scale manufacturing, we will have significantly reduced our overall footprint ensuring that the next generation is able to benefit from the positives of air travel in a sustainable climate neutral way.
With that I'd like to hand, it over to Didier who is going to walk us through our approach to certification as well as our recent progress on manufacturing.
Yes.
Thanks, Joann and Hello, everybody.
As Joanne mentioned at the top of this call. We've continued to make important progress towards the type certification of our aircraft.
We have signed their goodbyes stage for G. One certification basis with the FAA, we have nearly 75% of our means of compliance accepted under the new framework.
It has now except the C of O N E S P pes or area specifics our plants.
But I do appreciate that this sort of data that can be a challenge to understand and quantify without adequate contacts.
So I'm going to put the specifics of our progress to one side for a minute and instead spend a bit of time today going through how the type certification process works and how you can track our progress against it.
And our certification day briefing last year, we explained how we see the process in five key stages and we presented the chart measuring our progress in each one.
Certification is ultimately can extremely rigorous technical and cause future heavy exercise.
We submit hundreds of documents to the FAA for approval you getting all of the design work.
Analysis and manuals that our team has diligently competed across every component of the aircraft.
I've had the privilege to participate in many aerospace certification programs and I have found that in an effective way to attract certification progress in a granular way to look at the submission and acceptance of these documents.
It's one way we are tracking progress internally.
It's the methodology behind the progress charges included in our shareholder letter published to date, which we have updated to reflect our current program status.
Yes.
I'd now like to walk you through the five stages of the certification process as we see them.
Stage, one is about identifying which of the rules from the code of federal regulations apply to all of the aircraft and it culminates in a specification basis, which has agreed to by both the aircraft manufacturer and the FAA.
We became the first company to complete the stage back in May 2020, when we exceed our first do you want simplification basis with the FAA.
We have subsequently signed a revised version of this document a few weeks ago and so for all intents and purposes. The stage is complete.
Julian stage, two we moved from which regulations apply to what we are doing to demonstrate compliance with these regulations.
We have to go through three quarters of these means of compliance already accepted by the FAA under the new framework.
That means we've reviewed or revised nearly all of the work we've done to date in record time and had it accepted by the FAA.
I'm really grateful to the team and the FAA for working through this so quickly.
Almost all of the remaining 25% has been submitted to the FAA for review and approval.
Phase three is where do we get even more specific about how we've demonstrated that compliance.
Stating the means of compliance into certification plans in detail the exact testing and analysis, we intend to put forth.
This is where most of our recent efforts have been focused.
And over the last quarter. We've also made great progress here with two further I guess specific certification plans or a C. P is accepted by the FAA, bringing the total acceptance diversity out of about a dozen total suvs.
We also have the majority of the rest of them ready to go just as soon as the associated means of compliance are fully accepted.
Taken together they just won two entity for what we call the definition phase of tax certificate.
As we complete these stages, we enter into a more detailed agreement with the FAA on exactly how we will demonstrate the regulatory compliance and gain more confidence in our regulatory path.
Before I get to the implementation phase, where we start to compete for credit testing, it's worth noting that an aircraft certification program is often in multiple stages of the process simultaneously.
It is possible to make progress at different speeds and different areas of the aircrafts in other words it.
Possible to begin work on the next stage before receiving FAA sign off on the previous one.
And that's exactly what we do at Jody, we always want to be ready for the next stage before it happens to minimize the time it takes for the overall process.
We don't wait for our music compliance to be accepted before we started putting together our certification glass, we have them ready to go day, the FAA accepts our music compliance.
And we don't wait for the certification plans to be accepted before we start our in house testing, we've been testing for years preparing for the moment that we're ready to start four mill, that's a a poor credit testing.
That's part of what makes Jovians specialty we think ahead and we work ahead.
The capabilities in house and testing them to make sure they're ready before we need them.
And it means that we're more than prepare for what comes next namely stage for the first step of the implementation phase.
And this is my favorite stage, if the testing and analysis stage unit, which we shake bake and break out components.
Before we finish this first stage.
We will have completed thousands of tests.
Each and every component of our aircraft will be tested the sub assemblies, where we tested the system will be tested and of course the aircraft as a whole will be put through its space for credit.
In February of this year, we announced that we'd begun coupon level conformance testing with the FAA, which is a formal part of the stage four and we've also started developing additional test plans and procedures and running them to prepare for the formal testing for example, we've recently around test associated with our equipment.
Environmental qualifications and our electrical wiring robustness, we've also been able to make really important progress on preparing to perform for kind of tests on production and then parts, including the installation of test stands for airframe for better blades built actuators and processor modules many of which were designed.
And both in house with several development tests completed we are on track to submit our first formal environmental qualifications as planned to the FAA in the coming weeks.
We built the task section of our first production in 10 aircrafts, which you can see on the front cover of our letter to shareholders and assembly of the wings and fuselage are well underway. We have also manufactured several more copies of many of ours of composite parts to be used for testing and of course additional airplanes in parallel.
Similarly, we built and begun internal acceptance testing on the majority of the powertrain and Electronics Assembly unit for our first production aircraft.
These assemblies, including design intense electric propulsion units battery modules and mission display computers were built on our production lines in some cargos, where our processes are capable of scaling to support production not just now but also for the future. When we are building hundreds of planes a year.
Our ability to deliver a volume of production has been in parts is not only essential to making progress in this stage four and supporting our upcoming deal with your commitments.
We believe it sets <unk> apart.
You can't that's where you can build and we don't believe anybody else's in this position today consistently building parts that are designed for production aircraft confirming the manufacturer ability of our designs and defining test procedures to begin internal validation and for credit testing.
To finish the story the fifth and final stage of the process is verification during which the FAA confirms the results of our testing.
And was this stages complete the FAA issues a type certificate.
For each of the five stages, we have provided two measurement criteria in today's shareholder letter.
The first indicates what percentage of the work has been completed or submitted by Tobi and this second indicates what percentage has been subsequently accepted or approved by the FAA.
All of these numbers affect the device certification framework.
We're publishing same measurements each quarter. So you can effectively track our progress.
And would also provide continued insight into what goes into each of those numbers.
I appreciate that there's a lots of ticket.
And so I'd encourage you to refer back to the shareholder letter and what is happening answer any questions. You have later on this call.
I'll hand, it over to Matt to discuss our financial results for the second quarter.
Thanks, Denny and good afternoon, and thanks for joining me.
We remain well capitalized with $1 2 billion in cash and short term marketable securities as of the end of the second quarter to support our continued progress on certification manufacturing and early operations.
In the second quarter of 2022, we incurred a net loss of $49 6 million or <unk> per share, reflecting the loss from operations of $99 4 million offset by other income of $49 8 million.
The loss from operations included stock based compensation expense of $19 4 million.
Similar to prior quarters, the favorable results in other income reflected the revaluation of our derivative liabilities were $42 7 million and income from our equity method investments of $4 6 million.
Also included in other income and interest and other income, which rose to $2 6 million, reflecting increased interest on our invested funds.
Adjusted EBITDA, which as a reminder, is a non-GAAP financial measure and we reconciled to net income in our shareholder letter was negative $74 1 million.
This was $16 7 million higher than the second quarter of 2021, and $4 4 million above the prior quarter, primarily reflecting the continued growth in personnel to support our operations and R&D costs associated with building parks, both for our testing and for our production in 10 aircraft.
As of June 30, we had over 1300 employees globally, which also included the avionics suite.
Cash used in operating activities and purchases of property and equipment totaled $61 3 million.
Spending in the second quarter was below the prior quarter. This reduction largely reflected fewer bi weekly pay periods and lower spending on R&D materials in property and equipment.
For the first half of 2022, our net cash used in operating activities and purchase of property and equipment totaled $133 $5 million.
As a reminder from last quarter, our cash flow for the first half as referenced in our shareholder letter and will be included in our 10-Q excludes cash held in our short term investments.
In the first quarter, we invested a substantial amount of the proceeds from our merger with reinvent technology partners. Therefore, our statement of cash flow will show a more sizeable cash outflow, reflecting this investment.
We have always said that we would be disciplined regarding our uses of cash.
For 2022, we outline what our priorities for the year. It would be certification early manufacturing operations initial commercial operations, which includes supporting our department of defense partners and our responsibilities as a public company.
We continue to prioritize these parts of our business amidst dynamic external environment.
And we have identified savings of moderating our spending in other areas to reflect increased economic uncertainties.
For 2022, we are revising our guidance and now projecting our net cash used in operating activities and purchases of property and equipment to range from 320 to 349.
This is a reduction from our prior spending guidance, which as a reminder range from 340 million to $360 million, reflecting these actions.
We are proud of the progress we've made so far in 2022, and then particular, how our operations and Marina, California are coming along as we progress building out our pilot manufacturing operations and undertake regular flight testing.
We would like to invite analysts and investors to our first ever Toby field trip on October 13th to see at our facilities at the Marina Airport, where we have revitalized much of the old four or U S. Army airfield to support modern 21st century manufacturing and where we are continually conducting flight testing activities to support.
It was a certification of our aircraft.
We will share more details in the near future and look forward to seeing you in October .
This concludes our prepared remarks, and we'll be happy to take any questions. You may have operator would you. Please instruct the participants on how to ask questions.
Thank you.
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Our first question comes from the line of Andre Shepherd with Cantor Fitzgerald. Please proceed with your question.
Hey, good afternoon, guys and congrats on the quarter and thanks for taking my question.
I was wondering if you could maybe add a little bit more granularity in regards to the expansion with the expansion of the partnership with our with the D O D.
He doesn't know the total contract value is north of 75 million. So just maybe help us understand you know.
How will this take shape and end and when and how exactly do you expect to monetize the relationship.
Thank you.
Alright, Thanks for that question Andreas This is Paul.
So we're really excited about the announcement just yesterday around the expansion of that partnership and.
And there's really two pieces of it one is an extension of the overall deliverable set to include advanced testing and potential new capabilities. The aircraft. So that increases the overall contract value from around $30 million to $75 million.
The second piece is that we're including now the Marines as co partners with the Air Force and agility prime in that contract.
And we really see it as.
Yield momentum in terms of our work with these government partners.
And we're very excited about the opportunity to kind of give them a front row seat and really understanding how this aircraft can fit into their concept of operations. Obviously our goal there is potential larger deployments over time.
The specifics are.
Are are really around as I said sort of advanced testing, so making sure that they understand the capabilities of the vehicle what it can do and to make sure that they understand where and how they use cases sort of fit amongst the things that they're doing so the Marines. For example is looking at this aircraft for both personnel movement.
Logistics and then also potential special operations like Medevac and personnel extraction. So we're going to have an opportunity to see exactly how that can work.
And we're really excited about the opportunity there.
Got it thanks, Paul that that's very helpful and maybe as a follow up.
I'm sure you're aware, there's been some some macro chatter in regards to the FAA.
And maybe the yes, a certification somewhat consolidating and potentially increasing the FAA requirements to that tend to have a negative nine.
Safety degree I'd be curious to get your thoughts on that do you see that materialize singing and if so what impact if any might that have on your certification. Thank you.
Andreas Thank you for the question. This is D. I'll take this one so yeah, we are tracking.
The regulatory landscape as it relates to the FAA and various other agencies as well.
On the margin.
What's key for US here is to get back to the statement that you've answered earlier.
With the revised framework.
We had the opportunity to work with the FAA on the G. One G. One sets the stage exactly for the regulations that apply.
That's our aircraft and within the last few weeks you were able to successfully get their device stage forward, that's fine and so for all intensive purposes, we are.
Have a clear understanding of the regulations that will apply to us and we have a clear path to move forward.
In fact, this is a great opportunity for us because what we also were able to do is to bring in some potential other regulations that we were expecting already through special conditions. We brought those and include them already into Q1. So we do have a clear path and feel very solid with where we're going here.
Got it I appreciate that thanks, again, and congrats on the quarter I'll pass it on thanks.
Thank you. Our next question comes from the line of David <unk> with Barclays. Please proceed with your question.
Hey, Thanks for taking my question. Another one for you you guys had reported a you know 80% progress towards.
It means a compliance last quarter, obviously up to having to redo. The standard if you went to 75.
Okay.
Okay.
Yeah, that's not an issue and that you can still work ahead on further stages, you know, even though you're happy to reset that's a mark here I guess can you just confirm that yeah nothing yet.
Number one way or the other is affecting your long term timeline and you know what.
Whether there's a particular date that you need to do.
Due to in order to feel you're still on track for your stated goal of type certification.
Yes. This is <unk> again, sorry, we lost you a few times during the question, but I think I got the gist of it let me know if I don't address all of it. So one of the items you talked about is the 75% means a compliance versus the 80% whats.
Key there is to think about the earliest statement I made which is the fact that within the scope of the amendments with compliance right now we've actually brought in additional.
Ah regulations. So we expect it to come before so there was this concept of special conditions that had not been published and we were waiting on the <unk>. Those are all in all so the scope is a lot clearer now and so the 75% actually represent as far as I'm concerned an amazing achievement for the team we have.
A lot more solid understanding of what we need to do Furthermore, we've moved from one area of specific certification plan. That's accepted to now three that's what's key here that number unlocks. Many of these ml seats. So that we can now proceed into be testing verification and showing comply.
In stages that we talked about in the final stages of certification. So overall, it's a net positive progress.
Great and then.
The last part of it is is there a specific date that you have in mind.
You need to complete the due to in order to feel that you're on track for your type certification next year.
Yeah, So what we shared.
In the recent times is that we continue to expect to have the majority of the means of compliance is submitted and that's really what matters track us on the scope of what means a compliance and how many E. S. Cpus we are on track.
As of today, and that's kind of where we need to continue to focus.
Great.
And then if I if I could just squeeze one more in for either Matt or Japan.
Yeah. There was comments I think both in the prepared remarks and in the <unk>.
Shareholder letter around an uncertain external environment.
Be it from me to complain about because doing better than expected on expenses, but wondering if you could expand on what you mean by the uncertain external environment.
Hi, David it's not so what we mean by that is really there's just greater volatility both in the external markets, but also with interest rates of inflation and just.
Multitude of factors that all companies are trying to balance these days and so given that we just felt it was prudent to be proactive and look at our cash burn and our cost structure and take actions, where we felt more relevant and also re prioritize those areas.
The we're keen and certification process. So again, keeping prioritization on the same areas. We said for the year, which are a certification early manufacturing and then early operations.
Thanks.
Yeah.
Thank you. Our next question comes from the line of Savi <unk> with Raymond James. Please proceed with your question.
Hey, good afternoon, everyone.
Regarding the concurrent nowadays and applications in the U K as a civil Aviation Authority I was curious what the strategy was relative to I'm guessing that adds some complexity to the process, then and I'll say, if you've gotten any feedback from them on you know their their willingness to entertain this given that they seem to be.
<unk> are in line to kind of adopt the asset process.
Yeah. Thank you for the question. This is D I'll take that.
This one so I'd start by saying that the application with the U K a T. A remains aligned in general with our strategy, which is the fact that the FAA is.
Home regulator and we intend to continue to pursue this as our primary initial certification.
That said with the U K and the FAA, making that John statement.
Work together towards a common framework it represents an opportunity for us to do it nearly simultaneous.
Certification approval would be U K shortly after the FAA and so we're taking advantage of the opportunities to do that and continue the discussions with them.
Really pumped up to date.
I appreciate that and if I might on the and you can have things assuming things progress as planned.
I was kind of curious going back to the question about that.
The things that you've decided to not work on today, because it's not the most critical aspects, but also as you kind of progress on this plan.
Could you give I realize it is early days, but a very kind of high level early color on how you know you should we should think about the magnitude of the step up in R&D and F. N. G is SG&A as we go through the next couple of years.
Yes.
So it's not we're not providing new guidance on the step up but as I have encourage people to think think ahead. This year has really been around.
Ramping up our engineering team and hitting our certification deliverables.
<unk> been ramping up early production and manufacturing I think we're really unique in that space and that we're actually building on the line at this point and so think about that as your hourly folks from manufacturing operations starting to get practice as you look ahead to the out years, though what you can expect is that manufacturing will continue to ramp because our production.
Pace will increase and so that will require more people in the plants more hourly supervisors and so forth and then following that you could expect the ramp up and other resources in air operation doesn't bring pilots auto mechanics, but also support department of defense obligations, but then eventually bringing that product.
Team on stream.
Customer interfacing teams and all of that so I think of it kind of in those four ramps around head count and spending were really largely reflect production.
And the manufacturer and the production of planes.
Got it and then just a little bit more in that market.
There isn't a day timeline.
Timelines that those start to really kind of build up and gain momentum as we think about the next two years like manufacturing I'm guessing there's momentum right now and into the next few years, but when do some of the other resources in the customer facing side, but when do you start building those out.
Yeah, So you're right on manufacturer manufacturing kind of started this year and.
I'd say materially this year and then we will continue to ramp over the next few years I would expect the other elements to ramp.
Yeah, Yeah staggered state over the next couple of years as well.
Current ones have different kind of ramp curves. If you will based on how quickly you can attract and train. So for instance, mechanics will take longer pilots would take longer software programmers for.
App development would be shorter.
That's helpful. Thank you.
Sure.
Okay.
Thank you. Our next question comes from the line of Cristina Wang with Morgan Stanley . Please proceed with your question.
Hey, good afternoon, guys and sorry for the background noise I'm in an airport.
So maybe outside hang out with us.
In avionics acquisition.
Can you provide some tangible examples of how <unk> works.
Absolutely.
If at all your ability to quantify what kind of capabilities.
Table.
Yes. Thank you for the question.
Probably first take the opportunity to say again welcome to the avionics.
Thank you Joe, but we're really excited to have them join the team here represents an amazing opportunity for us.
As far as the opportunity here. So if you think about the five stages of certification you can somewhat mimics that when it comes to software.
The development process as it relates to software in aviation.
Hi, Deregulated Theres specific standards that you need to comply with the development verification and validation activities.
Avionics over the past several years.
Has proven themselves throughout the industry.
So you're going to manufacture, particularly focusing in the area of the verification phase of software. That's a very very unique skill set that requires a lot of years of fine tuning.
We were fortunate to work with them.
About a year and a half ago on a smaller sized project and we're very impressed by the activities and the.
Level of skill set that they've demonstrated that's a skill set that directly applies to software development associated with the various processing capabilities of flight control.
While development and so on that we definitely need in house.
So because of that technical and cultural match and then our strategy of vertical integration. He was really a perfect fit.
To complete this marriage.
Thank you Sidney if I could do a follow up question on defense Paul.
You provided some color on the expanded contract with the department of defense, but can you provide more milestones.
Or is it more variable so you have to achieve and also in terms of contract terms and have some sort of cost plus.
But taking a risk free anymore color would be really appreciated.
Yes.
Yeah. Thanks, a lot for the question Christine.
So I.
I don't know that we are able to share the contract details.
I believe we have a version that was published.
Published.
But roughly you can think about it as.
As delivery of.
Flight testing to each of these customers and interim data that are associated with those flight tests.
That's going to allow them to to evaluate the performance of the aircraft and really think through what the concept of operation implications are for them as they think about the work that they do.
So that's work that's going to be that has been ongoing obviously with our partners and the Air Force and now we will continue to really sort of accelerate over the next few quarters.
With now the Marines also onboard.
And Christine just one follow up to Paul's comment so.
The public contracts so as a reminder for people.
The original phase III contract, we appended to our Q1 10-Q and this extension we will appeal to our Q3 10-Q, and so we'll have a redacted version because of assigned within the third quarter.
The Q3 10-Q.
Okay. Thanks, Matt.
Can I ask a question for you too.
Hum.
He talks about lower range free cash flow for this year by about $20 million.
Economic environment, when you guys look like you're.
Sure.
And how.
How much cash you have in the balance sheet. Since you know is this a period too.
<unk> tightened the belt.
And where you were more aggressive on funding in order to prepare for certification and that initial.
Marshals service.
Yeah Christine so.
We feel it's a prudent time to cut back in other areas for this year, we're not cutting back in areas that affect certification.
But you know some of the some of the central areas, but also asking the team for identifying efficiency. So a great example is through teams looking across the different test products, and saying Hey can we do multiple tests with one R&D item.
And so efficiencies like that.
Just healthy and they're kind of at the core of what Adobe does best and so as we got further in the year and we saw these things coming through and also asking the team to find opportunities given the external environment.
We felt there was also a responsible to share any guidance with you all.
Great. Thank you very much.
Yeah.
Thank you. Our next question comes from the line of Edison you with Deutsche Bank. Please proceed with your question.
Okay. Thanks, Ed in particular for sharing the certification private I'm sure many people well I appreciate that.
I wanted to clarify one thing on the certification is.
Is it my understanding that you're saying after all these revisions, which you did very quickly.
That you're still feeling quite comfortable with the 2023 timeline is that what you're saying.
Okay.
Oh, Hey, that's in this fall.
Okay.
As we said last quarter.
The the FAA told us that they didn't expect that this administrative sort of.
Change to certification would have any impact on the timeline and I think that I think we've really seen that borne out over the last few months.
The turnaround on the new revised Q1, obviously continued work at the line an additional <unk> <unk> approvals, we both see them as really positive indicators that we're continuing to make the progress that we need.
At the same time we.
We've never been shy that effort ahead of us on certification is going to be a difficult. One we feel like we have the right team in place we feel like our team is moving forward day to day on exactly the things they need to make that happen.
But we are.
Pushing forward at the speed that we believe we can.
And we feel good about where our progress stands now.
And I should say that we're continuing to sort of target 2024 for the beginning of service operations with aircraft.
Understood.
And just follow up on I guess more of an engineering question. Obviously, you know there's tremendous amount going on developmental wise.
For the production vehicle.
How comfortable are you with.
You know the weights in some of the operating assumption that you had previously laid out after you know having done you know much more work on that.
Are you expecting any sort of major changes either better or worse.
In terms of those performance metrics.
Thank you Allison.
So.
We designed this aircraft.
Two to carry a pilot and for passengers.
And we we feel good about the progress we're making.
And I'd really like to highlight.
The.
How exciting it is to be.
Getting these.
Production intent components coming off the line and.
Really looking forward to welcoming all of you in October to Marina to see this in person for yourselves.
It's just fantastic to be bringing this.
To the world and.
Yeah, I'm really looking forward to all of you being able to see it firsthand.
And yes just.
Really really appreciate.
All the momentum.
From our team and the.
The support from from Yafei.
Denny touched upon as well as the international regulators I think.
We're in a very strong position.
And I'm looking forward to the continued progress.
Yes.
Great. Thanks.
Thank you. Our next question comes from the line of Bill Peterson with Jpmorgan. Please proceed with your question.
Yeah, Hi, good afternoon, I'm, all sudden airports software, it's not too loud and a few questions I think for <unk> and the first one to follow up to address this in a second.
These questions just want to put a finer point on the on the floor foreign certification.
Regarding the CA, it's our understanding that.
They're adopting the assays standards asset too aggressive point has a more stringent than the FAA. So I guess just specifically with your revised she wanted my guess is your planning for music compliance are you planning to certify dependent on minus seven or 10 to minus nine.
You said the certification should be pretty quickly one after the other so I'm presuming you're.
Going for the more stringent standard.
Because the right assumption.
Yeah. Thank you for your question I don't I don't believe we've nacelle.
Sure.
10 to the minus seven eight or nine in the past so I will say that.
Would be revised.
<unk> and <unk>.
Progress on the <unk>.
It generally has confirmed.
The design we have.
And the means of compliance is the third path that we have remained solid we have had no changes come out of that.
Q1 Division.
Just to build on that belt sit here I know you touched on this earlier, but so the announcement with the CAA as the CAA has agreed that they will use the FAA certification to support the equivalent of the type certification and in the U K and so even though they are partnered with <unk>.
For some of the certification the basis for our claim will be built off the FAA type Sir.
Yeah, so yeah.
Yes.
As an example, it could be for example, the U K with validate and he also base initial certification.
And they would also validate and FAA certification.
Is the thought that Adobe is thinking at this time.
Okay. That's good color I appreciate that.
I wanted to also talk about.
Aspects certification the aircraft type discuss battery in a key area recently I'm sure yes from the article that touched upon the form factor pouch versus when Nicole I think in the past you've discussed using conventional with lithium ion batteries I guess.
Once you are using volume but.
Can you share more details on the types of batteries or using the planet certified with what.
What kind of risks are associated with that.
And I guess is there a scenario for the music appliance at Plaza, 25%.
Okay.
Thank you for your question, yes, so the.
As we've said before we are using a <unk>.
Cells that are.
Currently in used for automotive applications.
These are cells that are produced in large quantities.
At very high quality.
And.
We take those cells and we build them into our battery modules, which.
Which we have put a lot of effort into designing for safety.
We've been our certification team has been working closely with the FAA for a number of years.
To ensure that our battery systems.
And the integration of those into the aircraft.
Are done in a way that.
<unk>.
Very high level of safety.
For aircraft.
I should also.
The highlight the really remarkable results that we've been able to achieve on.
The lifecycle performance of the cells, which is crucial for both our operating costs.
And.
For our lifecycle.
Environmental impact.
And we think this is an area that.
We're especially proud of and will be.
Very important for the economics of operating our service.
Okay. Thanks again for that color.
That's right.
Thank you. Our next question is a follow up from Ondrej Shepard with Cantor Fitzgerald. Please proceed with your question.
Yeah.
Hey, Andrew.
Andreas.
Sure.
There is currently no response from Mr. Shepard's line, so ladies and gentlemen, we have reached the end of the question and answer session. I will now turn the call back over to Joe <unk> for closing remarks.
Thank you operator, and thank you everyone for joining us today.
Summarize the three key takeaways from our call first progress continues at speed on certification and production and we provided new levels of transparency into each step of the certification process.
We've expanded our government government engagement with agility prime and the introduction of the U S. Marine Corps, which gives us a great opportunity to gain experience and put our aircraft into service and finally.
We're responding to market conditions by increasing our focus on three key areas of focus certification pilot production and early operation.
We're now expecting to come in under our previous spending guidance.
We look forward to seeing you at our field trip event in October and we hope you have a fantastic day. Thank you so much for joining us.
This concludes today's conference and you may disconnect your lines at this time.
Thank you for your participation and have a wonderful day.
Okay.
[music].