Joby Aviation, Inc.

Good afternoon, and thank you for holding. My name is Alex, and I will be your conference operator today. Welcome to Joby Aviation's 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 measure 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 Joe Ben Bevert, founder and chief executive officer, Paul Schiera, executive chairman, Didier Papadopoulos, Head of Aircraft Development and Manufacturing, and Matt Fields, Chief Financial Officer. After their prepared remarks, we will open the call up for questions. I will now hand the call over to Mr. Bevert.

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. That's certification, scaling for early manufacturing, and preparing for 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 DFA several months ahead of schedule. It's one of three regulatory approvals we need to launch our commercial operations alongside a type certificate and a production certificate. On the type certification side, DFA recently advised eVTOL companies that they would be following a Part 2117B powered lift certification framework rather than the planned Part 23 small aircraft framework. The FAA was very clear when they announced this change that they did not expect this to mean 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 a Stage 4 G1 certification basis back in May of 2020 and have been making progress against it ever since. We were the first eVTOL 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's sentiment around timing has borne out, it also means we've been able to maintain our momentum on type 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 the FAA has also committed to making sure these will be ready for us, drawing on both existing helicopter and airplane rules. The rulemaking process for these special federal aviation regulations, or SFARs, 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 TITE 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 guide 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, both in the US and Europe. We're excited to be combining their expertise with that of the Jovi team and look forward to talking more about software certification in due course. Before I hand it over to Didier, 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. Going into the second quarter, we had signed contracts with the Department of Defense with a potential future value of around $30 million. But 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 Corps. 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 concurrent validation of our US-type certification with the UK's Civil Aviation Authority. We believe we're the first eVTOL company to apply for such a validation, and we're excited about the opportunity it opens up to start operations in the UK shortly after the US. And second, the White House Summit on Advanced Air Mobility that I was fortunate enough to speak at last week. At both events, the topic on everybody's lips was sustainability, whether that's hydrogen or electric, which I think has a significant role to play in the future of aviation, or today's eVTOL technology. And rightly so. We need to be taking radical action today if we're going to achieve the environmental footprint reductions 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 eVTOL aircraft's environmental footprint, including manufacturing, operations, and ultimately environmentally conscious disposal or redeployment. We will continue to refine the analysis 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 or the manufacturing processes we employ. And it's important to note the role the battery plays in all of this. Given the environmental footprint, the battery cell manufacturing, it's just not plausible to imagine an aircraft for which the battery must be swapped out every 500 or 1,000 flights. That's not just environmentally unsustainable. It's actually potentially less sustainable than an aircraft powered by fossil fuels. Instead, we purposefully selected a cell and a design which we knew would achieve a considerably longer life aboard our aircraft, and we've already demonstrated on the bench that it can power more than 10,000 representative flight cycles, which is how we get a favorable life cycle climate impact, and we won't stop striving to do even better. Even after those 10,000 cycles, the cells can still deliver important utility by being repurposed into energy storage systems, and deployed across Joby's Skyport network, balancing the demand placed on communities' electricity infrastructure and reducing operating costs. After our cells finished their second life on our Skyports, we partnered with Redwood Materials to recognize the value of our end-of-life batteries and reincorporate the critical metals contained within them 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. Didier?

Thanks, Jobin, and hello, everybody. As Jobin mentioned at the top of this call, we've continued to make important progress towards the type certification of our aircraft. We've signed a revised Stage 4 G1 certification basis with the FAA. We have nearly 75% of our means of compliance accepted under the new framework. And the FAA has now accepted three of our ASCPs for area-specific cert plans. But I do appreciate that this sort of data can be a challenge to understand and quantify without adequate context. 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 tax certification process works and how you can track our progress against it. At our certification day briefing last year, we explained how we see the process in five key stages, and we presented a chart measuring our progress in each one. Certification is ultimately an extremely rigorous, technical, and procedure-heavy exercise. We submit hundreds of documents to the FAA for approval, detailing all of the design work, tests, analysis, and manuals that our team has diligently completed across every component of the aircraft. I've had the privilege to participate in many aerospace certification programs, and I have found that an effective way to track certification progress in a granular way is to look at the submissions and acceptance of these documents. It's one way we are tracking progress internally, and it's the methodology behind the progress charts included in our shareholder letter published today, which we have updated to reflect our current program status. 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 our aircraft, and it culminates in a certification basis, which is agreed to by both the aircraft manufacturer and the FAA. We became the first eVTOL company to complete the stage back in May 2020 when we agreed our first G1 certification 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, this stage is complete. During Stage 2, we move from which regulations apply to what we are doing to demonstrate compliance with these regulations. We have close to 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 we get even more specific about how we demonstrate that compliance, translating the means of compliance into certification plans that detail the exact testing and analysis we intend to perform. This is where most of our recent effort has been focused. And over the last quarter, we've also made great progress here, with two further area-specific certification plans, or ASVPs, accepted by the FAA, bringing the total accepted to three out of about a dozen total ASVPs. 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, stages one, two, and three form what we call the definition phase of type certification. As we complete these stages, we enter into a more detailed agreement with the FAA on exactly how we will demonstrate regulatory compliance and gain more confidence in our regulatory path. Before I get to the implementation phase, where we start to complete full credit testing, it's worth noting that an aircraft certification program is often in multiple stages of the process simultaneously. It's possible to make progress at different speeds in different areas of the aircraft. In other words, it's 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 Joby. 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 means of compliance to be accepted before we start putting together our certification plans. We have them ready to go the day the FAA accepts our means of 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 formal FAA for credit testing. That's part of what makes Joby a special team. We think ahead and we work ahead, building 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 prepared for what comes next, namely stage four, the first step of the implementation phase. And this is my favorite stage. It's the testing and analysis stage during which we shake, bake, and break our 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 will be tested. The systems will be tested. And, of course, the aircraft as a whole will be put through its phase for credit. In February of this year, we announced that we'd begun coupon-level conformity testing with the FAA. which is a formal part of 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 run tests 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 four credit tests on production in ten parts. including the installation of test stands for our airframe, propeller blades, tilt actuators, and processor modules, many of which were designed and built in-house. With several development tests completed, we are on track to submit our first formal environmental qualification test plan to the FAA in the coming weeks. We've built the tail section of our first production intent aircraft, which you can see on the front cover of our letter to shareholders. and assembly of the wing and fuselage are well underway. We have also manufactured several more copies of many larger composite parts to be used for testing and for additional airplanes in Canada. Similarly, we've 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 intent electric propulsion units, battery modules, and mission display computers were built on our production lines in San Carlos, where our processes are capable of scaling to support production, not just now, but also for a future when we are building hundreds of planes a year. Our ability to deliver a volume of production in 10 parts is not only central to making progress in stage four and supporting our upcoming DOD commitments. We believe it sets Joby apart. You can't test what you can't build, and we don't believe anybody else is in this position today consistently building parts that are designed for production aircraft, confirming the manufacturability 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 when this stage is 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 Joby, and the second indicates what percentage has been subsequently accepted or approved by the FAA. All of these numbers reflect the revised certification framework. We'll publish these same measurements each quarter so you can effectively track our progress. And we'll also provide continued insight into what goes into each of those numbers. I appreciate that this was a lot to take in. And so I encourage you to refer back to the shareholder letter and we'll happily answer any questions you have later on this call. I'll now hand it over to Matt to discuss our financial results for the second quarter.

Thanks Didier. Good afternoon and thanks for joining. 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 $0.09 per share, reflecting a 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 worth $42.7 million and income from our equity method investments of $4.6 million. Also included in other income is interest in other income, which rose to $2.6 million, reflecting increased interest on our invested fund. Adjusted EBITDA, which as a reminder is a non-GAAP financial measure that 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 parts both for our testing and for our production intent aircraft. As of June 30th, we had over 1,300 employees globally, which also included the avionics team. 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 biweekly pay periods and lower spending on R&D materials and property and equipment. For the first half of 2022, our net cash used in operating activities and purchase of property 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 10Q, 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 sizable cash outflow reflecting this investment. We have always said that we would be disciplined regarding our uses of cash. For 2022, we outlined that our priorities for the year 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 a dynamic external environment, and we have identified savings and moderated 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 million to $340 million. This is a reduction from our prior spending guidance, which, as a reminder, ranged from $340 million to $360 million, reflecting these actions. We are proud of the progress we've made so far in 2022, and in particular, how our operations in 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 Joby Field Trip on October 13th to see our facilities at the Marina Airport where we have revitalized much of the old Fort Ward U.S. Army Airfield to support modern 21st century manufacturing and where we are continually conducting flight testing activities to support the 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 participants on how to ask questions?

Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Andres Shepard 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 in the partnership with the DOD. I see that now the total contract value is north of $75 million, so just Maybe help us understand, you know, how will this take shape and when and how exactly do you expect to monetize the relationship? Thank you.

Sure. Thanks for that question, Andres.

This is Paul. So we're really excited about the announcement just yesterday around the expansion of that partnership. And there's really two pieces of it. One is an extension of the overall deliverable set to include advanced testing and potentially capabilities to 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 real 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 in 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 really around, as I said, sort of advanced testing, so making sure that they understand the capabilities of the vehicle, what it can do, to make sure that they understand where and how the use cases sort of fit amongst the things 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's very helpful. And maybe as a follow-up, I'm sure you're aware there's been some macro chatter in regards to the FAA and maybe the YESA certification somewhat consolidating and potentially increasing the FAA's requirements to that 10 to the negative 9 safety degree. I'd be curious to get your thoughts on that. materializing, and if so, what impact, if any, might that have on your certification? Thank you.

Hi, Andres. Thank you for the question. This is DD. I'll take this one. So, yeah, we are tracking the regulatory landscape as it relates to the FAA and various other agencies, as you might imagine. What's key for us here is to get back to the statement that Joe had earlier With the revised framework, we had the opportunity to rework with the FAA on the G-1. The G-1 sets the stage exactly for the regulations that apply to our aircraft. And within the last few weeks, we were able to successfully get a revised stage four that's signed. And so for all intended purposes, we 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 in and included them already in the G1. So we do have a clear path and feel very solid with where we're going here.

Got it.

I appreciate that. Thanks again. Congrats on the quarter. I'll pass it on. Thanks.

Thank you. Our next question comes from the line of David Nazula with Barclays. Please proceed with your question.

Hey, thanks for taking my question. Another one for you. You guys had reported, you know, 80% progress towards means of compliance last quarter. Obviously, after having to redo the standards, you went to 75. That's not an issue and that you can still work ahead. on further stages, even if you're having to resubmit some work here. Can you just confirm that nothing in moving the number one way or the other is affecting your long-term timeline, and whether there's a particular date that you need to complete G2 in order to feel you're still on track for your stated goal of type certification?

Yeah, this is ZD. Again, 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 of compliance versus the 80%. What's key there is to think about the earlier statement I made, which is the fact that within the scope of the means of compliance right now, we actually brought in additional regulations that we expected to come before. So there was this concept of special conditions that had not been published and we were waiting on these. Those are all in now. 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-specific certification plan that's accepted to now three. That's what's key here. That number unlocks many of these MOCs so that we can now proceed into the testing, verification, and showing compliance phases that we talked about in the five stages of certification. So overall, it's a net positive progress.

And then the last part of it is, You know, is there a specific date that you have in mind that you need to complete the G2 in order to feel that you're on track for your type certification next year?

Yeah, so what we shared in the recent time is that we continue to expect to have the majority of the means of compliance submitted, and that's really what matters. Track us on the scope of the means of compliance and how many ASCPs. We are on track as of today, and that's kind of where we need to continue to focus.

Great. If I could just squeeze one more in for either Matt or Jobin. There was comments, I think, both in the prepared remarks and in the shareholder letter around an uncertain external environment. Far be it from me to complain about you guys doing better than expected on expenses, but I'm wondering if you could expand on what you mean by the uncertain external environment. Hi, Gavin.

It's Matt.

What we mean by that is really there's just greater volatility, both in the external markets, but also with interest rates, with inflation, and just a 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 were relevant and also reprioritize those areas that were key to the certification process. So, again, keeping prioritization on the same areas we've said for the year, which are certification, early manufacturing, and then early operations.

Thanks.

Thank you.

Our next question comes from the line of Savi Sith with Raymond James. Please proceed with your question.

Hey, good afternoon, everyone. Regarding the concurrent validation application to the UK Civil Aviation Authority, I was curious what the strategy was relative to. I'm guessing that adds some complexity to the process. And also, if you've gotten any feedback from them on their willingness to entertain this, given that they seem to be in line to adopt the EASA process.

Yeah, thank you for the question. This is Didier. I'll take this one. So I start by saying that the application with the UKCAA remains aligned in general with our strategy, which is the fact that the FAA is our home regulator and we intend to continue to pursue this as our primary initial certification. That said, with the UKCAA and the FAA making that joint statement, to work together towards a common framework. It represents an opportunity for us to do a nearly simultaneous certification approval with the UK shortly after the FAA. And so we're taking advantage of the opportunity to do that and continue the discussions with them, which has been really positive to date.

I appreciate that. And if I might, on the... Assuming things progress as planned, I'm kind of curious, going back to the question about 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, you know, could you give, I realize this is early days, but a very kind of high-level early color on how, you know, we should think about the magnitude of the step-up in R&D and S&G, SG&A, as we go through the next couple of years?

Yeah, hey, Tavi. So it's Matt.

We're not providing new guidance on the step-up, but as I have encouraged people to think ahead, you know, this year has really been around ramping up our engineering team and hitting our certification deliverables. We've been ramping up early production and manufacturing, and I think we're really unique in that space in that we're actually building on the line at this point. And so, you know, think about that as your hourly folks, your manufacturing operations starting to get practiced. 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 in other resources in air operations as we bring pilots on or mechanics that also support Department of Defense obligations. But then eventually, you know, bringing that product team on stream and the customer interfacing teams, and all that. So I think of it kind of in those four ramps around headcount, and the spending will really largely reflect production, production and manufacturing, and then the production of planes.

Got it. And just a little bit more on the market, are there kind of 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, builds momentum right now and into the next few years, but when do some of the other resources and the customer-facing side, but when do you start building those out?

Yeah, so you're right on manufacturing. Manufacturing kind of started this year and I'd say materially this year, and then will continue to ramp over the next few years. You know, I would expect the other elements to ramp You know, it's a staggered state over the next couple of years as well. Different 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.

Thank you. Our next question comes from the line of Christine LeWag with Morgan Stanley. Please proceed with your question.

Hey, good afternoon, guys, and sorry for the background noise. I'm at an airport. So maybe starting out with the avionics acquisition, could you provide some tangible examples on how this acquisition scales and your ability to certify? What kind of capabilities did they bring to the table?

Yeah, thank you for the question. If I first take the opportunity to say again, welcome to the Adonix team. We're really excited to have them join the team here, represent an amazing opportunity for us. As far as the opportunity here, so if you think about the five stages of certification, you can somewhat mimic that when it comes to software. The development process as it relates to software in aviation is highly regulated. There's specific standards that you need to comply with and the development, verification, validation activities. Avionics over the past several years has proven themselves throughout the industry with various avionics manufacturers, 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, flight control, law development, and so on that we definitely need in-house. And so because of that technical and cultural match, and then our strategy of vertical integration, it was really a perfect fit to complete this marriage.

Thank you, Jay. And if I could do a follow-up question on defense. Paul, you know, you provided some color on the expanded contract with the Department of Defense. But can you provide more milestones or deliverables that you have to achieve? And also, in terms of contract terms, is this some sort of cost-plus contract that you're taking risk-free? Any more color would be really appreciated.

Yeah, thanks a lot for the question, Christine. So I don't know that we're able to share the contract details. I believe we have a version that was published. Roughly, you can think about it as delivery of flight testing to each of these customers and, in turn, data that is associated with those flight tests. That's going to allow them to evaluate the performance of the aircraft and really think through what the concept of operations implications are for them as they think about the work that they do. So that's work that's going to be, you know, that has been ongoing, obviously, with our partners in the Air Force, and now we'll continue to really sort of accelerate over the next few quarters with now the Marines also on board. And, Christine, just one follow-up to Paul's comment. So the published contract, so as a reminder for people, the original Phase III contract we appended to our Q1 10-Q, and this extension we will append to our Q3 10-Q. And so we'll have a redacted version because it was signed within the third quarter attached to the Q3 10Q.

Thanks. Thanks. And Matt, you know, if I could ask a question for you too. Sorry, one for everybody here. You know, you talked about lowering free cash flow for this year by about $20 million with the uncertain economic environment. When you guys looked at your liquidity and how much cash you have in the balance sheet, you know, is this a period to tighten the belt, or should this be a period where you're more aggressive on spending in order to prepare for certification and that initial commercial 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 the areas that affect certification, but some of the central areas, but also asking the team for identifying efficiencies. So You know, a great example is the 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, they're just healthy, and they're kind of at the core of what Gobi 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 it was also responsible to share new guidance with you all.

Great, thank you very much.

Thank you. Our next question comes from the line of Edison Yu with Deutsche Bank.

Please proceed with your question.

Hey, thanks, and in particular for sharing the certification program. I'm sure many people will appreciate that. Wanted to clarify one thing on the certification. 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?

I had it in this poll.

Look, as we said last quarter, you know, the FAA told us then that they didn't expect that this administrative sort of change to certification would have any impact on the timeline. And I think, Edison, we've really seen that borne out over the last few months. The turnaround on the new revised G1, the obviously continued work at the line on additional ASCP approvals, we both see as really positive indicators that we're continuing to make the progress that we need. At the same time, we've never been shy that the 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 that team is moving forward day to day on exactly the things that 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 a tremendous amount going on developmental-wise for the production vehicle. How comfortable, I guess, are you with, you know, the weight and some of the operating assumptions that you 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, Wilson.

So, you know, we designed this aircraft to carry a pilot and four passengers, and we feel good about the progress we're making. And I'd really like to highlight 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, really looking forward to all of you being able to see it firsthand. And, yeah, just really, really appreciate all the momentum from our team and the support from the FAA that Didier touched upon, as well as the international regulators.

I think we're in a very strong position and looking forward to the continued progress.

Great. Thanks.

Thank you.

Our next question comes from the line of Bill Peterson with JP Morgan. Please proceed with your question.

Yeah, hi. Good afternoon. I'm also at an airport, so hopefully it's not too loud. I have a few questions, I think, for Didier. And the first one's a follow-up to Andres' and Savanti's questions. Just want to put a finer point on the foreign certification. Regarding the CAA, it's our understanding that they're adopting EASA's standards. EASA, to Andres' point, has a more stringent than the FAA. So I guess just specifically with your revised G1, and I guess as you're planning for means of compliance, are you planning to certify to 10 to the minus seven or 10 to the minus nine? And, you know, you said these certifications should be fairly quickly one after the other. So I'm presuming you're going for the more stringent standard. Is that the right assumption?

Yeah, thank you for the question. I don't believe we've necessarily shared what... 10 to the minus seven, eight or nine in the past. So I will say that with the revised G-1 and the progress on the SEPs, it generally has confirmed that 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 G-1 division.

Just to build on that, Bill, Didier, I know you touched on this earlier, but so the announcement with the CAA is the CAA has agreed that they will use the FAA certification to support the equivalent of the type certification in the UK. And so even though they are partnered with EASA for some certification, the basis for our plan will be built off the FAA type cert.

Yeah, so... As an example, it could be, for example, that the UK would validate an EASA-based initial certification, and they would also validate an FAA-based certification, which is the path that Joby is taking at this time.

Okay, that's good color. I appreciate that. I wanted to also talk about different aspects of certification. The aircraft discussed batteries being a key area recently. I'm sure you guys have seen the article. the touch-to-bond, the form factor, pouch for cylindrical. I think in the past you've discussed using conventional lithium-ion batteries, I guess, you know, ones that are using volume. But I guess, can you share more details on the types of batteries you're using to plan to certify with? What kind of risks are associated with that? And I guess, is this an area for the means of compliance that falls within the 25%?

Thank you for your question. Yeah, so as we've said before, we are using cells that are currently used for automotive applications. These are cells that are produced in large quantities at very high quality. We take those cells and we build them into battery modules, 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 delivers a very high level of safety for aircraft. I should also 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, Carlos.

Thanks, Paul.

Thank you. Our next question is a follow-up from Andres Shepard with Cantor Fitzgerald.

Please proceed with your question.

Mr. Shepard? Andres, are you there?

There is currently no response from Mr. Shepherd'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 VanBevert for closing remarks.

Thank you, operator, and thank you, everyone, for joining us today. To summarize the three key takeaways from our call, first, progress continues at speed on certification and production, and we've provided new levels of transparency into each step of the certification process. Second, we've expanded our 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 operations. 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.