Joby Aviation, Inc. Q1 FY2022 Earnings Call

Good afternoon and thank you for holding. My name is Sherry, and I will be your conference operator today. Welcome to Joby Aviation's First Quarter 2022 Conference Call. At this time, all parties 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 beliefs, expectations, 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 on 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 direct comparable GAAP measure is included in today's Shareholder Letter, which will be posted on the Company's website at ir.jobyaviation.com. On the call from management today are JoeBen Bevirt, Founder and Chief Executive Officer; Paul Sciarra, Executive Chairman; Didier Papadopoulos, Head of Aircraft Development and Manufacturing; Bonny Simi, Head of Operations and People; and Matt Field, Chief Financial Officer. After their prepared remarks, we will open the call up to analysts for questions. I will now hand the call over to Mr. Bevirt.

Thank you, operator. Good afternoon everyone and thank you for joining us for today’s call. While it’s only been a short time since we last spoke, we have made significant progress and I’m really excited about our momentum. We continue to implement our plan and we are on track to achieve our operational goals and spending targets for the year. You may have seen the recent 60-minute segment that highlighted eVTOL technology and Joby specifically. It was fantastic to present our aircraft to Anderson Cooper and share our story with millions of viewers, but a comment from the Acting Administrator of the FAA stood out to us. He noted that while care and caution are important, the development is real and progressing. This perspective guides our efforts at Joby. There is a lot to accomplish, and we must approach it in a professional and thorough manner. The opportunity before us is substantial. Before I turn it over to the team, I want to highlight three key points from the quarter. First, regarding our aircraft, we continue our test program with our pre-production models and have made strong progress on our first production intent aircraft, which is set to be the first produced on our pilot manufacturing line in Marina, California. Most of the large composite parts for this aircraft were completed in the first quarter, and we have started working on the tail and wing structures. Both aircraft are essential to our certification efforts and we are pleased with our advancements. Second, I traveled to the UK and Japan this quarter, where both nations are actively pursuing this technology. Our discussions with regulators in these countries about certification routes and initial operations are very promising and excite me about their potential. In the UK, I visited the Wood Laboratories in Cambridge alongside Prince Charles and UK Secretary of State for Business, Kwasi Kwarteng. Prince Charles is taking a leading role here, and the UK government's commitment to funding climate-neutral aviation technology development through the Aerospace Technology Institute reflects their ambition to be leaders in this area. In Japan, I observed the remarkable support Toyota is providing for our manufacturing efforts. Their contributions here in California make them an invaluable partner as we scale our production. Additionally, we had fruitful discussions with JCAB, Japan's equivalent to the FAA. Thirdly, we are excited to share the results of our acoustic testing that we conducted in collaboration with NASA last year. The tests showed that the real-life performance of our pre-production aircraft aligns with our predictions and targets. During overhead flight, the aircraft registered an equivalent of 45 A-weighted decibels from 500 meters away, indicating it will be nearly imperceptible when flying over urban areas. Over multiple test takeoffs and landings, representing our intended operations, it measured below 65 dBA at 100 meters from the flight path, comparable to the sound of a conversation during the noisiest phases of flight. Moreover, it's important to emphasize that our noise design intentionally avoids the intrusive low-frequency sounds associated with helicopters, instead producing a sound comparable to the gentle rush of wind through trees. This achievement is crucial to Joby’s vision. Aviation noise is a major concern for many residents globally, and we have shown how Joby is uniquely positioned to offer flights in desired locations without negatively affecting the environment. The numbers I mentioned are not just theoretical; they reflect actual results from our full-scale vehicle, verified by NASA. I want to express my gratitude to the NASA team for their collaboration in measuring our aircraft and to our team at Joby for their hard work in achieving this milestone. This is yet another example of how our outstanding team consistently meets our goals. Soon, I will hand it over to Didier to discuss our certification progress from the quarter. However, I first want to address the recent commentary regarding the certification basis for eVTOL aircraft. We take pride in our decade-long partnership with the FAA, collaborating under various administrations. We share their commitment to improving safety and efficiency and support their effort to showcase global leadership in safely integrating new customers and technologies into the aviation system. We are actively engaged in discussions about the quickest path to certifying our aircraft. Two important assertions from the FAA this week are noteworthy: first, all development work done by current applicants remains valid, and second, they do not foresee any changes that would delay type certification or operational approval. Based on this, we are maintaining our guidance and remain focused on the crucial tasks needed to certify our aircraft. Now, I’ll turn it over to Didier to go over the progress we’ve made during the quarter. Didier has over 15 years of experience in developing and certifying various aircraft systems, including projects for different aviation categories. He's exceptionally well-suited to lead our work in this area. Didier, please take it away.

Thanks for the kind words, JoeBen, and hello, everybody. As JoeBen mentioned at the top of this call, we continue to make tangible progress toward type certification. That’s a certification that covers the aircraft. Over the last quarter, we've moved from close to 70% of our means of compliance accepted by the FAA to close to 80%. And we have submitted the vast majority of the remainder to the FAA for review and approval. As a reminder, the means of compliance identifies the steps we will take to demonstrate compliance with the certification basis identified for our aircraft. Each means of compliance agreed is a step towards being ready to complete formal for credit testing with the FAA. What comes after the means of compliance in the certification process are the Area Specific Certification Plans. Here, we get even more specific about how we'll demonstrate that compliance, translating the means into certification plans that detail the exact testing and analysis we intend to use. This is where most of our efforts have been focused, and over the last quarter, we've also made great progress here. We recently had our first Area Specific Certification Plan accepted by the FAA, having become the first eVTOL company to submit one back in March. We've since submitted a further two plans and have the majority of the remainder ready to submit as soon as the relevant means of compliance are accepted. But it's worth noting that different parts of the aircraft can be in different stages of the certification process simultaneously. It's also possible to begin preparing for 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 of the process before it happens. We remain focused on certifying our aircraft expediently and working with the FAA along the way. That's part of what makes Joby a specialty team. And it is what has helped us get to the leadership position we're in today. We think ahead and work ahead, building the capabilities in-house and testing them to ensure they're ready before we need them. In February of this year, we announced that we've begun coupon-level conformity testing with the FAA. This marked our first step into the formal implementation phase, where we started to compete for credit tests. But we've also started developing test plans and procedures in several other areas and then running them to prepare for formal testing. For example, we've recently run tests associated with our equipment, environmental qualifications, our nose landing gear loads, and our electrical wiring robustness. We've also been able to make really important progress on developing and testing various production-intent parts. As well as manufacturing the majority of the large composite parts for our production-intent aircraft, we've also manufactured several more copies to be used for testing and for additional airplanes in parallel. Similarly, we've built several design-intent powertrain and electronic components during the quarter, including our first design-intent electric propulsion unit, which has already logged an equivalent of more than 600 flight hours on a dedicated test track. Furthermore, our ability to deliver a volume of production-intent parts is not only essential to progressing in that implementation phase but truly sets Joby apart. We cannot test what we cannot build, and we don't believe anybody else is in this position today, consistently building parts that are designed for a production aircraft. Before I end, I'd like to close with one other key success from the quarter: the successful completion of our first familiarization meeting with the FAA’s Aircraft Evaluation Division. This team ensures that the aircraft we're certifying is actually suitable for real-world operations. In other words, they make sure that all this effort is worth it and will result in an aircraft that's suited to our incredible mission. We had a great first set of meetings with them this week, and it looks like we're absolutely on the right track to bring together our aircraft manufacturing with our operations. On that note, I'll hand it over to Bonny to talk more about our progress with Part 135.

Thanks Didier and hello everyone. Just like the work that's going on with our type certification for the aircraft, we're beginning to reach the execution phase of the process with our Part 135 operations certification for our on-demand service. As a reminder, we require a Part 135 Air Carrier Certificate to operate our aircraft as an air taxi service. Alongside the type certificate and the production certificate, it's one of the three regulatory approvals we need to launch sustained commercial operations. We kicked off the Part 135 process in June of last year and completed the second stage of the process in August, having written more than 850 pages of operational procedures across more than eight manuals. As of today, all of those manuals have been reviewed and accepted or approved by the FAA. In March of this year, we confirmed that we had entered the fourth of five stages of the process. I’m pleased to say that we expect to complete this phase during the second quarter, followed shortly thereafter by the fifth and final stage culminating in our formal approval of our 135 Certificate. As is our philosophy at Joby, we are always looking for ways to de-risk what we're doing. That's why we have gone through the process of the Part 135 now, rather than waiting until we have our production aircraft ready. Doing so will allow us to prepare and test our airline operations ahead of our commercial launch, and we'll be doing that using conventional fixed-wing aircraft. It was therefore great to see our Chief Pilot, Garrett Smith, become Joby's first fully qualified Part 135 check pilot during the quarter. He then led the training of our initial cadre of four Joby pilots, including myself, who are all now qualified to fly our Cirrus SR22 aircraft immediately once we receive our 135 Certificate. Over the coming months, we will use this capability to exercise the operations and customer technology platforms that will underpin our multimodal ride-sharing service while also testing and enhancing our processes and procedures for safe and customer-friendly operations. We look forward to sharing the outcome of these operations with you in due course. I'll now hand it over to Matt to discuss our financials.

Thanks, Bonny. Good afternoon and thanks for joining. As of the end of the third quarter, we had $1.2 billion in cash and short-term marketable securities, providing a solid foundation for our operations. In the first quarter of 2022, we incurred a net loss of $62.3 million, reflecting a loss from operations of $94.3 million and other income of $32 million. The loss in operations included stock-based compensation expenses of $19.4 million, which included both ongoing accounting for employee equity as well as new performance-based stock units introduced in 2022 to align employee incentives with delivering key corporate objectives for this year. Lastly, and similar to the fourth quarter of last year, the favorable results in other income reflected the gain on the revaluation of our derivative liabilities for $16.8 million and income from our equity method investments of $14.5 million. Adjusted EBITDA, which as a reminder is a non-GAAP financial measure that we reconcile to net income in our Shareholder Letter, was negative $69.7 million. This was $32 million higher than the first quarter of 2021 and $4.5 million above the fourth quarter, primarily reflecting the continued growth in personnel to support our operations to over 1,100 employees and R&D costs associated with building prototype parts, where we continue to make progress, as highlighted by Didier. Cash used in operating activities and purchases of property and equipment totaled $72.3 million. Our statement of cash flow, which only focuses on the change in cash, cash equivalents, and restricted cash, reflected a total cash outflow of $537 million as we invested a significant portion of our cash reserves in short-term investments and marketable securities during the first quarter. This concludes our prepared remarks, and we will be happy to take any questions you may have regarding our operations in the first quarter of 2022. Operator, would you please instruct participants on how to ask questions?

Yes. Thank you. Our first question is from Christine Liwag with Morgan Stanley.

In the past week, there were reports of an unexpected development from the FAA that they are modifying their approach on eVTOLs. Because regulations designed for traditional airplanes and helicopters did not anticipate the need to train pilots to operate Powerlift, which is when you take off in helicopter mode, transitioning to airplane mode for flying and transitioning back to helicopter mode for landing. But it also sounded like the FAA suggested that this change is unlikely to impact timelines. With close to 80% of your means of compliance now accepted by the FAA, can you comment on how this regulatory shift affects you going forward? What would you need to change? And how could this potentially affect your timeline?

Thanks a lot for the question, Christine. This is Paul. I think that fundamentally, the approach that the FAA is taking here is really mostly one of the administrative reclassification on the type certification side of things. So as JoeBen said at the outset, we don't believe that this is going to have any impact on our certification timeline, and there's certainly no adjustments that we're making to our guidance as a result. He highlighted a few important points that the FAA themselves made on this. The first is that all of the development work done by current applicants remains valid. So all of the work that we've done on MoCs and other things is going to continue to be important for the program, even despite this change. I think second, you highlighted already. Any changes to the regulatory approach should not delay the projects. That's what the FAA said. So we continue to view this as a positive sign that the FAA is sort of leaning into this. And to that point, the recent approval by the FAA of our first ASCP, which Didier mentioned at the outset, is a sign that the pace of progress hasn't slowed down and that the FAA is continuing to provide the resources to move our type certification process through the program. So fundamentally, we think that this is, as I said, largely an administrative shift that's unlikely to impact our timing for the certification.

Thanks, Paul. That’s really helpful. Appreciate the color. And maybe as a follow-on Didier. With the 20% that you have been in discussions with the FAA, can you give us some sort of detail in terms of what's left to do? And then also in terms of the powered lift portion, is that part of the 80% you already agreed upon with the FAA, or is that part of the 20% that we're still waiting on?

This is Didier. So back to the 20% here for a minute. As noted in the earlier comments, the majority of that 20% have already been submitted to the FAA, and we're making great progress towards getting the vast majority of our MoCs completed by the first half of this year. So we have a plan, and the FAA has been supporting according to the plan. I'm very optimistic with the progression there. As it relates to the Powerlift and specifically the 20% that you mentioned, the regulations like Paul and JoeBen said, there are regulatory aspects applicable to our means of compliance and cert basis that have not changed. So for all practical purposes, we are continuing to execute on our cert basis, and if the FAA has been supporting, just as such.

Our next question is from Bill Peterson with JPMorgan.

I guess my first question is related to coverage you have overseas, and some other partners that you have, Korea and Japan. Can you shed more light on your execution? Are these going to be sales, or even do operations? Just help us out on understanding how that's going to play out?

Thanks a lot for the question, Bill. It was a little bit hard to hear you. I think it was broadly about our partnerships announced in South Korea and Japan, is that correct?

It is. I think we should consider how this will impact sales and the ownership structure as well as any additional details you can provide.

Thank you for the question. Our approach, as you mentioned, is somewhat different from others. We aim not only to build the aircraft but also to operate it and directly deliver that service to end customers. In the U.S., our focus will be on finding the right partners to support this operation. We believe that SK in South Korea and ANA in Japan are the ideal partners to help facilitate the launches in those markets. This is not a change in strategy; rather, it’s about identifying the right partners to successfully carry out a commercial launch in one of those countries.

Thanks for that. Matt, could you provide some insight into how we should approach spending, specifically operating expenses and capital expenditures, in the current quarter? Also, how should we anticipate this evolving throughout the year?

So, I shared our cash in terms of net operating activities and CapEx at $72.3 million. Joe mentioned, it’s on track with our guidance of $340 million to $360 million. Clearly, if you multiply that number times four, you get to a lower number. And so you should really think of us as ramping up spending really around two things. One, as we build out our team, so we will continue to grow our team to support certification and manufacturing most principally, but then also as we finish off completing our manufacturing at our pilot plant facility. So, continuing to build the equipment as we finish out our capacity.

Our next question is from Edison Yu with Deutsche Bank.

I wanted to follow up on the topic related to the FAA. I understand you are indicating that there is no delay in the type certification. However, I'm curious if the changes have any impact on the timing of operations. Do you perceive any effects on yourself or the industry as a whole?

Thank you, Edison. This is Bonny. The way we're looking at the operations and FAA even stated that they aren't anticipating any risk adding any delay to the certification or operations. We're also thinking very broadly in terms of long-term in terms of the pilots on the training programs. And just as we're building out our 135 program well in advance, we're also building out all of our training programs, which allows us to build a basic foundation to make any adjustments as necessary, as any kind of training regulations evolve. Our training program is very robust because we are already partnering with the DoD to validate that training. And as Didier mentioned earlier, the AED, the Aircraft Evaluation Division was here with us this week. Part of their mandate is to observe how we are thinking about our training program and how we are thinking about our operating program. We had very good discussions on this very topic. I'm very confident that the process we are putting in place will serve us quite well as these regulations evolve, if they do at all.

Following up on a different topic on the flight testing, what's your sort of latest plan for the rest of the year? And what are you sort of hoping to learn, accomplish with the next few quarters of flight testing?

Thanks for the question, Edison. This is Paul. We already mentioned I think on the last call that we have restarted the flight testing program. We continue to see good progress on that front. But honestly this year, when we think about the use of the aircraft, it's really not so much for internal flight testing purposes at this stage. We had an opportunity, obviously, to start our flight testing program way back in 2017. In turn last year, we mentioned that we did sort of a thousand flights, demonstrating the range of the aircraft, the low noise signature of the aircraft, and in turn doing that at altitudes that are representative of normal operation. We feel like we've checked a lot of really important boxes in terms of our internal flight testing evaluation. What the work with the aircraft this year will look like is actually doing operations in conjunction with our ongoing contracts with the DoD. So that's going to be the focus of the flight testing program and the use of the aircraft as we think through the majority of this year.

Our next question is from Andres Sheppard with Cantor Fitzgerald. Please proceed.

Good afternoon. And congrats on the quarter. I just wanted to follow up a little bit on the certification process. With now close to 80% of the means of compliance being accepted, I'm wondering is that in some ways ahead of schedule relative to your expectations now that it's only 20% left? I know you had said 2022, and I'm just wondering where in the first half of the year, it seems like most of the progress there has already been achieved. So, how should we think about this remaining 20%?

Yes. Thank you for the question. This is Didier. Obviously, we are pretty excited and thrilled to have achieved close to 80% of the means of compliance; big thanks to the team for all the efforts going into that. Beyond that means of compliance, of course, we talked about sort of the next step of this is submittal and acceptance of the area specific cert plans, three of which have been submitted now, and one accepted, which is a really amazing achievement. I'd say we are laser-focused on the target; the plan we are on target, on plan. We are super excited about the progress there, and I think we are going to continue to be consistent in delivering along that plan.

Got it. That's helpful. Maybe a question for Matt. And this is, maybe piggybacking from Bill's question earlier. In terms of the OpEx, right? So guidance is unchanged. You mentioned recently that you kind of expect it to ramp up quarter-after-quarter. I'm just wondering, should we account for any seasonality in the OpEx, just to kind of reconcile and be within that guidance that you provided or like just any color you can kind of give us from a modeling perspective, I guess?

So I wouldn't say there's necessarily seasonality because our staffing levels will grow quarter-over-quarter. There may be some lumpiness around our purchase of equipment that could affect a quarter. And then obviously, there's things that affect any company; your fringes, your personnel taxes and your 401(k) match things tend to be more frontloaded than backloaded just because of how those work. But fundamentally, I would think of kind of sequential growth across the year as we bring on staff.

Thanks, Matt. One last question if I could. Given the ongoing supply chain disruptions, battery prices have started to trend upward. While I understand your company is vertically integrated, which might be advantageous in this situation, I'm curious about macro-level strategies. What are some best practices you could implement to help mitigate these supply chain disruptions? Do you anticipate being impacted by rising battery prices? If so, what measures can be taken to prevent or lessen that impact?

Thank you, Andres. This is JoeBen. A couple of different dimensions to that question. On the first point regarding battery supply, we have had the fortune of working with some fantastic battery suppliers for many years now. We have longstanding relationships, and we have a large supply of cells in-house that will carry us through for quite a while now. Second, on your question around the cost of batteries. There are two dimensions to that. The first is how the cost of batteries reflects on the BOM cost, the cost of building the aircraft when they're first manufactured. We can think about this in the frame of reference of a ground EV, where the battery is a substantial portion of the cost. For our aircraft, the cost of the battery is a much smaller portion of the total BOM cost. As a result, we select batteries which might cost a little bit more upfront, but which have much longer cycle life. And because we are both the manufacturer and the operator, what we really care about is being able to deliver the lowest possible prices for our customers. To do that, we selected long cycle life batteries. As we've previously noted, we've demonstrated more than 10,000 representative flight cycles on the cells. As a result, the battery cost as a portion of our operating costs is quite small.

Our next question is from David Zazula with Barclays.

I think this question is for Didier and JoeBen. Several peers have talked about their positions in the design review process. Could you provide us with an update on your status in the design review process? Clearly, the fact that you're manufacturing some parts is a strong indication on its own. However, could you discuss any parts you may be delaying from manufacturing as you continue with your design review?

This is Didier. If I were to describe where we are in the process, I would probably want to focus first on the typical development process that goes through the PDR, CDR through the TC cycle, while we have chosen Joby to marry the cycle with a more agile iterative development cycle. The reason we did that is it allows us to go through design development testing very quickly. As we do that, we iterate, and we close that feedback loop into the design so that we can mature it at a faster pace and at multiple levels throughout the overall aircraft series of systems. As you might imagine, right now we're at a mature design cycle where we're building the production-intent aircraft. I mentioned earlier in the introduction that we are developing production-intent components throughout all of our systems, particularly some of the airframe parts, electronics parts, the electric propulsion unit, as well as the electrical wiring system. I would say through that, that we are well into the mature phase of our design process.

And then last quarter, you were limited in your comment as far as the accident that occurred during prior flight testing. And if you're able to comment any more, I think the investigation is still in progress phase. So you may not be able to. But if you can discuss what influence you've seen on your current flight testing and how you've changed or what benefits you're seeing?

Yes, thank you. As you mentioned, this is an ongoing NTSB investigation, so I can't comment directly on it. However, I would like to highlight some points that Paul discussed. I am very pleased with the results we’ve released regarding the acoustic profile. Our testing with NASA has produced remarkable results, showing speed, range, and altitude. Essentially, we're meeting our goals across the board. Our flight test program has confirmed that we are delivering on all commitments. This means that the aircraft we're developing will provide significant value to our customers. Regarding the accident, we believe there have been valuable lessons learned, and while we will incorporate those, we do not anticipate any material impact on our program or aircraft design.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to JoeBen for closing remarks.

Thank you, operator, and thank you everyone for joining us today. Our team at Joby is laser-focused on execution. I think you have seen that in our execution this quarter across all of our areas: certification, production, and commercialization, and you're going to see that as we move into this next quarter. Really appreciate everyone for joining us today, and can't wait to talk to you next quarter. Thank you so much.

Thank you. This does conclude today's conference. You may disconnect your lines at this time and thank you for your participation.