Q3 2022 Solid Power Inc Earnings Call
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Greetings and welcome to the solid Power's third quarter 2022 financial results and business update call. Please note that this conference is being recorded I will now turn the conference over to your host Jennifer Almquist with Investor Relations for solid power. Thank you you may begin.
Thank you Stacy and thank you everyone for joining us joining me on the call today are solid Power's Chief Executive Officer, Doug Campbell, and Chief Financial Officer, Kevin <unk> 50, a copy of today's press release is available on the Investor Relations section of our website at IR got solid power batteries Dot com.
Before we get started I'd like to remind you that parts of our discussion today will include forward looking statements as defined by U S Securities laws.
Forward looking statements are based on management's current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events.
Except as otherwise required by applicable law, we disclaim any duty to update any forward looking statements to reflect future events or circumstances for.
For a discussion of the risks and uncertainties that could cause actual results to differ materially from those expressed in our forward looking statements. Please see our most recent filings with the Securities and Exchange Commission, which can be found on our website at IR Dot solid power battery Dot com.
With that let me turn it over to Doug Campbell.
Thank you Jim good afternoon, everyone and thanks for joining us.
I'll begin today with an update on our business.
Then I'll pass it over to Kevin for a brief review of the financials.
After that I'll provide some concluding remarks, and we'll open the call to your questions.
Since we last spoke our team has continued its solid execution on our development milestones, though we faced operational challenges during the quarter that I will discuss in a moment, but in summary, we.
We made 20 amp hour cell deliveries to our automotive partners. We have continued to optimize our EV. So pilot line and recently began production of full scale EV cells.
We have continued to make meaningful progress on the construction of our electrolyte production facility.
And we have remained on track to begin powder production at our new electrolyte production facility in the first quarter of next year.
I continue to be pleased with our team's execution as we position solar power for the long term.
Let me take a moment to add little color on each of these key milestones.
First with respect to 20 Amp hour cell deliveries.
During the third quarter, we began delivering 20 amp hour cells to both Ford and BMW.
To date, we have delivered over 150 of these 20 Amp ourselves. These sales are currently being tested by US our partners and third party testing facilities.
Preliminarily, we are encouraged by what we're seeing as we scale from the two amp hour to the 20 amp hour cell format.
So a lot of work is still needed to hit our partners commercialization targets.
Further I am pleased to say the performance of these cells drove customers to confirm additional 20 amp hour cell orders during the third quarter, which is encouraging.
These additional orders led to a significant increase in 'twenty empower production during the third quarter. However, as we began increasing the production rate and volumes to meet the demand we experienced lower initial yields to be clear lower initial yields for the 'twenty empower cell production in comparison.
Two our previous to empower cell builds was not unexpected as it represents over an order of magnitude increase in production volumes, including input materials slurry is coated layers et cetera.
It is also we are stating that we view these yield challenges as opportunities to refine our higher volume production processes and we remain optimistic that the learnings we achieved at our present production volume will translate to our next stage of production volume such as entering into a sample.
Our production during the quarter was also impacted by a few other issues. We saw some minor delays in the availability of materials. We needed. We also experienced quality issue with some of our commodity input materials. Our team did a good job mitigating delivery delays, but it did impact our schedule.
We continue to work with all of our suppliers to implement stronger upfront processes to mitigate the risk of future quality issues.
Lastly, we also saw some not insignificant tightening in the labor market.
While we are still successfully recruiting talent, we have seen longer lead times for hiring which have put us slightly behind in our resource plan.
This is driven in part by increased competition for battery scientists engineers and technicians.
We are excited about some of the preliminary and creative things. We are working on to allow us to continue to add talented team members.
Overall higher production volumes lower initial yield supply issues in hiring challenges together meant that a majority of our time and resources, where FERC focused on 20 amp hour cell builds during the third quarter as we prioritized our partners' needs.
There remains a lot of work for our team both in terms of technology development as well as in the scaling up of our production processes.
That said I'm happy to report that we were able to achieve improvements in cell production yields over the course of the third and into the fourth quarter. Although further improvements in yield are needed to hit our production targets.
We are pleased with the demand for 'twenty empower cells I am proud to say the team is rising to the occasion through the challenges we experienced this quarter. We currently expect to deliver a few hundred more 'twenty empower sales to our partners in Q4 of this year before we can focus more of our efforts and resources on EV cell builds and <unk>.
Entry into the <unk> sample phase two.
To that end.
We were able during the third quarter to continue our work to optimize the EV cell pilot line and have made progress with the coding calendaring and laminating processes, which we believe positions us well as we begin to ramp production.
While we did not make any EV sales during the third quarter due to our focus on the production of the 20 Amp hour. So format initial sell builds have begun as of last week, we anticipate that the pace of EV cell production will increase through the remainder of the year as we ramped down 20 empower cell production.
We do however recognize that the shift does introduce some risk into our EV sell timeline optimistically. We think we can deliver a number of limited number of EV sales to our customers and third party testing houses before the end of the year. This would allow us to enter into a sample phase in 2022, thereby achieving our original.
Target milestone.
However, it is possible that these EV cell deliveries and our entry into a sample qualification could slip into 2023.
In summary, we are continuing to push hard to achieve a sample in the coming months and we will provide a more in depth operational update in 2023, as we fully assess our production results over the quarter.
And lastly, turning to our electrolyte production facility and powder production construction of the electrolyte production facility has continued to progress nicely and is now nearing completion in particular all infrastructure construction is complete and we have received a full certificate of occupancy which has allowed.
US to place R&D quality and cell testing equipment and its final location for use by those departments.
It should also be noted that move in for this new facility is already underway as of last week in order to support our growing technical and support staff.
Further a majority of the electrolyte production equipment has been delivered and placed in their final production location facilitating the start of the process install the remaining equipment is currently undergoing acceptance test acceptance testing at the equipment vendors location, we fully expect the remaining pieces of equipment to be installed by the end of the.
The present quarter.
Our progress to date is encouraging and gives us a higher degree of confidence that the electrolyte pilot production line will be commissioned and validated in early 2023.
We fully expect powder production volumes to ramp throughout next year as our need to increase for both EV sell build and potential future supply.
We look forward to taking this key step towards becoming the industry leader in solid state battery materials.
We have some great pictures on our online blog that illustrate the incredible progress we've made over the last several months my thanks to the team for their continued strong execution on this key project.
With that I'll pass it over to Kevin to take you through our first quarter results Kevin.
Thanks, Doug and good afternoon, everyone I will start out with an overview of our financial results and then discuss our financial outlook for the year.
We generated third quarter revenue of $2 $8 million, bringing our year to date revenue up to $7 6 million.
Our team again did a great job delivering on program milestones.
Operating expenses for the third quarter were $18 4 million.
Similar to earlier quarters in 2022. These expenses reflect increased direct program costs on higher revenues increase.
Increased labor and materials, driven by our operational and development investments and.
And investments in our SG&A platform to support solid Power's operational teams.
Our operating loss for the third quarter was $15 $6 million and net loss was $12 $4 million.
Turning to our balance sheet and liquidity position.
In the third quarter, we invested just under $10 million in operations and almost $21 million in Capex, which was primarily for the new electrolyte production facility.
We ended the quarter with total liquidity of just over $507 million <unk>.
Consisting of cash marketable securities and long term investments.
As we look forward for the remainder of the year.
For our revenue we have said last quarter that our second half revenue will be lower than the first half revenue.
We still believe this to be true, though by a narrow margin due to strong Q3 execution.
For our 22 cash investment the small shift in our electrolyte production in E. B cell production shifted the timing of our projected fourth quarter investments a bit.
We will be pushing out around $25 billion of capital from 2022 into 2023, which will reduce our projected capex spend to around $75 million to $80 million total for the year.
Our operating cash invested will likely be around $45 million to $50 million for the year.
Though we should see an increase in Q4 as we start <unk> cell production.
So we now expect 22 total cash investment to be between 120 and $130 million.
And as a result, we expect our 'twenty two ending liquidity to be in the range of $460 million to $470 million.
And just to reiterate before I hand, the call back to Doug.
There have been no real changes to our overall operations plan only a slight change in investment timing from 2022 to 2023.
Doug.
Thanks, Kevin.
Wrapping things up we continue to make good progress towards our long term goals, although I've stated it before let me be clear our focus has and will always remain on the long term. We believe the investments, we're making now as well as our ability to execute in light of challenging operating conditions will strengthen the business and enable us to.
Our long term goal of being a solid state battery industry leader.
I look forward to updating you on our progress again during our next earnings call.
Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Your first question comes from Mike <unk> with D. A Davidson. Please go ahead.
Yes, Hello, and thank you for taking my questions.
I guess I wanted to get a feel for the.
Question you had on the initial yields as you ramp up to 'twenty empower sales here.
Do you have to have any extra cash need to get up to speed.
Or is it just something that's going to get worked out over time without much additional investment.
Beyond the time, you've already spent here.
In the last few weeks or so.
Thanks, Mike This is Doug.
That's a good question I guess the short answer to your question is.
We don't anticipate needing to deploy any additional capital to addressing yield beyond I believe what you referenced to which is just some additional time.
To work work through the yield challenge I do want to emphasize and I stated this in the earnings call. It isn't unexpected that when we when we go from a to empower sell build to a 'twenty empower sell build.
That we're going to see some some drop in yield because it really does represent over a 10 X increase and really everything so 10 X increase in input material Tenex volume of slurry Tenex.
Coated surface area of layers.
And so what that means is obviously the sensitivity to any form of defect goes up quite a bit because you just need a lot more stuff to build yourselves and so it wasn't unsurprising, but again, we felt it was important to make note of it and to let the investment community know that we're.
We're laser focused on it and most importantly, it is improving.
Okay great.
Just a little bit more color on the.
On the labor availability you discussed during your comments there.
Can you give us some examples of some proactive steps you've taken to help address those issues, whether it's getting more out of the current workforce Scott.
For other enticement to try and find.
Some of those specialized labor that you're looking for.
Yeah, absolutely so I'm going to stop short of getting into specific strategy and Im sure. This will probably resonate with you if for no. Other reason I don't want to tip my hat to others as to.
The routes that we're taking to get get talent and but what I can say is that in the spirit of of really optimizing our current staff. We have we have transitioned to with some of our operations to dual shift.
And we will continue to look for opportunities to do that especially as we ramp up.
Our second electrolyte production facility.
Okay. Okay.
And the last one for me.
I didn't hear it mentioned really Doug.
You have had the recent inflation reduction act as opposed to.
No help too.
To improve the adoption of Evs and some of the timelines to be accelerated and various products do you think thats. All power is there anything that can.
From.
From grants or other substances directly from the from the from the below or is most of what you think might happen to hear more indirect getting autos to be adopted.
In general.
Just kind of curious is there anything that you think is directly laser focused on either your cost structure or on your business over the next couple of years here.
Hey, Mike its Kevin I'm going to take that one so good.
Good afternoon, Hey, we're excited about the IRA and the benefit of solid power and Thats both the indirect.
Benefit that you mentioned just lifting all of that.
The entire <unk> market, but also how we benefit directly from the tax credits like everyone else. We're waiting for detailed guidance from the Treasury Department. So everything is a little bit premature.
But right now we're pretty confident there's two ways we can benefit.
One of the credits is based around production and we think our electrically sits right there.
And the other is based around investment and production facilities.
And so these are two mutually exclusive options for us that we can take advantage of.
<unk> got some top notch partners that we're working on to help us determine which those alternatives will benefit solid power. The most and then also were there changes in our operations that we can make to maximize the benefit and so as we go through that exercise and get more clarity here in our plan, we will certainly share that update.
Okay, Kevin Doug I appreciate the discussion I'll pass it along.
Thank you.
Once again, if you would like to ask a question. Please press star one on your telephone keypad.
Your next question comes from Gabe Daoud with Cowen and company. Please go ahead.
Hey, Thank you and thanks, Doug and everybody for the prepared remarks.
And on the detail Doug was hoping you could maybe just give us a little bit of color on the performance of the 'twenty up ourselves and you indicated that you.
Your partners initially.
I guess performance hit some of their milestones.
For for more increase orders. So just curious if you could talk a little bit about that some of the feedback maybe and then.
Just just the roadmap of the hurdles from here to improve performance on the 20th hours.
Yes, absolutely.
Great question.
Youre absolutely correct that.
Our partners were.
Absolutely encouraged with what they were seeing.
With this initial round of 'twenty empower cells I can't get into the details as to precisely why they have increased their orders because again, that's sensitive information that is not mind to share, but what I can say is previously I have broadly described how our interactions our cooperations with our.
So OEM partners has sort of shifted from a let's just say a feasibility demonstration into really more of a legitimate vehicle integration demonstration and so I think it's fair to two to cast these.
Potential additional activities around in that category of doing broader demonstration.
A demonstration type activity. So we were obviously very encouraged it was a case of good news bad news coupled with.
The labor constraints in that the good news is great more orders for 20 Amp ourselves.
The bad news is well, that's it's going to cause us to focus more of our resources on the 20th hour than we had originally planned.
Meaning there is a delay in getting the EV cell line up and running but we hope over this quarter to make that transition.
Understood. Thanks, Doug that's helpful. I'll hop back in thanks, guys.
Okay.
Your next question comes from Brian Dobson with Chardan capital markets. Please go ahead.
Hi, Thanks, very much so I guess given your recent deliveries to joint development partners in your conversations with those in the EV space.
Are you hearing in terms.
Auction goals outlooks for supply chain in terms of <unk>.
That you could share with us.
Well, what I can share is and I think Kevin touched on this there has been no no change in our in our development plan that we've shared in the past.
As stated in the call. Our goal is hopefully by the end of this calendar year to kick off a sample phase, although admittedly that may slip into early 2023.
And then get us into successfully completing a b sample validation phase in 2024 timeframe and again that is a major major achievement because that is full design freeze and automotive speak. So there really is no change.
Our development plan the production volumes that we have targeted for <unk>, which is our electrolyte production facilities. Those production targets also remain unchanged.
And so we hope in the first part of next year to have SP to hitting those production targets.
Excellent thanks very much.
Thank you we've come to the end of the Q&A session I will turn the floor over to Doug Campbell for closing remarks.
Well I would thank the audience for.
For sitting through today's earnings call and we appreciate the opportunity to.
Update the investment community on how the company is going we remain very optimistic on our business recognizing that there are certainly some some headwinds out there.
But frankly speaking I think we're all experiencing those even as consumers so.
We're doing the best we can to execute on our model and we're very pleased with with how things have gone throughout this entire year. So we.
With that we will close today's call.
This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.
Okay.
Okay.
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