Q1 2023 Solid Power Inc Earnings Call

Greetings and welcome to the solid power, Inc. First quarter 2023 financial results and business update call.

Please note that this conference is being recorded.

I will now turn the conference over to your host Jenny.

Quest Investor Relations for Solar Power, Inc. Thank you you may begin.

Thank you operator, and thank you everyone for joining us today, joining me on the call today are solid powers interim Chief Executive Officer, President and Chairman, Dave Janssen, and Chief Financial Officer, Kevin Pepsis ski.

A copy of today's press release is available on the Investor Relations section of solid Power's website at IR Dot solid power battery dotcom.

I'd like to remind you that parts of our discussion today will include forward looking statements as defined by U S. Securities laws. These 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.

Sept as otherwise required by applicable law solid power disclaims 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 today's forward looking statements. Please see solid power's most recent filings with the Securities and Exchange Commission, which can be found on the company's website at IR Dot solid power battery dotcom.

With that let me turn it over to Dave Janson.

Thank you Jen and good afternoon, everyone. I appreciate you joining the call today.

I will start with an update of our recent achievements I will then provide a brief view of what's ahead before passing the call over to Kevin for a review of the financials after that I'll provide some concluding remarks and open the call for questions.

2023 is off to a solid start.

I'm happy to announce that we have officially begun powder production from our electrolyte production facility.

Production began in April marking an important milestone for our path to commercialization.

We've also made progress with both our 'twenty empower and E B cell development and remain on track with our objective to deliver E b cells to our partners by the end of the year.

I wanted to take a moment to express my kudos to the team and convey the magnitude of effort. It took to bring our electrolyte facility online.

Since announcing the electrolyte facility or as we call. It S. P. Two at September 2021 our team has overcome a challenging supply chain environment, bringing equipment from all over the world.

This includes tanks mills dryers pumps and materials handling equipment to name a few.

Team also worked through time consuming municipal construction approvals and permitting processes for.

For the last three months in particular, the team has conducted in depth environmental health and safety audits as well as site acceptance testing for all of the equipment and processes.

All the while he laid the foundation for safe production, establishing manufacturing and materials handling processes.

We're also hiring the talent needed to produce powder at a greater scale.

In addition to the hard work at S. P. Two it's important to note that the operations team and our Lewisville, Colorado facility or S. P. One.

To produce electric light at around 200% of design capacity to ensure we had the powder ourselves he needed.

The position we're in today it was truly a full team effort and I'm very proud of the team's strong execution and getting us there.

So what's next.

As our first batches of powder roll off the production line, we will begin comprehensive testing to ensure the characteristics and quality of the product are up to our standards.

Specifically, we are measuring our powder against 12 internal metrics centered around things like disgusted he dryness conductivity and particle side with.

We expect this process to take a quarter or two.

As we demonstrated our ability to meet these performance targets, we expect to begin phasing out large scale powder production S. P. One and transition that worked S. P, two which will supply powder for our 'twenty empower and EV self production.

In addition, as demand increases.

We can further increase S. P. Two production and we'll continue to optimize our processes and demonstrate full S. P. Two production capability we.

We do have a few pieces of equipment to upgrade over the next couple of quarters, which will help to optimize and increase production volumes.

Over the next 12 months, we are working to secure demand and increase our powder production to a rate to two to three metric tons per month.

Yeah.

The first use of that powder is earmarked for S. P. One cell builds out.

Powder production over and above the level required by herself development activities is intended for additional potential customers.

<unk> BMW solid state prototype line.

While we grow production at our S. P two facility.

Simultaneously focusing R&D efforts on our next generation of electric light the focus on conductivity cost and performance.

We are excited about the potential of this next generation of products. So it is a ways out from commercialization.

On our last call, we discussed that we had been engaging potential customers for our electric like powder, and making plans to deliver sample product.

The intent is to pave the way for future electrolyte supply agreement is independent of our current partner activities.

I wanted to take a moment to provide some additional color with respect to our strategy here.

Specifically I want to clarify the types of customers, we are focusing on how we're prioritizing our efforts and the timing of potential commercialization of our current generation of I'd like to like product.

With respect to potential customers. We are initially focusing on three primary groups auto Oems current battery producers and developers of new battery technology.

We speak to potential customers, both inside and outside of the automotive and battery industry is frequently <unk>.

<unk> aerospace and defense storage alternative transportation medical device and consumer electronics.

However to be clear our immediate focus has been and will continue to be on the automotive industry.

This is because automotive is such a large addressable market. Our partners are the intended end users from our current battery designs and.

The market generally is acting with a sense of urgency with respect your upgraded battery technology.

Down the road once we have fully developed product and established partners. We can begin to expand more aggressively and broadly into other battery light industries.

In terms of timing.

We're excited about expanding our customer base it will take some time.

First in order to begin sampling we have to execute contracts to protect our intellectual property second the companies. We are talking with lots of sample product produced at scale to ensure we have the ability to meet future demand third after we have provided electro examples it will take time for potential customers to evaluate what we send them.

That's in our product requires available production capacity at our customers' battery production facilities.

Many potential customers are excited to test our electric light limited capacity within their organizations may delay their ability to test that product.

It's also highly probable that customers will have feedback on our powder and additionally want to customize the characteristics of our products to suit their specific needs for.

For these reasons, we believe it could be a year or two before we're officially signed up new customers, which dovetails nicely with our timeline for increasing production.

Turning to sell development with respect to our 20 Amp ourselves. Our team has continued to drive improvements and so manufacturing processes.

Over the last couple of quarters yields for our 20-F ourselves have increased to meet both our and our partners' expectations.

We are also seeing greater consistency within the 20-F ourselves, we're producing as we progress towards our commercialization targets.

Our team brought online additional equipment and capabilities, including C T and X Ray technology that are important to the characterization and quality assurance.

These improvements we are now better positioned to support our partners as they continue working with T cells for module development.

With respect to our E b cells.

As we began our shift towards E. D cell production, our focus will be on optimizing assembly and carrying over the lessons learned from the 20-F ourselves.

By building on our 20-F our improvements.

We believe we remain on track with our timeline to provide a sample E b cells to our partners by the end of the year.

That includes cells for B M W's demo car program.

There are still significant challenges ahead.

Large self production will bring increased complexity and quality challenges.

You also have to integrate the S. P. Two parter.

But we're making good progress scaling the strong safety performance, we saw in smaller cells.

We could've face additional challenges as we scale up the two the E b cells.

These types of challenges are expected and are what our team faces every day and developing world changing battery technology.

To that point, we believe we are well positioned and continue to expect we will enter formal automotive qualification this year.

With that I will hand, it over to Kevin to take you through our financial results Kevin.

Thanks, Dave Good afternoon, everyone.

I'll start off with an overview of our financial results and position then I'll review, our twenty-three financial outlook and discuss our cash investments briefly.

Our first quarter 'twenty three revenue of $3 $8 million was in line with our expectations.

In addition, the government contracts, which have made up most of our historical revenue we saw new revenue from our B M. W agreement in the first quarter.

First quarter 'twenty, three operating expenses were $25 1 million.

Up 11.6 million from Q1 of last year.

This increase represents our expansion of cell and electrolyte development efforts, which drove increased labor and materials.

And increased SG&A expenses to support our operations.

Our first quarter 'twenty three operating loss was $21 3 million and net loss was $19 2 million.

Turning to our balance sheet and liquidity position during the first quarter, we invested $19 $7 million in operations at $11.6 million in Capex.

Most of this capex went towards our S. P. Two production facility as we progressed towards startup.

Both operational and Capex spending were well in line with our 23 plan.

We ended the quarter with total liquidity of $468 2 million consisting of cash marketable securities and long term investments.

Given the recent turmoil in the banking sector I want to take a moment to give some color on our investments.

All of our cash and investments are held at leading global banks.

These institutions have top notch investment capabilities strong balance sheets and solid credit ratings.

These banking partners have helped us invest our cash integrate a corporate and government securities with an average maturity of 15 months or less.

This is part of a ladder program that has helped us achieve cash yields in the neighborhood of 4% to 5%.

Prior to last year, we had an agreement with Silicon Valley Bank the required us to use S V b for commercial banking.

After this agreement ended we migrated our cash to our current partners.

At the time of Sbb's collapse, we no longer held any invested cash there how's.

However, we did have a couple of million dollars that was moved to SBB for vendor payments when the banks assets were frozen while those payments were delayed it was freed up pretty quickly and I'm glad to say, we had no loss of cash.

We feel confident in the global banking relationships, we keep today.

And are glad to say, we do not have direct exposure at the regional or local banking level.

Looking ahead to 'twenty three we are reiterating all of our guidance for the year.

Just to reiterate our revenue is expected in the range of $15 million to $20 million.

Total combined cash investment in the range of 120 million to $140 million.

And again, this breaks down into $70 million to $80 million of expected operational investment.

At a capital investment of between 50 million and $60 million.

This leaves us with expected liquidity in the range of $355 million to $375 million.

With that I'll now turn the call back to Dave.

Thanks, Kevin.

Before I turn the call over for questions I want to quickly touch on the ongoing search for a permanent chief Executive Officer.

We continue to make good progress and at this time, our board is encouraged by the quality of candidates.

We are being diligent throughout this process and we look forward to sharing more with you when the time is right.

In the meantime, we remain confident in the team we have in place.

As we demonstrated this quarter solid powers current team has the ability to drive shareholder value and become the leading producer of solid state electrolyte.

With that.

Let's open it up to questions operator.

Thank you we will now be conducting a question and answer session. If you would.

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One moment, please while we poll for questions.

Yeah.

Thank you.

Question comes from Mike Swartz.

<unk> with D. A Davidson. Please proceed with your question.

Good afternoon, and thank you for taking my question.

Good to hear that the powder is up and running.

And actually too.

Curious if you tell us what they did with at least I know, there's a testing to take place that are still to come but what does it really results in any childhood isn't actually gets getting that thing up and running in the first batches of the off the line any early feedback you can give us would be appreciated.

Yeah, Hi, Mike This is Dave Hey, Thanks for attending today, Yeah. Good question. The powder facility is operational and running nominally we're still in the final bar.

Quality and validation of the powder, but as of right now there's no issues that we know of in terms of power quality or specifications.

Okay.

Maybe one for you Kevin the funding seems solid and you've even got some probably some net income coming in from.

Cash balances in the near term, but for twenty-four just given what you know about the expenses and the Capex needs next year.

Dissipate actual cash usage might slow down next year.

Or am I looking at this the wrong way.

I think youre looking at it the right way, Mike that that said, we're probably not going to provide guidance for 'twenty for it at this stage, but let me let me give me some color here in a preliminary basis.

Our our total spend total cash investment this year is $120 million to $140 million.

But we think this level is likely to be higher than the next few years and that's there's a couple of reasons. That's the case.

One of our $50 million to $60 million Capex number contains a relatively high level of spend to finish S. P. Two and bring it online.

And we think we'll see lower capex until we get closer to commercialization and then at that point, we'll need to invest in a larger scale production facility that will call S. P. Three.

We've also got about $70 million to $80 million in operational investment this year and that has some some one time spends in there as well in 'twenty three.

The high level of development course, a cost of course, both on the powder and the sell side, but we also have a pretty high level of SG&A cost for our ERP system Sarbanes Oxley processes training of new employees safety platforms et cetera, and so overall, we believe our.

Twenty-three cash investment is likely to be higher in the next few years beginning in 'twenty four again until we get the commercialization and need to invest in an S. P. Three production facility.

Okay. Yeah, that's all I really appreciate that I guess, my two questions up I'll pass along.

Thank you.

Our next question is from Vincent Anderson with Stifel. Please proceed with your question.

Hi, yes. Thanks. So you mentioned this a bit earlier, but I was hoping you could just remind me of the balance of your electrolyte production capabilities in terms of supporting.

Sample testing, but then also the new arrangement with BMW, assuming that created some duplication in R&D that increases electric demand and then what remains of that in terms of product available to accelerate third party sales.

Yeah. Good question Vince.

Yeah. The short answer is is S. P. Two is designed to be able to.

Producing up the electrolyte to provide all the electrolyte powder, we need for internal development and manufacturing as well as supporting external customers you know through the a sample phases.

So we anticipate this you know yeah and we can also go excuse me. If you can also go a double that capability by running a second shift that kind of thing as well. So I think we're in good shape overall to handle all of our near term and mid term needs are for a like to like powder manufacturing.

Okay, that's great and.

And then just on the Nextgen electrolyte I know, it's early but you discuss conductivity and performance as well as cost improvement and often those variables don't necessarily like moving in parallel so maybe just at a very high level is the nextgen material based on a promising development on the performance side that you're working on bringing costs down in line.

Or is it vice versa.

It's more about the performance.

As always near and Dear to our Hearts, obviously, but really at the end of the day, we wanted to increase the performance for the next Gen product is the primary goal.

Alright Super helpful. Thank you.

Thank you.

If you would like to ask a question. It is star one on your telephone keypad.

Our next question comes from Greg <unk> with Chardan. Please proceed with your question.

Yeah, Hi, Greg Andy in for Brian Dobson that chart on a just a real quick question. You know you mentioned the auto and thank her and battery producers, but also some new vertical market is there anything you would have to do differently in order to you know.

Open up the doors for those areas like Arrow aerospace and defense as well as medical whereas it you know pretty simple to kind of look into those verticals, while you're also primarily pursuing auto OEM.

Yeah, that's excuse me on the powder side are you know, it's real easy right. It's anybody that are you know, there's developing solid state batteries and in the sulfide space and that would be a target market or target customer for us on the sell side you know right now as you know we are late.

You're focused on just the automotive industry, we don't really at this time.

We are contemplating manufacturing cells for other industries, but you know when we look down the road to next generation products and whatnot certainly on the table, but you know because of our focus on the automotive our partners focus on the automotive.

We really haven't made any plans are concrete plans at this point.

Okay. That's helpful. Thanks.

Thank you. Our next question is from Mike <unk>.

<unk> with D. A Davidson. Please proceed with your question.

Hey, Thank you again, Hey, Dave are you had any progress on finding a permanent CEO or at least dropping the interim word off your business card or what's the latest on that situation.

Hey, Mike Yeah, like I said, Yeah, I think Oh, we've made some good progress the board I think is a very pleased with the you know where we're at but right now. It's just premature for me to say anything more than that in terms of the you know where exactly we were out of the process.

Alright, I tried thanks for that.

But the question I appreciate it.

Alright, Thanks, Mike.

Thank you.

Our next question is from Vincent Anderson with Stifel. Please proceed with your question.

Yeah. Thanks for humour me here. So it was it was great to hear that the 'twenty empower cell yields are improving and I was curious if you could break down just conceptually how much of the improvement came from maybe improve quality of raw material suppliers versus process improvements and just with regards to your raw material suppliers.

Are they on a whole improving in terms of their consistency in what theyre sending you.

Yeah, that's a good question.

Primarily they the yield increases were due from our processes and like we mentioned in the call we've gotten some new diagnostic equipment online.

You know we've had the lined up and operational for awhile now. So we're getting to know you know the details of how to make things work better and more efficiently. So haven't been really any problems I don't think with the the input input materials coming from our vendors or anything like that it's mostly on.

I'm, just getting into 'twenty empower lineup and operational.

Gotcha, and I, probably safe to assume that most of those are.

Since learned apply pretty nicely to the EV.

Scale line correct, yeah, exactly the Tony Amp hour is a great surrogate for the E. D line because it has a lot of the characteristics of the EZ line in terms of stacking and bigger size cells.

But yet you're not making as big of cells. So you can make a lot more cells more efficiently for diagnostic and testing purposes.

Alright, perfect. That's all from me.

Makes sense.

Thank you.

There are no further questions at this time I would like to turn the floor back over to Mr. Dave Johnson for closing comments.

Thank you all for joining us today, and we look forward to updating you again next quarter.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time.

Thank you for your participation.

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