Q1 2023 SES AI Corporation Earnings Call
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Okay.
Good afternoon. Thank you for attending today's SCS AI Corporation first quarter earnings call. My name is cole and I'll be your moderator for today's call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.
If you'd like to ask a question. Please press star one on your telephone keypad I'd now like to pass the conference over to our host Eric Goldstein. Please.
Please go ahead.
Thank you operator, Hello, everyone and welcome to our conference call covering our first quarter 2023 results and financial guidance.
Joining me today are <unk>, founder and Chief Executive Officer, and Jim <unk>, Chief Financial Officer.
We issued our shareholder letter just after four P. M today, which provides a business update as well as our financial results.
You'll find the press release with a link to our shareholder letter and today's conference call webcast in the Investor Relations section of our website.
SBS Dot AI.
Before we get started this is a reminder that the discussion today may contain forward looking information or forward looking statements within the meaning of applicable securities legislation.
These statements are based on our predictions and expectations as of today, such statements involve certain risks assumptions and uncertainties, which may cause our actual or future results and performance to be materially different from those expressed or implied in these statements.
The risks and uncertainties that could cause our results to differ materially from our current expectations include but are not limited to those detailed in our latest earnings release and in our SEC filings.
Afternoon, We will review our business as well as results for the quarter.
With that I'll pass it over to Chi Chow.
Thanks, Eric.
<unk> three is starting out to be a great year.
A few years from now one hour lithium battery technology in the mass production I think we will look back and say 2020 was a key turning point as we laid several crucial foundations.
First I'd like to give you an update on our three OEM Jds <unk>.
As we have discussed previously we were the world's first lithium battery company to enter automotive a simple Jane yes, and we did so with GM Hyundai and Honda.
Our biggest value to them. In addition to deep materials development capability is the ability to build and test menu large 100, and Paul with lithium that ourselves.
With this ability our ideas become data and data become intelligence, even 11 months after the starship months that high production rate solves many else.
It seemed more than a year now since our suite a simple lines have been up and running one in Shanghai, China and two in change on Brookdale South Korea.
Producing and testing large 50, empower and 100 empower lithium metal cells.
These are the most advanced and battle tested large lithium metal cell production lines anywhere in the world and what a difference they have made they provide a safe and reliable platform for us to test new ideas and make improvements to the technology.
It is safe to say as we have discussed on previous calls we simply didn't know what we didn't know until we started making these large sales in higher volumes.
Many of the manufacturing issues that we detailed has now been solved or are close to being resolved.
Example.
Sure thing lithium anodes wrinkling, and Terry doing large format volume elimination.
After three rounds of iterations and improvements on our asos all lines and in collaboration with our equipment and material vendors. We have significantly improved the issue. We have even started testing new processes and know elimination and believe we will completely eliminate this issue in future designs.
Second novel, Electrical I saw them scale up while our material R&D team continues to develop new solve our molecules. Our scale up team has completed four different types of illustrious solvents full production.
Third electrical stack, you'd miss alignment and overhead.
Our approach of manufacturing lithium metal cells, using lithium ion process really paid off here our team of experiments lithium ion engineers quickly address this issue by borrowing from the lithium ion stockpile cell experience.
Fourth powder formation, Julien electrical punching Christmas.
This is unique to our lithium metal Emerald and we now have two teams working on laser metal type approaches in parallel.
Understanding the fundamental mechanism, we won't be able to choose the best solution to fully understanding both approaches.
Five.
Formation pressure and voltage stability. This is also unique to our lithium metal felt and after three rounds of iteration and improvements and working with our vendor. We now have a solution that we will implement across our current equipment and future designs.
Six finding efficient ways to do image scanning a large format itself and developing papa ways to store handle test and recycle it within that ourselves.
This is a really interesting and important area that many of the companies don't pay enough attention to.
Our integrated imaging tools, including X Ray.
STM ultrasound and others to our manufacturing and Avatar systems. We're also developing new tools, such as large 100, empower lithium metal cell teardown robots smart test boxes, and very sophisticated large scale testing and stores monitoring facilities.
All to provide a safe environment for us to innovate and test cutting edge ideas large 100 empowered lithium metal cells.
And seven our large cell appetite prediction accuracy increased from zero percent, 260% last year and in a recent experiments or avatar successfully predicted 18 out of 21 abnormal cells, that's getting pretty close to 90%.
Furthermore, we significantly improved policy management through diligently working with our OEM partners. For example, our control plan went from about 200 control points to now more than 1400 control points.
We're targeting more than 4000 control points.
Since lithium metal is the new technology, and we want to fully characterize every little detail in the entire process.
These issues could not have been addressed through simulation or discussion David required extensive trial and error and thats, what our suite a simple lines did.
Building and testing hundreds to thousands of large 100, empower lithium metal cells to perform and massive universe soap experiments I.
I don't think any other lithium metal battery company is capable of doing this and if you don't do those you just cant push lithium metal forward.
And we didn't stop there.
These three a simple lines are already the most advanced in the world for a large 100 and Paulo lithium metal cell production.
But we want to integrate all the learnings that we have accumulated and built a brand new mine one that is a leapfrog.
At least one generation ahead of all three a simple lives.
Our like for.
Slide four will be for the next phase of automotive large 100 amp hour lithium metal cell development basically example.
Compared to the current <unk> a simple lives life four will have many of the new concepts, including avatar integration and rigorous quality control plan built in from the design phase.
The exterior facility build out is already completed we expect that drives them to be completed this summer and the equipment you saw arriving this fall and the entire line for two achieved ready to use status in the first half of 2024.
This will be a key enabler for us to transition to be sample, which we're still on track to achieve this year.
Lastly, I wanted to quickly address our stock price frankly, it's not something I think about every day.
Recently, we had our one year anniversary since listing on the NYSE and we completed two procedural filings.
One was the <unk> III, which allows us to fund raised in the future. Although we have no plans to fund rates anytime soon.
The form four where management, including myself recently reported the sale of shares purely to cover taxes on vested orange juice.
Hi, the founder of SCS I've never sold a single share other than to pay taxes or made a single dollar from our stock since I started the company 11 years ago.
I just wanted to clarify these two issues in case, there have been any misinterpretation.
Anyways I am Super excited about the progress that we're making it was painful last year, but now it's fun again.
Our new <unk> four will be a step change in our development roadmap and a major part of the transition to be samples.
We will continue to keep you posted as we take additional steps to get line for up and running.
With that I'll hand, the call over to June to review our financials.
Thank you Chau good afternoon, everyone today I'll cover our first quarter financial results.
Discuss our operating and capital budgets for full year 2023.
In the first quarter.
<unk> expenses were $21 6 million, an increase of $2 1 million from the same period last year.
Compensation expense was $6 5 million in the quarter.
We reported research and development expenses of $8 5 million an.
An increase of $4 4 million from the same period last year.
This increase reflects higher personnel costs.
Increased head count to support our Greenfield development.
Increase in lab consumables and materials and supplies.
An increase.
Development costs related to our advanced AI software and battery management systems and increased facility costs.
Our gross R&D spend in the first quarter was $11 7 million, which was offset by a $3 2 million to our OEM partners.
<unk> are treated as contra R&D expenses.
G&A expenses were there.
$10 1 million a reduction of $2 million from the same period last year.
This decline resulted from a decrease in transaction costs incurred as a result of the business combination during the first quarter of 2022, which was partly offset by an increase in personnel costs.
And professional fees to support our operations as a public company.
During the first quarter.
Cash used in operations was $15 4 million.
For the quarter was $6 million, reflecting payments for equipment and facilities.
Looking at liquidity, our balance sheet remains very strong we ended the first quarter with combined cash cash equivalents and investments and marketable securities of $373 million.
We continue to believe our liquidity is sufficient to get us to commercialization.
For 2023, our financial guidance is unchanged, we continue to expect cash usage from operations to be in the range of 80 to 100 million and capital expenditures in the range of $50 million to $70 million.
In total we expect cash usage for the year in the range of 130 to 179 at this higher level of spending compared to 2022, it's necessary to support our growth as we expect to transition from a sample to be sampled in 2023.
Second areas of spending in 2023 continues to be for head count flat expansion equipment manufacturing facility and material.
Lastly, Ics became eligible to file a registration statement following the first anniversary of our business combination with Idaho Capitol acquisition Corp, or.
<unk> was filed with SEC on April 26.
And became effective on April 28, 2023.
Includes a universal shelf registration, which will allow us the flexibility to raise capital from time to time up to an aggregate $300 million well the headlines related to these type of finance can be confusing to be very clear.
Have no near term plans to raise capital.
'twenty three is shaping up to be a exciting year of growth for US. Yes. We appreciate the support of our shareholders employees and OEM partners with that I'll hand, the call back to Eric.
Yeah.
Thanks, Jim Cole you can now open the line for questions.
We will now begin the Q&A session, if you'd like to ask a question. Please press star followed by one on your telephone keypad if for any reason you'd like to remove that question. Please press star followed by two again to ask a question press Star one.
I'll pause here briefly ask questions are registered.
Our first question is from Shawn Severson with Walter Tower Research. Your line is now open.
Great. Thank you.
Kishore I wanted to touch a little bit online or you had mentioned in prior calls about.
Bringing in house, a number of the manufacturing technologies drive because there was some difficult challenging stuff that you thought you guys can do it better.
Yourself I was just curious if you could lay out in line for I assume those types of changes are being implemented that maybe help help me understand a little bit of.
The things that are being done in that.
In that particular line versus the existing.
Yes sure. Thanks, Sean so in the first three lines.
Starting on line three.
We started incorporating all the aspects of the catheter coding and coding in house, but then that's it.
But still fragmented and then we still don't have a very systematic way of collecting data for avatar also the number of control points.
That was a 200 and then all 300 <unk>, it's hard to add all these additional centers.
Increase the number of control points from just 200 to 300 to 1400 so in line for.
Couple of things one is it will have every aspect cathode coating and all that.
Coating.
Elimination stacking so one four it won't be the first complete line in terms of.
Our ability to make every aspect and then also from the design.
Face offline for.
We already incorporate these 1400 <unk>.
Control points, so, whereas in the older line three we.
We had 200 and then we added.
The fragment in a way to 300.
In line for from the beginning you all have.
Basically every assets in house and then.
We then to incorporate all the 1400 of control points from the beginning and then all the sensors and then the data will be compatible and integrated with avatar. So it's really a.
Oh.
I would say at least one generation ahead of just the first three months.
And from a manufacturer ability standpoint, and a cost standpoint are there any big ticket items that are still in your sights to target cost reductions for as you go through would be and of course eventually into C. Are there is there anything in particular you'd point to that as a great opportunity for further cost reductions that we should monitor.
Sir.
Yeah. So in the first three lines for example, we the yield was always quite low.
Not really.
Consideration for example, basically a sample it's just let's build itself, let's test the performance and then let's not worry about yield as much.
Cause.
Obviously, not very meaningful because we don't have a rigorous way of controlling the yield but this one four.
And then B sample later will be the first line.
In addition to other performance all the capabilities.
We built this out.
The eight sample lying for what would be the first line that we will actually yield and then looking forward well have.
Definitely higher yield than than the first three lines. So looking forward will be the.
Beginning where we actually are.
Move.
<unk> into a phase where we're actually.
Yield actually becomes.
Very meaningful consideration.
In addition to two.
Two the performance and then.
And the other considerations from a simple so yield.
Consideration.
For lowering the cost.
Alright, thanks for that future.
Thanks, Sean.
Thank you Sean our next question is from Winnie Dong with Deutsche Bank. Your line is now open.
Hi, Thanks for taking my question. My first question is also on line score.
In the shareholder letter says that it.
It will be critical to be sample.
And then that the equipments were start to arriving a floor and the line will be in touch.
Be ready for use in the first half of 2024, but then it also seems that you're still on track to achieve the transition to <unk>. This year.
I just wanted to confirm.
Since the transition to be sample.
He is not dependent on line 14 fully ready.
So maybe an update on sort of late.
The timeline for that transition.
Yes, Phil.
For example back in 2020, one will be.
Enter into a sample we work for the definition of entering into a sample or be sample. It does he started in the process of developing. The example, the LIBOR is going to be a key part of the process of developing be simple, but we will enter into b sample. This year second half of this year.
And then line for us.
As part of that because now that we own the stock example, after applying for its ready.
That would be simple and then part of the work of the sample is getting this one quarter already and there will likely be like five six right.
The Oems so mindful of what likely would be the first mine in beef and pork, but.
We are entering two piece ankle.
Let's see.
Got it.
And to confirm so far you've sort of indicated.
Sample with one of the Oems is that correct.
So anything that changed in that regard.
Yes, I think we will.
Enter into one.
First and then the other two will come later, but from a technical perspective. The requirements are quite similar and then the capability that we've built and then the capability that we increase by heavy in line for <unk>.
That will be transferable across all.
Three Oems.
Got it and then if I can squeeze just one more and this is more of a theoretical question.
Yes.
Alright, two let's say 2020 to take them in an ideal world with everything going.
Going to plan.
And that might not work lately.
You finish December by end of 2024, and the C. Sam will take maybe another 12 months or so.
To finish.
What ideally have taken place pipeline in 2020 would it be.
Client with the JV ideally.
Up and running or do you start to build out that line in the U S.
I'm just trying to get an idea of sort of your internal goal that we think we're demonstrating that.
Don.
Yes.
Sure.
So.
We entered to be simple second half of this year and then 24 next year.
Towards the end of B and C. That's one we.
Business to dealt with three OEM partners and also potentially they are large scale battery manufacturer partners in Italian.
And then plan location and a resource for us.
So.
A&P.
The sort of similar and then consider together and a pilot scale plant, but once it gets you see solid planning to see that you're also planning for Sop.
I would say towards the end of being so now we have transitioned to be next year.
A year to 18 months from now when we are transitioning to see that's one we plan to North American.
Alright for with another battery manufacturing as well as.
The budget.
Got it. Thank you so much for taking my questions.
Thank you.
Yes.
Yeah.
Our next question is from Timothy Johnson Your line is now open.
Yeah.
Thank you very much.
Yeah.
In the past recent past you mentioned.
Some work being done on the Ann or tree concept.
Can you please update us on.
Where do you stand with that.
Sorry can you ask the question again, the recent work on the <unk> and then what the second half.
The anode and or three where you take out the.
Lithium foil.
And all of the lithium for the AD or it comes from the cathode upon charging.
Yes.
Yes.
So on annual free design is one of the.
Next Gen projects that we are exploring.
So all the lines that were used in the 100 to empower in cell lines with three lines. For example, and then outline for all of these can be used for annual free as well.
So.
We are actively building and also testing annual free version of these 100 empower looking at myself. So when I say 100 on hold with the metal itself.
They come in different.
And well he version as well.
Taxes looking out version so we didn't have the capability too.
And then perhaps later this year we can.
Cause more data for now the annual free version of 100 and Hollywood mental cell.
We primarily are considering advanced for drones and.
<unk>.
The urban air mobility application lessor for the EV applications.
Thank you very much.
Thank you.
Yeah.
Thank you Timothy our next question is from Dennis Hugh Your line is now open.
I'm not sure if Dennis has disconnected or not but there are no additional questions waiting.
<unk>.
So I'll pass the conference over to the management team for any closing remarks.
Yes, I think.
This past quarter and.
Just.
The first quarter after 'twenty, two 'twenty going to last year when we.
Bill. These large one is it empowers one within that ourselves and then people call. It.
A big leap or crazy to to build these large looking at ourselves and then so it was really difficult and we saw real crazy to last year.
Now this quarter. This year things have turned around and then a lot of things that we learned now finally.
So coming together.
Four.
This is really the first time that we take all the learnings that we have from <unk>, putting them together all the capabilities all the knowledge or the.
And the new ideas, and then turn new idea I think the data and the data into intelligence. So we're really excited about 2023 and just the future capability and then ultimately in line four imagine a year from now we are on line.
The first one for Steve Frankel and.
I just think the.
Great sorry about the progress and things that can wait.
Uh huh.
To share more good news with you guys.
Okay.
That concludes the conference call. Thank you for your participation you may now disconnect your lines.