Q2 2023 SES AI Corp Earnings Call

Okay.

Good afternoon, I would like to welcome you all to the Ses <unk> Corporation second quarter earnings call.

My name is pretty clear.

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.

These 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. This afternoon, we will review our business as well as results for the quarter with that I'll pass.

Has it over to Chi Chow.

Thanks, Eric.

Everyone I'm sure the whereby now in 2020. One we became the worlds first company to enter automotive a sample with lithium metal batteries.

And we did so with three Oems GM Honda and Hyundai.

Earlier this year, we laid out the goal to transition to be simple and I'm happy to report, we're making really exciting progress with.

We continue to push forward with high energy density at a wide range of temperature and pellet requirements.

Enabled by our unique lithium metal battery technology and Avatar system.

Although we have a way to go before full commercialization, we're getting closer to making the leap from automotive a sample to be the first supplier of lithium batteries.

The motive be sample stage.

Furthermore, while we are doubling down on our progress with our automotive customers, we see another unique opportunity in urban air mobility.

Yeah.

That I will discuss later in this call.

And the EV market, we need to solve to the major hurdles to position us to transition to automotive be simple.

The first is manufacture ability, we're not talking about small cell lab scale manufacturing, we're talking about 100 empower cells and pilot scale manufacturing facilities for real automotive, a and B simple clarification.

This year, we expect to transition from producing about 1000 total.

<unk> hundred empower lithium metal cells in 2022 to about 1100 empower lithium metal sales per month per line.

Ultimately our sales of our high quality and we will continue to be tested both in house and by our OEM customers.

Now that we're more than halfway into 2023, we have lines in both Shanghai and South Korea, making about 500 large 100 empower lithium metal cells per month with one shift.

By adding a second shift we are confident that we will achieve over 1000 cells per month per line.

In addition to building the cells were also adding testing bunkers.

We built one test bunker earlier this year.

Expect to finish our second testing bunker before September .

And plan to add a few more bunkers facility. So we can test as many cells as we can built.

Providing a safe place to test a large quantity of our lithium metal cells is critical this.

It will allow us to accelerate our development process and test ourselves on the map.

A universe of conditions. So they are better prepared for real world usage.

This large 100 empower lithium metal cells have been either test directly by our customers or testing in house and the data shared with our customers.

Our second hurdle will be simple line preparation.

We are now like four earlier this year, which will be dedicated to be sample EV sales for one of our customers.

We have completed the equivalent process design and evaluation with our customer and have commenced a bidding process with a few vendors.

This line to be ready in Q1 of 2024.

Going forward, we will have more than 1400 quality checkpoints compared to only 300 quality checkpoints in the first three a simple lines and will be fully compatible with our avatar system.

We don't need to wafer line for it to be complete to start the actual be simple face since we expect that our current <unk> hempel lines will soon be capable of producing nearly one seldon lithium metal sales per month per line.

We will use the a simple lines in the early phase of fee simple and we will move to align for the later part of the simple answer is fully operational.

Our world, leading energy density empower enable by our lithium metal battery technology makes Ses batteries are great fit not just for automotive applications, but also for urban air mobility and drones.

Such in addition to the <unk> four we're also preparing to build a new line Ty.

Which will be dedicated to be sample for urban air mobility or uhm.

Sales for another one of our OEM customers.

We will leverage the equipment and process design from <unk>, four and customized for UA himself.

Both <unk> four and <unk> five will have our latest quality control system with more than 1400 quality checkpoints and be fully compatible with avatar, allowing full traceability of ourselves.

We're super excited about both <unk> four and <unk> five.

And four will be our first b sample line for EV line.

<unk> five while supply itself for uhm other drilling applications than the lightweight and high capacity lithium metal sell.

In terms of performance lithium metal is a perfect fit for uhm and drilling applications because of its lightweight and high discharge power density.

To review, we now have three simple lines operational we expect to increase throughput from 1100 empower lithium metal cells per year last year to nearly 1000 large 100 ampol lithium metal cells per month per line by end of this year.

And we are preparing to be simple lines, one dedicated for evs with one OEM customer that line for.

And another dedicated for Uhm.

With another OEM customer line five.

Both the final four and five are expected to start producing at least 1000 high quality large 100, empower lithium metal sales per month per line once operational.

Fully compatible with avatar and with full quality and traceability.

We expect to have all five lines each producing at least 1000 high quality 100, empower lithium metal sale per month per line.

We believe that this will accelerate or be sample development and qualification with our existing OEM customers and open up additional standpoint and capacity for a new pipeline of Oems in both Evs and uhm and to be simple stage.

In addition to preparation for B samples, we're also investing heavily in fundamental R&D to accelerate our material discovery.

For a novel battery technology like lithium metal.

Fundamentally it comes down to material.

Actually our core competence, which is the electrolyte.

I am proud to announce that we will be building a new electrical is foundry near our headquarters in Boston.

It will focus on novel Electrify molecule discovery and synthetic pathway development.

This novel material discovery platform will allow us to continue to improve our key performance and safety metrics by accelerating designed to data timeframe for new electrodes solvent and salt molecules and formulations.

We are aggressively hiring top electuary scientists and chemists and AI machine learning scientists too.

Develop a totally new molecules and synthesis techniques.

Not only we are discovering new materials and new techniques.

But we're also discovering new techniques to discover new techniques.

With all of these exciting developments, we need more talent.

We recently added an SVP of quality, Mr. Christina <unk>, who has more than 30 years and quality management from Sanyo, Panasonic, and <unk> and nickel cadmium and lithium ion batteries.

Peters, managing our group level engineering and manufacturing quality to ensure our five large cell line three a sample and to be sample incorporate the most rigorous quality system.

<unk> are compatible with avatar.

Since lithium metal is new and this is the first time anyone has taken in lithium metal to a and b samples, we intentionally use more rigorous quality management than even the most rigorous lithium ion lines.

<unk>, our new SVP of quality, our yield actually decreased initially.

Because the standards, we're employing are much more stringent and so we are discovering issues at a much deeper level.

And that's a good thing.

We want you to systematically build a solid quality foundation, especially in be simple it's.

<unk> important for our future.

In summary earlier this year.

Establish a milestone to transition to be sample.

Not only are we confident that we will achieve that but we also expect to go beyond we are extending into UAS and Julian application.

In addition to Evs are ideal market for our unique high energy density and power density lithium metal batteries.

Not only do uhm and drones represent early commercialization opportunities for us, but we also believe that lithium metal what enable uhm the same way that lithium ion enable portable electronics back in the 19 nineties.

We're also extending into novel techniques for material and process discovery, using AI and machine learning.

We are at an exciting intersection between sustainability electric transportation and AI machine learning, we seek the worlds best material scientists chemists sell engineers and AI machine learning scientists to join us.

What started out as simply developing a novel battery has become much more including enabling urban air mobility and building a super intelligence system in both battery manufacturing and materials discovery.

With that I will hand, the call over to Jim.

Thank you Chau good afternoon, everyone today I'll cover our second quarter financial results and discuss our operating and capital budgets for full year 2023.

The second quarter, our operating expenses were $19 3 million up slightly from the same period last year.

Based compensation expense was $7 3 million in the quarter.

We reported research and development expenses of $6 4 million a reduction of approximately <unk> 8 million from the same period last year. This.

This reduction primarily resulted from a higher recovery of our research and development expenses from our OEM customers.

Partially offset by an increase in personnel cost mainly attributable to head count growth as well as higher spending for lab consumable material consumption related expenses in support of our ongoing battery cell development effort.

Our gross R&D spend in the second quarter with $14 7 million.

<unk> was partially offset by $8 3 million build to our OEM customers, which are treated as contra R&D expenses.

Alright, G&A expenses were $12 9 million, an increase of $1 million from the same period last year. This increase primarily resulted from higher personnel costs, mainly attributable to our growth in head count as well as higher professional fees and audit related fees to support our off.

Operations as a public company. These increases were partially offset by a decline in insurance expenses.

Year to date cash used in operations was $30 9 million Capex. So far this year has been $7 8 million, primarily reflecting payments for equipment and facility.

Capital expenditures are expected to accelerate in the second half of the year as we finish the vendor selection process for line for in line five and formalized purchase orders.

Looking at liquidity, our balance sheet remains very strong we ended the second quarter with combined cash cash equivalents and marketable securities of $357 million. We continue to believe our liquidity is sufficient to get us to commercialization.

At this time, our financial guidance for 2023 is unchanged, we're still guiding for it.

<unk> cash usage from operations in the range of $80 million to $100 million and for Capex in the range of $50 million to $70 million.

In total we expect cash usage for the year in the range of $130 million to $170 million.

We're currently trending toward the lower end of that range.

Way through the year, we have made a lot of progress.

<unk> indicated we're preparing for that transition to be sampled.

And we'll be making investments in more advanced equipment for nine four in addition, we anticipate expanding into the UA end market with line five providing another exciting growth opportunity for the company. We appreciate the excellent support from our shareholders employees and OEM customers.

That I will hand, the call back to Eric.

Okay.

Thanks, Jane breaker, let's open the lines for questions.

Thank you.

Let me ask a question. Please press Star then one on your telephone keypad.

We have this last question is from Sean Edison move, which Taro research you May proceed.

Great. Thank you good afternoon, everyone.

Can you tell us.

Are there any difference in the battery itself and the technology between the drones.

Unmanned aircraft and what you would be using for.

Passenger vehicles.

Yes, Sean.

Yes, there are.

One is the sell dimension and that's why we have the two separate lines going forward for EV and the <unk> five or <unk>.

So the third dimension is the key difference and then we don't want to go back and forth and then change the <unk>.

<unk> because that would ruin the quality.

Another is for the UA in the.

The focus on energy density is a lot more than the EV and then four.

It goes on a cycle.

Relatively less so primarily.

I mentioned and also just the cell design in terms of the final performance and there is a balance.

But you are able to leverage the same materials technology and chemistry, effectively it's just sort of how your.

Higher packaging these and as you said dimension.

Yes, yes, so the materials the platforms definitely.

The same also the quality management systems, we spent a long time, improving our quality management and then all the all the latest quality management that we're going to implement in line for we will implement in line five absolutely.

And I was really it was really interesting to talk here about the AI and kind of materials development facility in Boston and I am curious.

From a bigger picture strategic standpoint, and do you envision this becoming.

Kind of where you may be inventing new molecules and coming up with new chemistries and licensing them and selling them or are these things that is it going to be primarily focused.

On developing new battery technologies for you I'm, just trying to understand how how it fits in strategically with you because it seems like very exciting opportunity, but how will this drive revenue for you I guess is what it comes down to.

Yes, it's more of a latter.

This internal tool that we're going to use to develop better materials and no. One else has and then it's a really exciting area and then Boston being the center for a lot of life science drug discovery, and AI and machine learning and computer science.

Talent, both at the University and also at the industry level. It's a really good place to invest that's why we decided to open this center, so as more and more of our internal R&D capability.

That will allow us to keep innovating, we expect to get you see simple 25, and so thats the first generation and after that the second Gen. The surgeon and then each time that we won't be able to keep improving so.

And then and we want to use our human sciences as well as this.

AI platform.

If I could just ask one more question on that as you.

Are you taking effectively all of the data and experience that you have right that you've that you've compiled to date and then you're taking that and using that as a base and then layering AI over it to look at different scenario. So I'm just wondering how it integrates because obviously you already have a massive base of knowledge.

<unk>, Knowhow and technology, and you're getting more from the field right in terms of performance and things like that so I'm trying to understand the integration of the existing information and knowledge base you have and how this fits.

And work going forward.

Absolutely. So all the internal data will be an input to those and then also.

We want to have the machine to develop a.

New and also a different understanding from the ones, we human half and then this new understanding we will use to search for new materials.

Then.

Beyond.

The constraints the human scientists have.

Great. Thank you.

Thank you.

Thank you if you'd like to ask a question. Please press star one on your telephone keypad now.

I can confirm we've answered all the questions registered.

As my final questions has been registered to hand, it back to you.

The management team for any final remarks.

Okay. Thanks, Thanks breaker, we can end the call right here.

Thank you.

Today's call has now concluded you may now disconnect your line and happened at Luka.

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