Q2 2025 SES AI Corp Earnings Call

Speaker #1: Attention, everyone. Please remain holding. The call will begin momentarily. Again, please remain holding. The call will begin momentarily.

Speaker #2: Good afternoon. Thank you for attending today's SES AI second quarter 2025 earnings release and call. My name is Jayla, and I'll be your moderator for today.

Speaker #2: All lines will be muted during the presentation portion of the call. With an opportunity for questions and answers at the end. I will now like to turn the conference over to our host, Kyle Pilkington.

Speaker #2: Please proceed.

Speaker #3: Hello, everyone. And welcome to our conference call covering our second quarter 2025 results. Joining me today are Qichao Hu, founder and chief executive officer, and Jing Nealis, chief financial officer.

Speaker #3: We issued our shareholder letter just after 4:00 PM this afternoon to provide the business update as well as our financial results. You'll find a press release with a link to our shareholder letter and today's conference call webcast in the Investor Relations section of our website.

Speaker #3: At SES 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.

Speaker #3: 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.

Speaker #3: 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 the latest earnings release and in our SEC filings.

Speaker #3: This afternoon, we will review our business as well as the results for the quarter. With that, I'll pass it to Qichao.

Speaker #4: Thanks, Kyle. And thanks to everyone for joining today. We had another strong quarter with significant progress achieved on key product revenue development and profitability milestones.

Speaker #4: And recently, in third quarter, we continued that momentum to grow our profitability and revenue through an acquisition agreement that leverages our strength in molecular universe battery materials discovery and safety monitoring capabilities with an established player in the energy storage space.

Speaker #4: In the first quarter since the public release of molecular universe I'm pleased to see that we now have more than 30 companies that have begun trial testing the enterprise level and many more in the pipeline.

Speaker #4: Our mission is to accelerate the world's energy transition through material discovery and battery management. We are excited to see Molecular Universe helping human scientists to be more creative and develop new products much faster.

Speaker #4: Since our launch of all in our AI a year ago, we have been progressing through four stages. The first is chatbot. We achieved this milestone with the original launch of molecular universe zero.

Speaker #4: Molecular universe is a powerful LLM specifically trained on the world's most comprehensive battery domain expertise, combined with the world's largest and most accurate battery relevant molecule property databases.

Speaker #4: Computed through our recent advancement in GPU accelerated large scale computation chemistry algorithm. The second is AI agent. We achieved this milestone with last month's introduction of deep space in molecular universe 0.5.

Speaker #4: An agentic capability that can conduct senior scientist level battery research. Deep space can reduce product development time from years to just tens minutes. The ROI on this capability for battery development teams is tremendous.

Speaker #4: The third is physical AI. This is where we are right now. Physical AI is the integration of molecular universe with physical systems, including drones, humanoid robotics, EV, UAN, and the largest of all, energy storage systems or ESS.

Speaker #4: We are on track with EV B sample development with our EV OEM customers and growing revenue from our AI enhanced lithium ion and lithium metal cells for drones and UAN.

Speaker #4: And our recent agreement to acquire UZ Energy launches us into ESS physical AI by providing the opportunity to integrate UZ's ESS hardware with molecular universe material discovery platform.

Speaker #4: LFP and sodium ion for ESS. And precise battery health monitoring system. The fourth is revenue machine. The world's energy transition ultimately needs real physical products with software and hardware integrated.

Speaker #4: We expect exciting revenue growth to come from five areas of focus. These include A, software, and service. This will come from our molecular universe tool platform, subscriptions, and development projects from cell and materials makers.

Speaker #4: B, materials. We are producing and selling novel electrolytes and other battery materials discovered through molecular universe. C, cells. We are producing and selling AI and high silicon lithium ion cells using electrolytes discovered through molecular universe for drones, UAN, and humanoid robotics.

Speaker #4: And D, EV development service. This is the original project that deployed Molecular Universe with B sample development with leading EV OEMs for lithium metal cells.

Speaker #4: E, and last but certainly not least, ESS. We will be producing and selling ESS hardware and software solutions that deploy safe and long cycle life materials, along with precise health monitoring from the molecular universe.

Speaker #4: This is where we expect to not only grow UZ Energy's core business, but also leverage that integration with Molecular Universe. To implement this platform strategy, we already have the world's best material discovery team.

Speaker #4: We have been busy recruiting more top talent and looking for inorganic acquisition opportunities such as the one with UZ Energy that accelerates and extends this strategy.

Speaker #4: The reason that so many people are excited about our molecular universe platform and want to join us is that they see SES AI uniquely has all the ingredients required to build the best AI platform for energy transition.

Speaker #4: Some large battery companies don't dedicate enough resources to train AI models, such as cleaning and organizing data, developing large scale computation algorithms, and purchasing computing power.

Speaker #4: And other large pure AI companies simply don't have access to high quality battery data. People that join SES AI will have unparalleled access to high quality battery data that are not available anywhere else.

Speaker #4: Ranging from single molecule to formulations to cell levels, both through actual experiments and high accuracy simulation. And they will be able to sell products that are not just safer and demonstrate better performance than their competition, but improve much faster.

Speaker #4: We will share more updates on all of this in the coming months. Now here's Jing alis for financial updates.

Speaker #5: Thank you. I will discuss our financial performance for the second quarter of 2025 and provide some context on how we're deploying our capital to support SES's long term growth and the platform strategy Qichao mentioned earlier.

Speaker #5: Revenue for the second quarter was $3.5 million, with a 74% gross margin. Our Q2 revenue was primarily driven by contracts with our automotive OEM customers to develop AI-enhanced lithium metal and lithium-ion battery materials for EV applications.

Speaker #5: As noted in our pre-announcement, we affirmed our full year 2025 revenue guidance of $15 million to $25 million. We utilized $10.8 million in cash for operations in the second quarter.

Speaker #5: Which was a 51% decrease from Q2 2024 and a 53% decrease from Q1 2025. We have been emphasizing our operational discipline for the past few quarters and the significant reduction in cash usage in operations is a result of executing our plan to deploy capital effectively while growing our top line.

Speaker #5: We concluded the quarter with a strong liquidity position of $229 million with no debt. We also announced an agreement to acquire UZ Energy. I'm very excited about this strategic move to provide us the foothold in the fast growing global ESS market.

Speaker #5: And propel us forward as we expedite the implementation of intelligent energy storage solutions to address the escalating power needs of the AI era. We have a tremendous opportunity to grow the UZ Energy business from approximately $10 million to $15 million in projected revenue for the full year 2025, to exponentially larger growth in the coming years, together with the market share gains in the $300 billion global ESS market.

Speaker #5: We'll continue to allocate our capital to focus on our AI platform enhancements and growth to support our global commercial readiness through 2025 and beyond.

Speaker #5: Through organic growth and acquisitions. We have also allocated capital to share repurchases while we didn't complete any repurchases during the second quarter. In the third quarter, we have repurchased and canceled $871 754 shares for a total investment of $1.1 million, or roughly $1.27 per share.

Speaker #5: In summary, we remain financially disciplined with substantial liquidity and no debt positioning us for scalable and long term growth. We appreciate your continued support and confidence in SES AI.

Speaker #5: Thank you. Now I will turn the call back to the operator.

Speaker #1: We will now begin our estion and answer session. At this time, if you would like to k a question, it is star followed by one on your telephone keypad.

Speaker #1: If for any reason you would like to remove that question, it is star followed by two. Again, to ask a estion, it is star one.

Speaker #1: As a reminder, if you're using a speakerphone, please remember to pick up your headset before asking a question. Our first question comes from Winnie Dong with the company Deutsche Bank.

Speaker #1: Winnie, your line is now open.

Speaker #6: I was wondering if you can tell us a bit more about UZ Energy. The genesis of that purchase, and then how you plan to leverage that business on the go-forward basis.

Speaker #6: And then secondly, I think you mentioned that you are on the lookout for more M&A opportunities. I was wondering if you elaborate a bit more on that.

Speaker #6: You know, what kind of other companies you're oking for? What does the pipeline look like right now? Thank you.

Speaker #3: Yeah, Winnie, on UZ, they were actually one of the earliest companies in ESS 10 years ago. They used to take LFP cells for EV applications and then supply them for ESS applications.

Speaker #3: And so the rationale for UZ is really for ESS. We talked about entering ESS at the end of last year, and this is a really exciting market for us.

Speaker #3: In addition to EV, and then they have good hardware capability and they take cells and then integrate them into these ESS containers and then ESS actually is now the number one used for molecular universe and the LFP and the sodium chemistries.

Speaker #3: So now that by integrating with UZ, now we have material development for LFP sodium from molecular universe and then we have the hardware integration and then we also get data.

Speaker #3: So one thing that makes Molecular Universe much more powerful than any other tools out there in the industry is access to high-quality real-world battery data that no other AI model in this field has.

Speaker #3: So now you have the new materials chemistry, and then the hardware integration from UZ, and then now the actual data. We can also add our avatar molecular universe on top of that to really ensure safety.

Speaker #3: So that integration really makes sense to us.

Speaker #6: Thank you. And then just on the second question regarding other opportunities, other M&A opportunities.

Speaker #3: Yes, I think we're open to new opportunities and because molecular universe really empowers so many areas. Not just at the material side, the material discovery side, but also material production and then also different applications: drones, ESSs.

Speaker #3: So we're looking a few other opportunities.

Speaker #6: Great, thank you.

Speaker #1: Our next question comes from Derek Soderbergh with the company Cantor Fitzgerald. Derek, your line is now open.

Speaker #3: Qichao and Ing, good to see you guys and hear from you. Just wanted to get an update on the UAM and drone opportunity.

Speaker #3: It feels like that opportunity is sort of the nearest for you guys to potentially get your lithium metal technology out there. What sort of needs to happen on the supply chain to ensure that that ramp happens smoothly and is sort of the plan still to ramp the UAM or drone opportunities sort of next year?

Speaker #3: Is that still the timeline? I know I've got to follow up.

Speaker #7: Yeah. And actually, our revenue from drones and UAM has increased this year. And then a lot of the customers, especially in the US, want to move away from their current supply chain and then we are in the process of updating and also certifying our career line so that it will be compliant to their request.

Speaker #7: But yeah, that revenue is increasing.

Speaker #3: And what kind of revenue capacity do you think you guys have sort of for the drones and UAMs at this point?

Speaker #7: When you say, so in terms of capacity, we're now working. So our current career line and also country manufacturing partners, we can get to pretty high capacity.

Speaker #7: And then that capacity is much higher than the current orders we have.

Speaker #3: Got it. So doesn't sound like that's a huge issue there. Got it. And then just as my follow-up on the software piece, 30 companies trial testing.

Speaker #3: I know it's only been a few months now. But what do you think it's going to e to get one of those companies to sort of move to a joint development tier?

Speaker #3: Is it just a matter of time testing the platform? Is it sort of identifying a certain amount of cost savings with the R&D process?

Speaker #3: You know, what do you think it's going to take to get one of those companies to a joint development tier? Thanks.

Speaker #7: Yeah. This is a really interesting area, and then it's so new because the use of AI is just not that widely used in the battery industry as it is in other industries.

Speaker #7: So I ink we are really close to if you large ones. And I think the key is really seeing that this is not just a platform, but actually it can deliver a solution that's much better than the best human scientist can.

Speaker #7: So right now, some of the largest battery companies are giving challenge to molecular universe and then see if it can solve problems that the smartest human scientists cannot.

Speaker #7: And then once we can demonstrate that, then I think that's game over, and then it will be the start of wide adoption of the molecular universe.

Speaker #7: It needs to solve a problem that's harder, and it cannot be solved by the best human scientist.

Speaker #3: Perfect. Really appreciate . anks.

Speaker #1: Our next question comes from John Roy with the company Water Tower Research. John, your line is now open.

Speaker #8: Great. I wanted to continue on the molecular universe. What is the overall general feedback from the enterprises that are currently using it? Are they wanting a lot more features?

Speaker #8: What's the what are they doing with it mostly?

Speaker #7: Yeah. So in terms of a tool platform, it's already more accurate and more powerful than any other tools out there. A lot of the companies, instead of asking for more features, want more accurate results.

Speaker #7: And then one test they're doing is actually giving a really hard test that human scientists cannot solve. So, if you use the molecular universe as a scientific curiosity chatbot, then it already outperforms anything else out there.

Speaker #7: But then, if it's so, now the test is: can it solve a problem that human scientists cannot solve? Like a problem that's intrigued human scientists for a long time.

Speaker #7: And then the team has not been able to solve that, so that's what we're trying to do next.

Speaker #8: Great. And do you have any expectations on when the next release might be coming? And what some of those features might be? I am curious; are you putting in costs?

Speaker #8: Sorry, I haven't ten into the tool that much. And manufacturability issues into the system yet?

Speaker #7: Yeah. So we expect the next version to be sometime in the September-October timeframe. Then that will include more accurate cell-level data, so the prediction will be even more accurate.

Speaker #8: Great. Thanks so much.

Speaker #7: Thank ou.

Speaker #1: There are no more questions raised in queue. Let's pass the conference back over to our hosting team for closing remarks. That will conclude today's conference call.