Q1 2026 SES AI Corp Earnings Call

April 23, 2026

Operator: Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the SES AI Q1 2026 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star then the number one on your telephone keypad. I would now like to turn the call over to Kyle Pilkington, Chief Legal Officer. Kyle, please go ahead.

Speaker #2: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during that time, simply press star, then the number 1 on your telephone keypad.

Speaker #2: I would now like to turn the call over to Kyle Pilkington, Chief Legal Officer. Kyle, please go ahead. Hello everyone, and welcome to our conference call covering our first quarter 2026 results.

Kyle Pilkington: Hello, everyone, and welcome to our conference call covering our Q1 2026 results. Joining me today are Qichao Hu, Founder and Chief Executive Officer, and Jing Nealis, Chief Financial Officer. We issued our shareholder letter just after 4:00AM today, which provides a business update as well as our financial results. You'll find a press release with a link to our shareholder letter in today's conference call webcast in the investor relations section of our website 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. 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 #2: Joining me today are Qichao Hu, founder and chief executive officer; and Jing Nealis, chief financial officer. We issued our shareholder letter just after 4:00 PM today, which provides a business update as well as our financial results.

Speaker #2: You'll find a press release with a link to our shareholder letter in today's conference call webcast in the Investor Relations section of our website, SES.AI.

Speaker #2: 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 #2: 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 #2: The risks and uncertainties that could cause our results to differ materially from our current expectations include they're not limited to those detailed in our latest earnings release and in our SEC filings.

Kyle Pilkington: 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. On this call, we will discuss non-GAAP financial measures as a supplement to our GAAP results. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles but are intended to illustrate alternative measures of the company's operating performance that may be useful. These non-GAAP measures should not be considered in isolation or as a substitute for any GAAP measure, and our definitions may differ from those used by other companies reporting similarly titled measures. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures can be found in our latest earnings release. With that, I'll pass it over to Qichao.

Speaker #2: On this call, we will discuss non-GAAP financial measures as a supplement to our GAAP results, these non-GAAP measures are not prepared in accordance with generally accepted accounting principles but are intended to illustrate alternative measures of the company's operating performance that may be useful.

Speaker #2: These non-GAAP measures should not be considered in isolation or as a substitute for any GAAP measure and our definitions may differ from those used by other companies reporting similarly titled measures.

Speaker #2: Reconciliations of the non-GAAP financial measures to most directly comparable GAAP measures can be found in our latest earnings release. With that, I'll pass it over to Qichao.

Speaker #2: Thanks, Kyle. Thanks, everyone, for joining today. We had a strong start for 2026. First quarter revenue came in at $6.7 million, a 47% increase over the fourth quarter, and well above published consensus estimates.

Qichao Hu: Thanks, Kyle. Thanks, everyone, for joining today. We had a strong start for 2026. The Q1 revenue came in at $6.7 million, a 47% increase over the Q4 and well above published consensus estimates. We are reaffirming our full year 2026 revenue guidance of $30 million to $35 million, with contributions expected from all three of our revenue-generating business units. We are executing on plan, and we like the momentum we have heading into the rest of the year. Before I get into the business updates, I want to take a moment to acknowledge Jing Nealis, who is on this call with us today. As we announced today, Jing will be transitioning from her role as Chief Financial Officer effective 27 April.

Speaker #2: We are reaffirming our full year 2026 revenue guidance of $30 million to $35 million. With contributions expected from all three of our revenue-generating business units.

Speaker #2: We are executing on plan and we like the momentum we have heading into the rest of the year. Before I get into the business updates, I want to take a moment to acknowledge Jing Nealis, who is on this call with us today.

Speaker #2: As we announced today, Jing will be transitioning from her role as Chief Financial Officer, effective April 27. On behalf of the entire team and our board, I want to thank her for her contributions and wish her well.

Qichao Hu: On behalf of the entire team and our board, I want to thank her for her contributions and wish her well. We have appointed Ray Liu as our new CFO effective April 27. Ray is a seasoned finance executive with over 20 years of experience in FP&A, strategic finance, and SEC reporting at companies including Aiden and MetLife Investment Management. He's a CFA charterholder and CPA, and we are confident he will be an excellent partner as we scale the business. More details on this transition are in the separate press release we issued today. Now let me walk through each of our business units. Starting with energy storage systems. ESS remains our largest near-term revenue driver and was responsible for the majority of our Q1 revenue through UZ Energy. We continue to see growing demand for our commercial and industrial energy storage solutions, and our global footprint is expanding.

Speaker #2: We have appointed Ray Liu as our new CFO effective April 27th. Ray is a seasoned finance executive with over 20 years of experience in FP&A, strategic finance, and SEC reporting at companies including Aiden, and MetLife, investment management.

Speaker #2: He's a CFA charterholder and CPA, and we are confident he will be an excellent partner as we scale the business. More details on this transition are in the separate press release we issued today.

Speaker #2: Now let me walk through each of our business units. Starting with energy storage systems. ESS remains our largest near-term revenue driver and was responsible for the majority of our first quarter revenue through using energy.

Speaker #2: We continue to see growing demand for our commercial and industrial energy storage solutions and our global footprint is expanding. Earlier this month, we provided a business update that highlighted our strong start to the year.

Qichao Hu: Earlier this month, we provided a business update that highlighted our strong start to the year. Today, I want to add some additional context on the commercial traction we are seeing. We have now entered the North American market through our multi-year distribution agreement with ATG E-Power, a leading North American distributor of renewable energy and energy storage solutions that has been operating in the clean energy sector since 2001. This contract, valued at approximately $20 million over three years, gives us immediate access to ATG E-Power's established distribution network across residential, commercial, and industrial customer segments. This new contract builds on UZ Energy's existing customer base in Australia, the Middle East, and Europe, and reflects our strategy to grow the ESS business both geographically and through the on-premise integration of our Molecular Universe predict capabilities into the hardware offering, an Edge Box.

Speaker #2: Today, I want to add some additional context on the commercial traction we are seeing. We have now entered the North American market through our multi-year distribution agreement with ATG E-Power, a leading North American distributor of renewable energy and energy storage solutions.

Speaker #2: That has been operating in the clean energy sector since 2001. This contract, valued at approximately $20 million over three years, gives us immediate access to ATG E-Power's established distribution network across residential, commercial, and industrial customer segments.

Speaker #2: This new contract builds on using energy's existing customer base in Australia, the Middle East, and Europe, and reflects our strategy to grow the ESS business both geographically and through the on-premise integration of our molecular universe predict capabilities into the hardware offering.

Speaker #2: An edge box. Energy storage systems are financial assets for our customers. The value depends on delivering consistent, long-term performance. Our ability to provide both the hardware and an intelligent operating system that predicts battery health and reduces maintenance costs is a key differentiator.

Qichao Hu: Energy storage systems are financial assets for our customers. The value depends on delivering consistent long-term performance. Our ability to provide both the hardware and an intelligent operating system that predicts battery health and reduces maintenance costs is a key differentiator. Turning to drones. We made progress in our drone cell business during Q1 that I want to walk through. I am pleased to report that we have completed the conversion of our manufacturing line at our Chungju, South Korea facility from EV power cells to drone format power cells. This facility, which produced the world's first 100 amp hour lithium metal cell back in 2021, has been NDAA compliant since 2021.

Speaker #2: Turning to drones, we made progress in our drone cell business during the first quarter that I want to walk through. I am pleased to report that we have completed the conversion of our manufacturing line at our Chengdu, South Korea facility from EV power cells to drone format power cells.

Speaker #2: This facility, which produced the world's first 100 amp-hour lithium metal cell back in 2021, has been NDA compliant since 2021. Our plans are for the conversion line to gradually ramp up to an annual capacity of over 1 million drone cells, and it incorporates our AI for manufacturing capabilities to ensure quality and cost-effectiveness.

Qichao Hu: Our plans are for the converted line to gradually ramp up to an annual capacity of over 1 million drone cells and incorporates our AI for manufacturing capabilities to ensure quality and cost-effectiveness. Early this month, we began shipping NDAA compliant cells produced in our Chungju factory to prospective defense and commercial drone customers for evaluation and qualification testing. Customer interest has been strong, and we are encouraged by the engagement we are seeing. The US defense drone market in particular continues to be where we see the most consequential near-term opportunity, and our NDAA compliant manufacturing capability in Korea positions us well relative to competitors who lack NDAA compliant supply chains. We continue to explore additional NDAA compliant manufacturing capacities in Southeast Asia and expect to have more to update on this front later this year. On materials, our pipeline continues to build.

Speaker #2: Early this month, we began shipping NDA-compliant cells produced in our Chengdu factory to prospective defense and commercial drone customers for evaluation and qualification testing.

Speaker #2: Customer interest has been strong and we are encouraged by the engagement we are seeing. The US defense drone market in particular continues to be where we see the most consequential near-term opportunity and our NDA compliant manufacturing capability in Korea positions us well relative to competitors who lack NDA compliant supply chains.

Speaker #2: We continue to explore additional NDA-compliant manufacturing capacities in Southeast Asia, and expect to have more to update on this front later this year.

Speaker #2: On materials, our pipeline continues to build through the molecular universe platform both SES and our customers have been discovering new electrolyte materials for applications beyond our current cell production.

Qichao Hu: Through the Molecular Universe platform, both SES and our customers have been discovering new electrolyte materials for applications beyond our current cell production. We now have approximately 6 customers who have progressed through second phase testing of materials discovered through the platform, and the overall number of customers in our pipeline has increased. The progression of existing customers through the testing pipeline represents positive momentum. We remain on track with the Hyzon joint venture to leverage their 150,000 tons annual global capacity to produce these materials at commercial scale as demand materializes. On the Molecular Universe, we recently introduced version 2.5 of the platform, which represents our fifth major iteration since we launched in 2024.

Speaker #2: We now have approximately half a dozen customers who have progressed through second phase testing of materials discovered through the platform. And the overall number of customers in our pipeline has increased.

Speaker #2: The progression of existing customers through the testing pipeline represents positive momentum. We remain on track with the Heisen joint venture to leverage their 150,000 ton annual global capacity to produce these materials at commercial scale as demand materializes.

Speaker #2: And on the molecular universe, we recently introduced version 2.5 of the platform which represents our fifth major iteration since we launched in 2024. Version 2.5 delivers upgraded capabilities across our six AI-powered workflows.

Qichao Hu: Version 2.5 delivers upgraded capabilities across our six AI-powered workflows: ask, search, formulate, design, predict, and manufacture, along with expanded enterprise on-premise deployment options and covering both lithium and now sodium chemistries. During the quarter, a major global battery manufacturer committed to a multiyear subscription of our Molecular Universe Search in a Box product, which we view as a validation of the platform's value to the world's leading battery companies. While the direct on-premise revenue from the Molecular Universe continues to build and is expected to make a modest direct contribution in 2026, its biggest impact remains the AI and competitive advantages it drives across our ESS, drone, and materials businesses. We will continue to explore how best to demonstrate and unlock the Molecular Universe value over the course of the year.

Speaker #2: Ask, search, formulate, design, predict, and manufacture—along with expanded enterprise on-premise deployment options and covering both lithium and now sodium chemistries. During the quarter, a major global battery manufacturer committed to a multi-year subscription of our Molecular Universe Search-in-a-Box product.

Speaker #2: Which we view as a validation of the platform's value to the world's leading battery companies. While the direct on-premise revenue from the molecular universe continues to build and is expected to make a modest direct contribution in 2026, its biggest impact remains the IT and competitive advantages it drives across our ESS drone and materials businesses.

Speaker #2: We will continue to explore how best to demonstrate an unlock the molecular universe value over the course of the year. As we look to the remainder of 2026, our priorities remain clear.

Qichao Hu: As we look to the remainder of 2026, our priorities remain clear. Execute on the ESS opportunity through UZ Energy and our growing distribution network. Advance our drone cell business to a commercial scale customer engagements. Deliver on the materials pipeline and continue developing the Molecular Universe as both a revenue stream and a competitive advantage. I want to thank the team for their continued execution and thank all of you for your continued interest in SES AI. Now here's Jing for financial updates.

Speaker #2: Execute on the ESS opportunity through using energy and our growing distribution network. Advance our drone cell business to our commercial scale customer engagements. Deliver on the materials pipeline and continue developing the molecular universe as both a revenue stream and a competitive advantage.

Speaker #2: I want to thank the team for their continued execution, and thank all of you for your continued interest in SES AI. And now, here's Jing for financial updates.

Speaker #2: Thank you, Qichao. I will walk through our financial results for the first quarter of 2026. Given that our current three business unit structure took shape in the fourth quarter of 2025, with the integration of using energy and the launch of our drone cells and materials initiatives, we will present our first quarter results on a sequential basis compared to the fourth quarter of 2025, which we believe provides the most meaningful view of our operating trajectory.

Jing Nealis: Thank you, Qichao. I will walk through our financial results for Q1 2026. Given that our current three-business unit structure took shape in Q4 2025 with the integration of UZ Energy and the launch of our drone cells and materials initiative, we will present our Q1 results on a sequential basis compared to Q4 2025, which we believe provides the most meaningful view of our operating trajectory. Revenue for Q1 2026 was $6.7 million, representing a 47% increase over the $4.6 million in Q4 2025. As a reminder, Q4 2025 was impacted by approximately $1.5 million of revenue that was pushed into Q1, which benefited Q1 results.

Speaker #2: Revenue for the fourth quarter of 2026 was $6.7 million, representing a 47% increase over the $4.6 million in the fourth quarter of 2025. As a reminder, the fourth quarter of 2025 was impacted by approximately $1.5 million of revenue that was pushed into the first quarter, which benefited Q1 results.

Speaker #2: Our revenue growth reflects the continued growth from using energy's ESS product revenue. And early contributions from our drone cells and MU subscription revenue. We're reaffirming our full year 2026 revenue guidance of $30 million to $35 million.

Jing Nealis: Our revenue growth reflects the continued growth from UZ Energy's ESS product revenue and early contributions from our drone cells and MU subscription revenue. We're reaffirming our full year 2026 revenue guidance of $30 million to 35 million. Our Q1 gross margin on a GAAP basis was 18.1%, compared to 11.3% in Q4 2025. On a non-GAAP basis, which excludes stock-based compensation as well as depreciation and amortization allocated to cost of revenue, our Q1 non-GAAP gross margin was 18.3%, compared to 11.7% in Q4 2025. The sequential improvement from Q4 2025 reflects margin improvements from the UZ ESS business and higher margin from sample drone sales and MU subscription revenue. Turning to operating expenses, our GAAP operating expenses for Q1 2026 were $19.1 million, compared to $18.2 million for Q4 2025.

Speaker #2: Our Q1 growth margin on a gap basis was 18.1% compared to 11.3% in the fourth quarter of 2025. On a non-gap basis, which excludes stock-based compensation as well as depreciation and amortization allocated to cost of revenue, our Q1 non-gap growth margin was 18.3% compared to 11.7% in the fourth quarter of 2025.

Speaker #2: The sequential improvement from Q4 2025 reflects margin improvements from the use of ESS business and higher margin from sample drone sales and MU subscription revenue.

Speaker #2: Turning to operating expenses, our gap operating expenses for the first quarter of 2026 were $19.1 million, compared to $18.2 million for the fourth quarter of 2025.

Speaker #2: On a non-GAAP basis, which excludes stock-based compensation as well as depreciation and amortization, first quarter operating expenses were $14.3 million, compared to $13.5 million for the fourth quarter of 2025.

Jing Nealis: On a non-GAAP basis, which excludes stock-based compensation as well as depreciation and amortization, Q1 operating expenses were $14.3 million, compared to $13.5 million for Q4 2025. Our GAAP net loss for Q1 was $12.1 million, a $0.04 loss per share, compared to a GAAP net loss of $17 million or a $0.05 loss per share in Q4 2025. I want to remind everyone that our GAAP net loss in any given quarter can be meaningfully impacted by non-cash mark-to-market movements in the fair value of our sponsor earn-out liabilities, which are required to be remeasured each reporting period under GAAP. In Q1 2026, we recorded a $4.2 million non-cash gain related to these liabilities.

Speaker #2: Our gap net loss for the first quarter was $12.1 million. A 4 cents loss per share. Compared to a gap net loss of $17 million, or 5 cents loss per share in the fourth quarter of 2025.

Speaker #2: I want to remind everyone that our GAAP net loss in any given quarter can be meaningfully impacted by non-cash mark-to-market movements in the fair value of our sponsor earnout liabilities.

Speaker #2: Which are required to be remeasured each reporting period under GAAP. In Q1 2026, we recorded a $4.2 million non-cash gain related to these liabilities.

Speaker #2: These non-cash gains or losses are not reflective of our underlying operating performance. And we believe excluding them provides a clearer picture of the progress we're making in the business.

Jing Nealis: These non-cash gains or losses are not reflective of our underlying operating performance, and we believe excluding them provides a clearer picture of the progress we're making in the business. Excluding stock-based compensation, depreciation, and amortization, change in fair value of sponsor earn-out liabilities, and including interest income, our non-GAAP net loss for Q1 2026 was $11.1 million, or $0.03 loss per share, compared to a non-GAAP net loss of $11.8 million or $0.04 loss per share in Q4 2025. Adjusted EBITDA for Q1 2026 was a loss of $12.8 million, compared to a loss of $13.8 million in Q4 2025. We believe this continued progress reflects the positive operating leverage beginning to emerge in our business as revenue scales, combined with our sustained focus on financial discipline and cost management across the organization.

Speaker #2: Excluding stock-based compensation, depreciation, and amortization change in fair value of sponsor earnout liabilities and including interest income are non-gap net loss for the first quarter was $11.1 million, or 3 cents loss per share.

Speaker #2: Compared to a non-GAAP net loss of $11.8 million, or a $0.04 loss per share in the fourth quarter of 2025. Adjusted EBITDA for the first quarter of 2026 was a loss of $12.8 million, compared to a loss of $13.8 million in the fourth quarter of 2025.

Speaker #2: We believe this continued progress reflects the positive operating leverage beginning to emerge in our business as revenue scales, combined with our sustained focus on financial discipline and cost management across the organization.

Speaker #2: We remain on track to deliver the approximately 15% reduction in full year operating expenses that we guided on our last call. A detailed reconciliation of gap net loss to adjusted EBITDA and non-gap net loss per share is included in the financial tables at the end of the shareholder letter.

Jing Nealis: We remain on track to deliver the approximately 15% reduction in full year operating expenses that we guided on our last call. A detailed reconciliation of GAAP net loss to adjusted EBITDA and non-GAAP net loss per share is included in the financial tables at the end of the shareholder letter. We utilized approximately $20 million in cash for operations during Q1, consistent with our operating plan. We exited Q1 with a strong liquidity position of approximately $178 million. Our CapEx-light business model remains a core financial discipline, and we are confident our current liquidity provides a strong runway to fund operations and execute on our 2026 growth initiatives. On a housekeeping note, we expect to file a new F-3 shelf registration statement concurrent with our 10-Q. As our current shelf expires on 28 April, this is a routine administrative filing to maintain our financial flexibility.

Speaker #2: We utilized approximately $20 million in cash for operations during the first quarter, consistent with our operating plan. We exited the first quarter with a strong liquidity position of approximately $178 million.

Speaker #2: Our CapEx light business model remains a core financial discipline. And we are confident our current liquidity provides a strong runway to fund operations and execute on our 2026 growth initiatives.

Speaker #2: On a housekeeping note, we expect to file a new S3 shelf registration statement concurrent with our 10Q. As our current shelf expires on April 28th, this is a routine administrative filing to maintain our financial flexibility.

Speaker #2: We believe the first quarter demonstrates steady execution against the plan we laid out. Revenue is on plan, costs are coming down, and our multi-revenue stream platform is taking shape.

Jing Nealis: We believe Q1 demonstrates steady execution against the plan we laid out. Revenue is on plan, costs are coming down, and our multi-revenue stream platform is taking shape. We are well-capitalized, financially disciplined, and positioned to deliver on our full-year outlook. Lastly, on a personal note, this is my last earnings call with SES. I am grateful for the opportunity to have helped build SES's financial foundation during the past five transformative years of the company. SES is well-positioned to capitalize on the momentum it has built, and I look forward to seeing the growth story unfold. Thank you to Qichao Hu, my colleagues, our board, and our shareholders for the trust and support along the way. Thank you. With that, I'll hand the call back to the operator.

Speaker #2: We are well capitalized financially disciplined. And positioned to deliver on our full year outlook. Lastly, on a personal note, this is my last earnings call with SES.

Speaker #2: I am grateful for the opportunity to have helped build SES's financial foundation during the past five transformative years of the company. SES is well positioned to capitalize on the momentum it has built and I look forward to seeing the growth story unfold.

Speaker #2: Thank you to Qichao, my colleagues, our board, and our shareholders for the trust and support along the way. Thank you. With that, I'll hand the call back to the operator.

Speaker #1: At this time, if you would like to ask a question, press star, then the number one on your telephone keypad. To withdraw your question, simply press star one again.

Operator: Your first question comes from the line of Derek Soderberg with Cantor Fitzgerald. Please go ahead.

Speaker #1: We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Derek Soderberg with Cancer Fitzgerald.

Operator: Your first question comes from the line of Derek Soderberg with Cantor Fitzgerald. Please go ahead.

Speaker #1: Please go ahead.

Speaker #3: Yeah, hey everyone, thanks for taking the questions. And Jing, it's been a pleasure working with you on this one. So, just on the evaluation and qualification tests, can you talk about the typical timeline?

Derek Soderberg: Yeah. Hey, everyone. Thanks for taking the questions. Jing, it's been a pleasure working with you on this one. Just on the evaluation and qualification tests, can you talk about the typical timeline? How long might it take to transition those into firm purchase orders?

Speaker #3: How long might it take to transition those into firm purchase orders?

Speaker #4: Hey, Jared. Are you referring to drones, qualification, or electrolyte? Which one?

Qichao Hu: Hey, Derek. Are you referring to drones qualification or electrolyte? Which one?

Speaker #3: Drones.

Derek Soderberg: Drones.

Speaker #4: Drones.

Speaker #3: Drones. Qualification typically takes one to two quarters, and we started those last year. So most of the qualifications have actually been completed, and now it’s just making those in our Korea facility and having the customers come in, then do the supply chain audit—making sure all the cathode powder, the anode powder, and the processing actually take place in Korea.

Jing Nealis: Drones.

Qichao Hu: Drones. Qualification, typically 1 to 2 quarters. Then we've started those last year, so most of the qualifications actually have been completed. Now it's just making those in our Korea facility and have the customers come in and then do the supply chain audit, making sure all the cathode powder, the anode powder, and the processing actually take place in Korea.

Speaker #5: Got it. That's helpful. And then on the on-premise solution, I think you said you're going to have some contribution this year. Is there any chance you can quantify that all for us?

Derek Soderberg: Got it. That's helpful. Then on the on-premise solution, I think you said you're going to have some contribution this year. Is there any chance you can quantify that all for us?

Speaker #4: Probably in the next quarter and then till this last quarter we did have one of the largest battery companies that actually signed up to the molecular universe search in a box.

Qichao Hu: Probably in the next quarter. This last quarter, we did have one of the largest battery companies to actually sign up to the Molecular Universe Search in a Box. Only one of the six features, and then we have a few more in the pipeline that are interested in Formula in a Box, Predict in a Box, and also other features of the tool.

Speaker #4: So only one of the six features and then we have a few more in the pipeline that are interested in formula in a box, predict in a box, and also other features of the tool.

Speaker #5: Got it. And then one final one for me. On the drones, again, what's sort of the split between defense and commercial interest? Can you maybe break that out for us at all?

Derek Soderberg: Got it. One final one for me. On the drones, again, what's sort of the split between defense and commercial interest? Can you maybe break that out for us at all? Thanks.

Speaker #5: Thanks.

Qichao Hu: It's mostly defense, even though almost all the customers come to us will say it's dual use, like the same drones could be used for defense, police, and commercial. In reality, we focus a lot on customers that want NDAA compliance, and then only the customers that actually want to get defense contracts would really push for NDAA compliance. We don't have a specific breakdown between defense and non-defense, but because also the customers don't tell us that. We know it's actually predominantly defense.

Speaker #4: It's mostly defense, even though almost all the customers come to us will say it's dual use, like the same drones could be used for defense, police, commercial, in reality, the customers that come in.

Speaker #4: So we focus a lot on customers that want NDA compliance, and then only the customers that actually want to get defense contracts would really push for NDA compliance.

Speaker #4: So we don't have a specific breakdown between defense and non-defense, but also, the customers don't tell us that. But we know it's actually predominantly defense.

Speaker #5: Perfect. Thanks.

Derek Soderberg: Perfect. Thanks.

Speaker #4: Thanks.

Qichao Hu: Thanks.

Speaker #1: Your next question comes from the line of Winnie Dong with Deutsche Bank. Please go ahead.

Operator: Your next question comes from the line of Winnie Dong with Deutsche Bank. Please go ahead.

Speaker #6: Hi, thanks so much for taking my question. And Jing, thank you so much, and it was a great pleasure working with you. My first question is on the multi-year distribution agreement with ATG E-Power.

Winnie Dong: Hi. Thanks so much for taking my question. Jing, thank you so much, and it was a great pleasure working with you. My first question is on the multi-year distribution agreement with ATG E-Power. I was wondering if you can help us understand the relationship, if this is like a wholesale relationship, and of the $20 million order over three years, what kind of shipment cadence we should be thinking about?

Speaker #6: I was wondering if you can help us understand the relationship, if this is like a wholesale relationship, and of the 20 million order over three years, what kind of shipment cadence we should be thinking about?

Qichao Hu: It's similar to what I just mentioned. It's a wholesale distribution, and then they help us bundle the UZ products with solar, and then distribute that to their customers.

Speaker #4: It's similar to what we just mentioned. It's a wholesale distribution, and then they help us bundle the UZ products with solar and distribute that to their customers.

Speaker #6: Got it. So essentially, once you ship it to them, you would be able to book revenue. That's how the setup is?

Winnie Dong: Got it. Essentially, once you ship it to them, you will be able to book revenue. That's how the setup is?

Speaker #4: In terms of revenue recognition, the timing—is that correct?

Qichao Hu: In terms of revenue recognition, the timing, Jing, is that correct?

Speaker #1: Yeah, yes. So, it's based on shipment. Yes, once we ship it, based on the Incoterm, we will be able to recognize the product revenue.

Jing Nealis: Yeah. Yes. It's based on shipment. Yes. Once we ship it, based on the incoterm, we will be able to recognize the product revenue. That's correct.

Speaker #1: That's correct.

Speaker #6: Gotcha. Okay. And then on UZ, you've achieved close to $7 million. I think some of that spilled over from Q4. What is the typical seasonality of this business?

Winnie Dong: Got you. Okay. Then on UZ, you've achieved close to $7 million, and I think some were spilled over from Q4. What is the typical seasonality of this business? I understand that maybe it can be a little difficult since you're spreading across all different regions, but holistically, is there a seasonality that we should be looking at for this business?

Speaker #6: And I understand that maybe it can be a little difficult since you're spreading across all different regions, but holistically, is there a seasonality that we should be looking at for this business?

Speaker #4: Jing, you want to address that?

Winnie Dong: Jing, you want to address that?

Qichao Hu: Jing, you want to address that?

Ray Liu: Yeah. Maybe I can address. I think overall, the energy storage business globally have some sort of seasonality depending on the region. Q2, Q3 usually are higher than Q4. It also depends on the local incentives available. Like Australia, everybody is trying to secure something to be installed before the incentives go away. In Europe, there are a lot of incentives going on before it goes away. There are certainly seasons, based on the region. However, because UZ sells to many regions globally, is not tied to a particular place. I think for this year, at least, we see growth quarter over quarter, with some seasonality, but I wouldn't put a lot of emphasis on that. Q2 or Q3 are probably higher.

Jing Nealis: Yeah. Maybe I can address. I think overall, the energy storage business globally have some sort of seasonality depending on the region. Q2, Q3 usually are higher than Q4. It also depends on the local incentives available. Like Australia, everybody is trying to secure something to be installed before the incentives go away. In Europe, there are a lot of incentives going on before it goes away. There are certainly seasons, based on the region. However, because UZ sells to many regions globally, is not tied to a particular place. I think for this year, at least, we see growth quarter over quarter, with some seasonality, but I wouldn't put a lot of emphasis on that. Q2 or Q3 are probably higher.

Speaker #1: Maybe I can. Yeah. Maybe I can address. I think overall, the energy storage business globally has some sort of seasonality depending on the region.

Speaker #1: And Q2, Q3 usually are higher than Q4. But it also depends on the local incentives available, like in Australia. Everybody is trying to secure something to be installed.

Speaker #1: Before the incentives go away in Europe, there are a lot of incentives going on before they expire. So there are certainly seasons based on the region.

Speaker #1: However, because UZ sells to many regions globally, it's not tied to a particular place. So I think for this year, at least, we see growth quarter over quarter.

Speaker #1: With some seasonality, but I wouldn't put a lot of emphasis on that. But Q2, Q3 probably higher.

Speaker #6: Got it. And then maybe just a follow-up. I guess within the 30 to 35 million what is baked in in terms of contribution from materials and some of the other efforts that you guys have in place?

Winnie Dong: Got it. Maybe just a follow-up. I guess within the $30 to $35 million, what is baked in terms of contribution from materials, and some of the other efforts that you guys have in place?

Qichao Hu: What's the breakdown?

Speaker #4: What's the breakdown?

Speaker #6: Yeah.

Operator 1: Yeah.

Winnie Dong: Yeah.

Speaker #4: I think we expect this year to come predominantly from USS and then RES split between drones and materials.

Qichao Hu: I think we expect this year to come predominantly from ESS, and then rest split between drones and materials.

Speaker #6: Got it. Thank you.

Winnie Dong: Got it. Thank you.

Speaker #1: Your next question comes from the line of Dave Storms with Stonegate. Please go ahead.

Operator: Your next question comes from the line of David Storms with Stonegate. Please go ahead.

David Storms: Evening. Thank you for taking my questions. Wanted to start maybe with ESS and your mention of the hardware offering Edge Box. Was hoping you could maybe spend a little time speaking about how that plays into the sales cycle, and maybe what some of the benefits of it are.

Dave Storms: Evening. Thank you for taking my questions. Wanted to start maybe with ESS and your mention of the hardware offering Edge Box. Was hoping you could maybe spend a little time speaking about how that plays into the sales cycle, and maybe what some of the benefits of it are.

Speaker #7: Good evening and thanks for taking my questions. I wanted to start maybe with ESS and your mention of the hardware offering EdgeBox. So hoping you could maybe spend a little time speaking about how that plays into the sales cycle and maybe what some of the benefits of it are.

Speaker #4: Can you ask the last part of your question again? The sales cycle, and then the part after that?

Qichao Hu: Can you ask the last part of the question again, the sales cycle and then the part after that?

Speaker #7: Yeah. Just maybe some of the benefits of adding EdgeBox to your offering. And how it could maybe help in the sales cycle.

David Storms: Yeah, just maybe some of the benefits of adding Edge Box to your offerings.

Dave Storms: Yeah, just maybe some of the benefits of adding Edge Box to your offerings.

Qichao Hu: I see.

David Storms: ... how it may be helping the sales cycle.

Dave Storms: ... how it may be helping the sales cycle.

Speaker #4: Yeah. So the hardware is pretty competitive and it's basically you purchase sales and then you integrate those into a container. And then in the industry, the accuracy, the error is typically 7% or even as high as 10%.

Qichao Hu: Yeah. The hardware is pretty competitive, and it's basically you purchase cells and then you integrate those into a container. The industry, the accuracy, the error is typically 7% or even as high as 10%, so not so accurate. As a result of that, for example, if your project only needs 10kW, you will buy 14kWh to basically allow for the error. By having this Edge Box, this Edge Box does two things. One is it can very accurately tell the state of charge, the state of health, safety, energy, power, basically what we call SLX, and then there's six of them. It can give a really accurate estimation of that. Instead of the error being 7%, 10%, now we're talking about 3% or even less.

Speaker #4: So, not so accurate. And then, as a result of that, for example, if your project only needs 10 kilowatts, you will buy 14 kilowatt-hours to basically allow for that error.

Speaker #4: So by having this EdgeBox, , this EdgeBox does two things. One is it can very accurately tell the state of charge, the state of health, safety, energy, power, basically what we call SLX.

Speaker #4: And then there's a six of them. And it can give a really accurate estimation of that. So instead of the error being 7%, 10%, now we're talking about 3% or even less.

Speaker #4: And then the other benefit is that, instead of being on the cloud—which a lot of customers don't like—it's totally secure. It's in a box that we actually put on-premise.

Qichao Hu: Then the other benefit is that it's instead of on the cloud, which a lot of customers don't like, it's totally secure. It's in a box that we actually put on-premises, so you also have data security. The main benefit of that is now that instead of buying more capacity, to allow for the inaccurate estimation, you can buy less so the customers can save cost. For some of the customers that want to participate in virtual power plant, basically ancillary trading and then sell the ancillaries back to the grid. Because you have a more accurate estimation than your peers, you can bid in a more competitive price. Also you can, when you make the decision of whether or not to participate, and that trade-off versus sacrificing the battery health, you can have a more accurate estimation of that trade-off.

Speaker #4: So, you also have data security. So the main benefit of that is now that instead of buying more capacity to allow for the inaccurate estimation, you can buy less.

Speaker #4: So the customers can save costs. And then, for some of the customers that want to participate in virtual power plants—basically electricity trading—and then sell electricity back to the grid, because you have a more accurate estimation than your peers, you can bid at a more competitive price.

Speaker #4: And also you can when you make the decision of whether or not to participate, and that trade-off versus sacrificing the battery health, you can have a more accurate estimation of that trade-off.

David Storms: Understood. Very helpful. Thank you. Maybe just turn to materials. It was mentioned that there's several companies completing their second phase. Maybe just thoughts around timing through this next step, this third phase, as they advance towards commercial scale supply discussions.

Dave Storms: Understood. Very helpful. Thank you. Maybe just turn to materials. It was mentioned that there's several companies completing their second phase. Maybe just thoughts around timing through this next step, this third phase, as they advance towards commercial scale supply discussions.

Speaker #7: Understood. Very helpful. Thank you. And then maybe just turn into materials. It was mentioned that there's several companies completing their second phase. Maybe just thoughts around timing through this next step, this third phase.

Speaker #7: As they advance towards commercial-scale supply discussions.

Speaker #4: So typically, it's two to three rounds of testing, each round about one quarter. So we talk about six to nine months of testing. And then towards the end of the last round of testing, the customer will go through what's called commercial qualification.

Qichao Hu: Typically it's 2 to 3 rounds of testing, each round about one quarter. We talk about 6 to 9 months of testing. Towards the end of the last round of testing, then the customer will go through what's called commercial qualification. Basically, they will check for the plant and also check for all the toxicity, the special chemical permits needed for any special materials inside this formulation, making sure it's compliant to all the necessary local environmental toxicity, chemical regulation. Overall, the testing, 6 to 9 months, and then another quarter for the commercial qualification. Again, we started a lot of this last year, so now with a lot of these customers, we are towards the end of second round of qualification.

Speaker #4: Basically, they will check for the plant and also check for all the toxicity, and the special chemical permits needed for any special materials inside this formulation.

Speaker #4: And then making sure it's compliant to all the necessary local environmental toxicity chemical regulation. And then so overall, the testing six to nine months and then another quarter for the commercial qualification.

Speaker #4: But again, we started a lot of this last year. So now we are with a lot of these customers, we are towards the end of second round of qualification.

David Storms: Understood. Maybe just one more quick modeling one for me. You reiterated 15% expense reduction throughout the year. Should we expect that to kind of go on a linear glide path throughout the year? Or maybe just any thoughts around the cadence of those expense reductions?

Dave Storms: Understood. Maybe just one more quick modeling one for me. You reiterated 15% expense reduction throughout the year. Should we expect that to kind of go on a linear glide path throughout the year? Or maybe just any thoughts around the cadence of those expense reductions?

Speaker #7: Understood. And maybe just one more quick modeling one for me. You reiterated 15% expense reduction throughout the year. Should we expect that to kind of go on a linear glide path throughout the year?

Speaker #7: Or maybe just any thoughts around the cadence of those expense reductions?

Speaker #4: Jen, you want to take that?

Qichao Hu: Jing, you want to take that?

Ray Liu: Yeah, I'll take that. We are taking a lot of actions to further reduce our operating expenses starting from Q1. You should be able to see the full quarter impact starting from Q3. There will be a little bit of a reduction in Q2, but not full quarter. Starting Q3, the full quarter impact should be coming in. Q4 may be slightly lower than Q3.

Jing Nealis: Yeah, I'll take that. We are taking a lot of actions to further reduce our operating expenses starting from Q1. You should be able to see the full quarter impact starting from Q3. There will be a little bit of a reduction in Q2, but not full quarter. Starting Q3, the full quarter impact should be coming in. Q4 may be slightly lower than Q3.

Speaker #8: Yeah, I'll take that. So we are taking a lot of actions to further reduce our operating expenses starting from Q1. So you should be able to see the full quarter impact starting from Q3.

Speaker #8: There will be a little bit of a reduction in Q2, but not for the full quarter. But starting in Q3, the full quarter impact should be coming in.

Speaker #8: So then Q4, maybe slightly lower than Q3.

Speaker #7: Understood. Thank you for all the commentary.

David Storms: Understood. Thank you for all the commentary.

Dave Storms: Understood. Thank you for all the commentary.

Speaker #4: Thank you.

Qichao Hu: Thank you.

Speaker #1: As a final reminder, it is STAR 1 on your telephone keypad to ask a question. Your next question comes from the line of Sean Milligan with Needham.

Operator: As a final reminder, it is star one on your telephone keypad to ask a question. Your next question comes from the line of Sean Milligan with Needham. Please go ahead.

Speaker #1: Please go ahead.

Speaker #4: Hey, thank you for taking the questions. In terms of the 1 million units that you're targeting for the drone cell business, can you talk to what that potentially represents from a revenue standpoint?

Sean Milligan: Hey, thank you for taking the questions. In terms of the 1 million units that you're targeting for the drone cell business, can you talk to what that potentially represents from a revenue standpoint? The second question is, you've mentioned that you've been testing cells or qualifying cells with potential customers there. Is there any context you can give us to the pipeline and maybe kind of sizing of initial orders that you would expect to see?

Speaker #4: And then the second question is, you've mentioned that you've been testing cells or qualifying cells for potential customers there. Is there any context you can give us to the pipeline and maybe kind of sizing of initial orders that you would expect to see?

Speaker #9: Sure. So the 1 million is still not the full capacity that Korea factory could go up to much higher. All that investment we made for EV and then turned out we accidentally built one of the largest drone pouch cell manufacturing factories outside of China.

Qichao Hu: Sure. The 1 million is still not the full capacity. That Korea factory could go up to much higher. All that investment we made for EV, and then turned out we accidentally built one of the largest drone pouch cell manufacturing factories outside China. We have a lot of customers that want NDAA compliant cells come to us. The market price for NDAA compliant cells, obviously depending on the specific cell format, ranges between $25 to $35. That's the market price. If 1 million units, it's about $25 to $35 million. That's just 1 million. We could, again, go to much higher if needed. In terms of the qualification process, again, we started most of the testing last year. The performance and the product testing have been completed.

Speaker #9: So, we have a lot of customers that want NDA-compliant cells come to us. And the market price for NDA-compliant cells, obviously depending on the specific cell format, ranges between $25 to $35.

Speaker #9: That's the market price. So if a million units is about $25 to $35 million, that's just for a million. And then we could, again, go much higher if needed.

Speaker #9: And then, in terms of the qualification process, again, we did—we started most of the testing last year. So now we're doing—so the performance and the product testing have been completed.

Speaker #9: And then now, a lot of that is actually supply chain audit and qualification.

Qichao Hu: Now a lot of that is actually supply chain audit and qualification.

Speaker #4: Okay. Is there any way to talk about the pipeline, like the number so if you look at the revenue guidance this year, I think you said some of that comes from the drone business, but it's obviously could be a much bigger piece of business.

Sean Milligan: Okay. Is there any way to talk about the pipeline? If you look at the revenue guidance this year, I think you said some of that comes from the drone business, but it obviously could be a much bigger piece of business. I'm just trying to understand.

Speaker #4: I'm just trying to understand how the pipeline looks, like number of customers, that you're testing with. Any kind of stats that can help us kind of gain some sense of potential momentum?

Qichao Hu: Yeah

Sean Milligan: How the pipeline looks, like number of customers that you're testing with. Any kind of stats that can help us kind of gain some sense of potential momentum.

Qichao Hu: We have a pipeline of a few dozen customers. Again, we focus on customers that want NDAA compliant cells. Then really, we actually had some shipment recently. We expect revenue in Q2 for the NDAA compliant cells, and then start to pick up Q3 and then Q4. Then really, next year, 2027, is going to be a full year when we actually have the ability to deliver a full year of these NDAA compliant cells.

Speaker #9: So we have a pipeline of a few dozen customers. And again, we focus on customers that want NDA compliant cells. And then really so we actually had some shipment recently.

Speaker #9: So we expect revenue in Q2 for the NDA compliant cells. And then start to pick up Q3 and then Q4. And then really next year, 2027, is going to be a full year when we actually have the ability to deliver a full year of these NDA compliant cells.

Speaker #4: Great. Thank you.

Sean Milligan: Great. Thank you.

Speaker #9: Thank you.

Qichao Hu: Thank you.

Operator: There appear to be no further questions at this time. Ladies and gentlemen, this concludes the SES AI Q1 2026 Earnings Call. Thank you all for joining. You may now disconnect.

Speaker #1: There appear to be no further questions at this time. Ladies and gentlemen, this concludes the SES AI first quarter 2026 earnings call. Thank you all for joining.

Q1 2026 SES AI Corp Earnings Call

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