SES AI Corporation — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2022. SES is a pre-commercialization developer of lithium-metal rechargeable batteries for electric vehicles; it reported no revenue from its principal business activities. The February 2022 business combination and PIPE financing materially changed the company’s capital structure, so year-over-year comparisons reflect different share counts and public-company costs.
Financial performance and position
Amounts below are in millions of dollars unless otherwise stated.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $8.4 | $3.7 | $19.7 | $10.3 |
| General and administrative expense | $13.3 | $7.0 | $40.3 | $11.5 |
| Total operating expense | $21.7 | $10.7 | $60.0 | $21.8 |
| Net loss | $24.3 | $10.6 | $42.3 | $21.0 |
| Basic and diluted loss per share | $0.08 | $0.17 | $0.15 | $0.35 |
- Cash flow: Nine-month operating cash use was $37.8 million, versus $17.8 million a year earlier. Investing cash use was $10.6 million, mainly for Shanghai and South Korea facilities. Financing provided $283.2 million, primarily from the business combination and PIPE.
- Cash and liquidity: At September 30, cash, cash equivalents and restricted cash totaled $395.2 million, including $394.7 million of cash and cash equivalents. Current assets were $402.2 million and current liabilities $16.9 million. Management said available cash should fund operations for at least 12 months and planned facility expansion in 2023.
- Debt and obligations: Management described the balance sheet as debt-free; the filing reports operating lease liabilities of $11.9 million, including $1.8 million current, and $17.3 million of purchase obligations. No profit margin is meaningful because the company had no revenue.
- Equity and dilution: The company received $282.9 million net proceeds from the business combination and PIPE. At September 30, it had 305.9 million Class A and 43.9 million Class B shares legally issued and outstanding; Class B shares carry ten votes each. Warrants, options and other awards represent potential additional dilution.
Material changes versus prior comparable period
- Operating expenses increased 103% in Q3 and 175% for the first nine months. R&D growth reflected hiring, battery development, software and materials spending; G&A growth included public-company staffing and costs, insurance, professional fees and stock compensation.
- Net loss more than doubled for the nine-month period. Q3 also included a $4.9 million loss from remeasurement of the Sponsor Earn-Out liability; for the nine months, a $16.4 million fair-value gain partly offset operating losses. The liability was $20.0 million at quarter-end.
- Interest income increased as cash holdings and interest rates rose. Nine-month operating cash use increased, while investing cash use fell sharply because the prior-year period included purchases of short-term investments.
- The business combination converted redeemable preferred stock into common shares and substantially increased cash and stockholders’ equity. The company adopted lease accounting in 2022, recognizing operating lease assets and liabilities.
Outlook, risks and unusual items
- Development timeline: Management targeted B-Sample development and initial production in 2023, C-Sample batteries in 2024, and commercial production in 2025. These are goals, not guaranteed milestones. Phase I of the Shanghai pilot facility was fully operational in Q3 2022; the South Korea pilot facility was ready for use in September 2022.
- Management expects R&D, hiring, capital spending and public-company costs to rise. It said current cash was expected to support planned 2023 facility expansion, but delays or other needs could require additional financing; future funding availability and terms are not assured.
- OEM development agreements with GM, Hyundai and Honda are not purchase commitments. The company disclosed up to $50 million in agreed JDA-related development expenditures and entered an agreement to buy a minority interest in a supply-chain partner, expected to close in Q4 2022.
- COVID-19 restrictions shut the Shanghai facility temporarily in April 2022, delaying development, testing, manufacturing and materials access by more than a month. The facility reopened June 1; renewed disruption and broader supply-chain, market and geopolitical risks remain.
- Disclosure controls were deemed ineffective due to material weaknesses, including an unremediated weakness in stock-based compensation accounting and disclosure. The company was working toward remediation by December 31, 2022 but gave no assurance it would meet that target. It also expected to cease being an emerging growth company at year-end 2022, increasing compliance requirements.
- No material litigation was reported. The company disclosed indemnification commitments whose maximum potential payments could not be determined, and a $0.5 million letter of credit secured by restricted cash. Foreign-currency translation losses were $2.5 million for the first nine months.
Investor verification priorities
- Track cash burn, capital spending and whether the $395.2 million cash position remains sufficient as development and facility expansion progress.
- Verify progress against the B-Sample, C-Sample and 2025 commercialization targets, including pilot-facility readiness and manufacturing scale-up.
- Confirm whether OEM development milestones translate into commercial purchase agreements; the disclosed JDAs do not commit partners to buy batteries.
- Review remediation of internal-control material weaknesses and the company’s subsequent annual-report assessment.
- Assess dilution from equity awards, warrants and earn-out arrangements, and the voting concentration associated with Class B shares.