SES AI Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. SES develops lithium-metal rechargeable batteries for electric vehicles and remained pre-commercial, with no revenue from its principal business activities. The February 3, 2022 business combination with Ivanhoe was accounted for as a reverse recapitalization.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 or prior balance-sheet date |
|---|---|---|
| Revenue | None | None from principal activities |
| Research and development expense | $4.1 million | $3.0 million |
| General and administrative expense | $15.1 million | $1.5 million |
| Operating loss | $19.2 million | $4.4 million |
| Net loss | $27.0 million | $3.6 million |
| Basic and diluted loss per share | $0.12 | $0.06 |
| Cash used in operating activities | $14.8 million | $3.1 million |
| Cash, cash equivalents and restricted cash | $426.6 million | $161.0 million at December 31, 2021 |
| Total assets | $474.4 million | $193.4 million at December 31, 2021 |
| Total liabilities | $82.0 million | $11.7 million at December 31, 2021 |
- Reported R&D expense reflects OEM development reimbursements; management said the company spent $12.6 million on R&D activities, of which $8.6 million was reimbursed. A $7.5 million GM-related JDA credit was recorded against R&D expense.
- Cash flow from investing activities was an outflow of $2.7 million, mainly property, equipment and software purchases. Financing activities provided $282.9 million, primarily from the business combination and PIPE, net of costs.
- The company had no debt outstanding. Current assets were $441.0 million and current liabilities $27.7 million at quarter-end. Liabilities included a $44.1 million sponsor earn-out liability and $11.8 million in operating lease liabilities.
- No revenue means gross and operating margins are not meaningful. The filing reports no positive operating cash flow or profitable operations to date.
Changes, outlook and risks
- Net loss increased by $23.4 million year over year. G&A rose substantially with $4.6 million of business-combination transaction costs, public-company staffing and compensation, insurance and professional fees. The $7.7 million fair-value loss on the sponsor earn-out liability also increased reported loss; this was a non-cash charge.
- The business combination and PIPE generated $326.1 million gross proceeds; the filing reports $282.9 million net financing cash proceeds for Q1. The company stated its $426.6 million of cash, cash equivalents and restricted cash was expected to fund needs for at least 12 months and support completion of its Pilot Facility and creation of Expansion I, assuming no significant development delays.
- Management targets commercial production in 2025. It described plans for a 1 GWh pilot facility, a South Korea facility, and larger expansion facilities, with more than 100 GWh of planned capacity by 2028. These are forward-looking targets, not assured outcomes. The OEM JDAs are for development and do not obligate partners to buy batteries.
- Shanghai COVID-19 shutdowns had delayed development, testing, manufacturing and the product schedule by more than a month as of May 12, 2022, and affected supplier access. Other risks include technology scale-up and commercialization, competition, supply-chain and materials availability, capital needs, partner execution, regulation, and overseas operations.
- Disclosure controls were ineffective due to material weaknesses in financial reporting, including an unremediated stock-based compensation weakness and a weakness involving Ivanhoe’s accounting for complex financial instruments. Management was working toward remediation by December 31, 2022 but gave no assurance it would meet that timeline.
- The company committed to up to $50 million of JDA-related R&D and equipment activities and expected approximately $17 million in construction costs for a South Korea pre-production facility. Contractual purchase obligations totaled $19.0 million, due within one year. No material litigation was reported.
Key facts for investors to verify
- Whether OEM reimbursements and JDA credits continue at a level that meaningfully offsets R&D spending.
- Progress against cell-development, pilot-facility and commercialization milestones, including the effects of Shanghai disruptions.
- Cash burn, capital expenditure commitments and whether available liquidity remains sufficient as manufacturing plans expand.
- Changes in the fair value of the sponsor earn-out liability and the resulting effect on reported earnings.
- Remediation of material weaknesses and any further restatements, control deficiencies or reporting delays.
- Whether strategic OEM relationships translate into commercial supply agreements; existing JDAs do not require purchases.