SES AI Corporation — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; filed August 8, 2023. Dollar amounts below are in millions unless stated otherwise.
Business context
SES is a pre-commercialization company developing lithium-metal batteries for electric vehicles, urban air mobility and other uses. It reported no revenue from its principal business activities. Development work with GM, Hyundai and Honda is conducted under joint development agreements (JDAs); Honda’s JDA term concluded June 30, 2023. The company was developing A-Sample cells and targeting a transition to B-Sample development in the second half of 2023.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Operating expenses | $19.3 | $19.1 | $40.9 | $38.3 |
| Operating loss | $(19.3) | $(19.1) | $(40.9) | $(38.3) |
| Net income (loss) | $(12.9) | $9.0 | $(29.2) | $(18.0) |
| Net loss per share, diluted | $(0.04) | $0.03 | $(0.09) | $(0.07) |
| Operating cash flow | Not presented quarterly | $(30.9) | $(28.2) |
There are no revenue-based margins to assess. Q2 R&D expense was $6.3 million and G&A was $12.9 million. For the first half, reported R&D was $14.8 million, while gross R&D activity before JDA credits was $26.3 million. JDA credits to R&D totaled $11.5 million for the first half.
At June 30, cash and cash equivalents were $51.5 million and short-term investments were $305.1 million; cash, cash equivalents and restricted cash totaled $52.8 million. Current assets were $369.7 million versus current liabilities of $16.6 million. Total liabilities were $43.4 million and stockholders’ equity was $374.6 million. The balance sheet reports lease liabilities but no conventional borrowings. First-half capital expenditures were $7.8 million.
Material changes and unusual items
- Q2 net income in 2022 became a $12.9 million net loss in Q2 2023. The prior-year quarter included a $29.0 million gain on the Sponsor Earn-Out Liability, versus a $2.9 million gain in Q2 2023. These fair-value gains are not operating revenue.
- First-half net loss widened to $29.2 million from $18.0 million, while operating loss increased to $40.9 million from $38.3 million. Higher interest income—$8.3 million versus $0.5 million—and a $3.5 million earn-out fair-value gain partly offset operating costs.
- Reported Q2 R&D expense decreased 11.7% year over year, primarily due to higher JDA credits; first-half R&D expense increased 31.8%, reflecting higher personnel, lab and facility costs, partly offset by JDA credits. First-half G&A fell 3.5%, mainly because the prior-year period included business-combination costs.
- Cash and cash equivalents declined from $106.6 million at year-end 2022 to $51.5 million, while short-term investments rose from $283.5 million to $305.1 million. First-half cash used in investing was $23.8 million, including net purchases of investments and capital spending.
- Stock-based compensation was $13.8 million in the first half, up from $8.7 million. The company also reported $1.7 million of first-half other comprehensive loss, largely foreign-currency translation and investment valuation effects.
Outlook, risks and contingencies
Management said existing cash and marketable securities were expected to fund working capital and capital expenditures for at least 12 months from the filing date and, in management’s view, through commercialization. It also cautioned that additional funding may be needed, including if development is delayed or the company pursues a U.S. integrated supply chain. Management expects operating expenses and cash use to rise as development, facilities and hiring expand.
Management targeted B-Sample development in the second half of 2023, a fourth production line for B-Sample EV cells in early 2024, C-Sample development in 2024 and commercial production in 2025. These are forward-looking targets, not guarantees. The company also planned a fifth line for UAM cells and expected a newly leased Woburn lab facility to support an electrolyte foundry by year-end 2023.
- Material weaknesses in internal control over financial reporting remained unresolved; management concluded disclosure controls were not effective as of June 30, 2023. Remediation work was ongoing.
- Management identified risks around commercialization timing, capital needs, manufacturing scale-up, customer integration, supply chains, and achieving profitability. The filing added a risk concerning financial-sector instability and access to funds, though SES said it had no material deposits at the named failed or acquired banks.
- Material contractual obligations totaled $74.0 million: $57.4 million of purchase obligations and $16.7 million of operating lease obligations. A JDA commitment had an agreed value of up to $50 million, of which $5.4 million had been spent by June 30.
- The company reported no legal proceedings it believed likely to have a material adverse effect. A July 2023 Woburn lab lease had approximately $2.6 million of undiscounted minimum payments over an expected five-year term.
Important facts for investors to verify
- Whether SES meets its B-Sample, C-Sample, production-line and 2025 commercialization targets, and what customer validation milestones are achieved.
- How quickly cash and investments are consumed as operating costs and capital spending rise, and whether additional financing becomes necessary.
- The amount, timing and collectability of JDA reimbursements, and the effect of Honda’s JDA term ending on June 30, 2023.
- Progress in remediating internal-control material weaknesses and whether controls become effective.
- Potential dilution from outstanding awards, warrants and earn-out shares; the filing reported 77.9 million common-stock equivalents excluded from diluted loss-per-share calculations at June 30, 2023.