SES AI Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Dollar amounts are in U.S. dollars; financial figures below are in millions unless otherwise stated. SES develops lithium-metal batteries for EVs, eVTOL and other uses. It remains pre-commercialization, has not commenced principal operations, and reported no revenue from its principal business.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $8.5 | $4.1 |
| General and administrative expense | $13.1 | $15.1 |
| Total operating expenses / operating loss | $21.6 | $19.2 |
| Net loss | $16.2 | $27.0 |
| Net loss per share, basic and diluted | $0.05 | $0.12 |
| Net cash used in operating activities | $15.4 | $14.8 |
- With no revenue, gross margin is not applicable. Net loss improved by $10.8 million year over year, primarily reflecting higher interest income and a smaller loss from remeasurement of the Sponsor Earn-Out Liability; operating expenses increased.
- R&D expense increased 109%, while G&A declined 13%. The filing attributes the R&D increase to hiring, facilities, materials and software development, partly offset by JDA credits and lower prior-year facility setup spending. G&A fell mainly because Q1 2022 included business-combination transaction costs.
- Other income included $4.1 million of net interest income and a $0.6 million gain on the Sponsor Earn-Out Liability; the comparable 2022 period included a $7.7 million loss on that liability. Stock-based compensation was $6.5 million, versus $3.2 million.
- At March 31, cash and cash equivalents were $48.0 million; short- and long-term investments were $324.7 million, including U.S. Treasuries and $1.2 million of equity securities. Cash, cash equivalents and restricted cash totaled $49.3 million. Total assets were $427.9 million, current liabilities $16.3 million, and total liabilities $45.5 million. The filing reports no conventional debt balance.
- Operating cash use was $15.4 million; investing cash use was $43.1 million, including net investment purchases and $6.0 million of capital expenditures. Financing provided $0.01 million. Cash, cash equivalents and restricted cash decreased $58.7 million during the quarter.
- Management said cash and marketable securities should cover working capital and capital expenditure needs for at least 12 months from the report date and fund the company to commercialization, while noting additional financing could be needed. Management expects higher cash use as development and facility investment expand.
Business outlook, risks and contingencies
- SES planned to move from A-sample to B-sample development and production in the second half of 2023, build a fourth production line targeted to be ready in the first half of 2024, and move to C-samples in 2024. It expected commercial production in 2025; these are plans and expectations, not guarantees.
- The company reported continued improvements to three A-sample production lines in China and South Korea, producing and testing 50 Ah and 100 Ah cells. It also entered a new leased facility in South Korea. Development work includes scale-up, modules and packs, battery-management software, materials and recycling.
- SES works under joint development agreements with GM, Hyundai and Honda. Certain JDA costs are reimbursable by partners; Q1 R&D credits totaled $3.2 million. A JDA commitment has an agreed value of up to $50 million, of which $2.5 million had been spent by quarter-end.
- Purchase obligations were $56.9 million ($31.3 million short term and $25.5 million long term); operating lease obligations were $14.3 million. A $6.4 million government grant remained unearned and conditional on investment and employment requirements. A $0.6 million letter of credit was collateralized by restricted cash.
- Key risks include technology development and commercialization, production scale-up and timing, OEM adoption, supply-chain access, future funding needs, global operations and foreign-exchange exposure. A 100-basis-point rise in U.S. rates was estimated to reduce Treasury fair value by about $1.8 million if sold before maturity. The filing added banking-sector liquidity concerns as a risk, though SES said it had no material deposits at the named failed or acquired institutions.
- Disclosure controls were ineffective at March 31, 2023 because of material weaknesses in internal control over financial reporting. Management described remediation efforts, including added accounting resources, consultants, improved risk assessment and planned control and IT enhancements. No material litigation was reported.
Most important facts for investors to verify
- Progress against the B-sample, fourth-line, C-sample and 2025 commercialization milestones, including the required funding and capital spending.
- Whether available liquidity remains sufficient as operating cash use, purchase commitments and facility investment increase; whether additional financing will be required.
- OEM JDA progress, partner reimbursements and the terms and performance requirements associated with the reported commitments and grant.
- Remediation of the material weaknesses and restoration of effective disclosure controls and internal control over financial reporting.
- Potential dilution: 349.8 million Class A and Class B shares were outstanding at March 31; 73.6 million common-stock equivalents were excluded from diluted loss per share as anti-dilutive or because performance criteria were unmet.