SES AI Corporation — Q3 2023 Form 10-Q
Business context and reporting period
Quarter ended September 30, 2023; filed November 7, 2023. SES develops lithium-metal rechargeable batteries for electric vehicles, urban air mobility and other uses. It remains pre-commercialization, has not begun principal operations and reported no revenue from its core business.
Financial performance and liquidity
- Revenue and margins: No customer revenue; gross margin is not applicable. Operating expenses were $19.4 million in Q3 and $60.2 million for the first nine months, with operating losses of the same amounts.
- Net loss: $13.5 million in Q3 versus $24.3 million a year earlier; $42.6 million for the first nine months versus $42.3 million. Q3 loss per share was $0.04 versus $0.08; nine-month loss per share was $0.14 versus $0.15.
- Cash flow: Nine-month cash used in operations was $43.9 million, compared with $37.8 million in 2022. Investing used $12.3 million, primarily for capital expenditures; financing provided $0.2 million. Cash, cash equivalents and restricted cash fell $56.7 million during the period to $51.2 million.
- Liquidity: At September 30, cash and cash equivalents were $49.9 million and short-term investments were $292.2 million. Current assets were $352.1 million against current liabilities of $15.8 million.
- Debt and obligations: The balance sheet reports no borrowings. Operating lease liabilities totaled about $11.7 million. Contractual purchase obligations were $58.0 million and operating lease obligations $12.8 million.
- Other metrics: Total assets were $403.3 million, total liabilities $39.5 million and stockholders’ equity $363.7 million. Nine-month gross R&D spending before JDA credits was $37.7 million, versus $28.8 million in 2022.
Changes versus the prior comparable period
- Q3 operating expenses declined 10.9% to $19.4 million, mainly as general and administrative expense fell 18.2%; R&D expense was nearly flat. Nine-month operating expenses increased 0.4% to $60.2 million as R&D rose 18.4%, partly offset by lower G&A.
- Interest income increased to $4.2 million in Q3 and $12.5 million for nine months, primarily reflecting investment in higher-yielding U.S. Treasury securities.
- The fair-value gain on the Sponsor Earn-Out Liability was $1.9 million in Q3 and $5.4 million for nine months. These non-operating, stock-price-sensitive gains contributed to reported net results.
- Cash and cash equivalents declined from $106.6 million at year-end 2022, while short-term investments increased from $283.5 million to $292.2 million. Total cash, cash equivalents and restricted cash was $107.9 million at year-end and $51.2 million at September 30.
Outlook, commentary and risks
- Management expected to transition from A-sample to B-sample development by Q4 2023, C-sample development in 2024 and commercial production in 2025. These are expectations, not assurances.
- SES expected its fourth production line, dedicated to EV B-sample cells, to launch in 2024; it also planned a fifth line for UAM B-sample cells. A new electrolyte-foundry facility was expected to be ready by early 2024.
- Management stated that cash and marketable securities were expected to cover working-capital and capital-expenditure needs for at least 12 months from the filing date and fund the company to commercialization. It cautioned that additional funding could be needed, including for a U.S. integrated supply chain or if development is delayed. It expects cash use and capital spending to increase as facilities and production lines are built out.
- Key risks include technical development and commercialization, timing of milestones, OEM integration, supply-chain constraints, future capital needs and uncertainty about achieving profitability. Honda’s JDA concluded June 30, 2023; SES continued to describe partnerships with GM and Hyundai.
- One JDA included commitments of up to $50 million, of which SES had spent $8.7 million at September 30. A government grant of $6.2 million remained unearned and subject to spending and job-creation conditions.
- Management reported no litigation likely to have a material adverse effect and no material changes to previously disclosed risk factors. Disclosure controls were not effective because of material weaknesses in internal control over financial reporting; remediation efforts were ongoing.
- Three executives adopted Rule 10b5-1 plans in September for potential exercise and sale of vested options: up to 450,000, 870,000 and 675,000 options, respectively. The plans run through August 15, 2024, or earlier completion.
Important facts for investors to verify
- Progress against the stated B-sample, C-sample and commercialization timelines, and status of the fourth and fifth production lines.
- Cash consumption, capital expenditures, investment liquidity and whether funding remains adequate as development and facility spending increase.
- Whether JDA reimbursements and partner relationships continue to support development spending, particularly following the end of Honda’s JDA.
- Progress and effectiveness of remediation of the disclosed material weaknesses in internal controls.
- Potential dilution from equity awards and other securities: 75.5 million common-stock equivalents were excluded from diluted loss-per-share calculations as anti-dilutive or because conditions were unmet.