Hello, and welcome to the SES AI Corporation Fourth Quarter Earnings Call. My name is Alex, and I will be coordinating the call today. [Operator Instructions] I would now hand over to our host, Eric Goldstein, Vice President of Investor Relations. Please proceed.

Thank you, Operator. Hello, everyone, and welcome to our conference call covering our fourth quarter 2022 results and financial guidance for 2023. Joining me today are Qichao Hu, Founder and Chief Executive Officer; and Jing Nealis, Chief Financial Officer. We issued our shareholder letter just after 7:00 a.m. today, which provides a business update as well as our financial results. You'll find a press release with a link to our shareholder letter and today's conference call webcast in the Investor Relations section of our website at ses.ai. Before we get started, this is a reminder the discussion today may contain forward-looking information or forward-looking statements within the meaning of applicable securities legislation. These statements are based on our predictions and expectations as of today. Such statements involve certain risks, assumptions, and uncertainties, which may cause our actual or future results and performance to be materially different from those expressed or implied in these statements. The risks and uncertainties that could cause our results to differ materially from our current expectations include, but are not limited to, those detailed in our latest earnings release and in our SEC filings. This afternoon, we will review our business as well as results for the quarter. With that, I'll pass it over to Qichao.

Thanks, Eric. Good afternoon, everyone, and thanks for joining our fourth quarter conference call. As the leader in lithium-metal batteries, SES continues to evolve and innovate, despite all the challenges that come with new battery developments. We have made some exciting progress that we would like to share with you. 2022 was a difficult but productive year. We built and completed three A-sample lines, one in Shanghai, China, and two in Chungcheongbuk-do, South Korea, one for each of our three OEM JDA partners: GM, Hyundai, and Honda. The necessary level of dedicated engineering, quality, and production output required us to have dedicated lines for each OEM. Importantly, we achieved ready-to-use status for all three A-sample lines, under budget and ahead of time. This experience strongly supports our strategy of building lithium-metal cells using lithium-ion manufacturing processes and building A and B-samples in Asia, so that we can return to the U.S. for C-samples and commercial production in the most efficient way possible. SES was the first battery company in the world to introduce 100 amp-hour lithium-metal cells, the first to enter in automotive A-sample JDA with a major OEM, and the first to encounter all the startup issues that come with producing 100 amp-hour lithium-metal cells at pilot scale. As we detailed on our previous earnings call, we encountered countless issues ranging from ultra-thin lithium-anode wrinkling and tearing during large format rolling and lamination, novel electrolyte solvent scale-up, electrode stacking misalignment and overhang, powder formation during electrode punching, formation pressure and voltage stability, finding efficient ways to do image scanning on large format cells, and developing proper ways to store, handle, test, and recycle lithium-metal cells. One really important thing we have learned over the past decade of development is that when our team can identify a specific issue, we are not far from solving the problem. Over the past year, we have leveraged the deep lithium-ion stack pouch cell engineering, manufacturing, and quality experience of our own team, and our OEM partners, and made a lot of progress. Identifying and solving these issues has provided great know-how and knowledge for our engineers and scientists, and our machine learning based algorithm, Avatar. By the end of 2022, Avatar could predict 100 amp-hour cell safety and life with more than 60% accuracy compared to 0% at the beginning of 2022. In comparison, Avatar could predict 4 amp-hour cell safety and life with 99% accuracy after three years of data training. Our three A-sample lines provided a platform for us to work closely with each of our OEM partners and get hands-on live feedback. Our partners were stationed in our facilities for months at a time, and we attracted top engineering talent and worked with top vendors from around the world. It was accelerated learning for us in manufacturing and quality control. During the year, we also made significant investments in the Province of Chungcheongbuk-do in South Korea. Our investments followed LG Energy Solution investment in the same province, making Chungcheongbuk-do the province with the highest battery production capacity in South Korea. During the fourth quarter of last year, I met with the President of South Korea Suk-yeol Yoon, to thank him for supporting the industry and helping to build a robust supply chain around the world. I am extremely honored that we were recently awarded cash grants from the South Korean Central Government represented by the Ministry of Trade, Industry, and Energy, Chungcheongbuk-do Province, and Chungju City, which will help us expand our capabilities in South Korea. The thing I am most proud of over the past year is how the entire SES team has worked as one. Our Boston team is developing new electrolytes and anode materials. Our Chungcheongbuk-do team focuses on assembly equipment and cathode processes. And our Shanghai team focuses on electrolytes, anode manufacturing processes, and cell assembly processes. All of these contributions from our global team are being integrated into a system for our 100 amp-hour lithium-metal cells. We recently summarized our latest large cell test data and published the results on our website. We believe this is the most complete data report on large format lithium-metal cells anywhere, and we will continue to publish similar data reports to keep the industry updated. We believe in transparency and are confident that a year from now when we publish additional reports on our large cells, the data will be even stronger as we continue to improve everything from materials to engineering to manufacturing quality. As the pioneer in lithium-metal, we are also writing new protocols for the proper way to store, handle, and test lithium-metal cells, and interpret data. We are sharing this information with the battery community to help set new industry standards. To that end, we participated in the recent workshop on lithium-metal batteries in San Diego. It was great to see so much excitement from academia, industry, national labs, and government agencies for the future of lithium-metal batteries. We expect 2023 to be an exciting year for SES as we are upgrading our manufacturing lines. Here are a few things we are working on internally and with our OEM partners. We are adding CT and X-ray imaging tools custom-built for our large 100 amp-hour cells. We're adding new powder removal tools to eliminate all metal powders rising from the electrode punching process. We're developing entirely new anode processes from ingot to thick foils to thin foils, to the final anode to better control quality and performance. We are coating cathodes in-house to better control quality and experiment with new formulations. And we are scaling up novel solvent and salt production lines to better control quality, and speed up the feedback cycle from designing new solvent molecules to gathering data and drawing conclusions. Perhaps the most important thing for 2023 is that we are preparing for B-samples. This year, we plan to take our collective knowledge and experiences from our A-sample lines and design and build new B-sample lines. Our A-sample lines are semi-automated, with a capacity of about 0.2 cells per minute or five minutes per cell. B-sample lines will be fully automated with about five cells per minute. Having the ability to produce more cells and generating more meaningful data on the far greater universe of experiments will further accelerate our human and machine learning, which will also allow Avatar's prediction accuracy for cell life and safety to increase quickly. Importantly, these new lines will also go a long way to proving the manufacturing feasibility and scalability of our practical approach to making lithium metal cells. As part of our preparation for B-samples, we plan to double our material R&D team, double our cell engineering team, double our manufacturing team, and nearly triple our quality team. This increase in our headcount is a natural evolution of our growth as a company and is reflected in our financial guidance for 2023. We will also hire a new Chief Manufacturing Officer who has experience in running cell engineering, manufacturing, and quality management, and working with global OEMs to commercialize new battery technology. Compared to the major lithium-ion producers like CATL and LG Energy Solution that have more than 3,000 quality checkpoints, we currently have about 200 quality checkpoints. Once we enter B-sample agreements with our OEM partners, we can no longer benchmark ourselves against other battery startups. We will be playing in the big leagues and will be held to the same standards that the OEMs currently use for commercial lithium-ion producers. With the dedication of our global team, the accelerated learning of Avatar, and the support of our OEM partners and vendors, we are confident that we will face the new challenges and overcome them as we continue to enter uncharted territory. SES is profoundly American with its roots in the basement lab of MIT back in 2012. At the same time, SES is also profoundly global with its talent and partners from around the world. As we prepare for B-samples and commercial production beyond that, we are preparing to expand back home in the U.S. This includes preparing for production capabilities for lithium-metal cells, novel lithium salts and electrolytes, and lithium-metal anodes. SES plans to leverage experiences from global lithium-ion players, new material innovations, new machine learning tools for safety and life prediction and quality management, and abundant natural resources in North America. In 2021, we were the world's first to enter automotive A-samples for lithium-metal. In 2022, we laid the groundwork for transitioning to B-samples. In 2023, we will transition to B-samples and lay the groundwork for C-samples, commercial production beyond that, and building a robust next-generation EV battery supply chain here in North America. I will now turn the call over to Jing Nealis, our Chief Financial Officer to review our fourth quarter results and outlook.

Thank you, Qichao. Good afternoon, everyone. Today I will cover our fourth quarter financial results and discuss our operating and capital budgets for full-year 2023. In the fourth quarter, our operating expenses were $20.7 million, an increase of $10.6 million from the same period last year. Stock-based compensation expense was $6.8 million in the quarter. We reported R&D expenses of $8.3 million, an increase of $3.1 million from the same period last year. This increase reflects higher personnel costs due to increased headcount to support battery cell development, increases in lab consumables and material supplies, and higher development costs related to our advanced AI software and battery management system. Our gross R&D spend in the fourth quarter was $13.5 million, which was offset by $5.2 million built to our OEM partners, which are treated as contour R&D expenses. Our G&A expenses were $12.5 million, an increase of $7.5 million from the same period last year. Similar to the third quarter, this increase was primarily driven by higher personnel costs to support our operations as a public company, higher insurance costs, and an increase in professional fees and outside services. We incurred a non-cash gain of $9 million at the end of the quarter associated with a change in fair value of our Sponsor Earn-out liability. As we have previously outlined, certain trenches of our Sponsor Earn-out shares are accounted for as a derivative liability measured at fair value based on the price of our common stock at the end of the quarter. For full-year 2022, cash used in operations was $46.5 million, which was less than our previously provided guidance of $55 million to $60 million. The lower level of spending reflects a combination of some conservatism on our part and lower overall spending from materials built south. Despite the lower level of spending, we were moving forward with our OEM partners, and they're on track to transition to B-samples this year. CapEx for the full-year was $14.7 million and was below previously provided guidance of $20 million to $25 million. Lower CapEx in 2022 was mainly due to payment timing. Looking at liquidity, our balance sheet remains very strong. We ended 2022 with a much higher than expected level of cash and short-term investments of $390 million, which we continue to believe is sufficient funding to get to commercialization. For 2023, we are providing the following financial guidance. We expect cash usage from operations to be in the range of $80 million to $100 million and capital expenditures in the range of $50 million to $70 million. We expect total cash usage for the year in the range of $130 million to $170 million. This higher level of spending is necessary to support our growth as we transition from A-samples to B-samples in 2023. Significant areas of spending in 2023 include the following: headcount, we expect to double the size of our teams in material development, cell development, and system development, and triple the size of our quality team in order to continue improving our battery performance, establish a robust cell engineering design, manufacturing platform, and significantly improve our safety prediction algorithm. Lab expansion, we plan to expand our U.S. lab space to further strengthen our fundamental electrolyte and anode material development capability. Equipment and manufacturing facilities, we will work with our OEM partners to build highly automated production lines and highly efficient manufacturing facilities to support B-sample development. We will also work closely with our OEM partners on quality and yield improvement initiatives and will upgrade our existing manufacturing lines by adding new tools as outlined by Qichao. Lastly, materials; we expect to spend more in this area as we anticipate manufacturing at higher volumes to meet our OEM partners' needs as well as our own development needs. 2023 is shaping up to be an exciting year of growth and investment for SES. We appreciate the support of our shareholders, employees, and OEM partners. With that, I will hand the call back to Eric.

Thanks, Jing. Alex, can you open the line for questions now?

Thank you. [Operator Instructions] Our first question for us today comes from Winnie Dong of Deutsche Bank. Your line is now open. Please go ahead.

Hi, thank you so much for taking the questions. First question is could you give us a sense of the type of feedback that you've been getting from your JDA partners from the A-sample cell? And then are there any for B-sample cells this year, perhaps maybe a sense of timeline for delivery as you fill sort of a mid-year target? Thanks.

Yes, Winnie, we've been sending samples to our three JDA partners for testing really since the beginning that we entered into A-sample, back in 2021. Over the past two years, we made a lot of progress both in terms of material performance as well as manufacturing feasibility. One key aspect of all three A-sample JDAs is basically to demonstrate the manufacturing feasibility of lithium-metal cells. The fact that we've built three A-sample lines and delivered a total of about a thousand of these large lithium-metal cells just last year and also improved the performance of these cells quite a lot. So, that overall gave the OEMs confidence with both the performance that we demonstrated and the manufacturing feasibility. In terms of the timing of the B-sample, it's important to understand that it’s not like a single-point milestone; it’s a process. For us, the B-sample is really about gradually demonstrating the manufacturing feasibility at a much higher level, much better quality, and much higher output. It is our target to begin this process around mid this year. Whether or not we'll make announcements about it is secondary. Fundamentally, the company will enter into B-sample, as it's a core milestone and will validate both the material improvements and the manufacturing feasibility we have demonstrated.

Okay, thank you so much. As you look ahead to 2023, I know you've talked about headcount expansion, equipment and manufacturing facilities, and then continue to invest in materials and things like that. If you were to boil it down to a few key milestones to achieve by year-end, what can we look to add to the scorecard by this year?

Yes, a few things. One is quality; last year was the first year we started doing pilot scale manufacturing of these large cells, and the quality was actually pretty poor. This is why we had a lot of issues that we addressed. This year, the quality must be at an entirely new level. SES, as an organization, when we were in A-sample, still had a startup structure. As we prepare for the next phase and B-sample, project management, quality management, and manufacturing supply chain—all will enter into an entirely new level. We are implementing systems to elevate SES as an organization to be much more capable in manufacturing and quality. The key thing is it’s not just Band-Aid improvements, but fundamentally improving the organization so it’s capable of a much higher level of quality and manufacturing management. This is probably the biggest milestone. Additionally, the speed at which we need to build these cells will be much higher, moving B-sample from 0.2 cells per minute to roughly five cells per minute while enhancing quality. Other milestones include new materials we're working on, new electrolytes, and new anodes, and scaling these materials up since we'll be making cells at much higher speed, which means we also need to produce these materials at much higher volumes.

Got it, thank you so much. If I can squeeze one in, this one's for Jing. I guess on your cash used in operation in relation to 2024, you came in sort of much lower. Can you just remind us what factors contributed to the lower spending, and could that also be some conservatism baked into your 2023 numbers?

So, for 2022, the lower level of spending is partly due to being conservative and careful with our cash. Secondly, as Qichao mentioned in the last earnings call, we are focusing on building cells to solve issues, not just to build cells for the sake of building them. We built fewer cells in 2022 compared to the original plan. These are some of the drivers for 2022. As for 2023, a lot of the spending will go toward the growth aspect of our business. We have an aggressive hiring plan, and we're pulling forward some of the spending to build B-sample lines so that we can be ready to transition into B-sample this year with our OEM partners.

Great, thank you so much for taking my questions. I'll pass it on.

Thank you.

Thank you. Our next question comes from Gabe Daoud from TD Cowen. Gabe, your line is now open, please go ahead.

Hey, everyone. Thanks for taking my questions and for all the detailed remarks so far. Qichao, I was hoping you could provide some of your thoughts around one of your OEM partners, GM, potentially shifting toward cylindrical cells versus pouch, with Samsung, as has been reported recently in the news. Just curious if you worry or think about OEMs continuing to make a shift towards cylindrical as a way to optimize cost at the expense of high-performing anodes via pouch cells? Just any color on that would be helpful.

Yes, I can't comment on the specific choice of formats, especially for GM. One thing we are working on now with other OEMs is basically trying to find the optimal form factor, whether it’s a 100 amp-hour pouch cell or a 100 amp-hour stacked prismatic cell, or various other capacities. The final optimal design will be based on a holistic consideration of safety, performance, and cost. The fact that we've built 100 amp-hour stacked pouch cells doesn't mean that we will necessarily use 100 amp-hour cells inside the cars; it helps us understand the boundaries and limitations. The final decision will be based on data, so we are testing a range of configurations and capacities to determine the best final cell design for vehicles.

Got it, okay, that's helpful. And then you mentioned data, so maybe a good segue into a question on Avatar. You noted the challenges that spurred improvement in predicting cell safety on the larger amp-hour cells with 60% accuracy versus 0% at the beginning of the year, while the smaller cells achieved 99% accuracy. Could you talk a little more about Avatar and its progress and improvements?

Yes, we found Avatar to be essential. At the beginning of 2022, with no large cell data, Avatar lacked capability to predict outcomes. Through data collection, we discovered larger cells behave differently than smaller cells. For instance, impedance is much lower, and variations in impedance affect health and life predictions differently than with smaller cells. Thus, we had to develop new parameters and gather a wider data spectrum, incorporating new factors like pressure, which is vital for predicting health and safety in large lithium-metal cells. With the data collected—about a thousand cells tested—we’ve reached 60% accuracy for larger cells. As we enter B-sample with better quality and consistency, we expect significant growth in both the quality of data and the size of the data pool, which will further improve Avatar's accuracy quickly.

Got it. Thanks, Qichao, thanks everyone.

Thanks, Gabe.

Thank you. [Operator Instructions] Our next question comes from Shawn Severson from Water Tower. Shawn, your line is now open, please go ahead.

Great, thank you. Good morning, everyone. Qichao, I wanted to go back to the B-samples this year and look at kind of what gives you the confidence that they'll be achieved this year. Secondly, has this economic environment or the volatility influenced how OEMs are approaching things and if they're just moving forward as needed because they have to?

Yes, A-sample, B-sample—these are not magic terms. There’s a clear formula and process involved. Last year, we faced quality issues, and our volume was not as high. We have addressed multiple key issues, improving our quality and manufacturing feasibility to a level that positions us to manufacture more cells and collect more data. The purpose of A-sample was to prepare us for B-sample, allowing for accelerated learning. This is why we are preparing to transition into B-samples; it will be an improved learning process compared to A-samples. Regarding the economic environment, so far it hasn't impacted our A-sample or B-sample decisions.

Great. And in your conversations with OEMs, when considering model year production, if you're moving from A to B this year, what does that translate to timing for them regarding production scale?

Yes, I can't provide specifics there. If we progress into B this year, then it will project to model year production considerations for around 2025, 2026.

Understood. Last question on the supply chain: you have been focusing on domestic production even before recent legislation. I wanted an update on whether you've seen good push from your supply chain to meet the deliverables when the time comes for large scale production?

Yes, as mentioned earlier, we’re targeting 2025, 2026 for larger scale introduction of lithium-metal into vehicles. Right now, we are planning with suppliers to implement lithium-salt and electrolyte capabilities, as well as lithium refining capabilities in North America, which will take about two years. By the time 2025 arrives, I believe we'll be prepared for commercial-level production, sourcing several critical materials, including electrodes and lithium-anodes from North America. So, we are aligning both the cell-level and material-level strategies in parallel.

Great. Thanks, Qichao. I'll jump back in the queue.

Thank you.

Thank you. We currently have no further questions for today, so I'll hand back to Qichao for any further remarks.

Yes, back in 2021, we were the first to enter automotive A-sample, and last year, we began manufacturing lithium-metal cells at pilot scale. It was challenging because it was something no one had attempted before, but we have made tremendous progress in addressing those issues. Entering B-sample is not about magic; it’s the next natural step. It will be a significant milestone—not only for us but for the entire industry. It’s a huge validation for our practical approach to making lithium-metal cells using lithium-ion manufacturing processes, which we have discussed from the start. Additionally, it will represent a major advance for our OEM partners. Although we’ve achieved significant progress, there’s still much work ahead. We hope everyone will stay tuned for more exciting updates to come. Thank you.

Thank you for joining today's call. You may now disconnect your lines.