SES AI Corp Q3 FY2025 Earnings Call

Hello, and welcome to the SES AI Third Quarter 2025 Earnings Release and Call. My name is Carla, and I will be coordinating your call today. I will now hand you over to the Chief Legal Officer, Kyle Pilkington, to begin. Please go ahead when you're ready.

Hello, everyone, and welcome to our conference call covering our third quarter 2025 results. Joining me today are Qichao Hu, Founder and Chief Executive Officer; and Jing Nealis, Chief Financial Officer. We issued our shareholder letter just after 4:00 p.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 that 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, Kyle. Thanks, everyone, for joining today. We had a record third quarter with more than $7 million in revenue. That's more than 100% growth over the second quarter. Our all-in on AI strategy is working remarkably. Today, I want to highlight some of the successes we've seen with this strategy and what it means for the future. We reached a major milestone this quarter that we expect to have far-reaching consequences across the revenue machine we described in detail during our last call. That milestone was the release of our latest version of Molecular Universe, MU-1.0. MU-1.0 is a powerful and complete end-to-end AI for science workflow that includes features like asking an Agentic LLM with access to what we believe is the world's largest database of battery relevant literature, searching and formulating what we believe are the world's largest databases of battery relevant molecule and formulation level properties enabled by GPU-accelerated quantum mechanics computation and machine learning accelerated property prediction, and designing and predicting chemistry-specific and chemistry-agnostic machine learning models, respectively, that can accurately predict battery state of health and end-of-life. Due to the popularity of the enterprise tier, we also launched three sub-tiers within the enterprise to provide greater value to more enterprise users. In addition to the cloud-based Molecular Universe, we expect to launch on-premise Molecular Universe, providing greater data security to more enterprise users. This new on-premise capability, which we will be describing in more detail in the coming months, addresses specific security and privacy needs of the world's largest battery makers that should unlock a greater share of our addressable market. We are incorporating MU1.0's Ask, design, and predict into our ESS products deployed by UZ around the world to collect data for on-site model training. This unprecedented ability for safety and health prediction, combined with reduced maintenance costs, truly helps differentiate our products and attract new customers. Since we completed the acquisition of UZ Energy in mid-September, our ESS revenue has been growing and is already responsible for approximately 45% of our third quarter revenue. We're very excited about the revenue potential of deploying Molecular Universe to enhance our ESS products. MU1.0's Ask, Search, and Formulate are also helping our users identify several new electrolyte materials that we are commercializing. These include: one, improved low-temperature rate performance of lithium-ion phosphate lithium-ion cells for ESS applications; two, improved cycle life for 12% silicon lithium-ion cells for EV application; and three, improved cycle life for lithium metal and 100% silicon lithium-ion for drones and UAM applications, and many more. To supply these materials discovered by Molecular Universe to our customers, we entered into a joint venture agreement with Hisun New Energy Materials, a leading electrolyte manufacturer with 150,000 tons of annual capacity to contract manufacture these materials, so we stay CapEx-light, laying the groundwork for exciting revenue growth in the coming quarters. Another revenue opportunity we expect to grow in 2026 and beyond is in drones. A dependable supply chain of high energy density pouch cells is extremely rare and critical to the development of the American drones industry. To better address this burgeoning market, we are leveraging our Chungju, South Korea cell factory, incorporating the latest materials discovered from Molecular Universe to meet customer demands. In terms of potential revenues from EV, we completed a B-sample line site acceptance test this summer with one auto OEM. As a result, in 2026, we expect to start commercial supply of electrolyte materials and partner with them for cell production. Overall, it's hard for us to comprehend a more consequential period than what we have experienced over the past two quarters, particularly as it relates to delivering on the goals we outlined coming into this year. For instance, we noted we wanted to break into the ESS market in a big way. Now we've done so with the acquisition of UZ Energy, and the acquisition has already delivered significant revenue in 2025. We launched three versions of Molecular Universe this year. The discoveries made by us and our customers so far have accelerated our push into materials to supply them through the Hisun JV. We'll have more to share on our fourth quarter call about how we expect 2026 to shape up for us, but we expect success for us will look like a hardware-software integrated platform with multi-pronged and multi-revenue streams. As Molecular Universe, a complete AI for science workflow SaaS platform accelerates innovation across all battery chemistries, we are working with our JV partners to provide a dependable hardware supply chain for the cells developed from Molecular Universe. Just as AI for science is completely changing other industries, Molecular Universe is now transforming all battery chemistries across all applications. We are excited about the revenue growth potential brought by Molecular Universe, and we'll continue to assemble the best talent, data, and compute resources needed to build AI for science for energy transition. Lastly, I want to express my gratitude for our teams who are working incredibly hard to make all of this happen. And thanks to all of you for being on this journey with us. And now here's Jing for financial updates.

Thank you. I will discuss our financial performance for the third quarter of 2025 and provide some context on how we are deploying our capital to support SES AI's long-term growth and then the all-in on AI strategy Qichao mentioned earlier. Revenue for the third quarter was $7.1 million, representing a $3.6 million or 102% increase from the previous quarter. Our Q3 revenue was approximately a 55-45 split between our service revenue from our automotive OEM customers to develop AI-enhanced lithium metal and lithium-ion battery materials for EV applications and product revenue, primarily from UZ Energy's energy storage system sales. For the full year 2025, we are updating our revenue guidance to $20 million to $25 million due to UZ's contribution going forward. Gross margin was 51% for the third quarter, which is a combination of 78% gross margin from the service revenue and 15% gross margin from the product revenue. As a reminder, with UZ Energy now part of SES, we expect gross margin variation from quarter-to-quarter as our service and product revenue mix will fluctuate. Our GAAP net loss for the third quarter was $20.9 million or negative $0.06 per share. In Q2 2025, our GAAP net loss was $22.7 million or negative $0.07 per share. As of September 30, we had 365 million Class A and Class B shares outstanding, which were down $1.3 million from the previous quarter, mainly due to the share repurchase we executed during the third quarter. In the third quarter, we repurchased and canceled 1.3 million Class A shares for a total investment of $1.6 million or roughly $1.20 per share. We utilized $14.3 million in cash for operations in the third quarter. We exited the third quarter with a strong liquidity position of $214 million. As mentioned, we closed the UZ acquisition in September and recognized some UZ revenue during the third quarter. We see a tremendous opportunity to grow the UZ Energy business from approximately $10 million to $15 million in projected full-year 2025 revenue to a much larger growth in the coming years as we execute our go-to-market strategy that Qichao outlined to make market share gains in the $300 billion global ESS market. When we report Q4 earnings, we expect to provide a more definitive outlook on how we see the full year 2026 revenue growth shaping up from UZ's growth in ESS, SaaS subscription use, contributions from Hisun JV, and potential for the start of commercial production of electrolyte and/or battery cells from automotive OEMs, drones, and robotics. The potential growth of these revenue streams, which all have different margin profiles, will be much larger than what we have experienced in 2025, but the growth isn't linear from quarter-to-quarter and the margin may vary quarter-to-quarter as well. Looking ahead, we remain focused on executing our strategy while continuing to grow our top line while remaining financially disciplined. With substantial liquidity, we are well positioned for sustainable growth and long-term success. We appreciate your continued support and confidence in SES AI. Thank you. Now I will turn the call back to the operator.

On the Hisun JV, can you talk about how that opportunity came about? Was the company paying for Molecular Universe access? Or was this sort of an internal project at SES? And then what type of battery will this electrolyte enable?

Derek, so very good question. And actually, the Hisun JV came as a request by some of the Molecular Universe enterprise users. Since we launched this earlier this year, Molecular Universe has been growing really fast. We had almost every major battery company and battery materials company in the world trialing this. In addition to the SaaS platform, both on the cloud and also on-premise, several of the battery companies that are using the Molecular Universe enterprise tier also asked us, 'Okay, we found these materials, these formulations, these molecules through Molecular Universe. Why don't you just make these and then sell these to us because they currently buy electrolytes from other companies?' So it's a quite mature business model. So we said, okay, yes, we're happy to sell these materials to you. These are new formulations that they cannot buy anywhere else. And so we formed this joint venture. It's a CapEx JV we control; we control 90% of the JV, and we contract manufacture with a company called Hisun to produce this formulation, and then we sell that formulation to the cell makers. The applications include: the most popular is a new formulation to improve low-temperature performance of LFP for ESS batteries. A lot of these LFP batteries for ESS, when they're deployed in cold places, they don't work well. Another one is for cell phone applications, which is a high-voltage electrolyte for LCL cells. And then another is a 12% silicon lithium-ion cells for EV applications to improve the cycle life. These three are requested by the user, the cell maker to supply these materials at commercial scale. All were discovered through the Molecular Universe platform.

And I guess just to that point, I guess I wasn't imagining a JV coming out of this first in Molecular Universe. Can you just talk about how you expect the monetization of that business to sort of play out over the next year? Beyond sort of JVs, do you expect Molecular Universe to grow sort of as a traditional Software-as-a-Service business where every quarter you sort of add additional seats? Or do you expect there to be sort of like a stair-step up on revenue as you sign larger agreements? How do you sort of see the monetization of MU playing out sort of over the next year? How should we think about it?

Yes. So MU is a mix of SaaS platform and materials. For the SaaS platform, we laid out different tier pricing on the website, molecular-universe.com. We have the individual tiers, and the number of individual tiers is growing. We also have enterprise tiers for the major battery companies and material companies. A lot of these companies prefer on-premise. We also sell them the Molecular Universe in a box on-premise solution. We charge them a monthly subscription. We'll sell them computers that we actually deploy on-site and service on top of that. I think the SaaS platform will see a growing number of seats per month and also per quarter. The material supply because a lot of these companies eventually want us to supply the materials. But the revenue coming from the Molecular Universe discovery materials is actually going to be much higher than the SaaS revenue.

And then just one final one for me, just a broad update on Molecular Universe. I think in the past, you said you've got like two dozen or so companies in trial testing. Can you just give us an update on where that is? I think in the past, you mentioned there are other potential large or medium-sized battery OEMs as part of that group. Where are you at with some of those players in negotiations? And when do you expect maybe a medium or large-sized OEM to sign on to MU through a joint development?

Yes. The number now is getting close to 40 enterprises, and they have gone through MU-0.5 and MU-1.0 trials, which is the latest version. They have completed the initial cloud-based trial and now we are planning for on-premise deployment because a lot of these medium-sized and larger enterprises can do the cloud trial but then need on-premise to actually deploy the solution. This is why we're moving towards this Molecular Universe in the box on-premise solution.

I just wanted to follow up on that last question that was asked. You talked about launching three sub-tiers within the enterprise subscription. I was wondering if you could elaborate on that? What are your customers looking for? And then could you remind us of the other subscription options that are also bringing in this recurring revenue opportunity?

Yes, so the enterprise tiers differ in terms of size of market database, the depth of the models used, and the knowledge and know-how the models are trained on. For example, enterprise 1 is seen as a PhD student level, enterprise 2 is like the postdoc level, and enterprise 3 is at a senior scientist level. For enterprise 1, when they answer a question, it'll typically take less than three minutes; for enterprise 2, about five minutes; and for enterprise 3, it will take more than 30 minutes, but the depth and quality of the discoveries are much deeper. A lot of enterprise 1 customers are medium-sized companies and some start-ups, while larger companies typically use the higher tiers and often prefer on-premise versions. In addition to these tiers, we can also engage in joint development agreements with larger customers, which is exciting because many battery companies want their own version of Molecular Universe to build factories in different locations. Yes, UZ Energy is an energy storage company that serves mainly the behind-the-meter commercial and industrial applications. Before we acquired UZ, we supplied this database machine learning model to UZ to help improve the accuracy of their BMS in predicting battery health and end-of-life. Since acquiring them, we are adding more machine learning-based models into their BMS to assist with accuracy, especially in regions with severe cold conditions. By adding this prediction, we've seen significant success in reducing customer complaints, and we plan to pursue this application further. Revenue-wise, UZ is projected to reach $15 million to $20 million this year and could double next year.

As in past quarters, we have received some written questions from investors and time permitting, we'll go through a selection of those questions, which have not yet been addressed on the call. The first question relates to liquidity and whether management has a view on where liquidity is expected to be at the end of 2025 and whether scaling up Molecular Universe or the UZ Energy integration will impact cash burn or CapEx plans?

I can cover that. So yes, I'll take that. Our liquidity balance is very strong. With the closure of the UZ acquisition and recent stock repurchase, we still expect to exit the year with somewhere between $195 million to $200 million of liquidity. We are laser-focused on funding growth. Our liquidity balance is sufficient to support revenue growth from different streams mentioned by Qichao. The cash balance is no longer to fund runway; we have a CapEx-light business model. The UZ acquisition will help us grow revenue with positive gross margin, and our revenue sources come in on day one with positive gross margin.

Great. The next question relates to Molecular Universe. MU-1.0 is impressive. Can you share the road map for MU in 2026, and what other features have been requested?

Yes. For now, MU-1.0 has been mainly focused on electrolyte materials. We have requests to expand that to cover electrode process optimization and cell design and manufacturing optimization. Another significant request from some major battery companies is to have their own version of Molecular Universe. This is an exciting project for us to work on with these battery companies, keeping all of their own know-how and capabilities in a portable model. Yes. The pouch cells, especially for drones, are seeing a convergence and standardization of the format within the drones industry around the 10 amp-hour pouch cells. This is exciting news. We are converting our Chungju line to make these pouch cells. So far, our capacity meets the current demands, but we're observing fast-growing demand, especially since production is in Korea. We are optimistic about this growth in the market.

Great. With that, I'll pass it back to the operator for closing remarks.

Thank you, everyone. This concludes today's call. Thank you for joining. You may now disconnect. Have a great rest of your day.