SES - NYSE

Good afternoon. Thank you for attending today's SES AI Fourth Quarter and Full Year 2025 Earnings Results Call. My name is Tamia, and I will be your moderator for today's call. [Operator Instructions] I would now like to pass the conference over to your host, Kyle Pilkington, Chief Legal Officer.

Hello, everyone, and welcome to our conference call covering our fourth quarter and full year 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. 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. On this call, we are introducing non-GAAP financial measures as a supplement to our GAAP results. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles, but are intended to illustrate alternative measures of the company's operating performance that may be useful. These non-GAAP measures should not be considered in isolation or as a substitute for any GAAP measure, and our definitions may differ from those used by other companies reporting similarly titled measures. Reconciliations of the non-GAAP financial measures to most directly comparable GAAP measures can be found in our latest earnings release. With that, I'll pass it over to Qichao.

Thanks, Kyle. Thanks, everyone, for joining today. We had an exciting 2025 with full year revenue of $21 million compared to a little over $2 million for 2024. Jim will walk through our financials and the outlook shortly. This tremendous growth was due to the final contributions from our services agreements with Honda and Hyundai as we completed our EV development work with them. We also had 3.5 months of revenue from the acquisition of U

Thank you. I will discuss our financial performance for the fourth quarter and full year of 2025 and provide context on how we're deploying our capital to support SES AI's long-term growth and the strategies Qichao outlined earlier. Revenue for the fourth quarter of 2025 was $4.6 million, representing a $2.6 million or 124% increase year-over-year. Full year revenue came in at $21 million, in line with our guidance, but impacted primarily by logistics constraints that delayed shipments at the end of the year, resulting in approximately $1.5 million of revenue being pushed out to the first quarter of 2026. As Qichao noted earlier, revenue for full year 2025 was within our previously issued guidance range of $20 million to $25 million and was up nearly tenfold from the prior year. A year in which we first achieved revenue generation. Our Q4 gross margin on a GAAP basis was 11.3%, driven by the higher mix of ESS product sales in the quarter, which carries a lower margin profile relative to our service revenue. On a non-GAAP basis, which excludes stock-based compensation as well as depreciation and amortization allocated to cost of revenue, our Q4 non-GAAP gross margin was 11.7%. For full year 2025, our GAAP and non-GAAP gross margin was 53.8% and 55.7%, respectively. As we have noted previously, we expect gross margin to vary from quarter-to-quarter as our revenue mix across products, SaaS and services evolve. We expect the gross margins on our product revenue to improve as we scale volume and optimize the cost structure through our CapEx-light business model and JV partnerships. Turning to operating expenses. Our GAAP operating expenses for the fourth quarter of 2025 were $18.2 million, compared to $30.4 million for the same period prior year, a 40% decrease year-over-year. On a non-GAAP basis, which excludes stock-based compensation as well as depreciation and amortization. Fourth quarter operating expenses were $13.5 million compared to $24.2 million for the same period prior year, a 44% decrease. For full year 2025, our GAAP operating expenses were $93.9 million, compared to $110.5 million in 2024, a 15% decrease. On a non-GAAP basis, full year operating expenses were $73 million versus $82.3 million in 2024, an 11% decrease. The year-over-year improvement in operating expenses on both GAAP and non-GAAP basis reflects the progress we have made in optimizing our cost structure while continuing to invest strategically in Molecular Universe platform and our commercial growth initiatives. Adjusted EBITDA for the fourth quarter of 2025 was a loss of $13.8 million compared to a loss of $23.2 million in the fourth quarter of 2024, representing a 40% improvement. For the full year 2025, adjusted EBITDA was a loss of $52.6 million compared to a loss of $81.5 million in the full year 2024 in 23% improvement year-over-year. We believe this growth reflects the positive operating leverage beginning to emerge in our business as revenue scales, as well as our sustained focus on financial discipline and cost management across the organization. Our GAAP net loss for the fourth quarter was $17 million or $0.05 loss per share. Excluding stock-based compensation, depreciation and amortization, changes in fair value of sponsor earnout liabilities and including interest income, our non-GAAP net loss for the fourth quarter was $11.8 million or $0.04 loss per share. This is an improvement over 2024 fourth quarter's GAAP net loss of $34.5 million or $0.11 loss per share and non-GAAP net loss of $19.9 million or $0.06 loss per share. For the full year 2025, our GAAP net loss was $73 million, or $0.22 loss per share compared to a GAAP net loss of $100.2 million or $0.31 loss per share in 2024. On a non-GAAP basis, full year net loss was $53.2 million or $0.16 loss per share compared to a net loss of $66.4 million or $0.21 per share in 2024. The year-over-year improvement on both GAAP and non-GAAP basis reflects the progress we are making in scaling revenue and managing our cost structure as we advance customer engagement, develop the molecular universe platform and position the distance for growth in 2026. A detailed reconciliation of GAAP net loss to adjusted EBITDA and non-GAAP net loss per share is included in the financial tables at the end of the shareholder letter. I want to highlight that our GAAP net loss in any given quarter can be meaningfully impacted by noncash mark-to-market movement in the fair value of our sponsor earned liabilities, which are required to be remeasured each reporting period under GAAP. These noncash gains or losses are not reflective of our underlying operating performance. And we believe, excluding them, provides a clearer picture of the progress we're making in the business. This is one of the reasons where we're introducing adjusted EBITDA beginning this quarter. We utilized $10.4 million in cash for operations during the fourth quarter and $58.4 million for the full year 2025. We deployed $3.3 million on the U

[Operator Instructions] The first question comes from Derek Soderberg with Cantor Fitzgerald.

On the final contribution from the Honda and Hyundai development work. Just was wondering what sort of next for that program? You sort of proven manufacturability recently. Obviously, your technology is sort of game changing for the EV market, what's next for that, those relationships and Hyundai, when are you going to commercialize that for EVs?

Derek. So in terms of next step, previously, the next step was to go from B sample to C sample. And I think now, I mean there's no surprise that the EV market is slowing down and almost no automaker is investing in next-gen battery technology. And I don't mean like early-stage better technology in terms of A and B samples, but no one is investing in mass scale production of next-gen technology, which is C sample, which is what we are trying to get to next. So we hit all the technical milestones, but the C sample is on hold. And then so in terms of next step with the OEMs, we are focusing on selling materials, selling materials that we have developed, the electro materials, we are focusing on that. And then in terms of the full-blown lithium metal C sample, then we'll see when the market returns. But the technology is there, and this is why we've been focusing on converting the lines for drones production and also applying the AI for safety, the battery analytics software that we develop for EV for ESS market. So yes, in terms of next steps for the OEMs, we're focusing on material supplies and then also converting the line for drone applications and using the safety analytics software for ESS.

Got it. And then just quickly, what was the onetime service amount? Can you quantify that impact to fiscal '25?

Jing, do you want to take that?

Yes. So for 2025, the service revenue was $13.6 million. Those are primarily driven by the Honda and Hyundai service agreement. So that's the onetime service agreement we were talking about.

Got it. So for '26, you don't expect any of that to sort of recur just given what Qichao just explained or guidance is really just ESS, drones and materials. And I was wondering if you could sort of break that down for us or help us try to understand by segment. ESS, drones, materials. Can you help us kind of quantify how each of those contribute to the guidance range? And then any help sort of modeling kind of the first half or second half? What portion of revenue in the first half, second half, anything like that would be helpful.

I can take that. So yes, yes, for 2026 guidance, given is the first year we're giving guidance, including all three business units. So we -- first of all, we wanted to be more conservative to start the year. As far as breaking down the revenue sources, ESS going to still be a large portion of our revenue. So of that 30 to 35 guidance, the range, I would say, probably around 65% will come from ESS at least. And then the remaining portion will be drones and materials. And then for those two, we're expecting it to be more second half of the year loaded given we're still in the ramping and business development stage. So those two are going to be more towards second half of the year. So -- but percentage-wise, around 65% from ESS and the remaining for those two.

The following comes from Winnie Dong with Deutsche Bank.

Just curious, if we look out to maybe like the next 2 to 3 years, if we just look at the different business areas, yes, there's raw materials, also you have the molecular universe as well. How would you characterize like the growth profile of each of these areas in the next 2 to 3 years? Which one has maybe the potential for the largest growth, if there's a way to think about it? And then separately for molecular universe, I know you've been talking about different tiers of revenue from larger corporations and smaller ones. Could you share like currently what might be the largest bottleneck for adoption from these customers? And then I have a follow-up.

Yes. On the first one, from a size of revenue and the product perspective, ESS and drones, we expect these two to grow very rapidly, especially on ESS. After we acquired U

Got it. And then I wanted to ask a question about OpEx in 2026. It seems that you're characterizing a spending level that is lower than 2025 and that is going to likely sustain at this 2026 level on a go-forward basis. Can we maybe just understand the reason for that? If you're looking to grow these different areas of the business, what is it that you've done that, I guess, allows you to not have to spend further to grow the business?

I can address that. So I think the 2026 reduction partially is coming from just being disciplined on spending cash on OpEx in general. We have been reducing G&A and also R&D expenses year-over-year if you go back to 2023, 2024, 2025 year-over-year, we're managing our costs very efficiently. So that's that part. And second, the MU as an internal tool for AI for science is creating a lot of efficiencies. So -- and also as part of growth into these three businesses, we're more focused as far as spending cash on product development related R&D and then there will be growth as far as spending wise on the SG&A side like sales and marketing, but it's not linear to the revenue growth. So overall, together, including R&D and SG&A we forecast this year to be lower than last year and then sustain at least for the foreseeable future.

[Operator Instructions] The next question comes from Colin Rusch with Oppenheimer.

Can you talk a little bit about the drone market and the volume of customers you're working with and how mature those relationships are in terms of working through the design process. and potentially being able to announce a purchase award here over the next, call it, several quarters.

Yes. The drones market is really going through a lot of pressure to change supply chain with the NDA compliance requirements. And then we are focusing on some of the top customers, for example, customers that will order in the range of single-digit millions to potentially more than $10 million a year. Yes. So we are mainly focused on those larger customers. And we actually started testing, engaging with them last year. Last year was really when everyone tried to change the supply chain. And I think if a major Jones manufacturer hasn't changed the supply chain by now, I think it's almost a bit too late. So a lot of testing engagement started last year. And then now we are just in the final stage of converting the lines. For example, right now in Boston, we can make pilot scale less than 100,000 cells per year. In Korea, we can make about 200 to 300 cells per year. We're trying to expand that. And then in Southeast Asia, we're also looking to expand to several million cells. This all for -- this is all NDA compliant sales for drones customers.

Excellent. And then obviously, you had some really meaningful success at the molecule level, leveraging some of the AI capabilities. I'm curious about your ability to leverage some of that know-how into pack level design and even into system integration design and modeling out some of the duty cycles that may be just to accelerate some of the adoption as you look at some of the robotics and drone opportunities?

So you're saying how we can apply this to pack level and sub cell level?

Yes, at the pack level and even the system level design beyond that pack level. Yes.

Yes, we're starting to add that feature. We've got some requests from automakers that want to do the design and predict features at the pack and system level. So we are adding those features. And then also for energy storage, right now, we are adding Molecular Universe predict into the systems. So the predict -- we put that in a small box, we call that edge box. And then that works at the cell level and also the back-end system level.

Next question comes from Mark Shooter with William Blair.

I believe I heard you say that the auto OEM JVs are on hold. Could you clarify that a bit? And then I'm seeing that the industry is -- especially the auto industry is trying to move away from lithium metal. However, at the same time, I'm seeing some local competitors actually enter the public markets here with their lithium metal product. So has any of the engagement appetite with your OEM customers changed around lithium metal? I mean how are you looking at this?

Yes. So I mean, we were developing pure lithium metal as well as hybrid lithium metal and silicon anode, and we met all the technical requirements. It's just in terms of OEM appetite for high energy density batteries. I would say back in 2021, the OEM appetite for high energy density batteries was very high. But now -- and that's still there, but maybe at R&D level, A sample level and demo car level, but not at C-sample level, which is like mass production. And I'm not seeing any auto OEMs that's going to mass production with a next-gen chemistry. There's a lot of price pressure, cost pressure and most OEMs are switching to just LFP graphite.

Yes. Okay. And that makes a lot of sense. And that justifies what we're seeing, too. So that confused me a bit. But switching gears to the ESS market, which is rapidly growing, that is a fragmented market with many different levels to it. And I'm wondering what do you see as the most value add? Where would you play? What is the strategy for the U

Yes. Yes, exactly the ESS market is very fragmented. It's got a long tail. And the benefit that we bring -- so the ESS market currently does not have a stable widespread operating system, maybe except for Tesla. But in ESS, it's like Tesla and the long tail, very fragmented. So what we can provide is almost like the Android version. And then -- so for commercial industrial and for data center applications, the asset owners actually want to use their battery packs for energy trading, but they're not able to do that, and they're not able to differentiate if they use conventional virtual power plant softwares. So what we can do is because we actually collect the data from the battery, we can have a very accurate estimation of self charge, self-health, see safety, degradation, power, all these different features. So what that means is when you do the trading, it's supply and demand. Demand is set by the market, by weather, by -- if there's any major sporting events. But the supply, that's set by accurate estimation of SOX and then that we can provide. So that's where this edge box enhanced virtual power plant really shines. So I think the value that we can provide is we can provide this operating system to not just use these battery packs, but to multiple of this long tail of this fragmented market.

There are currently no other questions in queue. So I'll pass it back over to Kyle Pilkington.

Thank you. As within our past earnings calls, we offered investors the opportunity to submit questions in advance and we'll cover a brief selection of those questions now. The first question is, is there a binding definitive agreement with top material yet? And can you generally provide some details on current NDAA compliance status?

Yes. So top material is one of the options we are exploring. And then as I mentioned earlier, we've had this Korea facility since 2021. It's been NDA compliant since 2021. And then we are focusing on converting this to produce drones batteries. And then in addition to this to our own Korea facility, we're also looking at options in Southeast Asia and then potentially offer better pricing, better value and larger scale to customers. And again, they're all NDA compliant. And actually, we just updated our website and now we have updated drones battery product brochure that's on our website. So -- and then the sales are NDA compliant.

Great. I think we have time for one more. So the question is, with Wildcat and BMW and Aonics and Porsche securing JDAs for AI-driven materials, how is SES protecting its molecular universe data advantage to ensure it doesn't lose OEM partners to these specialized private competitors?

So I think we announced that we're offering Molecular Universe to the public mid last year after these other announcements were made. And then Molecular Universe, if we look at the latest version of M Universe 1.5, and we have a 2.0 coming out soon, it really is a game-changing platform for battery development in the EV space. So we're seeing a lot of the OEMs and big battery companies actually using this platform.

Great. That's all we have for the investor questions. So I'll pass it back to the operator to conclude the call.