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spk00: Good afternoon. Thank you for attending today's SES AI Corporation first quarter 2022 earnings call. My name is Amber and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad at any time. I now have the pleasure of handing the conference over to our host, Eric Goldstein, Vice President of Investor Relations with SES. Mr. Goldstein, please proceed.
spk02: Thank you, operator. Hello, everyone, and welcome to our conference call covering our first quarter 2022 results and outlook for the year. Joining me today are Qiqiao Hu, Founder and Chief Executive Officer, and Jing Nielis, Chief Financial Officer. We issued a press release just after 4 p.m. today detailing our financial results. You'll find the press release 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. Such statements involve certain risks, assumptions, and uncertainties, which may cause the company's actual or future results and performance to be materially different from those that are expressed or implied in these statements. The principal risks and uncertainties that could cause our results to differ materially from our current expectations are 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. We'll then provide some milestones we are looking to achieve over the next 12 months. With that, I'll pass it over to Chi Chow.
spk03: Thank you, Eric. Good afternoon, everyone, and thanks for taking the time to join our first earnings call. It's been a very busy and exciting time for our company. In early February, we completed the merger with Ivan Hall Capital Acquisition Corp. and started trading on the New York Stock Exchange. The merger resulted in a total cash position of $426 million at the end of the first quarter. This event was the culmination of a 10-year journey that began in the basement of Building 4 at MIT, and I believe the best is yet to come. I cannot say thank you enough to all of our employees at our Boston headquarters, SCS Korea, and Shanghai Giga. The automotive industry is going through a rapid change. In the past year, almost every major country and company in the world has announced that they plan to electrify their entire fleet to address climate change. High energy density and low-cost batteries are key. This is why we believe lithium metal batteries are the next big thing. We are the first and only next-gen lithium metal company to have three A-sample joint development agreements, JDAs, with global carmakers, General Motors, Hyundai, and Honda. And our strategic investors included six carmakers, GM, Honda, Hyundai, GE, Shanghai Auto, and Foxconn, as well as Coke, SKLG, Tianqi Lithium, and Applied Materials. We live in an increasingly volatile world. Rapid increases in demand for lithium and other raw materials, as well as geopolitics, have created great disruptions in the supply chain. Going forward, a sustainable supply chain strategy and innovative business model will be crucial. So first, let's talk about lithium metal batteries. We have made significant progress in all three of our technology platforms and are on track with our A-sample JDAs. Let me go through more details. So first, it's HERNES, a platform for material development. Our Boston headquarter has developed several new generations of electrolytes. With each generation, we get one step closer to meeting our OEM partners' complex set of requirements, ranging from safety to cycle life to temperature performance to power density to storage and so on. We are confident that we can meet the OEM A-sample specifications in the next 12 months, which will allow us to transition to B-samples. Second is Apollo, engineering capability for large automotive cells. Manufacturability is core to our lithium metal system approach. We want to use lithium ion equipment and process to make lithium metal cells. Most of the EV batteries used in the U.S. today were developed in Korea, China, and Japan during their A-sample stage. This is why we chose to do A-sample large cell development in China and Korea, the hub of lithium-ion cell engineering, manufacturing, and supply chain. This is also reflected in our CapEx spending this year. Later, our CFO, Jim, will talk about it more. It's in line with mature lithium-ion CapEx investments. This will pave the way for eventually building large manufacturing plants in North America for seed samples and ultimately the start of production . We announced construction of Shanghai Giga last November at our first Battery World and unveiled the world's first 100mAh lithium-ion battery. I am very excited to announce that we have completed Shanghai Giga Phase 1 this March and achieved ready-to-use RTU. The facility is now capable of producing 0.2 gigawatt-hours of large lithium metal cells, both 50 amp-hour and 100 amp-hours. And we plan to reach 1 gigawatt-hour in Phase 2 next year. We have begun building and testing these large lithium metal A-sample prototype cells and sharing data with our OEM JVA partners. We even started implementing AIoT, artificial intelligence of things, devices, and data collection on our production lines for quality control. Our Shanghai team deserves a lot of appreciation. Two years ago, during the peak of COVID, when we cut everyone's salary, not a single person left. Recently, because of lockdowns, our Shanghai gigafacility was down for more than a month. But when it reopened, our team immediately volunteered to go back. and now they eat, sleep, and work in the factory. No other facility in the world can match Shanghai Giga for lithium metal battery production. We currently have two A-sample OEM JDAs out of Shanghai Giga, and other top global OEMs have expressed interest in forming A-sample JDAs that will be sourced from this facility. We also started construction of SCS Korea and expect to achieve ready-to-use RTU by the end of this year. It will have similar capabilities as Shanghai Giga, initially at a smaller scale, but eventually grow to a similar scale. We partnered with our long-time equipment vendor to fully leverage the manufacturability of lithium-ion equipment and process to build lithium metal cells. Now, we serve one A-sample OEM JDA out of SCS Korea and expect over time to serve additional OEM JDAs. Our career team also works through Spring Festival and other holidays to build and test A-sample prototype cells for our OEM JD apartment. Third is Avatar, AI software for battery health monitoring. Our Boston headquarter team developed several new algorithms that can actually predict battery health by monitoring electrochemical, thermal, and mechanical data. The goal is to monitor the growth of mossy lithium due to cycling and manufacturing defects and predict failure. We also partnered with a world-leading AI company, a blockchain platform company, and an AIoT data collection company for data management and algorithm implementation. While it's impossible to make any battery 100% safe, especially high energy density ones like our lithium metal, 400 watts per kg and 100 amp hours, our goal is to make the user experience 100 safe through inherently safer materials that's hermes cell engineering that's apollo and ai software that's avatar and and monitor moxie looking growth 24 7 and predict failure second let's talk about the supply chain we expect to transition from a samples to b samples in the next 12 months As we prepare for the transition, we are focused on what is also the industry's biggest concern, the supply chain, which has been impacted by the global lithium rush and geopolitics. It is estimated that most, if not all, of mature producing lithium mines around the world already have their updates committed until 2026. And many junior mines are at least eight years away from production. How do we secure supply? And how do we build independent regional supply chains to meet geopolitical challenges are the key questions. We are participating in building two independent supply chains and balancing commercial efficiency with geopolitical concerns. So the first is a China-inclusive supply chain. Politics aside, China today has the world's most complete and efficient EV battery supply chain and the biggest talent pool at EV market. Since the number one priority for EVs is low cost and manufacturability is core to our lithium metal battery systems approach, we built our Shanghai facility in 2019, not far from the Tesla and CATL's Shanghai Giga. and expanded it to Shanghai Giga in 2021 to leverage this supply chain and talent pool. We are supported by several global OEMs and will continue to develop samples with our OEM partners in Shanghai. We also plan to establish strategic partnerships with key material suppliers over the next year, especially for our thin lithium metal foil and lithium salt for our proprietary electrolyte. Second is a China-free supply chain. Outside of China, especially for the North American and European markets, we are working with our partners and strategic investors to build a China-free regional supply chain. Korea, with the world's second most complete and efficient EV battery supply chain, is the best choice, especially for A-sample development. We started partnering with our Korean equipment vendor in 2015 and started to build SCS Korea in January 2022. We are currently supported by one global OEM JDA partner and several advanced materials and equipment partners. We also plan to transfer our learnings in China and Korea to build an EV battery supply chain in North America, including mining, value materials, value manufacturing, vehicle integration, and recycling. While our A sample lines are in China and Korea, our C sample and start of production will likely be in North America. And third, alternative strategies. In addition to the supply chain strategies previously mentioned, we also started developing recycling capability for Moxie Lithium and exploring new business models, such as battery as a service, which will leverage the data analytics capabilities of our Avatar AI software. These alternative strategies will be done in collaboration with our OEM partners and strategic investors. There's no silver bullet to addressing supply chain issues. It will be a combination of approaches. And finally, in summary, we are dealing with a complex problem that requires a system approach. We are confident that within the next 12 months, we will, number one, deliver and optimize A samples for our three JDA partners. Number two, begin to transition from A samples to B samples. And number three, continue to establish supply chains for key materials. All of these targeted milestones will help pave the way to achieve our goal to build our first commercial production plant in North America. I'll now pass the call to Junie Alice, our CFO, who will take us through the financials.
spk01: Thank you, Chi-Chao. Good afternoon, everyone. Today, I will cover our first quarter financial results and discuss our operating and capital budgets for full year 2022. In the first quarter, our operating expenses were $19.2 million, which includes $3.2 million of stock-based compensation and $4.6 million of non-recurring transaction-related expenses. We reported research and development expenses of $4.1 million. However, our growth R&D spend in the quarter was $12.6 million, which was offset by $8.6 million reimbursed from our JDA partners. we receive payments from our JDA partners and treat those as Contra R&D expenses. Our net loss for the quarter was $27 million, which includes a $7.7 million non-cash expense related to the mark-to-market of our sponsor R&R shares. There are 6.9 million sponsored earn-out shares that rest in five separate but equal trenches. Trench 1, which is 20% of the 6.9 million earn-out shares, rest in early August, while the other four trenches will rest when our share trades over $12, $14, $16, and $18 for 20 out of 30 consecutive trading days, respectively, beginning in early July. 22 to 5 are accounted for as a derivative liability measured at fair value, with changes in fair value recorded in our P&L every quarter. Some additional housekeeping items. We had 310 million shares issued and outstanding without restrictions at the end of the first quarter. Our weighted average shares outstanding for the first quarter were lower since the merger with Ivanhoe closed in early February. Additionally, we have approximately 14 million warrants outstanding with a strike price of 11.5 per share. On February 1st, 2022, Ivanhoe warrant holders approved certain amendments to the warrant agreement such that the warrants were recorded in the stockholders' equity and no longer need to be marked to market every quarter. For full year 2022, we expect cash investment in operations to be in the range of $70 million to $80 million as we focus on A-sample development with our OEM partners and scale up our facilities. CapEx in the first quarter was $2.5 million, in line with our expectations entering the quarter. Approximately 90% of our Q1 CapEx. went toward completing phase one of our Shanghai Giga pilot facility, which was ready to use at the end of March. At the end of the first quarter, our Shanghai Giga facility was capable of producing 0.2 gigawatt hours of 50 m power and 100 m power lithium metal cells annually. On a gigawatt hour basis, we believe our level of capital spending is similar to a typical lithium ion battery facility. which supports our practical approach to lithium metal batteries. We expect total 2022 CapEx to be in the range of $25 million to $35 million, which will largely go toward our facilities in Asia. Looking at liquidity, we entered 2022 with $161 million of cash on our balance sheet. In February of this year, following the completion of our merger with Ivanhoe Acquisition Corporation and the pipe financing, we added $283 million of cash. Our balance sheet is in a very strong position. We ended the first quarter of 2022 with cash and cash equivalents of $426 million, which we believe is sufficient funding to get us to commercialization. Our first quarter net cash used in operations and capital expenditures was $17.4 million. For full year 2022, we expect our total use of cash to be between $95 million and $115 million. This should leave us with well over $300 million of liquidity entering 2023. Lastly, I would like to emphasize we are focused on maintaining a startup culture and investing your capital as efficiently as possible. We are excited about the huge opportunities ahead of us and believe that we will ultimately drive strong returns for our shareholders. With that, I will hand it back to Chi Chow for some closing remarks.
spk03: Thank you. With $426 million in cash on our balance sheet, a quarter end, and deep capabilities in science, engineering, manufacturing, supply chain, and software across our global operations, we have never been in a stronger position. We want to be as transparent as possible about the opportunities and challenges and welcome visitors to our Boston headquarters, Shanghai Giga, and SES Korea. With that, I'll pass the call back to Eric.
spk02: Thanks, Qiqiao. We will begin today's Q&A with some questions that we've been receiving from investors. First question, can you provide more background on the distinction between mossy lithium and dendrites? Is mossy lithium less dangerous? Can you talk about why our batteries typically fail during testing? Sure.
spk03: Typically, dendrites refer to these sharp needle-like structures, and monstrolithium typically refer to these flat pancake-like structures. And dendrites is something that you definitely don't want to have in your battery because then they would cause shorts and incidents. But monstrolithium is something that most lithium-ion batteries will start to form at some point. And in fact, most lithium-ion batteries when they die, they typically die due to the formation of mossy lithium. So in our case, we have developed materials and algorithm to really control and delay the formation of mossy lithium and also to monitor.
spk02: Great. Next question. How are we being impacted by raw material price inflation? And are we experiencing any supply chain issues?
spk03: Yeah. Raw material, especially lithium and nickel, is not just impacting us, but impacting the whole industry in a very major way. For example, our lithium and capital vendors in the past half a year did contact us to raise price because of the increasing price of nickel and lithium. But in terms of impact on the industry, overall, it just shows you that the industry is expanding and the supply needs to catch up. And then we have a few strategies to address this.
spk02: Okay. Next question. Jing, we have indicated that SES has sufficient funding to reach commercialization. Can you clarify what classifies as commercialization? And can you talk about the potential timeline to get there?
spk01: Thanks for the question, Eric. So in our mind, commercialization is a process. The starting point is sea samples with AOEM. We expect to get to that stage in 2024, which hasn't changed from our previous discussion. But at the end of the day, we need to have a sustainable business generating growth margins and positive results. free cash flow to be considered fully commercialized.
spk02: Okay, thanks. Operator, we are now ready to take Q&A. Please open the lines for questions.
spk00: Of course. Thank you. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, that's star one. As a reminder, if you were using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. Our first question comes from Sean Severson with Water Tower Research. Sean, your line is now open.
spk03: Great, thanks. Do you have a question about the supply chain and securing the supply chain going forward? I know you talked about the strategy approaching commercial production. I mean, are these things like locking in take-or-pay contracts, or how are you actually securing that supply that hard in that? Yeah, so two of our shareholders, major shareholders, are mining companies. One is Tianqi Lithium, one of the world's largest lithium producers, and another is Ivanol, actually our spec partner and leading producer of nickel and copper. And we are working with them to secure optic agreement on lithium and also other key materials. We'll make some announcements in the next few months. Kind of a derivative question from that, how is LFP fitting in now with the rising commodity costs? Is there more interest in that and pairing lithium metal with that from your JDA partners? What do you think about the option? Yeah, so the price of lithium carbonate went up more than the price of lithium hydroxide, which means the price of LFP actually went up more than the price of high nickel cathode. So LFP is still cheaper than high nickel cathode, but then The gap is smaller. And then your point about LFP paired with lithium metal, that is actually hugely attractive to the OEMs. So we have these four types of batteries, right? In lithium ion, there's LFP lithium ion, there's high nickel lithium ion, and LFP lithium ion is for economy cars, low range. And then high nickel lithium ion, that's for premium, but then it's more expensive. Now, if you pair LFP with lithium metal, you can achieve same energy density as high nickel in lithium ion. So it's really exciting to the OEMs because now you can achieve the same range as a high nickel lithium ion, but with LFP, nickel-free cathode, in lithium metal. So it's actually very exciting. And then my last question is on the technology roadmap and going from A to B to C samples, Are there any, are these major technology hurdles or are these, you know, call it modest evolution? I'm just trying to understand if there are any real technology issues or hurdles that you need to get over as you go through the process. Yeah, so we do have lots of challenges, but Nothing that's fundamental, no showstoppers. For example, in the smaller cells that we demonstrated last year, the smaller four m-power cells, the performance was actually quite good. And then when we first started building these large 50 m-powers and 100 m-power cells earlier this year, we expected the performance to be much worse than the smaller cells, just because it's a new cell format, it's a new line, and so on. optimize things but but basically we have lots of small uh challenges to get the performance of the large cells to match the performance of the smaller cells but that's but really those are the the uh just lots of engineering challenges no show stoppers this is one and then second one uh really a b sample is to show that performance at the module level once we integrate these large power cells into modules the performance can also match the performance that we see at the cell level.
spk02: Great. Thanks. I'll step back in the queue.
spk00: Thank you. There are no further questions in queue. So as a reminder, to submit a question, that's star 1 on your telephone keypad. If there are no further questions, that will conclude today's call. If you have any additional questions, please feel free to contact Investor Relations with any questions you may have. Thank you for your participation. You may now disconnect your line.
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