SES AI Corporation

Hello and thank you for standing by. My name is Tiffany and I will be your conference operator today. At this time, I would like to welcome everyone to the SES AI first quarter 2026 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star then the number one on your telephone keypad. I would now like to turn the call over to Kyle Pilkington, Chief Legal Officer. Kyle, please go ahead.

Hello, everyone, and welcome to our conference call covering our first quarter 2026 results. Joining me today are Chi Chau Hu, Founder and Chief Executive Officer, and Jing Milas, Chief Financial Officer. We issued our shareholder letter just after 4 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 in 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 meeting 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, are not limited to, those detailed in our latest earnings release and in our SEC filings. On this call, we will discuss 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 Poochaham.

Thanks, Kyle. Thanks, everyone, for joining today. We had a strong start for 2026. The first quarter revenue came in at 6.7 million, a 47% increase over the fourth quarter and well above published consensus estimates. We are reaffirming our full year 2026 revenue guidance of $30 million to $35 million, with contributions expected from all three of our revenue generating business units. We are executing on plan, and we like the momentum we have heading into the rest of the year. Before I get into the business updates, I want to take a moment to acknowledge Jim Nialis, who is on this call with us today. As we announced today, Jean will be transitioning from her role as Chief Financial Officer effective April 27th. On behalf of the entire team and our board, I want to thank her for her contributions and wish her well. We have appointed Ray Lill as our new CFO, effective April 27th. Ray is a seasoned finance executive with over 20 years of experience in FP&A, strategic finance, and SEC reporting at companies including Aden and MetLife Investment Management. He's a CFA charter holder and CPA, and we are confident he will be an excellent partner as we scale the business. More details on this transition are in the separate press release we issued today. Now let me walk through each of our business units, starting with energy storage systems. ESS remains our largest near-term revenue driver and was responsible for the majority of our first quarter revenue through using energy. We continue to see growing demand for our commercial and industrial energy storage solutions, and our global footprint is expanding. Earlier this month, we provided a business update that highlighted our strong start to the year. Today, I want to add some additional context on the commercial traction we are seeing. We have now entered the North American market through our multi-year distribution agreement with ATG ePower, a leading North American distributor of renewable energy and energy storage solutions that has been operating in the clean energy sector since 2001. This contract value at approximately $20 million over three years, gives us immediate access to ATG ePowers established distribution network across residential, commercial and industrial customer segments. This new contract goes on using energy's existing customer base in Australia, the Middle East and Europe, and reflects our strategy to grow the ESS business both geographically and through the on-premise integration of our molecular universe predict capabilities into the hardware offering, an edge box. Energy storage systems are financial assets for our customers. The value depends on delivering consistent, long-term performance. Our ability to provide both the hardware and an intelligent operating system that predicts battery health and reduces maintenance costs is a key differentiator. Turning to drones, we made progress in our drone cell business during the first quarter that I want to walk through. I am pleased to report that we have completed the conversion of our manufacturing line at our Chungju South Korea facility from EV power cells to drone format power cells. This facility, which produced the world's first 100 amp power lithium metal cell back in 2021, has been NDA compliant since 2021. Our plans are for the converter line to gradually ramp up to an annual capacity of over 1 million drone cells and incorporates our AI for manufacturing capabilities to ensure quality and cost effectiveness. Early this month, we began shipping NDA-compliant cells produced in our Chongzhu factory to prospective defense and commercial drone customers for evaluation and qualification testing. Customer interest has been strong, and we are encouraged by the engagement we are seeing. The U.S. defense drone market in particular continues to be where we see the most consequential near-term opportunity, and our NDA-compliant manufacturing capability in Korea positions us well relative to competitors who lack NDA-compliant supply chains. We continue to explore additional NDA-compliant manufacturing capacities in Southeast Asia and expect to have More to update on this front later this year. On materials, our pipeline continues to build. Through the Molecular Universe platform, both SCS and our customers have been discovering new electrolyte materials for applications beyond our current cell production. We now have approximately half a dozen customers who have progressed through second phase testing of materials discovered through the platform. and the overall number of customers in our pipeline has increased. The progression of existing customers through the testing pipeline represents positive momentum. We remain on track with the Heisen joint venture to leverage their 150,000 ton annual global capacity to produce these materials at commercial scale as demand materializes. And on the molecular universe, We recently introduced version 2.5 of the platform, which represents our fifth major iteration since we launched in 2024. Version 2.5 delivers upgraded capabilities across our six AI-powered workflows, ask, search, formulate, design, predict, and manufacture, along with expanded enterprise on-premise deployment options and covering both lithium and now sodium chemistries. During the quarter, a major global battery manufacturer committed to a multi-year subscription of our molecular universe search in the box product, which we view as a validation of the platform's value to the world's leading battery companies. While the direct on-premise revenue from the molecular universe continues to build and is expected to make a modest direct contribution in 2026, Its biggest impact remains the IT and competitive advantages it drives across our ESS drone and materials businesses. We will continue to explore how best to demonstrate and unlock the molecular universe value over the course of the year. As we look to the remainder of 2026, our priorities remain clear. Execute on the ESS opportunity through using energy and our growing distribution network. At events, our drone sale business to a commercial scale customer engagement deliver on the materials pipeline and continue developing the molecular universe as both a revenue stream and a competitive advantage. I will thank the team for their continued execution and thank all of you for your continued interest in SESAI. And now, here's Jin for financial updates.

Thank you, Chi-Chao. I will walk through our financial results for the first quarter of 2026. Given that our current three business unit structure took shape in the fourth quarter of 2025 with the integration of UZ Energy and the launch of our Drone Sales and Materials Initiative, we will present our first quarter results on a sequential basis compared to the fourth quarter of 2025, which we believe provides the most meaningful view of our operating trajectory. Revenue for the first quarter of 2026 was 6.7 million, representing a 47% increase over the 4.6 million in the fourth quarter of 2025. As a reminder, the fourth quarter of 2025 was impacted by approximately 1.5 million of revenue that was pushed into the first quarter, which benefited Q1 results. Our revenue growth reflects the continued growth from UC Energy's ESS product revenue and early contributions from our drone sales and MU subscription revenue. We're reaffirming our full year 2026 revenue guidance of $30 million to $35 million. Our Q1 growth margin on a GAAP basis was 18.1% compared to 11.3% in the fourth quarter of 2025. On a non-GAAP basis, which excludes stock-based compensation as well as depreciation and amortization allocated to cost and revenue, our Q1 non-GAAP growth margin was 18.3% compared to 11.7% in the fourth quarter of 2025. The sequential improvement from Q4 2025 REFLECTS MARGIN IMPROVEMENTS FROM THE UZESS BUSINESS AND HIGHER MARGIN FROM SAMPLE DRONE SALES AND MU SUBSCRIPTION REVENUE. TURNING TO OPERATING EXPENSES, OUR GAP OPERATING EXPENSES FOR THE FIRST QUARTER OF 2026 WERE 19.1 MILLION COMPARED TO 18.2 MILLION FOR THE FOURTH QUARTER OF 2025. ON A NON-GAAP BASIS WHICH Excludes stock-based compensation as well as depreciation and amortization. First quarter operating expenses were 14.3 million compared to 13.5 million for the fourth quarter of 2025. Our gap net loss for the first quarter was 12.1 million, a four-fence loss per share, compared to a gap net loss of 17 million or five cents loss per share in the fourth quarter of 2025. I want to remind everyone that our GAAP net loss in any given quarter can be meaningfully impacted by non-cash mark-to-market movements in a fair value of our sponsor earn-out liabilities, which are required to be remeasured each reporting period under GAAP. In Q1, 2026, we recorded a 4.2 million non-cash gain RELATED TO THESE LIABILITIES. THESE NON-CASH 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. EXCLUDING STOCK-BASED COMPENSATION, DEPRECIATION, AND AMORTIZATION, CHANGE IN FAIR VALUE OF SPONSOR EARNOUT LIABILITIES, AND INCLUDING INTEREST INCOME, OUR NON-GAAP NET LOSS FOR THE FIRST QUARTER WAS 11.1 MILLION OR THREE CENTS LOSS PER SHARE COMPARED TO A NON-GAP NET LOSS OF 11.8 MILLION OR FOUR CENTS LOSS PER SHARE IN THE FOURTH QUARTER OF 2025. ADJUSTED EBITDA FOR THE FIRST QUARTER OF 2026 WAS A LOSS OF 12.8 MILLION COMPARED TO A LOSS OF 13.8 MILLION IN THE FOURTH QUARTER OF 2025. WE BELIEVE This continued progress reflects the positive operating leverage beginning to emerge in our business as revenue scales, combined with our sustained focus on financial discipline and cost management across the organization. We remain on track to deliver the approximately 15% reduction in full-year operating expenses that we guided on our last call. 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. We utilized approximately 20 million in cash for operations during the first quarter, consistent with our operating plan. We exited the first quarter with a strong liquidity position of approximately 178 million. Our CapEx Lite business model remains a core financial discipline, and we are confident our current equity provides a strong runway to fund operations and execute on our 2026 growth initiative. On a housekeeping note, we expect to file a new S3 shelf registration statement concurrent with our 10Q as our current shelf expires on April 28th. This is a routine administrative filing to maintain our financial flexibility. We believe the first quarter demonstrates steady execution against the plan we laid out. Revenue is on plan, costs are coming down, and our multi-revenue stream platform is taking shape. We are well capitalized, financially disciplined, and positioned to deliver on our full year outlook. Lastly, on a personal note, This is my last earnings call with SDS. I am grateful for the opportunity to have helped build SDS's financial foundation during the past five transformative years of the company. SDS is well positioned to capitalize on the momentum it has built, and I look forward to seeing the growth story unfold. Thank you to Chicao, my colleagues, our board, and our shareholders for the trust and support along the way. Thank you. With that, I'll hand the call back to the operator.

At this time, if you would like to ask a question, press star, then the number 1 on your telephone keypad. To withdraw your question, simply press star 1 again. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Derek Soderberg with Cancer Fitzgerald. Please go ahead.

yeah hey everyone thanks for taking the questions and Jing it's been a pleasure working with you on this one so just on the evaluation and qualification tests can you talk about the typical timeline how long might it take to transition those into firm purchase orders hey Derek are you referring to drones qualification or electrolyte

Which one?

Drones. Drones.

Drones. Qualification typically one to two quarters. And then we've started those last year. So most of the qualifications actually have been completed. And now it's just making those in our career facility and have the customers come in and then do the supply chain audit, making sure all the cattle powder, the animal powder, the the processing actually take place in Korea.

Got it. That's helpful. And then on the on-premise solution, I think you said you're going to have some contribution this year. Is there any chance you can quantify that all for us?

Probably in the next quarter. And then so this last quarter, we did have one, one of the largest battery companies that actually signed up to the Molecular Universe search in a box. So only one of the six features. And then we have a few more in the pipeline that are interested in formula in a box, predict in a box, and also other features of the tool.

Got it. And then one final one for me on the drones again. What's sort of the split between defense and commercial interest? Can you maybe break that out for us at all? Thanks.

It's mostly defense, even though almost all the customers come to us will say it's dual use. Like the same drones could be used for defense, police, commercial. In reality, the customers that come in, so we focus a lot on customers that want NDA compliance, and then only the customers that actually want to get defense contracts would really push for NDA compliance. So we don't have a specific breakdown between defense and non-defense, but because also the customers don't tell us that, but we know it's actually predominantly defense.

Perfect.

Thanks.

Thanks. Your next question comes from the line of Winnie Dong with Deutsche Bank. Please go ahead.

Hi, thanks so much for taking my question. And Jane, thank you so much. And it was a great pleasure working with you. My first question is on the multi-year distribution agreement with ATG ePower. I was wondering if you can help us

understand the relationship if this is like a wholesale relationship and of the 20 million order over three years like what kind of you know shipment cadence we should be thinking about it's similar to what just mentioned it it's a wholesale distribution and then they help us bundle the uzu products with solar and then distribute that to their customers

Got it. So essentially, once you ship it to them, you will be able to book revenue. That's how the setup is?

In terms of revenue recognition, the timing, Jean, is that correct?

Yeah.

Yes. So it's based on shipment. Yes. Once we ship it, based on the Incoterm, we will be able to recognize that product revenue. That's correct.

Gotcha. Okay. And then on UZ, you know, you've achieved close to 7 million, I think somewhere spilled over from 4Q. What is like the typical seasonality of this business? I understand that maybe it can be a little difficult since you're, you're spreading across all different regions, but like, holistically, is there a seasonality that we should be looking at for this business?

Jun, you want to address that?

Maybe I can. Yeah, maybe I can address. I think overall the energy storage business globally have some sort of seasonality depending on the region. And Q2, Q3 usually are higher than Q4.

But it also depends on the local incentives available. Like Australia, everybody is trying to secure something to be installed. before the incentives go away. And in Europe, there are a lot of incentives going on before it goes away. So there are certainly safe seasons based on the region. However, because UZ sells to many regions globally is not tied to a particular place. So I think for this year, at least we see growth quarter over quarter with some seasonality, but I wouldn't put a lot of emphasize on that. But Q2, Q3 are probably higher.

Got it. And then maybe just a follow up. I guess within the 30 to 35 million, what is baked in in terms of contribution from materials and some of the other efforts that you guys have in place?

What's the breakdown? Yeah. I think we expect this year to come predominantly from ESS and then rest split between drones and materials.

Got it. Thank you.

Your next question comes from the line of Dave Storms with StoneGate. Please go ahead.

Thank you for taking my questions. I wanted to start maybe with ESS and your mention of the hardware offering Edgebox. I was hoping you could maybe spend a little time speaking about how that plays into the sales cycle and maybe what some of the benefits of it are.

Can you ask the last part of the question again, the sales cycle and then the part after that?

Yeah, just maybe some of the benefits of adding Edgebox to your offering and maybe helping the sales cycle.

Yeah. So the hardware is pretty competitive and it's basically you purchase sales and you integrate those into a container. And then And the industry, the accuracy, the error is typically 7% or even as high as 10%. So not so accurate. And then as a result of that, for example, if your project only needs 10 kilowatts, you will buy 14 kilowatt hours to basically allow for that error. So by having this edge box, This edge box does two things. One is it can very accurately tell the state of charge, the state of health, safety, energy, power, basically what we call SLX. And then there's six of them. And it can give a really accurate estimation of that. So instead of the error being 7%, 10%, now we're talking about 3% or even less. And then the other benefit, is that it's instead of on the cloud, which a lot of customers don't like, it's totally secure. It's in a box that we actually put on premise. So you also have data security. So the main benefit of that is now that instead of buying more capacity to allow for the inaccurate estimation, you can buy less so the customers can save costs. And for some of the customers that want to participate in virtual power plant, basically electricity trading and then sell electricity back to the grid. And because you have a more accurate estimation than your peers, you can bid in a more competitive price. And also you can when you make the decision of whether or not to participate in that trade off versus sacrificing the battery health you can have a more accurate affirmation of that trade-off.

Understood. Very helpful. Thank you. And then maybe just turn to materials. It was mentioned that there's several companies completing their second phase. Maybe just pause around timing through this next step, this third phase, you know, as they advance towards commercial scale supply discussions.

So typically, it's a... two to three rounds of testing each round about one quarter so we took about six to nine months of testing and towards the end of the the last round of testing then the customer will go through what's called commercial qualification basically they would check for the plant and also check for all the toxicity the the special chemical permits needed for for any special materials inside this formulation and then making sure it's compliant to all the necessary local environmental toxicity chemical regulation. And then, so overall, the testing six to nine months, and then another quarter for the commercial qualification. But again, we started a lot of this last year. So now we are, with all of these customers, we are towards the end of second round of qualifications.

Understood. And maybe just one more quick modeling one for me. You reiterated 15% expense reduction throughout the year. Should we expect that to kind of go on a linear glide path throughout the year? Or maybe just any thoughts around the cadence of those expense reductions?

Jim, you want to take that?

Yeah, I'll take that. So we are taking a lot of actions to further reduce our operating expenses starting from Q1. So you should be able to see the full quarter impact starting from Q3. There will be a little bit of a reduction in Q2, but not full quarter. But starting Q3, the full quarter impact should be coming in.

So then Q4 may be slightly lower than Q3.

Understood. Thank you for all the commentary.

Thank you.

As a final reminder, it is star 1 on your telephone keypad to ask a question. Your next question comes from the line of Sean Milligan with Needham. Please go ahead.

Hey, thank you for taking the questions. In terms of the 1 million units that you're targeting for the drone cell business, can you talk to what that potentially represents from a revenue standpoint? And then the second question is, you've mentioned that you've been testing cells or qualifying cells with potential customers there. Is there any context you can give us to the pipeline and maybe kind of sizing of initial orders that you would expect to see?

Sure. So the 1 million is still not the full capacity that Korea factory could go up to much higher. All that investment we made for EV and then turned out we accidentally built one of the largest drone pouch cell manufacturing factories outside of China. So we have a lot of customers that want NDA compliant cells come to us. And the market price for NDA-compliant cells, obviously, depending on the specific cell format, ranges between $25 to $35 as the market price. So if a million units, it's about $25 to $35 million. That's just a million. And then we could, again, go to much higher if needed. And then in terms of the... qualification process. Again, we did, we started most of the testing last year. So now we're doing, so the performance and the product testing have been completed. And then now a lot of that is actually supply chain audit and qualification.

Okay. Is there any way to talk about the pipeline, like the number, So if you look at the revenue guidance this year, I think you said some of that comes from the drone business, but it's obviously could be a much bigger piece of business. I'm just trying to understand how the pipeline looks, like number of customers that you're testing with, any kind of stats that can help us kind of gain some sense of potential momentum.

So we have a pipeline of a few dozen customers. And again, we focus on customers that want NDA compliant sales. And then really, so we actually had some shipment recently. So we expect revenue in Q2 for the NDA compliant sales and then start to pick up Q3 and then Q4. And then really, next year, 2027, is going to be a full year when we actually have the ability to deliver a full year of these NDA compliant cells. Great. Thank you. Thank you.

There appear to be no further questions at this time. Ladies and gentlemen, This concludes the SES AI first quarter 2026 earnings call. Thank you all for joining. You may now disconnect.