UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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Emerging growth company |
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As of April 29, 2024, there were
TABLE OF CONTENTS
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains statements that SES AI Corporation (together the “Company” or “SES”) believes are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements relating to expectations for future financial performance, business strategies or expectations for our business. These statements are based on the beliefs and assumptions of the management of the Company. Although the Company believes that its plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, it cannot provide assurance that it will achieve or realize these plans, intentions or expectations. These statements constitute projections, forecasts and forward-looking statements, and are not guarantees of performance. Such statements can be identified by the fact that they do not relate strictly to historical or current facts. When used in this Quarterly Report, words such as “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “seek,” “should,” “strive,” “target,” “will,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.
You should not place undue reliance on these forward-looking statements. Should one or more of a number of known and unknown risks and uncertainties materialize, or should any of our assumptions prove incorrect, the Company’s actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Some factors that could cause actual results to differ include, but are not limited to the risks below, which also serves as a summary of the principal risks of an investment in our securities:
| ● | We face significant challenges in developing a Lithium-Metal (“Li-Metal”) battery that can be commercialized for use in electric vehicles (“EVs”), urban air mobility (“UAM”), and other applications, and the pace of development is often unpredictable and subject to delays. |
| ● | We have a history of no revenues and of net losses and expect to continue to incur losses for the foreseeable future. While we expect to become profitable eventually, our internal assumptions may prove incorrect, and we may never achieve or maintain profitability. |
| ● | We will need substantial additional capital in the future to fund our business and may be unable to meet our future capital requirements, impairing our financial position and results of operations. |
| ● | Our Li-Metal technology is untested in actual EVs and may ultimately prove unworkable. |
| ● | If our batteries fail to perform as expected our ability to develop, market and sell our batteries could be harmed. |
| ● | Delays in the pre-manufacturing development of our battery cells could adversely affect our business and prospects. |
| ● | We may not be able to engage target original equipment manufacturers (“OEMs”) customers successfully and to convert such contacts into meaningful orders in the future. |
| ● | If we are unable to integrate our products into EVs manufactured by OEM customers, our results of operations could be impaired. |
| ● | We may not be able to establish new, or maintain existing, supply relationships for necessary raw materials, components or equipment or may be required to pay costs for raw materials, components or equipment that are more expensive than anticipated, which could delay the introduction of our product and negatively impact our business. |
| ● | Our ability to manufacture our Li-Metal batteries at scale depends on our ability to build, operate and staff our facilities successfully. |
| ● | We have pursued and may continue to pursue joint development agreements (“JDAs”) and other strategic alliances, which could have an adverse impact on our business if they are unsuccessful or if we are unable to enter into new JDAs. |
| ● | Certain components of our batteries pose safety risks that may cause accidents. We may be subject to financial and reputational risks due to product recalls and product liability claims, and we could face substantial liabilities that exceed our resources. |
| ● | Our business depends substantially on the continuing efforts of our senior executives and other key personnel as well as the ability to attract, train and retain highly skilled employees and key personnel. |
| ● | Developments in alternative technology or other fossil fuel alternatives may adversely affect the demand for our battery products. |
| ● | Our patent applications may not result in issued patents or our patent rights may be challenged, invalidated or limited in scope, any of which could have a material adverse effect on our ability to prevent others from competing or interfering with the commercialization of our products. |
| ● | We rely heavily on our intellectual property portfolio, including unpatented proprietary technology. If we are unable to protect our intellectual property rights from unauthorized use, our business and competitive position would be harmed. |
| ● | The international scope of our business exposes us to business, regulatory, political, operational, financial and economic risks associated with doing business outside of the United States. |
| ● | We have incurred and will continue to incur increased costs related to operating as a public company, and our management will be required to devote substantial additional time to compliance and corporate governance practices. |
| ● | The price of our common stock has been and may continue to be volatile. |
| ● | Our public warrants may never be in the money, and they may expire worthless. |
| ● | We are controlled or substantially influenced by Dr. Qichao Hu and certain entities affiliated with Dr. Hu, whose interests may conflict with other stockholders. The concentrated ownership of our dual class common stock could prevent stockholders from influencing significant decisions. |
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| ● | The other factors disclosed in this Quarterly Report on Form 10-Q and the Company’s other filings with the Securities and Exchange Commission (the “SEC”), in particular the risks described in “Part II, Item 1A” of this Quarterly Report and “Part I, Item 1A” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 27, 2024. |
The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on information available as of the date of this Quarterly Report on Form 10-Q and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and should not be relied upon as representing the Company’s views as of any subsequent date. The Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SES AI Corporation
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except share and per share amounts) | March 31, 2024 |
| December 31, 2023 | |||
Assets |
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Current Assets |
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Cash and cash equivalents | $ | | $ | | ||
Short-term investments | | | ||||
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Inventories | | | ||||
Prepaid expenses and other assets |
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Total current assets |
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Property and equipment, net |
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Intangible assets, net |
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Right-of-use assets, net | | | ||||
Deferred tax assets | | | ||||
Other assets, non-current |
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Total assets | $ | | $ | | ||
Liabilities and Stockholders’ Equity |
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Current Liabilities |
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Accounts payable | $ | | $ | | ||
Operating lease liabilities | | | ||||
Accrued expenses and other liabilities |
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Total current liabilities |
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Sponsor Earn-Out liabilities | | | ||||
Operating lease liabilities, non-current | | | ||||
Unearned government grant | | | ||||
Other liabilities, non-current |
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Total liabilities |
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Commitments and contingencies (Note 9) |
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Stockholders’ Equity |
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Preferred stock, $ | ||||||
Common stock: Class A shares, $ |
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Additional paid-in capital |
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Accumulated deficit |
| ( |
| ( | ||
Accumulated other comprehensive loss |
| ( |
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Total stockholders' equity |
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Total liabilities and stockholders' equity | $ | | $ | | ||
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
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SES AI Corporation
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
Three Months Ended March 31, | |||||||
(in thousands, except share and per share amounts) |
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| 2023 | ||||
Operating expenses: |
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Research and development | $ | | $ | | |||
General and administrative |
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Total operating expenses |
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Loss from operations |
| ( |
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Other income: |
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Interest income | | | |||||
Gain on change in fair value of Sponsor Earn-Out liabilities | | | |||||
Miscellaneous income, net | | | |||||
Total other income, net |
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Loss before income taxes |
| ( |
| ( | |||
Provision for income taxes |
| ( |
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Net loss |
| ( |
| ( | |||
Other comprehensive (loss) income, net of tax: |
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Foreign currency translation adjustment |
| ( |
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Unrealized (loss) gain on short-term investments | ( | | |||||
Total other comprehensive (loss) income, net of tax | ( | | |||||
Total comprehensive loss | $ | ( | $ | ( | |||
Net loss per share attributable to common stockholders: | |||||||
Basic and diluted | $ | ( | $ | ( | |||
Weighted-average shares outstanding: | |||||||
Basic and diluted |
| |
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The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
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SES AI Corporation
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
Three Months Ended March 31, 2024 | |||||||||||||||||||||
Redeemable Convertible | Class A and Class B | Accumulated | Total | ||||||||||||||||||
Preferred Stock | Common Stock | Additional | Accumulated | Other Comprehensive | Stockholders’ | ||||||||||||||||
(in thousands, except share and per share amounts) | Shares |
| Amount |
| Shares |
| Amount |
| Paid-in-Capital |
| Deficit |
| Income (Loss) |
| Equity | ||||||
Balance – December 31, 2023 | — |
| $ | — | |
| $ | |
| $ | |
| $ | ( |
| $ | ( |
| $ | | |
Issuance of common stock upon exercise of stock options | — | — | | — | | — | — | | |||||||||||||
Restricted stock units vested | — | — | | — | — | — | — | — | |||||||||||||
Forfeitures of Earn-Out Restricted Shares | — | — | ( | — | — | — | — | — | |||||||||||||
Forfeitures of Restricted Stock Awards | — | — | ( | — | ( | — | — | ( | |||||||||||||
Stock-based compensation | — | — | — | — | | — | — | | |||||||||||||
Net loss | — | — | — | — | — | ( | — | ( | |||||||||||||
Unrealized loss on short-term investments | — | — | — | — | — | — | ( | ( | |||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | — | ( | ( | |||||||||||||
Balance — March 31, 2024 | — | $ | — | | $ | | $ | | $ | ( | $ | ( | $ | | |||||||
Three Months Ended March 31, 2023 | |||||||||||||||||||||
Redeemable Convertible | Class A and Class B | Accumulated | Total | ||||||||||||||||||
Preferred Stock | Common Stock | Additional | Accumulated | Other Comprehensive | Stockholders’ | ||||||||||||||||
(in thousands, except share and per share amounts) | Shares |
| Amount |
| Shares |
| Amount |
| Paid-in-Capital |
| Deficit |
| Income (Loss) |
| Equity | ||||||
Balance — December 31, 2022 | — | $ | — | | $ | | $ | | $ | ( | $ | ( | $ | | |||||||
Issuance of common stock upon exercise of stock options | — | — | | — | | — | — | | |||||||||||||
Restricted stock units vested | — | — | | — | — | — | — | — | |||||||||||||
Forfeitures of Earn-Out Restricted Shares | — | — | ( | — | — | — | — | — | |||||||||||||
Stock-based compensation | — | — | — | — | | — | — | | |||||||||||||
Net loss | — | — | — | — | — | ( | — | ( | |||||||||||||
Unrealized gain on short-term investments | — | — | — | — | — | — | | | |||||||||||||
Foreign currency translation adjustments | — | — | — | — | — | — | | | |||||||||||||
Balance — March 31, 2023 | — |
| $ | — | |
| $ | |
| $ | |
| $ | ( |
| $ | ( |
| $ | | |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
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SES AI Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31, | |||||
(in thousands) | 2024 |
| 2023 | ||
Cash Flows From Operating Activities |
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Net loss | $ | ( | $ | ( | |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Gain from change in fair value of Sponsor Earn-Out liabilities | ( | ( | |||
Stock-based compensation |
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Depreciation and amortization |
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Accretion income from available-for-sale short-term investments | ( | ( | |||
Other | ( | ( | |||
Changes in operating assets and liabilities: |
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Receivable from related party | | ( | |||
Inventories | | ( | |||
Prepaid expenses and other assets |
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| ( | |
Right-of-use assets | | ( | |||
Accounts payable |
| ( |
| ( | |
Accrued expenses and other liabilities |
| ( |
| | |
Operating lease liabilities | ( | ( | |||
Net cash used in operating activities |
| ( |
| ( | |
Cash Flows From Investing Activities |
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Purchases of property and equipment |
| ( |
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Purchase of short-term investments |
| — |
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Proceeds from the maturities of short-term investments |
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Net cash provided by (used in) investing activities |
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Cash Flows From Financing Activities |
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Proceeds from stock option exercises | | | |||
Net cash provided by financing activities |
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Effect of exchange rates on cash |
| ( |
| ( | |
Net increase (decrease) in cash, cash equivalents and restricted cash |
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| ( | |
Cash, cash equivalents and restricted cash at beginning of period (Note 4) |
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Cash, cash equivalents and restricted cash at end of period (Note 4) | $ | | $ | | |
Supplemental Cash and Non-Cash Information: |
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Income taxes paid | $ | | $ | | |
Accounts payable and accrued expenses related to purchases of property and equipment | $ | | $ | | |
Operating lease liabilities arising from obtaining right-of-use assets | $ | — | $ | | |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
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SES AI Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Dollars in thousands, unless otherwise stated)
Note 1. Nature of Business
Organization
SES AI Corporation and its consolidated subsidiaries (together the “Company” or “SES”), is engaged in the development of high-performance, Lithium-Metal (“Li-Metal”) rechargeable battery technologies for electric vehicles (“EVs”), Urban Air Mobility (“UAM”) and other applications. We were founded in 2012, and our mission is to power a new era of electric transportation on land and in air with Li-Metal batteries. Our differentiated battery technology has been designed to combine the high energy density of Li-Metal with the large-scale manufacturability of conventional Lithium-ion (“Li-ion”) batteries and will help to promote the transition from the global dependence on fossil fuel-based automotive vehicles to clean and efficient EVs. The Company’s headquarters is located in Woburn, Massachusetts with research and development facilities located there, in Shanghai, China, and in Chungju, South Korea. Principal operations have not yet commenced as of March 31, 2024, and the Company has not derived revenue from its principal business activities.
Note 2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements include the accounts of the Company and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial reporting. Management believes that all adjustments necessary for the fair presentation of results, consisting of normally recurring items, have been included in the unaudited condensed consolidated financial statements for the interim periods presented. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the full year or any other future interim or annual periods. All intercompany balances and transactions have been eliminated in consolidation. The Company’s fiscal year ends on December 31.
The year-end balance sheet data was derived from audited consolidated financial statements. These unaudited interim condensed consolidated financial statements do not include all of the annual disclosures required by U.S. GAAP; accordingly, they should be read in conjunction with the audited consolidated financial statements and accompanying notes as of and for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 27, 2024 (the “Annual Report”).
Use of estimates
The preparation of these unaudited interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make use of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of commitments and contingencies, and the reported amounts of revenues, if any, and expenses. The Company bases its estimates on available historical experience and on various other factors that the Company believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ from those estimates.
Significant estimates and assumptions include those related to the valuation of (i) certain equity awards, including common stock awards prior to the Company’s previously disclosed Business Combination (as defined below in Note 8), the Sponsor Earn-Out Shares, the Earn-Out Restricted Shares, restricted stock awards, stock options, and performance stock units, (ii) deferred tax assets and uncertain income tax positions, and (iii) the measurement of operating lease liabilities. On an ongoing basis, the Company evaluates these judgments and estimates for reasonableness.
Investments
The Company has investments in short-term marketable debt and marketable equity securities. Investments in marketable debt securities consist of U.S. treasury securities, are classified as available-for-sale at the time of purchase and reevaluate such classification at each balance sheet date. These available-for-sale marketable securities are recorded at fair value, with any unrealized gains and losses included as a component of accumulated other comprehensive (loss) income in total stockholders’ equity on the unaudited interim condensed
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consolidated balance sheets until realized or until a determination is made that an other-than-temporary decline in market value has occurred. The amortized cost of U.S. treasury securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion are reported within interest income in the unaudited interim condensed consolidated statement of operations and comprehensive loss. Investments in marketable debt securities with a stated maturity date of less than one year are classified as short-term investments, while these with a stated maturity date of more than one year, and that are not expected to be used in current operations, are classified as long-term investments on the unaudited interim condensed consolidated balance sheet, respectively. Investments in marketable equity securities are classified as short-term investments when the Company’s intention is to sell within a year from the reporting period end, otherwise they will be classified as long-term investments. Investments in marketable equity securities with a readily determinable fair value, not accounted for under the equity method, are recorded at fair value with unrealized gains and losses reported within miscellaneous income, net in the unaudited interim condensed consolidated statements of operations and comprehensive loss.
Inventories
Inventories consist of raw materials and are stated at the lower of average cost or net realizable value.
Fair Value Measurements
Fair value is defined as an exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be either recorded or disclosed at fair value, the Company considers the principal or most advantageous market in which it would transact, and it also considers assumptions that market participants would use when pricing the asset or liability.
The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. GAAP establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is as follows:
Level 1 Observable inputs such as quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 Inputs other than the quoted prices in active markets that are observable either directly or indirectly.
Level 3 Unobservable inputs in which there are little or no market data and which require the Company to develop its own assumptions.
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Certain of the Company’s financial instruments, including cash and cash equivalents, accounts payable, accrued expenses and other current liabilities are carried at cost, which approximates their fair value because of their short-term nature. The following table presents information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis:
(in thousands) | Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
March 31, 2024 | |||||||||||
Current Assets | |||||||||||
Cash equivalents in money market funds (Note 4) | $ | | $ | — | $ | — | $ | | |||
U.S. treasury securities | | — | — | | |||||||
Equity securities(1) | | — | — | | |||||||
Total current assets at fair value | $ | | $ | — | $ | — | $ | | |||
Non-current Assets | |||||||||||
Restricted cash in money market funds | $ | | $ | — | $ | — | $ | | |||
Total non-current assets at fair value | $ | | $ | — | $ | — | $ | | |||
Total Assets at fair value | $ | | $ | — | $ | — | $ | | |||
Liabilities | |||||||||||
$ | — | $ | — | $ | | $ | | ||||
Total liabilities at fair value | $ | — | $ | — | $ | | $ | | |||
December 31, 2023 | |||||||||||
Current Assets | |||||||||||
Cash equivalents in money market funds (Note 4) | $ | | $ | — | $ | — | $ | | |||
U.S. treasury securities | | — | — | | |||||||
Equity securities(1) | | — | — | | |||||||
Total current assets at fair value | $ | | $ | — | $ | — | $ | | |||
Non-current Assets | |||||||||||
Restricted cash in money market funds | $ | | $ | — | $ | — | $ | | |||
Total non-current assets at fair value | $ | | $ | — | $ | — | $ | | |||
Total Assets at fair value | $ | | $ | — | $ | — | $ | | |||
Liabilities | |||||||||||
$ | — | $ | — | $ | | $ | | ||||
Total liabilities at fair value | $ | — | $ | — | $ | | $ | | |||
(1) Fair value was determined using publicly quoted market prices obtained from third-party sources in their respective markets.
There were
Recently Adopted Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-7, Improvements to Reportable Segment Disclosures, which requires disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of a segment's profit or loss. This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Adoption of the ASU should be applied retrospectively to all prior periods presented in the financial statements. Early adoption is also permitted. We are currently evaluating the provisions and impact this ASU will have when adopted for the year ended December 31, 2024 and anticipate it will likely result in inclusion of additional required disclosures in our consolidated financial statements.
In December 2023, the FASB issued ASU 2023-9, Improvements to Income Tax Disclosures, which requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024. Early adoption is also permitted for annual financial statements
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that have not yet been issued or made available for issuance. We are currently evaluating the impact this ASU will have when adopted and anticipate this ASU will likely result in the required additional disclosures being included in our consolidated financial statements.
Climate-Related Disclosures
In March 2024, the SEC adopted final rules that would require registrants to provide certain climate-related information in their registration statements and annual reports. The new rules require information about a registrant's climate-related risks that are reasonably likely to have a material impact on its business, results of operations, or financial condition. The rules also require disclosure of a registrant’s greenhouse gas emissions and certain climate-related financial metrics in their audited financial statements. In April 2024, the SEC voluntarily stayed the rules pending completion of a judicial review that is currently pending in the U.S. Court of Appeals for the Eighth Circuit. We are currently evaluating the impact these rules will have when adopted and anticipate these rules will likely result in the required additional disclosures being included in on our consolidated financial statements.
The Company has reviewed all accounting pronouncements issued during the three months ended March 31, 2024 and concluded they were either not applicable or not expected to have a material impact on the Company’s unaudited interim condensed consolidated financial statements.
Note 3. Partnerships
In December 2020, the Company established a partnership with Hyundai Motor Company (“Hyundai”) when it entered into a joint development agreement (“JDA”) to jointly research and develop Li-Metal battery technology, which concluded in November 2023. Further, in May 2021, the Company executed another JDA with Hyundai to jointly develop an A-Sample Li-Metal battery effective August 31, 2021. In March 2024, the Company extended this JDA until December 2025 to develop the B-sample Li-Metal battery.
In February 2021, the Company established a partnership with GM Global Technology Operations LLC (“GM Technology”), an affiliate of GM Ventures LLC (“GM Ventures”), and General Motors Holdings LLC (“GM Holdings”) (collectively, “General Motors” or “GM”) when it entered into a JDA to jointly research and develop an A-Sample Li-Metal battery and build-out a prototype manufacturing line for GM Technology. The JDA has an initial term of
In December 2021, the Company established a partnership with Honda Motor Company, Ltd. (“Honda”) when it entered into a JDA to jointly R&D an A-Sample Li-Metal battery, which concluded in June 2023.
In November 2023, the Company entered into a B-Sample JDA with one of our OEM partners for delivery of B-Sample battery. The JDA has a term of and half years.
Under the terms of certain JDAs, the Company will fund research and development activities and capital expenditures related to the buildout of pilot manufacturing lines and the JDA partner will be required to refund such expenses to the Company, regardless of the results of the research and development activities. The following table summarizes the expenses incurred by the Company that were recorded as a credit to research and development expense in the unaudited interim condensed consolidated statements of operations and comprehensive loss:
Three Months Ended March 31, | |||||
(in thousands) | 2024 |
| 2023 | ||
Research and development (related party) | $ | | $ | | |
Research and development (non-related party) | | | |||
Total reimbursements to research and development | $ | | $ | | |
As of March 31, 2024 and December 31, 2023, $
Note 4. Cash and Cash Equivalents
Cash, cash equivalents, and restricted cash consisted of the following:
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(in thousands) | March 31, 2024 |
| December 31, 2023 | ||
Cash | $ | | $ | | |
Money market funds |
| |
| | |
Total cash and cash equivalents | | | |||
| |
| | ||
Total cash, cash equivalents, and restricted cash shown in the unaudited condensed consolidated statements of cash flows | $ | | $ | | |
Restricted cash includes cash held in checking and money market funds as collateral to secure certain insurance policies and a letter of credit for corporate lease activity.
Note 5. Short-Term Investments
The following table provides amortized costs, gross unrealized gains and losses, and fair values for the Company’s investments in available-for-sale U.S. treasury securities as of March 31, 2024 and December 31, 2023, which have maturity dates that range from
March 31, 2024 | Gross | Gross | |||||||||
(in thousands) | Amortized Cost |
| Unrealized Gains |
| Unrealized Losses |
| Fair Value | ||||
Short-term U.S. treasury securities | $ | | $ | | $ | ( | $ | | |||
Total | $ | | $ | | $ | ( | $ | | |||
December 31, 2023 | Gross | Gross | |||||||||
(in thousands) | Amortized Cost |
| Unrealized Gains |
| Unrealized Losses |
| Fair Value | ||||
Short-term U.S. treasury securities | $ | | $ | | $ | ( | $ | | |||
Total | $ | | $ | | $ | ( | $ | | |||
Note 6. Accrued Expenses and Other Current Liabilities
The components of accrued expenses and other current liabilities consisted of the following:
(in thousands) | March 31, 2024 |
| December 31, 2023 | ||
Employee compensation and related costs | $ | | $ | | |
Construction in process | | | |||
Income taxes payable | | | |||
Professional and consulting services | | | |||
Deferred income received under partnerships | | — | |||
Other |
| |
| | |
Accrued expenses and other current liabilities | $ | | $ | | |
Note 7. Government Grant
In December 2022, the Company was awarded a grant (the “Grant”) from certain government agencies. The incentives received under the Grant, which is in the form of cash, can be used for facilities related expenses and the purchase of property and equipment. The Company is required to adhere to the following conditions attached to the incentives, which include purchase of a government grant guarantee insurance policy, required minimum investments into specified spending categories and the creation of a minimum amount of permanent full-time jobs in a certain geographical location over the next
As of March 31, 2024 and December 31, 2023, the Company has received, but not yet earned, cash grants of
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Note 8. Sponsor Earn-Out Liabilities
In connection with the closing of the Business Combination (the “Closing”) on February 3, 2022 (the “Closing Date”), Ivanhoe Capital Acquisition Corp. (“Ivanhoe”), a Cayman Islands exempted company, migrated out of the Cayman Islands and domesticated as a Delaware corporation (the “Domestication”), changed its name to “SES AI Corporation”, and Wormhole Amalgamation Sub Pte. Ltd., a Singapore private company limited by shares and a direct, wholly-owned subsidiary of Ivanhoe (“Amalgamation Sub”), consummated the previously announced Business Combination (the “Business Combination”) pursuant to which, among other things, Amalgamation Sub merged with and into SES Holdings Pte. Ltd., a Singapore private company limited by shares (“Old SES”), with Old SES surviving the Business Combination as a wholly-owned subsidiary of SES.
On February 2, 2022, in connection with the Domestication,
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| ● |
| ● |
| ● |
| ● |
If there is a change in control of SES at a per share value of greater than $
The Sponsor Earn-Out Shares in Tranche 1 were accounted for as equity instruments because they are legally owned by the Sponsor, cannot be forfeited and were subject only to transfer restrictions that lapsed
The Sponsor Earn-Out liabilities are measured at estimated fair value using Level 3 inputs in a Monte Carlo simulation valuation model. As of the three months ended March 31, 2024, the earn-out triggering events were not achieved for any of Tranche 2 through Tranche 5, and as such the Company adjusted the carrying amount of the Sponsor Earn-Out liabilities to its estimated fair value of $
The following table provides a reconciliation of the beginning and ending balances for the Sponsor Earn-Out liabilities:
(in thousands) | ||
Balance as of December 31, 2023 | $ | |
| ( | |
Balance as of March 31, 2024 | $ | |
Balance as of December 31, 2022 | $ | |
( | ||
Balance as of March 31, 2023 | $ | |
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Inherent in the valuation model are assumptions related to expected stock price volatility, risk-free interest rate, expected term, and dividend yield. The key inputs used in the Monte Carlo simulation model at their respective measurement dates were as follows:
March 31, 2024 | December 31, 2023 | ||||
Expected term (in years) | |||||
Risk free rate | |||||
Expected volatility | |||||
Expected dividends | |||||
Stock price | $ | $ |
The stock price is based on the closing price of the Company’s Class A common stock as of the valuation date and simulated through the end of the earn-out period following Geometric Brownian Motion. The Company estimates the volatility of its common stock by using a weighted average of historical volatilities of SES’s shares and warrants and select peer companies’ common stock that matches the expected term of the awards (range of the weighted average of volatility was
Note 9. Commitments and Contingencies
Commitments
Under the terms of one of the JDAs entered into in 2021 and amended in March 2024, the Company is committed to undertake certain research and development activities to the benefit of both itself and its OEM Partner which involves expenditures related to engineering efforts and purchases of related equipment. The Company has a commitment to spend up to $
In December 2021, the Company amended the lease agreement for an office space in Woburn, Massachusetts. The amendment includes an obligation for the Company to pay monthly relinquishment charges (equal to the total rental obligation for the duration of the lease term) only if the new tenant does not pay the monthly rental amount and the lessor has provided a notice to collect the relinquishment charges from the Company. As of March 31, 2024, the Company assessed the probability of any liability to be incurred for relinquishment charges as remote.
Legal Contingencies
From time-to-time, the Company may be subject to claims arising in the ordinary course of business or become involved in litigation or other legal proceedings. While the outcome of such claims or other proceedings cannot be predicted with certainty, the Company’s management expects that any such liabilities, to the extent not provided for by insurance or otherwise, would not have a material effect on the Company’s financial condition, results of operations or cash flows.
Indemnifications
The Company enters into indemnification provisions under agreements with other companies in the ordinary course of business, including, but not limited to, partnerships, landlords, vendors, and contractors. Pursuant to these arrangements, the Company agrees to indemnify, defend, and hold harmless the indemnified party for certain losses suffered or incurred by the indemnified party as a result of the Company’s activities. The maximum potential amount of future payments the Company could be required to make under these agreements is not determinable. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification provisions. In addition, the Company indemnifies its officers, directors, and certain key employees against claims made with respect to matters that arise while they are serving in their respective capacities as such, subject to certain limitations set forth under applicable law, and applicable indemnification agreements. The Company maintains insurance, including commercial general liability insurance, product liability insurance, and directors and officers insurance to offset certain potential liabilities under these indemnification provisions. To date, there have been no claims under these indemnification provisions.
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Note 10. Stock-Based Compensation
The Company’s stock-based compensation included in its unaudited interim condensed consolidated statements of operations and comprehensive loss, net of forfeitures, was as follows:
Three Months Ended March 31, | ||||||
(in thousands) |
| 2024 |
| 2023 | ||
Research and development | $ | | $ | | ||
General and administrative |
| |
| | ||
Total stock-based compensation | $ | | $ | | ||
The following table summarizes stock-based compensation expense by award type, net of forfeitures:
Three Months Ended March 31, | ||||||
(in thousands) | 2024 | 2023 | ||||
Earn-Out Restricted Shares | $ | — | $ | | ||
Restricted Stock Units ("RSUs") | | | ||||
Performance Stock Units ("PSUs") | | | ||||
Restricted Stock Awards ("RSAs") | | | ||||
Stock options | | | ||||
Total | $ | | $ | | ||
In February 2024, the Company granted
Note 11. Income Taxes
The Company’s effective tax rate for the three months ended March 31, 2024 was (
Note 12. Net Loss Per Share
Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted net loss per share is computed by dividing net loss, as adjusted for changes in fair value recognized in earnings from equity contracts classified as liabilities, by the weighted average number of common shares outstanding and, when dilutive, common share equivalents from outstanding stock options and restricted stock units (using the treasury-stock method). The weighted-average number of common shares used in the computation of basic and diluted net loss per share were as follows:
Three Months Ended March 31, | ||||||
(in thousands, except share and per share amounts) |
| 2024 |
| 2023 | ||
Numerator: |
|
| ||||
Net loss attributable to common stockholders - basic | $ | ( | $ | ( | ||
Denominator: | ||||||
Weighted average shares of common stock outstanding - basic and diluted |
| |
| | ||
Net loss per share attributable to common stockholders - basic and diluted | $ | ( | $ | ( | ||
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The number of common stock equivalents excluded from the computation of diluted net loss per share because either the effect would have been anti-dilutive, or the performance criteria related to such shares and awards had not been met, were as follows:
As of March 31, | |||||||
2024 | 2023 | ||||||
Escrowed earn-out shares | | | |||||
Options to purchase common stock | | | |||||
Public warrants | | | |||||
Sponsor Earn-Out Shares | | | |||||
Private warrants | | | |||||
Unvested RSUs | | | |||||
Unvested PSUs | | | |||||
Earn-out Restricted Shares | | | |||||
Unvested RSAs | | | |||||
Total | | | |||||
Note 13. Related-Party Transactions
As of March 31, 2024 and December 31, 2023, General Motors Company and its affiliates (“GM”) were considered a related party due to their board representation and the board member’s employment position at GM, as well as GM holding more than
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis provides information which our management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. The following discussion and analysis should be read in conjunction with the accompanying unaudited interim condensed consolidated financial statements as of and for the three months ended March 31, 2024 and the related notes included in this Quarterly Report on Form 10-Q and our audited consolidated financial statements as of and for the year ended
Overview
We are a pre-commercialization stage company engaged in the development and production of high-performance, Lithium-Metal (“Li-Metal”) rechargeable battery technologies for electric vehicles (“EVs”), Urban Air Mobility (“UAM”), which encompasses electric vehicle take-off and landing (“eVTOL”) technology, and other applications. Our differentiated battery technology has been designed to combine the high energy density of Li-Metal with the large-scale manufacturability of conventional Lithium-ion (“Li-ion”) batteries to help promote the transition from the global dependence on fossil fuel-based automotive vehicles to clean and efficient EVs in order to enable a new era of electric transportation on land in air.
SES AI’s mission is to power a new era of electric transportation on land and in air with Li-Metal batteries. We believe Li-Metal is the “end game” for electric transportation energy storage with its potential for step-change in energy density compared to state-of-the-art Li-ion. Our team has dedicated the past decade to developing a comprehensive and proprietary Li-Metal battery technology platform, including high concentration solvent-in-salt electrolyte, ultra-thin wide format lithium anode, protective anode coating, and novel cell engineering processes that are based on scalable Li-ion manufacturing but address unique Li-Metal challenges. As we build more automotive large capacity Li-Metal cells and generate more data, artificial intelligence (“AI”) becomes an increasingly integral part in material development, battery health monitoring and incident prediction.
There are four pillars to our mission.
| 1. | Electric Vehicles (EV) |
Since our founding, EV has always been our core focus. In 2012, we transitioned away from solid state Li-Metal, so our Li-Metal batteries could operate at room temperature and be manufactured at large scale. In 2015, we received the first strategic investment from General Motors. In 2021, we signed what we believe to be the world’s first automotive A-sample Li-Metal joint development agreements (JDAs) with GM, Hyundai and Honda, all of whom made strategic investments in our Company. In 2023, we signed what we believe to be the world’s first automotive B-sample Li-Metal JDA with a major global automaker. In 2024, we extended our JDA agreement with Hyundai to conduct further research and development activities in order to achieve production of B-sample batteries. As of March 31, 2024, we operate three A-sample lines and we are in the process of building two B-sample lines.
We have made significant progress in large 50Ah and 100Ah automotive Li-Metal cell manufacturing. We have addressed key manufacturing challenges in ultra-thin wide format lithium anode, powder and metal bur issues in lithium anode punching, high concentration electrolyte scale-up, and other quality and safety related issues in automotive large Li-Metal cell manufacturing. We have performed inhouse testing on these 50Ah and 100Ah Li-Metal A-sample cells and shared testing data with our JDA original equipment manufacturer (OEM) partners, as well as shipped these A-sample cells to other third parties and OEMs for their further performance and safety testing.
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| 2. | Urban Air Mobility (UAM) |
We believe that B-sample in EV is almost equivalent to commercial production for UAM. We believe that UAM is a perfect fit for Li-Metal and will require little additional development now that we have reached EV B-sample status. UAM frequently operates on a fleet business model where the key business metrics are cost per passenger per mile, with weight being a paramount factor to costs. We believe that the step-change gravimetric energy density that Li-Metal can potentially offer means that an aircraft has the potential to carry twice the number of passengers, or twice the payload for cargo applications, or fly twice the distance, which has the potential to significantly improve the profitability of UAM operators. We are converting one of our EV A-sample lines to be dedicated to UAM cell production in 2024.
| 3. | Artificial Intelligence (AI) |
We started two AI programs out of necessity, due to the need to provide a high level of safety in the field and the need to further accelerate our future roadmap for material development.
We seek to provide a high level of safety in the field and we are leveraging our automotive 50Ah and 100Ah cell production volume and quality data to train our Avatar AI. Our Avatar AI prediction accuracy increased from less than 60% in 2022, to 92% in 2023, and we expect it to reach 95% accuracy by the end of 2024. Our ultimate goal is to be able to reach near 100% safety in the field, which we believe will be paramount to both EV and UAM OEMs.
We are also developing new AI models designed to screen a vast universe of small molecules for potential electrolyte solvent candidates. We have also built an electrolyte foundry designed to provide high throughput synthesis and testing of these materials.
| 4. | Sustainability |
We are executing several initiatives to improve the environmental sustainability of our business, and to reduce cost and ensure traceability of our Li-Metal battery supply chain. The technological innovations include dry electrode that can significantly reduce our electricity consumption and CO2 and chemical solvent emission, and recycling of Li-Metal that allows us to build a new supply chain with better traceability and robustness. We also announced SES Cares, where we power advanced drones with our Li-Metal A-samples and B-samples to collect field data to train Avatar AI, at the same time, partner with operations such as forest fire monitoring and marine animal protection.
Outlook
We believe that 2024 will be a key year in the commercialization of Li-Metal batteries for automotive applications. We plan to continue to focus on EV B-sample JDAs including building and operating B-sample lines, improving cell practical safety and accelerating future roadmap electrolyte development; building and shipping cells to UAM OEM partners; and improving Avatar AI prediction accuracy by deploying Avatar infrastructure and training it across a wide range of data.
After B-Sample, we plan to transition to C-Sample in 2026, which we then expect to enable us to commence commercial production of our technology in 2027. We expect this transition to commercial production to lead to future research facilities and, eventually, commercial production manufacturing facilities in the United States, which will significantly increase our materials consumption and the rate of cash utilization over time.
Results of Operations
Factors Affecting Operating Results
As of March 31, 2024, we have not generated any revenue from sales to customers to date through our one operating segment and have spent $15.3 million and $11.7 million on gross research and development activities during the three months ended March 31, 2024 and 2023, respectively, which is prior to reimbursements received of $3.5 million and $3.2 million during the three months ended March 31, 2024 and 2023, respectively, from our OEM partners under the JDAs. As a result, we have incurred net losses of $15.6 million and $16.2 million for the three months ended March 31, 2024 and 2023, respectively. Our historical results may not be indicative of our future results for reasons that may be difficult to anticipate and our ability to generate revenue in the future that is sufficient enough to achieve profitability will depend largely on the successful development of our products. Accordingly, the drivers of our future financial results, as well as the components of such results, may not be comparable to our historical results of operations.
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The following table sets forth our historical operating results for the periods indicated:
Three Months Ended March 31, | $ | % | |||||||||
(in thousands) | 2024 | 2023 | Change | Change | |||||||
Research and development | $ | 11,765 | $ | 8,489 | $ | 3,276 | 39 | % | |||
General and administrative | 9,506 | 13,123 | (3,617) | (28) | % | ||||||
Total operating expenses | $ | 21,271 | $ | 21,612 | $ | (341) | (2) | % | |||
Research and Development
Research and development expenses consist primarily of costs incurred for salaries and personnel-related expenses, including performance-based bonus and stock-based compensation expense, for scientists, experienced engineers and technicians, expenses for materials and supplies used in product research and development, process engineering efforts and testing, as well as payments to consultants, depreciation, and allocated facilities and information technology costs. Additionally, payments received from the JDA agreements are treated as reimbursements to research and development expenses.
Research and development expenses for the three months ended March 31, 2024 increased $3.3 million, or 39%, to $11.8 million, compared with $8.5 million for the three months ended March 31, 2023. The increase primarily resulted from a total $2.6 million increase in personnel costs mainly attributable to our growth in headcount in support of our ongoing research and development efforts for battery cell development, which included a reduction of $0.4 million in stock-based compensation expense that primarily relates to forfeitures during the period. Further, there was a $1.2 million increase in facility costs due to utilities and depreciation expenses, and a $0.3 million increase in consulting and professional fees. These increases were partly offset by $0.3 million of increased reimbursements to research and development expenses, which are amounts received pursuant to the JDAs, a $0.2 million decrease in expenses for lab consumables and material supplies due to limited activity for certain JDAs during the period, and a $0.3 million decrease in software development costs related to our AI software due to a decrease in consultant costs from prior year.
General and Administrative
General and administrative expenses consist primarily of costs incurred for salaries and personnel-related expenses, including bonus and stock-based compensation expense, for our finance, legal and human resource functions, expenses for director and officer insurance, outside contractor and professional service fees, audit and compliance expenses, legal, patent-related costs, accounting and other advisory services, as well as allocated facilities and information technology costs, including depreciation. Upon commencement of commercial operations, we also expect to incur customer and sales support and advertising costs.
General and administrative expenses for the three months ended March 31, 2024 decreased $3.6 million, or 28%, to $9.5 million, compared with $13.1 million for the three months ended March 31, 2023. This decrease primarily resulted from a total $1.3 million reduction in stock-based compensation, mainly due to the full expensing of Earn-Out Restricted Shares in 2023. This decrease was partially offset by a $0.2 million increase in payroll due to headcount increases. Further, there was a $1.1 million decrease in accounting related expenses from a reduction in audit fees from the prior period resulted from a more efficient reporting process, a $0.7 million decrease in insurance premiums for directors’ and officers’ business insurance policy, a $0.6 million decrease in consulting and professional fees, and a $0.1 million net decrease in other G&A expenses.
Non-Operating Items
Interest Income
Interest income primarily consists of interest earned on our cash and cash equivalents and marketable debt securities, which are primarily invested in money market funds and U.S. treasury securities, and accretion income from the U.S. treasury securities.
During the three months ended March 31, 2024, we had interest income of $4.2 million compared with $4.1 million for the three months ended March 31, 2023. The increase was primarily due to higher interest rate yield.
Change in Fair Value of Earn-Out Liabilities
During the three months ended March 31, 2024, we incurred a gain of $0.9 million associated with the change in fair value of the Sponsor Earn-Out liabilities compared with a gain of $0.6 million for the three months ended March 31, 2023. With the fair value of the Sponsor Earn-Out liabilities primarily tied to the Company’s stock price, continued volatility in the stock price could result in further gains or losses
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resulting from the change in fair value. Refer to “Note 8 – Sponsor Earn-Out Liabilities” to the unaudited interim condensed consolidated financial statements for additional information.
Miscellaneous Income, Net
During the three months ended March 31, 2024, we had miscellaneous income of $0.9 million compared with miscellaneous income of $0.8 million for the three months ended March 31, 2023. The $0.1 million increase in miscellaneous income was primarily the result of a realized gain on foreign currency translation.
Provision from Income Taxes
The provision for income taxes for the three months ended March 31, 2024 increased to $0.2 million compared to $0.1 million for the three months ended March 31, 2023 mainly due to an increase in pre-tax income in China and South Korea.
Liquidity and Capital Resources
As of March 31, 2024, we had total cash and cash equivalents of $129.6 million and investments in marketable debt and equity securities of $189.1 million. As a pre-commercialization stage research and development company, the net operating losses we have incurred since inception are consistent with our strategy and budget.
As a result of the capital-intensive nature of our business, we expect to sustain substantial operating expenses, without generating sufficient revenues to cover expenditures, for a number of years. To date, we have funded our operations through a combination of proceeds from the Business Combination private investments in public entity and funding received through the sales of our redeemable convertible preferred stock. These funds are expected to finance our principal sources of liquidity and ongoing costs, such as research and development relating to our Li-Metal batteries and the construction of additional manufacturing facilities. In the future, if we are not able to fund our operations from cash flows generated from anticipated product sales, we expect that we will need to raise additional funds through a variety of possible methods, including, but not limited to, entry into joint ventures or other strategic arrangements, issuance of equity, equity-related or debt securities or through obtaining credit from financial institutions, as well as anticipated future revenue from product sales.
We believe that our cash on hand and marketable securities will be sufficient to meet our working capital and capital expenditure requirements for a period of at least 12 months from the date of filing this Quarterly Report on Form 10-Q, and also sufficient to fund us to commercialization. However, additional funding may be required for a variety of reasons, including opportunities to build an integrated supply chain in the United States and delays in expected development of our Li-Metal battery cells. Our ability to successfully develop our products, commence commercial operations and expand our business will depend on many factors, including our working capital needs, the availability of equity and/or debt financing and, over time, our ability to generate positive cash flows from operations.
Summary of Cash Flows
The following table provides a summary of our cash flow data for the periods indicated:
Three Months Ended March 31, | |||||
(in thousands) | 2024 | 2023 | |||
Cash (used in) provided by: | |||||
Operating activities | $ | (8,979) | $ | (15,393) | |
Investing activities | 53,242 | (43,093) | |||
Financing activities | 18 | 13 | |||
Effect of exchange rate changes on cash | (369) | (198) | |||
Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 43,912 | $ | (58,671) | |
Operating Activities
Our cash flows used in operating activities to date have primarily comprised research and development and general and administrative activities as discussed above. As we continue to ramp up hiring for research and development headcount to accelerate our engineering efforts, we expect our cash used in operating activities to increase significantly before we start to generate any material cash inflows from our operations.
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Net cash used in operating activities of $9.0 million for the three months ended March 31, 2024 was primarily attributable to net loss of $15.6 million, as adjusted for stock-based compensation expense of $4.8 million, accretion income from marketable securities of $1.9 million, depreciation and amortization of $1.7 million, a gain on change in fair value of Sponsor Earn-Out liabilities of $0.9 million, and a $3.7 million working capital inflow. The working capital inflow was primarily driven by a $5.0 million decrease in prepaids and other assets primarily due to the receipt of $7.0 million in JDA receivable related payments from an OEM partner, of which $4.6 million was outstanding at year-end, and a $1.0 million decrease due to the renewal of our insurance policy at lower rates to cover potential liabilities under our indemnification obligations to our directors and certain officers partially offset by an increase in $1.4 million related to advanced payments for software development and research agreements. The working capital inflow was further decreased by a $2.7 million decrease in receivable from related party driven by $3.9 million in receipts and $1.2 million of billed activity and a $0.1 million decrease in inventory due to materials consumption. The working capital inflow was partially offset by a $3.6 million decrease in accrued expenses and other liabilities primarily due to decreases in accrued bonuses, accrued taxes, and professional fees associated with our audit.
Net cash used in operating activities of $15.4 million for the three months ended March 31, 2023 was primarily attributable to net loss of $16.2 million as adjusted for stock-based compensation expense of $6.5 million, accretion income from marketable securities of $2.9 million, depreciation and amortization of $1.1 million, a gain on change in fair value of Sponsor Earn-Out Liability of $0.6 million and a $2.5 million working capital outflow. The working capital outflow was primarily driven by a $2.6 million increase in prepaids and other assets primarily due to the renewal of the insurance policy to cover potential liabilities under our indemnification obligations to our directors and certain officers, a $0.4 million increase in receivable from related party driven by activity from the associated JDA, and a $0.1 million increase in inventory due to materials purchases. The working capital outflow was partially offset by a $0.6 million increase in accrued expenses and other liabilities primarily due to increases in accrued bonuses, accrued taxes, and professional fees associated with audit fees.
Investing Activities
Net cash provided by investing activities was $53.2 million for the three months ended March 31, 2024 compared to net cash used in investing activities of $43.1 million for the three months ended March 31, 2023.
Purchases and Maturities of Investments – Net proceeds from investments in marketable debt and equity securities were $60.0 million for the three months ended March 31, 2024 compared to $37.1 million of net purchases of investments in debt and equity securities for the three months ended March 31, 2023.
Capital Spending – Capital expenditures were $6.8 million and $6.0 million for the three months ended March 31, 2024 and 2023, respectively, and primarily related to purchases of lab machinery and equipment, lab tools and instruments. We expect capital expenditures for the rest of 2024 to continue to increase compared to 2023 as we continue to invest in the build out of our manufacturing pre-production facilities.
Financing Activities
Net cash provided by financing activities was immaterial for the three months ended March 31, 2024 and March 31, 2023.
Contractual Obligations and Commitments
The following table summarizes our material contractual obligations for cash expenditures as of March 31, 2024, and the periods in which these obligations are due:
Short Term | Long Term | Total | ||||||
Purchase obligations(1) | $ | 48,552 | $ | 2,197 | $ | 50,749 | ||
Operating lease obligations(2) | 3,457 | 11,663 | 15,120 | |||||
Total | $ | 52,009 | $ | 13,860 | $ | 65,869 | ||
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(1) Purchase obligations include commitments for the purchase of lab supplies and equipment as well as committed spend related to a JDA. These commitments are derived from purchase orders, supplier contracts and open orders based on projected demand information.
(2) Operating lease obligations represent the fixed lease payments for the noncancelable lease term, fixed lease payments for optional renewal periods where the Company is reasonably certain the renewal option will be exercised, and variable lease payments that depend on an underlying index or rate in effect at lease commencement.
Off-Balance Sheet Arrangements
As of March 31, 2024, we had a letter of credit issued by a financial institution totaling $0.6 million. The letter of credit relates to deposits the Company is required to maintain under one of its operating lease agreements. We have restricted cash that serves as collateral for this outstanding letter of credit that is included in other assets on our unaudited interim condensed consolidated balance sheet. No amounts have been drawn under the letter of credit.
Recent Accounting Pronouncements
See “Note 2 – Basis of Presentation” of our accompanying unaudited interim condensed consolidated financial statements for the three months ended March 31, 2024 included in this Quarterly Report on Form 10-Q for more information about recent accounting pronouncements, the timing of their adoption, and their potential impact on our financial condition, results of operations and cash flows.
Critical Accounting Estimates and Judgments
Our financial statements have been prepared in accordance with U.S. GAAP. In the preparation of these unaudited interim condensed consolidated financial statements, we are required to use judgment in making estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the unaudited interim condensed financial statements, as well as the reported expenses incurred during the reporting periods.
There have been no significant changes to our critical accounting policies or in the underlying accounting assumptions and estimates used in such policies from those disclosed in our annual consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2023.
Other Information
The Company’s website is www.ses.ai. Information contained on the Company’s website is not part of this report. Information that we furnish to or file with the SEC, including the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to, or exhibits included in, these reports are made available for download, free of charge, through the Company’s website as soon as reasonably practicable. The Company’s SEC filings, including exhibits filed therewith, are also available directly on the SEC’s website at www.sec.gov.
The Company may use its website as a distribution channel of material company information. Financial and other important information regarding the Company is routinely posted on and accessible through the Company’s website at www.ses.ai. Accordingly, investors should monitor this channel, in addition to following the Company’s press releases, SEC filings and public conference calls and webcasts. The contents of our website are not, however, a part of this report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no significant changes to the Company’s market risk during the three months ended March 31, 2024. Refer to “Part II. Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2023 for a discussion of the Company’s exposure to market risk.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive officer (“CEO”) and chief financial officer (“CFO”), we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2024, as such term is defined in Rules 13a-15(e) and 15d-15(e) under Securities Exchange Act of 1934, as amended (the
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“Exchange Act”). Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. Based on this evaluation, our principal executive officer and principal financial officer have concluded that as of March 31, 2024, our disclosure controls and procedures were not effective due to material weaknesses in our internal control over financial reporting, as discussed in more detail below.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Notwithstanding the identified material weaknesses, management, with the participation of the principal executive officer and principal financial officer, believes the unaudited interim condensed consolidated financial information included in this Quarterly Report on Form 10-Q fairly represent in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.
Material Weaknesses
We previously identified material weaknesses, as disclosed in our 2023 Annual Report. The Company did not design and maintain sufficient user access and monitoring controls to ensure appropriate segregation of duties and adequately restrict access to a financial application. As a result, automated and manual business process controls that are dependent on the affected IT general controls were also deemed ineffective, as they could have been adversely affected due to their reliance on information and configurations from the affected IT system. In addition, a management review control associated with the valuation of the Sponsor Earn-Out liabilities did not operate effectively as it did not evaluate a key assumption used in the valuation at an appropriate level of precision.
Further, in the first quarter of 2024, we identified an additional material weakness in a review control because it failed to detect an error in the accounting for forfeitures of Earn-Out Restricted Shares upon a holder’s termination of employment.
The material weaknesses did not result in any material misstatements to our unaudited condensed consolidated financial statements or disclosures in any of the three months ended March 31, 2024 or 2023 included in this Quarterly Report on Form 10-Q, and our management believes the condensed consolidated financial information included in this Quarterly Report on Form 10-Q fairly represent in all material respects our financial condition, results of operations and cash flows for such periods in accordance with U.S. GAAP.
Changes in Internal Control over Financial Reporting
Other than the actions taken as described in “Management’s Remediation Initiatives” below to improve the Company’s internal control over financial reporting, there have been no changes in our internal control over financial reporting during the most recent fiscal quarter that materially affected, or which are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Remediation Initiatives
We have developed detailed remediation plans, with appropriate executive sponsorship, to specifically address the material weaknesses.
We have taken the following steps towards remediation of the identified material weaknesses and to enhance our internal control over financial reporting:
| ● | We have hired, and will continue to hire, additional professionally qualified accountants who have the appropriate level of expertise in the areas of accounting, financial reporting, and IT general controls. |
| ● | We are taking steps to enhance the design of existing control activities related to IT environment and implement additional process-level control activities and ensure they are operating effectively. |
| ● | We have restricted, and will continue to restrict access to the financial application to ensure appropriate segregation of duties. |
| ● | We have designed updated processes and controls around change management monitoring to ensure that all changes have sufficient documentation and are reviewed by an authorized person. |
| ● | We have begun to maintain, and will continue to maintain sufficient and appropriate review documentation for the assessment of all key assumptions related to the valuation of Sponsor Earn-Out liabilities. |
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| ● | We have added, and will maintain an additional layer of internal review over the accounting of the Earn-Out Restricted Shares’ expense in relation to employees’ terminations and forfeitures. |
We have expended, and will continue to expend, a substantial amount of effort and resources for the remediation and improvement of our internal control over financial reporting. We will continue to work on improvements to our internal controls during 2024 as we assess and evaluate the controls intended to remediate the material weaknesses. Until these weaknesses are remediated, we plan to continue to perform additional analyses and other procedures to ensure that our consolidated financial statements are prepared in accordance with GAAP.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be subject to claims arising in the ordinary course of business or become involved in litigation or other legal proceedings. We are not currently a party to any litigation or legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Item 1A. Risk Factors
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors disclosed in “Part I, Item 1A” of our Annual Report on Form 10-K for the year ended December 31, 2023, and the other reports that we have filed with the SEC. Any of the risks discussed in such reports, as well as additional risks and uncertainties not currently known to us or that we currently deem immaterial, could materially and adversely affect our results of operations, financial condition or prospects. During the period covered by this Quarterly Report on Form 10-Q, there have been no material changes in our risk factors as previously disclosed.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Rule 10b5-1 Trading Arrangements
On
On
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Item 6. Exhibits
Exhibit No. |
| Description |
|---|---|---|
3.1 | ||
3.2 | ||
10.1# | ||
31.1† | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2† | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1* | ||
32.2* | ||
101.INS† | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
101.SCH† | Inline XBRL Taxonomy Extension Schema Document. | |
101.CAL† | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.DEF† | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
101.LAB† | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE† | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
104† | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101). |
† Filed herewith.
* Furnished herewith.
# Indicates management contract or compensatory plan or arrangement.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, duly authorized.
Date: May 3, 2024
SES AI CORPORATION | ||
By: | /s/ Qichao Hu | |
Name: | Qichao Hu | |
Title: | Chief Executive Officer | |
(Principal Executive Officer) | ||
By: | /s/ Jing Nealis | |
Name: | Jing Nealis | |
Title: | Chief Financial Officer | |
(Principal Financial Officer) | ||
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