SES AI (US:SES)2024-02-27 22:10Part I Business SES AI develops high-performance Li-Metal batteries for EVs and UAM, with OEM partnerships and global R&D facilities - SES is a pre-commercialization stage company focused on developing and producing high-performance Lithium-Metal (Li-Metal) rechargeable batteries for EVs and UAM applications23 - The company's technology aims to combine the high energy density of Li-Metal with the large-scale manufacturability of conventional Li-ion batteries, utilizing a proprietary high-concentration, solvent-in-salt liquid electrolyte242730 Projected Battery Performance Metrics | Metric | Projected Performance | | :--- | :--- | | Gravimetric Energy Density | 400 Wh/kg | | Volumetric Energy Density | 1,000 Wh/L | | Fast Charge Capability | to 80% in less than 15 minutes | - SES has entered into B-Sample joint development agreements (JDAs) with major OEMs, including General Motors (GM), Hyundai, and Honda, to advance its battery technology towards commercial production, which is targeted for 2027363746 - As of December 31, 2023, the company holds 76 granted patents and has over 108 pending patent applications covering cell design, materials, battery management, and environmental aspects5457 - The company had approximately 300 full-time employees as of December 31, 2023, a 50% increase from the prior year, with about 80% engaged in R&D functions across facilities in the US, China, and South Korea56 Risk Factors The company faces significant risks including commercialization challenges, no revenue, capital needs, untested technology, competition, OEM reliance, and internal control weaknesses - The company faces significant challenges in developing a commercially viable Li-Metal battery for EVs, as the technology is still in development and has never been successfully used in automobiles7172 - SES has a history of no revenues and significant net losses, incurring a net loss of $53.4 million in 2023 and an accumulated deficit of $198.7 million since inception, expecting to continue incurring losses until at least 20287374 - The business is capital-intensive and will require substantial additional funding for development, manufacturing scale-up, and to reach commercialization, though current cash is expected to be sufficient for at least the next 12 months7677 - The company's success is highly dependent on its joint development agreements (JDAs) with OEMs like GM, Hyundai, and Honda, which are for development purposes and do not represent purchase commitments8498 - The international nature of its operations, with facilities in China and South Korea, exposes SES to geopolitical, regulatory, and economic risks, including trade tensions and challenges in protecting intellectual property147153 - Management and the company's independent auditor have identified material weaknesses in internal control over financial reporting as of December 31, 2023, which could result in material misstatements if not remediated181182 - The company is a "controlled company" as the SES Founder Group, led by CEO Dr. Qichao Hu, holds approximately 58.6% of the total voting power, allowing them to influence significant corporate decisions193194 Unresolved Staff Comments The company reports that it has no unresolved staff comments - None210 Cybersecurity SES manages cybersecurity risk through a developing framework with Audit Committee oversight, reporting no material incidents in fiscal 2023 - The company's processes for managing cybersecurity threats are still in development and are being integrated into the overall risk management system211 - Oversight is provided by the Audit Committee, which is composed of independent directors and regularly briefed on cyber risks217 - The company is not aware of any material cybersecurity incidents during fiscal year 2023216 Properties The company leases R&D and production facilities in the US, China, and South Korea, with a new electrolyte foundry operational in January 2024 - SES leases facilities in Woburn, MA (headquarters); Shanghai, China; and Chungju and Seoul, South Korea for its R&D, pilot production, and administrative functions217 - A new leased facility for an electrolyte foundry near the Woburn headquarters began operations in January 2024217 Legal Proceedings The company may be subject to claims in the ordinary course of business but does not expect any such liabilities to have a material effect on its financial condition, results of operations, or cash flows - Information regarding legal contingencies is incorporated by reference from Note 14 to the consolidated financial statements219 - Management does not expect any liabilities from ordinary course claims to have a material effect on the company's financial condition407 Mine Safety Disclosures This item is not applicable to the company - Not applicable220 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Class A common stock and public warrants trade on the NYSE, with no cash dividends paid or anticipated in the foreseeable future - Class A common stock trades on the NYSE under the symbol "SES"221 - Public warrants trade on the NYSE under the symbol "SES WS"221 - The company has not paid any cash dividends to date and does not plan to in the foreseeable future223 Reserved This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations SES, a pre-commercialization company with no revenue, reported a $53.4 million net loss in 2023, with strong liquidity from $85.7 million cash and $246.8 million short-term investments - The company is in a pre-commercialization stage and has not generated any revenue from its business operations231241 Key Financial Results (in thousands) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Research and development | $30,675 | $27,967 | | General and administrative | $47,483 | $51,606 | | Total operating expenses | $78,158 | $79,573 | | Loss from operations | ($78,158) | ($79,573) | | Net loss | ($53,400) | ($50,993) | - R&D expenses increased by 9.7% in 2023 due to higher personnel costs from increased headcount, facility costs, and material supplies, partially offset by a $10.7 million increase in credits from JDA partners246 - G&A expenses decreased by 8.0% in 2023, primarily due to lower insurance premiums and the absence of transaction costs related to the 2022 Business Combination248 - As of December 31, 2023, the company had $85.7 million in cash and cash equivalents and $246.8 million in short-term investments, with an accumulated deficit of $198.7 million254 Summary of Cash Flows (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(56,412) | $(46,500) | | Net cash provided by (used in) investing activities | $32,719 | $(296,009) | | Net cash provided by financing activities | $3,275 | $289,927 | Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate and foreign currency risks, with a 100 basis point rate increase impacting short-term investments by $1.2 million, and unhedged exposure to RMB and KRW - The company's primary market risks are interest rate risk and foreign currency risk276 - A hypothetical 100 basis point increase in interest rates would decrease the fair value of the company's short-term investments by approximately $1.2 million as of December 31, 2023277 - The company is exposed to foreign currency fluctuations related to its subsidiaries in China (RMB) and South Korea (KRW), but does not currently use hedging instruments278 Financial Statements and Supplementary Data This section presents consolidated financial statements, with Grant Thornton LLP issuing an unqualified opinion on financials but an adverse opinion on internal control over financial reporting as of December 31, 2023 - The independent registered public accounting firm, Grant Thornton LLP, issued an adverse opinion on the Company's internal control over financial reporting as of December 31, 2023284294 Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $85,671 | $106,623 | | Short-term investments | $246,775 | $283,460 | | Total Assets | $406,810 | $440,439 | | Total Liabilities | $47,860 | $48,900 | | Total Stockholders' Equity | $358,950 | $391,539 | Consolidated Statement of Operations Highlights (in thousands) | Account | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Total operating expenses | $78,158 | $79,573 | $32,006 | | Loss from operations | ($78,158) | ($79,573) | ($32,006) | | Net loss | ($53,400) | ($50,993) | ($31,255) | | Net loss per share | ($0.17) | ($0.18) | ($0.51) | - The company has JDAs with Hyundai, GM, and Honda, recording $23.1 million in credits to research and development expense from these partnerships for the year ended Dec 31, 2023379380382 - The fair value of the Sponsor Earn-Out liabilities, measured using a Monte Carlo simulation, decreased from $11.0 million to $4.2 million at year-end 2023, resulting in a gain of $6.8 million393394 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None465 Controls and Procedures Management concluded disclosure controls were ineffective as of December 31, 2023, due to material weaknesses in internal control over financial reporting, with a remediation plan underway and prior weaknesses remediated - Management concluded that disclosure controls and procedures were not effective as of December 31, 2023, due to material weaknesses in internal control over financial reporting466 - A material weakness was identified related to insufficient user access and monitoring controls for a financial application, creating inadequate segregation of duties472 - A second material weakness was identified where a management review control over the valuation of sponsor earn-out liabilities did not operate effectively, failing to evaluate a key assumption with appropriate precision472 - The company is implementing a remediation plan that includes hiring additional qualified personnel, enhancing IT controls, restricting system access, and improving review documentation476479 - Material weaknesses reported for the fiscal year ended December 31, 2022, were remediated as of December 31, 2023480 Other Information During the quarter ended December 31, 2023, no director or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements - No director or Section 16 officer adopted or terminated a Rule 10b5-1 trading arrangement in Q4 2023482 Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This item is not applicable to the company - Not applicable483 Part III Directors, Executive Officers and Corporate Governance The information required by this item will be included in the company's definitive proxy statement for its 2024 Annual Meeting of Stockholders and is incorporated herein by reference - Information is incorporated by reference from the forthcoming Proxy Statement485 Executive Compensation The information required by this item will be included in the company's definitive proxy statement for its 2024 Annual Meeting of Stockholders and is incorporated herein by reference - Information is incorporated by reference from the forthcoming Proxy Statement486 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item will be included in the company's definitive proxy statement for its 2024 Annual Meeting of Stockholders and is incorporated herein by reference - Information is incorporated by reference from the forthcoming Proxy Statement487 Certain Relationships and Related Transactions, and Director Independence The information required by this item will be included in the company's definitive proxy statement for its 2024 Annual Meeting of Stockholders and is incorporated herein by reference - Information is incorporated by reference from the forthcoming Proxy Statement488 Principal Accounting Fees and Services The information required by this item will be included in the company's definitive proxy statement for its 2024 Annual Meeting of Stockholders and is incorporated herein by reference - Information is incorporated by reference from the forthcoming Proxy Statement489 Part IV Exhibits, Financial Statement Schedules This section lists financial statements and exhibits filed with the Form 10-K, including corporate governance documents, material contracts, and certifications - This item lists all exhibits filed with or incorporated by reference into the Form 10-K491 Form 10-K Summary The company indicates that there is no Form 10-K summary - None499