SES AI (SES) - 2022 Q3 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements Financial statements reflect pre-commercialization, balance sheet growth, and widening operating losses from the 2022 Business Combination Condensed Consolidated Balance Sheets The balance sheet reflects significant asset growth and positive stockholders' equity following the February 2022 Business Combination Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $394,664 | $160,497 | | Total current assets | $402,239 | $169,970 | | Total assets | $442,246 | $193,353 | | Liabilities & Equity | | | | Total current liabilities | $16,935 | $10,985 | | Total liabilities | $48,533 | $11,734 | | Total stockholders' equity | $393,713 | $(88,322) | | Total liabilities and equity | $442,246 | $193,353 | Condensed Consolidated Statements of Operations and Comprehensive Loss The company reported no revenue, with net losses significantly widening due to increased R&D and G&A expenses Operating Results (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $8,421 | $3,684 | $19,680 | $10,332 | | General and administrative | $13,308 | $7,004 | $40,305 | $11,509 | | Loss from operations | $(21,729) | $(10,688) | $(59,985) | $(21,841) | | Net loss | $(24,328) | $(10,625) | $(42,346) | $(21,006) | | Net loss per share (basic & diluted) | $(0.08) | $(0.17) | $(0.15) | $(0.35) | Condensed Consolidated Statements of Cash Flows Net cash used in operations increased, while financing activities provided significant inflow from the Business Combination, leading to a substantial cash increase Cash Flow Summary for Nine Months Ended September 30 (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(37,807) | $(17,804) | | Net cash used in investing activities | $(10,645) | $(141,673) | | Net cash provided by financing activities | $283,200 | $187,341 | | Net increase in cash | $234,109 | $27,912 | - The company received $282.9 million in net proceeds from the Business Combination and PIPE Financing during the nine months ended September 30, 2022[19][166] Notes to Condensed Consolidated Financial Statements Notes detail the company's pre-commercial Li-Metal battery business, accounting impacts of the 2022 Business Combination, key policies, and JDA commitments - The company is engaged in the research and development of Lithium-Metal (Li-Metal) rechargeable batteries for electric vehicles (EVs) and has not yet derived revenue from its principal business activities[23] - The Business Combination on February 3, 2022, was accounted for as a reverse recapitalization, resulting in net proceeds of $282.9 million after transaction costs[61][31] - The company has Joint Development Agreements (JDAs) with automotive OEM Partners, committing to R&D activities with an agreed-upon value of up to $50 million[78] - Stock-based compensation expense for the nine months ended September 30, 2022, was $15.9 million, a significant increase from $3.1 million in the prior-year period; total unrecognized stock-based compensation cost was $45.8 million[93][94] - A JDA with related-party General Motors resulted in a credit to research and development expense of $5.0 million for the nine months ended September 30, 2022[113] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses pre-commercial Li-Metal battery development, strategic OEM partnerships, increased R&D and G&A expenses, and strong liquidity - The company is a pre-commercialization stage entity with no revenue to date and an accumulated deficit of $136.6 million as of September 30, 2022[117][119] - Strategic partnerships with GM, Hyundai, and Honda are central to the company's strategy, with JDAs in place to develop A-Sample battery cells[121][122][123] - The company's commercialization timeline targets B-Sample batteries in 2023, C-Sample batteries in 2024, and commencement of commercial production in 2025[129] - The company believes its cash on hand of $395.2 million is sufficient to meet working capital and capital expenditure requirements for at least the next 12 months, including facility expansions in Shanghai and South Korea[154] Results of Operations Operating expenses significantly increased for the nine months ended September 30, 2022, driven by higher R&D and G&A costs Operating Expense Comparison (Nine Months Ended Sep 30) | Expense Category | 2022 (in thousands) | 2021 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Research and development | $19,680 | $10,332 | 90% | | General and administrative | $40,305 | $11,509 | 250% | | Total operating expenses | $59,985 | $21,841 | 175% | - The increase in R&D expenses was primarily due to a $6.2 million increase in personnel costs (including $4.4 million in stock-based compensation) and a $3.2 million increase in software development costs[145] - The increase in G&A expenses was primarily due to a $13.1 million increase in personnel costs (including $8.4 million in stock-based compensation), a $5.5 million increase in insurance expense, and a $4.6 million increase in deferred offering costs[147] Liquidity and Capital Resources The company's liquidity is strong, primarily from the 2022 Business Combination, deemed sufficient for the next 12 months despite increased cash used in operations - As of September 30, 2022, the company had cash, cash equivalents, and restricted cash of $395.2 million and an accumulated deficit of $136.6 million[154] - Net cash used in operating activities increased to $37.8 million for the nine months ended Sep 30, 2022, from $17.8 million in the same period of 2021, mainly due to higher net loss adjusted for non-cash items[161][162] - The company has material contractual purchase obligations of $17.3 million, primarily for lab supplies and equipment[168] Quantitative and Qualitative Disclosures About Market Risk The company faces minimal interest rate risk but is exposed to foreign currency risk from its China and South Korea operations, resulting in translation losses - Interest rate risk is not considered material due to the short-term nature of the company's $395.2 million in cash, cash equivalents, and restricted cash[183] - The company is exposed to foreign currency risk from its subsidiaries in China (RMB) and South Korea (KRW), resulting in a $2.5 million foreign currency translation loss for the nine months ended September 30, 2022[184] Controls and Procedures Management concluded disclosure controls were ineffective due to two material weaknesses, with remediation efforts targeting December 31, 2022 - The principal executive officer and principal financial officer concluded that disclosure controls and procedures were not effective as of September 30, 2022[185] - The ineffectiveness is due to two material weaknesses: one inherited from the SPAC merger concerning complex financial instruments, and a second, unremediated one related to stock-based compensation calculation and disclosure[187][188] - Remediation initiatives include hiring additional finance and accounting staff, engaging a global accounting advisory firm, and redesigning controls; the company expects to remediate the material weaknesses by December 31, 2022[191][195] Part II. Other Information Legal Proceedings The company is not currently involved in any legal proceedings expected to materially affect its business - As of the report date, the company is not involved in any legal proceedings that management believes would have a material adverse effect on the business[192] Risk Factors The company highlights updated risk factors including global economic uncertainty, COVID-19 impacts, public company costs, and internal control weaknesses - Global economic conditions and health epidemics like COVID-19 pose a risk, as demonstrated by the government-mandated temporary shutdown of the Shanghai facility in April 2022, which caused a delay of over a month[194][197] - The company has identified a material weakness in its internal control over financial reporting, which could result in material misstatements and adversely affect investor confidence[199][201] - The company will cease to be an 'emerging growth company' as of December 31, 2022; this will increase compliance costs and require its independent auditor to issue a report on internal control over financial reporting for the 2022 Annual Report[205][207] Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds during the period - None[210] Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - None[211] Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[212] Other Information There is no other material information to report for this period - None[213] Exhibits The report lists various exhibits filed with the Form 10-Q, including corporate governance documents and required CEO/CFO certifications - Exhibits filed include corporate governance documents, a lease amendment, and required CEO/CFO certifications[213]