SES AI Corporation (SES) Q3 2025 Earnings Report, Transcript and Summary

Hello, and welcome to the SES AI Third Quarter 2025 Earnings Release and Call. My name is Carla, and I will be coordinating your call today. [Operator Instructions] I will now hand you over to the Chief Legal Officer, Kyle Pilkington, to begin. Please go ahead when you're ready.

Hello, everyone, and welcome to our conference call covering our third quarter 2025 results. Joining me today are Qichao Hu, Founder and Chief Executive Officer; and Jing Nealis, Chief Financial Officer. We issued our shareholder letter just after 4:00 p.m. today, which provides a business update as well as our financial results. You'll find a press release with a link to our shareholder letter and today's conference call webcast in the Investor Relations section of our website at ses.ai. Before we get started, this is a reminder that the discussion today may contain forward-looking information or forward-looking statements within the meaning of applicable securities legislation. These statements are based on our predictions and expectations as of today. Such statements involve certain risks, assumptions and uncertainties, which may cause our actual or future results and performance to be materially different from those expressed or implied in these statements. The risks and uncertainties that could cause our results to differ materially from our current expectations include, but are not limited to, those detailed in our latest earnings release and in our SEC filings. This afternoon, we will review our business as well as results for the quarter. With that, I'll pass it over to Qichao.

Thanks, Kyle. Thanks, everyone, for joining today. We had a record third quarter with more than $7 million in revenue. That's more than 100% growth over the second quarter. Our all-in on AI strategy is working remarkably. Today, I want to highlight some of the successes we've seen with this strategy and what it means for the future. We reached a major milestone this quarter that we expect to have far-reaching consequences across the revenue machine we described in detail during our last call. That milestone was the release of our latest version of Molecular Universe, MU-1.0. MU-1.0 is a powerful and complete end-to-end AI for science workflow that includes 5 features, ask an Agentic LLM with access to what we believe is the world's largest database of battery relevant literature, search and formulate what we believe are the world's largest databases of battery relevant molecule and formulation level properties enabled by GPU-accelerated quantum mechanics computation and machine learning accelerated property prediction, end design and predict chemistry-specific and chemistry-agnostic machine learning models, respectively, that can accurately predict battery state of health and end of life. Due to the popularity of the enterprise tier, we also launched 3 sub-tiers within enterprise to provide greater value to more enterprise users. In addition to cloud-based molecular universe, we expect to launch on-premise molecular universe, providing greater data security to more enterprise users. This new on-premise capability, which we will be describing in more detail in the coming months, addresses specific security and privacy needs of the world's largest battery makers that should unlock a greater share of our addressable market. We are incorporating MU1.0's Ask design and predict into our ESS products deployed by UZ around the world to collect data for on-site model training. This unprecedented ability for safety and health prediction, combined with reduced maintenance costs, truly helps differentiate our products and attract new customers. Since we completed the acquisition of UZ Energy in mid-September, our ESS revenue has been growing and is already responsible for approximately 45% of our third quarter revenue. We're very excited about the revenue potential of deploying Molecular Universe to enhance our ESS products. MU1.0' Ask, Search and Formulate are also helping our users identify several new electrolyte materials that we are commercializing. These include: one, improved low-temperature rate performance of lithium ion phosphate lithium-ion cells for ESS applications; two, improved cycle life for 12% silicon lithium-ion cells for EV application; and three, improved cycle life for lithium metal and 100% silicon lithium-ion for drones and UAM applications and many more. To supply these materials discovered by Molecular Universe to our customers, we entered into a joint venture agreement with Hisun New Energy Materials, a leading electrolyte manufacturer with 150,000 tons of annual capacity to contract manufacture these materials, so we stay CapEx-light, laying the groundwork for exciting revenue growth in the coming quarters. Another revenue opportunity we expect to grow in 2026 and beyond is in drones. A dependable supply chain of high energy density pouch cells is extremely rare and critical to the development of the American drones industry. To better address this burgeoning market, we are leveraging our Chungju, South Korea cell factory, incorporating the latest materials discovered from Molecular Universe to meet customer demands. In terms of potential revenues from EV, we completed B-sample line site acceptance test this summer with one auto OEM. As a result, in 2026, we expect to start commercial supply of electrolyte materials and partner with them for cell production. Overall, it's hard for us to comprehend a more consequential period than what we have experienced over the past 2 quarters, particularly as it relates to delivering on the goals we outlined coming into this year. For instance, we noted we wanted to break into the ESS market in a big way. Now we've done so with the acquisition of UZ Energy, and the acquisition has already delivered significant revenue in 2025. We launched 3 versions of Molecular Universe this year. The discoveries made by us and our customers so far have accelerated our push into materials to supply them through the Hisun JV. We'll have more to share on our fourth quarter call about how we expect 2026 to shape up for us, but we expect success for us will look like a hardware, software integrated platform with multipronged and multi-revenue streams. As Molecular Universe, a complete AI for science workflow SaaS platform accelerates innovation across all battery chemistries, we are working with our JV partners to provide a dependable hardware supply chain for the cells developed from Molecular Universe. Just as AI for science is completely changing other industries, Molecular Universe is now transforming all battery chemistries across all applications. We are excited about the revenue growth potential brought by Molecular Universe and we'll continue to assemble the best talent, data and compute resource needed to build AI for science for energy transition. Lastly, I want to express my gratitude for our teams who are working super hard to make all of this happen. And thanks to all of you for being on this journey with us. And now here's Jing for financial updates.

Thank you. I will discuss our financial performance for the third quarter of 2025 and provide some context on how we are deploying our capital to support SES AI's long-term growth and then the all-in on AI strategy Qichao mentioned earlier. Revenue for the third quarter was $7.1 million, representing a $3.6 million or 102% increase from the previous quarter. Our Q3 revenue was approximately a 55-45 split between our service revenue from our automotive OEM customers to develop AI-enhanced lithium metal and lithium-ion battery materials for EV applications and product revenue, primarily from UZ Energy's energy storage system sales. For the full year 2025, we are updating our revenue guidance to $20 million to $25 million due to UZ's contribution going forward. Gross margin was 51% for the third quarter, which is a combination of 78% gross margin from the service revenue and 15% gross margin from the product revenue. As a reminder, with UZ Energy now part of SES, we expect gross margin variation from quarter-to-quarter as our service and product revenue mix will fluctuate. Our GAAP net loss for the third quarter was $20.9 million or negative $0.06 per share. In Q2 2025, our GAAP net loss was $22.7 million or negative $0.07 per share. As of September 30, we had 365 million Class A and Class B shares outstanding, which were down $1.3 million from the previous quarter, mainly due to the share repurchase we executed during the third quarter. In the third quarter, we repurchased and canceled 1.3 million Class A shares for a total investment of $1.6 million or roughly $1.20 per share. We utilized $14.3 million in cash for operations in the third quarter. We exited the third quarter with a strong liquidity position of $214 million. As mentioned, we closed the UZ acquisition in September and recognized some UZ revenue during the third quarter. We see a tremendous opportunity to grow the UZ Energy business from approximately $10 million to $15 million in projected full year 2025 revenue to a much larger growth in the coming years as we execute our go-to-market strategy that Qichao outlined to make market share gains in the $300 billion global ESS market. When we report Q4 earnings, we expect to provide a more definitive outlook on how we see the full year 2026 revenue growth shaping up from UZ's growth in ESS, SaaS subscription use, contributions from Hisun JV and potential for the start of commercial production of electrolyte and/or battery cells from automotive OEMs, drones and robotics. The potential growth of these revenue streams, which all have different margin profiles will be much larger than what we have experienced in 2025, but the growth isn't linear from quarter-to-quarter and the margin may vary quarter-to-quarter as well. Looking ahead, we remain focused on executing our strategy while continuing to grow our top line while remaining financially disciplined. With substantial liquidity, we are well positioned for sustainable growth and long-term success. We appreciate your continued support and confidence in SES AI. Thank you. Now I will turn the call back to the operator.

[Operator Instructions] And our first question comes from the line of Derek Soderberg with Cantor Fitzgerald.

On the Hisun JV, can you talk about how that opportunity came about? Was the company paying for Molecular Universe access? Or was this sort of an internal project at SES? And then what type of battery will this electrolyte enable?

Derek, so very good question. And actually, the Hisun JV came as a request by some of the Molecular Universe enterprise users. So Molecular Universe since we launched this -- earlier this year has been growing really fast. And we had almost every major battery company and battery materials company in the world trialing this. And so in addition to the SaaS platform, both on the cloud and also on-premise, several of the battery companies that are using the Molecular Universe enterprise tier also ask us, okay, we found these materials, these formulations, these molecules through Molecular Universe. Why don't you just make these and then sell these to us because they currently buy electrolytes from companies. So it's a quite mature business model. So we said, okay, yes. we're happy to sell these materials to you. These are new formulations that they cannot buy anywhere else. And so we formed this joint venture. It's a CapEx JV we control. We control 90% of the JV, and we contract manufacture with a company called Hisun to produce this formulation, and then we sell that formulation to the cell makers. And then some of the applications, so in the call, I listed 3 and then actually all 3 are being produced. So the most popular one is a new formulation to improve low temperature performance of LFP for ESS batteries. A lot of these LFP batteries for ESS, when they're deployed in like Northern Europe, these cold places, they don't work so well when it's a low temperature. Another one is for cell phone applications. So it's a high-voltage electrolyte for LCL cells. And then another is a 12% silicon lithium-ion cells for EV applications also to improve the cycle life. So these 3, we are requested by the user, the cell maker to actually supply these materials at commercial scale to them. And this was discovered through the Molecular Universe platform.

And I guess just to that point, I guess I wasn't imagining a JV coming out of this first in Molecular Universe. Can you just talk about how you expect the monetization of that business to sort of play out over the next year, beyond sort of JVs, do you expect Molecular Universe to grow sort of as a traditional Software-as-a-Service business where every quarter you sort of add additional seats? Or do you expect there to be sort of like a stair step up on revenue as you sign kind of larger agreements? How do you sort of see the monetization of MU playing out sort of over the next year? How should we think about it?

Yes. So MU is a mix of SaaS platform and materials. And then for the SaaS platform, and then we laid out the different tier pricing on the website, molecular-universe.com. And so we have the individual tiers and then the number of individual tiers is growing. And then also, we have the enterprise tiers. These are the major battery companies and then the material companies and the chemical companies. And then -- and a lot of these companies prefer on-premise. So we also sell them this Molecular Universe in a box on-premise solution. So we charge them monthly subscription. And also we sell this computer that we actually deploy on site and also service on top of that. I think the SaaS platform, we do expect to see a growing number of seats per month and also per quarter and then the material supply because a lot of these companies eventually want us to supply the materials. But the revenue coming from the Molecular Universe discovery materials is actually going to be much higher than the SaaS revenue.

And then just one final one for me, just a broad update on Molecular Universe. I think in the past, you said you've got like 2 dozen or so companies in trial testing. Can you just give us an update on maybe where that is? And I think in the past, you have mentioned there are other potential large or medium-sized battery OEMs as part of that group. Where are you at with some of those players in negotiations? And when do you expect maybe a medium or large-sized OEM to sign on to MU through a joint development?

Yes. So the number now is getting close to 40 enterprise and then -- and they have gone through MU-0.5 trial, MU-1.0 trial, which is the latest version and it's gone through the initial cloud-based trial. And now we are planning for on-premise deployment because a lot of these medium-sized, especially the larger-sized enterprises, they can do the cloud trial, but then eventually, they will need this on-premise to actually deploy this. This is why we're moving towards this Molecular Universe in the box on-premise solution.

[Operator Instructions] The next question comes from Winnie Dong with Deutsche Bank.

I just wanted to follow up on that last question that was asked. You talked about launching 3 sub-tiers within the enterprise subscription. I was wondering if you can maybe just elaborate on that? What are they sort of looking for, what are your customers looking for? And then if you can just maybe just remind us of the other subscription options that's also bringing this recurring revenue opportunity.

Yes, so the enterprise 1, 2, 3, basically, they differ in terms of size of market database, the depth of the models used and also the knowledge and the know-how the models are trained on. For example, enterprise 1, we see that as like a PhD student level and the enterprise 2 is like the postdoc level and the enterprise 3 is a senior scientist level. And then, for example, enterprise 1, when they answer a question, they'll answer question typically less than 3 minutes and the enterprise 2 postdoc level answer question in about 5 minutes. Enterprise 3 will answer question in more than 30 minutes. But the depth and the quality and the new discoveries are much deeper. So a lot of the enterprise 1 are medium-sized companies and also some start-ups and then the larger companies. And so for enterprise 1 and 2, we offer only cloud and for enterprise 3 and even higher tier joint development, we offer a combination of cloud and also on-premise, which most of the larger companies want. And then in addition to these tiers, we can also do the joint development tier with the larger customers. That's where -- so now the cloud version Molecular Universe is trained only on SES internal data. But then for the joint development, we will actually put our Molecular Universe in the box encrypted and then also organize the users' data, the cell makers data and then after that I train all Molecular Universe in a box. And then we're helping them do something that they've always wanted to do, but they've never had the resource and then never had the capability to do that.

And then so this quarter, you saw some very meaningful revenue contribution from UZ Energy. So I was just curious if you can just maybe take a step back and help us sort of get reengage with the background of this company, where the markets are, what you think the growth could be from this business? And then maybe more broadly speaking, as you look out to the different revenue streams, so UZ Energy, Molecular Universe, you have the relationships with OEM partners for electrolyte production. Just maybe give us a sense of which channels you're most optimistic about as you head out to growth in the next 2 to 3 years?

Yes. So UZ Energy is an energy storage company and they serve mainly the behind-the-meter commercial and industrial applications. And before we acquired UZ, we actually used to supply this database machine learning model to UZ to help improve the accuracy of their BMS, battery management system in terms of predicting battery health and then end of life. And then since we acquired them, now we are adding more of these machine learning-based models, which is the predict feature in Molecular Universe, MU-1.0. We are adding that into their BMS. So when we sell these -- when UZ deploys these packs to customers around the world, a lot of the customers, for example, in Norway or Northern Europe, they complain that the packs, especially in winter are just not so accurate and the BMS just stop working. So by adding this predict, we can actually -- so each UZ pack is a box, is a Molecular Universe in the box. And then we can gather data and train the predict feature of Molecular Universe locally in the box and then make predictions about these issues before the customers can actually find out about the issues. And then -- so since we've added this predict, the amount of customer calls, their complaints actually dropped. And then we plan to continue to do that. So this application is actually really exciting. So think of each ESS pack as a Molecular Universe in a box. And then we collect the data, we do local training and we make prediction on the safety. And then I think that's a really exciting connection. So we get data and we get revenue. In terms of the overall growth of revenue of the different businesses opportunities that we mentioned, UZ this year, revenue, we expect to pull about $15 million to $20 million. And I think next year, ESS, we can at least double that. So this is one area. Another is drones. This year, we are getting our initial contracts and also a lot of the drones customers in the U.S. really want sales made outside of China. So we are making these cells in our Chungju, South Korea facility. Actually, the amount of capacity for pouch cells for drones outside of China is like super rare. It's hard to find pouch cells capacity outside of China. We have them. So we expect drones to also grow in a big way for us next year. And then EV and so for example, the joint development we had with Hyundai Motors and also Honda, we are using Molecular Universe to discover these new electrolytes. And then once we identify these electrolytes, then our plan is to use the Hisun JV to contract manufacture this and then supply. So I think next year, revenue-wise, total, we should be able to at least double, if not triple, what we did this year because of all these opportunities that are enabled by the Molecular Universe platform.

[Operator Instructions] And as we have no further audio questions, I will hand back over to Kyle for the other questions.

As in past quarters, we have received some written questions from investors and time permitting, we'll go through a selection of those questions, which have not yet been addressed on the call. So the first question that we have relates to liquidity and whether management has a view on where liquidity is expected to be at the end of 2025 and will kind of scaling up of Molecular universe or the UZ Energy integration impact the cash burn or CapEx plans?

I can cover that. So -- yes, I'll take that. So our liquidity balance is very strong. And given that we closed the UZ acquisition, also, we did some stock repurchase based on our program, we still expect to exit the year with somewhere between $195 million to $200 million of liquidity. And then the other thing I wanted to probably emphasize is we are laser-focused on funding growth. So our liquidity balance is sufficient to kind of grow our revenue from different streams that Qichao just mentioned, whether it's ESS drones or materials or SaaS from MU. So the cash balance is no longer to fund runway. We have a CapEx-light business model. So the UZ acquisition is helping us to grow revenue with positive gross margin. All of our revenue sources come in on day 1 with positive gross margin. So it's not a CapEx-heavy business. So our liquidity balance will be sufficient to fund the growth going forward.

Great. The next question relates to Molecular Universe and it goes, MU-1.0 is impressive. Can you share the road map for MU for 2026? And what other features have been requested?

Yes. So for now, MU-1.0 has been mainly focused on electrolyte materials. And then we've been requested to expand that to cover electrode process optimization and also cell design and manufacturing optimization. And then another big request from some of the major battery companies, they want their own Molecular Universe, which is quite exciting because a lot of these battery companies, they want to expand. They want to build factories overseas in different continents, and they need a battery bible, so to speak, basically put all their know-how, train this model into a portable Molecular Universe. So that is going to be a really exciting project that we'll be working on with these battery companies.

Excellent. And I think we have time for one more. So the last question is, if you could provide an update on the status on 2170 and LMA pouch cells for robotics, drones and UAM. Are you seeing good prospects for sales? Or do you see a need for scale up before promoting these more heavily?

Yes. So the pouch cells, especially for drones, we're seeing a very interesting convergence and standardization of the format in the drones industry around the 10 amp-hour pouch cells. And so that's quite exciting. And then we are converting our Chungju line, which we built both the EV line as well as the UAM line. We're converting that capacity to make this pouch cell. And so, so far, the capacity that we have meets the needs, but we're also seeing fast-growing demand, especially since it's produced in Korea. So we do see a quite exciting growth in this market.

Great. With that, I'll pass it back to the operator for closing remarks.

Thank you, everyone. This concludes today's call. Thank you for joining. You may now disconnect. Have a great rest of your day.